901 F.3d 1139
9th Cir.2018Background
- Sino Clean Energy, Inc. (SCEI), a Nevada corporation, faced shareholder litigation seeking books and records and other relief; SCEI did not timely defend.
- A Nevada state court entered default and, on finding nonfeasance and gross mismanagement by SCEI’s board, appointed a receiver with broad powers, including authority to reconstitute the board.
- The receiver replaced the existing board and, by December 2014, Gregg Graison was installed as sole director.
- In July 2015, former chairman Baowen Ren and other former directors purported to "reconstitute" the old board and filed a voluntary Chapter 11 petition on behalf of SCEI.
- The bankruptcy court dismissed the petition for lack of corporate authority; the district court affirmed. The Ninth Circuit affirmed, holding the petitioners lacked state-law authority to file for SCEI.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Who may file a voluntary bankruptcy petition on behalf of a corporation? | Former directors (Ren) argued they could file the petition after purportedly "reconstituting" the board. | Receiver (Seiden) argued the state-court receiver had removed them; only the current board/receiver could authorize filings. | The court held state law controls and the petitioners lacked authority because the receiver had replaced the board. |
| Effect of state-court receiver appointment on corporate authority to file bankruptcy | Ren contended equitable considerations justified the filing despite the receiver order. | Seiden contended the receiver’s appointment transferred corporate authority away from former directors. | The court held the receiver’s order precluded the former directors from acting; filings by unauthorized persons are null. |
| Applicability of federal equitable doctrines to override state-court control over corporate filings | Appellants relied on cases allowing equitable relief or limiting state injunctions against bankruptcy. | Receiver asserted state-law governance decides who may file; federal equitable concerns do not authorize unauthorized corporate filings. | The court rejected equitable override here; state law determines who may file and no valid board acted. |
| Precedent conflict with Bankruptcy court decision in In re Corporate & Leisure | Appellants relied on Corporate & Leisure to support filing despite state court actions. | Receiver argued Corporate & Leisure is distinguishable and conflicts with Ninth Circuit precedent. | The court held Corporate & Leisure is inapposite where a receiver legitimately replaced the board; Ninth Circuit precedent controls. |
Key Cases Cited
- Price v. Gurney, 324 U.S. 100 (state law determines who may file a corporate bankruptcy petition)
- Keenihan v. Heritage Press, Inc., 19 F.3d 1255 (8th Cir.) (person filing for a corporation must be authorized under state law)
- Tenneco W., Inc. v. Marathon Oil Co., 756 F.2d 769 (9th Cir.) (Nevada law and state-court decisions govern corporate governance issues)
- Oil & Gas Co. v. Duryee, 9 F.3d 771 (9th Cir.) (state rehabilitation order made rehabilitator sole party authorized to commence bankruptcy; unauthorized filings are void)
- Educ. Credit Mgmt. Corp. v. Coleman (In re Coleman), 560 F.3d 1000 (9th Cir.) (standard of review for appeals from bankruptcy court decisions)