In re Square at Falling Run, LLC
472 B.R. 337
Bankr. N.D.W. Va.2012Background
- First United seeks an involuntary Chapter 7 relief against The Square at Falling Run, LLC.
- The Square argues the petition was filed in bad faith and the case is a two-party dispute.
- The court grants relief under 11 U.S.C. § 303, finding grounds for relief.
- Borrowers defaulted on a $2.48 million loan from First United; The Square guaranteed the debt.
- First United obtained a credit line leasehold deed of trust on The Square’s Ground Lease, securing the guaranty.
- The City of Morgantown’s notice to terminate the Ground Lease prompted the involuntary filing and district court actions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether First United's claim is noncontingent and not subject to a bona fide dispute | First United's claim is noncontingent due to the guaranty and a district court demand for payment. | The Square contends the guaranty is contingent on building the parking facility and that disputes exist. | Noncontingent; no bona fide dispute found. |
| Whether First United filed in good faith | Filing was for legitimate bankruptcy purposes and to coordinate with related estates. | Filing was a bad-faith tactic to stay enforcement and aid its own recovery. | Filing not in bad faith. |
| Whether abstention under § 305 is appropriate given a two‑party dispute | Abstention not necessary; bankruptcy serves as a better forum for liquidation and coordination. | abstention preferred because of two-party dispute and ongoing district court proceedings. | Abstention under § 305 not warranted. |
| Whether First United has standing under § 303(b)(2) and the petition is proper | First United, as a petitioning creditor with a noncontingent claim, has standing. | Standing established; petition proper. |
Key Cases Cited
- Esso Standard Oil Co. v. Kelly, 145 W. Va. 43 (W. Va. 1960) (guaranty generally absolute unless conditioned; notice/demand may affect liability)
- In re Byrd, 357 F.3d 433 (4th Cir. 2004) (contingency analysis for guaranty and noncontingent claims under § 303(b))
- In re Tucker, ? (?) (noncontingent claim standard applied (court references))
- In re Galaxy Boat Mfg. Co., 72 B.R. 200 (Bankr.D.S.C. 1986) (guidance on guaranty contingent nature and demand for payment)
- In re Gills Creek Parkway Assocs., L.P., 194 B.R. 59 (Bankr.D.S.C.1995) (contingent liability and bona fide disputes in involuntary petitions)