M.P. Construction Co., Inc. v. Wong (In re M.P. Construction Co., Inc.)

Summarized by Brendan Gage , Goulston & Storrs PC
12 years 12 months ago

Citation:

Nos. CC-12-1306-DKiPa & CC-12-1307-DKiPa (B.A.P. 9th Cir. Mar. 4, 2013)

Tag(s):

Ruling:

Affirming the judgment of the Bankruptcy Court for the Central District of California (“the BC”), the Bankruptcy Appellate Panel for the Ninth Circuit (“the BAP”), held that the BC did not abuse its discretion in dismissing the debtor’s bankruptcy case “for cause” under § 707(a) and holding the debtor and debtor's counsel jointly and severally liable for sanctions under Bankruptcy Rule 9011. While the specific conditions for cause dismissal under § 707(a)(1-3) were inapplicable, subsection (a) uses the term “including,” indicating that these conditions are not exclusive. Consequently, the BC correctly looked into the circumstances surrounding the bankruptcy filing of the debtor, M.P. Construction Company, Inc. (“MP”) to determine whether there was misconduct sufficient to constitute “cause” for dismissal. MP was not eligible for a bankruptcy discharge and had no assets to distribute to its creditors. Rather, the BC determined that MP’s case had been filed for the purpose of protecting and benefitting MP’s principals. These facts were sufficient for cause dismissal. Rule 9011 sanctions were also warranted against MP’s counsel. MP's counsel had a duty to conduct an objectively reasonable factual and legal investigation which would warrant MP’s bankruptcy filing. The BC determined that MP could not benefit from the bankruptcy filing and that using bankruptcy to effect a transfer of MP’s construction license was not a valid purpose for filing. Furthermore, rule 9011(c)(1)(A)’s “safe harbor” provision permitting an offending party to correct an offensive pleading does not apply to the filing of a petition. Having signed the bankruptcy petition, MP could also be held jointly and severally liable for sanctions.

Procedural context:

MP and MP's counsel appealed the BC’s dismissal of MP’s bankruptcy case and the BC’s award of sanctions.

Facts:

The Wongs contracted with MP to perform a residential remodel of their home. MP did not satisfactorily complete the remodel and the Wongs eventually obtained an arbitration award which was entered in state court. The judgment caused the contractor’s license held by MP to be suspended under California (“CA”) law. The children of Mario Piumetti (“Piumetti”), a principal of MP, incorporated a new entity Avenue 35 Construction Co., Inc. (“Avenue 35”). Avenue 35 then acquired MP’s assets for $120,000 with money Piumetti loan to his children. The $120,000 purchase price received by MP was then used to pay undocumented loans Piumetti said he was owed by MP. Piumetti then sold all of the transferred assets, ostensibly on behalf of Avenue 35. None of the funds received from these sales were deposited to the bank accounts of either Avenue 35 or MP. Piumetti then tried to transfer the contractor’s license from MP to Avenue 35, but could not because CA law precludes an entity from receiving a license if the responsible managing officer for that entity was affiliated with a judgment debtor whose license was suspended based on an unsatisfied judgment. CA law contains an exception where the unsatisfied judgment has been discharged in a bankruptcy proceeding. MP then filed for chapter 7 bankruptcy listing no assets in its schedules. MP later stated that its business had been sold pospetition. Piumetti then filed a certificate with CA Secretary of State stating that MP had been dissolved. The Wongs conducted Rule 2004 examinations of Piumetti and the principals of MP and Avenue 35. After these examinations, the Wongs moved to dismiss MP’s case and sought rule 9011 sanctions against MP and MP's counsel. After a hearing, the BC granted the motions.

Judge(s):

Dunn, Kirscher and Pappas, Bankruptcy Judges.

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