In re Del Biaggio

Chapter

OPINION

The question presented is whether a creditor who obtains a partial recovery from a non-debtor co-obligor is required to reduce the claim asserted against the debt- or in bankruptcy. I hold that the claim against the debtor is not reduced by the partial recovery, even if state law requires that the claim be reduced in a non-bank-ruptey setting.

FACTS

William Del Biaggio, III (Debtor) borrowed a total of $39.25 million from the six creditors whose claims are at issue here (Creditors). The loans were documented in promissory notes that Debtor represented would be secured by a pledge of shares of corporate stock held by Debtor at Merri-man Curhan Ford & Co. (Merriman). Debtor provided the lenders copies of account statements from Merriman showing Debtor to be the owner of the shares.

In fact, Debtor did not own the shares pledged to secure the loans. At the behest of Debtor, D. Scott Cacchione, a Merriman employee, fabricated the account statements showing Debtor to be the owner of the shares. Creditors learned of the fraud when Debtor failed to repay the notes. Debtor and Cacchione were both convicted of securities fraud, were sentenced to prison, and were…