In re Parrott Broad. Ltd.

• Decision Date: 13 May 2013
• Docket Number: No. 10–40017–JDP.,10–40017–JDP.
• Citation: 492 B.R. 35
• Parties: In re PARROTT BROADCASTING LIMITED PARTNERSHIP, Debtor.
• Court: U.S. Bankruptcy Court — District of Idaho

492 B.R. 35

In re PARROTT BROADCASTING LIMITED PARTNERSHIP, Debtor.

No. 10–40017–JDP.

United States Bankruptcy Court, D. Idaho.

May 13, 2013.

Brett Cahoon, Racine Olson Nye Budge & Bailey, Pocatello, ID, for chapter 7 Trustee Gary L. Rainsdon.

MEMORANDUM OF DECISION

JIM D. PAPPAS, Bankruptcy Judge.

Introduction

Chapter 7 ¹ trustee, Gary L. Rainsdon (“Trustee”), objected to the amended proof of claim (“POC”) filed in this case as Claims Reg. No. 26–3 by Frederick H.K. Baker, Jr. (“Baker”). Dkt. No. 223. The objection was argued at a hearing before the Court on March 18, 2013, and after supplemental briefing by Trustee was filed, Dkt. No. 240, the issues were taken under advisement.² The Court has consideredthe briefs, arguments, and applicable law. This Memorandum resolves Trustee's objection. Fed. R. Bankr.P. 7052; 9014.

Facts

On February 25, 2003, Kani Communications, Inc. (“Kani”) entered into a Contract Usage Agreement for Permit Area (“Lease Agreement”) with Hilo Broadcasting, LLC (“Hilo”). Att. to Claims Reg. No. 26–1. Baker is the president and chief executive officer of Kani. Hilo had previously purchased the license for radio station KAHU from Kani, and already owned the transmission tower (“Tower”) located on certain real property, the use of which was restricted somewhat by the Hawaiian Homes Commission Act of 1920 (“Property”).³Id. Hilo also owned the license for radio station KHBC. Dkt. No. 233, Exh. A. The Lease Agreement granted Hilo the right to use a specified portion of the Property to locate and operate the Tower for radio broadcasting purposes. Id. The term of the Lease Agreement was for eight years, commencing on March 1, 2003, and concluding February 28, 2011. ⁴Id. at ¶ 2(a). Under the Lease Agreement, rent was to be paid by Hilo to Kani in the amount of $850 per month for the first five years, and $1,250 per month for the remaining three years of the contract term. Id. at ¶ 3(a). The Lease Agreement provided that Hilo “can not in any way assign this Contract Usage Agreement or the Permit Area, or any part of their interest thereof.” Id. at ¶ 12. The Lease Agreement was signed by Baker as the president of Kani, and Hugh E. Gordon, the president of Hilo. Attachment to Claims Reg. No. 26–1.

On September 13, 2007, Parrott Broadcasting, LP (“Debtor”) entered into an Asset Purchase Agreement (“APA”) with Hilo, by which Debtor acquired the assets of radio station KHBC, including the Tower,⁵ from Hilo for $450,000. Dkt. No. 233, Exh. A. The APA also provided that Debtor would assume and accept an assignment of Hilo's duties and rights under the Lease Agreement, despite the provision in the Lease Agreement expressly prohibiting its assignment. Id. at ¶ 2.01(c).

In November 2007, Hilo and Debtor entered into a Post–Closing Agreement for Use of Tower Site and for Payment of Tower Site Rent (“Post–Closing Agmt.”). Att. to Claims Reg. No. 27–2. The Post–Closing Agmt. provides that Hilo will retain the Lease Agreement in its name during the remainder of its term, but Hilo will provide Debtor with all the benefits of the Lease Agreement, namely, access to the Tower site. Id. at ¶ 1. In exchange, Debtor agreed to:

accept and agree to do all things necessary to fulfill the obligations of [Hilo] under the [Lease Agreement], including the reimbursement of [Hilo] for all rent obligations of [Hilo] under the [Lease Agreement.] Specifically, [Debtor] will pay to [Hilo], on the first day of each and every month during the remainder of the term of the [Lease Agreement] and any renewal term, any and all rent and other remuneration, funds, and expenses due for that month to [Kani]. [Hilo] will immediately thereafter remit such rent, remuneration, funds and amounts due to [Kani] at the proper time pursuant to the terms of the [Lease Agreement.]

Id. at ¶ 2 (emphasis in original).

On January 7, 2010, Debtor filed a chapter 11 petition. Dkt. No. 1. The case was converted to a chapter 7 case on February 9, 2011. Dkt. Nos. 113, 114. Kani's original proof of claim was filed on June 15, 2010, and in it, the creditor asserts that from “March 2009 through November 2009, KANI continued to receive on time monthly usage payments for the Property. In December 2009, KANI received the monthly payment for the Property late.” Claims Reg. No. 26–1, ¶ 6. The amended POC, at issue here, was filed on October 12, 2012; it asserts $43,696.95 is due from Debtor for postpetition rent payments and late charges under the Lease Agreement accruing from January 2010 through February 2011. Claims Reg. No. 26–3. Trustee objected to the amended POC. Dkt. No. 223. Baker filed a response to the objection. Dkt. No. 233.

Analysis and Disposition

A timely filed proof of claim is deemed allowed, unless a party in interest objects, and constitutes prima facie evidence of the validity and amount of the claim. § 502(a); Rule 3001(f). However, if an objection to a proof of claim is made, the Court must determine the amount of the claim as of the date of the petition, and “shall allow such claim ... except to the extent that—(1) such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured.” § 502(b)(1). As the objector, Trustee bears the burden to overcome the prima facie validity of Kani's claim. If he does so, then the burden ultimately rests on Kani to demonstrate that the claim should be allowed. In re Schweizer, 354 B.R. 272, 279–80 (Bankr.D.Idaho 2006) (citing In re Pugh, 157 B.R. 898, 901 (9th Cir. BAP 1993)).

Trustee objects to the POC on three grounds. First, Trustee argues that Kani is a corporate entity and thus can not appear or respond to his objection without counsel, and therefore, the Court should disregard any response to the objection filed by Baker, who is and has been representing Kani pro se. Trustee also contends that the claim is unenforceable because Debtor was not a party to the Lease Agreement, and Kani has no right to recover unpaid rents from Debtor. Finally, Trustee contends that the assignment of the Lease Agreement from Hilo to Debtor was invalid and ineffective and Kani therefore has no right to recover rent from Debtor. The Court considers each of these arguments in turn.

A. Baker as Creditor—Kani's Need for Counsel

Trustee alleges first that Kani, not Baker, is the actual creditor in this case, and as a corporation, Kani must be represented in these proceedings by counsel. Therefore, Trustee urges, the Court should disregard any opposition to Trustee's objection. Trustee's contention has merit.

Baker's reply to Trustee's objection to the POC begins, “COMES NOW, FREDERICK H.K. BAKER, JR. (“BAKER”), in his own person and proceeds Pro Se. Baker herein declares that he is President/CEO of KANI Communications, Inc.” Dkt. No. 233 (emphasis in original). The obvious import of this statement is that Baker acknowledges that he is appearing, not on his own behalf, but in his status as President/CEO, to represent Kani's corporate interests in this case. Such is not a permissible practice under the law or rules of this Court.

“It has been the law for the better part of two centuries ... that a corporation may appear in the federal courts only through licensed counsel.” Rowland v. Cal. Men's Colony, Unit II Men's Advisory Council, 506 U.S. 194, 201–02, 113 S.Ct. 716, 121 L.Ed.2d 656 (1993); Licht v. Am. West Airlines, 40 F.3d 1058, 1059 (9th Cir.1994) (“Corporations and other unincorporated associations must appear in court through an attorney”). This is also the rule of the bankruptcy courts in the District of Idaho. Local Bankruptcy Rule 7010.1(e)(3) provides “[w]henever a corporation, partnership or other entity desires or is required to make an appearance in this court, only an attorney of the bar of this court or an attorney permitted to practice under these rules shall make the appearance.” See In re Kearns, 10.1 IBCR 331, 331 n. 2 (Bankr.D.Idaho 2010) (vice president not permitted to appear on behalf of corporation, even though he was an attorney licensed to practice in a state other than Idaho).

There is no evidence in the record that the creditor's claim has been assigned from Kani to Baker, despite the fact that the first two versions of the POC were filed by Kani, and the latest was filed by Baker individually. Thus, it appears Baker filed the POC, as well as the response to Trustee's objection, pro se. This is not a problem as regards the filing of the POC, as LBR 9010.1(e)(5)(A) provides that a creditor may prepare, sign, and file a proof of claim. In contrast, though, the filing of a pleading, in this case, the response to Trustee's objection, does constitute an “appearance” for the purpose of the rule, and is thus prohibited. One remedy for discouraging this prohibited practice is to strike the pleadings filed pro se by a corporation. See Advantage Healthplan, Inc. v. Potter, 391 B.R. 521, 538 (D.D.C.2008); Terry v. Sparrow, 328 B.R. 442, 446 (M.D.N.C.2005); Microsoft Corp. v. Computer Serv. & Repair, Inc., 312 F.Supp.2d 779, 782 (E.D.N.C.2004). As such, it is within the Court's power to simply strike the pleadings Baker filed on behalf of Kani and sustain Trustee's objection by default.

As the amended POC lists Baker as the creditor, he might contend that Kani had assigned the claim to him individually. But Baker has not complied with the rules to establish his rights as an assignee of the claim. Rule 3001(e)(2) governs transfers of creditor claims after a proof of claim has been filed, and requires that, if a claim is transferred, “evidence of the transfer shall be filed by the transferee,” whereupon the Clerk then gives notice of the filing to the transferor, who may then object. Baker has not satisfied the requirements of this Rule.

Furthermore, even if Baker had attached some sort of assignment to the latest POC, the Court would scrutinize the transfer carefully:

There is...