In re American Lumber Co.
United States Bankruptcy Court for the District of Minnesota
7 B.R. 519 (1979)
- Written by Heather Whittemore, JD
Facts
American Lumber Co. (American) (plaintiff) was a business that purchased lumber wholesale and sold it to builders. First National Bank of St. Paul (the bank) (defendant) loaned American $100,000 and took a security interest in American’s accounts receivable. American continued experiencing financial problems, and the bank took an additional security interest in its inventory and equipment. Eventually, the bank took control over American’s accounts receivable, inventory, and equipment and began liquidating American. The bank made financial decisions that solely benefited its interests. At the same time, the bank refused to pay American’s unsecured creditors and lied about American’s financial prospects. An involuntary petition in bankruptcy was filed against American. The bank filed its claim against American in bankruptcy court and sold all of American’s equipment and inventory, applying the proceeds to American’s debt to the bank. The bank’s actions allowed it to receive a higher proportion of American’s debt to the bank than other creditors were able to receive through the bankruptcy proceedings. American and the bankruptcy trustee filed an action against the bank, arguing that the bank abused its control over American and that the bank’s claims should be subordinated below the claims of American’s other creditors.
Rule of Law
Issue
Holding and Reasoning (Owens, J.)
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