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ABCD Holdings, LLC v. Hannon

Superior Court of Massachusetts, Suffolk, Business Litigation Session

June 6, 2017

ABCD Holdings, LLC
v.
Patrick J. Hannon et al. [1] No. 137198

          MEMORANDUM AND ORDER DENYING MOTION TO DISMISS COUNTERCLAIMS AND THIRD-PARTY CLAIMS

          Kenneth W. Salinger, Justice of the Superior Court.

         Plaintiff ABCD Holdings, LLC, (" Holdings") has sued Patrick J. Hannon in part to enforce Hannon's personal guaranty of one-half of the amount that Holdings loaned to Ware Real Estate, LLC (" Ware") and ABC& D Recycling, Inc. (" Recycling"). Holdings claims that Hannon is liable under his limited guaranty to repay $109, 879.50 (half the original loan amount) plus reasonable collection costs.

         In response, Hannon has asserted various counterclaims and third-party claims alleging, in essence, that George McLaughlin deliberately prevented Ware and Recycling from repaying what they owed under their note by using Holdings to take control of Ware and Recycling and then transferring their assets and business operatings to a new entity called Tri County Recycling, Inc. (" Tri County").

         The parties sued by Hannon--i.e., McLaughlin, Holdings, Ware, Recycling, and Tri County--have moved to dismiss Hannon's claims. They claim that Hannon's claims are all barred by a release executed by the Chapter 7 trustee of Hannon's bankruptcy estate. In addition, Tri County asserts that the allegations against it do not state viable claims even if the claims were not barred by the release.

         The Court concludes that these arguments are without merit. It will therefore DENY the motion to dismiss Hannon's counterclaims and third-party claims.

         1. Settlement Agreement and Release

         Hannon filed a petition under Chapter 11 of the United States Bankruptcy Code on May 3, 2012. That bankruptcy case was converted to a Chapter 7 or liquidation proceeding on January 2, 2013. The bankruptcy trustee sued Bright Horizon, LLC (" Bright Horizon") and The McLaughlin Brothers, P.C. (" McLaughlin Bros.") to recover various payments Hannon had made to them.

         In May 2015 the bankruptcy trustee entered into a settlement agreement in which George McLaughlin, Bright Horizon, and McLaughlin Bros. agreed to pay the bankruptcy estate $45, 000. In exchange, the trustee released all claims " whether known or unknown" that the estate or Hannon may have against George McLaughlin, Bright Horizon, McLaughlin Bros., or " any entity owned by any of" them. The settlement agreement states that it is releasing such claims " to the Trustee's full authority to waive such claims."

         McLaughlin asserts that he owns Holdings, Recycling, Ware, and Tri County, and that the release executed by the bankruptcy trustee therefore bars all of Hannon's counterclaims and third-party claims in this action. The Court disagrees.

         Hannon's claims in this action all arise at least in part from alleged acts by McLaughlin and his companies that occurred after Hannon's bankruptcy petition was converted to a Chapter 7 proceeding in January 2013. Hannon alleges in his pleading that McLaughlin has been in full control of Recycling and Ware " since February 6, 2013, " and that since that time McLaughlin has taken steps to ensure that neither Recycling nor Ware has repaid any part of the loan to Holdings. He further alleges that Tri County was incorporated in May 2014, and that around that time McLaughlin terminated the business operations of Recycling and Ware and shifted those operations to Tri County.

         Hannon correctly argues that the bankruptcy trustee had no power to release claims that were never part of the bankruptcy estate. See In re Ontos, 478 F.3d 427, 431 (1st Cir. 2007). " It is axiomatic that a Chapter 7 trustee may only release claims that he has the power to assert." In re Pierport Dev. & Realty, Inc., 502 B.R. 819, 825 (Bankr.N.D.Ill. 2013), quoting In re Cent. Ill. Energy, LLC, 406 B.R. 371, 373-74 (Bankr.C.D.Ill. 2008).

         McLaughlin and the other moving parties respond by pointing out that Hannon's bankruptcy estate included not only all claims belonging to Hannon as of May 3, 2012, when he first filed for bankruptcy, but also all other claims arising up until the time when the bankruptcy case was converted to a Chapter 7 proceeding, which occurred on January 3, 2012. See 11 U.S.C. § 1115(a)(1) (property of bankruptcy estate includes " all property of the kind specified in section 541 that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted to a chase under chapter 7, 12, or 13, whichever occurs first"); 11 U.S.C. § 541(a)(1) (bankruptcy estate includes " all legal or equitable interests of the debtor in property as of the commencement of the [bankruptcy] case"); Cole v. Pulley, 18 Mass.App.Ct. 950, 951, 468 N.E.2d 652 (1984) (rescript) (for purposes of § 541(a)(1), " property" includes " all interests of the debtor in rights of action" (quoting 4 Collier, Bankruptcy par. 541.10[1] (1983)).

         As noted above, however, Hannon's counterclaims and third-party claims are based in large part upon alleged acts or omissions by McLaughlin and his companies that occurred after Hannon's bankruptcy case was converted to a Chapter 7 proceeding.

         As a result, Hannon's claims in this action were never part of his bankruptcy estate, and therefore could not be and ...


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