Blawgletter likes to gripe about judicial opinions that sacrifice coherence on the altar of (attempts at) judicial cleverness. Our preference runs to introductory paragraphs that give the reader a quick roadmap to the issues and holdings.
Today the Second Circuit made us happy. It summarized a complex 60-page decision thus:
In August 1994, CBI Holding Company, Inc. and all but one of its subsidiaries (collectively, “CBI”) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. Ernst & Young and Ernst & Young LLP (together, “E&Y”), the pre-bankruptcy accountants for CBI and Defendants-Appellees in this action, filed a Proof of Claim against CBI in those proceedings for allegedly unpaid auditing and consulting services. On August 23, 1995, the United States Bankruptcy Court for the Southern District of New York (Lifland, J.) confirmed a Plan of Reorganization (“the Plan”) and appointed Bankruptcy Services, Inc. (“BSI”), the Plaintiff-Appellant in this action, the disbursing agent of the Plan. On October 16, 1996, BSI filed a complaint in the bankruptcy court, followed by an amended report on October 26 25, 1996, pressing seven claims against E&Y concerning the professional services E&Y rendered to CBI from 1992 to 1994. BSI brought each of the seven claims as the successor to the claims of CBI under the Plan (collectively, “the CBI claims”). Pursuant to a settlement contained in the Plan, BSI also brought four of these claims as the assignee of the claims that Trust Company of the West (“TCW”) acquired as a pre-bankruptcy creditor of CBI (collectively, “the TCW claims”). Finally, BSI also brought one claim – for expungement of E&Y’s Proof of Claim – as the assignee of an objection to E&Y’s Proof of Claim filed by the Official Unsecured Creditors’ Committee (“Creditors’ Committee”). On April 5, 2000, the bankruptcy court granted judgment for BSI on six of its seven claims, see Bankr. Servs., Inc. v. Ernst & Young (In re CBI Holding Co.), (“CBI I” or “Bankruptcy Opinion”), 247 B.R. 341 (Bankr. S.D.N.Y. 2000), and later awarded BSI approximately $70 million in damages. In two orders entered on June 30, 2004, see Ernst & Young v. Bankr. Servs., Inc. (In re CBI Holding Co.) (“CBI II” or “June Order”), 311 B.R. 350 (S.D.N.Y. 2004), and October 25, 2004, see Ernst & Young v. Bankr. Servs., Inc. (In re 10 CBI Holding Co.) (“CBI III” or “October Order”), 318 B.R. 761 (S.D.N.Y. 2004), the District Court for the Southern District of New York (Wood, J.)1 vacated the judgment of the bankruptcy court, and directed judgment in E&Y’s favor, on the grounds that: (1) the fraudulent acts of CBI’s management must be imputed to the company itself, thereby depriving BSI of standing to press the CBI claims; and (2) BSI lacks standing to assert the TCW claims under Barnes v. Schatzkin, 215 A.D. 10 (1st Dep’t 1925). BSI appeals from each of these grounds. We agree and reverse.
We hold that BSI has standing to assert the CBI claims under the so-called “adverse interest” exception to the normal rule that a claim against a third party for defrauding a corporation with the cooperation of its management accrues to creditors rather than to the guilty corporation. The bankruptcy court’s finding that CBI’s management “was acting for its own interest and not that of CBI” is not clearly erroneous and constitutes the “total abandonment” of a corporation’s interests necessary to satisfy the adverse interest exception. We also hold that BSI has standing to assert the TCW claims because revisions to the bankruptcy laws have undermined the rationale of Barnes for the reasons set forth in Semi-Tech Litigation, L.L.C. v. Ting, 13 A.D.3d 185 (1st Dep’t 2004).
Because we reverse, we must reach the two arguments that E&Y raises in its cross-appeal: (1) BSI’s claims are not “core proceedings” that may be adjudicated by a bankruptcy judge; and (2) E&Y is entitled to a jury trial on all of BSI’s claims. We reject both argumentsWe hold that all of the claims pressed by BSI – both the CBI claims and the TCW claims – are “core proceedings,” because they are covered by the language of 28 U.S.C. § 157(b) and are integrally related to the Proof of Claim that E&Y voluntarily submitted against the estate. Similarly, we hold that while both parties now agree that E&Y is entitled to a jury trial on the TCW claims, E&Y waived its right to a jury trial on the CBI claims when it submitted its Proof of Claim against the estate and subjected itself to the equitable powers of the bankruptcy court. Moreover, under the rule announced by the Supreme Court in Katchen v. Landy, 382 U.S. 323 (1966), there is no need to vacate the portions of the bankruptcy court’s judgment which relate to the CBI claims merely because the portions of the judgment which relate to the TCW claims have been vacated to allow for a jury trial.
Bankruptcy Services, Inc. v. Ernst & Young (In re CBI Holding Co., Inc.), Nos. 04-5972-bk(L) & 04-6300-bk(XAP) (2d Cir. June 16, 2008).