Publication Date

Fall 2022

Journal

American Bankruptcy Law Journal

Abstract

Courts have struggled toward a unified theory to explain when the trustee has exclusive jurisdiction to sue a third party for harms done to a bankrupt debtor, and when creditors have exclusive jurisdiction to sue the third party. Courts have proclaimed that when every creditor can sue the third party, then none of them can, and the right belongs solely to the trustee. Creditor rights are “generalized.” If only a proper subset of creditors can sue the third party, then the trustee is not able to subrogate to the subset. Such creditors are “particularized.” This paper proclaims the test a failure. It announces the result rather than producing it. There are no generalized creditor rights or particularized creditor rights. There are only creditor rights and causes of action that are property of the estate. As for creditor rights, the trustee is subrogated to fraudulent transfer avoidance rights under Bankruptcy Code § 544(b)(1). Otherwise, the trustee is not subrogated. “Piercing the corporate veil” is not a generalized creditor right and not a cause of action at all. It is the assertion that two persons are the same person. If the corporate veil can be pierced, property of the apparent third person is actually property of the bankruptcy estate. For this reason, the trustee has control and the creditors are kept at bay by bankruptcy’s “automatic stay.” The article defends the recent settlement with the Sackler family in the historic Purdue Pharmacy opioid bankruptcy as entirely within the province of the bankruptcy estate.

Volume

96

First Page

505

Publisher

National Conference of Bankruptcy Judges

Keywords

trustee, generalized creditors, particularized creditors, bankruptcy, creditor rights

Disciplines

Bankruptcy Law | Estates and Trusts | Law | Property Law and Real Estate

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