In Re Marciano
446 B.R. 407
Bankr. C.D. Cal.2010Background
- Petitioning Creditors filed an involuntary Chapter 11 against Marciano on Oct 27, 2009, based on unstay judgments totaling about $95.3 million from the Los Angeles Superior Court.
- Superior Court discovery sanctions struck Marciano's answers; the court imposed terminating sanctions, including striking his answers and entering default on cross-claims.
- Marciano had engaged in extensive discovery abuses, including multiple counsel substitutions and repeated delays in depositions, leading to sanctions totaling around $6,750 and more.
- Eight judgment creditors, plus additional defendants, hold judgments totaling approximately $260 million; no stay pending appeal of those judgments is in effect.
- Marciano appealed the P.C. Judgments in state court; those appeals are pending and un-stayed, while the involuntary petition proceeds in federal court.
- The issue before the bankruptcy court was whether the P.C. Judgments are the subject of a bona fide dispute under § 303(b)(1)/(h) and whether Marciano generally fails to pay debts as due.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the P.C. Judgments the subject of a bona fide dispute under § 303? | Petitioning Creditors: judgments on appeal are not bona fide disputes. | Marciano: pending appeals may create disputes to liability or amount under § 303. | No bona fide dispute; the judgments are not the subject of a bona fide dispute. |
| Is Marciano generally not paying debts as they come due under § 303(h)? | Marciano cannot pay $260M; no plan to pay; generally not paying as due. | Marciano argues cash flow and appellate prospects may affect payment ability; not dispositive. | Marciano is generally not paying his debts as they come due. |
| Should Drexler's per se rule apply to sanctions judgments in this context? | Drexler should treat sanctions judgments as not subject to bona fide disputes. | Drexler rule should not extend to sanctions judgments; there may be disputes in some cases. | Adopts Drexler-like per se approach for sanctions judgments; sanctions judgments are not the subject of bona fide disputes. |
| Should the court suspend or dismiss the involuntary petition pending state court appeals? | Suspension unnecessary; move forward with relief. | Suspension could preserve resources and avoid premature relief; state court appeals ongoing. | The court declined to suspend; proceed with entry of relief. |
Key Cases Cited
- In re Drexler, 56 B.R. 960 (Bankr.S.D.N.Y. 1986) (unstayed judgments generally not bona fide disputes; endorses per se rule for certain judgments)
- In re Byrd, 357 F.3d 433 (4th Cir. 2004) (bona fide dispute not guaranteed by state judgments; balances enforceability and disputes)
- Focus Media, Inc. v. Nat'l Broad. Co., 378 F.3d 916 (9th Cir. 2004) (debt context; substantial unpaid debts, no plan to pay; totality of circumstances)
- In re Vortex Fishing Sys., Inc., 277 F.3d 1057 (9th Cir. 2002) (totality of the circumstances test for determining generally not paying debts)
- Prisuta, 121 B.R. 474 (Bankr.W.D. Pa. 1990) (judgments may be subject to bona fide dispute when hearings occurred or were insufficient)