Stokes loses bankruptcy appeal

A year after a federal bankruptcy court judge ordered Kalispell radio-station owner John Stokes into Chapter 7 bankruptcy, Stokes has lost his appeal.

On April 19, U.S. District Court Judge Donald Molloy upheld the bankruptcy judge’s decision that Stokes’ voluntary Chapter 11 bankruptcy filing should be converted to a Chapter 7 bankruptcy.

It was the latest step in a series of court filings by Stokes to modify, request stays and appeal decisions.

With Chapter 11, Stokes was aiming for time to reorganize his finances and come out still owning KGEZ Radio and other possessions.

But under the Chapter 7 ruling on April 22, 2009, a bankruptcy court trustee took over his estate and began the liquidation process.

Stokes objected, and all but one creditor, his daughter, joined the motion to convert to Chapter 7.

Court documents show that two months later, Stokes filed his own motion to put the bankruptcy case on hold so he could appeal his case against Todd and Davar Gardner to the Montana Supreme Court.

The Gardners, owners of Gardner RV across U.S. 93 from KGEZ Radio, had won a $3.8 million award from Stokes for defamation.

Following hearings on both motions, the bankruptcy court on Sept. 21 gave the green light to convert to a Chapter 7 bankruptcy and denied without prejudice — meaning Stokes could re-file the case in the future — his request to stop the Chapter 7 action.

On Sept. 24 KGEZ was closed down by a bankruptcy court trustee. 

Stokes followed with an Oct. 1 motion to have the bankruptcy court reconsider its decision, and one week later it was denied. Another week passed before Stokes filed a notice that he would appeal the Chapter 7 conversion and the denial of his request to modify the stay.

Judge Molloy summed up the background in the case:

-- Stokes’ original petition for the Chapter 11 bankruptcy didn’t include all the required financial statements. When they finally were submitted by his attorney on the April 3 deadline, Stokes signed them under penalty of perjury. He later testified he never reviewed the documents and that they contained many errors, omissions and inaccuracies.

-- At an April 10 meeting of creditors, he said his financial documents were accurate although they contained typographical errors and omitted at least one asset he had not disclosed. He didn’t correct them in 10 days as promised, and didn’t file the fees and operating reports in the months after his Chapter 11 petition.

-- After the April 22 order to convert to Chapter 7, Stokes moved to dismiss the Chapter 11 filing, and in June acted as his own attorney to modify the stay so he could appeal the Gardner judgment. If that judgment got dismissed, he contended, there would be no need for bankruptcy. The court postponed a decision until ruling on the Chapter 7 conversion.

-- On July 24 Stokes filed corrected financial documents required for his Chapter 11 petition, but they contained several more errors and omissions and included new items. One example: $3 million in real property interests but no lawsuits originally were listed, while $10 million in real property and seven lawsuits worth millions of dollars were listed in the new documents.

-- An Aug. 13-14 hearing on the Chapter 7 conversion and the Chapter 11 dismissal brought a Sept. 21 court decision to convert the bankruptcy and deny a motion to postpone it until the new bankruptcy trustee could review everything.

-- Stokes filed several motions on Oct. 1 that would have the effect of delaying court action. The bankruptcy court denied those on Oct. 8 and Stokes filed his notice of appeal on Oct. 16.

Molloy then explained the analysis behind his decision:

-- Although the Gardners said the court should throw out Stokes’ appeal because he didn’t comply with several requirements, Molloy said “it is more appropriate to address the merits of Stokes’ appeal rather than to require the parties to re-brief the issues on appeal, particularly since Stokes attempted to remedy the errors in the amended brief attached to his reply brief.”

-- The Gardners correctly argued that Stokes missed the Oct. 1 deadline to appeal denial of his request to modify the stay and, Molloy said, the court has no jurisdiction over that part of the appeal. None of the motions that Stokes did file on Oct. 1 addressed the order refusing to modify the stay. That motion was not filed until Oct. 16.

-- The court didn’t abuse its discretion when it denied the postponement.

-- Neither did the court abuse its discretion when it converted the matter to a Chapter 7 proceeding, partially because Stokes repeatedly missed court deadlines.

“Further,” Molloy wrote, “the Bankruptcy Court found that, without conversion, a plan was not likely to be confirmed in a reasonable [period of time], given Stokes’ repeated failures to comply with the Bankruptcy Court’s orders and submit complete and accurate information, despite the additional time the Bankruptcy Court had already permitted him.”

Stokes made several other claims against the court, each of which Molloy dismissed.

“These collective arguments have no merit and are unsupported by reference to the record or legal authority,” Molloy wrote. “Further, Stokes has offered nothing to show how these alleged violations are material to the Bankruptcy Court’s decision to convert to Chapter 7. The Bankruptcy Court did not abuse its discretion when it converted this matter to Chapter 7.”