In re Knoth, Bankruptcy No. 93-75478.

• Decision Date: 01 April 1994
• Docket Number: Bankruptcy No. 93-75478.
• Citation: 168 BR 311
• Court: U.S. Bankruptcy Court — District of South Carolina
• Parties: In re Robert R. KNOTH, Debtor.

168 B.R. 311 (1994)

In re Robert R. KNOTH, Debtor.

Bankruptcy No. 93-75478.

United States Bankruptcy Court, D. South Carolina.

April 1, 1994.

Mark W. McKnight, LeRoy P. Hutchinson, Charleston, SC, for debtor.

William F. Halligan, Robinson, McFadden & Moore, Columbia, SC, for Ford Motor Credit Co. and Ford New Holland, Inc.

Andrew J. White, Jr., Haynesworth, Marion, McKay & Guerard, Greenville, SC, for Kubota Tractor Corp.

George B. Cauthen, Nelson, Mullins, Riley & Scarborough, Columbia, SC, for Nations-Bank of SC.

Lillia Ann Gray, Cooper, Coffas & Megna, Columbia, SC, for Agricredit Acceptance Corp.

ORDER GRANTING INVOLUNTARY PETITION

WM. THURMOND BISHOP, Bankruptcy Judge.

Before the court is the Involuntary Petition filed November 4, 1993, by Ford Motor Credit Company (hereafter called "FMCC"), Ford New Holland, Inc. (hereafter called "FNH"), and Kubota Tractor Corporation (hereafter called "Kubota"), seeking an order for relief under Chapter 7 of the Bankruptcy Code against Robert R. Knoth (hereafter called "Debtor"). On November 24, 1993, Debtor filed an Answer to the Involuntary Petition, a demand for a jury trial, and a Motion for Withdrawal of the Reference to the Bankruptcy Court. The United States District Court for the District of South Carolina denied the Debtor's Motion for Withdrawal of the Reference and Demand for a Jury Trial by Order of February 23, 1994. On December 16, 1993, NationsBank of South Carolina, N.A. (hereafter called "NationsBank") and on January 13, 1994, Agricredit Acceptance Corporation (hereafter called "Agricredit") moved to join the Involuntary Petition as additional petitioning creditors under 11 U.S.C. § 303(c). Without objection, the Court granted the motions of NationsBank and Agricredit by Orders of February 4, 1994.

Debtor asserts that the claims of FMCC, FNH, and Kubota are subject to bona fide dispute, and that the claim of Agricredit is fully secured, so that there are not three qualified petitioning creditors. Debtor also asserts that all of the petitioning creditors are acting in bad faith, which disqualifies them from being petitioning creditors, and asserts a counterclaim for damages, attorney's fees, and costs for a bad-faith filing under 11 U.S.C. § 303(i). Debtor also asserts that he generally is paying his debts as they become due except for those debts which are in bona fide dispute, under 11 U.S.C. § 303(h)(1). The petitioning creditors have the burden of proving by a preponderance of the evidence that the statutory requirements of 11 U.S.C. § 303 have been met. Atlas Machine & Iron Works v. Bethlehem Steel, 986 F.2d 709, 716 (4th Cir.1993).

I. Facts.

The Debtor is a resident of Charleston, South Carolina, who owns substantial real property. In September 1989, the Debtor and Howard Lee Ray, Jr. formed Plantation Ford Tractor, Inc. (hereafter called "Plantation"), each owning one-half of the stock of the corporation. Later in September 1989, Plantation purchased certain assets and became a FNH dealer, with FMCC providing inventory financing. In April 1990, Plantation also became a dealer for Kubota. Agricredit provided retail financing with recourse against Plantation. The Debtor personally guaranteed the obligations of Plantation to FMCC, FNH, Kubota, and Agricredit. NationsBank made certain loans to Plantation, guaranteed by the Debtor, and certain loans directly to the Debtor.

The parties have stipulated to the following facts:

(1) the debt due NationsBank pursuant to a $600,000.00 Note dated July 30, 1990, by the Debtor is not contingent nor is it subject to a bona fide dispute; further that this is a joint debt of the Debtor and Howard Lee Ray, Jr., and the debt is secured by a first mortgage on real estate owned by the Debtor and Mr. Ray;

(2) the debt due Agricredit by the Debtor is not contingent nor is it subject to a bona fide dispute;

(3) the total indebtedness due NationsBank by the Debtor exceeds at least $5,000.00 in unsecured debt;

(4) the Debtor\'s personal aggregate debts exceed $1,500,000.00;

(5) the Debtor\'s business entities are not primarily nonprofit corporations;

(6) real estate taxes are delinquent on certain properties owned by the Debtor;

(7) within the last 12 months delinquent tax sales have been conducted with respect to certain properties, but the statutory redemption period has not expired, and, in some cases, the property has been redeemed;

(8) the Debtor gave a Confession of Judgment to Mitsui Machinery Distribution on April 20, 1993, in the amount of $85,000.00 in a case docketed as 91-CP-10-2998;

(9) the Resolution Trust Corporation, as conservator for Citadel Federal Savings and Loan Association, is a judgment creditor as to the Debtor, in the amount of $133,427.24, as shown by a judgment filed on the 24th day of November 1993 in the Office of the Clerk of Court of Common Pleas for Charleston County, which debt was past due as of November 4, 1993;

(10) the Resolution Trust Corporation, as conservator for Citadel Federal Savings and Loan Association, is a judgment creditor as to the Debtor, in the amount of $468,534.05, as shown by judgment filed on the 24th day of November 1993 in the Office of the Clerk of Court of Common Pleas for Charleston County, and that judgment has been satisfied;

(11) Agricredit Acceptance Corporation is a judgment creditor as to the Debtor and H. Lee Ray, Jr. as shown by a judgment filed in the amount of $318,083.46 on the 22nd day of September 1993 with the Clerk of Court of Common Pleas for Charleston County;

(12) on or about January of 1994, NationsBank instituted foreclosure proceedings on property which was conveyed by the Debtor to the Knoth Family Limited Partnership in December 1992 and located at 28 Queen Street, and a Receiver has been appointed;

(13) on or about January of 1994, NationsBank instituted foreclosure proceedings upon property which was conveyed by the Debtor to the Knoth Family Limited Partnership in December 1992 at 5 Longitude Lane and 7 Longitude Lane, and a Receiver has been appointed;

(14) the Debtor owns fifty percent (50%) of Plantation Ford, which is presently in Chapter 7 after an unsuccessful Chapter 11;

(15) on or about December 1992 the "Knoth Family Limited Partnership" was created with the Knoth Corporation as the only general partner and the Debtor, his wife and children as the only limited partners; this was subsequently changed to "Centaur Limited Partnership" in 1993 (16) the Debtor directly owns a 70.14% limited partnership interest in Centaur Limited Partnership;

(17) the Debtor is the President of and a shareholder of the Knoth Corporation;

(18) substantial assets have been transferred from the Debtor, to the "Knoth Family Limited Partnership" and/or "Centaur Limited Partnership" as shown on Exhibit "A" to the stipulation, described briefly as follows:

Charleston County:

Residual Ravenel Tract (Rhett\'s Crossing 270 ± acres)

301-303 Charleston Blvd., Isle of Palms

219 Charleston Blvd., Isle of Palms

5 Longitude Lane, Charleston

7 Longitude Lane, Charleston

28 Queen Street, Charleston

6 Longitude Lane, Charleston

1 Rutledge Ave., A & B, Charleston

Lt. A, O Rutledge Ave., Charleston

Lt. B., 171 Tradd St., Charleston

Ravenel Town Tract a/k/a Butler Tract

(Town Hall Tract 75 ± acres-security for Quinby Foods)

Berkeley County:

Quinby Plantation — 633.12 acre

Quinby Plantation — 983.28 acre

Quinby Plantation — 31.50 acre

Quinby Plantation — 102.79 acre

Quinby Plantation — 172.01 acre

Bates Place Contents

Georgetown County:

Moreland Plantation

(19) in 1992 and 1993 Debtor listed on certain of his financial statements an ownership interest in B.C. Land Company and one of the properties of B.C. Land Company was Rhoden Island, valued at $2,500,000.00 based upon 250 acres of highland at $10,000.00 per acre; Debtor\'s profit and loss interest in B.C. Land Company was transferred to Centaur Limited Partnership; and

(20) in December 1993 B.C. Land Company sold Rhoden Island for $650,000.00 with Centaur Limited Partnership and other Knoth entities receiving $406,908.00, and disbursing that amount as set forth in Exhibit "B" to the stipulation, as follows:

                     Bank of Charleston                    $193,182.50
                     37 Meeting Mortgage
                     First Federal Savings & loan          $ 33,048.78
                     Real Estate Taxes
                     Edisto Farm Credit                    $ 86,628.11
                     Quinby Mortgage
                     Edisto Farm Credit                    $ 33,000.00
                     SouthTrust Bank                       $ 21,197.70
                     37 Meeting Mortgage
                     Liberty Bank                          $ 39,000.00
                     Town Hall Mortgage
                     Knoth Corporation                     $    850.91
                

The court also finds that only a portion of the loan of $270,000.00 from Charleston Capital Corporation to Plantation in January 1992 went to Plantation. $100,000.00 was disbursed at closing to First Federal of Charleston to repay the Debtor's personal loans, and the Debtor received $110,000.00 from Plantation on the day of the closing to partially repay his loans to Plantation.

Concerning the tax sales described in stipulation number 7 above, nine tracts of land in Berkeley County, including Quinby Plantation, have been sold for nonpayment of 1992 real property taxes, and five properties in Charleston County similarly have been sold for delinquent taxes.

Concerning the sale of Rhoden Island described in stipulation numbers 19 and 20 above, the Court also finds that Rhoden Island was owned as of 1987 by B.C. Land Company in which the Debtor held personally a 58% interest and an additional 12% interest as trustee for his sons. However, the Debtor represented on his financial statement of August 31, 1990, that he owned all of Rhoden Island, without mentioning the interest of either B.C. Land Company or his sons. On his financial statement of March 31, 1992, Rhoden Island was disclosed as being owned by B.C. Land Company in which he held a 70% interest, which still did not reflect his trusteeship.

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