In re Bokum Resources Corp.
| Decision Date | 13 July 1982 |
| Docket Number | Civ. No. 82-087-JB. |
| Citation | 26 BR 615 |
| Parties | In re BOKUM RESOURCES CORPORATION, a Delaware corporation, Debtor. LONG ISLAND LIGHTING CO., INC., et al., Petitioners, v. BOKUM RESOURCES CORPORATION, Respondent. |
| Court | U.S. District Court — District of New Mexico |
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Montgomery & Andrews, John Conway, Nancy Anderson, Santa Fe, N.M., Murphy, Weir & Butler, Patrick A. Murphy, J. Craig Gilliland, San Francisco, Cal., Davis, Polk & Wardwell, Michael Mills, New York City, for petitioners.
Melton & Puccini, PA., Louis Puccini, Jr., Albuquerque, N.M., for respondent.
THIS MATTER comes before the Court on appeal from the Bankruptcy Court for this district. At issue is the propriety of an order of the Bankruptcy Court placing Bokum Resources Corporation into involuntary bankruptcy under 11 U.S.C. § 303 (Supp. IV 1980). For the reasons stated below, the order of the Bankruptcy Court will be affirmed.
On June 12, 1981, ten creditors of Bokum Resources Corporation Bokum filed a petition in the United States Bankruptcy Court seeking a reorganization of the company under Chapter 11 of the Bankruptcy Code. In the early 1970's, Bokum began constructing a uranium mine and mill near Marquez, New Mexico. Neither the mine nor the mill were ever completed, and large debts have accumulated. Bokum estimates the completion costs to be about $20 million. The petition was filed under Bankruptcy Code Section 303, which provides:
Under Section 303(h)(1), the issues to be determined at the outset of an involuntary bankruptcy case are twofold: first, whether there are three creditors with proper claims, and second, whether the debtor is generally not paying its debts as they become due. Upon finding that there are three qualified creditors and that the debtor is not paying its debts, the Bankruptcy Court must enter an order for relief, thereby bringing the debtor's assets under the protection of the Bankruptcy Court. As the case continues, claims by and against all creditors may then be determined.
Bokum's response to the petition pleaded eighteen affirmative defenses and seven counterclaims, most of them directed against Long Island Lighting Company LILCO, the largest of Bokum's alleged creditors. Nearly all of these matters had been raised in an earlier foreclosure action brought by LILCO against Bokum, filed in the United States District Court for the District of New Mexico, Civ. No. 80-912-JB. Seeking damages of about $700 million, the principal counterclaims—like the affirmative defenses—attack nearly every aspect of LILCO's dealings with Bokum over a five-year period. Two other counterclaims, apparently claims of malicious prosecution, demanded $1 billion in damages from all the petitioners for their part in an alleged conspiracy orchestrated by LILCO to place Bokum in bankruptcy. Those two counterclaims were dismissed by order of the Bankruptcy Court filed December 29, 1981.
After a status conference on September 9, 1981, the Bankruptcy Court severed the claims by and against LILCO from the claims by and against the other petitioning creditors. There were only seven petitioners other than LILCO by this time, two having withdrawn during the summer. Trial was set for November 9, 1981, with discovery to be completed by October 23, 1981.
The Bankruptcy Court's orders framed for trial the limited issues necessary to determine whether an order for relief should be entered. As set out in the Court's Pretrial Order, these issues were principally "the amount and sufficiency of each claim of each petitioning creditor" and "whether the alleged Debtor is generally paying its debts as they become due." The Pretrial Order also reviewed Bokum's affirmative defenses, striking those without legal foundation, deferring those relating to LILCO or the petitioners' good faith, and setting the remaining defenses for trial. On the issues as framed, the Court ordered trial without a jury.
On September 23, 1981, Bokum moved to dismiss the petition on the grounds that "an independent third party" named William Biava had offered to acquire the claims of the petitioning creditors other than LILCO for 70 cents on the dollar. In accordance with Bankruptcy Rule 120(a), the Bankruptcy Court gave notice to all of Bokum's creditors, reciting the substance of the motion and stating that the Bankruptcy Code and Rules allowed other creditors to join as petitioners before dismissal of the case. The Court set a deadline for joining, and required filing of a written election to join.
Counsel for both LILCO and Mr. Biava wrote to all creditors, explaining the Bankruptcy Court's order. Counsel for LILCO repeated the Court's notice and enclosed a blank form of election to join. Counsel for Mr. Biava warned that creditors joining the petition would not be bought out, and that Biava's offer extended only to the original seven who had joined the petition in June, 1981.
From the date of the Bankruptcy Court's notice to the date of trial, approximately 40 creditors filed elections pursuant to the Court's notice. About twenty of the new creditors eventually sought to withdraw, as did the original seven creditors whose claims had been bought by Mr. Biava. The Court did not rule on the requests by the intervenors, but denied the motions to withdraw of the original seven petitioners on the grounds that the activities of Mr. Biava "cannot be permitted to operate to deprive the Court of jurisdiction to consider the petition as filed."
At trial, when Bokum renewed its effort to defeat the status of the original seven as petitioning creditors, it became clear that the creditors' claims had not been bought by a truly "independent" party. Rather, the buyer was a former executive and significant shareholder of Bokum who bought the claims for the express purpose of stopping the bankruptcy proceedings. He did so with a loan he secured by certificates of deposit in the name of Richard D. Bokum, President of Bokum Resources.
Seventeen creditors of Bokum with claims totaling approximately $107,000 appeared at trial. Ten creditors proved without contradiction that their claims were past due on June 12, 1981, and were unpaid, unsecured, undisputed, liquidated, and not contingent as to liability. Of these ten, six neither sold their claims nor made a motion to withdraw. Briefly stated, the evidence with respect to each creditor was as follows.
ABF Freight System, Inc., had, before selling out to Mr. Biava, a claim of $4,362.00. Bokum offered no challenge to this creditor or its claim.
Albuquerque Analytical, Inc., had a claim of $93.04, $73.04 of which was past due June 12, 1981.
Capitol Motor Co. had a claim of at least $566.25. Bokum offered no challenge to this creditor or its claim.
Complete Finance Corp. had, before selling out to Mr. Biava, a claim of $4,098.82. Although Bokum asserted that this claim was disputed, it was a sufficient claim to make Complete Finance an eligible petitioner.
Contact New Mexico, Inc., had, before selling out to Mr. Biava, a claim of $4,937.64. Bokum offered no challenge to this creditor or its claim.
Controls for Environmental Pollution, Inc., had a claim of $9,153.70. Bokum offered no challenge to this creditor or its claim.
Denver Tool Crib had a claim of $589.71. Bokum offered no challenge to this creditor or its claim.
General Electric Co. had an unsecured claim of $40,364.98. General Electric may also have had a secured claim, but that did not disqualify it as a petitioner.
Genuine Parts Co. had a claim of $777.39. Bokum offered no challenge to this creditor or its claim.
General Office Supply had a claim of $998.80. Bokum offered no challenge to this creditor or its claim.
Kaman Bearing & Supply Corp. had, before selling out to Mr. Biava, a claim of $13,309.67. That Kaman's claim may have been secured did not necessarily disqualify it as a petitioner.
Keenan Supply, Inc., had a claim of $1,528.95. Bokum offered no challenge to this creditor or its claim.
Laun-Dry Supply Co., Inc., had a claim of $604.95. Although Mr. Briscoe testified that Bokum had sent approximately $700 in payment of this claim to an agent of Laun-Dry, the company's vice president denied that the claim had been paid and testified that the purported agent was not an agent and was unknown to Laun-Dry.
Mesa Blueprint had a claim of $1,798.52. Although Bokum argued that this claim was secured, the record indicated that it was not.
Specialty Equipment Co. had, before assignment to Mr. Biava, a claim of $6,368.18. Bokum offered no challenge to this creditor or its claim.
Springer Building Materials Corp. had, before selling out to Mr. Biava, a claim of $11,117.08. Springer's claim may have been secured, but that did not disqualify it as a petitioner.
Watson Manufacturing, Inc., had, before selling out to Mr. Biava, a claim of $6,174.42. Bokum offered no challenge to this creditor or its claim.
The evidence tended to show that Bokum was not generally paying its debts as they became due. For each of...
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