Summit National Chapter 11 BK Up-date

As many as 200 banks and leasing companies are licensed to use the Summit National software. The company is also developing a new program that will replace its present software, a major up-grade. The company alleges it was forced to file Chapter 11 bankruptcy. During this period, the unsecured liabilities are primarily to the officers of the corporation and now total almost $1 million. During this period, it is reported the only secured creditor, Nancy McDougal, wife of the founder of the company, Bruce McDougal, who died of cancer, has been paid in full.

Recently the company won a permanent injunction and partial summary judgment against its licensee, Daimler Chrysler Services North America (DCS) for break of its ALAS vehicle leasing software license agreement.

As Summit's president Ken Duffy, Sr., explains it,”

"On December 24, 2004, without prior notice to Summit, DCS entered into an agreement with the software company's secured creditor for the purpose of inducing a foreclosure and collateral sale. DCS, through information obtained in deposition testimony, had arranged to bid to acquire control of the collateral, and control of Summit.

According to Duffy, this prevented Summit from obtaining final judgment and damages award.

"On or about April 1, 2005 the secured creditor placed notices of collateral sale in the Wall Street Journal with an intended sale date of April 22, 2005, “he said.” On April 21, 2005, on advice of counsel, his company filed for protection under Chapter 11 of the U.S. Bankruptcy code to protect the interests of all our creditors and shareholders."

During the intervening months, Duffy noted DamlerChrylser Services North America filed motions with the Bankruptcy Court to attempt dismissal of the Chapter 11 filing which would allow the sale to proceed and DCS to acquire control of his company. On July 19, 2005 the Honorable Judge Jacqueline Cox of the United States Bankruptcy Court for the Northern District of Illinois denied the DCS motions.

On August 18, 2005, a three-judge panel from the Sixth Circuit Court of Appeals affirmed the lower court's ruling, stating that, "The testimony of Daimler Chrysler employees clearly suggested that Daimler Chrysler had not taken all reasonable steps to prevent ALAS from being made available to third parties...", and that, "The record is devoid of evidence that Daimler Chrysler took steps to prevent disclosure to third parties."

On August 30, 2005 Judge Edmunds set a jury trial date for November 4, 2005.

Duffy reports that during the intervening months the secured creditor and his company negotiated terms under which the creditor's claim would be "adequately protected" under the law. As a result, Summit requested and was granted a delay of the scheduled trial date to early 2006.

On November 1, 2005, Duffy, as the majority shareholder, provided funds in an amount sufficient to accomplish the "adequate protection" remedy for the secured creditor. Under an agreed order, the company could provide additional protection for the secured creditor before trial.

He also points out that around November 1, 2005, Damier Chrysler entered into a new agreement with the secured creditor in yet another attempt to acquire control of his company. Investment advisors then began preparing to provide the secured creditor with full protection of its interests and prevent the takeover.

On December 30, 2005 the full judicial panel of the Sixth Circuit Court of Appeals unanimously denied Daimler's petition for en banc rehearing.

The January 26, 2006 Bankruptcy Court in Chicago approved a motion by Summit National to enter into a financing arrangement to pay its only secured creditor thereby stopping the unfriendly takeover attempt. Summit then paid its secured creditor in full and obtained release of the prior lien.

Thursday, March 30, 2006, Summit National and Damier Chrysler Services North America will return to the United States District Court for the Eastern District of Michigan for a jury trial on damages and additional liability issues.

Summit said its multi million dollar damages will include claims for unlicensed use, unlicensed users, copyright damages, trade secret damages, unauthorized third party access damages, unjust enrichment, and reimbursement of attorney fees.

Damier Chrysler Services North America was unavailable for a comment.