516 B.R. 106
Bankr. S.D. Tex.2014Background
- Tagos filed a Chapter 7 involuntary petition against CorrLine, where Tagos is a creditor and minority CorrLine shareholder.
- CorrLine is controlled by TriGenex (majority) and Tagos (minority); CorrLine was formed to develop CorrX with services and loans from Tagos.
- CorrLine’s JV Agreement imposes managerial consent requirements for major actions, including bankruptcy-related decisions, with a majority including a minority vote.
- CorrLine received ongoing services from Tagos under a Services Agreement and a revolving working-capital facility; disputes arose over payments and alleged mismanagement.
- CorrLine moved to dismiss the petition on multiple grounds, including numerosity, insider status, bona fide disputes, payment status, bad faith, and request for abstention; the court held a simultaneous hearing and ruled in favor of Tagos on standing and the involuntary petition.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to file involuntary petition | Tagos, as insider, may file under §303(b) | CorrLine contends insiders cannot file under §303(b)(2) | Tagos has standing despite insider status |
| Authority to hire counsel against petition | CorrLine’s officers can act for the company | JV Agreement required board majority with minority consent | CorrLine lacked authority; the Answer and Motion to Dismiss must be stricken |
| Bona fide dispute, | There is no bona fide dispute regarding amount or liability | CorrLine asserts disputes over loan amount and services | No bona fide dispute; debts undisputed or substantially undisputed |
| Numerosity under §303(b)(1)/(2) | There are fewer than twelve qualified creditors after exclusions | There may be more depending on counting rules | CorrLine has fewer than twelve qualified creditors under applicable counting rules |
| Abstention under §305(a) | Abstention not warranted given efficiency and crisis | Court could abstain or dismiss | Declines abstention; proceeds with involuntary petition |
Key Cases Cited
- Euro-Am. Lodging Corp., 357 B.R. 700 (Bankr.S.D.N.Y. 2007) (four-part §303(b) standing analysis; numerosity; bona fide dispute)
- In re Runaway II, Inc., 168 B.R. 193 (Bankr.W.D. Mo. 1994) (insider/avoid transfers and numerosity interpretations under §303(b)(2))
- In re Green, 2007 WL 1093791 (Bankr.W.D. Tex. 2007) (insider filing under §303(b)(2) permitted; policy considerations)
- In re TLC Med. Grp., Inc., 2005 WL 4677807 (Bankr.E.D. La. 2005) (partial disputes do not defeat involuntary petition; focus on undisputed portions)
- In re Denham, 444 F.2d 1376 (5th Cir. 1971) (de minimis claims; numerosity exclusions)
- Stern v. Marshall, 131 S. Ct. 2594 (S. Ct. 2011) (constitutional authority of bankruptcy courts to enter final orders)