492 B.R. 150
Bankr. S.D.N.Y.2013Background
- Petitioners filed involuntary Chapter 7 petitions against the dissolved Troy Entities seeking to recover from them as alter egos of TIM Hellas note issuers.
- Troy Entities moved to dismiss, arguing bona fide disputes exist and abstention is warranted; petitioners replied.
- Court found a bona fide dispute over alter ego liability and granted abstention under 11 U.S.C. § 305(a)(1).
- Troy Entities remain dissolved; court addressed whether dissolution bars bankruptcy relief under § 303(a) and § 303(h)(1).
- Court dismissed the involuntary petitions and reserved costs/fees damages for a separate post-dismissal application within 21 days.
- Petitioners may apply for costs and fees within 21 days; responses due within 7 days after filing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a bona fide dispute exists as to alter ego liability under § 303(b)(1) | Petitioners argue Troy Entities are alter egos of issuer and liable | Troy Entities contend no alter ego liability and substantial factual dispute | Yes, there is a bona fide dispute over alter ego liability |
| Whether abstention under § 305(a)(1) is warranted | Abstention would not serve efficiency and will avoid duplicative litigation | Abstention would hinder access to federal relief and asset distribution | Abstention warranted; cases to be dismissed to pursue state proceedings |
| Whether dissolution bars filing or continuation of bankruptcy case under § 303(a) and § 303(h)(1) | Dissolution does not bar liability due to ongoing claims against alter egos | Dissolution means no continued existence and no debtors exist | Dissolution bars, but other grounds support dismissal so § 303(a)/(h)(1) need not be resolved |
| Whether the petitions are facially deficient under § 303(a) or (h) | Petitions corrected to check required boxes; still adequate | Initial defects justify dismissal | Not needed; dismissal based on bona fide dispute and abstention anyway |
| Whether the court should award fees and costs under § 303(i) | Costs/fees should be denied given dismissal | Costs/fees may be awarded after proper showing | To be determined on separate application within 21 days |
Key Cases Cited
- In re BH S & B Holdings LLC, 420 B.R. 112 (S.D.N.Y. 2009) (alter ego liability; heavy factual inquiry; status as case law informing standard)
- Key Mech. Inc. v. BDC 56 LLC (In re BDC 56 LLC), 330 F.3d 111 (2d Cir. 2003) (objective basis for bona fide dispute; not resolved by court)
- In re Stillwater Asset Backed Offshore Fund Ltd., 485 B.R. 498 (S.D.N.Y. 2013) (dispute not resolved; factors for bona fide dispute)
- In re Aminian, 2008 WL 793574 () (analysis of § 303(b)(1) standard (WL not official reporter))
- In re A & J Quality Diamonds, Inc., 377 B.R. 460 (S.D.N.Y. 2007) (burden shifting on § 303(h)(1) proof of generally not paying debts)
- In re Rimell, 946 F.2d 1363 (8th Cir. 1991) (limited analysis of legal issues to ascertain dispute)
- Liberty Tool Mfg. v. Vortex Fishing Sys., Inc., 277 F.3d 1057 (9th Cir. 2002) (affirmative defenses may indicate bona fide dispute)
- In re Mountain Dairies, 372 B.R. 623 (S.D.N.Y. 2007) (costs/fees under § 303(i) disposition principle)
- In re Squillante, 259 B.R. 548 (Bankr.D. Conn. 2001) (majority rule awarding costs/fees on dismissal)
- In re Skyworks Ventures, Inc., 431 B.R. 573 (Bankr.D.N.J. 2010) (awarding costs and fees is typical upon dismissal)