A new bankruptcy petition filed in federal court in Milwaukee last month by a subsidiary of the R.C. Samanta Roy Institute of Science and Technology, Inc. has been sent back to square one in U.S. Bankruptcy Court in Delaware.
Midwest Properties of Shawano, LLC, filed the new Chapter 11 bankruptcy petition in the Eastern District of Wisconsin U.S. Bankruptcy Court in Milwaukee on July 13, according to court records.
But at a hearing last Friday, federal court Judge Pamela Pepper ruled the district of Delaware - where Midwest was part of a previous bankruptcy filing - was the proper venue for the case.
In making her ruling, Pepper cited concerns raised by Midwest about the Milwaukee court's impartiality and Midwest's allegations "that it cannot receive fair treatment in Wisconsin, because of certain prejudices held against it by the municipal government in the town in which it is located."
SIST CEO Naomi Isaacson had filed an affidavit with the Milwaukee court alleging Shawano Mayor Lorna Marquardt was head of a vast, racially-motivated conspiracy against SIST holding sway over local and national media, state and federal judges, financial institutions and even the FBI.
Marquardt has denied the allegations, calling Isaacson's affidavit "lies, distortions, and false information."
Pepper acknowledged the allegations, but made no comment regarding whether she believed the allegations to be true, according to court minutes from the hearing.
Regarding the court's impartiality, Pepper noted in the court minutes that Midwest had also raised concern because Attorney David Van Lieshout, whose firm is representing a creditor in the case, is the brother of Eastern District bankruptcy Judge Susan V. Kelley.
Pepper said the argument appeared to indicate Midwest's concern that "no judge on the Eastern District bankruptcy bench could be impartial, given that all of the other Eastern District judges were colleagues of Judge Kelley."
Midwest's Milwaukee bankruptcy filing was challenged by Fox Communities Credit Union, which holds a mortgage on two apartment building properties in the City of Shawano that Midwest was purchasing on a land contract.
Last Friday's hearing was scheduled to consider an emergency motion by FCCU seeking to dismiss Midwest's Milwaukee bankruptcy petition.
In motions filed with the court, Attorney Steven Kruegar of the Van Lieshout Law Office accused Midwest of filing the petition in bad faith. He noted the filing came only a day before the apartment properties were to be sold off in a sheriff's sale.
Kruegar also accused Midwest of "forum shopping" with its petition in Milwaukee while another bankruptcy petition was still on appeal in Delaware.
Midwest attorney Bruce Scott denied Kruegar's claim in a response filed with the Milwaukee court on July 30, saying there was no benefit to filing in a "state like Wisconsin which has been saturated with negative publicity against Debtor and affiliates by Shawano Mayor Lorna Marquardt, other officials, and media members."
Scott goes on to say that, "Debtor has been informed that counsel Kruegar is a member of Lorna Marquardt's secret racist group."
Midwest Properties was one of six subsidiaries that filed along with SIST for Chapter 11 bankruptcy protection in Delaware in March of last year.
In September, the case was dismissed and an appeal subsequently upheld the dismissal.
Isaacson's affidavit blames the dismissal on Marquardt's influence over U.S. Bankruptcy Court Judge Kevin Gross.
SIST and its subsidiaries then filed another appeal, which is still pending, in the Third Circuit Court of Appeals.
After filing the new bankruptcy petition in Milwaukee last month, Midwest Properties withdrew from the Third Circuit Court appeal in Delaware on July 26.
That same day, another SIST subsidiary Midwest Oil of Minnesota, LLC, also withdrew from the Delaware appeal and filed a new petition in U.S. Bankruptcy Court in St. Paul, Minnesota.
A Chapter 11 plan is due to be filed in the Minnesota case by November 23, according to court records showing no other developments in that case since the filing.
