In a 21 page decision released April 15, 2016, Judge Sontchi of the Delaware Bankruptcy Court ruled on summary judgment regarding a claim submitted by attorneys related to previous litigation.  Judge Sontchi’s opinion is available here (the “Opinion”).  The Opinion was issued in Devonshire PGA Holdings LLC, Case No. 13-12460.  In this case, Potter Anderson & Corroon represented the Debtors in litigation in the Chancery Court prior to the Debtors’ bankruptcy filing.  Prior to the conclusion of the litigation, the Debtors filed for bankruptcy protection, just six days prior to the voluntary dismissal of the Chancery litigation.  Opinion at *8-9.

The following day, the Debtors and the other parties to the Chancery litigation entered into a settlement agreement.  The settlement agreement was approved by the Bankruptcy Court one month later.  The Debtors’ cases were administratively consolidated and their schedules were filed less than a week later.  In their filings, the Debtors listed Potter Anderson as a creditor holding a non-disputed claim for $225 thousand.  The Debtors’ plan was confirmed later that year, December 2013.  On March 14, 2014, the Debtors amended their schedule to list Potter’s claim as disputed.  Opinion at *9.  Potter filed a claim, to which the Debtors objected and regarding which the Debtors filed a motion for summary judgment.

The Debtors presented four alternate theories for why Potter should not recover on account of its claim.  However, Judge Sontchi takes 10 pages of the Opinion to explain why each and every theory advanced by the Debtors fails.  Ultimately, Judge Sontchi held that ELP did not show that any applicable law renders Potter’s claims unenforceable and the Court must therefor deny the request for summary judgment.  Opinion at *21.

It will be interesting to see if this issue goes to trial, and whether there will be any impact in the Debtors’ having reported these claims as allowed in their Schedules.  Regardless of how the other legal issues play out, it seems that such an admission would greatly inhibit their argument that the claims should now be disallowed.  It also makes me wonder how the treatment of Potter’s claim may have affected the voting on the Plan.