Narrative Opinion Summary
In the case regarding Dreier LLP's bankruptcy, Sheila M. Gowan, as Plan Administrator, contested the proofs of claim filed by Robin Bartosh, Toby Bartosh, and Cosmetics Plus Group Ltd. The Claimants asserted a secured interest in settlement funds held by Dreier LLP, which were initially placed in an attorney trust account. However, the funds were later commingled and not traceable to specific property, leading the court to classify the Claimants as unsecured creditors. The court addressed the Claimants' requests for a constructive trust and considered an express trust created shortly before the bankruptcy filing, which could potentially be voided as a preferential transfer under Section 547(b) of the Bankruptcy Code. Gowan successfully objected to the claims under Section 502(d), which allows for the disallowance of claims when the claimant has not returned avoidable transfers. The court determined that the Claimants' rights under the Dismissal Order did not grant them superior rights to the funds, and their claims were reclassified as general unsecured claims. Consequently, the Claimants were unable to establish a constructive trust due to a lack of traceability of the funds, and their attempts to argue against the disallowance of claims under Section 502(d) were rejected.
Legal Issues Addressed
Constructive Trust Requirements under New York Lawsubscribe to see similar legal issues
Application: Claimants failed to establish a constructive trust as they could not trace their interest to specific property, a prerequisite under New York law.
Reasoning: Claimants assert they are beneficiaries of a constructive trust but fail to meet the necessary criteria.
Defensive Use of Section 502(d) and Statute of Limitationssubscribe to see similar legal issues
Application: The trustee's defensive invocation of Section 502(d) was permitted despite the expiration of the Section 546(a) statute of limitations.
Reasoning: The statute of limitations in Section 546(a) does not apply when the avoidance claim is used defensively, allowing the trustee to invoke 502(d) even if the limitations period under 546(a)(1) has expired.
Express Trust Creation and Preference Periodsubscribe to see similar legal issues
Application: An express trust was created shortly before bankruptcy, potentially voidable under 11 U.S.C. § 547(b) as it was established within the preference period.
Reasoning: However, the express trust was created shortly before the Dreier LLP chapter 11 case commenced, raising the issue of preference under 11 U.S.C. § 547(b).
Preference Avoidance under 11 U.S.C. § 547(b)subscribe to see similar legal issues
Application: The transfer of funds pursuant to a court order was deemed a voidable preference as it did not grant Claimants superior rights over other creditors.
Reasoning: They fail to demonstrate how the Dismissal Order granted them superior rights to the funds in the 5966 Account, and involuntary transfers under a court order remain subject to Section 547(b).
Reclassification of Claims under 11 U.S.C. § 502(d)subscribe to see similar legal issues
Application: Claims related to the funds were subject to disallowance and reclassification as general unsecured claims due to non-compliance with 11 U.S.C. § 502(d).
Reasoning: Claims related to these funds are subject to disallowance under 11 U.S.C. § 502(d) and must be reclassified as general unsecured claims.
Unsecured vs. Secured Creditor Status under Bankruptcy Codesubscribe to see similar legal issues
Application: The court determined that the Claimants, alleging security interests in certain funds, were at most unsecured creditors, as the funds were commingled and not traceable to specific property.
Reasoning: Following a trial on July 22, 2015, the Court determined that the Claimants are, at most, unsecured creditors.