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June 16, 2000
In re ) Bankruptcy Case
) No. 00-30959DM
CUNNINGHAM FAMILY TRUST, )
  ) Chapter 11
Debtor. )
___________________________________)
For the reasons set forth below, this Court dismisses this
case with prejudice, but retains jurisdiction to hear a motion for
contempt and sanctions. The following shall constitute findings
of fact and conclusions of law pursuant to Rule 7052, Federal
Rules of Bankruptcy Procedure.
On May 15, 2000 secured creditor Bank of America (the "Bank")
filed its motion for dismissal of this case with prejudice, or, in
the alternative, termination of the automatic stay in rem against
the real property located at 295 Pacific Way, Muir Beach,
California (the "Property"). The United States Trustee filed its
joinder in the motion to dismiss on May 24, 2000, and requested
that this Court retain jurisdiction to hear a motion for contempt
and sanctions. The Cunningham Family Trust (the "Trust") filed an
opposition on May 25, 2000. The motion came on for hearing on May
25, 2000 at 9:30 a.m., Joan M. Grimes, Esq. appeared for the Bank,
David L. Cunningham, Esq. ("Cunningham") appeared for the Trust,
and Patricia A. Cutler, Esq. appeared for the Office of the United
States Trustee.
As an initial matter, the Court notes that the Bank's motion
was timely insofar as it requested relief from the automatic stay
(B.L.R. 4001-1(c)), and that the Bank served all creditors
included on the Trust's creditor matrix, but that the Bank did not
provide the 20-day notice required by Rule 2002(a)(4). However,
the Court notes that neither the Trust nor the U.S. Trustee nor
any other party objected to the lack of 20-day notice, and the
Court will use its discretion under Rule 9006(c) to reduce the
required time nunc pro tunc.
In support of dismissal, the Bank argues that the Trust is
not a "person" and is therefore ineligible to be a debtor under 11
U.S.C. § 109. The Trust responds, without citation, that under
common law principles the trust is tantamount to a corporation,
and is therefore a person entitled to relief under the Bankruptcy
Code.
The court takes judicial notice that this same issue arose in
connection with a prior Chapter 11 bankruptcy petition filed by
the Trust on October 20, 1998 (Case No. 98-34723). In response
to that earlier petition, this Court issued an Order to Show
Cause, on October 26, 1998, directing the Trust to appear on
November 10, 1998 to address this issue. On October 29, 1998 the
U.S. Trustee filed a response which argued that the Trust's lack
of business purpose was shown by the terms of the Trust's
Memorialization of Irrevocable Trust Agreement, Cunningham Family
Trust, dated October 4, 1990 (the "Trust Agreement"), which had
been produced by Cunningham in an earlier, personal Chapter 11
case (Case No. 96-11164). The Trust Agreement defines the trust
estate to include the Property and all household equipment and
furnishings located therein. The U.S. Trustee quoted from the
Trust Agreement as follows:
The spirit, direction and mandate of this Family Trust
is to maintain and keep those special family keepsakes
in use and enjoyment by all members of the family for
the Duration of this Trust.
(Trust Agreement p. 3, attached as Exhibit B to Declaration of
Stephen L. Johnson in Support of United States Trustee's Response
to Order to Show Cause, filed October 29, 1998.)
The Trust did not file any response to the Order to Show
Cause or the U.S. Trustee's response in this earlier case.
However, Cunningham did appear at the hearing on November 10,
1998, at which time this Court ordered the Trust to file and serve
on the U.S. Trustee a declaration relating to its alleged business
activities, and continued the Order to Show Cause hearing to
December 4, 1998. The Trust failed to file any such declaration.
Cunningham appeared at the continued hearing and stated that, for
financial reasons, the Trust had determined not to oppose the
dismissal.
Based on the foregoing record, this Court finds that the
Trust has failed adequately to respond to the Bank's allegations
that it is not a "person" qualified to be a debtor, and the Trust
has failed to produce any evidence to rebut the evidence in the
record that it not engaged in any business activity. Therefore,
the Trust's bankruptcy case is hereby dismissed pursuant to 11
U.S.C. § 1112(b), 109(a) and (d), and § 101(41). See In re Hunt,
160 B.R. 131, 134-136 (9th Cir. BAP 1994).
The dismissal shall be with prejudice for the following
reasons. First, the issue is not moot. Although the Trust might
conceivably be eligible to file a bankruptcy petition, it has not
yet carried its burden of proof. If facts exist now or in the
future that would justify a filing, the Trust should first
demonstrate its eligibility before burdening the court, the United
States Trustee and other parties with a new petition.
Second, the Trust has evaded any judicial determination of
its eligibility. The Trust had the opportunity to present
evidence that it is engaged in business in its prior Chapter 11
case before this court. It was ordered to do so by November 10,
1998, and was then given additional time, until December 4, 1998.
However, the Trust acquiesced in dismissal without presenting any
evidence it was engaged in business. In the present case, the
Trust failed to file a meaningful response to the Bank's and the
U.S. Trustee's allegations that it was not engaged in business.
Third, the Trust has made false statements in papers filed
with this Court. In its opposition to the Bank's motion, the
Trust falsely claimed it "has not filed any petition for relief
for bankruptcy protection" and "this is the first request for
relief by the Trust." (Opp. pp. 2:2-3 and 3:6.) The Trust's
statements are all the more surprising because it disclosed its
prior filing in the petition it filed to commence this present
case.
Fourth, the Trust did not dispute the Bank's evidence that no
payments have been made since September 8, 1997 on a promissory
note held by the Bank, in the original principal amount of
$100,000, of which $96,207.26 remains unpaid (not including
interest and other charges). Nor has the Trust disputed the
Bank's evidence that no payments have been made since August 13,
1998 on a second promissory note held by the Bank, in the original
principal amount of $149,000, of which $202,747.82 remains unpaid
(not including interest and other charges).
For the foregoing reasons, dismissal with prejudice is
appropriate. See, e.g., In re A-K Enterprises, Inc., 111 B.R. 149
(Bankr. N.D. Ohio 1990); Walker v. Stanley, 231 B.R. 343 (N.D.
Cal. 1999). The Trust is hereby barred from filing any bankruptcy
petition in any court, for a period of one year from the date
hereof, except as follows. At any time after 10 days of the date
hereof, the Trust may file a motion with this division of this
Court for leave to file a bankruptcy petition in an appropriate
division of this Court or any other bankruptcy court, on shortened
time if necessary, provided that the Trust attaches to such motion
a copy of this Order and provided further that such motion is
accompanied by a declaration detailing the Trust's business
activities, if any. Such motion shall be served on the Office of
the United States Trustee and on any creditors by U.S. Mail and,
if the Trust requests that the motion be heard on less than 5
days' notice, then service shall be by messenger or overnight
delivery.
The Bank has presented evidence that the foregoing conduct
may be part of a more substantial pattern of conduct by Cunningham
related to the Property. The Bank refers to four previous
personal bankruptcy petitions filed by Cunningham in Division 1 of
this Court, before Judge Jaroslovsky - Case No.'s 96-11164, 97-14497, 98-11943 and 99-13602. This Court takes judicial notice
that in the last of these cases, Judge Jaroslovsky entered an
order on March 22, 2000 dismissing Cunningham's bankruptcy case
and ordering:
Cunningham may not file any bankruptcy petition in any
court before March 10, 2001. In the event Cunningham
files any petition in violation of this order he may be
cited for contempt and any creditor may seek relief from
the automatic stay by ex parte application.
This Court also takes judicial notice that Cunningham is an
attorney admitted to the State Bar of California (Bar No. 34583).
According to the Bar's online records, Cunningham is an active
member.
For the foregoing reasons, this Court retains jurisdiction
over the Trust and Cunningham for the purpose of hearing any
motion the U.S. Trustee or the Bank may choose to bring for
contempt and sanctions. Such moiton may brought in either the San
Francisco Division or the Santa Rosa Division.
SO ORDERED:
Dated: June __, 2000
______________________________
Dennis Montali
United States Bankruptcy Judge
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