In re Caucus Distributors, Inc.

• Decision Date: 08 March 1988
• Docket Number: Bankruptcy No. 87-00795-A to 87-00797-A.
• Citation: 83 BR 921
• Parties: In re CAUCUS DISTRIBUTORS, INC., Alleged Debtor. In re CAMPAIGNER PUBLICATIONS, INC., Alleged Debtor. In re FUSION ENERGY FOUNDATION, INC., Alleged Debtor.
• Court: U.S. District Court — Virgin Islands, Bankruptcy Division

83 B.R. 921 (1988)

In re CAUCUS DISTRIBUTORS, INC., Alleged Debtor.

In re CAMPAIGNER PUBLICATIONS, INC., Alleged Debtor.

In re FUSION ENERGY FOUNDATION, INC., Alleged Debtor.

Bankruptcy Nos. 87-00795-A to 87-00797-A.

United States Bankruptcy Court, E.D. Virginia, Alexandria Division.

March 8, 1988.

David R. Kuney, Christine L. Dibble, David & Hagner, and James A. Bensfield, Raymond D. Battocchi, Cole and Groner, P.C., and Richard H. Gins, Brian R. Seeber, Gins & Seeber, P.C., Washington, D.C., and H. Jason Gold, Gold & Stanley, Alexandria, Va., for the alleged debtors.

S. David Schiller, Asst. U.S. Atty., Office of U.S. Atty. for E.D. Virginia, Richmond, Va., for the U.S.

Robert O. Tyler, Alexandria, Va., Trustee in Bankruptcy for Caucus Distributors, Inc.

Roy B. Zimmerman, Alexandria, Va., for Robert O. Tyler, Trustee.

James M. Lewis, McLean, Va., Trustee in Bankruptcy for Campaigner Publications, Inc.

H. Slayton Dabney, McGuire, Woods, Battle & Boothe, Richmond, Va., for James M. Lewis.

Kermit A. Rosenberg, McLean, Va., Trustee in Bankruptcy for Fusion Energy Foundation, Inc.

MEMORANDUM OPINION

MARTIN V.B. BOSTETTER, Jr., Chief Judge.

This matter comes before the Court on a motion by the United States requesting summary judgment on the involuntary chapter 7 bankruptcy petitions filed against Caucus Distributors, Inc., Campaigner Publications, Inc., and Fusion Energy Foundation, Inc. ("alleged debtors") under § 303 of the Bankruptcy Code ("the Code"). 11 U.S.C. § 303 (1984) (amended 1986). In 1985, a grand jury was empanelled to investigate the alleged debtors' involvement in possible credit card fraud. When subpoenaed to testify before the grand jury and provide documentary evidence, the debtors failed to cooperate. The debtors' conduct resulted in the initiation of contempt proceedings to which the debtors did not respond, and fines were imposed totalling approximately 16-million dollars. The alleged debtors repeatedly refused to pay the contempt fines, which prompted the United States to file chapter 7 involuntary bankruptcy petitions with respect to all three alleged debtors on April 20, 1987. Since the filing of the petitions, the United States has attempted to obtain evidence through normal discovery channels, including a list of creditors, but the alleged debtors through representative individuals have invoked the Fifth Amendment to prevent self-incrimination.

As this matter comes before the Court on a motion for summary judgment, we note first that the basis upon which we may issue judgment is definitively outlined by Federal Rule of Civil Procedure 56 ("Rule 56"), made applicable to this proceeding by Bankruptcy Rule 7056. Thus, we look first to the constraints placed on this Court by the rule itself. A movant is entitled to summary judgment if "there is no genuine issue as to any material fact and the movant is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). A motion for summary judgment may or may not be supported by affidavits. Fed.R.Civ.P. 56(a). The defending party may or may not file opposing affidavits. Fed.R.Civ.P. 56(b). A court necessarily bases its ruling on the parties' pleadings, depositions, answers, interrogatories, admissions on file, and any affidavits. Fed.R.Civ.P. 56(c).¹

All affidavits must be made on the basis of personal knowledge of the affiant and must set forth such facts that would be admissible in evidence and show how the affiant is competent to testify on the matters included therein. Id.; see also Antonio v. Barnes, 464 F.2d 584, 585 (4th Cir. 1972) (absence of affirmative showing of personal knowledge of specific facts vitiates the sufficiency of an affidavit for the purposes of summary judgment). If the affiant refers to any documents in his statement, sworn or certified copies of those documents must be attached. Fed.R. Civ.P. 56(e). If the movant for summary judgment supports his motion as provided by Rule 56, the adverse party may not rest on the mere allegations or denials of the adverse party's pleading, the adverse party must respond by setting forth specific facts showing that there is a genuine issue for trial. Id. If the adverse party does not respond, summary judgment shall be entered, unless the adverse party states (by affidavit) that he is unable to present (by affidavit) facts that are essential to justify the party's opposition. Fed.R.Civ.P. 56(e), (f).

The party requesting summary judgment has the burden of showing no genuine issue as to a material fact exists, see Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986); Adickes v. S.H. Kress & Co., 398 U.S. 144, 153, 90 S.Ct. 1598, 1606, 26 L.Ed.2d 142 (1970); In re Manchester Lakes Associates, 47 B.R. 798, 800 (Bankr.E.D.Va.1985); In re McEvoy, 37 B.R. 197, 199 (Bankr.E.D.Va.1984), and a court generally must consider the record in a light more favorable to the adverse party. Adickes v. S.H. Kress & Co., 398 U.S. at 158-59, 90 S.Ct. at 1608-09; United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962); In re McEvoy, 37 B.R. at 199. Justice Brennan in his dissenting opinion in Celotex Corp v. Catrett with whom Chief Justice Burger and Justice Blackman joined, explained, "the movant's burden has two distinct components: an initial burden of production, which shifts to the nonmoving party if satisfied by the moving party, and the ultimate burden of persuasion which always remains with the moving party." 477 U.S. 317, 106 S.Ct. 2548, 2556, 2559, 91 L.Ed.2d 165 (1986) (noting that the general discussion of summary judgments was not inconsistent or different from the majority opinion).

The Fourth Circuit has properly recognized that courts faced with motions for summary judgment must proceed cautiously. See Magill v. Gulf and Western Indus. Inc., 736 F.2d 976, (4th Cir.1984). In Magill v. Gulf and Western Indus. the court held that "even if there is no dispute as to the evidentiary facts, summary judgment is inappropriate if differing conclusions could be drawn from the same facts." Id. at 979. The Magill court also observed summary judgments are seldom appropriate when issues involve the adverse party's state of mind, knowledge, or depend on the credibility of witnesses. Id. Providing guidance for lower courts, the Fourth Circuit in summary stated:

Even in cases where the judge is of opinion that he will have to direct a verdict for one party or the other on issues that have been raised, he should ordinarily hear the evidence and direct the verdict rather than attempt to try the case in advance on a motion for summary judgment, which was never intended to enable parties to evade jury trials or have the judge weigh evidence in advance of its being presented.

Id. (citing Pierce v. Ford Motor Co., 190 F.2d 910, 915 (4th Cir.), cert. denied, 342 U.S. 887, 72 S.Ct. 178, 96 L.Ed. 666 (1951).

In a recent discussion of Rule 56, the United States Supreme Court stated "summary judgment should not be granted unless it is clear that a trial is unnecessary, and any doubt as to the existence of a genuine issue for trial should be resolved against the moving party." Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 2556 n. 2, 91 L.Ed.2d 265 (1986) (citations omitted); see 6 Moore's Federal Practice ¶ 56.23 (2d ed. 1987) at 56-1394 (all factual inferences must be taken against the moving party and in favor of the opposing party).

It is in consideration with the aforementioned guidelines that we review the government's unusual request to grant its motion for summary judgment based, in part, on the adverse inferences drawn from the alleged debtors' failure to respond sufficiently to the United States' discovery requests on the basis of the Fifth Amendment.²

In support of its request, the government cites several cases which allegedly permit a court to draw adverse inferences in view of a defendant's invocation of the Fifth Amendment in civil suits. See Baxter v. Palmigiano, 425 U.S. 308, 319, 96 S.Ct. 1551, 1558, 47 L.Ed.2d 810 (1976) (our conclusion is consistent with the prevailing rule that the Fifth Amendment does not forbid adverse inferences against parties in civil actions when they refuse to testify in response to probative evidence offered against them); United States v. Ianniello, 824 F.2d 203, 208 (2d Cir.1987) (negative inference drawn from the refusal of any of the defendants to answer questions on material issue was permissible in civil context, such a negative inference does not violate the Fifth Amendment); United States v. Local 560 of International Brotherhood of Teamsters, Etc., 780 F.2d 267, 292, n. 32 (3rd Cir.1985) (finder of fact may draw an adverse inference from a party's invocation of his Fifth Amendment right against self-incrimination, citing Baxter), cert. denied, 476 U.S. 1140, 106 S.Ct. 2247, 90 L.Ed.2d 693 (1986); National Acceptance Co. of America v. Bathalter, 705 F.2d 924, 929 (7th Cir.1983) (there is no longer any doubt that in civil trials a defendant's silence may be used against him, even if that silence is an exercise of his constitutional privilege against self-incrimination); Chase Manhattan Bank, N.A. v. Frenville, 67 B.R. 858, 862 (Bankr.D.N.J.1986) (a court may draw an adverse inference in a civil matter where the party refuses to testify in response to probative evidence offered against him); In re Crabtree, 39 B.R. 718, 725 (Bankr.E.D.Tenn.1984) (adverse inferences may be drawn in a civil action against a party who refuses to testify in response to probative evidence on the basis of constitutional privilege). The government alleges that the only prerequisite to drawing negative inferences is that a court must ascertain whether there is on the record independent evidence of the fact inferred. See Baxter, 456 U.S. at 318, 96 S.Ct. at 1557. The government adds that courts interpreting Baxter have required merely that the independent evidence be "adverse", see Bathalter, 705...