Coyote Construction, Inc.

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re No. 04-45081 T
Chapter 11
COYOTE CONSTRUCTION,
Debtor.
_____________________________/
MEMORANDUM OF DECISION RE CONVERSION OF CASE TO CHAPTER 7
The Office of the United States Trustee (the “UST”) filed a
motion to convert the above-captioned case to chapter 7 of the
Bankruptcy Code or to appoint a chapter 11 trustee. Shortly
before the scheduled hearing on the motion, the debtor (the
“Debtor”) filed a motion to dismiss the case. The hearing on the
UST’s motion was continued so that the two motions could be heard
together. At the conclusion of the continued hearing, on May 2,
2005, the Court denied the motion to dismiss and granted the
motion to convert. The Court stated briefly the grounds for its
decision. The purpose of this Memorandum is to explain those
grounds in more detail.
Signed: May 03, 2005
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
May 04, 2005
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 04-45081 Doc# 127 Filed: 05/03/05 Entered: 05/04/05 09:22:26 Page 1 of
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SUMMARY OF FACTS
Prior to its conversion, the Debtor was engaged in the
construction business. In its schedules of assets and
liabilities, the Debtor listed general unsecured debt totaling
approximately $132,000. Of this amount, approximately $60,000 was
scheduled as debt for unpaid contributions owed to union trust
funds (the “Trust Funds”). The Debtor’s filing, on October 6,
2004, was apparently precipitated by a desire to stay collection
actions by the Trust Fund creditors.
The first few months of the case were devoted primarily to
disputes concerning the Debtor’s application to employ counsel.
The Debtor sought leave to employ Sharon Ceasar (“Ceasar”), an
attorney with no prior chapter 11 bankruptcy experience, as its
primary bankruptcy counsel and to employ Willie Phillips
(“Phillips”), an experienced chapter 11 bankruptcy counsel, as her
“co-counsel” to assist her. The UST objected to the employment of
both counsel, Ceasar based on her inexperience, and Phillips based
on the Court’s prior ban on his employment as chapter 11 counsel
for past misconduct. Ultimately, the Court approved Casear’s
employment. However, further difficulties arose when Phillips
persisted in assisting Ceasar at a deposition and in court.
During this period, there were other problems in the case
unrelated to the employment of counsel. The Debtor’s monthly
operating reports were not in compliance with the UST’s
guidelines. The Debtor’s counsel and responsible officer both
expressed the view that they should not be required to modify the
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reports and that the UST’s dealings with them were based on a
racist vendetta against the company because it was African-
American owned and represented by African-American counsel.
The Trust Fund creditors complained that the Debtor was not
paying contributions to the Trust Funds based on its post-petition
activities either. The Debtor blamed the Trust Fund creditors for
its failure, asserting that the Trust Fund creditors’
unwillingness to execute lien releases prevented the Debtor from
obtaining payment for its services from the various general
contractors. The Court ordered the parties to meet and confer and
attempt to work out this problem. The UST’s motion to convert the
case or to appoint a chapter 11 trustee was continued to give them
an opportunity to do so and an evidentiary hearing on the motion
to convert was scheduled two weeks later.
Shortly before the evidentiary hearing, the Trust Fund
creditors filed the declaration of Wayne E. McBride (“McBride”),
the Collections Manager for the Trust Funds. In the declaration,
McBride stated that he had not received a request for a lien
release from the Debtor after it filed for bankruptcy until March
2005, after the initial hearing on the UST’s motion to convert the
case. He did receive a call from someone on January 28, 2005,
asking for confirmation that the Debtor had paid the benefits due
for work performed in October 2004. At that time, the check for
October had been received but had not yet cleared the bank. In
addition, the Trust Funds had not yet received the contribution
reports or any payments for November or December 2004.
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In March 2005, the Debtor wrote him, requesting a limited
release. He directed his counsel to provide the Debtor with blank
release forms so that they could fill in the amount of the checks
to be received, the project names, the general contractors from
whom the checks would be received, and the time period of work
provided for in the payment. He has never received back the
completed release forms. Moreover, he has never received
contribution reports from the Debtor, let alone payments for
December 2004 through February 2005.
The evidentiary hearing never took place. Instead, shortly
before the hearing, the Debtor filed a motion to dismiss the case.
The evidentiary hearing was converted to a hearing on oral
argument only, to be conducted at the same time as the hearing on
the motion to dismiss. The primary basis for the motion was that
the counsel for the UST had a racially motivated personal vendetta
against the Debtor and its counsel and that, having observed the
Court’s conduct of the various cases on its calendar, it was clear
that matters involving African-Americans were dealt with more
harshly than those involving persons of other races.
At the hearing on the motion, the UST and the Trust Fund
creditors both urged the Court to convert the case so that there
could be some attempt to locate assets available for unsecured
creditors. In addition to claims of bias, the Debtor urged the
Court to dismiss the case, arguing that the unsecured creditors
would be better served since there were no assets left in the
estate with which they could be paid. The Debtor noted that it
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had collected all of the accounts receivable that were outstanding
at the time of the filing. The Debtor did not disclose what had
been done with the funds collected.
Had there been no creditor urging conversion, the Court might
have been inclined to grant the Debtor’s motion on the condition
that the Debtor agree to a dismissal with prejudice. However,
given the Trust Fund creditors’ preference for conversion, the
Court denied that motion and granted the motion to convert. It
appears that at the time the bankruptcy case was filed, the Debtor
had accounts receivable from which the Trust Fund creditors might
have been paid. The Debtor took advantage of the automatic stay
by filing the case and prevented the Trust Fund creditors from
accessing those assets. The Debtor may have disposed of the funds
collected in such a way that they may not be recovered by a
chapter 7 trustee. However, it a chapter 7 trustee may be able to
recover some or all of those funds. To dismiss the case under
these circumstances appears unjust.
END OF DOCUMENT
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COURT SERVICE LIST
Sharon L. Ceasar
Law Offices of Sharon L. Ceasar
125 University Ave.
Berkeley, CA 94170
Tracy L. Mainguy
Operating Engineers Local Union No. 3
1620 S Loop Rd.
Alameda, CA 94502
Bruce K. Leigh
Stanton, Kay & Watson
101 New Montgomery St., Fifth Floor
San Francisco, CA 94105
Andrew Velez-Rivera
U.S. Department of Justice
Office of the United States Trustee
1301 Clay St., Ste. 690-N
Oakland, CA 94612-5217
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