Cultural Assets 1, LLC

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
CULTURAL ASSETS 1, LLC,
a New Mexico Domestic
Limited Liability Company,
Debtor(s). No. 11-12-13793-s11
MEMORANDUM OPINION AND ORDER
GRANTING EMERGENCY MOTION FOR STAY RELIEF AND
ORDERING THAT RULE 4001(a)(3) STAY WILL NOT BE IN EFFECT
Michael and Kay Coughlins’ Emergency Motion for Relief from
Automatic Stay (doc 6) (“Motion”) came before the Court for a
final, non-emergency evidentiary hearing on December 10-11, 2012.
The Motion seeks permission to exercise non-bankruptcy law
remedies against the debtor in possession Cultural Assets 1, LLC
(“Cultural Assets”) including selling the residence at 21 Painted
Horse, Las Campanas, Santa Fe, New Mexico (“Property”), enforcing
state-court ordered injunctive relief, a return to the First
Judicial District Court, County of Santa Fe, State of New Mexico
(“State Court”) to pursue the merits of two State Court actions,
and a ruling that the Rule 4001(a)(3) F.R.B.P. stay will not be
in effect. Relief is sought under both §§ 362(d)(1) and (d)(2).
Debtor has responded (doc 14) by, inter alia, offering adequate
protection and filing a motion to assume a lease of the Property
(doc 41).
For the reasons set out herein, the Court will enter an
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order granting the Motion.1
Background
The business of Cultural Assets under its manager Mr. Al
Luckett was and is to perform “due diligence services” (Debtor’s
phrase) on art and artifacts that belong to other persons or
entities. The idea behind Cultural Assets is to establish
“absolute proofs” (Mr. Luckett’s term) of the authenticity and
provenance of collected items so that there are no reasonable
concerns about ownership of the art and artifacts so that in turn
they can be freely sold at their maximum price (or,
alternatively, retained by the owner or donated). Following the
completion of the research to establish the absolute proofs, some
combination of Cultural Assets and/or the owners of the art and
artifacts will bring an action against the United States
Department of Justice to obtain a declaratory judgment to
establish the authenticity and provenance of the items, thereby
completing the process of making them more saleable at a higher
price. The declaratory judgment action was supposed to have been
initiated sometime this summer or fall but has not been because
Mr. Luckett has been preoccupied with dealing with the lease and
occupancy issues concerning the Property.
The Court has subject matter and personal jurisdiction	1
pursuant to 28 U.S.C. §§1334 and 157(b); this is a core
proceeding pursuant to 28 U.S.C. §157(b)(2)(G); and these are
findings of fact and conclusions of law as may be required by
Rule 7052 F.R.B.P.
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Mr. Luckett is described as the operations manager for
Cultural Assets. He is the one who formulated Cultural Assets’
strategy, directs the activities of Cultural Assets and appears
to be the one person doing most of the work. He has working with
him a certain Matt Perez, stated to be a former FBI agent with
considerable expertise, experience and contacts outside the
United States that aid considerably in the research and
verification process. Mr. Brian Rowe is the managing member of
the LLC and the designated representative of the chapter 11
debtor in possession.
As part of its business, Cultural Assets has custody or
temporary possession of about 2,000 items, all belonging to other
persons or entities, which require very careful handling and
storage. Cultural Assets had possession of many or all of those
2,000 items in 2010.
About five years ago the Coughlins designed (with an
architect) and had built for them a residence at 21 Painted Horse
in the Las Campanas part of Santa Fe. When the tsunami of the	2
world wide financial crisis and the succeeding national recession
finally hit the Santa Fe residential market, including the very
From the pictures and witness testimony, it appears the	2
home (including the floor plan, style, finishes and views) is, to
put it mildly, simply stunning, constituting the rare sort of
property that justifiably draws persons of wealth and
sophisticated taste from around the world to purchase second and
third homes in Santa Fe.
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high-end part of the market, it deeply depressed prices and
sales, such that the Coughlins were unable to sell the property
for anything near what they needed to get out of it. In
consequence, in the process of attempting to sell the property,
they were open to leasing it for some time, until the market
recovered enough to permit a sale.
In the spring and summer of 2010, Mr. Luckett and his spouse
Ms. Christine McCarthy were looking for a residence for
themselves where they could also locate the business of Cultural
Assets, including the 2,000 items of art and artifacts. In about
July 2010 Mr. Luckett viewed the 21 Painted Horse property with a
view to possibly purchasing it, and in the process learned that
it could be leased. His real estate agent Mr. Huitfeldt
suggested that he lease the property for a while as a way of
deciding whether he might want to purchase it, and this idea made
sense to Mr. Luckett in part because he thought that Santa Fe
real estate prices would drop further. As a result, in August
2010 Mr. Luckett on behalf of Cultural Assets as lessee and the
Coughlins as lessors signed a lease agreement for the property.
Coughlin exhibit 3 (C-3) (“First Lease”). The lease was for one
year – September 2010 through August 2011 – at a rate of $4,500
per month. Cultural Assets was also responsible for the water
and sewer bills from the LC water and sewer coop. And the First
Lease had a “furniture addendum” which permitted Cultural Assets
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within sixty days to purchase certain furniture of the Coughlins
which was part of the staging of the residence for sale.
Having signed the lease, the Coughlins took the property off
the active sales market. The listing was not activated again for
a sale until April 2012.
Over the course of the First Lease, Cultural Assets was
consistently late in paying the monthly rent. It was also
consistently late in paying the Las Campanas water and sewer
bills. The Court finds that the continuing tardiness of payments
was not due to lack of notice or knowledge of the payment
obligations, but rather from Cultural Assets’ lack of funds.
With the high-end real estate market still very depressed
and despite the history of late payments, the same parties signed
another year’s lease in September 2011 for September 2011 through
August 2012 (“Second Lease”). Coughlins entered into the Second
Lease despite the problems with the First Lease because their
monthly payments for the Property – mortgage, taxes, insurance,
home owner association dues, and landscaping – totaled $9,155 per
month. The Coughlins calculated that some income from the
Property was better than none.
In view of the history of late payments, the rent was set at
$5,000 per month for September and October 2011 and at $5,500 per
month for the remaining months. The $5,500 figure was fixed and
not contingent or reducible for any reason (despite the testimony
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presented by and position taken by Cultural Assets and despite
Cultural Assets’ having paid rent at the rate of $4,500 per month
post petition). The furniture addendum was changed to provide an
inducement to correct the late payment problem -- if all the
monthly payments required by the lease were made, and made
timely, Cultural Assets could have the furniture (with the
exception of some rugs) without further charge. Cultural Assets
continued to be liable for paying the water and sewer bills. And
the Second Lease contained a provision for an automatic month to
month tenancy at the end of the 12-month term unless and until
either party gave a 30-day notice of no further occupancy.
In April 2012 the sales listing was reactivated, and it
resulted in an offer and acceptance in the July-September 2012
time period of a deal whereby two mutually contingent sale
contracts were executed between the Coughlins and another owner
of property in Las Companas, whereby Coughlins and the other
party agreed to purchase each others’ properties in Las Campanas.
The closing of these mutual transactions was supposed to take
place no later than October 31, 2012. In connection with this
sale, the Court finds as facts (and concludes as to any legal
questions) that neither Cultural Assets nor Mr. Luckett nor any
other person or entity connected with Cultural Assets had an
option to purchase the Property, and also finds and concludes
that even if there were such an option, neither Cultural Assets
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nor Mr. Luckett exercised such an option. One consequence of
these facts is that there was nothing to prevent Coughlins from
entering into a contract to sell the Property to the buyer on any
terms whatever.
Cultural Assets continued to make its rent payments and
water and sewer payments both sporadically and late, as was the
situation from the start of the First Lease. Mr. Nowlin, the
person in charge of water and sewer billing for Las Campanas,
testified matter of factly how cavalier, even dismissive, Mr.
Luckett was when he was contacted for payment and in response
told Mr. Nowlin that the bills would be paid when he (Mr.
Luckett) got paid. The Court senses from testimony and	3
documents that this was the same attitude from Mr. Luckett,
albeit toned down somewhat, when he was dealing with the
Coughlins as they attempted to collect past due rent.
When the Second Lease expired at the end of August 2012,	4
Cultural Assets continued in possession on a month to month
tenancy, as provided by the terms of the Second Lease. Coughlins
The Court finds that Mr. Nowlin was completely credible,	3
as were Messrs Maestas, Herdman, Coughlin, Wilson, Collins,
Huitfeldt, and McDonald, and Ms. Coughlin. Some of the witnesses
appear to have gotten minor details in their testimony incorrect,
but the Court is comfortable that each of the named witnesses was
trying to be as accurate and forthcoming as possible.
In its schedule G and amended schedule G (docs 9 and 27	4
respectively), the Debtor has consistently, and accurately,
listed the Second Lease as “expired”.
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with their counsel Frank Herdman delivered a three-day notice of
nonpayment of rent on September 25 together with notice
sufficient in any event to end the month to month tenancy of
Cultural Assets effective no later than October 31, 2012. C-8.	5
Because the chapter 11 petition was filed on October 16, Cultural
Assets remains in the premises.
In preparing for the sale, Coughlins sought access to the
Property, including the interior of the house, for their agents.
The requests or demands for such access were permitted by the
terms of the lease, Second Lease ¶ 14, and after the filing of
the petition did not constitute a violation of the automatic
stay. Cultural Assets through Mr. Luckett unreasonably refused
that access, both before and after the filing of the petition, in
violation of the terms of the Second Lease, requiring Coughlins
to obtain relief from both the State Court and this Court. It	6
was in this context that Coughlins filed their motion for stay
relief on an emergency basis three days after the filing of the
petition, on October 19, in order to keep the sale process moving
Because the ultimate adjudication of all these issues will	5
have to be made by the State Court, these findings and
conclusions are in a sense preliminary but required for a ruling
on the stay motion.
The two pending State Court actions are styled and	6
numbered Coughlin v. Cultural Assets 1, LLC, D-101-CV-2012-2707
(restitution action) (complaint - C-10) and Coughlin v. Cultural
Assets 1, LLC, D-101-CV-2012-2764 (injunctive action, to permit
access to and inspection of the Property) (complaint - C-11).
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forward. Doc 6. That action resulted in an emergency
preliminary hearing on October 23 (minutes – doc 16) and a
preliminary order from this Court the same day (doc 17) requiring
access for the Coughlins and their agents. But whether because
of the actions of Mr. Luckett or for other reasons, the buyer
exercised his right to back out of the sale, and so on October 24
Coughlins filed a supplement to the motion informing the Court
and parties of that fact. Doc 18. In consequence, following
notice to the creditor body and expedited discovery, the final
hearing took place on December 10 and 11, 2012. Doc 56
(minutes).
Analysis
Section 362(d) provides in relevant part:
On request of a party in interest and after notice and
a hearing, the court shall grant relief from the stay
provided under subsection (a) of this section, such as
by terminating, annulling, modifying, or conditioning
such stay--
(1) for cause, including the lack of adequate protection of
an interest in property of such party in interest;
(2) with respect to a stay of an act against property under
subsection (a) of this section, if--
(A) the debtor does not have an equity in such
property; and
(B) such property is not necessary to an effective
reorganization; . . . .
And §362(g) provides as follows:
In any hearing under subsection (d) or (e) of this
section concerning relief from the stay of any act
under subsection (a) of this section--
(1) the party requesting such relief has the burden of proof
on the issue of the debtor's equity in property; and
(2) the party opposing such relief has the burden of proof
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on all other issues.
For their grounds under subsection (d)(1), Coughlins
essentially argue that the right to a month to month tenancy was
terminated before the petition was filed on October 16, 2012 so
there is neither a lease nor a tenancy left to assume, that their
interest in the Property is not being adequately protected, and
that this is a bad faith filing in any event. Under subsection
(d)(2), they argue that there can be no equity in the property
under a lease (even putting aside that the lease has expired and
the month to month tenancy terminated) and there is no
reorganization reasonably in prospect. Debtor argues in large
part that it can provide adequate protection such that the stay
need not be modified.
The Court agrees with Coughlins’ arguments and disagrees
that Debtor has shown that it can and will provide adequate
protection, except that the Court need not, and therefore does
not, rule on the bad faith filing argument.7
Stay litigation is by design summary and expedited. See,	7
e.g., Grella v. Salem Five Cent Sav. Bank, 42 F.3d 26 (1 Cir.	st
1994):
Moreover, the hearing on a motion for relief from stay
is meant to be a summary proceeding, and the statute
requires the bankruptcy court's action to be quick.
Id. at 31, citing In re Vitreous Steel Prods. Co., 911 F.2d 1223,
1232 (7 Cir. 1990) (chapter 7 trustee not precluded from	th
pursuing preference action against Bank that obtained stay relief
to pursue collection on promissory note)].
The limited grounds set forth in the statutory
language, read in the context of the overall scheme of
§ 362, and combined with the preliminary, summary
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Importantly, there are two major issues that the parties
appear to agree on: first, that Cultural Assets had at least a
possessory interest in the Property since it was in possession on
the date of the filing of the petition (even though Coughlins
were asserting in the State Court proceedings that Cultural
Assets no longer had any right under state law to be occupying
the premises), thus triggering the need for stay relief should
the Coughlins seek to continue the State Court actions against
Cultural Assets; and second, that it is permissible (from
Cultural Assets’ viewpoint) or necessary (Coughlins’ viewpoint)
to go back to the State Court to get a final ruling on the status
of the Second Lease and the tenancy. The Court agrees with both
those positions.
nature of the relief from stay proceedings, have led
most courts to find that such hearings do not involve a
full adjudication on the merits of claims, defenses, or
counterclaims, but simply a determination as to whether
a creditor has a colorable claim to property of the
estate.
Id. at 32, citing among other cases In re Quality Elect. Ctrs.,
Inc., 57 B.R. 288, 290 (Bankr.D.N.M.1986) (relief from stay
proceedings limited to whether the moving creditor has a
colorable claim to a perfected security interest).
In consequence, a hearing on the alleged bad faith of the
chapter 11 filing, even if only made on a preliminary or
colorable basis, is best left to another day when the issue can
be fully developed and litigated, particularly since the Court
does not need to resolve the issue in order to decide the Motion.
Indeed, since it appears that the reason this chapter 11 case was
filed was to maintain the Debtor in these premises, it may turn
out the State Court adjudication of the lease and tenancy issues
moots consideration by this Court of the bad faith issue
altogether.
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Based on the evidence and argument, Cultural Assets’ only
remaining interest in the Property is possessory. The State
Court ruling, at least preliminarily, ended Cultural Assets’
right to be in the Property. That State Court ruling cannot be
revisited by this Court, whether or not there are questions about
lack of due process, etc. raised by Cultural Assets. The Rooker-
Feldman doctrine [Rooker v. Fidelity Trust Co., 263 U.S. 413,
414-416 (1923) and District of Columbia Court of Appeals v.
Feldman, 460 U.S. 462, 482(1983)] ordinarily prevents a federal
court from acting as an appellate court to review a state court
decision. Cf. Exxon Mobil Corp. v. Saudi Basic Indus., 544 U.S.
280, 282-84 (2005). Of course, going back to State Court can
resolve those issues.
As to the subsection (d)(2) grounds, the analysis usefully
starts with a look at the Debtor. Cultural Assets, when it filed
and still now, was and is barely more than a name and a
registration with the Public Regulation Commission. It does have
articles of organization and a managing member (Mr. Rowe) and
owners (Mr. Rowe and Deadend Investments Limited Partnership –
see doc 4), but its original and amended schedules and statements
of financial affairs (and notices of such) state that it has no
cash, no checking or savings accounts, no real estate, $7,510 in
personal property ($5,000 security deposit with the Coughlins,
$2,000 debt owed by Christine McCarthy, $500 of office furniture,
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computer, printer and bookshelves, and $10 for a 2002 computer),
no income from any source over the last two years, and no one in
charge of or in possession of any books or records or inventories
of the Debtor. Docs 9, 27, 31, 50, 51, and 52 collectively.
Other persons and entities pay its bills. It is a wraith,	8
barely existing substantively.
Cultural Assets’ business plan appears to share some of that
insubstantiality. As noted above, once Cultural Assets has
completed its research, it intends to use a declaratory action
The Debtor’s disclosure of compensation signed by the	8
Behles Law Firm, P.C. (Jennie D. Behles) recites that the firm
has received no compensation, but that the compensation paid and
to be paid to counsel is or will be coming from the Debtor. No
other source of payment is listed. Doc 3. However, the retainer
agreement attached to the compensation disclosure statement
recites that Christine McCarthy and Al Luckett, as agents of
Debtor, agree to guaranty payment of Debtor’s obligations to
counsel. Id. The amended statement of financial affairs, no. 9,
states that no payments have been made related to debt counseling
or bankruptcy. Doc 52. On the other hand, the retainer
agreement attached to the disclosure of compensation states that
an initial refundable retainer of $5,000 plus the filing fee
“must be paid by Client to Attorneys before Attorneys” will
undertake work for the client. Doc 3. Counsel’s employment
application makes no statement at all about any compensation
having been paid, or any source of compensation other than the
Debtor, nor does it have the retainer agreement attached. Doc
25. At the start of the stay hearing the Court addressed aspects
of counsel’s employment application (gratuitously, in order to
prevent future problems), but did not address any question about
any other source of compensation for counsel. The Court raises
the disclosure statement now only for the same reason the Court
earlier addressed the employment application; that is, to avoid
problems in the future that might be remediated now.
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under the National Stolen Property Act to preemptively force the	9
Department of Justice to defend (and presumably lose) against the
“indisputable proof” of authenticity and provenance for the 2,000
items. Thereafter the commissions or other compensation will
begin to roll in as items are sold to universities, museums and
other collectors.
Mr. Luckett’s confidence in his strategy derives in part
from his legal analysis of the arguments made in a United States
District Court case in the Eastern District of Missouri , in	10
which the trial judge, according to Mr. Luckett, on three
different occasions dismissed a forfeiture action filed by the
Department of Justice. The Department appealed the dismissals,
and then the parties were granted an indefinite stay of the
proceedings to negotiate the disposition of the items in
question. The arguments presented by the defense in that case
provide the basis for Cultural Assets’ proposed litigation.
Mr. Luckett provided the Court only with his conclusion that
The National Stolen Property Act was enacted on May 22,	9
1934 (ch. 333), 48 Stat. 794, but subsequently repealed and now
has provisions in a revised title: see 18 U.S.C. §§ 10, 2311,
2314 and 2315. Section 2314 provides in part as follows:
Whoever transports, transmits, or transfers in
interstate or foreign commerce any goods, wares,
merchandise, securities or money, of the value of
$5,000 or more, knowing the same to have been stolen,
converted or taken by fraud ... [s]hall be fined ... or
imprisoned....
No specific citation to this litigation was presented to	10
the Court, nor has the Court found it necessary to find the case.
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he would be successful, but not his analysis, the defense
arguments he relies on, nor any of the United States District
Court rulings. Nor did Mr. Luckett provide an estimated time
frame for the ultimate (favorable) resolution of the Cultural
Assets litigation, although he did say, perhaps in a show of
confidence, that he is not in a position to litigate these issues
for years as has happened (he asserts) in cases the government
has brought against purported owners of artifacts from Cambodia
and Iran.
Mr. Rowe also testified that he anticipated significant
income for Cultural Assets either from commissions or a
“participation” in the post-litigation sale of the objects.
However, he did not know whether there were currently contracts
that so provided.
Mr. Luckett provided no estimate of the cost of the
litigation; Cultural Assets asserts that the owners of the
objects will provide that funding. Indeed, the money needed to
complete the research and to run the chapter 11 case in every
other way, including paying counsel and continuing to pay other
professionals as needed, such as Mr. Perez, will all have to come
from borrowing. To date in the case, no motions to authorize any
borrowing have been filed.
Mr. Luckett testified that he has approached a number of
persons or entities about both short term borrowing – $20,000 –
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and long term borrowing – $250,000 – all on an unsecured basis,
to provide adequate protection to Coughlins (and presumably to
provide money for operations). He testified that he was in
negotiations with a specific person who had the wherewithal to
provide that amount of funding. As of the date of the hearing
there was no deal, including on an interest rate, but the parties
were close. Though repeatedly questioned, Mr. Luckett refused to
disclose the identity or any details about the potential lender.
Similarly, Mr. Rowe testified that he too was contacting
private lenders and investors for funding on an unsecured basis
at a 4% - 6% interest rate. He expected by the end of the week	11
to have a decision on short term lending – $30,000 to $40,000 –
and by the end of the month on long term lending – $200,000 to
$300,000.
That Cultural Assets does not have debtor in possession
financing lined up – indeed, that it appears only now to be
addressing that issue – illustrates either the ephemerality of
the business prospects for this case, or a considerable lack of
insight about what would happen when this case was filed, or
both. Neither bodes well for the future of this case as a
chapter 11 proceeding. In any event, there is no effective
Given the Debtor’s lack of assets, any funding would	11
probably have to be unsecured from the Debtor’s perspective.
There was no testimony about whether co-borrowers or guarantors
would be required to put up collateral, or whether there would
even be co-borrowers or guarantors.
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reorganization that is in prospect for this Debtor. See United
Sav. Ass'n of Texas v. Timbers of Inwood Forest Associates, Ltd.,
484 U.S. 365, 375-76 (1988).
Similarly, as the evidence makes clear and the State Court
has already in effect ruled (albeit preliminarily), all the
Debtor has at this point is in fact no more than a current
possessory interest in the Property. It has no right to a longer
term lease, and even if successful in the State Court restitution
action (no. 2012-1207), it will at best be able to obtain another
month on the premises. Mr. Luckett’s testimony to the effect
that he and Mr. Coughlin agreed, in late August or early
September 2012, that Cultural Assets could have another year in
the Property is completely unbelievable. To begin with, Mr.
Luckett essentially conceded that the two of them did not
discuss, much less agree on, critical terms such the amount of
rent. And the notion that Mr. Coughlin would agree to such a
thing, when he and Ms. Coughlin were entering into a contract to
sell the Property, when the rent was continually late, and when
dealing with Mr. Luckett was so unpleasant, defies logic. Of
course, no such written agreement was produced. All this makes
eminently clear that the Debtor has no equity in the Property.
The Court is therefore compelled to rule that Coughlins have
established grounds to modify the stay under §362(d)(2).
As to subsection (d)(1), also from what has been said,
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Cultural Assets is unable to offer sufficient adequate protection
of Coughlins’ interest in the Property to avoid modification of
the stay. There is no evidence that Cultural Assets can raise
the money to adequately compensate Coughlins for not allowing	12
them to obtain rulings from the State Court that allow them to
repossess the Property and continue to market it. If the Debtor
were able to raise the money, why did it not do that early enough
to avoid even having to file a bankruptcy case, or at least early
enough that it would now have on file a borrowing motion pursuant
to § 364 that the creditors and other parties in interest could
evaluate on the merits. What the Debtor seeks in reality is the
chance to occupy the Property for another six to eight months in
order to find another location and then package up and move the
2,000 items, and to do that at Coughlins’ expense.
Evidence of further “cause” to modify the stay, were any
needed, is ample. The motion to deal with utility deposits
pursuant to §366 (doc 47) was filed well outside the twenty days
contemplated by §366(b). Not that the late filing prevents
Debtor and a utility, such as the water and sewer coop, from
reaching an agreement, but the late filing does make it possible
for the utility to “alter, refuse or discontinue service” if it
In this connection, the Debtor’s refusal to disclose the	12
identity of the person or entity which will lend the funds,
resulting in the Coughlins having no opportunity to assess the
likelihood of the funds materializing, is particularly brazen.
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wishes to. While this contingency appears to be unlikely, the
late filing of the motion suggests either a lack of paying
attention to the details of a chapter 11 case, or an
unwillingness or inability to commit resources to the problem.
Indeed, it seems apparent that the owners and managers of
Cultural Assets are committing the bare minimum amount of
financial resources needed (in their opinion) to keep the chapter
11 case going.
Debtor’s operations manager and primary economic resource –
Mr. Luckett – repeatedly demonstrated his lack of credibility and
thus his unreliability as the driving force for an honest and
successful reorganization. Part of this was the divergence
between his version of events and those of the credible
witnesses.
Mr. Luckett’s testimony in response to often simple
questions consisted of tangled wording that effectively concealed
rather than disclosed information. Further, there were times
when he was simply unresponsive. For example, in response to Mr.
Askew’s question whether Cultural Assets had hired the Marzullo
law firm of Washington, D.C. to work for Cultural Assets , Mr.	13
Luckett responded that he could not answer that because they are
“dealing with information and the overlap of information”. What
The question is important because there is no motion on	13
file to employ that firm, nor evidence of how the firm would be
paid.
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that response is supposed to mean is decidedly unclear,
particularly as an answer to a simple (but legitimate) question
which he ought to be able to answer easily. He was also asked
whether (in essence) the work he had done on the Harris objects
was work performed by him for his benefit or as a Cultural Assets
representative. The question was directed to who was entitled to
receive the payments from Mr. Harris. Mr. Luckett’s response was
that he could not answer the question because it was not phrased
in a way that allowed an answer. (Appropriately, there was no
such objection from Cultural Assets’s counsel to the question.)
Mr. Luckett’s answer not only avoided responding on what emerged
as a critical issue in the hearing (and will almost certainly be
equally critical in the future in this case), but was also
disingenuous in the avoidance.
And on that critical issue of income of the Debtor, Mr.
Rowe’s explanation about whether the Debtor would continue to
assert that it had no income as stated in the statement of
financial affairs raised an issue of good faith. As an
accountant Mr. Rowe might well ordinarily make allocations of
income (and expenses) to the various entities and persons,
including Mr. Luckett and Cultural Assets among others, at a much
later time, such as next summer when he does the taxes for
various entities and persons (including some of the owners of the
items) after obtaining an extension of the deadline to file tax
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returns. However, the disclosure requirements of the Code and
the rules, embodied in part in the forms such as the statement of
financial affairs, are clear that Cultural Assets must
affirmatively state at the outset of the case, under oath, what
its income has been. Thus, the answers in the statement of
financial affairs and amended statement of financial affairs
that Cultural Assets had no income of any sort over the last two
years is to be taken as Cultural Assets’ representation, made
after careful investigation and under oath, that the assertions
are true and accurate. The testimony that Cultural Assets might
change its position on that issue depending on an accounting next
summer is completely at odds with the values of transparency,
integrity and accountability that underlie the bankruptcy system.
See Leif Clark, Dicta: Conflicts of Interest, ABI Journal, Vol.
21, No. 3 (April 2002). Correcting good faith mistakes, as soon
as they are discovered, is one thing; potential accounting
manipulations of assets, numbers and information presented to
creditors under oath is another matter altogether.14
Finally, among other arguments, Debtor in effect is arguing
that the balance of harm tips against it, and thus requires that
The Court is not suggesting that Mr. Rowe would engage in	14
the latter activity, though he might be pressured to do so. The
Court can take judicial notice of the adjudicative fact that Mr.
Rowe is a respected CPA and expert in taxation and accounting,
and further that, while not an habitue of the halls of the
Bankruptcy Court, he is a seasoned participant in bankruptcy
cases and litigation.
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this Court deny the stay relief, because of the time and
difficulty and expense attendant on safeguarding and transporting
to a new location, once one is found, of the 2,000 items Debtor
is holding for the various owners. Cf. In re Curtis, 40 B.R.
795, 800 (Bankr. D. Utah 1984) (“balance of hurt” as one of
twelve factors to consider in deciding whether to modify stay to
permit joinder of defendants in state court action). The
problem, at least in part, with the argument is that there is no
evidence whatever of either an obligation by or right of Cultural
Assets to maintain custody or possession of any of the items. It
seems apparent that any owner can reclaim any item (that belongs
to that owner) at any time, and return it to the Debtor at any
time after a move has taken place. Indeed, these circumstances
raise the question of why Debtor should be undertaking this
expenditure of resources on behalf of the owners to begin with.
Conclusion
Coughlins have convincingly met the requirements of both §§
362(d)(1) and (2) such that they are entitled to stay relief.
Indeed, the proof is so strong, and the need for final State
Court adjudications so necessary for both Coughlins and Cultural
Assets, that it is also appropriate to order that the temporary
stay provided by Rule 4001(a)(3) F.R.B.P. will not go into effect
when this memorandum opinion and order are entered.
Order
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IT IS THEREFORE ORDERED that Michael and Kay Coughlins’
Emergency Motion for Relief from Automatic Stay (doc 6) is
granted, and the Coughlins are permitted to exercise non-
bankruptcy law remedies against the debtor in possession Cultural
Assets 1, LLC including selling the residence at 21 Painted
Horse, Las Campanas, Santa Fe, New Mexico, enforcing the State
Court ordered injunctive relief, and returning to the First
Judicial District Court, County of Santa Fe, State of New Mexico
to pursue the merits of the two State Court actions.
IT IS FURTHER ORDERED that the stay provided by Rule
4001(a)(3) F.R.B.P. will not go into effect when this memorandum
opinion and order are entered.
JAMES S. STARZYNSKI
BANKRUPTCY JUDGE
Date Entered on Docket: December 14, 2012
Copy to:
Jennie D Behles
PO Box 7070
Albuquerque, NM 87194-7070
Alice Nystel Page
Office of U.S. Trustee
PO Box 608
Albuquerque, NM 87103-0608
James A Askew
Arland & Associates, LLC
201 3rd ST NW, STE 505
Albuquerque, NM 87102-3331
Daniel Andrew White
Arland & Associates, LLC
201 Third St. NW Ste 505
Albuquerque, NM 87012
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