In re Whitetail Woods, LLC

Susan V. Kelley

A hearing was held on May 9, 2012 on Marine Bank n/k/a CIBM Bank's Motion to Dismiss. Joseph Seifert and Shawn Govern appeared on behalf of the Debtor. Joseph Abruzzo and Michael Bennett appeared on behalf of Marine Bank n/k/a CIBM Bank (the "Bank"). Christopher Schreiber appeared on behalf of Daniel & Kari Halloran. Amy Ginsberg appeared on behalf of the U.S. Trustee. The Debtor's principal, William Fine, and Ken Baranowski of ACW Appraisals, Inc. offered testimony.

After reviewing the written submissions and considering the testimony of the witnesses and the argument of counsel, the Court granted the Bank's Motion to Dismiss pursuant to 11 U.S.C. § 1112(b). The Court noted that the entirety of this relatively small Chapter 11 proceeding has seen numerous contentious issues brought before the Court, as outlined below.

The Debtor's petition states that it is a small business debtor; this designation later was amended and removed. The Debtor's attorney's employment was not approved for over 60 days after the case was filed because of defects in his Application papers. The Debtor had not filed an operating report since a late report filed January 20, 2012. On April 19, 2012, it filed three monthly operating reports, each showing that the Debtor is conducting no business whatsoever and merely is accruing legal and other fees.

The Bank filed its initial Motion for Relief from Stay over four months ago - on December 30, 2011. When the Court set the first of several hearings on the Bank's Motion, the Debtor sought an adjournment, accusing the Bank of refusing to turn over the keys to the Debtor's residential real estate development. In a February 9, 2012 witness list filed prior to the rescheduled hearing, the Debtor listed the appraiser as "tbd" and named eight witnesses "employed by Movant." Then the Debtor filed the first Motion for Contempt against the Bank. Although denying this Motion, the Court adjourned the hearing because the Bank failed to advise the Court that the property was in the control of the Bank's Receiver, and the Debtor did not have access to the property. The Court also questioned whether the Debtor is a "single asset real estate entity," and on March 5, 2012, the Bank filed a Motion for Relief from Stay on this basis.

A flurry of activity started on April 4, 2012, when the Debtor filed another witness list naming Ken Baranowski of ACW Appraisals, Inc. along with eight witnesses "employed by Movant," and various other witnesses. On April 9, 2012, the Bank filed a Motion to Quash the subpoenas to its employees that the Debtor issued. Later that day, the Debtor filed an Emergency Motion to Dismiss the Bank's Motion for Relief from Stay and disqualify the Bank's counsel. Mr. Fine's supporting Affidavit described a discussion between the Bank's attorney, Michael Bennett, and the Debtor's appraiser, Ken Baranowski, over a potential conflict of interest because Attorney Bennett's firm represents ACW Appraisals, Inc. Attorney Bennett responded with an Affidavit giving his version of events, including stating that he has been Ken Baranowski's personal attorney and ACW's business attorney for over 20 years.

After an emergency hearing on April 10, 2012, the Court denied the Bank's second Motion for Relief from Stay, finding that the Debtor is not a "single asset real estate entity," due to the nature of the Debtor's real property as a single family residence. (The Debtor had argued that the Debtor was actively engaged in the custom construction business.) Because of the potential conflict of interest with the appraiser, the Court again adjourned the hearing on the original Motion for Relief from Stay to enable the Debtor to hire a new appraiser. The Court also directed the Debtor to serve trial subpoenas at least 14 days before the adjourned trial date.

On April 17, 2012, the Bank filed a Motion to Dismiss the Debtor's Chapter 11 case. The Bank attached an Affidavit of Ken Baranowski that directly contradicted William Fine's Affidavit concerning the conflict of interest discussions. The Court scheduled a hearing and gave notice to all creditors. The Bank called Ken Baranowski as a witness, and he testified that he does not have a personal attorney. This testimony contradicted Attorney Bennett's Affidavit. Mr. Baranowski claimed that he first raised the conflict of interest issue, but Attorney Bennett's Affidavit states that Attorney Bennett raised it. William Fine testified and repeated his version of events. The Court found neither Mr. Baranowski's nor Mr. Fine's testimony particularly credible. Mr. Fine could not even explain why he stated in his Affidavit that Mr. Baranowski was refusing to attend the hearing when he testified that Mr. Baranowski agreed to come to a meeting to discuss his testimony for the hearing. In seeking dismissal of the Bank's law firm, the Debtor vigorously argued that Attorney Bennett was prohibited from communicating with Mr. Baranowski ex parte, but the contact was permissible under applicable Wisconsin ethics guidelines. See Wisconsin Formal Opinion E-91-4, Contact with opposing party's expert witness, E-83-13 modified.

In response to the U.S. Trustee's questions about other business in which the Debtor engaged, Mr. Fine indicated that the Debtor was not paid for the business, and that the receivable was reflected in the Debtor's Schedules. The Court reviewed the Schedules, and no such receivable is disclosed. Testimony elicited by Attorney Schreiber also called into question the Debtor's good faith in dealing with its creditors and parties with whom it contracted.

After weighing the testimony and considering the history of these proceedings, the Court finds that the Debtor's case does not comply with the purposes and goals of Chapter 11. In response to the Bank's Motion for Relief from Stay, the Debtor indicated that the "Circuit Court Judge improperly dismissed counterclaims made by the Debtor and the matter is currently under review by the State Court of Appeals which has not yet rendered its decision and may yet reverse and remand." The Debtor apparently is using this Chapter 11 case to obtain a stay pending the appeal in the State Court. This is an inappropriate use of Chapter 11, and the Debtor's dispute with the Bank should return to the State Court. Moreover, Attorney Seifert's response to the Bank's Motion for Relief from Stay, attempts to punish the Bank and its counsel with contempt, inability to navigate the Court's electronic filing system, and failure timely to secure his own employment despite numerous requests by the Court suggest that counsel should carefully consider whether he is qualified to represent Chapter 11 debtors in possession.

While the Bank's and its counsel's actions in this case are not without flaw, the Bank has shown adequate cause for the dismissal of this case under Bankruptcy Code § 1112. The Court will issue a separate Order.

By the Court:

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Susan V. Kelley

U.S. Bankruptcy Judge