666 B.R. 828
Bankr. M.D. Ga.2024Background
- Christopher Mark Wilson, formerly a high-earning insurance producer at McGriff, resigned and joined a rival, Sanford Insurance, taking many former clients and employees.
- McGriff filed suit in North Carolina, alleging breach of contract, misappropriation of trade secrets, and other business torts; litigation was ongoing and trial was imminent at the time of Wilson's bankruptcy filing.
- Wilson filed for Chapter 11 bankruptcy under Subchapter V, citing unsustainable attorney fees and the threat of a large judgment.
- McGriff moved to dismiss, claiming bad faith, and objected to Wilson’s Subchapter V designation, arguing that his debts and business activities did not satisfy the eligibility requirements.
- The main debts in the case were attorney fees advanced by Sanford (an insider) and the potential judgment owed to McGriff, which was not yet determined.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Case filed in bad faith? | Filing timed to avoid anticipated adverse judgment; two-party dispute; lavish lifestyle. | Filed due to mounting litigation costs, not just to avoid judgment; intent to repay creditors through restructuring. | Not filed in bad faith; McGriff did not meet burden. |
| Eligibility for Subchapter V: engaged in commercial/business activities? | Wilson, as a W-2 employee, not engaged in qualifying activities. | Wilson had significant managerial duties and a 10% ownership interest in Sanford. | Debtor engaged in commercial/business activities due to broad role at Sanford. |
| Eligibility for Subchapter V: 50% of debts from commercial/business activities? | McGriff’s claim is unliquidated and shouldn’t count; Sanford’s is insider debt, also excluded. | McGriff’s debt should be included as liquidated; amount listed in schedules sufficient. | McGriff’s debt is unliquidated; less than 50% threshold not met, so not eligible. |
| Did McGriff’s debt arise from business activities? | Not reached; determined not liquidated. | Argued all arose from commercial activities. | Not reached; decision turned on liquidation. |
Key Cases Cited
- Albany Partners, Ltd. v. Westbrook (In re Albany Partners, Ltd.), 749 F.2d 670 (11th Cir. 1984) (discusses bad faith filing in bankruptcy)
- Phoenix Piccadilly, Ltd. v. Life Ins. Co. of Va. (In re Phoenix Piccadilly, Ltd.), 849 F.2d 1393 (11th Cir. 1988) (test for abuse of bankruptcy process)
- In re Dixie Broadcasting, Inc., 871 F.2d 1023 (11th Cir. 1989) (dismissal of bankruptcy for timing before adverse state judgment)
- In re Piazza, 719 F.3d 1253 (11th Cir. 2013) (chapter 7 case dismissed for bad faith)
- United States v. Verdunn, 89 F.3d 799 (11th Cir. 1996) (definition of liquidated vs. unliquidated debt)