## Facts

- Systems Division, Inc. (SDI) obtained a federal patent-infringement judgment against Teknek, LLC (Teknek) and Teknek Electronics (Electronics).
- During the patent litigation, Teknek’s and Electronics’ owners, Jonathan Kennett and Sheila Hamilton, formed Teknek Holdings (Holdings) and transferred assets of Teknek and Electronics to Holdings, leaving Teknek and Electronics insolvent.
- In the patent case, the court later added Kennett, Hamilton, and Holdings as additional judgment debtors on an alter-ego theory, making them directly liable on the patent judgment.
- Teknek filed Chapter 7 bankruptcy in the Northern District of Illinois; Electronics did not file bankruptcy.
- SDI filed a proof of claim in Teknek’s bankruptcy and also pursued collection of its judgment against Kennett, Hamilton, and Holdings as alter egos.
- The Chapter 7 trustee filed an adversary proceeding against Kennett, Hamilton, and certain successor entities alleging alter-ego status and estate claims such as fraudulent transfer and breach of fiduciary duty, seeking recoveries for the estate.
- The bankruptcy court concluded SDI’s alter-ego claims were property of the estate under 11 U.S.C. § 541 and enjoined SDI’s outside collection efforts.
- The district court reversed, holding SDI’s claims were not estate property and not sufficiently related to the bankruptcy to support the injunction; the trustee appealed.

## Issues

1. Whether SDI’s alter-ego judgment-enforcement claims against non-debtors were “property of the estate” under 11 U.S.C. § 541, giving the trustee exclusive standing to pursue them.
2. Whether SDI’s alter-ego collection action was “related to” Teknek’s bankruptcy case so as to support bankruptcy jurisdiction and application of the automatic stay (§ 362) or an injunction under § 105.

## Decision

- The Seventh Circuit affirmed the district court’s order vacating the bankruptcy court’s injunction.
- SDI’s alter-ego claims were personal to SDI, not general claims belonging to the creditor body, and therefore were not property of Teknek’s estate under § 541.
- Because the claims were not estate property and would not meaningfully affect estate administration or creditor distribution, they were not “related to” the bankruptcy case for jurisdictional purposes.
- The automatic stay did not bar SDI’s collection efforts against the non-debtor alter egos, and § 105 could not be used to enjoin them absent jurisdiction and a bankruptcy purpose tied to estate property.

## Legal Principles

- A bankruptcy trustee may pursue only “general” claims that belong to the debtor or affect creditors as a group; “personal” claims belonging to a particular creditor remain with that creditor and are not § 541 estate property.
- An alter-ego theory may be a personal creditor remedy when it serves to enforce that creditor’s specific judgment, rather than to recover for all creditors.
- “Related to” bankruptcy jurisdiction requires that the proceeding’s outcome could conceivably affect the estate’s assets or the allocation of assets among creditors.
- The automatic stay under § 362 generally protects the debtor and estate property, not independent creditor actions against non-debtors based on personal claims.
- Section 105 does not expand bankruptcy jurisdiction or create substantive rights; it cannot be used to halt a creditor’s personal, non-estate collection action absent a jurisdictional basis.

## Conclusion

The Seventh Circuit held that SDI’s alter-ego effort to collect its patent judgment from non-debtor insiders and a successor entity was a creditor-specific claim outside the Teknek bankruptcy estate and outside “related to” bankruptcy jurisdiction, so the bankruptcy court could not apply the automatic stay or issue a § 105 injunction to stop SDI’s collection.


In re Teknek, LLC, 563 F.3d 639 (7th Cir. 2009)