Bankruptcy petitions of SIST subsidiaries dismissed: Ruling comes before hearing in Delaware set for next week

The Shawano Leader/December 22, 2010

A federal judge has dismissed two Delaware bankruptcy cases filed by subsidiaries of the Samanta Roy Institute of Science and Technology, Inc.

U.S. Bankruptcy Judge Kevin Carey ruled on behalf of the U.S. Trustee's Office, which had filed a motion seeking dismissal of the Chapter 11 bankruptcy petitions filed by Midwest Properties of Shawano, LLC, and Midwest Oil of Minnesota, LLC.

In his ruling Monday, the judge agreed with the trustee's assertions of gross mismanagement, continuing loss to the estates and an absence of a reasonable likelihood of rehabilitation.

"The record before me shows that Midwest Properties and Midwest Oil are currently operating at a loss," Carey wrote. "Neither debtor has provided any evidence to demonstrate an ability to change the continuing losses to the estate nor have they demonstrated a reasonable likelihood of rehabilitation in a reasonable time."

Carey also alluded to, but did not directly comment on an adversary proceeding filed in the case by Midwest Properties.

The complaint alleges the Shawano Leader and nearly two dozen other individuals and entities are part of a racist conspiracy led by Shawano Mayor Lorna Marquardt.

It accuses Marquardt and other officials of devising schemes to destroy SIST businesses and "bring about the demise of SIST personnel."

The complaint also alleges some of the creditors and their lawyers who have brought civil cases against the subsidiaries worked in concert with Shawano officials.

Carey wrote that the debtors had not provided any credible evidence in support of their allegations.

"These Chapter 11 filings constitute a desperate attempt by the debtors to escape perceived, but unproven, bias in their ‘hometowns' and to save their properties from receivership and foreclosure, but without the ability to reorganize," Carey wrote.

In dismissing the cases, however, Carey left the door open for possible new bankruptcy filings, provided the subsidiaries are represented by Delaware bankruptcy counsel.

In a footnote, Carey added, "the debtors' connections to Delaware seem somewhat attenuated and I would not necessarily expect any future filing to take place in this district."

Marquardt said Tuesday she was pleased to learn of the judge's decision to dismiss the bankruptcy. She said she didn't anticipate a decision until after Christmas because a hearing on the matter had been expected to take place on December 29.

"Obviously the judge read the case and felt he had the information he needed to render his opinion," Marquardt said. "The dismissal means the adversary complaint against the City of Shawano, (Shawano Municipal Utilities), the media, elected officials, City Administrator Jim Stadler and others will also be dropped. It is definitely good news and makes the upcoming Christmas holidays seem a little brighter."

Attorney Greg Conway, who represents the Shawano Leader, said it was the opinion of several lawyers involved in the case that Midwest Properties was expecting this decision to be coming shortly, which would have allowed creditors to go forward with their various civil suits.

"The suit against the Leader, Lorna Marquardt and others, appears designed to prolong the bankruptcy," Conway said. "Now that the bankruptcy's been dismissed we expect the follow-on suit will also be dismissed shortly."

Conway and attorneys for several other media outlets named in the adversary proceeding have enlisted a Delaware attorney to oversee the case in Delaware.

Both Midwest Oil and Midwest Properties were originally part of a bankruptcy petition filed by SIST and six of its subsidiaries in Delaware last year. That petition was dismissed in federal court. SIST is appealing the ruling.

However, Midwest Oil and Midwest Properties removed themselves from the appeal.

Midwest Properties filed independently in U.S. Bankruptcy Court in Milwaukee. The case was subsequently sent back to the Delaware court.

Midwest Oil filed a Chapter 11 bankruptcy petition in the Bankruptcy Court for the District of Minnesota. The filing staved off a pending sheriff's sale of one of Midwest Oil's properties. That case was also subsequently transferred back to Delaware.

What are Midwest Properties and Midwest Oil?

Midwest Properties is a holding company created in 2004, with assets consisting mainly of more than 20 parcels of property in Shawano. Seven of those properties are rented, two are in receivership and the remaining properties are vacant, according to court records.

Midwest Oil is a holding company created in 2003, with assets consisting of four parcels of property located in Minnesota. Three of the properties are commercial and one is a four-unit apartment house, according to court documents, and Midwest Oil's income is derived from rent paid by tenants of the properties.

Source: U.S. Bankruptcy Court documents

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