# Kit Carson Home & Museum, Inc.

> United States Bankruptcy Court, D. New Mexico · March 12, 2021

URL: https://www.frixlaw.com/law-library/cases/10459872

## Case

- **Court:** United States Bankruptcy Court, D. New Mexico
- **Decided:** March 12, 2021
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

UNITED STATES BANKRUPTCY COURT

DISTRICT OF NEW MEXICO
In re:

KIT CARSON HOME & MUSEUM, INC., No. 20-12130-t11

Debtor.

OPINION

Before the Court is Bent Lodge #42 AF&AM’s (the “Lodge’s”) motion to dismiss this
chapter 11 case, alleging that the debtor lacked corporate authority to file the case and that the case
was filed in bad faith. After a trial, the Court finds that the motion should be granted.
A. Facts.1
The Court finds:
Kit Carson is a famous historical figure who lived in Taos, New Mexico, for many years
before his death in 1868. Carson, a Freemason, was a member of the Lodge, which is chartered by
the Grand Lodge of Ancient, Free, and Accepted Masons of New Mexico (the “Grand Lodge”).2
In 1911, the Lodge bought Carson’s Taos home and adjacent property (together, the
“Property”), wishing to preserve Carson’s legacy and his connection with Freemasonry in New
Mexico. The purchase was funded with donations from the Lodge’s members, other New Mexico
lodges, and the Grand Lodge. Between 1937 and 2003, private curators operated a museum on the

1 The Court takes judicial notice of its docket in this case and the docket in Bent Lodge #42 AF&AM
v. Kit Carson Home & Museum, Inc., No. D-820-CV-201900488, pending in the Eighth Judicial
District Court, State of New Mexico. See St. Louis Baptist Temple, Inc. v. Fed. Deposit Ins. Corp.,
605 F.2d 1169, 1172 (10th Cir. 1979) (a court may sua sponte take judicial notice of its docket).
2 Each state is an independent Freemasonry “jurisdiction.” Every jurisdiction is governed by a
grand lodge, under which constituent lodges may be established. A member in good standing of a
lodge is also a member of the jurisdiction’s grand lodge. Freemasons in good standing in any lodge
in the world are allowed to attend the meetings of any other lodge, but cannot vote.
Property. Dissatisfied with the care and maintenance of the Property, the Lodge took control of
the museum in 2003.
Lodge members discovered that the structure of a Masonic lodge was not conducive to
running a museum. In February 2005, the Lodge organized Kit Carson Home & Museum, Inc., a
New Mexico non-profit corporation (“KCHM”).

When KCHM was organized, the Lodge loaned it $50,000 at 7% interest, payable on
demand. A Lodge member, Frank Thomas, loaned KCHM an additional $50,000.
From 2005 to 2008, KCHM lost money. The Lodge forgave the accrued interest each year.
In 2008, the Lodge bought Mr. Thomas’ loan and consolidated it with the Lodge’s loan, agreeing
to new repayment terms. Under the revised terms, KCHM was to pay $300 a month and make an
annual interest payment (reduced to 5%). At the Lodge’s option, the interest payment could be
forgiven to help KCHM maintain the Property.
In 2008, Debtor’s directors were replaced with six new directors, all Lodge members. In
2009, the new directors amended KCHM’s bylaws. The 2009 bylaws provide in part:

SECTION 3: COMPOSITION OF BOARD
The Board shall have a majority of directors appointed by the trustees of the Bent
Masonic Lodge # 42 AF & AM, which owns the building and property of the
Museum. Other directors shall be elected by the Board of Directors.

Article 12 provide that the bylaws could be “altered, amended, or repealed and new Bylaws
adopted by approval of two-thirds (2/3) of the Board of Directors.”
Being short of cash, the KCHM directors sought financial assistance from the Masonic
Charity Foundation of New Mexico (the “Foundation”). The Foundation agreed to give KCHM
money on the condition that it formalize its relationship with the Lodge. To satisfy this condition,
the Lodge and KCHM signed the following “Resolution” in April 2010:
WHEREAS, the Brethren of Bent Lodge #42 (hereafter the Lodge) owns the
building in which the Kit Carson Home and Museum (hereafter the Museum) is
situated and;

WHEREAS the Lodge has been a key component of the Museum, contributing
financial, administrative and maintenance support since 1909 and;

WHEREAS the Lodge and the Museum share an identical goal of seeing the
Museum succeed and flourish and;

WHEREAS a majority of Directors shall be nominated by the Trustees of the Lodge
and voted on by the Brethren of Bent Lodge # 42 AF&AM;

THEREFORE BE IT RESOLVED that the Museum will have at least one person
from the Lodge’s Trustees on the Museum Board and;

FURTHER RESOLVED, that the Museum welcomes oversight from the Trustees
of the Lodge.

The undersigned hereby certify that we are the duly elected and qualified Trustees
of the Brethren of Bent Lodge # 42 and the Board of Directors of the Kit Carson
Home and Museum and that the above resolution is a true record of our intentions
and that said resolution is now in full force and effect without modification or
recision [sic].

All KCHM board members and officers signed the Resolution for KCHM. In reliance on
the Resolution, the Foundation gave KCHM about $19,000.
In August 2013, the Lodge and KCHM signed a new, 50 year lease of the Property, under
which KCHM pays $1 a year in rent but must also maintain the Property, pay property taxes, and
provide liability insurance.
Through 2015, KCHM directors were appointed as required by the Resolution and the 2009
bylaws. Until late 2018, the directors made regular reports to the Lodge about KCHM’s operations.
The Lodge frequently held fundraisers for KCHM. The Lodge and KCHM apparently enjoyed a
symbiotic relationship, consistent with the letter and spirit of the Resolution and the 2009 bylaws.
The relationship deteriorated, however, in late 2018 or early 2019. In December 2018,
director Noah Shapiro reported to the Lodge that a wall had collapsed on the Property. Although
Shapiro promised to provide a follow-up report, he did not.
On April 9, 2019, KCHM’s directors purported to amend the corporate bylaws. By then,
the composition of the board violated the 2009 bylaws and the Resolution, in that only two of the

five directors (DeeDee Miller and Mr. Shapiro) had been appointed by the Lodge. The other three
directors (Barbara Schultz, Dan Irick, and John Smedly Jr.) had been appointed by the board,
without Lodge input or approval.
The 2019 bylaws provided in part:
(a) A majority of the Directors shall be Master Masons in good standing with the
Grand [sic] of New Mexico.

(b) The election of Directors, subsequent to the adoption of these Bylaws, shall be
by majority vote of the then current members of the Board present at the time of
such election.

Dan Irick testified that the board’s main purpose in amending the bylaws was to make
technical changes, not to change how directors were appointed. However, Mr. Irick—who testified
as an expert in Freemasonry—opined that under the 2019 bylaws, a Master Mason of any lodge in
the world would be in good standing with the Grand Lodge. Thus, in his opinion the 2019 bylaws
no longer required a director to be a Lodge member or even a New Mexico Freemason.
John Smedly testified that the main purpose of the 2019 bylaws was to make them fit the
organization and the direction that the museum was going. In his view, the 2019 bylaws overrode
the Resolution.
There is no evidence that any director told the Lodge about the 2019 bylaws. Adoption of
the bylaws marked a turning point in the relationship between KCHM and the Lodge: KCHM’s
directors had decided to take control of KCHM away from the Lodge.
On October 21, 2019, the Lodge sued KCHM in state court. The complaint stated claims
for breach of contract (the $100,000 loan), breach of lease (the Property lease), and declaratory
relief. The Lodge also asked for immediate possession of the Property.
On August 28, 2020, the Grand Lodge ordered Shapiro, Smedley, and a Charles Randall
to take some action. The record does not reveal what action was required, but the conclusion is

inescapable that it related to the battle for control over KCHM.
Rather than comply with the Grand Lodge’s edict, however, on September 14, 2020,
KCHM’s six directors3 purported to further amend the bylaws. The new bylaws provide in part:
(a) Whereas it is desirable that Freemasonry be represented on the Board of
Directors, it is not a requirement that any member be a Master Mason in any
jurisdiction.

(b) The election of Directors, subsequent to the adoption of these Bylaws, shall be
by majority vote of the then current members of the Board present at the time of
such election.

The board did not tell the Lodge about the 2020 bylaws.
On October 10, 2020, the Lodge filed a partial summary judgment motion and a motion to
dismiss one count of Debtor’s counterclaim in the state court action.
On October 27, 2020, the Grand Lodge expelled Messrs. Shapiro, Smedly, and Randall
from Freemasonry in New Mexico because they did not comply with the August 28, 2020, edict.
The state court set a hearing on the motions for November 9, 2019. On November 8, 2020,
KCHM filed this bankruptcy case. The next day, the KCHM directors adopted resolutions ratifying
the bankruptcy filing and allowing Shapiro to act on KCHM’s behalf.

3 In addition to Shapiro, Smedley, and Randall, the 2020 directors were DeeDee Miller, Tom
Harper, and Deborah Perrin. Miller, Harper, and Perrin are not Masons. The only directors
appointed by the Lodge were Shapiro and Miller.
In its motion to dismiss, filed December 4, 2020, the Lodge argues that KCHM’s board of
directors had no authority to authorize the bankruptcy filing. The Lodge also argues that the
bankruptcy was filed in bad faith.
B. Section 1112(b) 4 Dismissal.
Section 1112(b)(1) provides in part:

. . . on request of a party in interest, and after notice and a hearing, the court shall
convert a case under this chapter to a case under chapter 7 or dismiss a case under
this chapter, whichever is in the best interests of creditors and the estate, for cause
. . . .

Courts have broad discretion to dismiss a case under § 1112(b)(1). Hall v. Vance, 887 F.2d
1041, 1044 (10th Cir. 1989). While § 1112(b)(4) gives examples of “cause,” the list is illustrative
rather than exhaustive. Hall, 887 F.2d at 1044 (the “list is not exhaustive”). Cause for dismissal
under § 1112(b)(1) includes lack of corporate authority to authorize the filing. See, e.g., In re Real
Homes, LLC, 352 B.R. 221, 225 (Bankr. D. Idaho 2005) (“It is generally accepted that a bankruptcy
case filed on behalf of an entity without authority under state law to so act for that entity is improper
and must be dismissed.”); In re Gen-Air Plumbing & Remodeling, Inc., 208 B.R. 426, 430 (Bankr.
N.D. Ill. 1997) (lack of corporate authority to file bankruptcy is ground for dismissal); see
generally Price v. Gurney, 324 U.S. 100, 107 (1945) (if directors “are to be allowed to put their
corporation into bankruptcy, they must present credentials to the bankruptcy court showing their
authority”); Hager v. Gibson, 108 F.3d 35, 39 (4th Cir. 1997) (“Price . . . stand[s] for the
proposition that . . . where authority . . . is found lacking, the court has no alternative but to dismiss
the petition.”) (internal quotes omitted); In re NNN 123 N. Wacker, LLC, 510 B.R. 854, 858 (Bankr.

4 Unless otherwise specified, all statutory references are to 11 U.S.C.
N.D. Ill. 2014) (same); In re ComScape Telecomms., Inc., 423 B.R. 816, 830 (Bankr. S.D. Ohio
2010) (same).
C. KCHM’s Corporate Authority to File This Case.
“[T]he authority to file a bankruptcy petition must be found in the instruments of the
corporation and applicable state law.” In re Quarter Moon Livestock Co., Inc., 116 B.R. 775, 778

(Bankr. D. Idaho 1990); In re Milestone Educ. Inst. Inc., 167 B.R. 716, 720 (Bankr. D. Mass. 1994)
(collecting cases). Under New Mexico nonprofit corporation law, “[t]he affairs of a corporation
shall be managed by [its] board of directors.” NMSA § 53-8-17. The general authority to manage
a corporation’s affairs includes the filing of a bankruptcy petition. In re Milestone Educ. Inst. Inc.,
167 B.R. at 721; In re Giggles Restaurant, Inc., 103 B.R. 549, 553 (Bankr. D.N.J. 1989) (same);
In re N2N Commerce, Inc., 405 B.R. 34, 41 (Bankr. D. Mass. 2009) (same). Thus, KCHM’s
directors are vested with sole authority to determine whether to file this case.
Nevertheless, “[a] bankruptcy filing is unauthorized if the board of directors purporting to
authorize it was not lawfully constituted[.]” In re ComScape Telecomms., Inc., 423 B.R. at 832;

see also In re Autumn Press, Inc., 20 B.R. 60, 62 (Bankr. D. Mass. 1982) (bankruptcy case
dismissed because the petition was not authorized by a valid board of directors); In re Acoustic
Fiber Sound Sys., Inc., 20 B.R. 769, 778 (Bankr. S.D. Ind. 1982) (same); see generally 9A Am.
Jur. 2d Bankruptcy § 888 (“[T]he board of directors must be lawfully constituted and acting
lawfully when authorizing the filing of a petition.”).
At issue here is whether the KCHM board was lawfully constituted when it ratified the
bankruptcy filing. The Lodge has the burden of proving that the directors lacked authority. See,
e.g., In re ComScape Telecomms., Inc., 423 B.R. at 830 (“the burden of proof to demonstrate cause
under § 1112(b) lies with the movant”).
While KCHM’s 2005 articles of incorporation are silent on ownership and control of the
corporation, the 2009 bylaws provide that KCHM has no members. Thus, corporate control is
vested entirely in the board of directors. The 2009 bylaws gave the Lodge the right to choose a
majority of the directors. Lodge control over KCHM’s board was reinforced by the Resolution.
After 2010 it was clear that, while the Lodge did not own KCHM, it controlled the corporation by

controlling the appointment of its directors.
The directors were bound to adhere to the 2009 bylaws. CA, Inc. v. AFSCME Emps.
Pension Plan, 953 A.2d 227, 234 (Del. 2008) (“Bylaws, by their very nature, set down rules and
procedures that bind a corporation’s board. . . . In that sense, most, if not all, bylaws could be said
to limit the otherwise unlimited discretionary power of the board.”); Brennan v. Minneapolis Soc’y
for the Blind, 282 N.W.2d 515, 523 (Minn. 1979) (directors are bound to follow bylaws); see
generally 18 C.J.S. Corporations § 168 (“Bylaws, by their very nature, set down rules and
procedures that bind a corporation’s board of directors”); 8 Fletcher Cyclopedia of the Law of
Corporations, § 4197 (“The corporation, and its directors . . . are bound by and must comply with”

the corporation’s valid bylaws.).
Actions taken by directors in contravention of valid bylaws are void. In re Sandia Tobacco
Mfrs., 571 B.R. 449, 457 (Bankr. D.N.M. 2017) (actions taken at an annual shareholder meeting
that was not fixed in accordance with the corporation’s bylaws had no legal effect); Klaassen v.
Allegro Dev. Corp., 2013 WL 5739680, at *19 & n.12 (Del. Ch.) (actions taken by a board of
directors in contravention of a mandatory bylaw are traditionally treated as void, citing treatises);
Solomon v. Armstrong, 747 A.2d 1098, 1114 (Del. Ch. 1999) (“Void acts are those acts that the
board . . . has no implicit or explicit authority to undertake[.]”); Rainbow Mountain, Inc. v.
Begeman, 2017 WL 1097143, at *9-10 (Del. Ch.) (same); Brennan, 282 N.W. 2d at 523 (“an illegal
constitution of membership” renders “ineffective the action of those members”).
As outlined above, KCHM’s 2019 board (five directors) and 2020 board (six directors)
were improperly constituted and lacked authority to amend the bylaws. The 2019 and 2020 bylaws,
therefore, are void, as is the board’s attempt to ratify the filing of this bankruptcy case.

D. The Resolution.
In addition to ignoring the 2009 bylaws, KCHM’s 2019 and 2020 boards flouted the
Resolution. The Resolution was surely intended to be, and the Court finds that it is, in the nature
of a binding contract between the Lodge and KCHM. A corporation cannot nullify a contract by
adopting an inconsistent bylaw. Vanden Bosch v. Mich. Trust Co., 35 F.2d 643, 646 (6th Cir. 1929)
(“The power of the corporation to amend its . . . by-laws cannot extend to the making of a change
which would amount to a repudiation of a contract[.]”); Realty Acceptance Corp. v. Montgomery,
51 F.2d 636, 639 (3d. Cir. 1930) (a contract expressly authorized by a corporation through its
board of directors “modifie[s], in its legal effect, all inconsistent bylaws and prevails over them”);

Jennings v. Ruidoso Racing Ass’n, 441 P.2d 42, 46-47 (N.M. 1968) (same); 8 Fletcher Cyclopedia
of the Law of Corporations § 4177.10 (amendments to bylaws cannot legally interfere with vested
or contract rights); 18 C.J.S. Corporations § 165 (“[T]he general power of a corporation to enact,
alter, amend or repeal its bylaws . . . cannot be exercised so as to impair existing contracts[.]”).
The directors’ attempts to ignore or “overrule” the Resolution are ineffective and the 2019 and
2020 bylaws, both of which violate the Resolution, are invalid. Composition of the 2020 board of
directors violated the 2009 bylaws and the Resolution. The board therefore could not authorize the
filing of this bankruptcy case.
E. Laches.
KCHM argues that laches prevents the Lodge from challenging the composition of
KCHM’s board of directors. KCHM asserts that the Lodge did not enforce the 2009 bylaws or the
Resolution before now, even though the Lodge knew that directors were being appointed in ways
that did not adhere to those documents. In KCHM’s view, it is too late for the Lodge to complain
that the directors were not properly appointed.

Laches is an equitable defense that “bars a party’s dilatory claim.” Biodiversity
Conservation All. v. Jiron, 762 F.3d 1036, 1090 (10th Cir. 2014). The proponent must prove (1)
lack of diligence by the party against whom the defense is asserted, and (2) prejudice to the party
asserting the defense. Nat’l R.R. Passenger Corp. v. Morgan, 536 U.S. 101, 121-22 (2002).5
Laches cannot “be invoked to defeat justice, and it will be applied only where the enforcement of
the right asserted will work injustice.” Shell v. Strong, 151 F.2d 909, 911 (10th Cir. 1945); see
Hutchinson v. Pfeil, 105 F.3d 562, 564 (10th Cir. 1997) (“Laches, in legal significance, is not mere
delay, but delay that works a disadvantage to another.”). “The defense is an issue primarily
addressed to the trial court’s discretion[.]” Brunswick Corp. v. Spinit Reel Co., 832 F.2d 513, 523

(10th Cir. 1987).
KCHM’s laches defense fails for three reasons. First, void acts cannot be validated by
laches. See, e.g., STAAR Surgical Co. v. Waggoner, 588 A.2d 1130, 1137 (Del. 1991) (equitable
doctrines cannot validate void acts); Durkee v. People ex rel. Askren, 40 N.E. 626, 628-29 (Ill.
1895) (void and inoperative bylaws do not become effective by acquiescence or estoppel); Harding
v. Heritage Health Prods. Co., 98 P.3d 945, 949 (Colo. App. 2004) (void bylaw cannot be enforced

5 New Mexico law is similar. See, e.g., Garcia v. Garcia, 808 P.2d 31, 38 (N.M. 1991) (elements
of a laches defense are (1) actionable conduct by defendant; (2) plaintiff, with knowledge of
defendant’s conduct, delays in asserting its rights; (3) defendant did not know plaintiff would bring
suit; and (4) injury or prejudice to the defendant if relief is given to plaintiff.).
by the application of laches or other equitable principles); Waggoner v. Laster, 581 A.2d 1127,
1137 (Del. 1990) (the principle of estoppel has no application in cases where action taken by
directors is illegal or void); Kolff v. St. Paul Fuel Exch., 50 N.W. 1036, 1036 (Minn. 1892)
(plaintiff’s failure to object to a void bylaw until corporation sought to apply it adversely to his
interest did not work an estoppel); Superwire.com, Inc. v. Hampton, 805 A.2d 904, 909 n.17 (Del.

Ch. 2002) (void shares cannot be given “any effect . . . even in the context of an equitable
defense”). The 2019 and 2020 directors’ corporate escapades are void, for the reasons set out
above. Laches cannot breathe life into them.
Second, the Lodge was not dilatory in pursuing its claims against KCHM’s directors. The
mere passage of time does not constitute laches. Shell, 151 F.2d at 911 (“Lapse of time alone does
not constitute laches.”). While there is some evidence that the Lodge did not monitor the
composition of KCHM’s board closely after 2015 or so, the Court cannot tell when that
composition first ran afoul of the 2009 bylaws and the Resolution. It may not have been until
shortly before the dispute between the Lodge and KCHM broke out into the open. While the Lodge

could have been more diligent, it had no way of knowing that KCHM’s directors were
contemplating a coup. Once that became clear, the Lodge moved promptly, suing KCHM in state
court and taking its grievance to the Grand Lodge.
Third, KCHM was not prejudiced by any slowness in the Lodge asserting its rights. KCHM
is a nonprofit corporation, with few assets and no equity. Its purpose is to operate the Property as
a museum. The Lodge has represented to the Court that it stands ready, willing, and able to
continue KCHM’s mission if the Lodge regains control. KCHM is a bystander in the fight for
control over its board. The directors’ attempt to wrest control from the Lodge fails. KCHM likely
will be benefited rather than harmed by the Lodge’s reassertion of control.
F. Bad Faith
The Lodge also argues that this case should be dismissed because it was filed in bad faith.
“A debtor's bad faith in filing a petition can constitute ‘cause’ for dismissal under 11 U.S.C.
§ 1112(b).” In re Picacho Hills Util. Co., Inc., 2013 WL 1788298, *11 (Bankr. D.N.M.) (citing In
re First Assured Warranty Corp., 383 B.R. 502, 543 (Bankr. D. Colo. 2008 and In re Frieouf, 938

F.2d 1099, 1105 (10th Cir. 1991)). In determining whether a Chapter 11 petition was filed in bad
faith, courts have considered these non-exclusive factors:
(1) whether the petition serves a valid bankruptcy purpose such as preserving a going
concern or maximizing the value of the debtor's estate;
(2) whether the petition is filed merely to obtain a tactical litigation advantage;
(3) whether the debtor's financial problems involve essentially a dispute between the debtor
and secured creditors that can be resolved in the pending state court litigation;
(4) whether it is a single asset case,
(5) whether there are one or a very few unsecured creditors,
(6) whether there is no ongoing business or employees;
(7) whether the pre-petition conduct of the debtor was improper; and
(8) whether the case is filed to evade one or more court orders.6

Picacho Hills, 2013 WL 1788298 at *12 & n.25. No factor is determinative and the weight given
to each varies with the facts of the case. In re Melendez Concrete, 2009 WL 2997920, at *4 (Bankr.
D.N.M.) (citing Flygare v. Boulden, 709 F.2d 1344 (10th Cir. 1983)). Whether a bankruptcy
petition was filed in bad faith “requires the court to consider the totality of circumstances and any
conceivable list of factors is not exhaustive nor does one factor create a per se test.” In re Sydnor,
431 B.R. 584, 594 (Bankr. D. Md. 2010) (citation omitted); see also In re Marshall, 298 B.R. 670,
681 (Bankr. C.D. Cal. 2003) (analysis of debtor’s bad faith is based on the totality of the

6 Picacho Hills, 2013 WL 1788298, at *12, citing In re Integrated Telecom Express, Inc., 384 F.3d
108, 122 (3rd Cir. 2004) (applying one or more of the factors); In re Nursery Land Development,
Inc., 91 F.3d 1414, 1416 (10th Cir. 1996) (same); Trident Associates Ltd. v. Metropolitan Life Ins.
Co. (In re Trident Associates Ltd.), 52 F.3d 127, 130 (6th Cir. 1995), cert denied, 516 U.S. 869
(1995) (same); Phoenix Piccadilly Ltd. v. Life Ins. Co. of Virginia (In re Phoenix Piccadilly, Ltd.),
849 F.2d 1393, 1394 (11th Cir. 1988) (same).
circumstances). Dismissal for bad faith falls within the Court’s sound discretion. See Squires
Motel, LLC v. Gance, 426 B.R. 29, 34 (N.D.N.Y. 2010) (citing In re First Conn. Consulting Group,
Inc., 254 F. App’x 64, 68 (2d Cir. 2007).
The Court weighs the factors as follows:

Factor Analysis
Does the petition serve a valid bankruptcy This factor weighs against Debtor. The
purpose such as preserving a going concern or directors chose bankruptcy because they did
maximizing the value of the debtor’s estate? not like their chances in state court. It seems
foolish, however, to try to take the museum
away from the Lodge, which owns the
Property and historically has found ways to
fund revenue shortfalls. It is possible Debtor
could assume the Property lease, cure the
substantial defaults, and reorganize, in the face
of the Lodge’s strong and legitimate
opposition. Such an outcome is very unlikely,
however. Further, the bankruptcy filing has
brought into sharp focus the directors’
improper attempt to usurp control of the
Debtor from the Lodge.
Was the petition filed merely to obtain a This factor weighs against Debtor. The
tactical litigation advantage? directors’ primary purpose in filing this case
was to avoid state court and move their dispute
with the Lodge to a different forum.
Do KCHM’s financial problems involve This factor weighs against Debtor. The Lodge
essentially a dispute between KCHM and is a secured creditor, given its landlord lien.
secured creditors that can be resolved in the Debtor’s main financial problem is its inability
pending state court litigation? to generate enough income to maintain the
Property. Debtor is unlikely to solve that
problem in this case. Because of that, the
pending state court action would resolve the
dispute between the Lodge and the Debtor.
Is this a single asset case? Not strictly speaking, but Debtor has one
predominant asset: the lease of the Property.
Without the lease, Debtor has no purpose and
no ability to operate. Why Debtor chose to go
to war with its landlord and historical
benefactor is a mystery. This factor weighs
against Debtor.
Does KCHM have only one (or very few) KCHM appears to have about 24 unsecured
unsecured creditor(s)? creditors. This factor weighs in Debtor’s favor.
Is there an ongoing business or employees? KCHM continues to operate the museum and
pay its employees. This factor weighs in
Debtor’s favor. The weight is lessened by the
fact that Debtor’s business has historically
depended on the Lodge, which Debtor has
sone out of its way to antagonize.
Was KCHM’s pre-petition conduct improper? | This factor weighs against Debtor. As
discussed above, the actions taken by Debtor’s
directors were improper.
Was the case filed to evade court orders? No. There were no court orders pending when
the case was filed. The case was filed,
however, to avoid a likely adverse state court
ruling. This factor is neutral.
Weighing the factors and the totality of the circumstances, the Court concludes that the
case was filed in bad faith and should be dismissed. The directors should have known that their
efforts to seize control of KCHM would not be viewed kindly by this or any other court. The
directors should have tried to negotiate with the Lodge openly rather than engage in surreptitious
corporate skulduggery. If the Lodge refused to accede to any legitimate proposals the directors
might have made, the directors could have resigned.
Conclusion.
There could be good reasons why KCHM’s directors should have complete, unfettered
control of KCHM. Regardless, they do not have that control, and their recent attempt to seize it 1s
both void and regrettable. The Lodge’s motion to dismiss will be granted by separate order.

Hon. David T. Thuma
United States Bankruptcy Judge
Entered: March 12, 2021
Copies to: Counsel of record

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10459872. Public record. Not legal advice.