BK TECHNOLOGIES INC.

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
In re: 	)
)
BK TECHNOLOGIES, INC., 	) 	Case No. 20-bk-170
)
Debtor. 	) 	Chapter 11
___________________________________ 	)
MEMORANDUM OPINION
Pending are two matters: (1) the Motion to Dismiss Case filed by creditors Dominic and
Sherrie Cottrell (the “MTD”) [dckt. 54]; and (2) the Debtor’s Amended Plan (the “Plan”) [dckt.
63]. The MTD was filed on May 22, 2020. The Debtor filed a Response on June 1, 2020 [dckt.
64], and an Amended Response on June 8, 2020 [dckt. 67]. On June 11, 2020, creditor Garden
Grill Steakhouse, LLC (“Garden Grill”) joined in the MTD [dckt. 70].1 	The Debtor filed the Plan
on June 1, 2020. The United States Trustee (“UST”) filed its Objection on August 14, 2020 [dckt.
92], and Garden Grill and the Cottrells filed their joint Objection on August 18, 2020 [dckt. 93].
Both matters came before the Court for a final evidentiary hearing on November 16, 2020.
Following that hearing, the Court ordered post-hearing briefs and proposed findings of fact and
conclusions of law from each party. All briefing having been received, the matters are ready for
disposition.
The Cottrells and Garden Grill seek dismissal of the Debtor’s case and oppose its third
amended plan based upon, among other things, the assertion that the Debtor acted in bad faith
filing its petition for relief under Chapter 11. The UST opposes confirmation of the Debtor’s third
amended plan insofar as it contains unwarranted releases for non-debtor third parties.
1 On June 10, 2020, the court convened a telephonic scheduling conference at which time counsel for the Cottrells
indicated she was also recently retained by Garden Grill, who would be joining in the Cottrells motion. Garden Grill
subsequently filed its joinder stating facts it contends support dismissing the Debtor’s case and adopting the Cottrells
legal basis for dismissal.
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For the reasons stated herein, the court will enter a separate order granting the MTD. Based
upon the court’s disposition in that regard, it need not consider the Debtor’s proposed plan, nor the
objections thereto.
I. 	BACKGROUND
Prepetition, the Debtor operated a construction business. Brandon Klink and Michael Arlia
each hold 50% of the Debtor’s equity. 	They also constitute the membership of MB Industries,
LLC. 	In May 2019, the Debtor stopped operating. At that time, the Cottrells and Garden Grill
were among the Debtor’s customers—perhaps the only two. 	Specifically, the Cottrells contend
that they contracted with the Debtor in August 2018 for home renovations, which they assert the
Debtor was to complete by April 2019, but remained incomplete in May 2019. 	Garden Grill
purportedly contracted with the Debtor in January 2019 for the construction of its restaurant, which
was to be substantially completed by July 2019. 	Both projects remained unfinished when the
Debtor ceased operations.
To accomplish the cessation of its business, the Debtor purportedly sold its assets to
Neighborhood Roofing, Inc., an entity with which the Debtor already had a significant relationship.
The Debtor and Neighborhood Roofing agreed on a purchase price of $100,000, which
Neighborhood Roofing was to pay in quarterly installments of $25,000. According to the record,
$25,000 remains unpaid. Although not memorialized in a formal writing, the parties to the sale
understood informally that Neighborhood Roofing would absorb the Debtor’s employees, and that
Mr. Klink and Mr. Arlia would assist in a smooth transition of customer and employee relations.
Additionally, the Debtor anticipated that Neighborhood Roofing would complete the Cottrell and
Garden Grill contracts, despite those contracts being unassignable. 	In any event, the Debtor
stopped operating. According to the Debtor, it used the sale proceeds to pay vendors and other
creditors as it concluded its business. 	The Debtor does not currently have any employees or
contracts, nor does it own any equipment, tools, real estate, or vehicles. It has no plans to continue
with the business in the future.
Ultimately, in October 2019, the Cottrells filed a civil action in the Circuit Court of Ohio
County, West Virginia (the “State Court”). In addition to the Debtor, the Cottrells brought their
claims against the Debtor’s equity holders, Neighborhood Roofing, and several other entities and
individuals. On February 27, 2020, more than 272 days after ceasing operations, the Debtor filed
its petition for relief under Subchapter V of Chapter 11.
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II. ANALYSIS
The Cottrells and Garden Grill (collectively, the “Creditors”) seek dismissal of the Debtor’s
case and oppose the Debtor’s third amended plan based upon their assertion that the Debtor filed
its case in bad faith. Specifically, they contend that dismissal is appropriate because the Debtor
filed its case simply as a litigation strategy after the Cottrells instituted their civil action in the
Circuit Court of Ohio County, West Virginia. In support of dismissal, they assert that the Debtor
cannot reorganize because it sold its assets prepetition. 	That fact also supports the Creditors’
opposition to the Debtor’s proposed plan based upon its “fail[ure] to satisfy the reorganizational
purpose of subchapter 5 small business filings.” Additionally, the Creditors oppose the Debtor’s
plan insofar as it proposes to inappropriately classify the unsecured claim of MB Industries, LLC,2
and because the Plan is based upon the Debtor’s proposed injunction protecting Mr. Klink and Mr.
Arlia and entities they own or control. That injunctive language also serves as the sole basis for
the UST’s opposition to confirmation.
The Debtor contends it filed its case in good faith, to simply resolve loose ends following
the prepetition sale of its business. In that regard, the Debtor asserts that it chose to stop operating
based upon declining financial circumstances, and it hoped to achieve continuity for its employees
and customers by selling its assets to Neighborhood Roofing. Additionally, the Debtor points to
claims by The Huntington National Bank and the West Virginia State Tax Department to support
its notion that this is not a two-party dispute. 	The Debtor contends that Chapter 11 of the
Bankruptcy Code permits the confirmation of a liquidating plan. 	Regarding its proposed
injunction benefitting its equity holders and entities they own or control, the Debtor contends that
the court should consider significant MB Industries’ proposed subordination of its claim, and
expand applicable law to include the injunction proposed here.
Based upon the parties’ arguments and the record before the court, the court finds it
appropriate to first consider the Creditors’ argument regarding the Debtor’s bad faith because it
permeates both the motion to dismiss and the opposition to the Debtor’s proposed plan. Among
other support for their motion, the Creditors note that the Debtor cannot reorganize because it sold
its assets prepetition. 	The Creditors therefore contend that the only apparent purpose for filing
2 The Debtor asserts that it has a lender-creditor relationship with MB Industries, LLC, a company also jointly owned
by Mr. Klink and Mr. Arlia. However, MB Industries, LLC, was not originally listed as a creditor on the schedules;
the alleged lending relationship came to light later. The Debtor points to its “chaotic” records as a partial explanation
for the snafu, but also explains that there was no effort made to fix the records because it was not cost-effective.
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was to enjoin their collection activity against the Debtor and its principals. In response, the Debtor
simply notes the potential for liquidation in Chapter 11 and specifically points in that regard to the
“sale” of a single truck securing the claim of The Huntington National Bank. 	Otherwise, the
Debtor focuses on some of the Creditors’ other arguments, including the assertion that this case is
simply a two-party dispute.
“[O]n request of a party in interest, and after notice and a hearing, the court shall . . . dismiss
a case under this chapter . . . for cause . . . .” 11 U.S.C. § 1112(b)(1). Although Congress did not
explicitly define “cause,” it enumerated a non-exhaustive list of what qualifies. See 11 U.S.C. §
1112(b)(4). Additionally, “‘[t]he right to file a Chapter 11 bankruptcy petition is conditioned upon
the debtor’s good faith—the absence of which is cause for summary dismissal.’” In re Premier
Auto. Servs., Inc., 492 F.3d 274, 279 (4th Cir. 2007); see also Carolin Corp. v. Miller, 886 F.2d
693, 698 (4th Cir. 1989); In re Nichols, Case No. 2:16-bk-20427, 2017 WL 160865, at *3 (Bankr.
S.D.W. Va. Jan. 13, 2017). In fact, “the ability of a bankruptcy court to conduct a threshold inquiry
into the good faith of a petitioner is ‘indispensable to proper accomplishment of the basic purposes
of Chapter 11 protection.’” In re Premier, 492 F.3d at 279 (quoting Carolin Corp., 886 F.3d at
698).
It is well settled in this circuit that “a lack of good faith in filing a Chapter 11 petition
requires a showing of ‘objective futility’ and ‘subjective bad faith.’” In re Premier, 492 F.3d at
279-80 (citing Carolin Corp., 886 F.2d at 700-01). As explained by the Fourth Circuit,
The objective test focuses on whether there exists the realistic possibility of an
effective reorganization. The subjective test asks whether a Chapter 11 petition is
motivated by an honest intent to effectuate reorganization or is instead motivated
by some improper purpose. Subjective bad faith is shown where a petition is filed
to abuse the reorganization process or to cause hardship or to delay creditors by
resort to the Chapter 11 device merely for the purpose of invoking the automatic
stay.
Id. at 280 (internal quotations and citations omitted). Regarding the objective test, it is “designed
to insure that there is embodied in the petition ‘some relation to the statutory objective of
resuscitating a financially troubled [debtor].’” In re Paolini, 312 B.R. 295, 304 (Bankr. E.D. Va.
2004) (quoting Carolin, 886 F.2d at 701). And, in terms of the subjective inquiry, the aim is to
determine whether the Debtor’s intent is to abuse the process and cause hardship and delay to
creditors “without intent or ability to reorganize his financial activities.” Id. at 304-05 (quoting
Carolin, 886 F.2d at 702). 	“The overall aim of the twin-pronged inquiry must of course be to
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determine whether the purposes of the Code would be furthered by permitting the Chapter 11
petitioner to proceed past filing.” Carolin, 886 F.2d at 701.
“If the movant demonstrates ‘cause’ under subsection 1112(b)(1), the burden shifts to the
nonmovant . . . to show ‘unusual circumstances establishing that converting or dismissing the case
is not in the best interests of creditors and the estate.” In re U.S.A. Parts Supply, 619 B.R. 619,
624 (Bankr. N.D. W. Va. 2020) (citing Nichols, 2017 WL 160865, at *3 (citation omitted)).
Notably, however,
The Carolin court made clear that the burden of establishing this two-pronged
requirement is very high. The power to dismiss a bankruptcy petition at the outset
of a case “is obviously one to be exercised with great care and caution. Decisions
denying access at the very portals of bankruptcy, before an ongoing proceeding has
even begun to develop the total shape of the debtor's situation, are inherently drastic
and not lightly to be made.
In re Bestwall LLC, 605 B.R. 43, 48 (Bankr. W.D.N.C. 2019) (internal quotation omitted).
Having considered the record here in light of the applicable authority, the court finds it
appropriate to dismiss the Debtor’s case as having been filed in bad faith. Specifically, the court
finds that both prongs of the Carolin test weigh in favor of dismissal. First, the court finds that
there is no bankruptcy purpose—reorganization or liquidation—for the Debtor to achieve. Despite
the Debtor’s assertion to the contrary, its case is not a liquidation under Chapter 11. Indeed, the
Debtor stopped operating and sold its assets several months before deciding to seek Chapter 11
relief. The Debtor undoubtedly liquidated in May 2019 and sought protections of the Bankruptcy
Code in February 27, 2020, three months after the Cottrells initiated their civil action in State
Court. Although Chapter 11 may permit liquidation, the court finds the Debtor’s characterization
of its case in that regard to miss the mark. It is true that the Debtor also owned a single 2019 GMC
Sierra when it filed its bankruptcy petition. That, however, was the only asset other than cash and
accounts receivable that the Debtor identified on Schedule A/B; it was overencumbered by a lien
securing a loan from The Huntington National Bank, and ultimately, the Debtor “liquidated” that
vehicle by selling it to an entity with common ownership for $500 and the assumption of The
Huntington National Bank indebtedness. That, in and of itself, does not make this case a Chapter
11 liquidation.
For virtually the same reasons, the court also finds that the Debtor’s case was not motivated
by an honest intent to reorganize or liquidate for the benefit of creditors. As the Debtor noted, it
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liquidated prepetition and paid what creditors it believed it had. 	Only after being sued by the
Cottrells did the Debtor feel compelled to seek bankruptcy protection, possessing virtually nothing
to liquidate or reorganize. Moreover, in its proposed Plan, the Debtor sought to enjoin collection
activity against its equity holders and related entities despite such relief being unnecessary as the
Debtor was simply an empty shell. 	Put simply, the court does not perceive any purpose of the
Bankruptcy Code served by this filing. To the contrary, the court believes this case served as a
proposed vehicle to insulate the Debtor’s equity holders and related entities.
III. CONCLUSION
Based upon the foregoing, and consistent with Fed. R. Bankr. P. 7052 and 7058, the court
will enter a separate order granting the MTD and dismissing this case.
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