Opposition Brief — Log Furniture, Inc. v. Call, 127 S. Ct. 938 (2007) (No. 06-486)

No. 06-486

IN THE

Supreme Court of the United States.

LOG FURNITURE, INC. and CARI ALLEN,

Petitioners,

Vv

STEVEN CALL; RAY, QUINNEY & NEBEKER;

GRANITE STONE, L.C.; MACHINERY HARDWARE

& SUPPLY, INC.; and DAVID HARRIS,

Respondents.

On PETITION FOR A Writ OF CERTIORARI TO THE

Unitep STATES Court OF APPEALS

FOR THE TENTH CIRCUIT

BRIEF IN OPPOSITION

RICHARD D. BURBIDGE STEVEN T. WATERMAN*

STEPHEN B. MITCHELL Ray Quinney & NEBEKER P.C.

BurBipGe & MITCHELL 36 South State Street

215 South State Street 14" Floor

Suite 920 Salt Lake City, UT 84145-0385

Salt Lake City, UT 84111 (801) 532-1500

355-23

(801) 355-234] Attorneys for Granite Stone, L.C.,

Attorneys for Steven Call, | Machinery & Hardware Supply, Inc.,

and Ray Quinney and David Harris

& Nebeker P.-C.

* Counsel of Record

205249 g

ay ;

QUESTIONS PRESENTED

I. Whether Petitioners have presented compelling

reasons to grant the Petition where the Tenth Circuit's

decision properly applies a prior decision of this Court and

is consistent with the Utah Supreme Court, and does not

conflict with a decision of another court of appeals.

Il. Whether Petitioners have presented compelling

reasons to grant the Petition where the Tenth Circuit, the

district courts, the barikruptcy court, the Utah state trial

courts, the Utah Court of Appeals, and the Utah Supreme

Court have determined that Petitioners lack standing to usurp

a bankruptcy trustee.

III. Whether Petitioners have presented compelling

reasons to grant the Petition where the Tenth Circuit, the

district courts, and the bankruptcy court, consistent with the

decisions of the Utah Supreme Court, Utah Court of Appeals,

and Utah state trial courts, have factually determined that

the bankruptcy petition was properly authorized and filed.

i

CORPORATE DISCLOSURE STATEMENT

PURSUANT TO SUPREME COURT RULE 29.6

Granite Stone, L.C. is wholly owned by Machinery and

Hardware Supply, Inc., none of whose stock is owned by

any publicly held corporation. Ray Quinney & Nebeker P.C.

is a privately and individually held professional corporation.

iti

TABLE OF CONTENTS

CE DN fe vckeo ued ne eeeseaeukeres

Corporate Disclosure Statement Pursuant to Supreme

CE SUE AUP ccanvusdededvecsnsecdeeese

I. CP GS GUD. nov ccncsrdnnteunseccveens

Clarification of the Record ......cccscccscccess

Reasons for Denying the Petition...............

I. Applying this Court’s Weintraub decision,

Petitioners hed no standing once the chapter

7 bankruptcy case was filed, because the

corporate debtor is managed only by the

Bt eee

Il. The federal and state courts’ determinations

of the propriety of the bankruptcy filing are

consistent with the decisions of this Court and

Uns GCOUNES OF GODOEES. 2. cc ccccrcccccecess

| RR ee erent meaner ey, ln: 1 ay OND

10

10

15

19

iv

TABLE OF CITED AUTHORITIES

Page

Cases:

Chitex Comm., Inc. v. Kramer, 168 B.R. 587 (S.D.

» SB ret re orc ry en eee 17

Commodity Futures Trading Comm'n v. Weintraub,

GFE Say Pee CIPRO: cau casckeeaes 10, 11, 12, 13, 14

Delgado Oil Co. v. Torres, 785 F.2d 857 (10° Cir.

SU Sichbeduedkebnde beerwn aie eeadeaee en 14

First Sec. Bank of Utah, N.A. v. Gillman, 158 B.R.

ee ere ere se 15

Foster v. Hill (In re Foster), 188 F.3d 1259 (10° Cir.

SE Sica adc aenasice eck daaareesbaets 12

In re Sandra Cotton, Inc, 87 B.R. 272 (W.D.N.Y.

DE ice volcan abeds Sede NU eknesaenn en es 13

Keenihan v. Heritage Press, Inc., 19 F.3d 1255

re CE nti cl wed eeeednee ds haneehans . 16, 17

Price v. Gurney, 324 U.S. 100, 65 S. Ct. 513 (1945)

RT AM ee eee ne ee Pe enya 18

Sender v. Simon, 84 F.3d 1299 (10" Cir. 1996) .... 14

v

Cited Authorities

Page

Statutes:

5S RR PED Wives Kewedeva ee iter ieee 1]

Se See OE. nck veh a ce bweae bee eeetavee 14

11 U.S.C. §541(a)(7) ......0.00eee sencmebwics oe

Nev. Rev. Stat. §§78.320, 78.325 and 78A.070 ... 16

Rules:

ee re ee rem ery mre rs > ]

Other:

H.R. Rep. No. 595, 95" Cong., 1‘ Sess. 367, reprinted

m 1976 U.S.C.C.A.N. SPOS, GSZS occ ccceceens 15

|

INTRODUCTION

Petitioners’ claims have been considered and soundly

rejected no less than nineteen times by two bankruptcy courts,

two federal district courts, the Court of Appeals for the Tenth

Circuit, two Utah state trial courts, the Utah Court of Appeals,

and the Utah Supreme Court. Petitioners have presented

no “compelling reasons” in support of their petition.

See Sup. Ct. R. 10. The merits of the ciaims asserted by

Petitioners are in inverse proportion to the amount of

tigation Petitioners have generated attempting to convince

some court that the claims have any legitimacy.

The Tenth Circuit ruled that the Petitioners’ appeals of

the cases, for which a writ of certiorari is petitioned, were

frivolous and stated that the “odyssey ends in our court.”

[App. at 21]. Unfortunately, the “odyssey” did not end in the

Tenth Circuit. Although one appellant below, Golden

Meadows Properties, LLC, accepted reality and did not file

or join in the petition for a writ of certiorari, Petitioners

persist in their effort to pursue frivolous claims that are

without any merit whatsoever and for which they lack

standing. Petitioners do not make a serious attempt to carry

their difficult burden of demonstrating compelling reasons.

The sole reference of Petitioners to a rule 10 standard is that

one sentence of the Tenth Circuit opinion ® a departure from

usual judicial proceedings. [Petition at 8]. Because

Petitioners have wholly failed to demonstrate any basis for

granting certiorari, the Petition should be denied.

2

STATEMENT OF THE CASE

Petitioners’ Statement of the Case is rife with factual

inaccuracies that substantially distort and mischaracterize the

record. For example, Petitioners claim that Cari Allen sold

her Log Furniture, Inc. stock to Golden Meadows Properties,

LLC (“Golden Meadows”) on July 21, 2000, and therefore

Granite Stone, LC (“Granite”) never obtained ownership of

the stock at the later conducted sheriff's sale of her stock.

[Petition at 3-4]. To the contrary, as Golden Meadows’

principal and Cari Allen both testified, and as Golden

Meadows’ attorney argued, Cari Allen only pledged her stock

to Golden Meadows as security for a loan. She remained the

sole shareholder of Golden Meadows at the time of the

sheriff's sale when her stock was sold. Respondents contest

Petitioners’ Statement of the Case. The record before the court

of appeals in the three cases 1s 4828 pages. Because

Petitioners have egregiously failed to fairly set forth with

accuracy the factual record in this case and have grossly

misstated the facts, Respondents set forth briefly their own

statement of the facts relevant to a consideration of the

Petition and to clarify the record.

CLARIFICATION OF THE RECORD

Allen’s Ownership of the LFI Stock

On April 2, 2002, Machinery & Hardware Supply, Inc.

(“MHS”) obtained a money judgment in the principal amount

of $17,189.54 in the Third Judicial District Court, State of

Utah (the “State Court”), against Log Furniture, Inc. (“LFT’)

and its sole shareholder, Cari Allen (‘Allen’). [10 Resp.

3

App. at 5-6].’ On October 22, 2002, LFI filed a voluntary

petition for relief under chapter 11 of the Bankruptcy Code,

case no. 02-37988 (the “Prior Bankruptcy Case”). [10" Resp.

App. at 18]. Howard P. Johnson (“Johnson”), a now

suspended or disbarred Utah lawyer, represented LFI as

debtor’s counsel in the Prior Bankruptcy Case. (/d.] In LFI’s

bankruptcy schedules, in its disclosure statement and plan

of reorganization, and in Allen’s testimony, it was stated and

represented repeatedly that Allen was the sole shareholder

of LFI. [See, e.g., App. at 2].

The Acquisition of Allen’s LFI Stock by Granite

On June 2, 2003, MHS obtained a writ of execution from

the State Court with respect to the personal property of Allen

and the writ was personally served on Allen on June 17, 2003.

{App. at 2]. The praecipe in support of the writ directed the

sheriff to execute and levy upon the non-exempt personal

property of Allen, specifically including all “right, title and

interest that the judgment debtor, Cari Allen, has ... in any

stocks or corporations.” [App. at 2]. Allen objected to the

levy and execution sale of her personal property and a hearing

on Allen’s objection was held on July 16, 2003. Allen told

the State Court that her stock in LFI “was assigned over two

years ago” and requested that the hearing be continued.

[10° App. at 206-207].

On July 23, 2003, the State Court conducted the

continued hearing on the execution, and also addressed an

objection by Golden Meadows regarding Allen's personal

interest in the LFI stock. [10" App. at 210-228]. Golden

1. Respondents references are to the record before the Court

of Appeals for the Tenth Circuit in No. 05-4228, except for references

to the Petitioners’ appendix as noted.

4

Meadows’ counsel stated that “although it has an assignment

of those stock interests, that does not mean that Golden

Meadows owns the stock. It does not but Golden Meadows

does have a pledge of stock... .” [10 App. at 217-219].

Golden Meadows’ counsel reiterated: “we don’t dispute the

ownership of the stock in Cari Allen but just assert a security

interest in the pledge as well as the security interest in the

real property.” [10° App. at 224-225]. The court considered

and denied the objection raised by Golden Meadows,

concluding that Golden Meadows had not presented sufficient

evidence for the court to conclude that the writ of execution

was improper or that it should be stayed, and overruled all

objections. [10° App. at 226-227]. The court further

concluded that even if Golden Meadows had established

(which it did not) a security interest in the property attached

pursuant to the writ of execution, then the security interest

would not preclude the execution sale. [/d.].

Pursuant to the writ of execution and rulings of the State

Court overruling the objections to execution, on September

10, 2003, the sheriff conducted an execution sale of all of

Allen’s interest/shares in LFI and sold them to MHS. [App.

at 2]. MHS assigned all of its interest in the ownership

interest/shares of LFI to Granite. (/d.].

The Filing of the Bankruptcy Case and

Subsequent Proceedings

On September 11, 2003, the Prior Bankruptcy Case was

dismissed. [10° Resp. App. at 36]. Granite, in its capacity as

the sole shareholder of LFI and acting by and through its

manager, MHS, authorized the filing of the chapter 7

bankruptcy petition for LFI, which was filed on October 31,

2003, commencing the bankruptcy case from which the

5

present Petition arises. (the “Bankruptcy Case”). [App. at

4). Elizabeth R. Loveridge (“Loveridge”) was appointed as

the initial chapter 7 trustee for LFI in the Bankruptcy Case

on or about November 6, 2003. [10 App. at 130]. Loveridge

was reappointed as successor trustee on or about May 12,

2004, after the clected trustee, Robert Swan, resigned. [10"

App. at 416]. Whichever trustee was serving at the relevant

time is referred to as the “Trustee.”

On November 7, 2003, Johnson, purporting to act as

counsel for LFI, filed a motion to dismiss the Bankruptcy

Case. [10 App. at 436]. At a hearing on November 20, 2003,

the bankruptcy court denied the motion and ruled, as follows:

It is the finding of the Court that [LFI] can only

act through the Trustee in this Chapter 7 case. If

someone wants to claim that there was no

authorization for filing the Bankruptcy Petition

in the first place, they need to claim it. They need

to claim it in their own name and show why. The

Motion will be denied. [10° App. at 260-261].

On December 1, 2003, Golden Meadows filed its motion

to dismiss the Bankruptcy Case, and on December 8, 2003,

filed its “Second Amended Motion” to dismiss the

Bankruptcy Case (collectively, hereinafter, the “Amended

Motion to Dismiss”). [10° Resp. App. at 105-112, 154-166].

Johnson, purporting to act for LFI or its “management,” filed

a memorandum in support of the Amended Motion to

Dismiss. [10" Resp. App. at 113-142]. Voluminous pleadings

and documents were submitted to the bankruptcy court as

evidence in support of or in opposition to the Amended

Motion to Dismiss which are contained in the record of 4828

pages. On January 5, 2004, the bankruptcy court conducted

6

a hearing on the Amended Motion to Dismiss and at the

conclusion of the hearing ruled, as follows:

The court finds that authorization to file a

bankruptcy petition is given by the Nevada statute

to the shareholders. /t's uncontested that the sole

shareholder of the corporation [Granite] having

executed on the stock did vote in favor of -

authorizing filing of the bankruptcy petition. That

is clear authority for the Nevada court. Court finds

that the filing is valid and the motion to dismiss

will be denied. [10" App. at 53] [emphasis added].

The bankruptcy court’s written order respecting the January

5, 2004 ruling was entered on March 30, 2004 (the “March

30 Order’). [App. at 1-4]. As set forth in the March 30 Order,

the bankruptcy court determined that Granite was the sole

shareholder of LFI on the bankruptcy filing date, that Granite

was properly authorized to file the bankruptcy, and that the

filing of the Bankruptcy Case was valid. /d.].’

On January 30, 2004, the United States Trustee filed a.

motion requesting that the bankruptcy court reconsider its

ruling denying dismissal, based upon later events in the State

Court. [10° Resp. App. at 561-569]. Golden Meadows filed

a memorandum joining in the motion. [10 Resp. App. at

570-600]. The bankruptcy court conducted an evidentiary

hearing on the motion, on February 10, 2004, at which

numerous parties appeared and stated their positions,

2. The district court, in denying a motion to withdraw the

refeeemee of the Bankruptcy Case, entered an order (Case No. 2:04-

“v-349) on November 12, 2004, which adopted the bankruptcy

court’s January 5, 2004 ruling. [10 Resp. App. at 704]. No appeal

was taken.

7

including Golden Meadows’ counsel and Johnson as counsel

for the “management” of LFI. [10" Resp. App. at 601-610].

Allen testified extensively at the hearing. [/d.] The

bankruptcy court denied the motion, and on March 16, 2004,

entered its written order (the “March 16 Order”) denying the

motion. [10" Resp. App. at 611-614]. No appeal was taken

from the March 16 Order. [10° App. 419-423].

On May 24, 2004, Golden Meadows filed yet another

pleading requesting that the bankruptcy court dismiss the

Bankruptcy Case alleging Granite was not authorized to file

LFI’s bankruptcy petition. [10° Resp. App. at 615-700]. The

bankruptcy court treated Golden Meadows’ new filing as a

motion to reconsider the March 30 Order, and in a hearing

held June 7, 2004, denied the motion. [10° App. at 328-338].

In its detailed ruling stated on the record, the bankruptcy

court noted that the facts upon which the March 30 Order

was based were “largely contained in the statement of facts”

filed by Golden Meadows. [10° App. at 334]. The court’s

order implementing its June 7, 2004 rulings was entered on

June 23, 2004 (the “June 23 Order”). [10" App. at 104]. No

appeal was taken from the June 23 Order. [10° App. at 408-

09}.

Johnson, once more purporting to act as counsel for LF,

commenced an adversary proceeding from which this Petition

arises by filing a complaint against Granite, and MHS, their

principal and attorneys, and the Trustee on November 7, 2003

(the “Adversary Proceeding”). [10" App. at 436]. An

amended complaint was later served adding Golden Meadows

as a plaintiff. [10" App. at 150]. The complaint and amended

complaint sought damages and other relief against the

defendants for their alleged wrongdoing in filing the

Bankruptcy Case. The bankruptcy court dismissed the

8

Adversary Proceeding, including the complaint and amended

complaint, with prejudice by Order dated April 20, 2004.

[10" App. at 5-6].

On March 8, 2004, Johnson, again purporting to act for

LFI but this time joined by Allen, purportedly as a pro se

litigant, filed a new complaint in the State Court naming

Respondents herein as defendants [10° App. at 297]. The

claims asserted were substantially similar to, and arose from

substantially the same facts and circumstances, as those

asserted in the Adversary Proceeding. Defendants removed

the new State Court action (the “Removed Action”) in its

entirety to the bankruptcy court pursuant to 28 U.S.C.

§1452(a), and then moved to dismiss the complaint. The

bankruptcy court by order dated July 28, 2004 (the “July 28

Order”) dismissing with prejudice all claims of LFI brought

by Johnson and all claims of Allen “which arise from, arise

in, or relate to” the filing of LFI’s chapter 7 bankruptcy case,

based in part on the bankruptcy court’s prior rulings and

orders determining that LFI’s bankruptcy case was properly

filed by Granite. [App. at 7-9]. The remaining claims of Allen,

if any, were remanded to the State Court and then dismissed

with prejudice by the State Court. [10° App. at 139]. The

Utah Court of Appeals summarily dismissed Allen’s appea!

[10° App. at 146] and the Utah Supreme Court denied

certiorari. [10° Resp. App. at 706-708].

Allen, and Johnson still purportedly acting for LFI,

appealed the bankruptcy court’s July 28 Order partially

dismissing the Removed Action to the district court, and the

defendants moved for summary dismissal. The federal district

court entered an order dated November 4, 2004 dismissing

the appeal based on Johnson’s and Allen’s lack of authority

and standing and affirming the bankruptcy court’s order

dismissing the complaint. [App. at 10-1 1].

9

Although no party filed a timely appeal from the order

entered by the State Court which overruled the objections to

MHS’s execution on Allen’s stock and permitted the

execution to proceed, Allen did appeal a separate order of

the State Court entered on August 4, 2004, which vacated a

pre-trial order on issues respecting Granite’s ownership of

the LFI stock. [10° App. at 120]. The Utah Court of Appeals

summarily dismissed Allen’s appeal, holding: “Although

Allen was once the sole owner of the LFI stock, she no longer

had any interest in the stock as of September 2003 at the

latest, when the stock was sold at an execution sale.”

[10° App. at 128-129]. Thus, the Utah Court of Appeals

reached the same result as the bankruptcy court in ruling

that any ownership interest Allen had in LFI’s stock was sold

to Granite at the September 2003 execution sale. The Utah

Supreme Court denied Allen’s petition for writ of certiorari.

[10 App. at 383]. Undaunted, Allen filed a rule 60(b) motion

in the state trial court to vacate the execution order. By order

of September 1, 2005, that motion was denied. Allen appealed

and the Utah Court of Appeals affirmed, and the Utah

Supreme Court denied certiorari.

Petitioners and Golden Meadows appealed to the Tenth

Circuit from the dismissal of the two adversary proceedings

and the denial of their motions to dismiss the bankruptcy

case. The Tenth Circuit issued a consolidated opinion, stating

that the appeals were frivolous, dismissing LFI’s (through

Drage) and Allen’s appeals for lack of standing, and affirming

the decisions against Golden Meadows. Although the lower

courts ruled that only the Trustee had standing to assert claims

for LF] and that attorney Nathan Drage could not, Drage

persists without authority in his attempt to raise claims of

LFI in the Petition, as does Allen.

10

REASONS FOR DENYING THE PETITION

The Petitioners raise amorphous issues to avoid review

of their lack of standing. Cari Allen, neither individually nor

as a former officer, former shareholder, or former director of

the debtor, has standing to continue this over litigated case.

The Petition presents no compelling reason to invoke the

discretionary jurisdiction of this Court.

I. Applying this Court’s Weintraub decision, Petitioners

had no standing once the chapter 7 bankruptcy case

was filed, because the corporate debtor is managed

only by the bankruptcy Trustee

Johnson repeatedly and erroneously claimed before the

bankruptcy court, the federal district courts, the state trial

courts, the Utah Court of Appeals, and the Utah Supreme

Court, in numerous related proceedings that he was filing

papers and appearing for and on behalf of LFI or LFI’s

“management,” ostensibly Allen. Drage continued the error

before the Tenth Circuit and before this Court. The

Bankruptcy Court properly ruled that Johnson and Allen have

no authority or standing to assert claims on behalf of LFI..

The district court in four orders correctly affirmed that ruling,

[App. at 10-19], as did the Tenth Circuit. [App. at 19-25].

Neither Johnson nor Allen, LFI’s former owner, former

director and former officer, nor LFI’s purported current

counsel, Drage, has any legal authority to represent or take

positions on behalf of the corporate entity, LFI, or its present

“management” (which is the Trustee in bankruptcy).

Similarly, none of Johnson, Allen or Drage has any legal

authority to assert claims for damages that belong to LFI’s

bankruptcy estate or to file claims or appeals relating to those

claims or to file this petition.

11

LFI is a corporation and has been a chapter 7 debtor in

bankruptcy since the Petition Date. When a corporation

becomes a chapter 7 debtor (and, similarly, when a trustee is

appointed for a corporation in a chapter | 1 case), a bankruptcy

trustee is appointed to take control of all of the corporation’s

property, including all rights and causes of action, and the

corporate debtor’s former management and directors are

“completely ousted.” See, Commodity Futures Trading

Comm'n v. Weintraub, 471 U.S. 343, 348-54 (1985). See also

11 U.S.C. §323(a) (the bankruptcy trustee is the authorized

“representative of the estate”).

Johnson clearly did not — and Drage does not — represent

the Trustee and therefore they do not represent LFI or its

bankruptcy estate. Thus, Johnson and Drage either have had

no client in this case, or their client is really Allen in her

individual capacity. None of Johnson, Drage or Allen is an

authorized post-bankruptcy filing representative of LFI, and

neither Johnson or Drage nor Allen is LFI’s post-petition

“management.” As of the Petition Date, the Trustee is the

“management” of LFI, and the Trustee and her appointed

counsel are the only authorized representatives of LFI. The

Trustee did not file the Adversary Proceeding or the Removed

Action asserting claims of LFI against the Respondents, and

the Trustee did not appeal the orders dismissing those alleged

claims. Allen has no standing because she is no longer a

shareholder, officer or director.

Notwithstanding unstayed court orders to the contrary,

Johnson, Drage and Allen argue that LFI holds claims, rights

and interests that are not part of LFI’s bankruptcy estate.

Their argument is wrong, and results from their failure to

recognize the significant differences between individuals and

corporations in chapter 7 bankruptcy cases. An individual

12

who files a chapter 7 case obviously continues to have a

separate existence — along with certain rights, exempt

property, liabilities and privileges — apart from his or her

bankruptcy estate controlled by the trustee, but a corporate

entity in a chapter 7 bankruptcy case does not — a corporate

bankruptcy estate is coextensive with the corporate debtor.

Thus, while an individual debtor may engage separate counsel

to defend his or her interests that are distinct from the interests

of the trustee and the property of the bankruptcy estate, a

corporate debtor in bankruptcy is an “inanimate entity” that

has no separate existence and no rights, claims, privileges,

or interests other than those controlled exclusively by the

bankruptcy trustee. See Weintraub, 471 U.S. at 348-53;

see also Foster v. Hill (In re Foster), 188 F.3d 1259, 1267

(10 Cir. 1999) (recognizing that “while a trustee may control

a corporate debtor as would its prebankruptcy management,”

a bankruptcy trustee does not control an individual debtor).

This Court’s opinion in Weintraub cogently resolved and

explained the nature and status of a corporate debtor in a

chapter 7 bankruptcy case. Although the specific issue was

whether the chapter 7 trustee could waive the corporate

debtor’s attorney/client privilege, this Court’s detailed

reasoning and thorough analysis have broad application.

A corporation is an inanimate entity that can act only through

its authorized agents. Weintraub, 471 U.S. at 348. Outside

of a bankruptcy proceeding, a corporation’s management

authority normally is exercised by its officers and directors.

Id. at 348-49. Bankruptcy causes “fundamental chariges in

the nature of corporate relationships.” Jd. at 355. The

Bankruptcy Code vests the bankruptcy trustee with wide-

ranging management authority to control a corporate debtor.

Id. at 351-52. In bankruptcy, the towers of the corporate

debtor’s pre-bankruptcy directors and officers are “severely

13

limited” to turning over the corporation’s property to the

trustee and providing certain information. /d. Bankruptcy

Code provisions and legislative history indicate that Congress

intended the bankruptcy trustee to assume control of a

corporate debtor and that the debtor’s directors would be

“completely ousted.” Id. at 352-53. Accordingly, for a

corporation in a chapter 7 case, the bankruptcy trustee is the

authorized agent and hence the corporation’s management.

Id. at 352-54.

This Court also recognized in Weintraub the distinction

between individual and corporate bankruptcy debtors is

important. See id. at 356. The distinction is one that the

Petitioners persistently ignore.

Correctly applying the Weintraub reasoning in a

bankruptcy appeal, a district court flatly rejected arguments

very similar to those made by Appellants. In Jn re Sandra

Cotton, Inc., 87 B.R. 272 (W.D.N.Y. 1988), an attorney

retained by the corporate debtor’s principal attempted to

appear on behalf of the corporation, arguing that he had “the

right to represent the ongoing ‘residue’ of the corporation

which will remain after the bankruptcy has ended.” 87 B.R.

at 274. The court framed the issue as “whether anyone besides

the Trustee in Bankruptcy can proceed on behalf of and

represent the debtor corporation.” /d. The court reasoned that

“(pJursuant to 11 U.S.C. §727(a)(1) only an individual can

be granted a discharve in bankruptcy, and it thus appears

that there would be no ‘residue’ of the corporation to be

represented or protected by someone other than Trustee.” /d.

The court further explained, citing this Court in Weintraub,

that the “power and duties of the Trustee are extensive and

he has broad management authority over the debtor.” /d. The

court concluded:

14

Pursuant to Bankruptcy Rule 6009 the Trustee

is granted complete authority and discretion with

respect to prosecuting or defending any litigation

involving the bankrupt. He is even vested with

control of the corporation’s attorney-client

privilege. With these general principles firmly in

place and having in mind the fact that a bankrupt

corporation is never discharged, it is readily

apparent to this Court that there is no party other

than the Trustee who can represent the debtor

corporation on this appeal. Jd. [Citations omitted]

The holding applies equally in the present case, consistent

with this Court’s decision in Weintraub.

Even if LFI as a corporate entity were not controlled

exclusively by the Trustee, all of LFI’s property interests,

including any and all claims or causes of action it may have

against others, would still belong exclusively to LFI’s

bankruptcy estate under the exclusive control of the Trustee

for the benefit of LFI’s creditors. Section 541(a) of the

Bankruptcy Code provides that “all legal or equitable

interests of the debtor in property” as of the bankruptcy

petition date become property of the bankruptcy estate.

11 U.S.C. §541(a). Property of the estate clearly includes

claims and causes of action. See, e.g., Sender v. Simon, 84

F.3d 1299, 1305 (10° Cir. 1996) (the §541(a) definition of

estate property “includes causes of action belonging to the

debtor at the commencement of the bankruptcy case”);

Delgado Oil Co. v. Torres, 785 F.2d 857, 860 (10° Cir. 1986)

(“The §541 estate, thus, includes any right of action the debtor

corporation may have to recover damages for misconduct,

mismanagement, or neglect of duty by a corporate officer or

director. The trustee in bankruptcy succeeds to that right. Its

15

nature is derivative.”); First Sec. Bank of Utah, N.A. v.

Gillman, 158 B.R. 498, 505 (D. Utah 1993). See also H.R.

Rep. No. 595, 95th Cong., Ist Sess. 367, reprinted in 1978

U.S.C.C.A.N. 5963, 6323 (under §541 a debtor’s bankruptcy

estate “will include choses in action and claims by the debtor

against others”).

Accordingly, any causes of action belonging to LFI on

the Petition Date became property of LFI’s bankruptcy estate

on the Petition Date and are under the exclusive control of

the Trustee. Moreover, even alleged causes of action

belonging to LFI that arose after the Petition Date are under

the exclusive control of the Trustee. Pursuant to 11 U.S.C.

$541(a)(7), “[a]ny interest in property that the estate acquires

after the commencement of the case” is included as property

of the debtor’s bankruptcy estate. Petitioners steadfastly

refuse to accept the factual findings of no interest and

contemptuously ignore the legal conclusions of lack of

standing.

II. The federal and state courts’ determinations of the

propriety of the bankruptcy filing are consistent with

the decisions of this Court and the courts of appeals.

Petitioners once more incorrectly argue, as they

unsuccessfully did before all the courts below as well as

before the Utah trial and appellate courts, that even if Granite

was the sole shareholder of LFI at the time it filed the LFI

bankruptcy petition, Granite had no authority as a shareholder

to file the petition because management was vested in the

board of directors. Hence, Petitioners suggest that this Court

review misapplication of a properly stated rule of law. This

argument raises nothing more than a routine question of

Nevada state law and was correctly rejected by the bankruptcy

16

court, the district court, the Tenth Circuit, and the Utah state

trial and appellate courts.

As the lower courts correctly determined, Nevada law

permits any action to be taken by written consent of the

shareholders without a meeting that could be taken at a

meeting. See, Nev. Rev. Stat. §§78.320, 78.325 and 78A.070.

Moreover, §2.8 of Log Furniture’s By-Laws also provides

that any action that may be taken by shareholders at a meeting

may be taken by written consent of the shareholders without

a meeting: “Any action which may be taken at a meeting of

the Shareholders may be taken by written consent without a

meeting if such action is taken in conformance with the

Nevada Corporations Code.” [Log Furniture By-Laws §2.8

at 12]. It is indisputable that Granite as the sole shareholder

of LFI properly took shareholder action to authorize the filing

of the bankruptcy petition by written consent:

IT IS HEREBY RESOLVED that David

Harris, who is an officer of Machinery and

Hardware Supply, the managing member of

Granite Stone, LC, is hereby authorized to sign a

voluntary petition in bankruptcy under Chapter 7

of the United States Bankruptcy Code on behalf

of [LFI] tn the United States Bankruptcy Court

for the District of Utah, and to sign and execute

any other documents that may be necessary in

connection therewith. ... [10 App. at 183]

The cases cited by Petitioners do not support their

position that as the sole shareholder Granite had no authority

to authorize the filing of the bankruptcy petition. Keenihan

v. Heritage Press, Inc., 19 F.3d 1255 (8" Cir. 1994), which

Petitioners mischaracterize as “an action amazingly similar

17

to the present case” [Petition at 15], involved far different

facts. In Keenihan, the pledgee of the majority of the

corporate stock had the right to vote the stock upon default.

The state court had entered a temporary restraining order that

the pledgee had the right to control management of the

corporation and impliedly ruled that the pledgee had the right

to vote the stock. Thus, because the pledgor had no right to

vote the stock, he had no authority to vote the stock to

authorize the bankruptcy filing.’ In stark contrast, in the

present case, although Golden Meadows had a pledge of stock

as security for its loan, Golden Meadows did not have the

right to vote the stock. Granite obtained the right to vote the

stock when it obtained ownership of the stock (including

voting rights) and as the sole shareholder voted to authorize

the bankruptcy filing.

Chitex Comm., Inc. v. Kramer, 168 B.R. 587 (S.D. Tex.

1994), cited by Petitioners, is also easily distinguished. A

receiver was appointed in a divorce action with full

ownership of 100% of the corporate stock and full power of

control of the corporation. Thus, the court ruled that the

husband as former president of the corporation had no

authority to file the bankruptcy proceeding for the

corporation.

Petitioners cite cases for the proposition that the power

to manage a corporation resides in the board of directors.

[Petition at 16]. None of these cases involved a situation

where a sole shareholder in accordance with the provisions

of applicable state law gave written consent for the filing of

a bankruptcy petition, and are not on point. For example, in

3. Significantly, and contrary to Petitioners’ argument, this

opinion recognizes the authority of shareholders under state law to

authorize the filing of a bankruptcy petition.

18

Price v. Gurney, 324 U.S. 100, 65 S. Ct. 513 (1945), an

individual who owned seven shares of stock of a corporation

and who purported to act as agent for other stockholders filed a

bankruptcy petition in the name of the corporation. This Court

rejected the argument that because the directors had allegedly

breached their trust and committed acts against the shareholders’

interests, that the shareholders had a right to bring the bankruptcy

proceeding as a derivative action on behalf of the corporation

under the rules applicable to derivative actions.

Petitioners defiantly contend, incredibly enough, that

Granite never acquired ownership of LFI’s stock because that

stock was sold to Golden Meadows when Golden Meadows

loaned money to LFI in July 2000. Petitioners base this argument

on printed language appearing on the back side of the stock

certificate pledged by Allen for the loan which states that “I

hereby sell, assign and transfer unto Golden Meadows .. .

1,000,000 shares represented by the within certificate.”

Petitioners are not being candid with the Court. This argument

was contrary to the clear testimony of Allen and Golden

Meadows’ principal and the argument of Golden Meadows’

counsel and was rejected by each of the lower courts (as well as

the Utah trial and appellate courts).

As the lower courts properly found, the stock certificate

was simply pledged by Allen for a loan and was not sold to

Golden Meadows. Indeed, in numerous pleadings and other

documents filed in the Prior Bankruptcy Case during late 2002

and 2003 (years after they now claim Golden Meadows acquired

ownership of the LFI stock on July 21, 2000), Allen and LFI’s

counsel represented that Allen was the sole shareholder of LFI.

Moreover, at the July 23, 2003 hearing in State Court —

three years after Petitioners now claim Golden Meadows

19

acquired ownership — Golden Meadows’ counsel, represented

to the State Court that Golden Meadows did not own the LFI

stock, but only had a pledge of that stock. Counsel stated

“although [Golden Meadows] has an assignment of those stock

interests, that does not mean that Golden Meadcw%s owns the

stock. It does not, but Golden Meadows does have a pledge of

the stock. . . .” Counsel continued that “[wJe don’t dispute the

ownership of the stock in Cari Allen but just assert a security

interest in the pledge... .” In addition, Golden Meadows’

principal, testified at the November 7, 2003 hearing that the

pledge agreement and transfer of the stock certificate did not

transfer ownership of the stock from Allen to Golden Meadows,

but simply constituted a pledge of the stock to secure the loan

by Golden Meadows.

Likewise, Allen herself testified that as of October 28, 2002

~ over two years after she now-argues Golden Meadows acquired

ownership of the stock ~ she owned 100% of the stock of LFI.

Petitioners’ attempt to change their position, ignoring their

prior testimony and argument, is disingenuous and was correctly

rejected by the lower courts.

CONCLUSION

It is axiomatic that this Court’s review on a writ of certiorari

is not a matter of right, but of judicial discretion. A petition for

a writ of certiorari should be granted only for compelling

reasons. However, this matter presents no conflict with another

United States court of appeals or a state court of last resort.

This matter does not present an important unsettled federal

question. The Petition does not call for the exercise of this

Court’s supervisory powers because none of the lower federal

or state courts, in twelve separate appeals and three certiorari

20

petitions to the Utah Supreme Court and before three different

trial judges, has departed from the accepted and usual course of

judicial proceedings.

What this petition presents are: (1) allegations of erroneous

factual findings by the bankruptcy court and Utah trial courts

that Granite Stone acquired all right, title and interest in 100%

of the common stock of LFI, and (2) legal theories that, in

derogation of the bankruptcy Trustee, a former officer and

director of a debtor corporation may continue frivolous litigation

as either the debtor or its representative. Ultimately, Petitioners

ask this Court to ignore twelve prior appellate decisions and

review factual findings that Cari Allen, either individually or

through her charade as a former governing officer or director of

the debtor, has no standing. Because this case presents no

compelling reason for further review, the Petition for Writ of

Certiorari should be denied.

Respectfully submitted,

RICHARD D. BURBIDGE STEVEN T. WATERMAN *

STEPHEN B. MITCHELL Ray QuINNEY & NEBEKER P.C.

BUuRBIDGE & MITCHELL 36 South State Street

215 South State Street 14 Floor

Suite 920 Salt Lake City, UT 84145-0385

Salt Lake City, UT 84111 (801) 532-1500

(801) 355-2341 Attorneys for Granite Stone,

Attorneys for Steven Call, L.C., Machinery & Hardware

and Ray Quinney Supply, Inc., and David Harris

& Nebeker P.C.

* Counsel of Record