Appeal by creditors' committee of debtor in possession under Bankruptcy Code chapter 11 from denial by United States District Court for the District of Vermont, Franklin S. Billings, Jr., Judge, of leave to sue probate estate of sole stockholder of debtor or his wife/director individually, for, inter alia, alleged waste, fraudulent or preferential transfers, and mismanagement. Affirmed as to probate estate; reversed and remanded for further findings as to wife/director.
Before: OAKES, NEWMAN, and MINER, Circuit Judges.
An unsecured creditors' committee of a debtor in possession under chapter 11 of the Bankruptcy Code appeals from a judgment of the district court denying the committee's motion for leave to commence an action. The committee sought leave from the United States District Court for the District of Vermont, Franklin S. Billings, Jr., Judge, to commence an action against janice Noyes individually and as administratrix of the estate of her husband, Stephen T. Noyes. The husband was the sole stockholder, president, and one of the two directors of STN Enterprises, Inc. (STN), the corporate debtor in possession, from the date of its incorporation until his death. Mrs. Noyes was the other director (a substitute for her late husband was duly elected) and is the corporate secretary. We reverse and remand insofar as the denial of leave to commence an action against Mrs. Noyes individually is concerned, but affirm as to the denial of leave to sue the husband's estate.
STN, a dealer in antique arms, was incorporated under Vermont law on August 6, 1982, and the articles named Mr. and Mrs. Noyes the initial directors. STN held its organizational meeting on September 1, 1982, at which time Mr.. and Mrs. Noyes constituted themselves as president and secretary, respectively. Mr. Noyes died on May 5, 1984, and on May 29, 1984, the corporation filed a petition for reorganization under chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 1101-1174 (1982 & Supp. II 1984). The assets of the corporation were estimated to be about $4 million and the liabilities $14 million. No plan of reorganization has been filed, nor has any trustee been appointed. Sales of most of the assets have been made with bankruptcy court approval under 11 U.S.C. § 363(b) (1982 & Supp. II 1984). Mr. Noyes's estate now is the sole STN stockholder and Mrs. Noyes is administratrix of the probate estate.
While we may not be required as a matter of law to view the creditors' committee motion and supporting papers in the most favorable light, it is appropriate to do so because of the sketchy record in this case. Viewing the allegations of the motion and papers in this fashion, we find the creditors' committee claims are based on the following facts:
1. From October 8, 1982, to May 2, 1984, Stephen T. Noyes negotiated between $1.6 million and $2.1 million in checks on the STN account made out to "Cash," the use of which funds remains unaccounted for;
2. During the year prior to Stephen T. Noyes's death he took $250,000 in salary from the corporation and his wife, at least for tax purposes, was credited with $30,000 in salary;
3. For all or a greater portion of this time, the precise time being unknown, the corporation was insolvent;
4. During the same period of time the Noyes' home property, owned by them as a tenancy by the entirety, was increased in value, presumably from the funds mentioned in Paragraphs 1 or 2 above, by way of installation of an electrical burglar alarm system and a swimming pool, and construction of a "plush" showroom and an office;
5. Presumably also from the funds mentioned in Paragraphs 1 and 2 above, Stephen Noyes bought life insurance in the amount of several hundred thousand dollars on his life, the beneficiary of which was his wife or a trust or trusts for her benefit; and
6. Again presumably from the aforementioned funds, a $70,000 debt to Mrs. Noyes's father was repaid in the year preceding the bankruptcy filing.
On the basis of these allegations the committee makes the following three legal claims:
1. Against Stephen Noyes and hence his estate for wasting corporate assets or making or causing to be made fraudulent or ...