Official Committee of Unsecured Creditors v. Taft

MEMORANDUM *

On November 8, 2001, Condor and its wholly-owned subsidiary, CEI Systems, (collectively the “Debtors”), filed for chapter 11 bankruptcy protection. Shortly thereafter, John L. Taft and Robert E. Young, II (the “Former Officers”) filed proofs of claim against Condor’s estate for severance pay and other benefits arising from the termination of their employment contracts with Condor. The Debtors objected to the claims arguing, inter alia, that the Former Officers’ draws under letters of credit procured by Condor to satisfy 1 its severance obligation to the Former Officers reduced their allowed claims to zero pursuant to 11 U.S.C. § 502 (b)(7). In response, Mr. Taft tried to withdraw his proof of claim, and Mr. Young tried to withdraw his claim for severance pay and amend his other claims.

Without ruling on whether the Former Officers could withdraw some or all of their claims, the bankruptcy court sustained the Debtors’ objections to the Former Officers’ claims. The Debtors then filed adversary complaints against the Former Officers seeking to recover the severance payments the Former Officers received allegedly in excess of the § 502(b)(7) cap. Before these adversary…