Harriet & Henderson Yarns v. Castle

75 F. Supp. 2d 818 (1999)

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Harriet & Henderson Yarns v. Castle

United States District Court for the Western District of Tennessee
75 F. Supp. 2d 818 (1999)

Facts

Two textile companies were in financial distress. In an effort to save their respective businesses, the two companies consolidated into a new corporation, Star Hosiery, Inc. (Star). Renee Castle (defendant) was the lawyer who represented Star in its formation. The two textile companies also used Star to restructure their substantial debts. The companies consolidated their debt to their trade creditors (plaintiffs) and converted the debt into convertible debenture notes. Under the indenture agreement governing the notes, the notes would be secured by a lien on Star’s assets. The creditors agreed to the restructuring, and Castle was appointed as an indenture trustee. However, Castle never filed the necessary filing statements to perfect the creditors’ security interest. The indenture agreement did not specifically define perfection of the security interest as one of Castle’s duties. Star later went into bankruptcy. The trade creditors received less in the bankruptcy proceedings than they would have had Castle properly perfected their security interest. The creditors sued Castle, claiming that as the indenture trustee, she had a duty to perfect their security interest. Both sides filed for summary judgment.

Rule of Law

Issue

Holding and Reasoning (Donald, J.)

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