In re Daig Corp.

Daig Corporation (debtor) filed for Chapter 11 bankruptcy. The United States bankruptcy trustee appointed INCO Electro Energy Corporation (INCO) (creditor) and Lake Region Manufacturing Company (Lake Region) (creditor) to Daig’s creditors’ committee. INCO held an unsecured claim against DAIG that was worth more than all other secured and unsecured claims combined. Lake Region held the largest claim of any of Daig’s suppliers. After appointing Lake Region to the committee, the trustee discovered that Lake Region’s representative on the committee and principal operating officer, Joseph Fleischacker, was the father of Daig’s chairman. The trustee removed Lake Region from the committee based on Fleischacker’s personal, insider relationship with Daig. Daig filed a motion asking the bankruptcy court to restore Lake Region to the committee, asserting that Lake Region’s presence on the committee was important because Lake Region could help Daig deal with other supplying creditors. Daig asserted that another Lake Region representative, such as Lake Region’s counsel, could take Fleischacker’s place as representative to the committee. Daig’s motion also asked the bankruptcy court to remove INCO from the committee because Daig disputed INCO’s claim and because the size and nature of the claim—a stock purchase from INCO—warranted negotiating separately with INCO. Daig asserted that INCO had different interests from Daig’s other unsecured creditors, but there was no indication that INCO’s interests actually diverged from the interests of other general unsecured claimants.