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James A. Knight v. Bank of America

October 18, 2011


The opinion of the court was delivered by: Samuel Der-yeghiayan, District Judge


This matter is before the court on Appellant James A. Knight's (Knight) appeal from the ruling of the bankruptcy court in bankruptcy case number 10-19019. For the reasons stated below, this court affirms the bankruptcy court.


Knight was the former principal owner, Chief Executive Officer, and Chairman of the Advisory Board for Knight Industries I, L.L.C (Knight Industries), which is a holding company owning equity interests in Knight-Celotex, L.L.C. (Knight-Celotex) (collectively referred to as "Debtors") and other entities. Debtors have allegedly defaulted on $34 million in financing obligations owed to Appellee Bank of America, N.A. (BOA). Both Debtors and Knight have filed for bankruptcy.

Appellee Barry A. Chatz (Trustee) was appointed as the Chapter 7 trustee for the Debtors. In a letter dated December 29, 2009, the Trustee and BOA sent letters to Knight contending that Knight, in his capacity as an officer, director, and controlling member of Debtors, violated securities laws, engaged in fraudulent and/or preferential transfers of assets, breached his fiduciary duties, and committed other misconduct. (Letters). After receiving the Letters Knight filed for personal bankruptcy under Chapter 7 in the United States Bankruptcy Court for New Hampshire. The case was transferred to the bankruptcy court in this district. Knight scheduled the claims alleged in the Letters (D&O Claims) on his bankruptcy schedules. The bankruptcy court appointed the Trustee, who was handling the corporate bankruptcy of Debtors, to also act as trustee of Knight's personal estate.

On November 3, 2010, the Appellees filed a joint motion (Claims Assignment Motion) to obtain the bankruptcy court's approval of their agreement to allow the Trustee to assign certain claims to BOA. The Trustee contended that he possessed certain claims, including claims against Knight. Knight filed an objection to the Claims Assignment Motion, arguing that the Trustee had previously indicated that he had no claims against Knight. Knight further argued that the motion should be denied based on the doctrine of judicial estoppel.

Knight argued that earlier in his personal bankruptcy proceedings, the Trustee sought approval from the bankruptcy court to retain the law firm of Freeborn & Peters LLP (F&P). Knight contended that as part of F&P's retention in Knight's personal bankruptcy proceedings, F&P indicated in a statement and supplemental statement that it had no claim against any of the parties in the bankruptcy proceedings. Knight argued that such a statement by F&P also meant that the Trustee had no claims against Knight. Knight argued that the Trustee could not assign claims to BOA because the Trustee, through F&P, had already represented that it had no claims against Knight. On January 26, 2011, the bankruptcy court granted the Claims Assignment Motion. Knight appeals the bankruptcy court's ruling on the Claims Assignment Motion.


A federal district court has jurisdiction, pursuant to 28 U.S.C. § 158, to hear appeals from the rulings of a bankruptcy court. 28 U.S.C. § 158. On appeal, the district court reviews the factual findings of the bankruptcy court under the clearly erroneous standard and reviews the bankruptcy court's legal findings under the de novo standard. Wiese v. Community Bank of Cent. Wis., 552 F.3d 584, 588 (7th Cir. 2009)(stating that the court "review[s] the bankruptcy court's determinations of law de novo and findings of fact for clear error," but "where the bankruptcy code commits a decision to the discretion of the bankruptcy court, we review that decision only for an abuse of discretion"); see also In re A-1 Paving and Contracting, Inc., 116 F.3d 242, 243 (7th Cir. 1997)(stating that a "bankruptcy court's findings of fact are upheld unless clearly erroneous and the legal conclusions are reviewed de novo"). Where there are mixed questions of law and fact, the district court conducts a de novo review. Freeland v. Enodis Corp., 540 F.3d 721, 729 (7th Cir. 2008).


Knight argues that the bankruptcy court erred, contending that the court applied the wrong legal standard. Knight also argues that the bankruptcy court erred by concluding that the Trustee was not judicially estopped from asserting any claims against Knight.

I. Use of Proper Legal Standard

Knight contends that the bankruptcy court judge abused her discretion by relying on the wrong legal standard. Knight contends that the bankruptcy judge erred: (1) by relying on irrelevant factors, (2) by concluding that the trustee was not bound by the doctrine of judicial estoppel, and (3) by refusing to address the issue of disinterestedness. A court has not abused its discretion unless: "(1) the record contains no evidence upon which the court could have rationally based its decision;

(2) the decision is based on an erroneous conclusion of law; (3) the decision is based on clearly erroneous factual findings; or (4) the decision clearly appears arbitrary." Gile v. ...

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