IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF NEW HAMPSHIRE

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1 Case: JMD Doc #: 514 Filed: 11/06/12 Desc: Main Document Page 1 of 7 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF NEW HAMPSHIRE In re: ) ) CHAPTER 11 KINGSBURY CORP. et al, ) Debtors ) No JMD ) Jointly Administered OBJECTION TO MOTION FOR ORDER DIRECTING THE NEW HAMPSHIRE REAL ESTATE COMMISSION TO WITHDRAW OR DISMISS COMPLAINT NOW COMES THE State of New Hampshire Real Estate Commission (the State ), and by its attorneys, the New Hampshire Office of the Attorney General, objects to the Debtor s Motion for Order Directing the New Hampshire Real Estate Commission to Withdraw or Dismiss Complaint (the Motion ). The State objects because the Debtor cannot enjoin the State as the Motion demands and also because such a proceeding, if it can be done at all, must be done through an adversary proceeding. GA Keen does not have a license to sell real estate in New Hampshire and as a result does so in violation of State law. While the Court s equitable powers under section 105 may be broad, they do not reach so far as to authorize a non-debtor party to violate State law. In support hereof, the State respectfully represents as follows: Factual Background 1. GA Keen was retained by the Debtor with this Court s approval in March of In the Application for GA Keen s retention, neither the Debtor nor GA Keen informed

2 Case: JMD Doc #: 514 Filed: 11/06/12 Desc: Main Document Page 2 of 7 the Court that GA Keen was not licensed in New Hampshire. 1 The Application to retain GA Keen did not seek an exemption from New Hampshire law. 2. The Commission learned of GA Keen s lack of licensure through recent reports made by other local brokers and began an investigation. The Commission s investigator made a complaint against GA Keen with the Commission. Objections and Argument 3. Because the Motion seeks equitable relief, it must be brought as an adversary proceeding. Fed. R. Bankr. P. 7001(7); In re Bora Bora Inc., 424 B.R. 17, 24 (Bankr. D.P.R. 2010) ( A request for injunctive relief must be brought by adversary proceeding. ). 4. The Motion, while seeking an injunction, does not establish any of the necessary elements for injunctive relief including irreparable harm to the Debtor. See Ross- Simons of Warwick, Inc. v. Baccarat, Inc., 102 F.3d 12, 15 (1 st Cir. 1996) (4-part framework); In re Bora Bora Inc., 424 B.R. at (section 105 injunction to protect nondebtor is exception to general rule, requires clear and convincing evidence, and is pursuant to four standard factors). 5. The Debtor s reliance on the Barton doctrine is misplaced. This is not a suit against the Debtor with respect to a claim against the estate which was what the Barton doctrine was created to address. The Real Estate Commission complaint is also not an action by a creditor against professionals of the estate seeking redress for harms suffered by the performance of their duties. Instead, this is a simple regulatory action against professionals who happen to be employed by the estate for operating in New Hampshire without valid 1 GA Keen is a New York LLC formed on October 28, 2011, just four days after the Debtor s Application to retain Donnelly Penman Partners. It is not registered as foreign corporation doing business in New Hampshire. 2

3 Case: JMD Doc #: 514 Filed: 11/06/12 Desc: Main Document Page 3 of 7 licenses. The Debtor is required to manage and operate the property in his possession as such trustee, receiver, or manager according to the valid laws of the State in which such property is situated, in the same manner that the owner or possessor thereof would be bound to do if in possession thereof. 28 U.S.C. 959(b). The Debtor, and by extension, its professionals, must obtain whatever State licenses may be necessary to conduct brokerage activities in New Hampshire. 6. The Debtor s arguments that these licensing requirements are in some way preempted by the Bankruptcy Code through the Barton doctrine lack merit. The logical extension of that argument is that the GA Keen people could proceed to Court from New York at 100 M.P.H. and without driver s licenses and the State police could be enjoined from prosecuting them simply because they were acting under Court approval of their retention. Or, similarly, that the Supreme Court would be powerless to enforce local bar and disciplinary rules against the Debtor s attorneys for actions taken during the proceeding. Whatever the Barton doctrine may have left to it with respect to creditor actions against trustees and their professionals, it was never intended, nor used, as a shield against State law compliance by and law enforcement against non-debtor parties. 7. Even if this were the Debtor operating without a broker s license, the State could proceed against it. See, e.g., McMullen v. Sevigny (In re McMullen), 386 F.3d 320, (1 st Cir. 2004) (Cyr, J.) (state real estate board can proceed with disciplinary action against debtor under 362(b)(4)). It would be strange, to say the least, if the State could discipline the Debtor for acting as a broker without a license during the case, but not a nondebtor out of state broker. 3

4 Case: JMD Doc #: 514 Filed: 11/06/12 Desc: Main Document Page 4 of 7 8. To the extent that GA Keen believes that there is some defense or justification, it would need to make that point to the Real Estate Commission. Respectfully, this Court does not have the jurisdiction to regulate and discipline unlicensed real estate brokerage in New Hampshire by injunction. See Federal Reserve Board v. MCorp, 502 U.S. 32, (1991) ( no merit to argument that court could enjoin administrative process); Midlantic Nat l Bank v. New Jersey Dept. of Envt l Protect., 474 U.S. 494, 501 (1996) ( If Congress wishes to grant the trustee an extraordinary exemption from nonbankruptcy law, the intention would be clearly expressed, not left to be collected or inferred from disputable considerations of convenience in administering the estate of the bankrupt ); Palmer v. Massachusetts, 308 U.S. 79, (1939) (Frankfurter, J.) (bankruptcy court lacks power to supplant local public utility commission s authority even if obeying commission inconvenient and costly to estate); Chicago Junction R. Co. v. Sprague (In re Chicago Rapid Transit Co.), 129 F.2d 1, 5 (7 th Cir.), cert. denied, 317 U.S. 683 (1942); Wilner Wood Prods. Co. v. State of Maine, 128 B.R. 1, 1 (D. Maine 1991) (bankruptcy court cannot order State administrative agency to withhold order denying debtor s permit application under section 105); In re Lauriat s Inc., 219 B.R. 648, 649 (Bankr. D. Mass. 1998) (bankruptcy court cannot make exception to 28 U.S.C. 959 to enable debtor to evade state going out of business laws even if inconvenient and costly). Judge Hillman in Lauriat s held that the Bankruptcy Court could not carve an exception to 28 U.S.C. 959(b) that would allow the Debtor to conduct a liquidation that violated State laws. This is consistent with the limitation on the Court s equitable powers under Section 105. The Bankruptcy Court cannot exercise its equitable powers in a manner that is inconsistent with the Bankruptcy Code. See Norwest Bank Worthington v. Ahlers, 485 4

5 Case: JMD Doc #: 514 Filed: 11/06/12 Desc: Main Document Page 5 of 7 U.S. 197, 206 (1988). Here the Code must be read to include section 959(b). The Debtor is asking the Court to exercise its equitable powers to allow GA Keen to violate State law. Not only is what the Debtor wants not consistent with the Bankruptcy Code it is in direct contravention of it. There is no exception for convenience or monetary gain. Lauriat s, 219 B.R. at 649; see Midlantic Nat l Bank, 474 U.S. at 501 (exemption from state laws must be clearly expressed and not subject to notions of administrative convenience to the estate). The Court should not use section 105 to override section 959(b). See Wilner Wood Prods. Co., 128 B.R. at 3 ( Nothing in the general language of section 105 suggests that Congress intended it to override the specific prohibition of section 959(b). ) 9. Allowing GA Keen to conduct business in New Hampshire without a license by use of a section 105 injunction against the State would violate one of the basic limitations on section 105 that it cannot be used to create new substantive rights or take away those protected by the Code. Ameriquest Mortgage Co. v. Nosek (In re Nosek), 544 F.3d 34, 44 (1 st Cir. 2010). Section 105 does not give the Court, a roving writ, much less a free hand. The authority bestowed thereunder may be invoked only if, and to the extent that, the equitable remedy dispensed by the court is necessary to preserve an identifiable right conferred elsewhere in the Bankruptcy Code. Jamo v. Katahdin Fed. Credit Union (In re Jamo), 283 F.3d 392, 403 (1st Cir. 2002) (citations omitted). There is nothing in the Code that allows a real estate broker to operate on behalf of the Debtor without proper licensing from the State. 10. While the State does not believe that the Court can use section 105 to enjoin the Commission s jurisdiction to hear the Complaint, such does not leave the Court without a means to resolve the problem faced by the Debtor and GA Keen. N.H. Rev. Stat. Ann

6 Case: JMD Doc #: 514 Filed: 11/06/12 Desc: Main Document Page 6 of 7 A:4 provides an exemption to the licensing requirement. That exemption provides as follows: The provisions of this chapter shall not apply to: VI. A person or the person's regular employees while such person is acting as a receiver, trustee, administrator, executor, conservator, guardian, or fiduciary, or while acting under court order, or while acting under the authority of a will, trust instrument, or other recorded instrument containing a power of sale. N.H. Rev. Stat. Ann. 331-A:4, VI (emphasis added). While the State does not concede that the result should be an exemption, the Court could declare that GA Keen is entitled to the exemption without over-stretching its equitable powers as urged by the Debtor. Should the Debtor convert its Motion to one for a declaration to that effect the Court could make such a ruling. Presumably such a declaration would give GA Keen the comfort it desires. 11. The State urges the Court not to find an exemption in this case, however, and instead to abstain because such a determination would more prudently be made by the Commission and through appeals to the New Hampshire Supreme Court. The meaning of that law and its applicability to these facts has not previously been decided in New Hampshire. The Commission is a specialized administrative body with expertise in the area and which will be required to apply the statute in the many future cases that may come before it. As such, comity would indicate that the Court allow the process to play out and let the Commission perform its duty and, if necessary, determine the meaning of its own statute. The Complaint was begun before the Motion. The proceeding involves only non-debtor parties. In light of these factors, the Court should abstain pursuant to 28 U.S.C. 1334(c). See Diversified Mortg. Co. v. Gold (In re Gold), 347 B.R. 574, (Bankr. D. Mass. 2000). 6

7 Case: JMD Doc #: 514 Filed: 11/06/12 Desc: Main Document Page 7 of 7 Wherefore, the State prays that this Court enter an order denying the Debtor s Motion and granting such other and further relief as may be just. Respectfully submitted, THE STATE OF NEW HAMPSHIRE REAL ESTATE COMMISSION By its Attorneys MICHAEL A. DELANEY ATTORNEY GENERAL Dated: November 6, 2012 _/s/ Peter C.L. Roth Peter C.L. Roth, Sr. Assistant Attorney General 33 Capitol Street Concord, New Hampshire Tel. (603) CERTIFICATE OF SERVICE I, Peter C.L. Roth, do hereby certify that on November 6, 2012, I served a true copy of the foregoing by through the Court s ECF system on those parties receiving ECF service Dated: November 6, 2012 _/s/ Peter C.L. Roth Peter C.L. Roth 7