Qmect, Inc.

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 04-41044 T
Chapter 11
QMECT, INC., etc.,
Debtor-in-Possession.
__________________________________/
MEMORANDUM RE MOTION IN LIMINE SEEKING SANCTIONS
An evidentiary hearing on the third motion of Burlingame Capital
Partners 	II, 	L.P. 	and 	Electrochem 	Funding, 	LLC 	(collectively
“Lenders”) 	for 	relief 	from 	the 	automatic 	stay 	is 	scheduled 	for 	May
24, 2006 at 9:30 a.m. 	On May 17, 2006, the Lenders filed a motion in
limine 	seeking 	three 	things. 	First, 	the 	motion 	asks 	the 	Court 	to
preclude the above-captioned debtor (the “Debtor”) and the Official
Creditors’ Committee (the “Committee”) from introducing any financial
information 	at 	the 	scheduled 	evidentiary 	hearing. 	Second, 	it
requests sanctions against Fred Koelling (“Koelling”), the Debtor’s
CEO, and Paul Manasian (“Manasian”), the debtor’s bankruptcy counsel,
based on the Court’s inherent authority. 	Third, it asks the Court to
issue 	an 	order 	to 	show 	cause 	re 	civil 	contempt 	with 	respect 	to
Signed: May 19, 2006
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
May 19, 2006
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 04-41044 Doc# 543 Filed: 05/19/06 Entered: 05/19/06 14:30:08 Page 1 of
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Koelling and Manasian. 	The Court issues this memorandum to relieve
the 	Debtor 	and 	the 	Committee 	from 	the 	burden 	of 	responding 	to 	the
motion at this time.
With 	respect 	to 	the 	first 	request, 	the 	Court 	will 	deny 	it
summarily. 	The 	purpose 	of 	the 	evidentiary 	hearing 	is 	to 	determine
whether the Lenders are entitled to foreclose their security interest
in 	approximately 	$1 	million 	of 	the 	Debtor’s 	cash. 	If 	the 	Court
grants the Lenders’ motion, there will be no funds left with which to
pay 	unsecured 	creditors. 	If 	the 	motion 	is 	denied, 	because 	the
financial 	information 	offered 	by 	the 	Debtor 	or 	the 	Committee
establishes 	that 	the 	Lenders’ 	security 	interest 	does 	not 	extend 	to
some 	or 	all 	of 	the 	cash, 	unsecured 	creditors 	may 	receive 	some
payment. 	Even if the conduct by Koelling and Manasian described in
the motion warrants sanctions, it would not be appropriate to punish
the unsecured creditors by precluding the admission of evidence that
might 	serve 	to 	establish 	defects 	or 	limitations 	in 	the 	Lenders’
liens.
The Court views the latter two requests, made at this time, as
an inappropriate litigation strategy. 	The conduct referred to by the
Lenders 	occurred 	some 	time 	ago. 	Whether 	to 	impose 	sanctions 	upon
Koelling and Manasian based on that conduct need not be determined at
this time, on the eve of trial. 	If sanctions are appropriate, they
may be imposed later after Koelling and Manasian are given adequate
time to respond. 	Therefore, the Court will deny the application for
an order to show cause and will instruct the Debtor and Committee not
to respond to the motion for sanctions at this time.
Case: 04-41044 Doc# 543 Filed: 05/19/06 Entered: 05/19/06 14:30:08 Page 2 of
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Good cause appearing therefor, it is
SO ORDERED.
END OF DOCUMENT
Case: 04-41044 Doc# 543 Filed: 05/19/06 Entered: 05/19/06 14:30:08 Page 3 of
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COURT SERVICE LIST
Paul E. Manasian
Manasian & Rougeau, LLP
400 Montgomery St., Ste. 1000
San Francisco, CA 94104
Robert R. Moore
Allen Matkins Leck Gamble & Mallory LLP
Three Embarcadero Center, 12 th Floor
San Francisco, CA 94111
Philip J. Nicholsen
Law Offices of Philip J. Nicholsen
221 Main St., #740
San Francisco, CA 94105
Case: 04-41044 Doc# 543 Filed: 05/19/06 Entered: 05/19/06 14:30:08 Page 4 of
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