In re Forever Green Athletic Fields, Inc.
500 B.R. 413
Bankr. E.D. Pa.2013Background
- Dawsons and Cohen Seglias filed an involuntary Chapter 11 petition against Forever Green on April 20, 2012; relief was later converted to a Chapter 7 by default order.
- Forever Green moved to dismiss the petition, arguing bad-faith filing to obstruct Forever Green’s claims against the ProGreen Parties.
- Court found Mr. Dawson acted with an improper, self-serving bankruptcy purpose and as part of a broader scheme to pressure payment of a Consent Judgment and to interfere with pending litigation.
- Forever Green’s assets largely consisted of pending litigation recoveries (notably against ProGreen Parties) and a collection action; Day personally funded some creditors’ payments and Forever Green’s litigation.
- Dawson’s actions included securing and leveraging a Consent Judgment to disrupt arbitration, and filing the involuntary petition to advance his own financial interests at the expense of other creditors.
- Court determined insufficient evidence of a legitimate bankruptcy purpose and granted Forever Green’s Motion to Dismiss, with a future ruling on attorneys’ fees under § 303(i).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the involuntary petition was filed in bad faith. | Dawson’s status as a judgment creditor precludes bad faith. | Bad faith may attach to a bona fide creditor when filing is for non-bankruptcy leverage. | Yes; petition filed in bad faith. |
| Whether the petitioning creditors pursued a legitimate bankruptcy purpose. | The group aimed to collect debts and preserve value for creditors overall. | The petition sought to gain tactical advantage in pending litigation. | No clear legitimate bankruptcy purpose; petition granted to dismiss. |
Key Cases Cited
- In re Integrated Telecom Express, Inc., 384 F.3d 108 (3d Cir. 2004) (bankruptcy relief must be invoked for legitimate purpose; totality of circumstances)
- SGL Carbon Corp., 200 F.3d 154 (3d Cir. 1999) (bad faith can be evidenced by using bankruptcy to gain a tactical advantage in litigation)
- In re Bayshore Wire Products Corp., 209 F.3d 100 (2d Cir. 2000) (four inquiries (improper use, improper purpose, reasonable person, Rule 9011) applied concurrently in bad-faith analysis)
- In re Myers, 491 F.3d 120 (3d Cir. 2007) (totality-of-the-circumstances approach to determining bad faith in bankruptcy petitions)
- In re Silverman, 230 B.R. 46 (Bankr.D.N.J. 1998) (filing within weeks of state court action can indicate egregious bad faith)
- WLB-RSK Venture, 296 B.R. 509 (Bankr.C.D. Cal. 2003) (involuntary petition as litigation tactic; dismissal for bad faith)