572 B.R. 582
Bankr. W.D. Pa.2017Background
- Stone Pox Capital, LLC (the Debtor) filed two Chapter 11 petitions: one on December 29, 2016 (dismissed for failure to file documents) and a second on June 30, 2017, filed days before a scheduled sheriff’s sale of its sole asset, 3 Shadow Lane (the Shadow Lane Property).
- The Debtor is a single-asset LLC; James H. Joseph (Attorney Joseph) is the sole equity holder, resides at the property, and signed the petitions as both manager and counsel; no application to employ him as counsel was filed.
- Forest Highlands Community Association holds a secured judgment against the property and is the only active creditor; it moved for relief from the automatic stay and later sought sanctions under Fed. R. Bankr. P. 9011.
- The U.S. Trustee moved to dismiss, arguing Attorney Joseph is an insider/creditor and therefore not a disinterested, court‑approved counsel and that an LLC cannot appear pro se.
- The court found the filings were a two‑party, single‑asset dispute filed primarily to obtain the automatic stay, Debtor had no cash or ongoing business, Debtor failed to prosecute (missed filings, no operating reports), and Debtor did not credibly support an asserted unsecured claim by Attorney Joseph’s son.
- After an evidentiary hearing, the court dismissed the case with prejudice, barred Stone Pox from filing for 180 days, and declined to award monetary Rule 9011 sanctions at this time.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether cause exists to dismiss under 11 U.S.C. § 1112(b) because counsel is not disinterested and LLC cannot appear pro se | U.S. Trustee: Attorney Joseph is an insider/creditor and not disinterested; LLC cannot proceed without court‑approved counsel | Debtor: unable to retain other counsel despite efforts; no immediate replacement available | Held: Cause exists; dismissal warranted because Attorney Joseph is an insider/creditor and Debtor cannot appear pro se |
| Whether the petition was filed in good faith or primarily to obtain a tactical stay (warranting dismissal with prejudice) | Forest Highlands: petition is a bad‑faith, single‑asset, two‑party filing on eve of foreclosure to obtain the automatic stay | Debtor: seeks to preserve rights while a state‑court appeal proceeds and may pursue RICO claim; contested the amount owed | Held: Petition not filed in good faith (multiple Primestone/JER factors present); dismissal with prejudice and 180‑day bar imposed |
| Whether Rule 9011 sanctions (monetary) should be imposed for improper filing | Forest Highlands: seek attorney’s fees and sanctions for bad‑faith filing | Debtor: no specific defense; did not respond to motion | Held: 9011 violation supported to the extent injunctive relief (filing bar) imposed to deter repetition; monetary sanctions denied for now but court warned of harsher sanctions if injunction violated |
Key Cases Cited
- In re 15375 Memorial Corp., 589 F.3d 605 (3d Cir.) (good‑faith filing requires valid bankruptcy purpose; totality of circumstances test)
- In re JER/Jameson Mezz Borrower II, LLC, 461 B.R. 293 (Bankr. D. Del. 2011) (factors for evaluating good faith and dismissal with prejudice)
- In re Commonwealth Renewable Energy, Inc., 550 B.R. 279 (Bankr. W.D. Pa. 2016) (cause for dismissal includes lack of reasonable likelihood of plan confirmation)
- Dougherty v. Snyder, [citation="469 F. App'x 71"] (3d Cir.) (a corporation or LLC cannot appear pro se; must be represented by licensed counsel)
- In re Primestone Investment Partners, L.P., 272 B.R. 554 (D. Del. 2002) (lists non‑exclusive factors used to assess good‑faith filing)