654 B.R. 368
Bankr. D. Idaho2023Background
- Debtors Bootjack Dairy M&D, LLC (landholder) and Bootjack Dairy, Inc. (operator) ran a ~1,000-cow dairy and farm in Idaho and negotiated a July 2022 purchase-and-sale agreement to sell most of the dairy operation for $19.8M to Magic Milk, which assigned the contract to Black Butte Ranch, LLC.
- Dispute arose over whether Black Butte was obligated to harvest 2022 corn and what feed inventory was included; Debtors contend Black Butte failed to harvest and delayed/failed to pay harvest costs.
- Black Butte sued in Idaho state court (Jan. 2023) seeking specific performance or damages and obtained a preliminary injunction in May 2023 preserving the status quo.
- Debtors filed chapter 12 petitions on May 18, 2023, removed the state action to bankruptcy, moved to reject the Sale Agreement under §365, and Black Butte moved to dismiss the bankruptcies as bad-faith filings under §1208(c).
- After evidentiary hearings, the Bankruptcy Court found by a preponderance that the debtors filed in bad faith primarily to use §365 to reject the Sale Agreement and to avoid specific performance in state court; it granted Black Butte’s dismissal motions and denied the rejection motions as moot.
Issues
| Issue | Black Butte's Argument | Debtors' Argument | Held |
|---|---|---|---|
| Whether bankruptcy petitions were filed in good faith (cause to dismiss under §1208(c)) | Debtors are solvent or cash-flow healthy, had no pressing defaults, and filed to forum-shop and defeat Black Butte’s specific performance remedy | Debtors filed in good faith to preserve business operations, raise cash (sell surplus feed) and reorganize under Chapter 12 | Held: Petitions filed in bad faith — dismissal granted (primary purpose was to reject the Sale Agreement and avoid specific performance) |
| Whether the Sale Agreement is executory and subject to rejection under §365 | Sale was ready, buyer willing and able; contract not executory — Black Butte should be allowed specific performance in state court | Sale is executory; debtors may reject for business reasons to avoid an unfavorable buyer | Court did not resolve executoriness because dismissal mooted rejection motion (but found debtor’s motive to reject fatally suspect) |
| Whether the state-court preliminary injunction forced the filing (necessity defense) | Injunction did not prevent necessary ordinary-course sales; debtors had other funding options and were not compelled to file | Injunction threatened ability to sell surplus feed needed to fund operations and care for herd, creating urgency to file | Held: Preliminary injunction did not justify filing; record did not show imminent collapse or lack of alternative funding and injunction’s scope as to feed was uncertain |
| Whether this is essentially a two‑party dispute amenable to state-court resolution | Filing is a two‑party tactic to evade state-court specific performance and thus indicates bad faith | Debtors said the bankruptcy affects multiple stakeholders (employees, lender, DFA) and Chapter 12 is appropriate to restructure | Held: Essentially a two‑party dispute; bankruptcy was forum-shopping to defeat specific performance and lacked other bona fide reorganization purpose |
Key Cases Cited
- Baroni v. Seror (In re Baroni), 36 F.4th 958 (9th Cir. 2022) (party seeking dismissal bears burden to prove lack of good faith)
- Marshall v. Marshall (In re Marshall), 721 F.3d 1032 (9th Cir. 2013) (good‑faith inquiry requires consideration of multiple factors and intent to abuse process)
- Marsch v. Marsch (In re Marsch), 36 F.3d 825 (9th Cir. 1994) (bankruptcy good‑faith test is fact‑specific; courts may consider intent to harass or impede creditors)
- Chinichian v. Campolongo (In re Chinichian), 784 F.2d 1440 (9th Cir. 1986) (dismissal appropriate where solvent debtors filed solely to defeat specific‑performance litigation)
- Silberkraus v. Cramer (In re Silberkraus), 253 B.R. 890 (Bankr. C.D. Cal. 2000) (chapter 11 dismissed where filing was to obstruct pending state‑court specific‑performance action)
- Wells v. [Debtor] (In re Wells), 227 B.R. 553 (Bankr. M.D. Fla. 1998) (contrast: rejection‑focused bankruptcy not bad faith where genuine reorganization purpose and multiple creditors/assets exist)