Posted on 1 Comment

In re Ozark Restaurant Equipment Co., Inc.

Gavel-BlueAnalyze  all or a portion of In re Ozark Restaurant Equipment Co., Inc., 816 F. 2d 1222 – Court of Appeals, 8th Circuit 1987, using the Issue, Rule, Application, and Conclusion methodology in your comments below.  Remember to “Blue Book”  where appropriate.

IRAC
Author: IRAC

1 thought on “In re Ozark Restaurant Equipment Co., Inc.

  1. Facts: Ozark, Inc. filed for bankruptcy. Trustee brought an alter ego action on behalf of Ozark’s creditors against the corporate principals to disregard the corporate formality of 2 separate entities.

    Issue: Does the trustee has standing to bring an alter ego cause of action?

    Rule: §§ 704, 541 & 544 of the Bankruptcy Code.

    Application:
    In attacking the trustee’s arguments based on §§ 704, 541 & 544 of the Code, the Court stated:
    a. §§ 704 and 541 only allow the trustee to recover property of the estate, which is defined as a legal or equitable interest of the debtor. Alter ego actions are not interests of the debtor, but interests of creditors, under state law. Thus, such actions are not property of the estate and cannot be asserted by the trustee under §§ 704 and 541.

    b. The court refused to accept the argument, that since § 544 allowed the trustee to step into the shoes of the creditors, and since the alter ego action could be asserted by all creditors, then the trustee should be allowed standing. Relying on Caplin and legislative history, the court stated that:
    i. nowhere in the statute was the trustee authorized to collect money not owed to the estate;
    ii. the creditors could still assert a claim against the corporation because they would not be bound by the judgment;
    iii. Congress had proposed and rejected a provision which would have overruled Caplin and given the trustee standing in such a case – because the law was not passed, it must mean that Caplin is the correct result and that the legislature does not intend for trustees to have standing in these suits.

    Conclusion: The trustee does not have standing to assert, on behalf of the debtor corporation’s creditors, an alter ego action against the principals of the corporation. The court based its decision largely on the rule set down by the Supreme Court in Caplin v. Marine Midland Grace Trust Co., which held that the trustee did not have standing to sue an indenture trustee on behalf of bondholders.

Leave a Reply

Your email address will not be published. Required fields are marked *