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Phillips Esq.
Phillips Esq., Attorney-at-Law
Category: Bankruptcy Law
Satisfied Customers: 18091
Experience:  B.A.; M.B.A.; J.D.
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Filing a lawsuit against Company A (seller)

Customer Question

Filing a lawsuit against Company A (seller) for promissory notes issued by Company B (issuer, not a party to the suit) for violation of securities laws. Company B has filed for bankruptcy. We are seeking rescission of the notes as a remedy - would rescission
of these promissory notes violate the automatic stay imposed by Company B's bankruptcy?
Submitted: 1 year ago.
Category: Bankruptcy Law
Expert:  Phillips Esq. replied 1 year ago.
Hello: This is PhillipsEsq. I am a licensed Attorney and I will be assisting you today.
Could you explain a little more?
Why are you filing lawsuit against Company A instead of B that issued the promissory notes?
Customer: replied 1 year ago.
It is a securities fraud case and Company A made the direct misrepresentations to Plaintiffs regarding the promissory notes. They were the primary contact to Plaintiff but Company B is the issuer. So now we are suing under the Texas Securities Act for Co. A selling unregistered securities as unregistered brokers. But the promissory notes themselves were issued by Co. B. Not sure if this helps, let me know if I can further explain.
Expert:  Phillips Esq. replied 1 year ago.
Thank you for the additional information:
It is a securities fraud case and Company A made the direct misrepresentations to Plaintiffs regarding the promissory notes. They were the primary contact to Plaintiff but Company B is the issuer. So now we are suing under the Texas Securities Act for Co. A selling unregistered securities as unregistered brokers. But the promissory notes themselves were issued by Co. B. Not sure if this helps, let me know if I can further explain.
Your initial post:
Filing a lawsuit against Company A (seller) for promissory notes issued by Company B (issuer, not a party to the suit) for violation of securities laws. Company B has filed for bankruptcy. We are seeking rescission of the notes as a remedy - would rescission
of these promissory notes violate the automatic stay imposed by Company B's bankruptcy?

Response: Yes since this rescission affects Company B that is now in bankruptcy. Also and more importantly, the nonbankruptcy Court would not have jurisdiction to order the rescission of the Notes unless permission is granted by the Bankruptcy Court.
Customer: replied 1 year ago.
Can you tell me the legal authority you are relying on (either Federal/state statute and/or case law) for this answer please?
Customer: replied 1 year ago.
I know that is the automatic stay statute. It doesn't specifically address this issue though. It says nothing about liabilities in estates, only assets.
Customer: replied 1 year ago.
Can you cite a case addressing these circumstances? Specifically a stay applying to a liability when another third party is being sued.