639 B.R. 276
Bankr. D. Me.2022Background
- On May 5, 2021 Ellen Hancock, as trustee of the Hillman Mather Adams Norberg Trust (the Trust), filed an involuntary Chapter 7 petition against Blair House Associates LP; the Trust is a limited partner and alleged undisputed distribution claims.
- General Holdings (asserting it is Blair House’s sole general partner) moved to dismiss; the Court dismissed the involuntary petition after briefing and oral argument.
- The Court previously found the petition was filed in bad faith and directed submission on the amount of attorney’s fees and punitive damages. Parties conferred but could not agree; Blair House submitted billing and sought $48,030 in fees and $100,000 in punitive damages.
- The Court concluded the Trust’s asserted claims (cash distributions and a liquidation distribution) were objectively subject to bona fide dispute (state-court litigation, regulatory constraints, ambiguous partnership provisions), and that the timing of the filing (shortly after USDA/RD rejected prepayment and ordered rebuilding) suggested an effort to gain leverage and evade regulatory control.
- The Court held the partnership agreement did not manifest a waiver of statutory relief under 11 U.S.C. § 303(i); it found the hourly rates and time billed reasonable and that the Trust acted in bad faith.
- Judgment: the Court awarded attorney’s fees against Hancock (as trustee) of $48,000 under § 303(i)(1)(B) and punitive damages of $100,000 under § 303(i)(2)(B); counterclaims and cross-claims by the Trust were dismissed without prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Blair House waived its right to relief under 11 U.S.C. § 303(i) via the partnership agreement | Trust: partnership provisions (Arts. 6.6(a), 6.8, 6.9, 7.1) operate as a waiver of § 303(i) remedies | Blair House: no express intent to waive statutory § 303(i) rights; the agreement contains no such waiver | No waiver; agreement does not manifest relinquishment of § 303(i) rights |
| Whether the attorney’s fees sought were reasonable under § 303(i) | Blair House: submitted affidavits and billing supporting $48,030 (plus $3,000 anticipated) at $300/hr | Trust: raised procedural/state-law arguments and contested recoverability and amounts | Fees found reasonable; Court awarded $48,000 in attorney’s fees against Hancock as trustee |
| Whether punitive damages are warranted for a bad-faith involuntary petition | Blair House: petition was filed despite bona fide disputes and for tactical leverage; sought punitive damages ($100,000) | Trust: contended absence of bad faith and argued need for evidence of petitioner’s state of mind | Court found bad faith based on totality of circumstances (disputed claims, timing, forum-shopping); awarded $100,000 punitive damages |
| Whether liability attaches to Ellen Hancock personally or only in her capacity as trustee | Blair House: sought sanctions against the petitioning party (Hancock as trustee) | Hancock: disputed relevance/admissibility of some personal-financial information; argued she wasn’t individually liable | Award entered against Hancock in her capacity as trustee of the Trust (not personally) |
Key Cases Cited
- In re K.P. Enterprise, 135 B.R. 174 (Bankr. D. Me. 1992) (approving award of fees/damages under § 303(i) for bad-faith involuntary filings)
- In re Forever Green Athletic Fields, Inc., 804 F.3d 328 (3d Cir. 2015) (bad-faith § 303(i) analysis considers totality of circumstances)
- In re Reid, 773 F.2d 945 (7th Cir. 1985) (noting extreme consequences of involuntary bankruptcy)
- United States v. One Star Class Sloop Sailboat, 546 F.3d 26 (1st Cir. 2008) (factors for assessing reasonable attorney’s fees)
- In re Mailman Steam Carpet Cleaning Corp., 196 F.3d 1 (1st Cir. 1999) (court may rely on its familiarity with local market in fee review)
- State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003) (discussing punitive-damages multipliers and purposes)
- E.E.O.C. v. AutoZone, Inc., 707 F.3d 824 (7th Cir. 2013) (double compensatory damages as constitutionally acceptable punitive measure)
- In re Meltzer, 535 B.R. 803 (Bankr. N.D. Ill. 2015) (examples of punitive-damage awards under § 303(i))
- In re Silverman, 230 B.R. 46 (Bankr. D.N.J. 1998) (awarding punitive damages for bad-faith involuntary petition)