In Re: Transcare Corporation

Background

This bankruptcy appeal concerns an adversary proceeding brought by Salvatore LaMonica, the Chapter 7 trustee of the jointly administered estates of TransCare Corporation and related debtors, against Lynn Tilton and Patriarch Partners Agency Services, LLC (PPAS), an entity controlled by Tilton.

In an earlier round of the case, the bankruptcy court and district court ruled for the trustee on a fraudulent-transfer claim against PPAS and a breach-of-fiduciary-duty claim against Tilton. The Second Circuit affirmed those judgments but held that the trustee was limited to one recovery because the claims addressed the same injury. The trustee later collected approximately $51.8 million, including interest, from Tilton’s judgment.

The trustee then sought attorney’s fees from PPAS under New York Debtor and Creditor Law § 276-a, which permits fees in certain actual-fraudulent-transfer cases. The bankruptcy court granted the fee motion but reduced the requested amount by 40%, finding that the submitted time records were vague and sloppy. The bankruptcy court also ruled that the single-satisfaction rule did not bar the fee award because the recovery from Tilton did not include payment of a separate attorney’s-fee award against PPAS.

Issue on appeal

PPAS appealed the fee ruling and asked the district court to certify a direct appeal to the Second Circuit under 28 U.S.C. § 158(d)(2). PPAS presented this question: whether the single-satisfaction rule prevents a Chapter 7 trustee from recovering attorney’s fees on a fraudulent-transfer award against PPAS when the trustee has already obtained complete satisfaction from Tilton for another claim arising from the same transfer, and that recovery exceeds PPAS’s total award, including fees.

Section 550(d) of the Bankruptcy Code provides that a trustee is entitled to only one satisfaction when recovering property or its value after a transfer is avoided. The district court concluded that there was no controlling decision from the Second Circuit or the Supreme Court resolving how that rule applies to a separate statutory fee award against an affiliated defendant. The relevant facts were undisputed, and the parties agreed that resolving the legal question would dispose of the only remaining issue in the appeal.

Ruling

Judge Paul A. Engelmayer granted PPAS’s motion to certify for direct appeal under 28 U.S.C. § 158(d)(2). The court certified that the bankruptcy court’s order involved a question of law for which there was no controlling decision from the Second Circuit or the Supreme Court. The court noted that the Second Circuit might use a somewhat differently worded version of the question, but found that PPAS’s proposed question adequately presented the issue.

The court did not decide whether the single-satisfaction rule ultimately bars the attorney’s-fee award. It directed the Clerk to transmit the decision to the Second Circuit, terminate all pending motions, and place the case on the suspense docket pending the appeal. In light of the certification, the court also voided the district-court briefing schedule. If the Second Circuit denies PPAS’s petition, the parties must notify the district court, which will set a new briefing schedule.