Marciano v. Fahs (In Re Marciano)
459 B.R. 27
9th Cir. BAP2011Background
- Marciano faced six California state court judgments totaling $260.3 million entered after terminating sanctions for discovery abuses; judgments were not stayed pending appeals.
- Petitioning Creditors filed an involuntary Chapter 11 petition under § 303 to preserve their rights to avoid a lien and pursue equal distribution.
- Marciano challenged service, sought dismissal, and contested whether an involuntary case against an individual could proceed; the bankruptcy court conducted limited discovery pending determination on § 303(b).
- The bankruptcy court adopted a per se rule that unstayed state court sanctions judgments are not subject to bona fide dispute under § 303(b); it then granted summary judgment and ordered relief.
- Marciano appealed multiple orders including the dismissal decisions, sanctions, protective order, summary judgment, and the order for relief; the Panel affirmed, rejecting the per se rule and related challenges.
- Dissent argued against the per se rule and emphasized that good faith and a fuller factual/legal inquiry into the petitioning creditors’ motives are essential.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the per se rule on bona fide disputes was proper | Marciano argues the per se rule is improper | Petitioning Creditors argue unstayed judgments are not in bona fide dispute | Not error; per se rule affirmed (majority) |
| Whether service of process authorized personal jurisdiction | Marciano contends service was improper | Creditors show service at dwelling or usual place of abode complied with Rule 7004(b)(1) | Service proper; jurisdiction proper |
| Whether discovery limitations and Protective Order were abuse of discretion | Marciano asserts discovery restrictions prejudiced defense | Court acted within Rule 26 and 42 to limit discovery for efficiency | No abuse; limits proper to resolve whether relief should be entered |
| Whether § 305 stay or dismissal was appropriate | Marciano sought stay to resolve state appeals | Court weighed factors; no stay warranted | Court did not abuse discretion; stay denied |
| Whether the Summary Judgment Order and Order for Relief were proper | Marciano contends genuine issues exist about bona fide dispute | Judgments unrebutted by stay; bona fide dispute lacking | Summary Judgment and Order for Relief affirmed |
Key Cases Cited
- In re AMC Investors, LLC, 406 B.R. 478 (Bankr.D.Del. 2009) (unstay judgments generally not in bona fide dispute under § 303)
- In re Byrd, 357 F.3d 433 (4th Cir. 2004) (unstopped judgments are prima facie evidence of no bona fide dispute; burden-shifting approach)
- In re Vortex Fishing Systems, Inc., 277 F.3d 1057 (9th Cir. 2002) (bona fide dispute focus on genuineness and legal/factual dispute)
- Butner v. United States, 440 U.S. 48 (U.S. 1979) (rights defined by state law in bankruptcy)
- Lamie v. U.S. Trustee, 540 U.S. 526 (U.S. 2004) (statutory interpretation; plain meaning governs)