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In Re Murpenter LLC

December 20, 2012


The opinion of the court was delivered by: Joyner, C.J.


This is an appeal from the Order entered by the U.S. Bankruptcy Court for the Eastern District of Pennsylvania on July 30, 2012 imposing sanctions against and directing Debtor's counsel to pay the amount of $4,694.00 to Debtor's principal creditor, Carmen Enterprises Inc. ("Carmen") *fn1 pursuant to Fed. R. Bank. P. 9011. For the reasons set forth in the paragraphs that follow, the appeal shall be denied and the Bankruptcy Court's order affirmed.

History of the Case

The instant bankruptcy action has its origins, along with two other civil actions which are presently pending in the Court of Common Pleas of Montgomery County, Pennsylvania, in an agreement dated October 31, 2001 between Murpenter and Carmen under which Carmen agreed to sell most of its assets and good will in its travel agency business to Murpenter in exchange for an initial payment of some $15,000 to be followed by seven monthly installment payments of $7,500 and a lump sum payment due on May 1, 2002 in an amount to be determined based on, inter alia, commissions received from both Carmen's non-final paid bookings and Murpenter's bookings and sales between November 1, 2001 and April 30, 2002. According to the allegations in the first state court action, Murpenter failed to make the required payments in accordance with the schedule set by the agreement and Carmen therefore sought damages in excess of $50,000 under various legal and equitable theories including breach of contract, specific performance, replevin, tortious interference with contract and conversion. In the second state court action, Carmen seeks to recover the same damages from the corporate officers and owners of Murpenter, Kathleen Murphy and her husband Robert Douglas Carpenter, as well as what are alleged to be two related entities, Blue Moon Travel, Inc. and Marquis Ventures, Inc.

Apparently, both state court actions have taken more than ten years to wend their way through the Montgomery County court system. It does appear, however, that the first state court case was scheduled to be tried before the Honorable Emanuel Bertin in April 2012. Approximately one week before trial, on April 2, 2012, Murpenter filed a Voluntary Petition under Chapter 7 of the Bankruptcy Code. Annexed to this petition were several schedules setting forth assets of less than $7,000, one unsecured, priority creditor - the Internal Revenue Service to whom Murpenter owed $292 and ten unsecured creditors with claims aggregating $154,997. With the exception of a claim purportedly owed to Wings Travel Group, LLC, *fn2 Murpenter's voluntary filing indicated that the largest claim owed was to Carmen in the amount of $47,000.

Of course, the natural effect of the bankruptcy filing was the automatic stay of all proceedings in the state courts -- including the scheduled trial of the first state court action. See generally, 11 U.S.C. §362. In response to the debtor's petition, Carmen filed a Motion to Dismiss the Petition and/or to Modify the Automatic Stay to Permit the State Court litigation to proceed on April 25, 2012. At the hearing on the motion on May 23, 2012, the Motion to Dismiss was partially granted, the parties having agreed to modify the automatic stay to permit the first state court action to proceed to trial, albeit with the proviso that in the event that Carmen should obtain a judgment in its favor that it was prohibited from executing upon Murpenter's assets without first obtaining an order from the Bankruptcy Court.

Thereafter, on June 8, 2012, Carmen filed a Motion for Sanctions on the grounds that the filing of the Voluntary Petition was for an improper purpose to harass Carmen and unreasonably delay the state court proceedings, and inasmuch as the Answer to the Motion to Dismiss consisted of general denials requiring Carmen to prove the averments contained therein, it too served to unreasonably and vexatiously multiply the proceedings. Bankruptcy Judge Eric Frank held a hearing on the sanctions motion on July 18, 2012 and, after taking the matter under advisement, issued an Order on July 30, 2012 granting the motion in part and awarding Carmen the sum of $4,694.00 in counsel fees. It is from this Order that both parties now appeal.

Standard of Review

Under Fed. R. Bankr. P. 8013,

On an appeal the district court or bankruptcy appellate panel may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings. Findings of fact, whether based on oral or documentary evidence, shall not be set aside, unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.

Thus an appeal from an order of a bankruptcy court places the district court in the posture of an appellate tribunal, requiring it to accord the appropriate level of deference to the decision of the bankruptcy judge. Bierbach v. Wagner, Civ. A. No. 1:07-CV-0072, 2007 U.S. Dist. LEXIS 25107 at *4 (M.D. Pa. April 4, 2007). The standard of review applied by a district court when reviewing the ruling of a bankruptcy court is determined by the nature of the issues presented on appeal. The factual determinations of a bankruptcy court are not to be set aside unless they are "clearly erroneous." In re Y.J. Sons & Co., 212 B.R. 793, 800 (D.N.J. 1997)(citing, inter alia, Chemetron Corp. v. Jones, 72 F.3d 341, 345 (3d Cir. 1995), cert. denied, 517 U.S. 1137, 116 S. Ct. 1424, 134 L. Ed.2d 548 (1996); In re Indian Palms Associates, Ltd., 61 F.3d 197, 203 (3d Cir. 1995)). Its legal conclusions are reviewed de novo. See, In re Global Industrial Technologies, 645 F.3d 201, 209 (3d Cir. 2011); In re Jersey Tractor Trailer Training, Inc., 580 F.3d 147, 153 (3d Cir. 2009); IRS v. Pransky, 318 F.3d 536, 542 (3d Cir. 2003). A finding of fact is clearly erroneous when it is "completely devoid of minimum evidentiary support displaying some hue of credibility or bears no rational relationship to the supporting evidentiary data." Pharmaceutical Sales Consulting Corp. v. Accucorp Packaging, Inc., 231 Fed. Appx. 110, 113, 2007 U.S. App. LEXIS 2215, at *7 (3d Cir. Jan. 31, 2007); Kool, Mann, Coffee & Co. v. Coffey, 300 F.3d 340, 353 (3d Cir. 2002). And where the Bankruptcy Court has had cause to exercise its discretion, those exercises are reviewed for abuse thereof, meaning that the determination was "arbitrary, irrational, or contrary to law. Salzano v. Forman, 2009 U.S. Dist. LEXIS 59867 at *9-*10 (D. N.J. July 14, 2009)(quoting Borges v. Gonzales, 402 F.3d 398, 404 (3d Cir. 2005) and In re United Healthcare Systems, Inc., 396 F.3d 247, 249 (3d Cir. 2005)). See also, Kool, Mann, supra. Stated otherwise, "[u]pon review, an abuse of discretion will be found if the bankruptcy judge acted in an irrational, arbitrary or capricious manner 'clearly contrary to reason and not justified by the evidence.'" Advanced Restoration Technologies, Inc. v. Shortgrass, Inc., 2006 U.S. Dist. LEXIS 22208 at *11-*12 (D.N.J. March 30, 2006)(quoting Vizzini v. Ford Motor Co., 569 F.2d 754, 760 (3d Cir. 1977)). In accord, In re Integrated Telecom Express, Inc., 384 F.3d 108, 118 (3d Cir. 2004)("An abuse of discretion exists where the district court decision rests upon a clearly erroneous finding of fact, an errant conclusion of law, or an errant application of law to fact.")


As noted, at issue in this appeal is the propriety of the Bankruptcy Judge's determination that the filing of the debtor's voluntary petition was in bad faith and the amount of counsel fees awarded as a sanction therefor. Carmen further excepts to the Bankruptcy Judge's determination that no sanctions were warranted for the debtor's answer/response to its motion for dismissal.

It should be noted that there is a general presumption that debtors file bankruptcy petitions in good faith. Advanced Restoration, 2006 U.S. Dist. LEXIS at *12-*13 (citing In re Shar, 253 B.R. 621, 628 (D. N.J. 1999)). Under 11 U.S.C. §707(a), the court may, after notice and hearing, dismiss a case under Chapter 7 "for cause." Although §707(a) fails to mention the lack of good faith as a ground for dismissal, the Third Circuit has interpreted this statute as "allow[ing] a bankruptcy court to dismiss a petition for cause if the petitioner fails ...

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