1

UNITED STATES BANKRUPTCY COURT

DISTRICT OF NEW HAMPSHIRE

In re

Focus Capital, Inc., Chapter 11

Debtor Case No. 12-13683

Hearing Date: January 9, 2013

Hearing Time: 10:00 a.m.

OBJECTION TO MOTION FOR RELIEF 

FROM STAY BY FRANCES STACCIA ET AL.

NOW COMES Focus Capital, Inc. (the “Debtor”), by its attorneys, The Tamposi Law Group, 

P.C., and respectfully objects to the Emergency Motion Pursuant to Section 363 of the Bankruptcy 

Code and Rule 4001 of the Federal Rules of Bankruptcy Procedure, For an Order Modifying the 

Automatic Stay to Allow Payment of a Judgment Under the Errors and Omissions Insurance Policy 

Issued to the Debtor and to Proceed with the Declaratory Judgment Litigation Against the E&O 

Insurance Carrier to Obtain Aggregate Insurance Coverage by Frances Straccia et al., (the “Stay 

Motion”) and in support hereof states as follows:

1. The Stay Motion seeks a lifting of the automatic stay to allow certain creditors of the 

Debtor (the “Movants” herein) to obtain insurance proceeds under the Debtors Errors and Omissions 

insurance provided by Twin City Fire Insurance Co. (the “E & O Policy”).

2. This case, however, represents a classic race to the courthouse where several creditors 

find themselves arguing over an E & O Policy that is not large enough to compensate all of their losses. 

Such contests as these must necessarily end at the Bankruptcy Court, which can marshal the insurance 

proceeds, along with other assets, and arrange for their distribution so as to maximize their ability to 

satisfy legitimate creditors’ claims.

Case: 12-13683-JMD Doc #: 21 Filed: 12/20/12 Desc: Main Document Page 1 of 5
2

3. The Movants were indeed the first parties to raise a claim against the Debtor through an 

arbitration proceeding before the Financial Industry Regulatory Authority (“FINRA”) where they 

obtained an award. It should be noted that there was no finding of fraud in the FINRA action and no 

damage multiplier applied to any of the claims. Although the award is unclear, it would appear that 

the arbitration panel simply found that the creditors suffered investment losses while with the Debtor 

and therefore should have been compensated.

4. Once the Movants sought to enforce their claims in the Hillsborough Court Superior 

Court, the New Hampshire Secretary of State joined the race. On or about November 28, 2012 

William Gardner, New Hampshire Secretary of State (the “Secretary”) filed a Petition for Injunctive 

Relief, TRO, Asset Freeze, and Appointment of a Receiver (the “State Petition”). A copy of the State 

Petition is attached hereto as Exhibit A. In the State Petition the Secretary identified 11 confidential 

claimants with claims in the millions of dollars and sought the appointment of a receiver to distribute

the Debtor’s assets to ensure a equality of distribution. The Secretary also stated that it continued to 

receive complaints and planned to implement some form of claims process in the Superior Court to 

deal with such claimants. Rather than watching the various competing claimants attempt to cobble 

together an awkward state court chapter 11 liquidation, the Debtor elected to seek relief from this 

Court.

5. The purpose of this case is to pay all creditors on a pro rata basis from the assets of the 

estate, which plainly include the proceeds from the E & O policy. 

The Policy

6. The E & O Policy at issue is a typical liability policy covering losses to third parties 

occasioned by the acts of the Debtor. The granting language of the E & O Policy provides that “The 

Insurer shall pay loss on behalf of the (Debtor) resulting from a claim first made against the (Debtor) 

during the policy period.” See para. i(A) of the E & O Policy, a copy of which is attached hereto as 

Case: 12-13683-JMD Doc #: 21 Filed: 12/20/12 Desc: Main Document Page 2 of 5
3

Exhibit B. Owing to a tail policy purchased by the Debtor, the deadline to make claims under the 

policy is April 30, 2013. Thus the Debtor will be able to make such claims on behalf of all general 

unsecured creditors, whose proof of claim deadline is 4/3/13.

The Law

1. Bankruptcy Code Section 541(a)(1) provides that the “estate is comprised of all of the 

following property, wherever located and by whomever held: (1) . . . all legal or equitable interests of 

the debtor in property as of the commencement of the case.” 

2. The language of § 541(a)(1) is broad enough to cover an interest in liability insurance, 

namely, the Debtor's right to have the insurance company pay money to satisfy one kind of debt --

debts accrued through, for example, the insured's negligent behavior. Tringali v. Hathaway 

Machinery Company, Inc., 796 F.2d 553, 560 (1st Cir. 1986). In fact, the First Circuit noted in 

Tringali that every court that has recently considered the specific question has held that liability 

insurance falls within the scope of § 541(a)(1). Id., citing, A.H. Robins Co. v. Piccinin, 788 F.2d

1009 (4th Cir. 1986); In re Davis, 730 F.2d 176, 184 (5th Cir. 1984); In re Forty-Eight Insulators, Inc., 

54 Bankr. 905, 907-09 (Bankr. N.D. Ill. 1985); In re J & L Transport, Inc., 47 Bankr. 51, 52 (Bankr. 

W.D. Wisc. 1985); but see, In re Fay Stocking Co., 95 F.2d 961, 962-63 (6th Cir. 

1938)(distinguishable because policy in question and state law gave creditor direct claim against 

insurer not assured).

3. The Tringali Court also noted that this judicial unanimity is not surprising because any 

contrary holding could:

“start a race to the courthouse whenever a policy is too small to satisfy several 

potential plaintiffs. Such a race could mean unfair results as between potential 

plaintiffs; it could also prevent a bankruptcy court from marshalling the insurance 

proceeds, and, along with other assets, arranging for their distribution so as to 

maximize their ability both to satisfy legitimate creditor claims and to preserve the 

debtor's estate.”

Case: 12-13683-JMD Doc #: 21 Filed: 12/20/12 Desc: Main Document Page 3 of 5
4

Tringali v. Hathaway Machinery Company, Inc., 796 F.2d at 560. Such a race to the courthouse is 

exactly the situation in the case now before the Court. The Movants are leading the race, having 

liquidated their claims, but not yet having obtained judgment; the Secretary and his claimaints are not 

far behind, having sought prejudgment relief in the state courts, which claims are now stayed. There 

also exist a whole class of creditors who have yet to file claims, but which may have legitimate claims 

against the same policy. To allow the Movants to obtain some sort of priority when their claims are 

essentially identical to the Secretary’s claims and to the yet to be filed claimants not only flies in the 

face of overwhelming legal authority cited above, but is contrary to the underlying policy of equitable 

distribution permeating the United States Bankruptcy Code.

4. The Movants also cite a number of cases for the proposition that Directors and Officers 

Policies (“D&O Policies”) are not property of the state. These cases, however, clearly show the 

distinction between and E & O policy, which covers liability of the corporation, and a D&O policy 

which covers liability of the directors and officers of the corporation. See e.g. In re Adelphia 

Communications Corp., 298 B.R. 49, 53 (S.D.N.Y. 2003)(noting the spit of authority as to whether 

proceeds from a D&O Policy is property of the bankruptcy estate); In re Allied Digital Techs., Corp., 

306 B.R. 505, 510 (Bankr. D. Del. 2004)( D&O Policy proceeds not asset of the estate where coverage 

no longer existed, all claims were adjudicated and /or barred by statute of limitations); In re: First 

Cent. Fin. Corp., 238 B.R. 9, 16 (Bankr. E.D.N.Y. 1999)(Unlike an ordinary liability insurance policy 

in which a corporate purchaser obtains primary protection from lawsuits, a corporation does not enjoy 

direct coverage under a D&O policy). 

5. The policy in question here plainly indemnifies claims against the Debtor and thus is

distinguishable from a policy designated for the benefit of non-debtor officers and directors. 

Therefore, the E& O Policy and its proceeds belong to the estate for distribution to its creditors.

6. Lastly, the Movants claim, without citing any authority that any claims made after their 

Case: 12-13683-JMD Doc #: 21 Filed: 12/20/12 Desc: Main Document Page 4 of 5
5

FINRA award are somehow “effectively subordinated to the properly noticed and now adjudicated 

Final Award.” See Stay Motion at 2d para. 16. This argument may have some merit if the policy 

reporting period was closed, but it is not. Likewise, if the Movants had obtained a judicial lien on 

either the proceeds of the E&O Policy or other property of the estate, it is conceivable that they could 

claim some sort of priority, but the estate has no assets other than the E&O Policy and no such lien 

exists. Therefore, it would appear that their claims should be allowed or disallowed under the 

constraints of 11 U.S.C. section 502 as with all other claimants, without any sort of priority.

WHEREFORE, the Debtor respectfully requests that this Court deny the Stay Motion.

Respectfully Submitted,

Focus Capital, Inc.

December 20, 2012 /s/ Peter N. Tamposi 

Peter N. Tamposi (BNH #04913) 

The Tamposi Law Group, P.C. 

159 Main St.

Nashua, NH 03060

CERTIFICATE OF SERVICE

I, Peter N. Tamposi, do hereby certify that a copy of the foregoing objection to Emergency 

Motion Pursuant to Section 363 of the Bankruptcy Code and Rule 4001 of the Federal Rules of 

Bankruptcy Procedure, For an Order Modifying the Automatic Stay to Allow Payment of a Judgment 

Under the Errors and Omissions Insurance Policy Issued to the Debtor and to Proceed with the 

Declaratory Judgment Litigation Against the E&O Insurance Carrier to Obtain Aggregate Insurance 

Coverage by Frances Straccia et al. was this day was served by ECF upon the parties of record by the 

Court’s ECF system.

Dated: December 20, 2012 /s/ Peter N. Tamposi 

Peter N. Tamposi (BNH #04913) 

Case: 12-13683-JMD Doc #: 21 Filed: 12/20/12 Desc: Main Document Page 5 of 5