Opinion ID: 597120
Heading Depth: 2
Heading Rank: 1

Heading: Bankruptcy Court Opinion

Text: 18 As a preliminary matter the bankruptcy court found that Adler, as trustee, has standing to bring the adversary complaint under 11 U.S.C. § 544. The court reasoned that even though [t]he Trustee has no independent power of avoidance, but may act only upon the right of one unsecured creditor holding an allowable claim, against whom the transfer or obligation was invalid under state law, the claim of John Pico--an unsecured creditor and stockholder in Lucullus who is entitled to claim the benefit of the transfer restriction--supplies the necessary derivative standing. 19 Having found standing, the bankruptcy court considered whether the restrictions specified in the Articles of Incorporation govern the encumbrance of Lucullus stock. The court found that the stock certificate was properly legended to refer any interested party to the Articles of Incorporation for a full statement of the restrictions on the stock, as required by the Louisiana Business Corporation Law, 1 presumably considering the specific requirements of section 57(F). 2 The court correctly acknowledged that its task was to interpret Article VIII in order to determine if the pledge was prohibited and therefore void. 20 After observing that Article VIII's restriction prohibits the holder of Lucullus stock from selling, transferring, hypothecating, assigning, or in any other manner conveying the stock without first offering it to the other shareholders, the bankruptcy court expressed the opinion that [a]ll these words except 'hypothecate' indicate a change in the ownership of the stock. In progressing down what turned out to be a primrose path artfully laid out by able Civilian counsel for the Bank, the court then observed that pledge produces no change in ownership of the encumbered property, so that unless pledge and hypothecate are synonymous, Article VIII would not apply to pledge. In its next step down that path, the court relied on the interpretative rule contained in Louisiana Civil Code article 2047 which directs that words of art and technical terms must be given their technical meaning when the contract involves a technical matter, concluding that hypothecate should be given its technical meaning as a legal term of art. Turning next to Black's Law Dictionary, 5th Edition, the court--apparently without being overly impressed--found hypothecate defined as to pledge property as security or collateral for a debt. 21 After then noting that, even though both pledgors and mortgagors retain ownership of the thing encumbered, the pledgee obtains possession while the mortgagee does not, the bankruptcy court stated the following non sequitur: 22 hypothecate, then, simply means to mortgage. In the case at Bar, there is no question that the pledge was validly confected pursuant to La.C.C. Art. 3158.... Furthermore, the pledged stock has been delivered to [the Bank]. 23 Finally, and perhaps most mysteriously, the bankruptcy court--after reiterating the Louisiana jurisprudential rule that restrictions on the transfer of stock ought to be strictly construed in favor of transferability--concluded: 24 Accordingly, after strictly construing the stock restriction at issue, this Court finds that the restriction did not prevent the pledge of the stock to [the Bank]. However, if the stock is sold by [the Bank, the Bank] must first comply with Article VIII and offer the stock to the shareholders of Lucullus.