U.S. Tr. v. Stone Fox Capital LLC (In re Stone Fox Capital LLC)

• Decision Date: 18 September 2017
• Docket Number: Bankruptcy No. 17–22680–CMB
• Citation: 572 B.R. 582
• Parties: IN RE: STONE FOX CAPITAL LLC, Debtor. United States Trustee, Movant, v. Stone Fox Capital LLC, Respondent. Forest Highlands Community Association, Movant, v. Stone Fox Capital LLC, Respondent.
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

572 B.R. 582

IN RE: STONE FOX CAPITAL LLC, Debtor.

United States Trustee, Movant,

v.Stone Fox Capital LLC, Respondent.

Forest Highlands Community Association, Movant,

v.Stone Fox Capital LLC, Respondent.

Bankruptcy No. 17–22680–CMB

United States Bankruptcy Court, W.D. Pennsylvania.

Signed September 18, 2017

James H. Joseph, Joseph Law Offices PLLC, Pittsburgh, PA, for Debtor.

Larry E. Wahlquist, U.S. Trustee Program/Dept. of Justice, Pittsburgh, PA, for U.S. Trustee.

MEMORANDUM OPINION

Carlota M. Böhm, United States Bankruptcy Judge

On September 12, 2017, hearings were held in the above-captioned case with respect to the following matters: (1) the Motion of the United States Trustee to Dismiss Chapter 11 Case ("Motion to Dismiss," Doc. No. 48¹ ); (2) Creditor's Motion for Sanctions Pursuant to USCS Bankruptcy Rule 9011 ("Motion for Sanctions," Doc. No. 53); and (3) this Court's Order dated August 10, 2017 ("August 10th Order," Doc. No. 58), requiring Stone Fox Capital LLC ("Debtor") to appear and show cause why the case should not be dismissed with prejudice .² Upon consideration of the parties' filings, the record of this case as well as the Debtor's previous case,³ and the testimony and arguments presented on September 12, 2017, this Court finds for the reasons set forth herein that dismissal of this case with prejudice is appropriate. However, no monetary sanctions will be imposed at this time.

Background

On December 29, 2016, the Debtor filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code commencing Case No. 16–24791 (hereinafter, the "2016 Case"). That case, however, was short-lived. On January 17, 2017, the case was dismissed for failure to file required documents. See 2016 Case, Doc. No. 11. Despite the dismissal, the Debtor did not remain outside of bankruptcy for very long.

Approximately six months later, on June 30, 2017, the Debtor commenced the above-captioned case, once again seeking Chapter 11 relief. Activity in this case was almost immediate. Not long after the filing, Forest Highlands Community Association ("Forest Highlands") filed Creditor's Motion for Relief from Stay / to Lift Automatic Stay ("Motion for Relief from Stay," Doc. No. 15). Therein, Forest Highlands identifies itself as a creditor with a judgment for unpaid community expenses, penalties, interest, and attorney's fees secured by the Debtor's only asset, the real estate located at 3 Shadow Lane, Pittsburgh, Pennsylvania ("Shadow Lane Property"). Forest Highlands seeks relief to proceed to a sheriff's sale. The Motion for Relief from Stay is currently scheduled for an evidentiary hearing.

In addition to the pending Motion for Relief from Stay, the docket revealed deficiencies resulting in the issuance of a rule to show cause why the case should not be dismissed with prejudice. See Order entered July 17, 2017, Doc. No. 32. At the hearing on July 20, 2017, the Court chose not to dismiss the case, and Debtor was given another opportunity to file required documents. At that time, in light of the pending Motion for Relief from Stay, the Court directed the Debtor, Forest Highlands, and their counsel to meet and attempt to resolve the parties' dispute. The parties were further directed to report back to the Court regarding the outcome of their meeting.

Pursuant to the Court's instruction, Forest Highlands filed a report indicating that no settlement had been reached. See Doc. No. 51. The report was followed by the filing of the Motion for Sanctions seeking dismissal of the case with prejudice and an award of sanctions. In addition, the United States Trustee filed its Motion to Dismiss. The United States Trustee contends that cause exists for dismissal as Debtor failed to obtain court-approved counsel, current counsel is not "disinterested" as required by the Bankruptcy Code, and Debtor is not authorized to appear pro se . Based upon the record, the Court issued the August 10th Order, putting the Debtor on notice of specific items which may result in dismissal with prejudice and the imposition of an injunction on the filing of a new bankruptcy case for a specified period of time. Debtor was further directed to be prepared to present any relevant evidence at the hearing on September 12, 2017.

Notably, the Debtor failed to file responses to either the Motion to Dismiss or the Motion for Sanctions. Accordingly, the United States Trustee, Forest Highlands, and the Court had no indication of the defenses (if any) Debtor would present at the hearing. Although both the United States Trustee and Forest Highlands sought entry of their proposed orders due to Debtor's failure to timely respond, the Court did not enter orders by default thereby giving the Debtor a full opportunity to appear and respond to the pending motions and the August 10th Order and potentially avoid the severe consequences of dismissal with prejudice and imposition of sanctions.⁴ On September 12, 2017, James H. Joseph ("Attorney Joseph") appeared and testified on behalf of the Debtor. No additional testimony or evidence was presented at that time.

Findings of Fact

Based upon the testimony, the Court understands the Debtor to have been created for the purpose of owning real estate, specifically the Shadow Lane Property, which was to be rehabilitated for a profit. Attorney Joseph, Debtor's sole equity security holder, resides at the property. See Doc. No. 30. Although Attorney Joseph commenced renovations, he experienced medical issues which affected the progress of the project. In the meantime, community expenses accrued and Forest Highlands obtained a judgment against Debtor. Thereafter, the Shadow Lane Property was scheduled for sheriff's sale.

On December 29, 2016, Debtor commenced the 2016 Case. The petition was signed by Attorney Joseph as both the manager of the Debtor and Debtor's counsel. See 2016 Case, Doc. No. 1. The filing of the bankruptcy case stayed the sheriff's sale which was to take place the first week of January 2017. However, Debtor failed to file required documents leading to the dismissal of that case approximately nineteen days after it was filed on January 17, 2017. See 2016 Case, Doc. No. 11. A review of the docket reveals that no further efforts were made by Debtor to complete the required filings and pursue this case past December 30, 2016. Despite the apparent lack of effort to proceed, Attorney Joseph contends that the dismissal of the 2016 Case was not intentional but rather due to a combination of his personal medical issues and a misunderstanding regarding the applicable deadline to complete the required filings. Although Attorney Joseph testified that he considered seeking reconsideration of the dismissal, he ultimately decided against it. Instead, he chose to wait and see what would happen next with Forest Highlands.

Following dismissal, Forest Highlands resumed its efforts to foreclose on the Shadow Lane Property. A sheriff's sale was rescheduled for July 3, 2017, only to be stayed by the filing of the above-captioned case on June 30, 2017. As in the 2016 Case, Attorney Joseph signed the petition as both the manager of the Debtor and Debtor's counsel. See Doc. No. 1. In addition to being the sole equity security holder, Attorney Joseph has been identified within the Debtor's filings as a creditor. See Doc. Nos. 4 and 30. Although an application to employ Attorney Joseph as counsel for the Debtor has not been filed, Attorney Joseph continues to appear as counsel. Further, he advised that Debtor attempted to find other representation without any success. There is no credible evidence that the Debtor would be successful in finding and retaining counsel in the near future.

Notably, while Attorney Joseph was identified as a creditor on the Debtor's list of creditors holding the twenty largest unsecured claims, Attorney Joseph is absent from Schedule E/F identifying creditors with unsecured claims. Compare Doc. No. 4, with Doc. No. 37. The Schedule identifies only one creditor holding a nonpriority unsecured claim. The unsecured claim of James Bevan Joseph ("James") is characterized as an unliquidated claim related to a personal debt in the amount of $88,000.00. See Doc. No. 37. James is the son of Attorney Joseph. Within the filings, the address provided for both Attorney Joseph and James is the Shadow Lane Property; however, according to Attorney Joseph, James actually resides in Charleston, South Carolina.

With respect to the explanation of James' claim, Attorney Joseph's testimony lacked credibility. According to Attorney Joseph, there is no documentation to support the claim. Although Attorney Joseph describes the basis of the claim as part of a complex transaction, the Court understands his testimony to essentially be as follows: Attorney Joseph sold his prior residence; he intended to allocate certain proceeds from that sale among his children; certain proceeds were instead provided to and used by the Debtor to purchase the Shadow Lane Property. Based on the testimony, there is no support for a claim by James in this case; rather, the testimony supports a finding that the Debtor purchased the Shadow Lane Property with funds from the sale of Attorney Joseph's prior residence without ever passing through the hands of James or being designated as his property.⁵ Accordingly, no credible support for the unsecured claim of James was provided.

Debtor identified very few additional creditors. Forest Highlands is identified as the only creditor holding a secured claim while the remaining claims are those of taxing bodies. See Doc. Nos. 35 and 37. Debtor calculates its liabilities as totaling $196,475.52 consisting of $84,000.00 owed to Forest Highlands, $24,475.52 owed to taxing bodies, and $88,000.00 owed to James. See Doc. No. 38. The only assets identified by Debtor are the Shadow Lane Property valued at $223,000.00 and an unliquidated claim against Forest Highlands in the amount of $100,000.00. See Doc. No. 25. Debtor has no cash,...