69 N.Y.2d 191 (1987)
A debtor-in-possession in a Chapter XI bankruptcy proceeding has a duty to disclose all known or knowable claims in its schedules of assets, and failure to do so precludes the debtor from pursuing those claims individually after the bankruptcy proceeding concludes, unless the claims were properly “dealt with” or abandoned during the bankruptcy.
Summary
Dynamics Corporation of America (DCA) sued Marine Midland Bank (Marine) for damages, alleging misconduct that led to DCA’s bankruptcy. DCA had previously undergone a Chapter XI bankruptcy proceeding where it didn’t disclose these claims against Marine. The court held that because DCA failed to list these claims as assets in its bankruptcy schedules, it could not pursue them individually after the bankruptcy concluded. The court reasoned that a debtor-in-possession has a duty to disclose all potential claims so they can be administered for the benefit of creditors.
Facts
DCA and Marine had a long-standing banking relationship. In August 1972, DCA initiated Chapter XI bankruptcy proceedings. Marine was a major creditor. In July 1975, DCA sued Marine for $70 million, alleging Marine conspired to destroy DCA’s business beginning in 1970. DCA claimed Marine made misrepresentations about loan renewals, leading DCA to forgo seeking other financing. DCA further alleged that Marine improperly offset DCA’s checking account and seized uncollected checks, forcing DCA into bankruptcy.
Procedural History
The Supreme Court, New York County, granted Marine’s motion for summary judgment, dismissing DCA’s complaint. The court relied on the principle that a discharged Chapter XI debtor cannot pursue claims it failed to include in its bankruptcy schedule. The Appellate Division affirmed. The New York Court of Appeals granted leave to appeal.
Issue(s)
Whether a debtor, after confirmation of a Chapter XI plan of arrangement, can pursue claims against a creditor that were not disclosed in the debtor’s schedules filed with the bankruptcy court.
Holding
No, because the debtor-in-possession has a duty to disclose all known or knowable claims in its schedules of assets, and failure to do so precludes the debtor from pursuing those claims individually after the bankruptcy proceeding concludes, unless the claims were properly “dealt with” or abandoned during the bankruptcy.
Court’s Reasoning
The Court emphasized the importance of disclosure in Chapter XI proceedings, where debtors-in-possession have a fiduciary duty to their creditors. The court stated that the requirement of disclosure includes “[u]nliquidated claims of every nature, with their estimated value.” The court reasoned that the only property that may revest in the debtor is property that was “dealt with” in the bankruptcy or abandoned. Property is “dealt with” when it has been listed in the debtor’s schedule of assets, administered by the bankruptcy court for the benefit of creditors, and not otherwise affected by the ultimate plan of arrangement involving the debtor’s other assets. Property can be considered abandoned only if the trustee or debtor-in-possession knows of it and manifests an intent to abandon it. Since DCA’s claims against Marine were not disclosed in its schedules, they were not “dealt with” in the bankruptcy and did not revest in DCA after the proceeding. The court found DCA’s argument that it didn’t learn of its fraud or improper offset causes of action until after the Chapter XI proceeding ended to be unpersuasive, holding that DCA presented no evidentiary material sufficient to raise a triable issue of fact. The court quoted Stein v United Artists Corp. in noting that without a rule precluding such a debtor from later pursuing claims about which it knew or should have known at the time of filing its petition, a debtor-in-possession might employ less than diligent efforts to ascertain and disclose all potential claims, thus undermining its obligation to the estate and prejudicing the interests of the unsecured creditors.