In re Moohaven Dairy LLC

• Citation: 461 B.R. 22,55 Bankr.Ct.Dec. 230
• Decision Date: 28 November 2011
• Docket Number: No. 10–24239–dob.,10–24239–dob.
• Parties: In re MOOHAVEN DAIRY LLC, Debtor.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan

461 B.R. 22

55 Bankr.Ct.Dec. 230

In re MOOHAVEN DAIRY LLC, Debtor.

No. 10–24239–dob.

United States Bankruptcy Court, E.D. Michigan, Northern Division,

Nov. 28, 2011.

H. Dale Cubitt, Bad Axe, MI, for Debtor.

OPINION REGARDING MOTION FOR TEMPORARY RESTRAINING ORDER FILED BY CREDITOR BANK OF AMERICA

DANIEL S. OPPERMAN, Bankruptcy Judge.

A creditor, Bank of America, filed an Ex–Parte Motion for Temporary Restraining Order and for Order to Show Cause Why H. Dale Cubitt Should Not be Held in Contempt of Court. This Court granted limited relief to Bank of America by way of an Order dated June 9, 2011, and set this matter for an evidentiary hearing on September 16, 2011. At this evidentiary hearing, Bank of America presented exhibits supporting its request for damages, as well as other exhibits supporting its Motion. The Court also heard testimony from Mr. Cubitt. At the conclusion of the September 16, 2011, hearing, the Court took this matter under advisement.

Jurisdiction

This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157, and E.D. Mich. LR 83.50. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) (matters concerning the administration of the estate).

Findings of Fact

The Court makes the following findings of fact based upon the pleadings filed with the Court in this case, the exhibits admitted at the September 16, 2011, evidentiary hearing, and the testimony of Mr. Cubitt.

The Debtor filed a Petition seeking relief under Chapter 11 on October 21, 2010. Bank of America filed a Motion seeking relief from the automatic stay pursuant to 11 U.S.C. § 362 to allow it the opportunity to have an order entered as to non-debtor individuals. This Court granted the relief requested by Bank of America pursuant to an Order dated December 10, 2010. The Sanilac County Circuit Court entered a judgment against various individuals, but no further action has been taken against the Debtor since the entry of the Order of the Sanilac County Circuit Court.

On December 20, 2010, Mr. Cubitt filed an Application to be employed as the attorney for the debtor-in-possession. This Application was amended on December 30, 2010. In the interim, the United States Trustee objected to the Application to Employ Mr. Cubitt, and the Court conducted a hearing on this Application on January 7, 2011. The Court denied Mr. Cubitt's Application and, in conjunction with other Motions heard on January 7, 2011, concluded that a Chapter 11 Trustee should be appointed by the United States Trustee. The Court entered an Order denying Mr. Cubitt's Application on January 11, 2011 and entered an Order directing the appointment of a Chapter 11 Trustee the same day. The United States Trustee selected Thomas McDonald as the Chapter 11 Trustee, and Mr. McDonald was appointed by Order of this Court dated January 12, 2011. In turn, Mr. McDonald retained the law firm of Lambert, Leser, Isackson, Cook & Giunta as the attorneys for the Chapter 11 Trustee. From February, 2011, to the present, Bank of America's counsel and the Chapter 11 Trustee's counsel have engaged in extensive negotiations regarding cash collateral, leases, and other Chapter 11 issues.

On May 24, 2011, Mr. Cubitt filed a Motion to Set Aside Judgment Against Moohaven Dairy LLC with the Sanilac County Circuit Court. This Motion was filed by Mr. Cubitt on behalf of non-specified defendants, which included Moohaven Dairy LLC, Elwood Morell, Joanne Morell, Brent A. Morell, Leanne M. Morell, as well as other defendants not represented by Mr. Cubitt in the Sanilac County Circuit Court action. A close reading of the May 24, 2011, Motion does not distinguish between or among the various parties that Mr. Cubitt represented in the Sanilac County Circuit Court action. Shortly after receiving this Motion, counsel for Bank of America on May 26, 2011, requested that the May 31, 2011, hearing be adjourned for various reasons. Mr. Cubitt refused that request. On May 26, 2011, counsel for Bank of America sent Mr. McDonald's counsel a letter regarding the involvement of the Chapter 11 Trustee in the Sanilac County Circuit Court action, as well as Mr. Cubitt's authority to act on behalf of the Trustee, or the debtor-in-possession. Neither Mr. McDonald or his counsel confirmed that Mr. Cubitt was acting within any authority or direction given to him by the Chapter 11 Trustee or his counsel.

The May 31, 2011, hearing was commenced in the Sanilac County Circuit Court, but the hearing did not continue long because of improper notice given to not only Bank of America, but to other parties in the Sanilac County Circuit Court action. Accordingly, the hearing was continued and adjourned. In the interim, this Court entered an Order prohibiting Mr. Cubitt from appearing or representing the Debtor.

At the September 16, 2011, hearing, Bank of America requested attorney fees of $11,491.50.¹ A closer view of the statement of Bank of America's counsel reveals that the following entries are directly related to Mr. Cubitt's actions on behalf of Moohaven Dairy LLC.

The Court also heard testimony from Mr. Cubitt, who confirmed that he intended to represent the Debtor at the May 31, 2011, hearing and further testified that he would take similar action again. Mr. Cubitt's testimony shows that he clearly understood the difference between the debtor-in-possession, Moohaven Dairy LLC, as opposed to the various individuals who have not filed bankruptcy.

Analysis

Federal Rule of Bankruptcy Procedure 9020 states, “Rule 9014 governs a motion for an order of contempt made by the United States trustee or a party in interest.” This power further arises from 11 U.S.C. § 105(a), which provides:

The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.

Civil contempt is remedial; it serves to compel or coerce obedience to a court order or to compensate a party for another's noncompliance with a court order. In re Joint Eastern and Southern Districts Asbestos Litigation, 830 F.Supp. 1153, 1155 (C.D.Ill.1993). It is axiomatic that “all orders and judgements of courts must be complied with promptly.” Gnesys, Inc. v. Greene, 437 F.3d 482, 493 (6th Cir.2005) (citation and quotation marks omitted). A finding of civil contempt “[is] considered to be coercive and avoidable through obedience, and thus may be imposed in an ordinary civil proceeding upon notice and an opportunity to be heard. Neither a jury trial nor proof beyond a reasonable doubt is required.” Int'l Union, United Mine Workers of America v. Bagwell, 512 U.S. 821, 827, 114 S.Ct. 2552, 129 L.Ed.2d 642 (1994) (footnote omitted). The party seeking a contempt order “must establish three elements by clear and convincing evidence: (1) the alleged contemnor had knowledge of the order which he is said to have violated; (2) the alleged contemnor did in fact violate the order; and (3) the order violated must have been specific and definite.” Hunter v. Magack (In re Magack), 247 B.R. 406, 410 (Bankr.N.D.Ohio 1999) (citing Glover v. Johnson, 138 F.3d 229, 244 (6th Cir.1998); other citation omitted). Courts have emphasized that “[w]illfulness is not an element of civil contempt and intent to disobey the order is irrelevant.” In re Walker, 257 B.R. 493, 497 (Bankr.N.D.Ohio 2001) (citing Rolex Watch, U.S.A., Inc. v. Crowley, 74 F.3d 716, 720 (6th Cir.1996)).

Courts generally use two different methods to coerce a contemnor into compliance. The first is a monetary fine that either compensates the complainant for demonstrated damages resulting from the contempt or a fine payable into the court that can be avoided by “performing the act required by the court's order[.]” United States v. Bayshore Assoc., Inc., 934 F.2d 1391, 1400 (6th Cir.1991) (citations and quotation marks omitted). The second permitted sanction for civil contempt is incarceration. “Incarceration has long been established as an appropriate sanction for civil contempt.” Id. (collecting United States Supreme Court cases dating back to 1911).

“Once the movant establishes his prima facie case, the burden shifts to the contemnor who may defend by coming forward with evidence showing that he is presently unable to comply with the court's order.” Electrical Workers Pension Trust Fund of Local Union 58, IBEW v. Gary's Elec. Service Co., 340 F.3d 373, 379 (6th Cir.2003) (citing United States v. Rylander, 460 U.S. 752, 757, 103 S.Ct. 1548, 75 L.Ed.2d 521 (1983)). To meet this burden a contemnor is required “to show categorically and in detail why he or she is unable to comply with the court's order[,]” demonstrate that they “took all reasonable steps within [their] power to comply with the court's order[,]” and “show that he is not responsible for the present inability to pay.” Id. (citations and internal quotation marks omitted).

11 U.S.C. § 327 allows a trustee to employ professionals to represent or assist the trustee. By virtue of the rights of a debtor-in-possession pursuant to 11 U.S.C. § 1107, Moohaven Dairy LLC had the right to request the appointment of counsel to represent it in this Chapter 11 case. Moohaven Dairy LLC did exactly that, but Mr. Cubitt was found to not be eligible under 11 U.S.C. § 327. This Court also found that this bankruptcy estate required the appointment of a Chapter 11 Trustee, which stripped Moohaven Dairy LLC of the practical need or ability to retain counsel.

Once the Court denied Mr. Cubitt's Application to be employed as counsel, he ceased to have any authority to represent Moohaven Dairy LLC. Although the effect of this decision is usually in regard to the payment of attorney fees, other...