In Re Elsub Corp.
Before the court are two matters for disposition: a motion by Elsub Corporation (hereinafter “Elsub”), the alleged debtor herein, to dismiss the involuntary petition filed against it by Playboy Enterprises, Inc. (hereinafter “PEI”) pursuant to Section 303(c) of the Bankruptcy Code, and a motion by PEI to add creditors to the involuntary petition filed by PEI against Elsub.
On November 13, 1985, PEI filed a single-creditor involuntary petition under Chapter 11 of the Bankruptcy Code against Elsub. In its petition, PEI asserted that it was a creditor of Elsub, holding claims against Elsub which are not contingent as to liability, and amount in the aggregate, in excess of the value of any lien held by it on Elsub’s property securing such claim, to at least $5,000.00. PEI further stated that “there are fewer than twelve persons holding claims against the Debtor that are not contingent as to liability or subject to a bona fide dispute.” PEI asserted in its petition that Elsub was indebted to PEI pursuant to a promissory note dated April 3, 1984, in the initial amount of $45,384,-000.00. The note allegedly had a principal balance, as of the date of the filing of the petition, of approximately $38,262,355.00, plus accrued and unpaid interest of not less than $2,348,155.00. PEI further asserted in its petition that Elsub is indebted to PEI for certain management fees in the amount of approximately $5,569,000.00 pursuant to a Confirmation Agreement dated April 3, 1984. Additionally, PEI contended that El-sub is generally not paying its debts as they become due and that an order for relief is necessary to recover to the alleged debtor’s estate allegedly voidable preferences or fradulent conveyances made by Elsub. On November 14, 1985, Elsub filed a notice of motion seeking an order dismissing the involuntary petition with prejudice and seeking summary judgment in its favor on the grounds that: (1) the petition was not filed in good faith; (2) only one petitioning creditor filed the involuntary petition notwithstanding the fact that El-sub had more than twelve creditors; (3) this court lacks subject matter jurisdiction over the petition, and; (4) the petitioning creditor failed to state a claim upon which relief may be granted. Elsub, on November 14,1985, also filed an Answer, Affirmative Defenses and a Counterclaim pursuant to
(1) PEI knew or should have known that the creditors of Elsub include the creditors of Elsinore Shore Associates (ESA), a partnership of which Elsub is a general partner, and that notwithstanding this knowledge, petitioner intentionally and willfully in bad faith filed a single-creditor petition;
(2) PEI was aware of the fact that Elsub has been paying its debts as they become due;
(3) PEI has not substantiated any preferential payment or fraudulent conveyance in its petition, and;
(4) PEI annexed its own correspondence to the involuntary petition and failed to annex responsive correspondence of Elsub, which one-sided presentation resulted in the omission of Elsub’s denials of the alleged breaches and defaults.
Pursuant to a Case Management and Scheduling Order entered by this court on December 2,1985, a hearing was conducted on December 10, 1985 for the limited purpose of determining whether PEI properly instituted a single-creditor involuntary petition against Elsub under
On January 3, 1986, this court ruled that the holders of claims against the partnership, ESA, were holders of claims against Elsub, a general partner of ESA, which claims were not contingent as to liability under
In this court’s January 3, 1986 decision regarding whether PEI properly instituted a single-creditor involuntary petition against Elsub under
On February 28, 1986 this court entered an order pursuant to Bankruptcy Rule 1003(d) directing notice to creditors and retaining jurisdiction. The order provided in part that:
Playboy may move within thirty days after the date of the notice, which date shall be the mailing date of the notice, to creditors ... to amend the Involuntary Petition pursuant tosection 303(c) of the Bankruptcy Code by joining in the Involuntary Petition a sufficient number of creditors who are qualified underSection 303(b) to be petitioning creditors against Elsub, provided, however, that Playboy shall have an additional ten days following the expiration of the thirty day period within which creditors may join in the involuntary petition in which to file evidence of such creditor joinder.
The February 28, 1986 order further provided:
Any creditor eligible to be a petitioner undersection 303(b) of the Bankruptcy Code shall be allowed to join in the Involuntary Petition only if it serves upon Elsub and files with the Court a verified petition for joinder (“Petition for Join-der”) in the Involuntary Petition substantially in the form of Official Bankruptcy Form No. 11, containing all of the aver-ments of fact required or contemplated by such form or such other form as is permitted by law; provided, however, that no Petition for Joinder shall be granted if the Court determines that the Involuntary Petition was filed in bad faith, and provided further that any such Petition for Joinder shall be of no force and effect unless (a) such Petition for Joinder is served and filed within the time allowed herein, and (b) the Court determines that the Involuntary Petition was not filed in bad faith, and (c) the Court grants a motion by Playboy to amend the Involuntary Petition to add the creditor named in such Petition for Joinder.
On May 8, 1986 the court sent out a notice to all known creditors of Elsub, including PEI, in accordance with its February 28, 1986 order informing them of this court’s January 3, 1986 findings and affording them an opportunity to join in the petition pursuant to Bankruptcy Rule 1003(d). The May 8, 1986 notice (hereinafter “Intervention Notice”) provided in relevant part:
PLEASE TAKE NOTICE THAT ON FEBRUARY 28,1986, AN ORDER DATED FEBRUARY 28, 1986, (THE “ORDER”), WAS ENTERED IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF NEW JERSEY, DETERMINING THAT AN INVOLUNTARY PETITION, DATED NOVEMBER 13, 1985 (THE “INVOLUNTARY PETITION”) UNDER CHAPTER 11 OF TITLE 11 OF THE UNITED STATES CODE (THE “BANKRUPTCY CODE”) FILED BY PLAYBOY ENTERPRISES, INC. (“PLAYBOY”) AGAINST ELSUB CORPORATION (“ELSUB”), THE ALLEGED DEBTOR NAMED IN THE INVOLUNTARY PETITION, COULD NOT BE MAINTAINED UNDER SECTION 303(B) OF THE BANKRUPTCY CODE BY PLAYBOY ALONE SINCE CREDITORS OF ELSINORE SHORE ASSOCIATES (“ESA”), A PARTNERSHIP IN WHICH ELSUB WAS THE GENERAL PARTNER, WERE ALSO CREDITORS OF ELSUB, AND TWELVE OR MORE OF SUCH CREDITORS WERE ELIGIBLE UNDER SECTION 303(B) OF THE BANKRUPTCY CODE TO BE INVOLUNTARY PETITIONERS AGAINST EL-SUB ON THE DATE OF THE INVOLUNTARY PETITION.
PLEASE TAKE FURTHER NOTICE THAT, PURSUANT TO BANKRUPTCY RULE 1003(D) THE COURT HAS AGREED TO RETAIN JURISDICTION OVER THE INVOLUNTARY PETITION IN ORDER TO AFFORD TO OTHER CREDITORS OF ELSUB A REASONABLE OPPORTUNITY TO JOIN IN THE INVOLUNTARY PETITION BEFORE THE CASE IS CLOSED. YOU MAY (BUT ARE NOT REQUIRED TO) JOIN IN THE INVOLUNTARY PETITION BY SERVING UPON ELSUB AND FILING WITH THE CLERK OF THE COURT, IN ROOM 210, UNITED STATES COURTHOUSE, 401 MARKET ST., P.O. BOX 3437, CAMDEN, NEW JERSEY, WITHIN 30 DAYS AFTER THE DATE OF MAILING OF THIS NOTICE, A VERIFIED PETITION FOR JOINDER IN THE INVOLUNTARY PETITION WHICH CONTAINS THE AVERMENTS SPECIFIED IN OFFICIAL BANKRUPTCY FORM NO. 11 OR WHICH IS OTHERWISE SUBSTANTIALLY IN SUCH FORM. JOINDER MAY NEVERTHELESS BE DENIED IF THE COURT FINDS THAT THE INVOLUNTARY PETITION WAS FILED BY PLAYBOY IN BAD FAITH, OR IF THE COURT FOR ANY OTHER REASON DETERMINES THAT YOU ARE NOT QUALIFIED UNDER SECTION 303 OF THE BANKRUPTCY CODE TO JOIN IN THE INVOLUNTARY PETITION.
THE COURT HAS NOT RULED ON THE QUESTION OF WHETHER EL-SUB WAS GENERALLY PAYING ITS DEBTS AS THEY BECAME DUE, NOR DOES THE COURT IN ANY WAY ENCOURAGE OR DISCOURAGE JOIN-DER IN THE INVOLUNTARY PETITION. THIS NOTICE IS INTENDED ONLY TO COMPLY WITH BANKRUPTCY RULE 1003(D) BY AFFORDING YOU NOTICE OF YOUR OPPORTUNITY TO JOIN IN THE INVOLUNTARY PETITION.
In response to the May 8, 1986 Intervention Notice, the following responses were filed with this court or received by ESA or Elsub:
1. A letter dated May 27, 1986, filed with the court on May 29, 1986, from Joel B. Gottlieb, Esquire of the firm of Harrington, Kady & Gottlieb, P.A., to the United States Bankruptcy Court in connection with the proceeding “Accent Limo v. Elsinore Shore Associates” requesting that the bankruptcy court forward to him a Form 11, Verified Petition for Joinder in the Involuntary Petition;
2. A note written on the reverse side of a copy of the Intervention Notice sent by this court from Gertrude Silverstein, filed with the court on May 14,1986 stating that Gertrude Silverstein on November 10,1985, suffered injuries while visiting the Atlantis Casino Hotel in Atlantic City, New Jersey.
3. A letter filed with the court on June 3, 1986 from Beverly A. Coleman to James J. Waldron, the Clerk of the United States Bankruptcy Court for this district, acknowledging receipt of the Intervention Notice and stating, “While I do not understand the legal technical jargon in this document, I am responding by the 30 days deadline as stated in the document to join in the involuntary petition. Or in other
4. On June 5, 1986 a Form No. 11, Creditor’s Petition was filed with the court by Aecha Stanishewski which described the nature and amount of petitioner’s claim against the Atlantis Casino Hotel as follows: “discrimination complaint filed through EEOC, Philadelphia.”
5. A Form No. 11, Creditor’s Petition was received, but not filed by the court from Wanda Y. Williams, which described the nature and amount of the petitioner’s claim against ESA as follows: “former employee layoff subject to recall.” The petition states that the debtor is generally not paying its debts as they become due as indicated by the following “will not rehire as of this date for last 3 years.”
6. On June 9, 1986 an Involuntary Petition on behalf of HBA, East Inc. against ESA was filed in the case In re Elsinore Shore Associates, A/K/A, F/K/A Playboy Elsinore Associates, The Atlantis Casino Hotel, Case No. 85-06058. The petition was dated June 6, 1986. The nature and amount of the petitioner’s claim was described as follows:
(1) The Atlantis Casino Hotel cancelled two boxing events during the Fall of 1985 for which they were obligated under existing contracts to pay $20,000.00 per event.
(2) N.J. Athletic Commission for ticket sales taxes, Amount Owed: $4,583.40.
Total Claims: $44,583.40
7. On July 2, 1986 two separate Involuntary Petitions were filed against Elsub Corporation by Robert W. Sebera, Esquire, counsel on behalf of two claimants, Stephen Canale and Wayman Andre Walker. The nature and amount of petitioners’ claims were both described as follows: “personal injury damages due to negligence of Elsub Corporation employees.”
On August 21, 1986 Elsub filed a motion to dismiss the involuntary petition filed on November 13, 1985 by PEI pursuant to
Elsub asserted the following defenses to the petitions or pleadings received in response to the Intervention Notice:
1. No properly executed Joinder Petition from Accent Limousine was filed with the court or served on Elsub or its counsel.
2. The claim of Gertrude Silverstein was contingent as to liability and subject to a bona fide dispute. The response from that creditor consisting of a handwritten note failed to provide any of the averments specified in Official Bankruptcy Form No. 11 as required by this court.
3. Beverly A. Coleman has a contingent, unliquidated and disputed claim against ESA. Ms. Coleman’s letter, furthermore, was not verified.
4. The form submitted by Aecha Stan-ishewski was not verified and petitioner’s claim is unliquidated and disputed.
5. The petition filed by Wanda Y. Williams was not verified and Ms. Williams’ claim is unliquidated and disputed.
6. The involuntary petition filed on behalf of HBA East Inc., although dated June 6, 1986, was received by Atlantis Casino and Hotel on June 9, 1986, two (2) days after the expiration of the 30-day joinder period. Stephen R. Reynolds, Esquire, counsel for Elsub, in a certification dated August 19,1986 stated that he was advised by Michael M. Perlman, Esquire, counsel for HBA East Inc. that the Involuntary Petition was filed by HBA East, Inc. to induce a representative of the Atlantis Casino Hotel to respond to certain inquiries Mr. Perlman had made on behalf of his client and that since Mr. Perlman had re
7. The petitions filed by counsel for Stephen Canale and Wagman Andre Walker were not verified, and filed after the established deadline for filing. The claims involved therein relating to alleged personal injuries, are contingent as to liability and fail to make any claim that Elsub is not paying its debts as they become due.
Elsub asserts that since no creditor of Elsub, eligible under
On August 22, 1986 PEI filed a notice to amend its Involuntary Petition against El-sub by joining in the petition three (3) creditors whom it asserted were qualified to be petitioning creditors against Elsub. At that time PEI presented three separate certified “Creditor’s Petition To Join In Involuntary Petition” against Elsub Corporation each executed on February 28, 1986 by Uniforms to You & Co., Inc., Recycled Paper Products, Inc., and Enesco Imports Corporation. In its motion PEI asserts that under the terms of this court’s prior order dated February 28, 1986, PEI would have until June 9, 1986 to move to join creditors, and until June 19, 1986 1 to file evidence of joinder. PEI argues that the Clerk of the Bankruptcy Court did not send a copy of the Intervention Notice to counsel for PEI and that because counsel for PEI did not receive the notice, it had no reason to know that the 30 and 10-day period had begun to run. Counsel for PEI asserts therein that it did not learn that the Clerk of the Bankruptcy Court had mailed the intervention notice nor learn that the time for joinder had run until July 23, 1986 when counsel called the Office of the Clerk to inquire as to when the Intervention Notice was to be mailed. PEI by its motion asserts that it would have moved for join-der of these creditors within the court’s previous deadline had PEI received the Intervention Notice and requests that the court enter an order joining the three-named creditors to the Involuntary Petition against Elsub.
Subsequent to the filing by PEI of the motion to Add Creditors to Involuntary Petition, each of the three creditors which PEI sought to join sought to voluntarily withdraw their joinder petitions.
By letter to this court dated September 10, 1986 Mike Parker, Credit Manager of Uniforms to You & Co., Inc. stated:
After discussing the creditor’s petition with management to join in Involuntary Petition against Elsub Corporation, a decision has been made not to do so. Therefore, I am withdrawing in [sic] behalf of Uniforms To You Inc. their creditor’s petition.
By letter to this court dated September 17, 1986, Bruce H. Wyatt, Secretary and Counsel for Enesco Imports Corp., stated:
We respectfully request that the petitioner, Enesco Imports Corp., One Enes-co Plaza, Elk Grove Village, IL 60007, an Ohio corporation, be allowed to immediately withdraw its previously-filed Join-der of the involuntary bankruptcy petition filed November 13, 1985 in the above-captioned case by Playboy Enterprises, Inc.
It is our understanding that as a result of this withdrawal the undersigned petitioner will not be required to appear at 10:00 a.m. on September 25, 1986 in Chicago, Illinois for the depositions scheduled in the above-captioned case at the offices of Neal, Gerber & Eisenberg, 208 South LaSalle Street, Suite 900.
We further understand that our withdrawal from the above captioned case will not effect nor preclude the enforcement of the undersigned’s right underthe proof of claim filed against Elsinore Shores Associates, in a voluntary bankruptcy petition filed by that company in this same court, civil action # 85-06058.
By letter to this court dated September 26, 1986 Martin Weinberg, Credit Manager for Recycled Paper Products, Inc. stated:
On September 25, 1986 Stephen R. Reynolds took my deposition concerning Elsub/Playboy. During the deposition I was informed that this case is in litigation. Had I prior knowledge of the litigation, I would not have joined Playboy in their involuntary bankruptcy petition.
Recycled Paper Products is withdrawing from the involuntary Bankruptcy petition filed November 23, 1985 by Playboy Enterprises Inc.
HBA East Inc. also seeks to voluntarily withdraw its joinder request. By letter to the court dated September 10, 1986, Michael M. Perlman, Esquire, counsel for HBA East, Inc., stated:
On June 6, 1986 we sent an Involuntary Petition on behalf of our client, HBA East, Inc., in the above referenced matter. Please be advised that our client has no desire to join with Playboy Enterprises, Inc. as a creditor pursuant to Bankruptcy Rule 1003(d) in the matter entitled In re Elsub Corporation, Case No. 85-05972, which is referred to in the May 8, 1986 Notice Pursuant to Bankruptcy Rule 1003(d) Concerning Insufficiency of Involuntary Petition and Opportunity for Intervention.
It is our understanding, however, that we will not be precluded from enforcing our client’s rights as a creditor against Elsinore Shore Associates in the above captioned case.
This court directed notice to all creditors of Elsub, including creditors of ESA, of the present motion by Elsub to dismiss the Involuntary Petition. 2
On November 10, 1986 the court received a written objection to the dismissal from Hewitt Travel. Hewitt Travel, by its owner, G. Robert Hewitt, stated “Atlantis Casino Playboy owes us (Hewitt Travel Commissions on Bookings of Hardings & D’Alonzo) $257.60 I would not like to see any dismissal before this debt is paid .. Hewitt Travel did not appear at the November 21, 1986 hearing.
On November 12, 1986 the court received a written response to the notice of the hearing on Elsub’s motion to dismiss filed by Yee C. Zia. That claimant’s response was directed against “Elsub Corporation d/b/a Atlantis Casino”. Yee C. Zia asserted therein a claim for theft of money at a roulette table at The Atlantis Casino and a request for information regarding the casino’s insurance coverage. Yee C. Zia did not appear at the November 21, 1986 hearing.
On the date of the November 21, 1986 hearing, PEI appeared in opposition to the motion to dismiss the Involuntary Petition. Michael L. Testa, Esquire, counsel for Samuel J. Del Rossi, also appeared in opposition to the motion to dismiss the Involuntary Petition. Counsel for Mr. Del Rossi stated that Mr. Del Rossi was a “discharged employee,” and that he was “appearing on his behalf just to see what’s been going on and get brought up to date.” (Transcript of November 21, 1986, at p. 42). Counsel for Del Rossi further urged the court to “stay involved in the matter” and provide the necessary “monitoring of the situation.” (Transcript of November 21, 1986 at p. 43). That same day an unverified Creditor’s Petition to Join in Involuntary Petition was filed by Michael L. Testa, Esquire, as coun
Beverly Coleman, appeared on her own behalf at the November 21, 1986 hearing and stated that she was present to “try and understand all this litigation.” (Transcript of November 21, 1986, at p. 56). Ms. Coleman stated that she had filed a claim with the Equal Employment Opportunity Commission for wrongful termination of her employment by ESA. (Transcript of November 21, 1986, at pp. 57-58). No other creditors appeared in opposition to the motion.
At the November 21, 1986 hearing PEI also presented two verified Creditor’s Petition To Join In Involuntary Petition as follows:
1. Creditors’ Petition To Join In Involuntary Petition by Korey, Kay & Partners, Inc., executed by counsel for Korey, Kay & Partners on November 19, 1986 and filed with this court on November 21, 1986.
2. Creditor’s Petition To Join In Involuntary Petition by Playboy Sales, Inc., executed by said petitioner on November 20, 1986 and filed with this court on November 21, 1986.
For the reasons which follow, this court finds that Elsub’s motion to dismiss the involuntary petition on the grounds of an insufficient number of eligible petitioners should be denied. Playboy’s motion to add creditors, however, cannot be finally determined at this time, since the court must first reach and rule on the issue of whether PEI filed the original single-creditor involuntary petition in good faith.
(b) An involuntary case against a person is commenced by the filing with the bankruptcy court of a petition under chapter 7 or 11 of this title—
(1) by three or more entities, each of which is either a holder of a claim against such person that is not contingent as to liability or the subject on [sic] a bona fide dispute, or an indenture trustee representing such a holder, if such claims aggregate at least $5,000 more than the value of any lien on property of the debtor securing such claims held by the holders of such claims;
(2) if there are fewer than 12 such holders, excluding any employee or insider of such person and any transferee of a transfer that is voidable under section 544, 545, 547, 548, 549, or 724(a) of this title, by one or more of such holders that hold in the aggregate at least $5,000 of such claims.
Section 303(h) of the Bankruptcy Code further provides:
(h) If the petition is not timely controverted, the court shall order relief against the debtor in an involuntary case under the chapter under which the petition was filed. Otherwise, after trial, the court shall order relief against the debtor in an involuntary case under the chapter under which the petition was filed, only if—
(1) the debtor is generally not paying such debtor’s debts as such debts become due unless such debts that [sic] are the subject of a bona fide dispute; or
(2) within 120 days before the date of the filing of the petition, a custodian, other than a trustee, receiver, or agent appointed or authorized to take charge of less than substantially all of the property of the debtor for the purpose of enforcing a lien against such property, was appointed or took possession.
Elsub in its motion to dismiss the Involuntary Petition takes the position that of the eight (8) parties who filed responses to the May 8, 1986 intervention notice only HBA East, Inc. holds an actual claim which is not contingent as to liability and is eligible to be a petitioning creditor under § 303(b)(1) and that that creditor has since
The phrase “not contingent as to liability”, contained in
In construing the phrase “not contingent as to liability”, courts have traced
Three or more creditors who have provable claims against any person which amount in the aggregate, in excess of the value of securities held by them, if any, to five hundred dollars or over; or if all of the creditors of such person are less than twelve in number, then one of such creditors whose claim equals such amount may file a petition to have him adjudged a bankrupt.
Bankruptcy Act, ch. 541, 30 Stat. 544, 561 (1898). In 1938, Section 59(b) of the Bankruptcy Act was amended to provide that:
Three or more creditors who have provable claims fixed as to liability and liquidated as to amount against any person which amount in the aggregate in excess of the value of securities held by them, if any, to $500 or over; or if all of the creditors of such person are less than twelve in number, then one of such creditors whose claim equals such amount may file a petition to have him adjudged a bankrupt.
Bankruptcy Act, ch. 575, 52 Stat. 840, 868 (1938).
Under these sections of the Bankruptcy Act, a claim was not rendered contingent as to liability merely because it was unmatured. The case of
In re Myers,
In 1952, § 59(b) was amended to provide that:
Three or more creditors who have provable claims liquidated as to amount and not contingent as to liability against any person which amount in the aggregate in excess of the value of securities held by them, if any, to $500 or over, or, if all of the creditors of such person are less than twelve in number, then one or more of such creditors whose claim or claims equal such amount, may file a petition to have him adjudged a bankrupt.
Bankruptcy Act, Pub.L. No. 456, § 16, 66 Stat. 420, 425 (1952). In 1962, § 59 was again amended to provide that:
Three or more creditors who have provable claims not contingent as to liability against a person, amounting in the aggregate to $500 in excess of the value of any securities held by them, or, if all of the creditors of the person are less than twelve in number, then one or more of the creditors whose claim or claims equal that amount, may file a petition to have him adjudged a bankrupt; but the claim or claims, if unliquidated, shall not be counted in computing the number and the aggregate amount of the claims of the creditors joining in the petition, if the court determines that the claim or claims cannot be readily determined or estimated to be sufficient, together with the claims of the other creditors, to aggregate $500, without unduly delaying the decision upon the adjudication.
Bankruptcy Act, Pub.L. No. 87-681, § 7, 76 Stat. 570, 571 (1962).
(b) An involuntary case is commenced by the filing with the bankruptcy court of a petition under chapter 7 or 11 of this title—
(1) by three or more entities, each of which is either a holder of a claim against such person that is not contingent as to liability or an indenture trustee representing such a holder, if such claims aggregate at least $5,000 more than the value of any lien on property of the debtor securing such claims held by the holders of such claims;
(2) if there are fewer than 12 such holders, excluding any employee or insider of such person and any transferee of a transfer that is voidable under section 544, 545, 547, 548, 549, or 724(a) of this title, by one or more of such holders that hold in the aggregate at least $5,000 of such claims.
It is significant to note that under the Bankruptcy Reform Act of 1978 there was no longer a requirement that claims be provable in order for an involuntary petition to be brought. Thus, holders of unmatured, disputed and unliquidated claims are not specifically barred from being petitioning creditors.
See, e.g., Matter of Covey,
Finally,
(1) by three or more entities, each of which is either a holder of a claim against such person that is not contingent as to liability or the subject on [sic] a bona fide dispute, or an indenture trustee representing such a holder, if such claims aggregate at least $5,000 more than the value of any lien on property of the debtor securing such claims held by the holders of such claims;
(2) if there are fewer than 12 such holders, excluding any employee or insider of such person and any transferee of a transfer that is voidable under section 544, 545, 547, 548, 549, or 724(a) of this title, by one or more of such holders that hold in the aggregate at least $5,000 of such claims.
This statutory development has led at least one court to remark that bankruptcy parlance has connected the concept of contingency with the notion of liability
vel non,
and the concept of liquidation with the notion of reduction to an ascertainable dollar amount.
In re Albano,
The court in the case of
In re All Media Properties, Inc.,
claims are contingent as to liability if the debt is one which the debtor will be called upon to pay only upon the occurrence or happening of an extrinsic event which will trigger the liability of the debtor to the alleged creditor and if such triggering event or occurrence was one reasonably contemplated by the debtor and creditor at the time the event giving rise to the claim occurred.
In attempting to construe the phrase “not contingent as to liability”, the court in
In re All-Media Properties, Inc.,
looked to “classic” examples of contingent liability. One example cited by that court is guarantors of promissory notes who are secondarily liable for principal debtors’ obligations. Guarantors, by definition, are only liable if the principal debtor defaults. Another classic example of contingent liability cited by the
All-Media
court is the liability of a defendant in a negligence action, where the parties, at the time of the alleged negligent act, contemplated that the alleged tortfeasor would be liable only if found to be so by a competent tribunal.
The case of
In re Blehm,
The classic examples of contingent debts are the guarantor/surety situations and a tort claim on which no judgment has been entered. The guarantor situation is obvious — there liability is dependent on a future uncertain event — the default of the primary obligor. Tort claims have been considered contingent because they require proof by the plaintiff creditor of the debtor’s liability and the amount of damages are, by their very nature, not fixed unless and until a judgment is entered setting the debtor’s liability.
In the case at bar the claims asserted by Beverly Coleman, Aecha Stanishew-ski, Gertrude Silverstein, Stephen Canale, Wayman Andre Walker and Samuel J. Del Rossi in their joinder petitions assert various claims against Elsub or ESA based upon discriminatory conduct, wrongful discharge or termination of employment and personal injury claims. These claims have not been fixed by any judgment and require proof by these creditors of Elsub’s or ESA’s liability, rendering these claims contingent as to liability as that term is contained in
Elsub argues that Wanda Y. Williams is not an eligible petitioning creditor on the grounds that the Form No. 11 Creditor’s Petition was not verified, and her claim described in the Creditor’s Petition as “former employee layoff subject to recall” is unliquidated and disputed. Holders of disputed and unliquidated claims are not specifically barred from being petitioning creditors.
See Matter of Covey,
650
In connection with the petitions filed by HBA East, Inc., Uniforms To You & Co., Inc., Recycled Paper Products, Inc. and En-esco Imports Corp., applications to voluntarily withdraw those petitions are before this court.
PEI asserts as a threshold matter that an eligible petitioning creditor cannot voluntarily withdraw from an involuntary petition if its withdrawal would result in the defeat of the involuntary petition and that such withdrawal should be allowed only after notice to creditors and a hearing to determine if the interests of creditors would be affected.
Preliminarily, it should be noted that all creditors of Elsub, including ESA, received notice of the November 21,1986 hearing on Elsub’s motion to dismiss the involuntary petition.
Courts have held as a general rule that if a creditor is an eligible petitioning creditor, that creditor cannot withdraw if its withdrawal would result in the defeat of the involuntary petition.
See e.g. Sheehan & Egan, Inc. v. North Eastern Shoe Co.,
The general rule as articulated by the court in Sheehan & Egan v. North Eastern Shoe Co. is as follows:
an original petitioner, or one who has intervened and been permitted to join, cannot be allowed to withdraw to defeat the petition against the objection of his co-petitioners.
This rule is based upon the principle that an involuntary petition protects all creditors of the debtor, not only those presently before the court. The policy is also aimed at avoiding collusion between petitioners and the debtor, such as where a debtor could induce a self-seeking petitioner to
The court in Sheehan, supra distinguished a petition originally defective in the requisite number of petitioning creditors:
When an involuntary petition is defective in its allegations or is wanting in the requisite number of petitioning creditors, it probably is discretionary with the court whether it will allow the petition to be amended or will extend the time for other creditors to intervene, or will dismiss the petition. But, when the allegations of the petition are adequate, and the requisite number of petitioning creditors have joined, and these facts and allegations are established, it is the duty of the court to adjudicate.
The court, in the case of
Moulton v. Coburn,
131 F.201 (1st Cir.1904),
cert. denied
The present case, however, differs essentially from a case in which one of three original petitioners in involuntary bankruptcy seeks to withdraw, and thereby to impair the rights of his co-petitioners. There had been no express joinder in the original petition, but merely a petition that the Tripp Company be allowed to join, and a withdrawal of this petition before any final action of the court, making it a party to the original petition.
It is clear herein that the right of HBA East, Inc., Uniforms To You & Co., Inc., Recycled Paper Products, Inc. and Enesco Imports Corp. to become petitioning creditors was not free from doubt, and at the very least a contestable right. Prior to this court granting joinder, these creditors, through their representatives or counsel have sought to voluntarily withdraw their petitions. The circumstances herein clearly permit the withdrawal of these four (4) creditors’ petitions for joinder previously filed in this case.
With respect to the Creditor’s Petition To Join In Involuntary Petition filed by Korey, Kay & Partners, Inc. and Playboy Sales, Inc., Korey, Kay & Partners, Inc. was included in the list of creditors annexed to the voluntary Chapter 11 petition filed by ESA on November 14, 1985 and listed therein as one of twenty largest unsecured creditors of ESA, excluding insiders and governmental entities. The A-3 schedules of unsecured liquidated accounts payable filed by ESA on April 3, 1986 included Korey, Kay & Partners, Inc. as a creditor in the amount of $226,965.49. Korey, Kay & Partners, Inc. is a member of the Official Unsecured Creditors’ Committee of ESA.
Playboy Sales, Inc., by its Creditor’s Petition To Join In Involuntary Petition, asserts that it is a creditor of Elsub, holding a claim in the amount of $5,311.93. This debt arises from sales by Playboy Sales, Inc. to Playboy-Elsinore Associates, predecessor to ESA, as reflected by a certain Invoice Statement submitted as part of the joinder petition. Elsub offered no evidence that either of these debts have been paid or that there is otherwise no liability. More
Elsub, however, argues that this court should not consider the Joinder Petitions filed by these two creditors on the basis that the petitions were filed outside of the deadlines contained in this court’s order of February 28, 1986, and the May 8, 1986 Intervention Notice. PEI does not dispute the fact that Korey, Kay & Partners Inc., a member of the Unsecured Creditors’ Committee of ESA, was listed on the original list of creditors, and received the May 8, 1986 Intervention Notice. Nor does PEI raise as a defense that Playboy Sales 'Inc. had no, knowledge of the Elsub involuntary petition filed on November 13, 1985. Instead, PEI asks that this court, notwithstanding the expiration of the deadlines contained in the Intervention Notice, recognize the two joinder petitions filed herein.
It is generally held that intervention-in an involuntary petition is timely until' an order for relief is entered or a case, is. dismissed.
See In re Nazarian,
(c) After the filing of a petition under this section but before the case is dis-nfissed or relief is ordered, a creditor holding an unsecured claim that is not contingent, other than a creditor filing under subsection (b) of this section, may join in the petition with the same effect as if such joining creditor were a petitioning creditor under subsection (b) of this section.
The legislative history of
Subsection (c) permits creditors other than the original petitioning creditors to join in the petition with the same effect as if the joining creditor had been one of the original petitioning creditors. Thus, if the claim of one of the original petitioning creditors is disallowed, the case will not be dismissed for want of three creditors or want of $5,000 in petitioning claims if the joining creditor suffices to fulfill the statutory requirements.
H.Rep. 95-595, 95th Cong. 1st Sess., 322 (1977), U.S.Code Cong. & Adm.News, 1978, p. 5787, 6279.
Bankruptcy Rule 1003 further provides in pertinent part:
(a) Commencement. A petition commencing an involuntary case shall be filed with the bankruptcy court and shall conform substantially to Official Form No. 11.
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(d) Joinder of Petitioners After Filing. If the answer to an involuntary petition filed by fewer than three creditors avers the existence of 12 or more creditors, the debtor shall file with the answer a list of all creditors with their addresses, a brief statement of the nature of their claims, and the amounts thereof. If it appears that there are 12 or more creditors as provided in§ 303(b) of the Code, the court shall afford a reasonable opportunity for other creditors to join in the petition before-a hearing is held thereon.
This court has reviewed the terms of both its February 28, 1986 order and the May 8, 1986 Intervention Notice. The February 28, 1986 order, consented to by PEI and Elsub, provided that “such Petition for Joinder shall be of no force and effect unless (a) such Petition, for Joinder is served and filed within the time allowed herein, and (b) the Court determines that the Involuntary was not filed in bad faith, and (c) the Court grants a motion by Playboy to amend the Involuntary Petition to add the creditor named in such petition for Joinder.” While the February 28, 1986 or
In the case of
Penn Central Transportation Co.,
... Pinney and Litton 1) received mail notice of the proof of claim program and the bar date, 2) chose whether or not to participate in the reorganization proceéd-ings as to their other claims, and 3) sought relief from the district court long after the consummation of reórganiza-tion. They further admit that the trustees did not know any facts about the alleged conspiracy. Under these circumstances, we agree with the district court that effect must be given to the policy of finality in section 77 reorganizations and we find that Pinney and Litton received all the notice that they were due under the Constitution.
Id. at 769.
In the case at bar, the involuntary proceeding is still pending before this court, no order for relief having been entered or order of dismissal granted. The policy of finality ennumerated in the Penn Central case is not appropriate to the case at bar.
Nor will this court otherwise disqualify these two joinder petitions before it on procedural or other technical grounds. The court in the case of
In re North County Chrysler Plymouth, Inc.,
“The purpose of an involuntary proceeding ... is to secure an equitable distribution of the assets of the alleged debtor among all his creditors.” [citations omitted]. By eliminating the need to have a provable, liquidated claim, the Congress has stated a policy in favor of a liberal taking of jurisdiction in involuntary cases. Resolutions of disputes concerning claims is left to a later time, [citation omitted].
The court in In re North County Chrysler Plymouth Inc., supra, further remarked:
While the applications to join as petitioning creditors are not artfully drawn, the sense of the creditor’s intention is clear. The Court has no authority to deny intervention if the application to intervene is timely and the creditor otherwise qualifies. In re Accord Ventilating Company, 221 F.2d 899 (7th Cir.1955).
“Intervention is a matter of right unless the bankruptcy court finds the petition was made in bad faith for the purpose of improperly invoking its jurisdiction. Good faith is presumed and the burden of showing bad faith rests on the alleged bankrupt ...
“Clearly the purpose of the statute and the rule [Section 59 of the Act, Section 95, Title 11, Rule 104] is to faciliate bankruptcy proceedings regardless of the correctness of the originating petition.” In re Crown Sportswear,575 F.2d 991 , 993 (1st Cir.1978).
The Bankruptcy Amendments and Federal Judgeship Act of 1984 amended
This court has already stated that the simplicity of the “bona fide dispute” language is deceptive, see In re Drexler,56 B.R. 960 , 966 (Bankr.S.D.N.Y.1986), and substantial interpretative problems are presented. One court dealing with the issue has held that if the defense of the alleged debtor to the claim of the petitioning creditor raises material issues of fact or law so that
“a summary judgment could not be rendered as a matter of law in favor of the creditor on a trial of the claim, the claim is subject to a bona fide dispute.”
In re Stroop,51 B.R. 210 , 212 (Bankr.D.Colo.1985). Another court grappling with the issue has held:
“A bona fide dispute is a conflict in which an assertion of a claim or right made in good faith and without fraud or deceit on one side is met by contrary claims or allegations made in good faith and without fraud or deceit on the other side.”
In re Johnston Hawks, Ltd.,49 B.R. 823 , 830 (Bankr.D.Ha.1985).
This court has held that
“[a] general answer may be given that a claim based upon an unstayed judgment as to which an appeal has been taken by the debtor is not the subject of a bona fide dispute. * * *
“It would be contrary to the basic principles respecting, and would effect a radical alteration of, the long-standing enforceability of unstayed final judgments to hold that the pendency of the debtor’s appeal created a ‘bona fide dispute’ within the meaning of Code§ 303 .”
In re Drexler, supra,
After reviewing the bona fide dispute standards, the Ross court concluded:
Undue weight cannot be placed on the nature of the claims held by the petitioners as the debtor’s true protection against an improvident involuntary petition lies in the independent requirement of Code§ 303(h) that it be established that the debtor is generally not paying its debts as they become due. In its final analysis before entering an order for relief, the court must test its result by balancing the interests of the creditors against those of the debtor before entering an order for relief on an involuntary petition if the debtor disputes the petitioners’ claims.
In the case herein, Elsub has not asserted nor does the record in this case reveal that the claims of Korey, Kay & Partners Inc. and Playboy Sales, Inc. are the subject of a b.ona fide dispute.
Accordingly, the court finds that there are at least two creditors of Elsub, other than PEI, those creditors being Korey, Kay & Partners, Inc. and Playboy Sales, Inc., holding claims against Elsub not contingent as to liability or the subject of a bona fide dispute, eligible under
Under both the Bankruptcy Act and the Bankruptcy Code, intervention in an involuntary petition has been held to be a matter of right.
See, e.g., In re Thomas,
With regard to the issue of join-der of creditors, courts have held that a prerequisite to allowing joinder of additional creditors to cure a defective petition is that the original petition was filed in good faith.
See, e.g., Basin Electric Power Cooperative v. Midwest Processing Company,
Accordingly, intervention may be disallowed where the court finds that the petition was filed in bad faith or for the purpose of improperly invoking the bankruptcy court’s jurisdiction.
See, In re Thomas, supra.
So long as intervention is permissible, the bankruptcy court retains jurisdiction over an involuntary proceeding which was commenced with an insufficient number of petitioners.
See, e.g., In re Mason,
Whether intervention by these creditors will be allowed cannot be finally determined until this court has ruled upon whether the filing of a single-creditor involuntary petition by PEI was done in good faith. Hearings on that issue will go forward as scheduled by the court.
An order shall be submitted in accordance with this opinion.
Notes
. The thirty-day time period contained in the February 28, 1986 order for PEI to move to amend the involuntary petition to join additional creditors actually expired on June 7, 1986 and the time period for PEI to file evidence of join-der expired on June 17, 1986.
. Both the motion by Elsub to dismiss the involuntary petition and the motion by PEI to add creditors to the involuntary petition were originally scheduled for hearing on October 17, 1986. At that time the court directed notice to all creditors of Elsub, including the creditors of ESA, of Elsub's motion to dismiss the involuntary petition. The hearing on both aforesaid matters was scheduled for November 21, 1986. Counsel for PEI at the November 21, 1986 hearing argued that parties who had filed petitions for joinder should not be permitted to withdraw except by leave of court on notice and hearing to creditors. (See Transcript of November 21, 1986 at pp. 38-39). In fact, all creditors of Elsub, including ESA, received notice of the hearing on Elsub’s motion to dismiss conducted on November 21, 1986.
. These eight parties are Accent Limousine, Gertrude Silverstein, Beverly Coleman, Aecha Stanishewski, Wanda Williams, HBA East Inc., Stephen Canale and Wagman Andre Walker.
. Since the close of the November 21, 1986 hearing, Joinder Petitions have been filed by T.C.B. Air, Waszen Container Service, Rochester Men’s Formal Wear Inc., A.C. Stage Lighting Co., Austino’s Lift Trucks, Inc., Michael B. Weiss Advertising Inc., Wilmington Piano Company, Antigua Sportswear Inc., 7-Up Bottling Company of Bridgeton, Inc., Fortune Gypsum Products Inc., Classic Limosine Service Ltd., Red the Uniform Tailor, Inc., American B.D. Liquor Company, Perfecttype Inc., Tesco Distributors, Inc., Kammson Industries, Inc., Display House Inc., Impax Marketing Communications Div. of Display House, Inc., Weidas Travel, South Jersey Publishing Company d/b/a The Press, Rees Import, Inc., Jack Raskin Upholstery Services, Executive Business Products, The Gibbens Company, Inc., A.C. Display Studios, Inc., SQN Peripherals, Inc., Ace Auto Supply Co., and Ascot Sales Corp. This court’s decision to retain jurisdiction is based upon a consideration of the petitions before the court on November 21, 1986. The court does not pass at this time upon the subsequent petitions for joinder filed after November 21, 1986.