In re The Bible Speaks

• Decision Date: 08 October 1986
• Docket Number: Bankruptcy No. 86-40392-JFQ.
• Citation: 65 BR 415
• Parties: In re THE BIBLE SPEAKS, Debtor.
• Court: U.S. Bankruptcy Court — District of Massachusetts

65 B.R. 415 (1986)

In re THE BIBLE SPEAKS, Debtor.

Bankruptcy No. 86-40392-JFQ.

United States Bankruptcy Court, D. Massachusetts.

October 8, 1986.

Gordon T. Walker, Eric R. Dannemaier, McDermott, Will & Emery, Boston, Mass., for Elizabeth Dovydenas.

Norman Roy Grutman, Grutman, Miller, Greenspoon & Hendler, New York City, Charles W. Morse, Jr., Sullivan & Worcester, Boston, Mass., for The Bible Speaks.

OPINION

JAMES F. QUEENAN, Jr., Bankruptcy Judge.

This case presents the important question of whether or not a debtor may request reorganization under Chapter 11 of the Bankruptcy Code for the primary purpose of resolving a serious dispute with a third party which is pending in the state courts. Elizabeth Dovydenas ("Mrs. Dovydenas") moves to dismiss this Chapter 11 proceeding pursuant to 11 U.S.C. § 1112(b) on the ground that it was filed in "bad faith." Alternatively, she moves that the Court either abstain, pursuant to 28 U.S.C. § 1334(c), from hearing litigation pending in the state courts between the parties, or terminate the automatic stay now in effect under 11 U.S.C. § 362 in order to permit that litigation to continue. The Chapter 11 debtor in possession, The Bible Speaks (the "Debtor"), opposes the motion on its merits and contends that Mrs. Dovydenas does not have standing as a "party in interest" to bring this motion under 11 U.S.C. § 1112(b). The Court has held an evidentiary hearing on the motion. For the reasons set forth in this opinion, which contains both the Court's findings of fact and conclusions of law, the motion is denied.

I. Factual Background

The Debtor is a corporation having a tax exempt status as a religious and educational organization. In the words of its president and pastor, the Debtor is a "Christ-centered, bible-believing, fundamentalist church." It operates two educational facilities at its headquarters in Lenox, Massachusetts: The Stevens School of the Bible, which enrolls some 550 adults, about half of whom board at the school; and Stevens Christian School, a private day school for children in Kindergarten through the twelfth grade which enrolls about 300 students. The Debtor has approximately 1,200 local parishioners and supports programs of missionary work in numerous foreign countries. It conducts a daily radio program in the form of an hour-long "talk-show" concerning religious education which is broadcast throughout the country. It has about 200 employees. It has a relationship with a number of autonomous religious organizations, referred to as "affiliated ministries," which are located in 12 states and 18 foreign countries. These affiliated ministries also use the name "The Bible Speaks."

Mrs. Dovydenas became a parishioner of the Debtor in 1982. During a period ending in December, 1985, she transferred to the Debtor money and stock of the Dayton-Hudson Company having a total value of approximately $7,000,000. In January of 1986 Mrs. Dovydenas began seeing a so-called "exit counselor" who counsels individuals in the process of leaving religious organizations. At about the same time, she consented to the institution of a temporary conservatorship proceeding in which a court appointed her father, Wallace C. Dayton, and a bank as temporary conservators. During this temporary conservatorship proceeding, which expired the following April, the conservators examined officers of the Debtor concerning the cash and security transfers.

On April 14, 1986 the Debtor filed a complaint in a state court against Mrs. Dovydenas, her husband and her father seeking damages and a declaratory judgment that the transfers were not the result of fraudulent acts, misrepresentations or improper influence of the Debtor's officers or representatives. This suit was dismissed without leave to amend by a Memorandum of Decision and Order dated June 13, 1986, and judgment on the dismissal was entered June 20, 1986. On July 1, 1986 the same court denied the Debtor's motion to vacate. The Debtor has appealed from the dismissal of its complaint.

On June 18, 1986, shortly after dismissal of the Debtor's complaint for declaratory judgment but before entry of judgment, Mrs. Dovydenas brought suit in the same state court seeking damages and rescission of the transfers on the grounds of lack of donative intent, undue influence and fraud. She claimed a trial by jury and joined as defendants Carl H. Stevens, Jr. ("Stevens"), who is the Debtor's president and pastor, and Kathleen Hill, an employee of the Debtor. Mrs. Dovydenas alleged, inter alia: that she had developed an "intense emotional dependence" upon the individual defendants; that she maintained an "intimate and confidential" relationship with them; that they counseled her to maintain secrecy from her husband and family concerning her financial dealings with the Debtor, to make a vow of loyalty only to Stevens and the Debtor, and to make substantial gifts to the Debtor; that she was incapable of understanding the significance of the financial transactions; and that the defendants misrepresented to her the purposes for which the donations would be used and the Debtor's need for the funds. At the time of the filing of the complaint counsel for Mrs. Dovydenas also filed interrogatories to be answered by the Debtor and Stevens together with a notice of the deposition of the Debtor, Stevens and others.

The Debtor moved to dismiss the complaint on the ground that the declaratory judgment action was still pending by reason of the pendency of the appeal from its dismissal. At the same time the Debtor moved for a protective order to stay discovery pending the appeal. At the hearing held on July 16, 1986 the state court denied the motion to dismiss and the motion for a protective order. A discovery schedule was then worked out by the parties and approved by the court.

At the July 16, 1986 hearing in the state court, the Debtor also moved to admit its New York attorney, Norman Roy Grutman, pro hac vice to practice before the Massachusetts courts with respect only to that litigation. Mrs. Dovydenas opposed this motion, alleging obstructive conduct on the part of Mr. Grutman during that litigation and during the prior conservatorship proceeding. The state court judge declined to admit Mr. Grutman pro hac vice. Instead, the court allowed him to appear for a limited time on the condition that he complete and file a formal application for admission to the Massachusetts bar by August 28, 1986. The Debtor appealed from this order. It subsequently advised the state court judge that pending the appeal it would abide by the Court's ruling and that because of complexities in the application process it was not possible for it to file a completed application for Mr. Grutman's admission to the Massachusetts bar by August 28th.

On July 29, 1986 the Debtor filed a petition with this Court seeking reorganization under Chapter 11, 11 U.S.C. §§ 1101-1174. Stevens and Kathleen Hill have also filed petitions with the Court requesting relief under Chapter 13, 11 U.S.C. §§ 1301-1330. The Debtor has moved the admission of its attorney, Norman Roy Grutman, pro hac vice to practice before this Court. The Court has so admitted Mr. Grutman, who is a member of the bar of the Southern District of New York.

Mrs. Dovydenas attacks this Chapter 11 filing on the ground that the petition has been filed in "bad faith." She alleges that the Debtor filed its petition solely for the purposes of changing the forum in which her claims are to be tried and denying her the right to a jury trial. She asserts that the Debtor neither needs a Chapter 11 reorganization nor intends to effect a plan or reorganization, and that it is trying to manipulate bankruptcy remedies. The Debtor, on the other hand, disputes the charge of bad faith and contends that the Dovydenas claim poses a grave threat to its survival. It argues that when this claim is considered in conjunction with the Debtor's present working capital position, a picture emerges of an organization that is in dire need of the remedies available under Chapter 11.

In its schedules filed with this Court, the Debtor lists assets having a book value of $5,902,449, (of which $4,858,000 is real estate) and liabilities of $7,667,024 broken down as follows: wages having priority — $28,588; taxes owing states — $158; deposits received for future services or undelivered purchases — $30,093; secured claims — $304,436; and unsecured claims — $7,303,749, of which $7,038,825 is the disputed Dovydenas claim. Over 250 creditors are listed, more than half of whom are students who had made deposits for room, board or tuition. The Dovydenas claim and one other claim in litigation are described as "disputed, unliquidated and contingent."

There was no testimony concerning the specific fair market value of the Debtor's real estate. However, it is clear that the value of this real estate is substantially in excess of its book value, which merely represents historic cost less depreciation. The Lenox property, which is carried at a book value of approximately $3,500,000, was purchased in 1976. The Court takes judicial notice of the general increase in real estate values in Berkshire County since then. Moreover, the certified public accountant who testified for the Debtor readily conceded on cross examination that the fair market value of the Debtor's real estate significantly exceeded its book value.

A description of the Debtor's liquid position requires some elaboration. As of the time of the filing of the Chapter 11 petition, the Debtor had cash and other liquid assets amounting to $114,426 and owed debts presently payable in excess of $240,000. It also had "restricted funds" consisting of funds which were donated for specific purposes. These funds include about $200,000 remaining from a December, 1985 donation of Mrs. Dovydenas which had been restricted for the purchase of television equipment and the production of television programs. The Debtor's...