In re Murray
543 B.R. 484
Bankr. S.D.N.Y.2016Background
- Wilk Auslander LLP (the Law Firm) is assignee of a judgment against Matthew N. Murray (~$19M) from a confirmed FINRA award and state-court confirmation; Law Firm is R&R trustee’s assignee.
- Law Firm, as sole petitioning creditor, filed an involuntary Chapter 7 petition against Murray; no other creditors exist in the case.
- Murray’s only significant asset is a tenancy by the entirety interest in a co-op apartment he owns with his wife; New York law limits a creditor’s ability to reach the spouse’s interest outside bankruptcy.
- The Law Firm sought bankruptcy remedies (notably a § 363(h) sale) to obtain a forced sale free of the spouse’s interest — a remedy it contends is unavailable or less effective under state law.
- Murray moved to dismiss under 11 U.S.C. § 707(a) for cause, arguing bad faith and misuse of the bankruptcy process; the Law Firm relied on § 303(b)’s single-creditor filing allowance.
Issues
| Issue | Plaintiff's Argument (Law Firm) | Defendant's Argument (Murray) | Held |
|---|---|---|---|
| Whether single-creditor involuntary petition satisfied § 303 procedural requirements | § 303(b)(2) permits an involuntary petition by a single creditor when few qualifying claimants exist | Technical compliance not disputed; substantive impropriety renders case unwarranted | Court assumed § 303 compliance but did not rely on it to keep case; dismissal on other grounds |
| Whether the filing is a bad-faith or otherwise improper use of bankruptcy to enforce a two‑party judgment | Bankruptcy provides remedies (e.g., § 363(h)) unavailable or less effective in state court, justifying filing | Filing is a two-party, judgment‑enforcement tactic with no creditor community or bankruptcy purpose; constitutes cause/bad faith | Case dismissed for cause (unenumerated cause; if not bad faith, still improper use); court need not find subjective bad faith to dismiss |
| Whether § 707(a) (dismissal for cause) can be invoked based on creditor conduct rather than debtor conduct | Dismissal should focus on debtor’s circumstances; creditor’s motives shouldn't automatically bar relief | § 707(a) looks to propriety of invoking bankruptcy; creditor abuse can be cause to dismiss | Court holds § 707(a) may be applied when creditor conduct renders invocation improper; dismissal authorized |
| Whether sanctions against the Law Firm were warranted | (Implicit) conduct merits sanctions for abusing process | Although filing was improper, no controlling precedent explicitly forbade the conduct; record did not necessitate sanctions | Motion for sanctions denied; dismissal granted but no monetary sanctions awarded |
Key Cases Cited
- C-TC 9th Avenue Partnership v. Norton Co., 113 F.3d 1304 (2d Cir. 1997) (endorses dismissal for bad faith and articulates factors for two‑party dispute filings)
- In re Mountain Dairies, Inc., 372 B.R. 623 (Bankr. S.D.N.Y. 2007) (single‑creditor involuntary petition was essentially a two‑party dispute; bankruptcy court is not a collection agency)
- In re Paper I Partners, 283 B.R. 661 (Bankr. S.D.N.Y. 2002) (contrast: multi‑creditor involuntary petitions can justify federal bankruptcy forum for pari passu distribution)
- In re 234-6 West 22nd St. Corp., 214 B.R. 751 (Bankr. S.D.N.Y. 1997) (relief from stay/dismissal for bad faith requires careful, case‑specific analysis)