In re Zapas
530 B.R. 560
Bankr. E.D.N.Y.2015Background
- In May 2014 Hung Far Realty and four individuals (Vardaros, Melissionos, Katsifas, Tsahas — "Judgment Creditors") filed an involuntary Chapter 7 petition against John Zapas; M. Peter later joined as an additional petitioning creditor.
- Judgment Creditors hold a single prepetition default state-court judgment for $656,683.15 (undivided as to each plaintiff); Hung holds a reversed state-court judgment for $299,000 plus interest (appellate relief denied July 1, 2014); M. Peter asserts a $7,450 construction claim.
- Zapas filed a creditor list claiming over 32 creditors and ~$17 million in liabilities, contending §303(b)(1) required three separate creditors and that some petitioning claims are disputed or time-barred.
- Zapas argued: (1) the four judgment creditors constitute a single claimant because the judgment is undivided; (2) the judgment is subject to a bona fide dispute (attorney malpractice/default); (3) Hung’s judgment was appealable when the petition was filed; (4) M. Peter’s claim is time-barred; and (5) the case should be dismissed/abstained from.
- The bankruptcy court found Zapas met his initial burden under Rule 1003(b) (listing >12 creditors), shifted the burden to petitioning creditors, and held the Judgment Creditors individually qualify as petitioning creditors; M. Peter’s claim was held to be subject to a bona fide dispute (statute of limitations). The court denied abstention under §305 and adjourned the remaining §303(h) (order for relief) inquiry.
Issues
| Issue | Plaintiff's Argument (Zapas) | Defendant's Argument (Petitioning Creditors) | Held |
|---|---|---|---|
| Numerosity under 11 U.S.C. §303(b)(1) — do the four Judgment Creditors count as one or four petitioning creditors? | The four judgment creditors hold one undivided judgment and therefore constitute a single holder of a claim. | Each of the four individual judgment creditors is an entity with an enforceable right to payment; the judgment does not preclude separate enforcement. | The court held each judgment creditor is a separate "holder of a claim" and numerosity is satisfied. |
| Bona fide dispute as to liability/amount for the Judgment Creditors’ default judgment | The judgment is tainted by state-court attorney malpractice and default, so the claims are disputed. | The default judgment was litigated and survived state-court post-judgment motions and appeal; it is enforceable and not subject to a bona fide dispute. | The court held the default judgment is valid and not subject to a bona fide dispute; the claims are non-contingent and undisputed. |
| M. Peter’s qualification as petitioning creditor (statute of limitations / dismissed state actions) | M. Peter’s state actions were dismissed and its claim arose in April 2008, so the claim is time-barred and disputed. | (Petitioning creditors did not rebut the statute-of-limitations argument in the record.) | The court found Zapas met his burden that M. Peter’s claim is subject to a bona fide dispute (statute of limitations), so M. Peter does not qualify. |
| Abstention under 11 U.S.C. §305(a) — should the court dismiss in favor of state proceedings? | Petition was filed to pressure collection; state remedies remain and a Chapter 7 would yield de minimis recoveries given Zapas’s liabilities. | Petitioning creditors did not show dismissal was warranted; bankruptcy provides orderly distribution and potential discharge. | The court denied abstention: dismissal under §305(a) was not warranted on this record. |
Key Cases Cited
- United States v. Ron Pair Enterprises, 489 U.S. 235 (statutory interpretation follows plain language of the Code)
- LTV Steel Co. v. Shalala (In re Chateaugay Corp.), 53 F.3d 478 (2d Cir.) (bankruptcy claim exists where prepetition right to payment arose)
- Key Mechanical Inc. v. BDC 56 LLC (In re BDC 56 LLC), 330 F.3d 111 (2d Cir.) (petitioning creditor must establish prima facie absence of bona fide dispute)
- In re Vortex Fishing Sys., Inc., 277 F.3d 1057 (9th Cir.) (affirmative defenses can indicate bona fide dispute)
- In re Taub, 439 B.R. 261 (Bankr. E.D.N.Y.) (framework for determining bona fide dispute and petitioning creditor burden)