Wilk Auslander LLP v. Murray (In re Murray)
565 B.R. 527
S.D.N.Y.2017Background
- Murray, formerly employed by Rodman & Renshaw, was hit with a FINRA arbitration award (confirmed in state court) in favor of Rodman totaling about $10.7 million (with interest later ~ $16M); Wilk Auslander (the Law Firm) represented Rodman and later acquired the judgment interest.
- Post‑judgment discovery showed Murray unemployed; his principal asset is an interest in a co-op owned as tenancy by the entirety with his wife, subject to a Bank of America mortgage.
- The Law Firm levied on Murray’s co‑op shares and then filed an involuntary Chapter 7 petition against Murray, seeking bankruptcy remedies (notably a § 363 sale) to force a sale of the entire apartment interest.
- Murray moved to dismiss; the Bankruptcy Court (Judge Gerber) sua sponte considered dismissal under 11 U.S.C. § 707(a) and dismissed the involuntary petition for cause, finding the filing was a judgment‑enforcement tactic in a two‑party dispute with no legitimate bankruptcy purpose.
- On appeal, the district court affirmed: it held § 707(a) may be used to dismiss involuntary petitions, declined to consider appellant’s new argument that other creditors existed (waived), and found no abuse of discretion in dismissing for cause.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Bankruptcy Court improperly "bypassed" §303 and could dismiss under §707(a) | Law Firm: Court should have proceeded under §303; §707 dismissal was premature | Murray: §707 applies and court can dismiss involuntary petitions for cause | Court: §707(a) properly applied; bankruptcy court may dismiss involuntary cases for cause without first entering an order for relief |
| Whether Bankruptcy Court clearly erred in finding Law Firm was sole creditor | Law Firm: Wife and Bank of America are also creditors as a matter of law | Murray: Law Firm conceded it was sole creditor below; issue waived | Court: Finding was based on appellant’s concessions; the claim of other creditors was waived on appeal |
| Whether single‑creditor, two‑party dispute justifies dismissal for cause | Law Firm: §303(b) contemplates single‑creditor involuntary petitions; inability to obtain §363 relief in state court justifies bankruptcy relief | Murray: Filing was a litigation tactic to secure a benefit unavailable under state law; no creditor community or legitimate bankruptcy objective | Court: Not an abuse of discretion to dismiss; bankruptcy relief should not be used to circumvent state remedies when no legitimate bankruptcy purpose exists |
| Whether state‑law remedies’ availability precludes bankruptcy relief | Law Firm: Sale under §363 unavailable in NY, so bankruptcy uniquely affords relief | Murray: State law permits execution on Murray’s interest; bankruptcy not warranted to reach co‑owner’s share | Court: Availability of state enforcement remedies and absence of competing creditors supported dismissal; inability to reach spouse’s share in state court does not justify invoking bankruptcy |
Key Cases Cited
- In re Momentum Mfg. Corp., 25 F.3d 1132 (2d Cir.) (standard of review for bankruptcy appeals)
- In re Smith, 507 F.3d 64 (2d Cir.) (§707(a) dismissal reviewed for abuse of discretion; illustrative, not exclusive, causes)
- In re Dinova, 212 B.R. 437 (Bankr. S.D.N.Y. B.A.P.) (§707(a) can apply to involuntary cases; courts weigh best interests case‑by‑case)
- C-TV 9th Ave. P'ship v. Norton Co., 113 F.3d 1304 (2d Cir.) (affirming dismissal where petition filed as litigation tactic and dispute resolvable outside bankruptcy)
- In re VII Holdings Co., 362 B.R. 663 (Bankr. D. Del.) (simultaneous dismissal under §303 and §707(a) where petition filed in bad faith)