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AMERICAN TELECOM v. SIEMENS INFO. & COMMUNICATIONS NETWORK

September 7, 2005.

AMERICAN TELECOM CORP., Appellant,
v.
SIEMENS INFORMATION AND COMMUNICATIONS NETWORK, INC., Appellee.



The opinion of the court was delivered by: JOHN GRADY, Senior District Judge

MEMORANDUM OPINION

This case is before the court on American Telecom Corp.'s ("ATC") appeal from two orders of Bankruptcy Judge Jacqueline P. Cox: (i) a February 3, 2004 order dismissing ATC's Chapter 7 bankruptcy petition, and (ii) a September 21, 2004 order imposing sanctions against ATC's counsel. For the reasons set forth below, both orders are affirmed.

BACKGROUND

  The material facts in this case are undisputed. On August 10, 2000, the United States District Court for the Northern District of Georgia entered a $173,000 judgment in favor of Siemens Information and Communications Network, Inc. ("Siemens") and against ATC for copyright and patent infringement. See Telecomm Tech. Servs. v. Siemens Rolm Communs., 150 F.Supp.2d 1365 (N.D. Ga. 2000). In addition to entering judgment against ATC, the court dismissed ATC's antitrust counterclaim that had sought damages in excess of $5 million. See id. ATC appealed the rulings to the Eleventh Circuit, but did not post an appeal bond to stay enforcement of the judgment.

  On January 17, 2002, Siemens commenced supplemental collection proceedings against ATC in the Circuit Court of Cook County, Illinois. At a deposition conducted on May 13, 2002 pursuant to a citation to discover assets, ATC's president, Terry Glubisz, testified inter alia that: (i) he and his brother Walter Glubisz ("the Glubisz brothers") were the only shareholders of ATC; (ii) the company had ceased doing business in December 2001; and (iii) at that time, the company had no income, inventory or other assets. On November 4, 2002, having determined that ATC had no assets to pay the judgment, Siemens filed a new suit in the Circuit Court of Cook County against the Glubisz brothers seeking to enforce the judgment against them under a veil-piercing theory.

  Trial in the veil-piercing case was set for August 25, 2003. On June 23, 2003, the Glubisz brothers filed a motion to stay the proceedings pending resolution of ATC's appeal before the Eleventh Circuit. The motion was denied, and trial was reset for September 11, 2003. On September 9, 2003, the Glubisz brothers again moved to continue the trial, and it was reset for November 17, 2003.*fn1 On November 12, 2003, five days before trial, the Glubisz brothers moved the court to reconsider its earlier ruling denying their motion for a stay pending the ATC appeal. The court denied the motion and entered an order confirming the November 17 trial date.

  The following day, on November 13, ATC filed a voluntary petition for Chapter 7 bankruptcy protection. Then, on November 17, the day of trial, the Glubisz brothers filed an emergency motion to dismiss the complaint, or stay the trial, based on the filing of that petition. Siemens responded that the automatic stay triggered by ATC's petition did not affect the veil-piercing suit against the Glubisz brothers; it only applied to litigation against ATC, the bankruptcy petitioner. The court stayed the trial pending a ruling by the bankruptcy court on the proper scope of the automatic stay provisions. Accompanying Siemens's response was a letter addressed to both ATC's and the Glubisz brothers' attorneys (who shared an office) stating the following:
[P]lease be advised that I consider the filing of the bankruptcy petition on November 13, 2003 to be another attempt to stay the trial of the instant case. The petition, as filed, constitutes a misuse, and a manipulation, of the bankruptcy process in order to frustrate the state court proceedings. There can be no dispute that this bankruptcy petition was filed for the sole purpose of delaying the trial of the . . . case after the state court denied your motion to stay. As such, it was filed in bad faith and is subject to being dismissed with the assessment of fees and costs. . . .
(Appellee Br., Ex. A.)

  On November 18, Siemens filed a motion to dismiss ATC's petition. After briefing from both sides, the bankruptcy court, on February 3, 2004, held that ATC's petition was filed in bad faith as an "unfair litigation tactic for delaying Siemens'[s] alter-ego claim against the Glubisz brothers," and dismissed the case for "cause" under 11 U.S.C. § 707(a). In re American Telecom Corp., 304 B.R. 867, 872, 875 (Bankr. N.D. Ill. 2004).

  On March 3, 2004, Siemens filed a motion pursuant to Federal Rule of Bankruptcy Procedure 9011 seeking attorney's fees in the amount of $5,500. The court found that ATC and its counsel had filed the bankruptcy petition for an improper purpose and without an adequate pre-filing investigation, and granted Siemens attorney's fees in the amount of $4,825 assessed against ATC's counsel. In re American Telecom Corp., 319 B.R. 857, 876 (Bankr. N.D. Ill. 2004). ATC appeals these rulings.

  DISCUSSION

  We review the bankruptcy court's factual findings for clear error and its conclusions of law de novo. See In re Smith, 286 F.3d 461, 464-65 (7th Cir. 2002); Fed.R.Bankr.P. 8013. ATC presents three issues for review: (i) whether the court erred in dismissing ATC's bankruptcy petition without an evidentiary hearing; (ii) whether the court erred in dismissing the petition because preservation of ATC's Eleventh Circuit appeal was an allegedly proper reason for filing it; and (iii) whether the court erred in levying sanctions against ATC's counsel.

  On the first issue, ATC argues that the case was erroneously dismissed without a hearing and solely on the basis of unproven allegations that its motive in filing the petition was to frustrate and delay the state court action against the Glubisz brothers. According to ATC, "the Bankruptcy Court . . . made factual findings about things that were not even presented . . . [the] decision might be sensible if there had been an evidentiary hearing and there was testimony from someone that ATC's bankruptcy attorney stated that the purpose of the bankruptcy was to obtain a stay for the principals. But there was no such testimony or any other evidence." (Appellant Br., p. 7, and Reply Br., p. 5.)

  The argument is meritless. There was evidence before the bankruptcy court in the form of exhibits submitted by Siemens: the judgment order against ATC; excerpts from Terry Glubisz's deposition testimony; a record of the state court proceedings; and ATC's bankruptcy petition.*fn2 From this evidence, the court found the following facts: ATC was appealing a $173,000 judgment in favor of Siemens without posting an appeal bond; Siemens had filed suit against the Glubisz brothers, the only two shareholders of ATC, to satisfy that judgment; the brothers had attempted to postpone the trial on two (we count three) prior occasions; and one day after the brothers' final motion was denied, and four days before trial, ATC filed a Chapter 7 bankruptcy petition. In re American Telecom Corp., 304 B.R. at 868, 873. Moreover, ATC had not conducted any business for two years; the company's assets were de minimus (approximately $1,000 in office equipment) or speculative (the appeal of its dismissed $5 million counterclaim); and it had only one significant creditor, Siemens.*fn3 Id. at 868-69.

  These facts are undisputed and provided the court with a reasonable basis to conclude that ATC's petition was not filed in good faith. Chapter 7 of the Bankruptcy Code allows a bankruptcy court to dismiss a case for "cause," 11 U.S.C. § 707(a), and "cause" has routinely been interpreted to include a lack of good faith in filing a petition. See United States v. Pedigo, 2005 WL 2016238, at *1 (S.D. Ind. Jan. 13, 2005) (collecting cases). There is no rigid test for determining whether a petition is filed in good faith. Instead, the court looks at the totality of the circumstances surrounding the filing, ...


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