Crest One Spa v. TPG Troy, LLC
793 F.3d 228
2d Cir.2015Background
- Creditors (Crest One SpA, Lansdowne Capital SA, SPQR Capital) filed involuntary Chapter 7 petitions against TPG Troy, LLC and T3 Troy, LLC alleging alter-ego liability for defaulted Hellas notes.
- The Troy Entities denied liability, contending they neither issued nor guaranteed the Notes and had sold their Hellas interests before default; numerous parallel litigations concerning the same dispute were ongoing in multiple jurisdictions.
- Bankruptcy Court dismissed the involuntary petitions under 11 U.S.C. § 303(b)(1) (bona fide dispute) and, alternatively, abstained under 11 U.S.C. § 305(a)(1) because overlapping litigation in other forums predominated.
- After dismissal the Troy Entities sought and the Bankruptcy Court awarded $513,427.16 in attorneys’ fees and costs under 11 U.S.C. § 303(i)(1); punitive damages were denied.
- The District Court affirmed both the dismissal/abstention and the fee award; the Creditors appealed to the Second Circuit raising jurisdiction/mootness, jury-trial, and fee-award challenges.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Appellate jurisdiction/mootness over fee award | Dismissal via §305(a) abstention is unreviewable under §305(c); appeal should be dismissed or vacated | Fee award under §303(i) is a money judgment creating a live controversy and is reviewable | Court has jurisdiction to review the §303(i) fee award despite §305 abstention being unreviewable |
| Right to jury trial on fee award | Creditors argued jury trial required and bankruptcy judge lacked constitutional authority to resolve fee issue absent consent (relying on Stern) | Troy Entities and courts: Creditors knowingly and voluntarily consented to bankruptcy judge deciding fees; Wellness International controls | No jury right; counsel consented to bench adjudication so bankruptcy judge could decide fees |
| Existence of bona fide dispute under §303(b) | Creditors: pending litigation and claims show no bona fide dispute; bankruptcy court failed to analyze pending suits properly | Troy Entities: documentary record and vigorous factual disputes support bona fide dispute; court need not resolve disputes, only find objective basis | Bona fide dispute existed (objective test); dismissal under §303(b)(1) upheld |
| Award of attorneys’ fees under §303(i)(1) | Creditors: fee award improper or excessive given circumstances | Troy Entities: presumption in favor of fees after dismissal; totality-of-circumstances supports award; no bad-faith requirement | Fee award affirmed as reasonable under totality-of-the-circumstances; deterrence of abusive involuntary petitions justified award |
Key Cases Cited
- Key Mech. Inc. v. BDC 56 LLC, 330 F.3d 111 (2d Cir. 2003) (establishes objective bona fide dispute test and burden-shifting framework)
- Lubow Mach. Co. v. Bayshore Wire Prods. Corp., 209 F.3d 100 (2d Cir. 2000) (§303(i) fee awards do not require a showing of bad faith)
- Calabro v. Aniqa Halal Live Poultry Corp., 650 F.3d 163 (2d Cir. 2011) (court may review fee awards even when remand/abstention is unreviewable)
- Wellness Int’l Network v. Sharif, 135 S. Ct. 1932 (2015) (parties may consent to bankruptcy-judge adjudication without Article III violation)
- FW/PBS, Inc. v. City of Dallas, 493 U.S. 215 (1990) (appellate courts have independent obligation to assess jurisdiction)