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First Nat'l Bank of Omaha v. James Killip, Ch. 7 Trustee (In re Earl Brice Equip., LLC), Ch. 7, BK04-84283, A05-8060 (June 28, 2006)

The court granted the plaintiff’s motion to dismiss an amended complaint in intervention for lack of standing. The debtor, Earl Brice Equipment, leased heavy equipment to a related company, M & S Grading, that also was in bankruptcy. During the pendency of the bankruptcy cases, M & S made adequate protection payments to creditors holding liens on the equipment of Earl Brice Equipment. Eventually, both debtors ceased operations and the equipment was sold. One of the lienholders filed this adversary proceeding to determine the extent and validity of competing liens in the proceeds.

 The intervenors were the union benefit plans of M & S employees (“the Plans”). The Plans pursued claims in the M & S case for benefit plan contributions that were withheld from employees’ paychecks but not delivered to the Plans. The Plans intervened in the adversary proceeding and claimed an interest in the proceeds of the equipment sale on the theory that a statutory trust was created for the benefit of the M & S employees and the Plans when M & S withheld funds from the employees’ paychecks.

The court ruled the intervenors lacked legal standing in the adversary because they had not shown “a recognized interest in the subject matter of the litigation that might be impaired by the disposition of the case and will not be adequately protected by the existing parties.” An economic stake was not enough to constitute a legally protectable interest. In addition, the intervenors did not establish a nexus between the funds withheld by M & S and the proceeds in which the Plans were claiming an interest.

Wednesday, June 28, 2006
Judge Timothy J. Mahoney (Retired)