In re: Monica Hujazi
NC-16-1018-FBJu
| 9th Cir. BAP | Jul 14, 2017Background
- Four original creditors filed a Chapter 7 involuntary petition against Monica Hujazi, asserting large unpaid attorney-fee and judgment claims; additional creditors later joined.
- Hujazi moved to dismiss claiming many claims were the subject of bona fide disputes; the court granted summary disposition for some creditors but left open the question whether there were >=12 qualifying creditors and ordered Hujazi to answer.
- Hujazi filed an answer but did not assert the defense of insufficient qualifying petitioning creditors; later she served a list showing only six uncontested creditors.
- Recoverex moved for summary judgment (joined by several other creditors) more than two years after the petition date, arguing Hujazi waived the insufficient-creditors defense and was generally not paying debts as they became due.
- The bankruptcy court granted summary judgment and entered an order for relief under 11 U.S.C. § 303(h), finding sufficient qualifying petitioning creditors (or waiver of the defense) and that Hujazi was generally not paying debts; the court denied Hujazi’s motion for reconsideration.
Issues
| Issue | Hujazi's Argument | Moving Creditors' Argument | Held |
|---|---|---|---|
| Whether movants could join Recoverex’s summary judgment motion and whether joinders were procedurally proper | Joinders improper under state summary judgment practice; due process violated by late joinders | Federal rules permit joinders; bankruptcy rules and court discretion allow joinders; Hujazi had notice and opportunity to be heard | Joinders were proper; no due process violation; untimely extra evidence from one joinder was excluded |
| Whether Recoverex had standing to move for summary judgment | Recoverex lacked proof it held assigned claims and thus lacked standing to seek relief | Recoverex was a party and parties may move for summary judgment; declarations showed assignment; joinders supplied qualifying petitioners if needed | Recoverex could move; standing challenge rejected (party status + evidence of assignment sufficient) |
| Whether there were the statutory number of qualifying petitioning creditors under §303(b) | Insufficient qualifying creditors; some claims are disputed or duplicative with other bankruptcy case | Hujazi waived challenge by not pleading it; she admitted only six uncontested creditors; additional joined creditors held uncontested judgments | Court found either waiver (so only one qualifying creditor needed) or, on the merits, at least three qualified creditors existed; challenge rejected |
| Whether Hujazi was "generally not paying" debts under §303(h) | Moving creditors failed to present a sufficient totality-of-the-circumstances showing of financial condition; factual disputes required trial | Movants presented evidence of many unpaid judgments, unpaid professionals, bounced checks, and payment patterns demonstrating selective/nonpayment | Applying Ninth Circuit totality test, court held Hujazi was generally not paying debts as they became due; summary judgment and order for relief affirmed |
Key Cases Cited
- Liberty Tool & Mfg. v. Vortex Fishing Sys., 277 F.3d 1057 (9th Cir. 2002) (defines bona fide dispute and explains §303 standards)
- Marciano v. Fahs, 708 F.3d 1123 (9th Cir. 2013) (standard for petitioning creditors and summary judgment in involuntary cases affirmed)
- Hayes v. Rewald (In re Bishop, Baldwin, Rewald, Dillingham & Wong, Inc.), 779 F.2d 471 (9th Cir.) (adopts totality-of-the-circumstances test for §303(h))
- Semel v. Dill (In re Dill), 731 F.2d 629 (9th Cir.) (discusses requirement of general showing of financial condition for §303(h))
- Chugach Forest Prods., Inc. v. N. Stevedoring & Handling Corp. (In re Chugach Forest Prods., Inc.), 23 F.3d 241 (9th Cir. 1994) (automatic stay protects only debtor and estate, not non-debtors)