Knight v. Bank of America, N.A., No. 11-3588 (7th Cir. 2012)
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Knight was owner and CEO of Knight Industries, which owned other companies. Bank had provided credit ($34 million) to the companies, which, in 2009, filed bankruptcy petitions. Chatz was appointed trustee and was authorized to retain the Freeborn law firm. Chatz and the Bank alleged that Knight had made fraudulent transfers, had breached duties of good faith and fair dealing and duties to creditors, had misappropriated corporate opportunities, had committed conversion, and had violated securities laws, and demanded $27 million for the companies and $34 million for the Bank. In 2010 Knight filed a chapter 7 petition, listing the claims, value “unknown.” Chatz, appointed as trustee, requested representation by the Freeborn law firm, without disclosing intent to pursue the claims against Knight. The bankruptcy court approved. Later, the Bank and Chatz asked to assign the companies’ claims to the Bank. Knight objected, arguing that approval of the law firm conflicted with the companies having viable claims against Knight. The bankruptcy court overruled Knight’s objection. The district court and Seventh Circuit affirmed. Failure to disclose intent to pursue the claims did not harm Knight, and other remedies are available. It would be inequitable to permit Knight to reap huge benefits from harmless omission.
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