estate. Therefore, the doctrine of
in pari delicto applied to deny the
trustee standing because “the debtor’s
management had been a participant
in wrongful activity.” In re Hampton
Hotels Investors, L.P., 289 B.R. at 576.
The Wagoner rule has an important
exception known as the adverse
interest exception, which provides
that “management misconduct will
not be imputed to the corporation if
the [corporate] officer acted entirely in
his own interests and adversely to the
interests of the corporation.” Id. In other
words, the adverse interest exception
would apply if the officer is said to be
acting for his own benefit rather than
that of the corporation. Accordingly, the
corporation would have standing to sue a
third party that damaged the corporation.
Key concepts of standing and the
Wagoner rule have been front and
center in the SSTAI litigation. SSTAI had
served as a third-party administrator
in situations resulting from lawsuits
brought by seriously injured persons
that were settled, resulting in the
establishment of trusts to provide
payments to those who were injured.
SSTAI was the so-called assignment
company that made the settlement
payments to the beneficiaries. Under
the structured settlements, tortfeasors
or their insurers assigned the obligation
to make the settlements to SSTAI
with the payees’ consent. Typically
in such structured settlements, U.S.
treasury bonds and/or annuities
are bought to generate income
over time to pay the obligations.
In 2002, the debtor and the unsecured
creditors’ committee stipulated that the
committee could bring an adversary
proceeding to recover transfers made
as part of the LBO. Certain defendants
challenged the committee’s standing to
claims, but the Bankruptcy Court
rejected their arguments, holding that,
under Second Circuit precedent, the
committee had “derivative standing” to
bring estate claims when a debtor in
possession was reluctant to do so. Official
Committee of Unsecured Creditors v.
Pardee (In re Stanwich Fin. Servs. Corp.),
2881 B.R. 24, 27 (Bankr. D. Conn. 2002).
In 2003, the committee sought to
amend the initial complaint to add new
claims, but the Bankruptcy Court, citing
the Wagoner rule, denied the request
to assert certain claims on behalf of
the estate because the debtor arguably
had participated in the fraud. Stanwich,
317 B.R. 224 (Bankr. D. Conn. 2004).
In 2005, the litigating agent moved to
amend the complaint again, this time
to add factual details about the fraud.
An appeal in the case, however, delayed
the Bankruptcy Court’s consideration
of that motion for five years.
Finally, in April 2011, the Bankruptcy
Court ruled that the liquidating agent did
not have standing to assert fraudulent
transfer claims against the debtor’s
former law firm and investment bank,
again citing management’s involvement
in the fraud and the Wagoner rule. Judge
Alan H.S. Shiff concluded that although
the complaint deleted the words “aiding
and abetting,” the fraudulent transfer
action was based on allegations that
the law firm and investment bank had
“assist[ed] or effectuate[d]” the LBO.
Stanwich, Case No. 01-50831, Adv. Pro.
No 02-5023, 2011 Bankr. LEXIS 1259,
at 7 (Bankr. D. Conn. Apr. 7, 2011).
The liquidating agent moved for
reconsideration, but the Bankruptcy
Court denied that motion in September
2011. Stanwich, Case No. 01-50831, Adv.
Pro. No. 02-5023, 2011 Bankr. LEXIS
3785 (Bankr. D. Conn. Sept. 30, 2011).
The liquidating agent then appealed to
the U.S. District Court, and that court
reversed with respect to the fraudulent
transfer claims asserted against the
law firm and the investment bank.
Stanwich, 488 B.R. 829 (D. Conn. 2013).
The Bankruptcy Code
specifically affords a trustee
standing to assert both
state law and federal law
fraudulent transfer claims
under Sections 544 and 548,
respectively. Section 544
permits a trustee to avoid a
“transfer of property of the
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