First Circuit BAP Upholds Disallowance of Claim Based on Settlement Agreement and Rejects Fraudulent Inducement
First Circuit BAP Upholds Disallowance of Claim Based on Settlement Agreement and Rejects Fraudulent Inducement
The Bankruptcy Appellate Panel for the First Circuit upheld the disallowance of a claim filed by Bonni and Barbara Berkowitz in the Chapter 11 bankruptcy of Rowley Solar, LLC.
The U.S. Bankruptcy Court for the District of Massachusetts had sustained an objection by Invaleon Technologies Corporation to the Berkowitzes’ claim based on a Settlement Agreement entered into by and between Invaleon, the Berkowitzes, and the debtor.
On appeal, the Berkowitzes argued that they should not be bound by the Settlement Agreement because they were fraudulently induced to execute it. Specifically, the Berkowitzes argued that Invaleon fraudulently represented that it would have no further involvement with a solar project owned by the debtor and would not appear at the project site.
The BAP disagreed. It concluded that the Settlement Agreement lacked any promise that Invaleon would have no further involvement with the project and would not appear at the project site for any reason.
The BAP noted that the Settlement Agreement, as well as the evidence introduced at trial, reflected the Berkowitzes’ desire that Invaleon have no future involvement in the operation of the solar project.
However, it concluded that there was no evidence, in the contract or otherwise, of an express promise or agreement by Invaleon to not enter the project site ever again for any reason.
The BAP added that even if the record demonstrated that such a promise was made, the misrepresentation element could not be established, as there was no evidence that Invaleon did not intend to honor such a promise at the time it was made. As a result, the Berkowitzes could not prove fraud in the inducement under Massachusetts law.
The BAP also noted that the dismissal of the Chapter 11 case did not moot the appeal since, even though there was no longer a bankruptcy estate, a reversal would have allowed the Berkowitzes to pursue their rights under the Settlement Agreement.
Additionally, the BAP dismissed the appeal as to Maven Trust for lack of standing, given that it was not aggrieved by the order on appeal (Maven Trust’s claim was allowed by the bankruptcy court).