Opinion ID: 3012143
Heading Depth: 2
Heading Rank: 3

Heading: First Appeal to the District Court

Text: The Coffeys appealed to the District Court of the Virgin Islands. In an Opinion dated July 17, 1995 (theJuly 1995 Opinion), the Honorable John Fullam, United States District Court Judge, sitting by designation from the Eastern District of Pennsylvania, reversed the Bankruptcy Court and remanded the case to that court for further proceedings. Noting that an Estimation Hearing has no legal effect other than establishing the approximate amount of the claim that will be recognized in a reorganization, Judge Fullam held that inadequate notice had been afforded to the Coffeys that the results of the Estimation Hearing would also be binding in the adversary proceeding. Accordingly, the case was remanded to the Bankruptcy Court for a reestimation of the Coffeys’ claim and a trial of the adversary complaint on its merits. However, Judge Fullam did not stop there. He noted that [i]nasmuch as further proceedings will be required in any event, it is appropriate to address what appear to be significant errors in the bankruptcy judge’s analysis. In re Kool, Mann, No. 390-00017, slip op. at 7 (D.V.I. Jul. 17, 1995). Judge Fullam stated that the Bankruptcy Court did not adequately consider the effect of the time pressure on the parties’ negotiations, and that the Bankruptcy Court had put too much emphasis on the fact that the senior Coffey was an accountant. He also cautioned that the Bankruptcy Court paid too little attention to the findings made by Judge Forester in Kentucky and the views expressed by the Sixth Circuit. A more serious error, according to Judge Fullam, was the complete absence of a causal relationship between the 9 alleged fraudulent misrepresentations and inaccurate financial records, on the one hand, and damage to the debtor on the other. Id. at 9. He expressed concern about the methodology used by Kool Mann’s expert because it was based upon hypothetical cash flow projections bearing little or no relationship to the actual facts pertaining to this particular business. Id. at 10. The court therefore concluded that [o]n this record, the evidence is insufficient to establish the amount of damages attributable to the Coffey’s misrepresentations. Id. at 10-11. Moreover, Judge Fullam noted that the Bankruptcy Court should not have credited Kool Mann with the assumed indebtedness and that Kool Mann was not entitled to the Tax Savings credit because the Tax Savings Side Letter contemplated that the credit would occur only when the Coffeys first realized their tax saving. Since the debtor has not yet paid the purchase price, there has been no tax saving, and the debtor is not yet entitled to the credit. Id. at 12.