491 B.R. 633
Bankr. E.D.N.Y.2013Background
- 21 West holds 50% of the Debtor and MM Sag Harbor holds the other 50%.
- The Debtor filed Chapter 11; 21 West seeks dismissal alleging lack of authority and bad faith.
- Operating Agreement grants broad management powers to the Managing Member, with specific consent requirements for certain actions.
- The petition was filed October 12, 2012, with the Debtor proposing a plan and seeking DIP financing from Amalgamated Bank.
- The Operating Agreement does not explicitly require 21 West’s consent for filing a bankruptcy petition.
- The court must determine if the Managing Member had authority to file and whether bad faith warrants dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Authority to file petition | 21 West argues consent required for bankruptcy filing. | MM Sag Harbor contends broad authority permits filing absent consent. | Managing Member had authority to file; consent not required by agreement. |
| Bad faith filing | 21 West asserts the filing is in bad faith to benefit insiders. | Debtor argues plan is legitimate and not indicative of bad faith. | No bad faith; petition not dismissed or converted. |
Key Cases Cited
- Price v. Gurney, 324 U.S. 100 (U.S. 1945) (corporate management authority to file bankruptcy)
- In re American Globus Corp., 195 B.R. 263 (Bankr.S.D.N.Y.1996) (state law governs corporate filing authority)
- In re Avalon Hotel Partners, LLC, 302 B.R. 377 (Bankr.D.Or.2003) ( Avalon: bankruptcy filing treated as major decision requiring consent)
- In re Raljoed Realty Co., 277 F.Supp.225 (S.D.N.Y.1967) (state law governs LLC authority to file)
- In re Coudert Bros., 487 B.R. 375 (S.D.N.Y.2013) (contract interpretation under NY law in context of authority)
- Prescott, Ball & Turben v. LTV Corp., 531 F.Supp. 213 (S.D.N.Y.1981) (distinguishes liquidation vs. bankruptcy terms)
- In re Copy Crofters Quickprint, Inc., 92 B.R. 973 (Bankr.N.D.N.Y.1988) (bad faith standard in Chapter 11 context)
- In re Ionosphere Clubs, Inc., 184 B.R. 648 (S.D.N.Y.1995) (liquidating plans permitted in Chapter 11)
- In re Century/ML Cable Venture, 294 B.R. 9 (Bankr.S.D.N.Y.2003) (bad faith standard and feasibility considerations)
- In re Syndicorn Corp., 268 B.R. 26 (Bankr.S.D.N.Y.2001) (delineates scope of bad faith dismissal cautions)
- In re G.S. Distrib., Inc., 331 B.R. 552 (Bankr.S.D.N.Y.2005) (courts dismiss bad faith sparingly)
- In re C-TC 9th Ave. P’ship, 113 F.3d 1304 (2d Cir.1997) (futility and bad faith standards in bad faith analysis)