ORDER
Farmers & Merchants State Bank (“the Bank”) appeals an order of dismissal of this involuntary Chapter 7 bankruptcy proceeding against the alleged debtor, Douglas E. Turner (“Turner”), filed in the United States Bankruptcy Court for the Northern District of Florida. See In re Douglas E. Turner, Bankruptcy Case No. 12-31211-KKS. The matter has been fully briefed and is ripe for a decision.
Background
A. Bankruptcy Court Proceedings
On August 31, 2012, the Bank and two other creditors, Tema Burk, TTE, Tema Burk Revocable Intervivos Trust (“Burk”) and Susan C. Smith (“Smith”), commenced an involuntary Chapter 7 proceeding against Turner, alleging claims in the aggregate amount of $3,578,682.44 based on state court judgments in their favor against Turner. See 11 U.S.C. § 303(b)(1) (2012) (stating an involuntary bankruptcy proceeding must be initiated on the petition of three or more creditors, each of which must have a claim that is not contingent as to liability or the subject of a bona fide dispute as to liability or amount, and the noncontingent, undisputed claims must total at least $14,425 more than the value of any lien on property securing the claims). Turner moved to dismiss the Chapter 7 proceeding for failure to state a claim, arguing that the Bank, Burk and Smith are not eligible creditors to initiate the petition because they asserted the same claims in a previous Chapter 11 bankruptcy proceeding of Turner Heritage Homes, Inc. (“Turner Heritage Homes”), and the claims were satisfied, in whole or in part, through the Amended Reorganization Plan (“the Reorganization Plan” or “Plan”) in that proceeding.
The claimed debts are the result of final judgments entered against Turner personally based on his guarantees of loans executed on behalf of Summerchase, LLC (“Summerchase”) and Heritage Hills Development Company, LLC (“Heritage Hills”), while he was a managing member of these companies. Neither company is still in existence. In April and May 2011, the companies merged into Turner Heritage Homes, which acquired all of their assets and existing liabilities and then filed for Chapter 11 bankruptcy in June 2011. The Reorganization Plan was filed on November 7, 2011, and confirmed on March 26, 2012.
Turner testified at the hearing on the motion to dismiss. He acknowledged executing promissory notes to the petitioning creditors — the Bank, Burk and Smith — as a managing member of Summerchase and Heritage Hills and that he had signed personal guarantees as well. Although Turner maintained he only guaranteed 25% of the indebtedness to the Bank, he admitted a default judgment was entered against him for the entire amount when he failed to defend. The judgments in favor of Burk and Smith arose out of separately filed cases against Turner, Summerchase, and Fred Turner, and those judgments were entered with Turner’s consent. Turner testified that in none of those cases did he raise any objection based on the then-pending Turner Heritage Homes Chapter 11 proceeding, nor did he seek to stay the judgments at any time. He testified that all three petitioning creditors here had participated in the Chapter 11 proceedings, and they each received stock in the newly formed entity, Phoenix Realty Partners, Inc. (“Phoenix”), which emerged out of the Chapter 11 proceedings as a growing business. Turner testified he has more than twelve unsecured creditors and was not making payments to any of them as of August 31, 2012, when the Chapter 7 proceeding was filed, explaining his belief that “[t]hey received stock in Phoenix Realty Partners as payment in full.”
Louis Weltman, an officer of Turner Heritage Homes, also testified at the evi-
Weltman also testified that Burk and Smith participated in the Chapter 11 proceedings as Class 12 friends and family creditors, who similarly received proportionate shares of common stock in Phoenix aggregating a 5% equity stake.
At the close of the hearing, Turner argued for dismissal on grounds that, in light of the terms of the Reorganization Plan, the petitioning creditors in this case have been satisfied in full because the claims were released in the Chapter 11 proceeding, or alternatively, they have been satisfied at least in part, and, therefore, a bona fide dispute exists regarding the amount of
The Bankruptcy Court requested supplemental briefing on the issue of whether a final judgment that has not been stayed or appealed may nevertheless be subject to a bona fide dispute under 11 U.S.C. § 303 based on a showing that a third party has partially or totally satisfied the underlying debt. In its final decision, the Bankruptcy Court determined that a final judgment can be subject to a bona fide dispute and granted the motion to dismiss. Specifically, the Bankruptcy Court found that all three petitioning creditors have claims that have been reduced to a final judgment, establishing a prima facie case that there is no bona fide dispute; unrefuted testimony and evidence showed that the underlying claims of Burk and Smith were completely satisfied by distributions of shares of common stock under the Reorganization Plan; and, as to the Bank’s claim, the Bankruptcy Court found that although there is no bona fide dispute as to liability, Turner established a bona fide dispute as to amount. The Bankruptcy Court found that no evidence had been presented as to the value of the property transferred to the Bank under the Plan, and there was no evidence that the Bank gave Turner any credit against the judgment for the value of the property deeded to it or for the value of the stock transferred to the Bank for the deficiency, though part of the judgment had been paid. The Bankruptcy Court concluded: “Here the Court can’t tell if the claim of the bank has been fully or partially satisfied under the terms of the Turner Heritage Home, Chapter 11 case. Either way, there’s clearly a bona fide dispute as to the amount of the bank’s claim against Mr. Turner.” The Bankruptcy Court therefore dismissed the petition.
B. Arguments on Appeal
This appeal by the Bank followed. The Bank argues that the Bankruptcy Court incorrectly interpreted the Chapter 11 Reorganization Plan and confirmation order; made clearly erroneous findings of fact that the Burk and Smith judgments were satisfied and that there was no evidence of the value of the real property; and incorrectly failed to shift the burden to Turner, as the alleged debtor, to establish a bona fide dispute. The Bank also argues that the Bankruptcy Court erred in finding a bona fide dispute in amount without proof that the disputed portion is sufficient to bring into question whether the statutory threshold is met. Finally, the Bank argues alternatively that the Bankruptcy Court erred by failing to find that the Bank could proceed as the sole petitioning creditor due to special circumstances of fraud related to Turner’s transfer of money to a foreign trust.
Turner argues that the Bankruptcy Court’s dismissal should be affirmed on grounds that there is at least a bona fide dispute regarding the amount of the claim as to all three judgments and maintains the fact findings were not clearly erroneous. Turner maintains that a majority of courts to consider the issue have determined that a dispute as to any amount of the claim is sufficient to render a petition
C. Standards of Review
In deciding a bankruptcy appeal, the district court applies the same standards as a court of appeals, reviewing the legal conclusions of the bankruptcy court de novo and its findings of fact for clear error. See In re Optical Techs., Inc.,
Discussion
In relevant part, the Bankruptcy Code provides that an involuntary bankruptcy case may be commenced on petition of three or more creditors, each of which must have a claim
(1) the petitioning claimholders’ claims are not contingent as to liability,
(2) the claims are not subject to a bona fide dispute as to liability or amount,
(3) the value of such claims total in the aggregate at least [the statutory threshold amount];
*649 (4) three or more entities commenced the involuntary petition; and
(5) the alleged debtor is generally not paying its debts as they come due.
In re Flamingo Enterprises, Inc.,
On a motion to dismiss an involuntary petition, the petitioning creditor bears the burden to demonstrate a prima facie case that its claim is not subject to a bona fide dispute. See In re Bimini Island Air, Inc.,
Generally, when a petitioning creditor’s claim is based on “an unappealed, unstayed judgment,” the claim is not subject to a bona fide dispute. In re Biogenetic Techs.,
The Bank asserts that the Bankruptcy Court erred in finding the Bank’s judgment against Turner subject to a bone fide dispute and erred in applying the law on that issue. More specifically, the Bank first argues that the Bankruptcy Court failed to properly shift the burden to require Turner to show the actual value of any disputed portion of the judgment by expert testimony or otherwise. The Court disagrees. Regardless of any shifting of burdens, the statute requires the petitioning creditor to proceed on a noncontingent, undisputed claim. See 11 U.S.C. § 303(b). The record reflects that the Bankruptcy Court considered the Bank to have made a prima facie showing based on the final, unstayed judgment and then looked to Turner’s evidence to determine whether there was a bona fide dispute as to amount.
For the same reason, the Court disagrees with the Bank’s argument that the Bankruptcy Court erred by not requiring Turner to demonstrate a bona fide dispute in an amount sufficient to call into question whether the aggregate claims met the statutory threshold. Appearing now to concede a dispute as to amount in excess of one million dollars, the Bank argues that it was not enough for Turner to simply show a dispute but rather, according to the Bank, he had to show a dispute of an amount sufficient to bring the claims below the statutory threshold. This precise argument was not made to the Bankruptcy Court, most likely because the Bank relied on the full face value of its judgment, failing to acknowledge that any credits were due. Because the Bankruptcy Court was not given the opportunity to address this specific argument, this Court need not consider it. See Access Now, Inc. v. Southwest Airlines Co.,
There are conflicting court decisions regarding whether any dispute of amount creates a bona fide dispute for purposes of § 303(b)(1) or whether the debtor must show a dispute that implicates the statutory threshold. An amendment to the Bank
The debate is interesting but not one this Court needs to weigh in on for purposes of this case. Again, this argument was not raised below. Moreover, this whole discussion turns on facts not present on this record. Here, the Bank proceeded on a judgment it knew was at least partially disputed in some unknown amount in excess of one million dollars, as reflected by its participation in the Chapter 11 proceeding and its arguments on appeal.
Finally, the Bank argues that the Bankruptcy Court erred by failing to find special circumstances of fraud warranting relief of allowing the petition to proceed with less than three petitioning creditors, asserting a claim of fraud is shown through Turner’s deposition testimony. That deposition, however, was not admitted as an exhibit at the hearing before the Bankruptcy Court and was not considered in the Bankruptcy Court’s decision. Turner filed a motion to strike those portions of the Bank’s initial brief and reply brief in which the Bank asserts fraud has been proven. The Court agrees that fraud was not a basis for the Bankruptcy Court’s decision and that no evidence of fraud was presented at the evidentiary hearing. However, the Court will deny the motion to strike as moot because in reaching its decision on appeal, the Court has not considered those statements or arguments. Also, because no evidence of fraud was presented at the hearing, the Bankruptcy Court did not err by not considering
Accordingly, the Appellee’s Motion to Strike (doc. 11) is DENIED, and the Order of the Bankruptcy Court dismissing the Chapter 7 proceeding is AFFIRMED. The case is remanded to the Bankruptcy Court.
DONE and ORDERED.
Notes
. The Court has appellate jurisdiction pursuant to 28 U.S.C. § 158(a). The Court has determined after examination of the well-drafted briefs and the record that oral argument is not needed because "the facts and legal arguments are adequately presented in the briefs and record and the decisional process would not be significantly aided by oral argument.” Bankruptcy Rule 8012.
. See Doc. 2-5.
. The Bank was the only one of the three petitioning creditors to participate in the hearing.
. The confirmation order states that the Plan binds the debtor and creditors, whether or not the creditor is impaired under the Plan, but that "Confirmation of the [Reorganization] Plan shall not operate as res judicata with respect to the effect of the merger of Heritage Hills Development Company, LLC on the individual members of Heritage Hills Development Company, LLC.”
. The involuntary petition appears to have inverted two numbers in the Smith judgment, claiming Turner owed Smith the amount of $50,638.76, which is incorrect. (See doc. 3-12).
.Also during the hearing, the Bank attempted to elicit testimony from Turner about a foreign trust he had created and into which he had allegedly transferred property, either before or during Turner Heritage Homes's bankruptcy proceeding. At page 20 of the transcript, the Bankruptcy Judge sustained an objection to this testimony as outside the scope of direct, and no further evidence was admitted on the subject. During closing argument, Turner’s lawyer argued that any reference to a trust in another country is irrelevant to the motion to dismiss.
. The Plan also states "Class 4 is impaired.”
. There is no dispute that Turner Heritage Homes fulfilled its performance by returning the real property. The parties agree that the Bank received the properly.
. The Plan states "Class 10 claims are impaired.”
. The Plan states "Class 12 claims are impaired.”
. Article 4 is titled "Unclassified Claims and Disputed Claims and Distributions.”
. In relevant part, the Plan states: "The distributions and rights provided under this Plan will be in complete satisfaction and release, effective as of the Effective Date, of all Claims against and Interests in the Debtor’s Estate and all liens upon any Property of the Estate.” (Doc. 2-5, Section 4:13).
. The Bank urges the Court not to apply this deferential standard to the Bankruptcy Judge’s interpretation of the Turner Heritage Home Reorganization Plan because she was not the judge who confirmed the Plan. Each judge’s ruling speaks for the Bankruptcy Court of the Northern District of Florida, however, and thus due deference will be given to their interpretation of the court’s own prior orders whenever appropriate, but not to issues of law.
. A "claim” is defined in part as a "right to payment, whether or not such right is reduced to judgment.” 11 U.S.C. § 101(5)(A).
. The phrase, "as to liability or amount,” was added by the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA”), Pub.L. No. 109-8, §§ 1234(a)(1)(A) & (a)(12), 119 Stat. 23 (Apr. 20, 2005). As discussed further below, there is some dispute among courts as to how this additional language has altered the analysis.
. The dollar amount is adjusted every three years and changed to $15,325 in 2013. See 11 U.S.C. § 303 (fn. 1). The Court will refer to the statutory amount in effect at the time the involuntary petition was filed in 2012.
. Additionally, this provision applies where the alleged debtor has twelve or more creditors at the time. Turner’s undisputed testimony established that he had more than twelve creditors. Also, in an involuntary bankruptcy case, the petitioning creditors must prove that the alleged debtor is generally not paying his debts as they become due. 11 U.S.C. § 303(h)(1). Turner admitted this as well.
. In Prisuta, the Western District of Pennsylvania framed the issue in that case as follows: "Alleged debtors do not dispute that at least three creditors hold claims against them or that said claims aggregate at least $5,000.00 more than the value of any liens on alleged debtors’ property which secure such claims. The sole issue presented in this case is whether petitioners’ claims are subject to bona fide dispute for purposes of § 303 of the Bankruptcy Code.”
. The Bankruptcy Court found no dispute as to liability.
. The Court rejects the Bank’s argument that the Bankruptcy Court was clearly erroneous in finding that it did not present evidence as to the value of the property transferred to the Bank to be credited against its judgment. The Bank did not argue to the Bankruptcy Court that the $1,100,000 property value should be credited against the judgment nor did it present any evidence in this case showing that the Bank has given credit against Turner’s judgment for the property or the stock in any amount so as to identify an undisputed portion of the judgment. Although the Reorganization Plan stated an agreed valuation of $1,100,000 for the real property, the Bank did not offer this as part of its prima facie showing or assert that the judgment must be reduced by this amount; instead, the Bank relied solely on the face amount of the judgment and expected Turner to establish the undisputed claim by placing a value on the dispute. The Court finds this position contrary to the statute’s requirement that the petitioning creditor identify and proceed on an undisputed claim.
. The Bank also criticizes the Bankruptcy Court's reliance on In re Prisuta,
. The “bona fide dispute” language was added by a 1984 amendment, and courts have found that this reflected a policy that "disputed debts and creditors with disputed claims are to be excluded” so debtors will not be dragged "into the stigma of an involuntary bankruptcy, when in fact the claim is subject to a valid, legitimate dispute.” In re Hope Commc'ns, Inc.,
. Collier cites several cases. See, e.g., In re Bimini Island Air,
. Relevant legislative history states that the amendment is intended " 'to specify that a creditor would be ineligible to file an involuntary petition if the creditor’s claim was the subject of a bona fide dispute as to liability or amount. It further provides that the claims needed to meet the monetary threshold must be undisputed.’ ” H.R. Rep. 109-31(1), 2005 U.S.C.C.A.N. 88, at 149, quoted in In re Rosenberg,
. One bankruptcy court has commented that the amendment was clarifying in that it potentially expanded the disputes that can dis
. On appeal, the Bank argues for the first time that even subtracting the combined value of the real property and the stock from the judgment, its claim remains well above the statutory threshold based on the value of the property as stated in the Reorganization Plan and the value of the stock as determined from calculations based on the Reorganization Plan but set forth for the first time only in the Bank’s Reply Brief on appeal. Arguments raised for the first time on appeal and dependent on facts not found or discussed by the Bankruptcy Court are not properly before the Court, especially where the party had every opportunity to raise the issue below. See Access Now, Inc. v. Southwest Airlines Co.,
. See also In re Miller,
. Again, it bears emphasizing that the Bank did not attempt to proceed only on the undisputed portion of its claim, whatever that may be.
. As with the Bank’s claim, Turner has shown that the Smith and Burk claims have been at least partially satisfied in an unknown amount through the Chapter 11 proceedings based on the value of the stock they received, and thus, there is a dispute about how much, if any, of these judgments remains due and owing. (The Bank’s Reply Brief arguably showing a basis for finding an undisputed portion as to these claims presents the issues too late, as previously noted.) Given this conclusion that there is a bona fide dispute as to the Burk and Smith claims, the Court is compelled to note its disagreement with the Bankruptcy Court’s finding that the Burk and Smith claims have been completely satisfied. Weltman’s testimony and the Plan itself show that the Class 12 creditors received stock as full or complete satisfaction of their claims against the Chapter 11 debtor. The Plan terms indicate that the claims of the Class 12 creditors, including Smith and Burk, were impaired, although their claims against the Chapter 11 debtor are considered completely satisfied. But there is no indication that the personal judgments against Turner were satisfied, and those judgments were entered prior to confirmation of the Plan but after the Bank knew its terms. See BankAtlantic v. Berliner,