In re Coquico, Inc.

• Decision Date: 02 April 2014
• Docket Number: Bankruptcy No. 13–16049 SR.
• Citation: 508 B.R. 929
• Parties: In re COQUICO, INC., Debtor(s).
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

508 B.R. 929

In re COQUICO, INC., Debtor(s).

Bankruptcy No. 13–16049 SR.

United States Bankruptcy Court, E.D. Pennsylvania.

Signed April 2, 2014.

Michael H. Kaliner, Doylestown, PA, Trustee.

Kahiga A. Tiagha, Tiagha & Associates, Ltd., Philadelphia, PA, for Debtor.

Opinion

STEPHEN RASLAVICH, Bankruptcy Judge.

Introduction

The above Chapter 7 Bankruptcy case was filed on July 9, 2013. It was dismissed with prejudice on January 14, 2014. Dismissal followed a two day evidentiary hearing brought on by the Motion (“Dismissal Motion”) of creditor Angel E. Rodriquez Miranda (“Rodriquez”). The Dismissal Motion was filed on September 27, 2013. The hearings took place on December 2, 2013 and January 13, 2014. The Court's findings of fact and conclusions of law were issued orally at the conclusion of the second hearing day and are incorporated herein by reference.¹ As a part of its ruling granting the Dismissal Motion, the Court retained jurisdiction to consider the imposition of sanctions as might be appropriate under the circumstances. A Motion seeking sanctions (“Sanctions Motion”) was filed by Rodriquez on January 22, 2014. It seeks monetary sanctions against the Debtor, Coquico, Inc. (“Coquico”), the principal of the Debtor, Malik Benin (“Benin”) counsel for the Debtor, Kahiga A. Tiagha, Esquire (“Tiagha”) and counsel's law firm, Tiagha & Associates. Coquico made no response to the Sanctions Motion, but answers in opposition were filed on behalf of Benin and Tiagha. An evidentiary hearing on the Sanctions Motion was held February 26, 2014. For the reasons discussed below, the Sanctions Motion will be granted, in part; which is to say that monetary sanctions will be imposed on the Respondents, but in an amount less than requested.

Background

Coquico's troubles date back many years. The collective pleadings, exhibits, testimony and legal memoranda from the dismissal and sanctions hearings recount the relevant history in abundant detail. As that history is rather extensive, and as there are no uninitiated parties, the Court will confine its recital to that which it deems necessary for clarity and to address the issues for which jurisdiction over the now dismissed case has been retained.

Coquico is a Pennsylvania Corporation with a registered office in Wayne, Pennsylvania.² Benin is its principal shareholder. Rodriquez claims to have a stockholder interest, but that is disputed.

The company was formed in 1999 to sell stuffed animal type toys and related products (collectively the “Plush Toys”) at souvenir outlets in Puerto Rico. Benin designed the Plush Toys which are apparently susceptible to copyright and trademark protection due to possessing certain unique attributes, including the fact that some of the replicas are of species indigenous to Puerto Rico.

It appears that the company was profitable in its early days but suffered financial setbacks after a few years. Rodriquez was employed by Coquico and earned wages and commissions for selling the Plush Toys. He also loaned monies to the Company. In 2005 Rodriquez quit over non-payment of earnings and loans.

Rodriguez thereafter proceeded to file a collection action in the San Juan Superior Court. Rodriquez claims that in 2007, as “retaliation” for his lawsuit, Benin instituted a copyright infringement action against him in the United States District Court for the District of Puerto Rico. (“Infringement Action”)

Whether the Infringement Action was retaliatory or not, its outcome was favorable to Coquico. An injunction issued against Rodriquez based on Benin's claims that for years Rodriquez had been secretly selling merchandise identical to the Plush Toys through a separate company. Rodriquez did not necessarily deny the conduct, but argued that the Plush Toys were not copyrightable. This “defense” was rejected by the District Court, and later, in 2009, by the United States Court of Appeals for the First Circuit.

The Circuit Court remanded the Infringement Action to the Puerto Rico District Court for a determination of damages. At that juncture Coquico had the option of presenting evidence of actual damages, or electing to have the Court award statutory damages. Coquico chose the latter option, and in an Opinion and Order dated August 19, 2010, the District Court awarded Coquico damages in the amount of $15,000.00.

Rodriquez, in the meantime, had discontinued his Superior Court collection action. In June 2010 he refiled it in the Puerto Rico federal Court, adding to the lawsuit at that time allegations of defamation and a claim for damages incident thereto. Evidence established that about two years prior to that Benin had formed a company called 18 Degrees North, LLC, and then systematically transferred the business and assets of Coquico to the new company. Thus, 18 Degrees North was selling the Plush Toys in Puerto Rico in much the same manner as Coquico had done as early as 2009/2010, and continuing through the time of the Dismissal hearing.

The outcome of the collection/defamation lawsuit, meanwhile, had proved favorable to Rodriquez. On July 28, 2011 a judgment in the amount of $348,821.23 was entered in his favor and against Coquico. In September 2011, acting on the judgment, Rodriquez obtained a writ of execution against Coquico's assets. Despite having done so, by August 2012 Rodriquez had been unable to collect on the judgment. He thereupon petitioned the District Court to approve a U.S. Marshall's public auction of Coquico's intellectual property assets (i.e., the copyright and trademarks associated with the Plush Toys). On September 11, 2012 the District Court granted that Motion and a public auction of the assets was scheduled for July 11, 2013.

On July 8, 2013, Coquico, Benin and Benin's wife, Phillipa Ashby, filed a Motion asking the Puerto Rico District Court to vacate its Order authorizing the public auction. As cause they asserted inadequate notice, and claimed for the first time that the intellectual property assets actually were the property of Benin's mother, Ms. Acquanetta Benin. Ms Benin, they argued, was an indispensable party who had theretofore been excluded from the proceedings. Simultaneously, a petition was filed on behalf of Ms. Benin in the Puerto Rico District Court requesting permission to intervene in the Rodriquez lawsuit.

Both the Motion to vacate and the petition to intervene asserted that the copyrights and trademarks at issue had been sold by Coquico to Ms. Benin in 2006. The Respondents herein claim that the intellectual property “rights” were thereafter licensed by her, to Coquico at first, and later to 18 Degrees North. Of significance, 2006 was shown to be the first occasion in both of the lengthy Puerto Rico litigations that anyone had ever claimed that Coquico was not the legal owner of the intellectual property assets.³ To the contrary, the evidence adduced at the dismissal hearing established beyond peradventure that Coquico and Benin had consistently asserted the exact opposite.

The Motion to Vacate and the Petition to Intervene were both purportedly filed “ pro se; ” however, the Respondents acknowledge that they were in fact prepared by Tiagha and mailed for filing from his law office in Philadelphia. By Order dated July 10, 2013 the Puerto Rico District Court summarily denied both the Motion to Vacate and the Petition to Intervene, clearing the way for the impending public auction. As noted above, however, Coquico had filed its Chapter 7 case in this District one day earlier, and the scheduled public auction did not take place.

DiscussionA) Legal Theories

The Movant, Rodriquez, seeks monetary sanctions in an amount equal to the attorney's fees and costs incurred by him in connection with the Dismissal Motion. The total sum is approximately $85,000 and represents, for the most part, the attorney's fees of his Puerto Rico and Philadelphia counsel. Rodriquez asserts three alternate legal bases in support of his Motion: first, Federal Rule of Bankruptcy Procedure 9011; second, the courts' power to sanction misconduct under 11 U.S.C. § 105(a); and third, 28 U.S.C. § 1927. The Court will address each in turn:

(i) Bankruptcy Rule 9011

Bankruptcy Rule of Procedure 9011, provides in pertinent part:

Rule 9011. Signing of Papers; Representations to the Court; Sanctions; Verification and Copies of Papers

(a) Signature

Every petition, pleading, written motion, and other paper, except a list, schedule, or statement, or amendments thereto, shall be signed by at least one attorney of record in the attorney's individual name. A party who is not represented by an attorney shall sign all papers. Each paper shall state the signer's address and telephone number, if any. An unsigned paper shall be stricken unless omission of the signature is corrected promptly after being called to the attention of the attorney or party.

(b) Representations to the court

By presenting to the court (whether by signing, filing, submitting, or later advocating) a petition, pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances,

(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;

(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law;

(3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and

(4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief.

(c) Sanctions

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