Opinion ID: 3012143
Heading Depth: 2
Heading Rank: 2

Heading: Initial Bankruptcy Court Proceedings

Text: As noted, Kool Mann filed for bankruptcy protection on December 20, 1990. The filing was made in the Virgin Islands, and the proceedings were assigned to the Honorable William Gindin, U.S. Bankruptcy Court Judge, sitting by designation in the Virgin Islands. The Coffeys filed a $6 million Proof of Claim in the bankruptcy proceedings, seeking the balance of the purchase price, interest, and attorneys’ fees. In response, Kool Mann objected to the amount of the Coffeys’ claim in the Bankruptcy Court (the claim objection), and also filed a separate complaint against the Coffeys, alleging fraud, misrepresentation and set-off against any claim the Coffeys may have had against Kool Mann, including attorneys’ fees 7 and punitive damages (the adversary proceeding). Moore joined Kool Mann as a plaintiff in the adversary proceeding seeking to void his personal guaranty on the ground of fraudulent inducement. A motion for estimation of the Coffey’s Proof of Claim was filed under 11 U.S.C. S 502(c) (the Estimation Hearing).4 The object of such a proceeding is to establish the estimated value of a creditor’s claim for purposes of formulating a reorganization plan. The Bankruptcy Court conducted several days of hearings in 1992, but suspended them because of the intervening bankruptcy filing of Robert Coffey, in the Western District of Kentucky before the Honorable Wendell Roberts. Judges Roberts, Gindin and Forester conferred and agreed that the most efficacious way to proceed would be to resolve all issues (including those still unresolved in the Kentucky litigation) in one forum, before Judge Gindin. Counsel for the parties agreed, and the hearings continued before Judge Gindin in 1992. On June 9, 1993, Judge Gindin issued his findings (the June 1993 Findings). There, Judge Gindin decided that the Coffey’s ultimate claim was $26,915.78. First, he gave credence to Kool Mann’s claim that it had relied upon the fraudulent misrepresentations of the financial statements presented by the Coffeys during the negotiation of the sale of LCSDI. Crediting Kool Mann’s valuation expert, the Bankruptcy Court valued LCSDI’s true worth in 1985 absent misrepresentations at $2,549,482, roughly $2.45 million less than the negotiated purchase price. Second, the Bankruptcy Court credited Kool Mann with $236,566.22 pursuant to the Tax Savings Side Letter. Third, the Bankruptcy Court further reduced the Coffey’s claim by the number of principal payments that Kool Mann had made prior to the dispute. Finally, Judge Gindin credited Kool Mann with the debt payments (the assumed indebtedness of $1.213 million) it had made on behalf of LCSDI after the _________________________________________________________________ 4. 11 U.S.C. S 502(c) states: [t]here shall be estimated for purpose of allowance under this section . . . any contingent or unliquidated claim, the fixing or liquidation of which, as the case may be, would unduly delay the administration of the case. 8 sale. Accordingly, the Bankruptcy Court held that the Coffeys’ total claim after all the credits and deductions totaled $26,915.78. In September 1993, the Bankruptcy Court entered a declaratory judgment in the adversary proceeding on the basis of its June 1993 Findings, and released Moore from his personal guaranty as a result of the Coffeys’ fraudulent inducements.