In re Caucus Distributors, Inc., Bankruptcy No. 87-00795-A to 87-00797-A.

CourtBankr. V.I.
Citation106 BR 890
Docket NumberBankruptcy No. 87-00795-A to 87-00797-A.
Decision Date25 October 1989


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

S. David Schiller, Asst. U.S. Atty., E.D. Va., Richmond, Va.

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

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

Roy B. Zimmerman, Alexandria, Va., for Robert O. Tyler and Kermit A. Rosenberg, trustees.

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

H. Slayton Dabney, McGuire, Woods, Battle and Boothe, Richmond, Va., for James M. Lewis, trustee for Campaigner Publications, Inc.

Arthur S. Salus, Philadelphia, Pa.

William E. Robertson, Jr., Dykema, Gossette, Spencer, Goodnow & Trigg, Sarasota, Fla., for NCNB/National Bank of Florida, Guardian for Charles R. Zimmerman.

David McC. Estabrook, Cochran & Pijor, P.C., McLean, Va., for MCI.

Peter J. Gonzalez d/b/a San Souci Travel, Inc., Floral Park, N.Y.

W. John McNally, III, McNally & Kunz, Washington, D.C., for NCNB.

Ellen Marie Dowling, Barbara Rose, Com. of Va., Dept. of Taxation, Richmond, Va.


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

This matter is before the Court upon the involuntary petitions in bankruptcy filed by the United States against Caucus Distributors, Inc. ("Caucus"), Campaigner Publications, Inc. ("Campaigner"), and Fusion Energy Foundation, Inc. ("Fusion").1 The involuntary petitions, which request relief under Chapter 7 of the United States Bankruptcy Code ("the Code"), were filed on April 20, 1987. See 11 U.S.C. ? 101 et seq. The United States based the petitions upon claims outstanding against the debtors totalling approximately 16-million dollars. The claims consisted of contempt fines imposed upon the debtors for their failure to comply with grand jury subpoenas. The United States filed the petitions as a sole petitioning creditor and did not make reference to the total number of creditors of each debtor.2

Upon the denial of two motions for dismissal, answers to the petitions were filed on June 25, 1987. The government then filed a motion for summary judgment in each case. After the filing of the debtors' answers but before the Courts' disposition of the motions for summary judgment, creditors intervened in each of the petitions, bringing the number of petitioning creditors to a minimum of three in each case.

On March 8, 1988, this Court issued a memorandum opinion, which clarified that the United States was the holder of a claim, which was not contingent as to liability, nor subject to a bona fide dispute. See In re Caucus Distributors, Inc., 83 B.R. 921, 927-28 (Bankr.E.D.Va.1988). This Court denied the government's motion for summary judgment, however, on the basis that a genuine issue remained as to whether Caucus and Fusion were debtors against whom the United States may proceed, and whether the debtors were generally not paying their debts. Id. at 930, 932; see 11 U.S.C. ?? 303(a), (h)(1).3 Accordingly, the Court declined to rule on the issue of whether the government filed the involuntary petitions against the debtors in bad faith. Id. at 932 n. 12.

A trial on the issues remaining for adjudication was held and at the close of the government's case, counsel for the debtors moved again to dismiss the involuntary petitions. See Fed.R.Civ.P. 41(b). The Court took the debtors' motion under advisement and completed the trial on the merits.4 Pursuant to Federal Rule of Civil Procedure 41(b), we now consider whether this Court should dismiss these involuntary proceedings "on the ground that upon the facts and the law the plaintiff has shown no right to relief." Id.

The first basis asserted by the debtors in support of the instant motion to dismiss is that the government should not be allowed to proceed as a matter of law in an involuntary bankruptcy proceeding against parties whom the government also is prosecuting for criminal violations in another forum. Secondly, the debtors assert that an involuntary petition filed by a sole petitioning creditor with the knowledge that a debtor has in excess of twelve creditors warrants dismissal as a matter of law. We consider these grounds in the order proposed.


At the time the involuntary petitions were filed, the alleged debtors had been the subject of criminal investigations for approximately two and one-half years.5 Accordingly, the debtors have identified the threshold issue to be "whether the Government of the United States may file an involuntary bankruptcy petition against an entity when such entity concurrently is the target of a federal prosecution or investigation." Alleged Debtors' Proposed Conclusions of Law, p. 1. We decline to address the issue as posed, however, in view of the fact that the eligibility of a creditor to file an involuntary bankruptcy petition is governed by the provisions of the Bankruptcy Code. See 11 U.S.C. ? 303(b)(1), infra at 896; 11 U.S.C. ?? 101(9) (defining "creditor"); 101(4) (defining "claim"). It is beyond the purview of this Court, therefore, to determine that the government may never file an involuntary petition against an entity defending a parallel criminal proceeding. We shall consider, however, whether the harm alleged by the debtors from the prosecution of parallel proceedings has occurred here, and a stay or dismissal warranted on the facts of this case.

The debtors base their assertion that the government's prosecution of parallel criminal and bankruptcy cases against them is prohibited as a matter of law upon the United States Supreme Court's ruling in United States v. Kordel, 397 U.S. 1, 90 S.Ct. 763, 25 L.Ed.2d 1 (1970) and its progeny. In Kordel, the Supreme Court examined the criminal convictions of two corporate officers and the issue of whether the "Government's use of interrogatories to obtain evidence from the respondents in a nearly contemporaneous civil condemnation proceeding operated to violate their Fifth Amendment privilege against compulsory self-incrimination."6 397 U.S. at 2-3, 90 S.Ct. at 764-65.

With respect to the discovery requests, the Kordel Court noted that the defendants "never asserted, let alone demonstrated that there was no authorized person who could answer the interrogatories without the possibility of compulsory self-incrimination." Id. at 9, 90 S.Ct. at 768 (footnote omitted). In fact, the Court noted that the first defendant who answered the interrogatories never claimed the Fifth Amendment privilege nor claimed that he answered without representation of counsel or an appreciation of the possible consequences. Id. at 9-10, 90 S.Ct. at 768-69. In so doing, that defendant could not "complain now that he was compelled to give testimony against himself." Id. at 10, 90 S.Ct. at 768. The Supreme Court further observed with respect to the second defendant that "not only did he never assert the privilege; he never even answered any interrogatories," thus making the claim of compulsory self-incrimination even more tenuous. Id.

The Supreme Court also rejected the defendants' assertions that the government's conduct if not violative of the Fifth Amendment nevertheless "reflected such unfairness and want of consideration for justice," on the basis that such a ruling would "stultify enforcement of federal law." Id. at 11, 90 S.Ct. at 769. Accordingly, the Supreme Court reversed the Sixth Circuit and upheld the convictions. Id. at 13, 90 S.Ct. at 770. It was in dictum that the Supreme Court suggested that had the defendants claimed that no one could "answer the interrogatories addressed to the corporation without subjecting himself to a `real and appreciable' risk of self-incrimination. . . . the appropriate remedy would be a protective order under Rule 30(b), postponing civil discovery until termination of the criminal action."7 Id. at 8-9, 90 S.Ct. at 767-68.

In Afro-Lecon, Inc. v. United States, the Federal Circuit examined the issue left open in Kordel. 820 F.2d 1198 (Fed.Cir. 1987). In Afro-Lecon, a corporation that had filed a civil claim against the United States discovered during the midst of the proceedings that it was the subject of a grand jury investigation of matters related to its civil suit. Id. at 1199-1200. The corporation moved to suspend the civil proceedings before the General Services Administration Board of Contract Appeals ("the Board") because key witnesses had been advised by counsel not to respond to discovery requests to avoid incrimination in the criminal proceedings. Id. at 1200. The Board denied the motion to suspend, noting "that Afro-Lecon, as the party asserting the civil claim, could not use the fifth amendment as a basis to defer civil proceedings." Id.

The Federal Circuit noted that "the non criminal proceeding, if not deferred might undermine the party's Fifth Amendment privilege against self-incrimination, expand rights of criminal discovery beyond the limits of Federal Rule of Criminal Procedure 16(b), expose the basis of the defense to the prosecution in advance of criminal trial, or otherwise prejudice the case." 820 F.2d at 1203 (quoting Securities & Exchange Comm'n v. Dresser Indus., Inc., 628 F.2d 1368, 1375-76 (D.C.Cir.), cert. denied, 449 U.S. 993, 101 S.Ct. 529, 66 L.Ed.2d 289 (1980)). While determining that the "dangers of parallel proceedings had already been realized," (a motion to suppress the fruits of the discovery abuses had been granted in part and denied in part), the...

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