In Re United States Voting MacHine, Inc.

224 B.R. 165, 15 Colo. Bankr. Ct. Rep. 474, 1998 Bankr. LEXIS 1046, 33 Bankr. Ct. Dec. (CRR) 84
CourtUnited States Bankruptcy Court, D. Colorado
DecidedAugust 20, 1998
Docket19-10731
StatusPublished
Cited by1 cases

This text of 224 B.R. 165 (In Re United States Voting MacHine, Inc.) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, D. Colorado primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In Re United States Voting MacHine, Inc., 224 B.R. 165, 15 Colo. Bankr. Ct. Rep. 474, 1998 Bankr. LEXIS 1046, 33 Bankr. Ct. Dec. (CRR) 84 (Colo. 1998).

Opinion

MEMORANDUM OPINION AND ORDER

SIDNEY B. BROOKS, Bankruptcy Judge.

THIS MATTER came before the Court for hearing on July 23, 1998 on attorneys’ fee requests filed by (1) Anthony Riker Ltd., (2) Jeffrey Weinman, Chapter 7 Trustee, (8) Benchmark Electronics, Inc., and (4) Tom Foster, Ann Gardner, William Hunt, Mark Lankton, Kermit Lohry, and Linda Woods (“Settling Creditors”), and Debtors’ and Kenneth Malpass’ Response to each request for attorneys’ fees and Request for Reconsideration of Award of Sanctions.

The attorneys’ fee requests were filed by the parties as part of this Court’s imposition of sanctions against Debtors and Kenneth Malpass in the form of an award of attorneys’ fees to opposing counsel. Debtors’ and Malpass’ principal objection to the imposition of sanctions is that the Court failed to comply with the procedural mandates of Fed. R.Bankr.P. 9011 in imposing such sanctions and that this Court lacks the inherent power to impose monetary sanctions. For the reasons set forth below, the Court denies the Request for Reconsideration of Award of Sanctions and awards attorneys’ fees in the amounts requested.

ISSUE

The issue before the Court is, given the substantial amendments in 1997 to Fed. R.Bankr.P. 9011, do courts still have the inherent power to impose monetary sanctions to prevent abuses of the judicial process and to control and manage the conduct of litigation? More specifically, does newly amended Rule 9011(c)(2)(B) — a provision which prescribes specific procedures for imposition of Rule 9011 sanctions on the court’s own initiative — limit or preclude courts from imposing sanctions in a manner other than that specified in Rule 9011(c)(2)(B)?

BACKGROUND

Each of the above-captioned bankruptcy cases was commenced as an involuntary case *167 in March 1996. Upon entry of the Orders for Relief, the cases were converted to Chapter 11 of the Bankruptcy Code. On August 21, 1996, the Court entered an Order substantively consolidating these cases into Case No. 96-12776-SBB, and on March 11, 1997 the consolidated case was converted to Chapter 7 of the Bankruptcy Code. Thereafter, Jeffrey A. Weinman was appointed as the Interim Trustee and he continues to serve as the Chapter 7 Trustee.

Since before commencement of this case, the Debtors’ business has been marked by bitter, ongoing disputes and seemingly interminable litigation among different factions, or parties, purporting to have an interest in the Debtors, and various creditors. When filed, this case exemplified a classic fight over control of a corporation and control over certain valuable intellectual property interests.

Following the expiration of the July 10, 1997 bar date for filing proofs of claim, the Trustee filed 22 claim objections, all of which have been settled. 1 These settlements reduced the claims against the Estate by approximately $1,578,000.00. The Trustee now anticipates that the total amount of allowed unsecured claims in this case will be $275,-000.00. There are no secured claims, and unpaid administration expense claims, including the Trustee’s fee and the Estate’s counsel’s fees, are estimated to be $18,000.00 and $21,000.00, respectively. According to the Trustee, except for potential litigation claims against Kenneth Malpass 2 and others, all of the assets of the Estate have been administered.

On January 5, 1998, following the settlement of numerous outstanding claims disputes, Debtors and Malpass, jointly, filed a Motion to Dismiss Consolidated Cases pursuant to 11 U.S.C. § 707(a), and Fed. R.Bankr.P. 1017(d). The Motion to Dismiss asserted that there is “cause” within the meaning of 11 U.S.C. § 707(a) to dismiss the cases because (1) the internal corporate disputes which precipitated the filing and prosecution of the cases have been resolved, (2) there are ample cash assets in the consolidated Estate to pay all allowed administrative expenses, (3) any outstanding claims disputes can be efficiently resolved outside of bankruptcy via negotiation, or, if necessary, in another court, (4) dismissal would not be prejudicial to the Debtors because they are not individuals entitled to a Chapter 7 discharge, (5) dismissal would stop the accrual of substantial and mounting Chapter 7 administrative expenses, and (6) dismissal would enable the Debtors and equity holders to capitalize on current and future financial and business opportunities.

The Court received five separate Objections to the joint Motion to Dismiss from the following parties: (1) the Chapter 7 Trustee, Jeffrey Weinman, (2) Mark Voting Systems, Inc., (3) Benchmark Electronics, Inc., (4) Tom Foster, Ann Gardner, William Hunt, Mark Lankton, Kermit Lohry, and Linda Woods (the “Settling Creditors”), and (5) Anthony Riker, Ltd. (collectively hereinafter “Objecting Creditors”). Objecting Creditors asserted that dismissal would not be in the best interests of creditors because there was no assurance or guarantee that creditors’ claims would be paid if the case was dismissed. As summarized by the Chapter 7 Trustee, the Estate now has $475,000.00 in cash which would allow 100%, plus interest, distribution to all unsecured creditors. If the case were dismissed, however, Malpass, who purports to own a controlling interest in Debtors, would gain control over the Estate’s cash before a distribution could occur. According to the Objecting Creditors, this would result in the payment of claims being disrupted, uncertain and, at the very least, delayed. The Objecting Creditors also raised the following concerns: (1) the settlement agreements previously reached among the parties did not contemplate dismissal of the case prior to distributions on creditors’ claims, (2) dismissal would hinder, not aid, payment of administrative expense claims, (3) dismissal is contrary to one of the purposes *168 of involuntary bankruptcy cases, i.e., to force resolution of disputes and payment of creditors’ claims, (4) dismissal would thwart any efforts to bring claims against Malpass, and (5) the filing of the Motion to Dismiss may have violated the terms of certain agreements reached among the parties.

In addition to requesting a hearing on the Motion to Dismiss and the Objections thereto, three 3 of the five Objecting Creditors also requested an award of all fees and costs incurred in responding to the Motion. One of the Objecting Creditors, the Settling Creditors, also requested that the Court impose sanctions against Debtors and Malpass under Fed.R.Bankr.P. 9011 for the filing of the Motion, which the Settling Creditors characterized as frivolous.

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David Samuel Lechner
D. Colorado, 2025

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Bluebook (online)
224 B.R. 165, 15 Colo. Bankr. Ct. Rep. 474, 1998 Bankr. LEXIS 1046, 33 Bankr. Ct. Dec. (CRR) 84, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-united-states-voting-machine-inc-cob-1998.