570 B.R. 147
Bankr. E.D. Pa.2017Background
- In 2005 NMI and its managing member Rosenberg settled lease disputes with several DVI entities; Lyon (later merged into U.S. Bank) serviced the contracts and Fox was Lyon’s Director of Operations.
- Petitioning creditors (DVI entities and later Ashland) filed involuntary bankruptcy petitions against NMI and Rosenberg in 2008; Fox signed those petitions on behalf of Lyon/servicer.
- Judge Cristol dismissed the involuntary petition against Rosenberg; this dismissal was given collateral-estoppel effect in NMI’s cases and the involuntary petitions against NMI were dismissed with prejudice in 2009–2010. Appeals affirmed the dismissals through 2016.
- NMI filed adversary complaints (May 2014, amended May 2015) seeking attorneys’ fees/costs under 11 U.S.C. §303(i)(1), and compensatory/punitive damages under §303(i)(2), and Rule 9011 sanctions; defendants moved to dismiss.
- The bankruptcy court denied the motions to dismiss, holding (inter alia) it has subject-matter jurisdiction over all defendants; §303(i)(1) is a fee-shifting statute covering all phases of a §303 action; Rule 9011 relief is not preempted by §303(i).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Subject-matter jurisdiction over U.S. Bank and Fox | Court retained jurisdiction to award §303(i) sanctions and NMI timely filed motions naming them | Orders limited retention to “Creditors” (DVI defendants/Ashland), so court lacks jurisdiction over U.S. Bank/Fox | Court has core jurisdiction; retention language was broad and NMI previously filed timely motions naming U.S. Bank/Fox |
| Statute of limitations for §303(i) claims | No statutory limitations period; claims timely given stay and prompt filing after vacatur | Borrow Pennsylvania two-year Dragonetti limitations; claims time-barred | §303(i) claims governed by a reasonableness timeliness standard, not a fixed state statute; NMI filed within a reasonable time and was not prejudicial; stay tolled any limitations period if applied |
| Liability of non‑petitioners (U.S. Bank/Fox) under §303(i) | Agency or de facto petitioner and participation theories support liability | Only formal petitioners may be liable under §303(i) | Complaints plausibly allege agency/de facto petitioner and participation by Fox; non-petitioners can be liable under these theories |
| Recoverable fees: scope of §303(i)(1) | §303(i)(1) permits recovery of reasonable fees/costs for dismissal, appeals, and prosecuting bad-faith claims | §303(i) is not fee-shifting; fees limited to work obtaining dismissal | Court follows persuasive Eleventh Circuit and others: §303(i)(1) is fee-shifting and covers all phases of a §303 action, including prosecuting §303(i)(2) claims |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard for plausibility)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading standard and plausibility)
- DVI Receivables XIV, LLC v. Rosenberg, 779 F.3d 1254 (11th Cir.) (agency/de facto‑petitioner and scope of §303(i) fee recovery)
- Paradise Hotel Corp. v. Bank of Nova Scotia, 842 F.2d 47 (3d Cir.) (§303(i) is not the exclusive remedy for improper involuntary petitions)
- Baker Botts L.L.P. v. ASARCO LLC, 135 S. Ct. 2158 (Sup. Ct.) (discussion of fee‑shifting statutes; distinguished by court)
- In re John Richards Homes Bldg. Co., LLC, 405 B.R. 192 (E.D. Mich.) (prejudice/timeliness standard for §303(i) claims)
- In re Glannon, 245 B.R. 882 (D. Kan.) (§303(i) fees cover all phases of §303 proceedings)