Newton v. Barth

AmerLink, Ltd. was a business owned by John M. Barth, Jr. (Junior) and John M. Barth (Senior) (defendants). After Junior and Senior obtained the company, Junior went to extensive lengths to conceal evidence of financial troubles from AmerLink’s customers, vendors, and suppliers. He began falsifying financial information and delivery reports and directed salespeople to encourage customers to enter new contracts and send funds to AmerLink. After AmerLink filed for bankruptcy protection, the bankruptcy trustee filed an adversary proceeding over an employee stock option that Junior and Senior had used as a cash grab. That matter was settled. Two class-actions groups consisting of customers of AmerLink (the Newton plaintiffs) and vendors and suppliers of AmerLink (the Diorio plaintiffs) (plaintiffs) had class-action suits consolidated against Junior and Senior for fraud, unfair and deceptive trade practices, civil conspiracy, and punitive damages. The trial court heard Junior and Senior’s motion to dismiss the complaints due to lack of standing. The trial court granted that motion, and the Newton and Diorio plaintiffs appealed. Junior and Senior argued that the injuries claimed were injuries to AmerLink and were shared by all creditors and belonged to the bankruptcy trustee. 11 U.S.C. § 541(a) authorized the bankruptcy trustee to bring suit for claims that could be maintained by the corporation against other parties and to avoid or recover fraudulent conveyances for the benefit of all creditors. However, prior caselaw indicated that an individual action could proceed against a third party if the creditor could demonstrate a special duty or a distinct and personal harm to the creditor itself. The Newton and Diorio plaintiffs argued that the claims against Junior and Senior in their individual capacities had not been litigated in the adversary proceeding and were not the property of the AmerLink bankruptcy estate but belonged to the respective plaintiffs and were distinct and personal from corporate harm.