Corinthian LLC

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re 	: 	Chapter 11
Corinthian, LLC, 	:
Debtor. 	: 	Case No. 08-12619(JKF)
________________________________
MEMORANDUM OPINION
BY: 	J EAN K. F ITZ S IMON
United States Bankruptcy Judge
Before the Court is the motion (“Motion”) of the Acting United States
Trustee (“UST”) to dismiss this Chapter 11 bankruptcy case pursuant to
11 U.S.C. § 1112(b). The UST asserts that this bankruptcy case should be
dismissed for the following reasons:
(1) 	W hen the bankruptcy case was filed, Corinthian
(“Debtor”) was not registered in Pennsylvania;
(2) 	The corporate resolution which appears on
the docket authorizing the bankruptcy filing
for Debtor was signed and dated June 15,
2008 which is approximately 2 months after
the bankruptcy case was filed;
(3) 	Debtor has no business operations and its
only activity is litigation which has been
ongoing in Florida; and
(4) 	Nothing of benefit has occurred, and there
has been no movement forward, in this
bankruptcy case so creditors should not be
forced to wait for the litigation in Florida to
conclude while being prohibited from
pursuing their claims against the Debtor.
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After Debtor filed its answer to the Motion, the Court held an evidentiary hearing
at which testimony and documentary evidence was presented.
Based upon the record and the credibility of the witnesses, the Court
concludes that Debtor has no employees, no current business operations and is
centered solely around litigation occurring in the state court in Florida. Pursuant
to the standard set forth in 11 U.S.C. §1112(b)(1), the Motion shall be granted
and the case shall be dismissed.
I. BACKGROUND1
Debtor’s Incorporation in Florida and
Subsequent Registration in Pennsylvania
Debtor, which was originally incorporated in Florida in the fall of 2004, is
equally owned by Quaker Development Corp. and Avenue Q LLC. Quaker
Development is wholly owned by Edward W eingartner; Avenue Q is wholly owned
by Dreama Odell. According to Odell, she sought to register Debtor as a
business entity in Pennsylvania on April 17, 2008, by faxing the required form to
the Pennsylvania Department of State Corporation Bureau on that date. She
further testified that she received the form back from the Corporation Bureau on
The facts set forth above are based on the testimony admitted at the hearing1
on the Motion as well as the documentary evidence in the record. Pursuant to the
parties’ agreement, documentary evidence in the record includes all exhibits admitted
into evidence in connection with the Motion as well as all documents filed in Debtor’s
bankruptcy case.
2
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April 19, 2008, advising her that she needed to add something to the Debtor’s
name so she added “, PA” and faxed the form back. 	At the hearing on the2
Motion, Debtor produced a document bearing the name “Corinthian LLC, PA” and
stamped “PA Dept. of Stat Apr 23 2008." According to Odell, this document is
evidence that Debtor was registered in Pennsylvania by the aforementioned date.
However, print-outs from Department of State website list Corinthian LLC, PA as
having been created in Pennsylvania on 7/29/08 which, interestingly, is four days
after the U.S. Trustee filed her Motion. See Exhibit D-2 & D-3.
The Florida Land Purchase Deal & Subsequent Litigation
W hen Debtor was created in 2004, it was assigned the interest of the buyer
under a contract for the purchase of certain land in Florida. W hen the seller
At the close of the hearing on the Motion, the Court advised the parties that the2
record would be left open for them to submit additional documentary evidence if they so
desired. Debtor submitted one additional document for inclusion in the record. The
document appears to be identical to the document which Debtor submitted at the
hearing as Exhibit D-1 except that it has a third page attached thereto. The third page,
which is signed by Odell and dated April 21, 2008, states the following:
This Corinthian LLC is the same one as was filed
electronically last week.
The Certificate of Organization was submitted in error.
To the extent that this still requires a consent to us similar
name, please accept it as such.
The UST objects to the admission of this document on the following grounds:
relevancy, hearsay, authentication and the best evidence rule. Presumably, the
document is offered to support Odell’s contention that the Debtor was registered in
Pennsylvania before it filed its bankruptcy case. 	However, the document does not
achieve that purpose. Even if the document is interpreted as a communication which
Odell faxed to the Pennsylvania Department of State Corporation Bureau on April 21,
2008, it does not establish that the Debtor was registered in Pennsylvania on that date.
Accordingly, the document has no bearing on the outcome of this matter.
3
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failed to follow through with the sale of the land, Debtor commenced an action
against it in the state court in Florida (the “Florida action”). The defendants in the
Florida action filed a counterclaim against Debtor.
Debtor’s Bankruptcy Filing and
Attempt to Enjoin Trial in Florida Action
On April 21, 2008, which was only four days after Odell sought to register
Debtor in Pennsylvania, Debtor filed a Voluntary Petition under Chapter 11 of the
Bankruptcy Code. Thereafter, Debtor moved in this Court to enjoin the trial which
was scheduled for May 27, 2008 in the Florida action. By Order, dated May 27,
2008, this Court denied the motion, stating that the Florida action was not
enjoined “so long as that civil action does not prosecute nor adjudicate any
claims against the chapter 11 debtor.” See Amended Order dated May 23, 2008
at Docket Entry No. 30 (emphasis in original).
On May 27, 2008, the state court proceeded with a jury trial of Debtor’s
claims against the defendants in the Florida action. See Motion for
Reconsideration or Relief from the May 23 and 27 Orders of this Court Denying
the Debtor’s Application for Enforcement of the Automatic Stay at pg. 4. W hen
Debtor failed to appear at the trial, defendants moved for a directed verdict on
Debtors’ claims and the state court rendered judgment in the defendants’ favor on
the claims. 	Id. Debtor filed an appeal from the state court’s rulings.3
Based on the record, it appears that, prior to the trial, the state court granted3
summary judgment in favor of the defendants on some of the counts in Debtor’s
(continued...)
4
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Debtor’s Schedules, Debtor’s Corporate
Resolution and the U.S. Trustee’s Motion
On June 16, 2008, Debtor filed its Schedules, Statement of Financial
Affairs and its corporate resolution authorizing its bankruptcy filing. According to
Debtor’s Schedules A through E, Debtor owns no real or personal property and
has no creditors holding secured or unsecured priority claims. On Schedule F,
Debtor listed nine unsecured claims. Three of the claims are held by insiders. Of
the remaining six claims, four are listed as disputed. One of the claims, for which
three creditors are named, is for purchase price of the land in Florida. See
Schedules F & G. According to the Debtor’s Statement of Financial Affairs,
Debtor has no income from employment, operation of business or other than from
employment or operation of business. There is no mention whatsoever on the
Schedules or the Debtor’s Statement of Financial Affairs of any ongoing business
of the Debtor other than Florida action.
The corporate resolution which was filed on Debtor’s behalf in its
bankruptcy case is dated June 15, 2008. See Docket Entry No. 58. This
document states that it was resolved at a meeting of Debtor’s members that
Debtor should “file as soon as practicable” for reorganization under Chapter 11 of
the Bankruptcy Code. However, at the hearing on the Motion, Debtor submitted a
(...continued)3
complaint against them. The trial was, therefore, limited to the remaining counts
against the defendants. After the defendants moved for directed verdicts against
Debtor, the state court entered judgment in the defendants’ favor on the remaining
counts. See Exhibit I (copy of state court trial transcript, dated May 27, 2008) of Motion
for Reconsideration or Relief from the May 23 and 27 Orders of this Court Denying the
Debtor’s Application for Enforcement of the Automatic Stay.
5
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similar document titled “Resolution of Membership of Corinthian LLC” which
states that “[i]t is resolved that the members of Corinthian LLC hereby resolve to
file a reorganization plan on April 19, 2008 and that the LLC has 5 days to retain
counsel per the Bankruptcy Court because it is a LLC.” See Exhibit D-1. This
document was never filed with the Court. Both documents are signed by Odell
and W eingartner.
On July 25, 2008, the UST filed her Motion. Three days later, Debtor filed
an Amended Schedule B and an Amended Schedule F.
W hereas Debtor listed no personal property on its original Schedule B, it
listed a total of $61,074,000.00 in personal property on its Amended Schedule B.
This amount includes two security deposits. One deposit is for $178,000 with
Sewell Hardware; the other one is for $222,000 with National City Bank. These
security deposits relate to the land purchase deal which is the subject of the
Florida action. The other personal property which Debtor listed on its amended
schedule are the following three contingent and unliquidated claims:
(i) $2,530,000.00 identified as the “Value of Purchase from National City Bank of
site after construction”; (ii) $144,000 identified as “Real Estate Development of
Evernia Street property Lease Back Sewell Hardware during construction” and
(iii) $58,000,000.00 as “Claim for breach action against National City Bank,
Sewell Hardware and Sewell Partnership.” 4
On its Amended Schedule B, Debtor also listed "Approvals from City of West4
Palm Beach,” but it listed the value for this personal property as "unknown."
6
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Debtor’s Amended Schedule F lists the same dollar amount for unsecured
nonpriority claims as its original Schedule F. The creditors are simply listed in a
different order/manner.
The Debtor’s Operating Reports
On August 27, 2008, four monthly operating reports were filed on the
Debtor’s behalf. 	The Initial Monthly Operating Report is dated April 27, 2008 and
signed by O’Dell. It has only two attachments. One of the attachments is a Cash
Flow Projections for the 12 month Period from April 23, 2008 through April 23,
2009. According to this document, the Debtor’s cash flows for the
aforementioned 12 month period are projected to be: $600.00; $0.00; $0.00;
$3,000.00; $2,000.00; $10,000.00; $2,000.00; $2,000.00; $10,000.00; $2,000.00;
$3,000.00; and $5,000.00. The only other attachment is a page listing a checking
account at W achovia for Corinthian, LLC with Sandra Forbes who is a financial
analyst with the U.S. Trustee’s Office identified as the Trustee.
The other monthly operating reports, also signed by O’Dell, are dated
May 24, 2008, June 22, 2008 and July 22, 2008. All of them state that Debtor
has no employees. They all contain the same Balance Sheet, dated May 13,
2008, showing that Debtor has $5,000 in cash. At the hearing on the Motion,
O’Dell testified that while they originally intended to deposit this amount of money
into a bank account for the Debtor, it was never done. A statement attached to
the Debtor’s Operating Report for June 22, 2008, lists a business checking
account for Corinthian, LLC, at W achovia Bank with an opening balance of
7
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$665.95 on 5/31 and a closing balance of $654.40 on 6/30. A similar statement
attached to the Operating Report for July 22, 2008 shows the same amount
($654.40) for the opening and closing balances in Corinthian’s W achovia account
for the month of July. The Statement of Operations attached to the Operating
Reports for May, June and July are completely blank except that the Statement of
Operations for July has the abbreviation “N/A” written at the top.
Odell’s Testimony at the Hearing Regarding Debtor’s Other Projects
At the hearing on the Motion, Odell testified that the Debtor has an
agreement with National City Bank (and the necessary approvals) to build a $2.5
million building for it. However, no supporting documentation whatsoever was
provided to substantiate this testimony and it was the first time that any such
agreement was mentioned. 5
At the hearing, Odell also testified that Debtor has a consulting source
agreement with Quaker Farms which is another entity owned by W eingartner.
According to Odell, Debtor earned $3,000.00 under this agreement in August.
She further explained that the cash sales listed on the Cash Flow Projections
sheet attached to the Initial Monthly Operating Report, dated April 27, 2008, are
based on Debtor’s projected earnings pursuant to this agreement with Quaker
Farms. However, Debtor failed to provide any supporting documentation, other
Sandra Forbes, the Financial Analyst who was assigned to this bankruptcy5
case by the U.S. Trustee’s office, held her initial interview for this Chapter 11
bankruptcy case on May 13, 2008. Odell and Weingartner were both present at this
meeting as well as the Debtor’s counsel and the U.S. Trustee. Neither Odell nor
Weingartner nor Debtor’s counsel mentioned the Debtor’s alleged agreement with
National City Bank.
8
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than the Cash Flow Projections sheet, to substantiate the existence of this
agreement and it was never mentioned prior to the hearing. 6
II. DISCUSSION
The U.S. Trustee seeks dismissal of this case pursuant to 11 U.S.C.
§ 1112(b). This subsection provides, in pertinent part:
[O]n request of a party in interest, and after notice and a
hearing, absent unusual circumstances specifically
identified by the court that establish that the
requested . . . dismissal is not in the best interests of
creditors and the estate, the court shall convert a case
under this chapter to a case under chapter 7 or dismiss
a case under this chapter, whichever is in the best
interests of the creditors and the estate, if the movant
establishes cause.
11 U.S.C. § 1112(b)(1). While §1112(b)(4) enumerates examples of “cause” to
convert or dismiss a Chapter 11 case, the list is illustrative and not exhaustive. In
re Johnson, 2008 W l 696917, at *6 (Bankr. E.D. Pa. March 11, 2008); In re 3 Ram,
Inc., 343 B.R. 113, 117 (Bankr. E.D. Pa. 2006). “W hether cause exists under
§1112(b) and, if so, whether dismissal is appropriate are questions left to the
sound discretion of the bankruptcy court.” In re Brown, 2005 W L 2589194, at *2
(Bankr. E.D. Pa. March 31, 2005). “In so concluding, a court need not provide an
exhaustive elaboration on its reasoning.” In re Johnson, 2008 W l 696917, at *7.
There was no mention at the initial Debtor interview which Forbes conducted6
on May 13, 2008, of any consulting source agreement between the Debtor and Quaker
Farms.
9
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The Debtor in the instant case failed to establish that it has any current
business operations. According to Debtor’s Schedules and Statement of
Financial Affairs, Debtor has no income, no business and no employees. W hile
Odell testified at the hearing that Debtor has an agreement with National City
Bank to build a $2.5 million building, no documentary evidence was submitted to
substantiate the testimony and no specifics regarding the project were provided.
Insofar as Odell’s testimony regarding Debtor’s alleged agreement with Quaker
Development, no agreement was ever offered to substantiate the evidence.
Moreover, no mention was made of these purported agreements when the Debtor
filed for bankruptcy or when Odell and W eingartner met with the U.S. Trustee’s
office. The only evidence that these business arrangements exist is Odell’s
testimony and the Court is far from convinced of her credibility. Odell testified
that she registered Debtor as a business in Pennsylvania before Debtor filed for
bankruptcy but even the documentation offered to support her testimony is
inconsistent with it. The documents quite clearly show that Odell did not register
Debtor as a business in Pennsylvania before Debtor’s bankruptcy case was
commenced. The Court also questions Odell’s credibility as a witness because
no reasonable explanation was provided for the existence of two corporation
resolutions authorizing the filing of Debtor’s bankruptcy case. A corporation
resolution, dated June 15, 2008, was filed in the case; yet, at the hearing Debtor
produced another corporate resolution, the language of which suggests that it
was prepared before April 19, 2008. If a corporate resolution existed before
April 19, 3008, authorizing Debtor to file a bankruptcy case, why would another
one be created and filed?
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W ith no credible evidence in the record that Debtor has any current
business operations, the Court concludes that this bankruptcy case is centered
around and wholly dependent upon a successful outcome in the Florida Action.
Courts have dismissed cases in similar circumstances. See In re Edwards, 1996
W L 407253, at *4-*5 (Bankr. E.D. Pa. June 17, 1996); In re Roma Group, Inc.,
165 B.R. 779, 780 (Bankr. S.D.N.Y. 1994). In this particular bankruptcy case, the
circumstances warranting dismissal are particularly compelling since, with
Debtor’s failure to appear at the trial in the Florida action, it is highly doubtful that
Debtor has any chance of succeeding on its appeal in the state matter.
Therefore, the Court opines that there are no “unusual circumstances . . . that
establish” that the U.S. Trustee’s request for dismissal of this bankruptcy case “is
not in the best interests of the creditors and the estate.” The bankruptcy case
shall be dismissed.
III. SUMMARY
Based the conclusions stated above and in accordance with the standard
for dismissal set forth in 11 U.S.C. §1112(b)(1), an Order shall be entered
dismissing this Chapter 11 bankruptcy case.
DATED: February 11, 2009. 	______________________________
H ONORABLE J EAN K. F ITZ S IMON
United States Bankruptcy Judge
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