In re QDOS, Inc.
591 B.R. 843
Bankr. C.D. Cal.2018Background
- QDOS, Inc. moved to dismiss an involuntary Chapter 11 petition filed May 31, 2018 by three original creditors (Wiese, Terrigno, Hayden); a fourth (Maddox) joined shortly before hearing.
- QDOS argued dismissal under Fed. R. Bankr. P. 1011 and 11 U.S.C. § 303(b)(1): (1) some petitioning parties were not qualifying creditors and (2) petition was filed in bad faith.
- Court ordered evidentiary hearing(s) requiring personal appearance and cross-examination of petitioning creditors; Terrigno and Maddox repeatedly refused to appear.
- Terrigno had executed subscription documents for $60,000 of common stock; he later claimed he thought he made a loan.
- Maddox submitted declarations (stricken for failure to appear) and filed a proof of claim stating he was owed "not less than $220,000" on a $250,000 note with a $25,000 loan fee; QDOS contended the loan was usurious.
- Court found Terrigno holds equity (not a claim), found a bona fide dispute as to Maddox’s claim amount (usury/loan fee), and alternatively disqualified Maddox for failing to appear and thus denying QDOS cross‑examination; only two qualifying petitioners remained, so the involuntary petition was dismissed with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Terrigno is a qualifying petitioning creditor under § 303(b)(1) | Terrigno claims he is owed $60,000 (creditor) | QDOS shows Terrigno executed common‑stock subscription (equity interest, not claim) | Terrigno is an equity holder, not a creditor — not qualified |
| Whether a partially disputed claim (Maddox) is "subject of a bona fide dispute as to liability or amount" | Petitioners: partial dispute (e.g., only interest) does not disqualify creditor | QDOS: bona fide dispute over amount (loan fee/usury) disqualifies petitioning creditor | A dispute as to a portion of a claim can constitute a bona fide dispute as to amount — Maddox’s claim is disputed |
| Whether Maddox’s claim should be considered where he repeatedly failed to appear for cross‑examination | Petitioners rely on Maddox’s declarations/proof of claim to qualify him | QDOS contends due process required cross‑examination; declarations were stricken; proof of claim vague | Court struck/discounted Maddox’s evidence for failure to appear and denial of QDOS’s cross‑examination; therefore his claim is not counted |
| Sufficiency of petitioning creditors to support involuntary petition | Petitioners contended other petitioners suffice (Wiese, Hayden, plus Terrigno/Maddox) | QDOS argued at least three qualified petitioners required and Terrigno/Maddox are disqualified | With Terrigno and Maddox disqualified, fewer than three qualifying petitioners exist; involuntary petition dismissed |
Key Cases Cited
- Reiter v. Sonotone Corp., 442 U.S. 330 (U.S. 1979) (interpretation principle: give effect to every word in a statute)
- Lyon v. Chase Bank United States, N.A., 656 F.3d 877 (9th Cir. 2011) (statutory interpretation guidance)
- In re Vortex Fishing Sys., Inc., 277 F.3d 1057 (9th Cir. 2002) (bona fide dispute standard: objective basis for factual or legal dispute)
- Klett v. Security Acceptance Co., 38 Cal.2d 770 (Cal. 1952) (loan fees may be permissible only if reasonable for incidental services/expenses/risk)
- In re Rosenberg, 414 B.R. 826 (Bankr. S.D. Fla. 2009) (partial‑amount disputes can constitute bona fide disputes under § 303)