Prior History: In Re JTS Corp., 305 B.R. 529 (Bankr. N.D. Cal. 2003); In Re JTS Corp., No. C 05-4709 JF, 2006 WL 2844581 (N.D. Cal. Sept. 29, 2006); In Re JTS Corp., 617 F.3d 1102 (9th Cir. Cal. 2010); Poonja v. Tramiel, 131 S. Ct. 2930 (2011).

Note: This case arises from an adversary proceeding in which a bankruptcy trustee (Trustee) had alleged that Jack Tramiel (Applicant) fraudulently obtained real property as one of the debtor's directors in a sale of the estate's property. Applicant was required to maintain a US$ 162,250.00 standby letter of credit as a substitute for a supersedeas bond to preserve Applicant's rights pending determination of the appeal. After appeals, the Court of Appeals for the Ninth Circuit ruled that the transfer was fraudulent but that Applicant's liability "was reduced to zero after application of a good faith transferee reduction and a settlement credit." The Trustee's petition to the U.S. Supreme Court was denied. Applicant then sued Trustee to recover the cost of maintaining the standby.

The U.S. District Court for the Northern District of California, San Jose Division, Fogel, J., ruled Applicant was entitled to half the $162,250.00 amount of the standby, or US$ 81,125.00. The court's decision turned on which rule governed the recovery of costs. Applicant argued that Federal Rule of Appellate Procedure (FRAP) 39 and Civil Local Rule (CLR) 54-3 were applicable while Trustee countered that Bankruptcy Rule of Procedure (Bankruptcy Rule) 8014 applied. The court held that Bankruptcy Rule 8014 governed recovery of costs of maintaining an appeal from bankruptcy court to district court, CLR 54-3 governed recovery of costs incurred during litigation in district court, and FRAP 39 governed recovery for maintaining an appeal from district court to appeals court, as in the present case. The court stated that under FRAP 39(e), Applicant was entitled to recover "premiums paid for a supersedeas bond or other bond to preserve rights pending appeal". The court held that LC fees preserving rights on appeal are recoverable when the opposing parties agreed to the LC's use as a cheaper alternative. The court found that Trustee had agreed to the standby's use and that in its petition to the Supreme Court, it was Trustee's position that Applicant was required to maintain the standby.

Trustee argued that recovery should be denied due to Trustee's good faith, limited resources, the closeness of the case, and Applicant's fraud. The court, citing the Court of Appeals for the Ninth Circuit, held that such factors could be considered. In light of Trustee's financial position and Applicant's fraud, the court awarded half the recoverable amount, or $81,125.00.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.