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U.S. Alliance Federal Credit Union of Rye should not have forced its auto leasing partner into involuntary Chapter 11 bankruptcy last November, according to the U.S. Bankruptcy Court in White Plains.
Judge Adlai S. Hardin Jr. noted that U.S. Alliance's stated reasons for taking the action--alleging fraud and nonpayment are "hotly disputed in separate litigation by Prime Time Holdings L.L.C. of Greenwich, Conn., the credit union's former business partner.
As a result, Judge Hardin ruled on Dec. 22 that U.S. Alliance failed to meet the legal "undisputed unliquidated claim" litmus test of an appropriate motive for forcing an alleged debtor into bankruptcy.
The judge said he would rule on whether to impose sanctions against U.S. Alliance at a later date.
Prime Time is seeking approximately $3 million in sanctions, according to the company's attorneys.
U.S. Alliance, which recently changed is name from IAG Federal Credit Union, may also be liable for Prime Time's costs and attorneys' fees as well as the costs imposed on the court to appoint a Chapter 11 bankruptcy trustee.
U.S. Alliance contends in its...