Opinion ID: 3170685
Heading Depth: 2
Heading Rank: 2

Heading: Cause for Krueger’s Dismissal

Text: Krueger’s case is paradigmatic of the need for cause to include bad faith before, within, and throughout the case. Krueger’s attempt to recast his conduct as a few isolated, questionable acts is unconvincing. 6 Krueger’s actions formed a concerted scheme to use the bankruptcy process as both a shield from legitimate state court actions and a sword to retake control of Cru. As the bankruptcy court did here, a court should consider any and all “facts and circumstances surrounding the debtor’s filing for bankruptcy.” Perlin v. Hitachi Capital Am. Corp. (In re Perlin), 497 F.3d 364, 373–74 (3d Cir. 2007). The finding of a debtor’s bad faith is a factual determination reviewed for clear error. See Jacobsen, 609 F.3d at 652. Clear error is a formidable standard: this court “disturb[s] factual findings only if left with a firm and definite conviction that the bankruptcy court made a mistake.” ASARCO, LLC v. Jordan Hyden Womble Culbreth & Holzer, P.C. (In re ASARCO, LLC), 751 F.3d 291, 294 (5th Cir. 2014) (internal quotation marks omitted), aff’d sub nom. Baker Botts LLP v. ASARCO LLC, 135 S. Ct. 2158 (2015). There is no clear error in the bankruptcy court’s findings. Instead, the record is replete with evidence that Krueger filed bankruptcy for illegitimate purposes, misled the court and other parties, and engaged in bare-knuckle litigation practices, including lying under oath and threatening witnesses. See Krueger, 2014 WL 911857, at . Krueger offered little evidence besides his own testimony to contravene the strong evidence of his machinations and the 6In his reply brief before this court, Krueger concedes that he “may have made some mistakes” and “engaged in questionable acts” before and after the filing of his bankruptcy case. 14 Case: 14-11355 Document: 00513346937 Page: 15 Date Filed: 01/19/2016 No. 14-11355 bankruptcy court explicitly found he lacked credibility. Even a cold record supports this finding. Though Krueger attempts to reframe this finding as the court’s disliking his side of the story, this court encourages and defers to trial court credibility determinations. See Randall & Blake, Inc. v. Evans (In re Canion), 196 F.3d 579, 587–88 (5th Cir. 1999). As the bankruptcy court found: • Krueger petitioned for bankruptcy not to seek a fresh start as an honest but unfortunate debtor, but to hamper the state court litigation that threatened both “his pecuniary interests” and “his personal freedom.” Krueger, 2014 WL 911857, at . At the dismissal hearing, Krueger testified that among his primary reasons for filing bankruptcy were to 1) avoid the pending criminal contempt proceeding 2) avoid state court summary judgment proceedings 3) otherwise delay the state court litigation because he no longer liked Austin, Texas as a venue and was convinced Austin’s judges were biased against him. Krueger, however, had chosen where to file the state court lawsuit. The bankruptcy court found that another of Krueger’s primary purposes in filing bankruptcy was to delay state court litigation while he migrated his business interests in Cru to Kru and plotted to regain control of Cru. • Krueger willfully failed to list his officer and director position in Kru and his de facto controlling interest in Kru on his statement of financial affairs. Krueger’s plea that these were innocent oversights is belied by the clarity of the instruction on the statement of financial affairs and the depth of his activity in Kru. For instance, Krueger formed the company in October 2011. Just nine days before filing for bankruptcy, Krueger convened Kru’s first shareholders meeting and signed the meeting minutes as “President & Chief Executive Officer.” Krueger’s “significant efforts” to raise capital on Kru’s behalf, both immediately before and 15 Case: 14-11355 Document: 00513346937 Page: 16 Date Filed: 01/19/2016 No. 14-11355 after the bankruptcy filing, were also well documented to the bankruptcy court. The bankruptcy court concluded that Krueger lied about his interest in Kru to prevent discovery of his efforts to flout the state court injunction and retake control of Cru’s business. • Krueger violated the automatic stay when he voted his shares in the Cru shareholder meeting in which he (and his handpicked fellow nominees) were elected to Cru’s board of directors. The board then immediately voted to dismiss all the claims Cru had against Krueger. By voting his shares, Krueger was exercising control of his bankruptcy estate’s property. In doing so, the bankruptcy court found that this likely reduced the estate’s value, since Cru’s claims against Krueger “must have had at least the nuisance value they represented to Krueger.” Id. at . In addition, some of the claims stemmed from Krueger’s actions in taking money from the Cru bank accounts. • Krueger used a false address in his bankruptcy petition. The bankruptcy court found that this was willful and of a piece with Krueger’s conduct in the state court litigation where he listed fake addresses to avoid being served with injunctions and other legal process. Krueger admitted to the bankruptcy court that he didn’t live at the listed address at the time of his filing, doesn’t know if it exists (it doesn’t), and actually lived somewhere else. • Krueger repeatedly perjured himself in the bankruptcy court proceedings on a wide range of topics. For instance, Krueger testified that he did not read the state court’s temporary injunction until it was physically served on him in October 2011. This is contradicted by other witness testimony and physical evidence that Krueger immediately read the injunction after it was issued. 16 Case: 14-11355 Document: 00513346937 Page: 17 Date Filed: 01/19/2016 No. 14-11355 • Krueger threatened a witness during the bankruptcy court’s hearing on the § 707(a) motion. The bankruptcy court found that Krueger approached another witness during the break in that witness’s testimony and said “You’re next, buddy. I’m going to sue the s___ out of you.” The witness testified that he felt threatened. Under a flexible, totality of the circumstances approach, the court found that Krueger filed chapter 7 because of a criminal contempt proceeding pending against him, because his state court litigation had taken a turn for the worse, and to provide him the cover to retake control of Cru. These “noneconomic motives” are “unworthy of bankruptcy protection.” Huckfeldt, 39 F.3d at 833. Once his chapter 7 case commenced, Krueger engaged in conduct designed to manipulate the proceedings to his own ends, including false filings, false testimony, and witness intimidation. His duplicitous behavior is exactly the sort of conduct contemplated by most courts as giving cause for dismissal under § 707(a). Finally, the bankruptcy court weighed the costs of dismissal to creditors and was able to mitigate them through appropriate orders. In light of the court’s balancing inquiry and findings, it cannot be said that the bankruptcy court abused its discretion in dismissing this case.