Show Cause Proceeding/LLC/Creditor Harrassment.

[wirelessdog]

Ok, bear with me, this is a bit complicated.

2-3 years ago I paid an attorney to form an LLC lets call it DWIP LLC. The attorney never told me I had to return to sign papers and never filed with the state. When I consulted with the attorney some 6-8 months later he advised not to file the LLC papers with the state as it would complicate BK which he believed was inevitable. During that 6-8 month time when I thought the LLC had been filed when it hadn't I signed 2 lease agreements as DWIP LLC.

In 2005, a friend formed an LLC call it ECW LLC. About 5 years ago, I entered into an agreement along with my wife and two other people to purchase said LLC and assets. I own 10% my wife 60% and the two others 15% each.

There is a commercial lease, originally between ECW LLC prior to my purchasing the LLC. When I renewed the lease I did so as DWIP LLC.

When I filed BK, prior to finding this site, I found several examples of a personal filing with a dba company name LLC - the LLC itself, if it existed, did not file. I followed the same approach and listed DWIP LLC as a dba of myself on the BK filing.

At the 341 meeting the Trustee asked if ECW LLC was my company, who else owned it, and had no further questions.

The landlord of the commercial lease contacted me about payment. I have kept these payments up to date, the payment in question being 15 days behind. He gave me the ultimatum to either pay the lease or he would enter the premise and cut power to the equipment. Having no money, I advised him of the BK, even sent him a copy of the 341 meeting notice. He did not show for the 341 meeting.

The next day, without due process or court order, he entered my leased premise and cut power to my equipment. I also had a verbal agreement to a location at his residence and he cut power there as well.

I filed an emergency motion for injunctions, sanctions and request he be held in contempt. I was also able to get both Maryland and Delaware to criminally charge him for his actions.

I have a meeting scheduled for Tuesday morning. I had a friend drop off the above motion while I was at the 341 meeting. In Maryland, there is a location that is not an actual court house - they just have a room to conduct 341 meetings.

The twist to this is:

1. I don't believe I listed the equipment at the leased locations as assets on the BK filing. This was not deliberate. The replacement value of the equipment is maybe $1k collectively and the labor to remove the equipment is $2400.

2. The benefactor of the lease and equipment is ECW LLC, not myself, collecting a NET amount of around $250 per month after paying the lease.

Since cutting the power, the landlord has proceeded to restore it after two days, presumably after consulting with an attorney.

Any insight as to what I should expect at the Show Cause hearing, what I need to prove?

The court has given me until Monday 10am to have him served personally. The process server contacted him today by telephone and he advised he would not accept any papers. Unfortunately his residence has a security gate and I'm not sure what options I have to serve him.

There is another company this same landlord is an agent for. They were listed on the BK and have received notices of the same. Their attorney requested the local court issue a body attachment two days ago for me on a judgment. I lumped them in as an additional creditor violating the Automatic Stay. I was successfully able to serve them today.

All this has happened over the past two days and needless to say, my head feels like it is going to explode.

Any insight is appreciated.

[justbroke]

Complicated, complex, and confusing.

I can't give legal advice, but by listing the (DWIP) LLC as a d/b/a, you may have peeked the Trustee's interest as to whether this is a closely-held LLC (really just an alter ego of yourself), or a partnership. Were there questions related to the LLC's organization? Did the Trustee ask for any documentation of the articles of incorporation, tax returns, or a certified P&L statement? It would be interesting to see if the Trustee actually starts to probe both LLCs more. Did you list your ownership in ECW on the Statement of Financial affairs? Complex, yes.

I'm not sure you're going to get many responses here; at least not the kind that you want. Your case is complex, complicated and confusing. While this site is more geared to personal bankruptcies, there are some of us who have done business bankruptcies, with and without LLCs and d/b/a names.

So, that leaves me wondering if DWIP LLC bought ECW LLC, or are they two distinct entities. If not, then I see trouble, but that's because I probably have more information than the Trustee. If there's no DWIP and DWIP purchased ECW, then you are DWIP and the assets of DWIP may be property of the bankruptcy estate. Perhaps the Trustee doesn't even want to look at this since you renewed ECW's leases as DWIP. Confusing, yes.

Perhaps the Trustee just doesn't see it as worth his/her time to follow the trail. If an attorney noticed BK complications 6 months after DWIP should have been formed,

As for the Show Cause, you need to prove, through introduction of admissible evidence, that the creditor's cutting the power on the premises was related to your "personal" bankruptcy. Also, are you sure that the other party had constructive or actual notice of your bankruptcy? You'd need to show that as well, that their violation of the stay was willful and/or egregious.

This case is complicated. This is not suited for the average pro se debtor. I'm surprised that these creditors didn't show up at your 341 Meeting since it appears to be very personal. Looks to me that you attempted to set up some sort of bankruptcy remote entity (DWIP?) to protect ECW. But that's what it looks like to me.

That's my opinion. I'm not sure the judge will be able to weave their way through it unless you stick to the sole fact of the violation under 11 USC 362.

[wirelessdog]

Thanks for the response.

My 10% ownership of ECW is listed on the BK.

DWIP has never and does not now exist. If considered a dba, I would think, it should only be considered an extension of my person.

On the BK, the debts are primarily non-consumer. Not sure if that helps/hurts.

The Trustee had virtually no questions about ECW LLC. Did not ask for documentation. Did not seem to care.

I was also surprised that neither creditor showed up to the 341.

What is constructive or actual notice of BK? Will this be similar to a civil trial where I will be allowed to question the creditors as to their actions?

[despritfreya]

There is a commercial lease, originally between ECW LLC prior to my purchasing the LLC. When I renewed the lease I did so as DWIP LLC. . . (After filing bk the Landlord) entered my leased premise and cut power to my equipment. I also had a verbal agreement to a location at his residence and he cut power there as well. I filed an emergency motion for injunctions, sanctions and request he be held in contempt. . . (Since then) the landlord has proceeded to restore it after two days, presumably after consulting with an attorney. . . The court has given me until Monday 10am to have him served personally.

I don't believe I listed the equipment at the leased locations as assets on the BK filing. The benefactor of the lease and equipment is ECW LLC.

1. Your interest in ECW LLC is an asset of the estate, for whatever that is worth, and should be listed on Schedule B (I assume you did this).

2. DWIP, LLC, while in a non-bk world, may be a defacto LLC, it is not a legal entity and in a bk world, does not exist. As a result, you are a sole proprietor however, it sounds like the assets of your business are actually owed by ECW LLC to which you have a less than 100% interest.

3. Since the “non residential” (commercial) lease, originally in the name of ECW, is in your name (your LLC does not exist), technically you will lose your leasehold rights under 11 USC 365(d)(4) on the 121st day after the Petition date as the lease will be deemed “rejected” by operation of law.

4. Yes, the actions of the landlord were in violation of the automatic stay however, it sounds like he rectified the problem therefore it is unlikely that a court will give you “sanctions”. But. . . you won’t know until you ask. Regardless, once the lease is terminated he can either seek the lifting of the stay to proceed with eviction or simply wait until the entry of your discharge and then seek to evict.

5. If the court directed personal service (not otherwise required as service by mail is what the Bk Rules call for), then personal service it is. You should send via mail, fax and email, the OSC so at least you can document that you did “serve” it in some way. You also need to document your efforts at personal service.

6. Your statements are confusing as to the leased equipment. If the leases are in the name of ECW, LLC (meaning ECW entered into a contract to lease the equipment from some company) then your bk estate has no interest in the equipment. If you or DWIP (which does not exist) entered into an agreement to lease equipment this information should have been disclosed on Schedule G and, if not disclosed, Schedule G should be amended. If the equipment is owned by ECW and you (or DWIP) is leasing it from ECW then that lease should be on Schedule G.

Needless to say, JB is correct (as are many other posters I have seen). You have a complex case and, if and when the Trustee begins to meddle in your affairs, you really will need the assistance of counsel. But for now, it appears you are holding your own - even though you feel like your head is spinning.

Des.

[tobee43]

i will premise this, which i'm certain this most likely will not be of must assistance to you or give any legal advise either, however, in an effort to get a clearer picture i'm just attempting to understand the situation a bit.

you are filing your LLC bk in a separate action, correct? since, in many cases dissolution of the llc is generally less expensive than bankruptcy, so i'm just curious as to why you chose the bankruptcy option. (i'm sure you had your reasons).

it's unfortunately that you couldn't have worked around this and simply properly dissolve the entity by notifying the state, selling any assets and using the money to pay creditors a pro-rata share, of course, assuming there are any assets left. (could have would have should have, is no help, i understand).

dissolution or bankruptcy??? if you do the dissolution yourself, you are responsible to gather receivables, sell assets, and distribute the funds. and as you know In a bankruptcy, the trustee will do all of that. and, if the trustee is unaware of one of the llc, perhaps it may be possible to just dissolve it at this juncture? and, or, since the (LLC) are separate entities and filing bankruptcy for that kind of business won’t involve your personal assets or debts, it may be easier to possibly turn it over to the trustee and let them scramble as to any remaining assets.

you filed for the show cause hearing or did the other party, i just a bit confused ?? a show of cause hearing is an optional preliminary hearing at which you may request orders, did the party miss or ignored interrogatories/paper work sent on your behalf, or what is the basis for the hearing exactly.

basically what happens at these type of hearings, the judge will listen to both sides and decide what to do temporarily with the property or situation prior to trial, if it's going to go that far. what to bring? i don't know the exact basis of what was written on the motion. i would say any documents, records, witnesses that support your position.

again, and please don't take offense, this is such a complex issue as jb has pointed out, so many twists and turns, one needs to stand back, although, i understand at this time, time has run out. however, i would request a postponement until you can get a full handle on the situation, like a difficult game of chess each move can hit you back when you least expect it. although, i'm certain you are capable.

[tobee43]

haaaaaa des, i didn't see you there!! wish i had waited a few minutes to catch your response. darn!

[wirelessdog]

ECW LLC is not bankrupt.

The show cause, requested by me, is for the court to determine if they will issue an injunction against the Landlord.

The show cause will be in front of a judge as opposed to the Trustee?

It sounds, like either way, I will legally lose the lease in the end. Is that a correct assessment on my part? With the landlord being this bent, I am certain reaffirmation of the lease will not happen.

I just want to make sure I'm prepared moving forward.

What happens from now until the 120 days? Will the Landlord, more than likely, have to allow continued use of the premise until that date even if I don't pay? Not sure I understand that part.

[tobee43]

the hearing in maryland could be held in front of a judge or " MASTER", pursuant to Maryland Rule 9-208(a)(1)(G).

[despritfreya]

What happens from now until the 120 days? Will the Landlord, more than likely, have to allow continued use of the premise until that date even if I don't pay? Not sure I understand that part.

If the Landlord is smart:

1. He will hire an attny
2. The attny will file a Motion to Lift the Stay
3. Once the stay is lifted he will proceed under state law to evict.

This, of course, assumes you do not work something out with him.

Will you be responsible for the rents due from the Petition date until you vacate? I don't think so. The lease is a contract that is dischargeable in your bk. Under 365 and 503(a)(7) the Landlord would be entitled to an administrative claim for post petition rents if the lease were "assumed" and then subsequently "rejected". In addition there may be a claim for rents (against the estate - I would imagine) regardless of the assumption issue. Trustees tend issue the Notice of Intent to Reject Executory Contract relatively early in a case so there is no question as they do not want to risk any expense associated with the leasehold that has no benefit to the estate.

Lastly, all court hearings (other than the 341, depositions, 2004 exams) are in front of a judge.

Des

[despritfreya]

the hearing in maryland could be held in front of a judge or " MASTER", pursuant to Maryland Rule 9-208(a)(1)(G).

Interesting. I have never seen this in the context of a bk. Are the bk courts in Maryland that overwhelmed with filings? Maybe not a bad idea to keep the dockets in order and cases moving along.

Des.

[wirelessdog]

Is there a legal basis where one can oppose a motion for relief of stay? If he does indeed retain counsel, perhaps something can be worked out.

I know historically, anytime somebody has threatened to hire a lawyer I think "Thank God" now I can have a reasonable conversation with someone...

[justbroke]

I have to re-stress Des' point on the Motion for Relief From Automatic Stay (RFS). A smart landlord (creditor) would get an attorney and then move to evict you. That means an RFS should be coming real soon, if the landlord is smart or has good representation. This relief will be granted unless you assume the lease and then keep the lease current.

Executory Contracts are fun! What is your intent or what was your intent listed on Schedule G for the leases?

[wirelessdog]

These particular lease we were on the fence about keeping and leaning towards letting them go. Unfortunately, I wanted to do right by my customers and give them some advance notice and the approach the Landlord took set me off which is a fight I plan to take the distance.

Are there any legal arguments to be made against a relief of stay?

[despritfreya]

Oops, hit the wrong button

Are there any legal arguments to be made against a relief of stay?

I do not believe so and, while I will review the Code more completely later today, I think the problem is that only the Trustee can assume or reject this non-residential commercial lease in the context of a Chapter 7. I could be wrong on that. I know that an individual can assume a lease of personal property but I am not sure about non-residential real property.

Des.

[justbroke]

Is there a legal basis where one can oppose a motion for relief of stay? If he does indeed retain counsel, perhaps something can be worked out.

You would need to show that you listed on Schedule G, that you were assuming the lease and not rejecting it. In fact, as Des pointed out, the Trustee may reject the lease -- from the Estate -- anyhow. The keys are in 11 USC 365(d)(3) as Des pointed out earlier. You have to actually show that you are assuming the lease!

These particular lease we were on the fence about keeping and leaning towards letting them go. Unfortunately, I wanted to do right by my customers and give them some advance notice and the approach the Landlord took set me off which is a fight I plan to take the distance.

Are there any legal arguments to be made against a relief of stay?

I can't give legal advice or formulate your argument. However, RFS motions tend to be pretty cut and dry. The judges usually whip out their judgment as quickly as the motion tends to be read into the record. (Okay, that's just from my experience and only in the most simple cases.) An argument that you're trying to protect your customers, while admirable, is not the creditors problem. The bankruptcy court remains a court of equity and they have to protect the creditors just as much as they have to protect the debtors -- albeit that they lean more towards the debtor in most cases.

So, what did you list on Schedule G for this lease? Depending on whether the Trustee rejects the lease "quickly", and your Schedule G indicates the same (reject), the judge will whip out their judgment as quickly...