Farmers & Merchants State Bank v. Turner
518 B.R. 642
N.D. Fla.2014Background
- Involuntary Chapter 7 filed 8/31/2012 by the Bank, Burk, and Smith against Turner, asserting judgments totaling about $3.58 million.
- Turner sought dismissal arguing petitioning creditors are ineligible because their claims arose from a Chapter 11 proceeding and were satisfied under the plan.
- Turner Heritage Homes’ Chapter 11 plan distributed stock in Phoenix and returned property to the Bank, with the plan detailing full satisfaction/ release of claims.
- Judgments against Turner personally arose from guarantees for Summerchase and Heritage Hills loans; some judgments were entered before planconfirmation.
- Bank, Burk, and Smith argued the plan did not release or fully satisfy their individual claims against Turner; Turner argued the plan and stock credits reduced those claims.
- Bankruptcy Court held that the claims were subject to bona fide disputes as to amount (Bank) and as to liability/amount (Burk/Smith), and dismissed the petition; Court on appeal affirmed, noting fraud arguments were not argued below and were not considered on the merits; case remanded to the Bankruptcy Court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is there a bona fide dispute as to liability or amount preventing three eligible petitioning creditors? | Bank argues no bona fide dispute; claims are noncontingent and undisputed in amount. | Turner contends there is a bona fide dispute as to the amount (and sometimes liability) based on plan credits. | Yes; bona fide disputes exist as to amount (Bank) and as to liability/amount (Burk/Smith), so three eligible creditors do not exist. |
| Whether the Bank’s claim is subject to a bona fide dispute due to credits under the Plan. | Bank claims no credits reduce its undisputed judgment amount. | Turner shows plan credits (property value and stock) reduce the Bank’s claim. | Yes; there is a bona fide dispute as to the amount because credits from the Plan may reduce the judgment. |
| Whether Burk and Smith claims are subject to bona fide dispute as to amount. | Burk/Smith claims are fully satisfied by stock distributions under the Plan. | There is a dispute as to amount remaining after credit for stock; satisfaction is not conclusively shown. | Yes; Burk and Smith claims are at least partly disputed as to amount, making them ineligible petitioning creditors. |
| Did the court properly apply burden-shifting and consider the effect of plan credits on undisputed portions? | Bank contends the court failed to shift burden appropriately to Turner to prove valuation. | Turner bears burden to show bona fide dispute; court correctly identified disputed amount without requiring precise valuation of every item. | Correct; the court properly recognized a bona fide dispute as to amount and did not need exact valuations to affirm the dispute. |
Key Cases Cited
- In re Trusted Net Media Holdings, LLC, 550 F.3d 1035 (11th Cir. 2008) (establishes burden shifting on prima facie case and that undisputed claims matter for § 303)
- In re Optical Techs., Inc., 425 F.3d 1294 (11th Cir. 2005) (applies de novo review to legal conclusions in bankruptcy appeals)
- In re Green Hills Dev. Co., 741 F.3d 651 (5th Cir. 2014) (holds about the 2005 amendment allowing disputes as to amount to render creditor ineligible)