UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

COVINGTON DIVISION

IN RE:

GRUSECK AND SON, INC.

DEBTOR                                                                                          CASE NO. 06-20076

MEMORANDUM OPINION AND ORDER

           This matter is before the court on the Motion to Dismiss of CIT Small Business Lending Corporation (“CIT”), and the Debtor’s Response to Motion to Dismiss. The Trustee has also filed a Response. CIT brings its Motion to Dismiss pursuant to Bankruptcy Code section 707, presumably under subsection (a), for cause. The court heard this matter on March 14, 2006, and took it under consideration for decision at the conclusion of the hearing.

           The history of this matter begins in the bankruptcy case of the principal of the Debtor herein, Lester Arnold Gruseck (“Gruseck”), Case No. 05-24403. In that case, the Trustee, Michael L. Baker (“Baker”) filed A Report of No Distribution on November 25, 2005, and the case was closed on January 26, 2006. On March 3, 2006, Baker filed a Motion to Reopen Bankruptcy Case and Vacate Final Decree. Therein he stated that he had discovered that a valuable potential asset exists, i.e., a potentially avoidable mortgage against property owned by Gruseck and Son, Inc. Baker further stated that he and Gruseck filed Case No. 06-20076 for the purpose of avoiding CIT’s mortgage. On March 9, 2006, CIT filed a Response to Motion to Reopen, alleging that Baker was aware of the “potential corporate claim” when he filed his final report, and that he chose not to pursue it. The court entered an Order Sustaining Motion to Reopen Bankruptcy Case and Setting Aside Final Decree on March 15, 2006.

           Baker, as Trustee, filed the within case as representative of the Debtor on February 16, 2006. The Resolution of the Shareholders of Gruseck and Son, Inc. (“the Resolution”) was filed on February 17, 2006. It identified Gruseck as the sole shareholder, and designated Baker to speak and act on behalf of the corporation. L. Craig Kendrick was appointed Trustee on February 22, 2006. On the same date, the court entered its Order Designating Individual to Perform Duties of the Debtor. The order designated Baker, as Trustee in Bankruptcy for Lester Arnold Gruseck, Case No. 05-24403, as the corporate representative to perform duties of the corporation.

           CIT filed its Motion to Dismiss on February 24, 2006. It based its motion on its contention that Baker had ceased to function as Trustee for Gruseck when he filed the petition in this case, and that the board of directors of the Debtor had not authorized this proceeding. CIT cites KRS 271B.8-010 and E.D. Ky. LBR 1002-3 as requiring that any corporate petition seeking bankruptcy relief be accompanied by a resolution of the board of directors. KRS 271B.8-010 provides as follows:

Requirement for and duties of board of directors

(1) Except as provided in subsection (3) of this section, each corporation shall have a board of directors.

(2) All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, its board of directors, subject to any limitation set forth in the articles of incorporation.

(3) A corporation having fifty (50) or fewer shareholders may dispense with or limit the authority of a board of directors by describing in its articles of incorporation who will perform some or all of the duties of a board of directors.

KRS 271B.8-010. Rule 1002-3 provides:

The petition of a corporation for relief under the Bankruptcy Code shall be accompanied by a resolution of the board of directors of the corporation authorizing the debtor to petition for the relief requested, designating the individual authorized to sign the petition in behalf of the corporation, and designating the individual or individuals responsible for performing the duties of the debtor. The petition and resolution shall be accompanied by an order designating the individual or individuals who shall perform the duties of the debtor. See Rules 4002 and 9001(5)(A), Federal Rules of Bankruptcy Procedure.

E.D. Ky. LBR 1002-3. Rule 4002 deals with the duties of a debtor. Rule 9001, General Definitions, provides at subsection (5)(A):

When any act is required by these rules to be performed by a debtor . . . . and the debtor is not a natural person: (A) if the debtor is a corporation, ‘debtor’ includes, if designated by the court, any or all of its officers, members of its board of directors or trustees or of a similar controlling body, a controlling stockholder or member, or any other person in control; . . . .

F. R. Bankr. P. 9001(5)(A).

           The Debtor, in its Response, asserts that it met the requirements set out above. It attaches as an exhibit to its Response a copy of the Debtor’s Articles of Incorporation. Therein Gruseck is appointed the sole director of the corporation, as authorized by KRS 271B.8-010(3). The Debtor further asserts that since the Resolution which CIT contends fails to demonstrate the requisite authority is signed both by Baker and Gruseck, the act is valid even if Baker as Trustee lacked sufficient capacity to act alone. The Debtor concludes that the Resolution complies with applicable state law as it was made under the authority of the Debtor’s sole director.

           The Debtor offers additional arguments concerning CIT’s lack of capacity to contest the validity of any corporate act of the Debtor pursuant to KRS 271B.3-040, and under the theory that even if the filing of the bankruptcy was an ultra vires act, it is not void per se. The court does not find it necessary to address these arguments as it agrees with the Debtor that the Resolution properly authorized the filing of this case, both under state law and applicable bankruptcy rules. The court therefore finds that CIT’s Motion to Dismiss should be overruled, and hereby so orders.

Copies to:

John P. Brice, Esq.

Dennis R. Williams, Esq.

L. Craig Kendrick, Esq., Trustee