445 B.R. 647
Bankr. S.D. Miss.2011Background
- Loan from CULS to Green Hills in 2005 up to $14.5M to develop 403 acres in Brandon, MS; Green Hills granted deed of trust to CULS; several amendments reduced commitment and extended maturity.
- Construction draws totaling $4,455,566.92 were funded by CULS; one draw (No. 7) was not funded by CULS.
- Green Hills formed the Stonebridge PID to issue bonds; bond proceeds were to fund property improvements; PID bonds were secured by special assessments on PID property.
- Green Hills defaulted on the loan by maturity in 2008; principal balance around $8.07M remained; Green Hills made some principal payments thereafter.
- In 2009, CULS filed an involuntary Chapter 7 petition against Green Hills; Green Hills contested standing and abstention; related Texas Litigation raised numerous claims.
- The court conducted trial on the motions and held that (i) the petitioning creditor had standing and eligibility to file, but (ii) the debtor was not shown to be generally not paying debts nor free of bona fide dispute, so the petition was dismissed on the merits.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| §303(a) eligibility to be a debtor | CULS: Green Hills qualifies under Chapter 7 | Green Hills did not dispute eligibility | Eligible under §109; Chapter 7 debtor. |
| §303(b) standing to file involuntary petition | CULS alone may file if claim not contingent or disputed | Dispute exists due to Texas Litigation | CULS has standing under §303(b). |
| §303(h) entry of relief; generally not paying and bona fide dispute | Debtor generally not paying not proven; no bona fide dispute | Texas Litigation creates bona fide dispute as to liability/amount | Not proven; petition dismissed on merits. |
| Four-part Moss test application (number/amount of unpaid claims, etc.) | Evidence shows unpaid claims to CULS, PID, Rankin County | Total creditors and claims not established; insufficient proof | Cannot apply Moss test; burden unmet; insufficient proof of general nonpayment. |
| Existence of bona fide dispute under §303(h)(1) | No bona fide dispute; Texas case irrelevant | Texas Litigation shows dispute over liability/amount | Bona fide dispute exists; petition dismissed. |
Key Cases Cited
- In re Seko Investment, Inc., 156 F.3d 1005 (9th Cir. 1998) (establishes standing standard under §303(b) and dispute analysis under §303(h)(1))
- In re Sims, 994 F.2d 210 (5th Cir. 1993) (adopts objective standard for bona fide dispute under §303)
- In re Moss, 249 B.R. 411 (Bankr.N.D.Tex.2000) (four-part test for generally not paying debts under §303(h)(1))
- In re Lough, 57 B.R. 993 (Bankr.E.D.Mich.1986) (bona fide dispute framework and liability/amount focus)
- In re Vortex Fishing Systems, Inc., 277 F.3d 1057 (9th Cir. 2002) (guides assessment of debtor's financial condition and disputes)