MEMORANDUM OPINION AND ORDER RESOLVING CERTAIN LEGAL “STANDING” ISSUES PRESENTED IN: (A) MOTION TO DISMISS INVOLUNTARY CASE FILED BY ALLEGED DEBTOR [DE #57; AND (B) MOTION TO STRIKE PORTIONS OF MOTION TO DISMISS [DE # 15] FILED BY PETITIONING CREDITORS
I. INTRODUCTION.
Before this court are two discreet, yet multi-faceted legal “standing” questions pertaining to the involuntary bankruptcy petition that was commenced on July 7, 2009, against Henry S. Miller Commercial, LLC (“Miller” or the “Alleged Debtor”). In other words, before the above-referenced case is even permitted to go to an evidentiary hearing on the merits of the involuntary bankruptcy petition — to determine whether Miller is or is not generally paying its debts as they become due (11 U.S.C. § 303(h)(1)) — there is a question that must be answered as to whether the involuntary petition was, in fact, commenced by: (a) three or more entities, (b) each of which is the holder of a claim against Miller that is not contingent as to liability or the subject of a “bona fide dispute as to liability or amount.” 11 U.S.C. § 303(b)(1).
The Alleged Debtor has moved to dismiss the involuntary petition, arguing that the petition was, in fact, filed by just one entity (specifically arguing that all of the petitioning creditors are, in reality, alter egos or instrumentalities of a Mr. Barry Nussbaum) and, in any event, even if there are three or more entities involved, these entities’ claims (which arise from an un-stayed state court judgment that is on appeal) are the subject of a “bona fide dispute” as to the amount. The petitioning creditors (whom I will sometimes refer to as the “Nussbaum Entities”) retort that the Alleged Debtor is barred by the doctrines of collateral estoppel and Rooker-Feldman from making an argument that there is essentially one entity as petitioning creditor, not three, because this issue was decided in connection with the un-stayed state court judgment that is on appeal. Moreover, the Nussbaum Entities argue, only a creditor can argue alter ego type theories, and Miller does not claim to be a creditor of the Nussbaum Entities. The Nussbaum Entities also retort that one who holds an unstayed judgment (even *916 if on appeal) cannot be construed to be the holder of a claim that is the subject of a “bona fide dispute.” The Nussbaum Entities’ argument is, essentially, that if a judgment is enforceable under state law, then the judgment creditor can trigger an involuntary petition.
Thus, legal standing “Question # 1” before the court is whether the Alleged Debtor is estopped from arguing that the Nussbaum Entities are, in fact, one legal entity, not three (under either the collateral estoppel doctrine, the Rooker-Feldman doctrine, or because Miller is not a creditor of the Nussbaum Entities)?
Legal “Question #2,” which the court must answer regardless of the answer to Question # 1, is whether one who holds an unstayed judgment, even if on appeal, is, as a matter of law, the holder of a claim that is not the subject of a bona fide dispute as to liability or amount, or may a bankruptcy court go behind the judgment and find a dispute, and if so, does there appear to be a bona fide dispute here?
II. FACTS.
On April 27, 2004, the Nussbaum Entities entered into nine purchase and sale agreements with Orleans Properties, L.P., a single purpose entity set up by Miller’s client, Mr. James Flavin. These nine purchase and sale agreements pertained to several different apartment complexes, some in the Bachman Lake area of Dallas, Texas; two in Fort Worth, Texas; one in Seagoville, Texas; one in Lake Jackson, Texas; and one in Houston, Texas, plus one office building in Houston, Texas. The purchase price was $94,665,000. The purchase and sale agreements were never consummated. As it turned out, Mr. Fla-vin grossly misrepresented his financial resources to consummate these purchase and sale agreements. Mr. Flavin was, apparently, a judgment-proof Massachusetts truck driver, representing himself to be a member of a wealthy East Coast family and the beneficiary of a $300 million trust fund. Later, after Mr. Flavin’s amazing charade came to light, the Nussbaum Entities (plus eight other Plaintiffs — there were eleven Plaintiffs in all) sued Miller and Miller’s agent (Mr. Steven Defterios), who had been representing Mr. Flavin, for fraud and negligent misrepresentation arising out of the failed transactions, seeking damages exceeding $30 million. This lawsuit was filed in 2006 in the 14th Judicial District Court of Dallas County, Texas. A jury eventually returned a verdict in favor of the Plaintiffs and, on December 1, 2008, the state court (Judge Mary Murphy) rendered a judgment against Miller and Mr. Defterios in the aggregate amount of $8,918,718.99. Miller and Mr. Defterios subsequently appealed the state court judgment, basically appealing only the damages, but not the liability, imposed by the judgment, and that appeal has been at least partially briefed, and is now pending before the Court of Appeals for the Fifth District of Texas at Dallas. Meanwhile, during the pendency of this appeal, the Nussbaum Entities-specifically Dallas Clubview Gardens, L.P. (with a judgment claim of $493,397.24), Woodside Apartments L.P. (with a judgment claim of $1,185,568.72), and BNC Lake Jackson Village, L.P. (with a judgment claim of $263,-145.23) — filed the involuntary Chapter 7 bankruptcy petition against Miller. Barry Nussbaum signed on behalf of all three Petitioning Creditors, indicating that he was President of the Managing Member of the General Partner of each of the Petitioning Creditors.
III. LEGAL ANALYSIS AND RULINGS.
A. One Entity or Three Entities as Petitioning Creditors?
With regard to legal standing “Question # 1,” the court turns to the first argument *917 of the Nussbaum Entities, that the doctrine of collateral estoppel bars litigation of the question of whether the Nussbaum Entities should be construed as one versus three entities, because there is a state court judgment that is essentially disposi-tive of the issue. The court concludes that the doctrine of collateral estoppel is inapplicable here.
In Texas, collateral estoppel applies where “(1) the facts sought to be litigated in the second action were fully and fairly litigated in the first action; (2) those facts were essential to the judgment in the first action; and (3) the parties were cast as adversaries in the first action.”
Gupta v. Eastern Idaho Tumor Institute, Inc. (In re Gupta),
Here the issue of whether the Nussbaum Entities are the alter egos of one another, or of Barry Nussbaum, does not appear to have been fully and fairly in the state court judgment, based on this court’s review of the Final Judgment, Exh. AD-1, nor were the alter ego facts a “critical and necessary part of the judgment.” In fact, the issue was of no concern to anyone, because the doctrine of alter ego is typically utilized to hold an owner of a business entity, or an affiliate of a business entity, liable for the debts of the business entity. No one was trying to hold Nuss-baum or the Nussbaum Entities liable for any other business entity’s debts in the state court litigation. The state court litigation was all about Miller’s and Mr. Deft-erios’ potential liability to the Nussbaum Entities.
The court likewise concludes that the doctrine of
Rooker-Feldman
is inapplicable here. The
Rooker-Feldman
doctrine derives from two Supreme Court cases, one styled
Rooker v. Fidelity Trust Co.,
The court now turns to the harder question of Miller’s standing to raise the alter ego issues as a non-creditor of Nussbaum or the Nussbaum Entities, and in the context of Section 803.
In the
Sims
case,
In re Sims,
In analyzing the issue, the Fifth Circuit noted that the Bankruptcy Code is silent regarding whether, and under what circumstances, the separate identity of a corporate creditor should be disregarded for Section 303(b)(1) purposes. Id. at 215. Moreover, the Fifth Circuit had not been able to find any case in which the corporate identity of a petitioning creditor had been disregarded (although the court did find and discuss certain cases where the corporate identity of a petitioning creditor had been challenged). Significantly, the Fifth Circuit observed that “the legal principles for disregarding a corporation’s separate identity have been applied primarily in situations in which a creditor or other party seeks to use them as a sword to impose liability on the owners of a corporation. They may have limited utility under § 303, when a debtor is attempting to use them as a shield, to avoid involuntary bankruptcy.” Id. at 217 n. 8. In any event, without making a holding as to the possible inapplicability of the alter ego concept in connection with Section 303, the Fifth Circuit ultimately reversed the district court’s application of alter ego to the petitioning creditors in Sims. The Fifth Circuit started by noting that each of the three petitioning creditors held separate claims based on separate contracts. The court then assumed that ordinary principles of corporation law governing the disregard of corporate entities should apply. The court did not determine whether state or federal common law should be utilized in the Section 303 context (the court observing that Connecticut and Delaware state law — which were applicable to the corporations in Sims — were “substantially identical” to federal common law, and thus there was no need to determine this). Id. at 218 n. 11 (and various citations therein). The Fifth Circuit went on to note that it *919 was critical to determine whether the claims involved sounded in contract or tort, because in contract cases, fraud is an essential element of an alter ego finding. Id. at 218 n. 11. Once again, the court had to confront the unusualness of applying the alter ego theory in the context of Section 303, stating: “Here, there is no attempt by the debtors to hold DAI [who was the alleged alter ego of the petitioning creditors] liable for any debts owed them by the creditors — -indeed, the only claims that are relevant in determining the creditors’ qualifications under § 303(b)(1) are those of the creditors against the debtors. Those claims are based on contracts: the subleases and equipment leases for the four franchises. DAI is not a party to those contracts.... The debtors have not alleged, nor is there any evidence, that SEI, SRI, or SSS were established for fraudulent purposes, or for the purpose of subverting the three creditor requirement” nor had the debtors alleged that they were fraudulently induced to enter into the contracts. Id. at 219. Thus, in the absence of any finding of fraud, the Fifth Circuit held that the district court had erred in applying the alter ego doctrine.
This court, like the Fifth Circuit in
Sims,
struggles somewhat with the idea of applying an alter ego analysis to petitioning creditors such as the Nussbaum Entities, when the Alleged Debtor is not itself owed any money by Nussbaum or the Nussbaum Entities, and is not attempting to pierce their corporate veils to hold affiliates or a parent liable for amounts
owed to Miller.
Section 303, at first blush, seems like a strange and backwards context in which to be utilizing alter ego theories. But this court holds that an alleged debt- or — here
Miller
— does have standing to challenge the separate identity of the Petitioning Creditors, even though the Alleged Debtor is not a creditor of Nussbaum or the Nussbaum Entities. First, as noted earlier, the
Sims
court confronted the reality that “the legal principles for disregarding a corporation’s separate identity have been applied primarily in situations in which a creditor or other party seeks to use them as a sword to impose liability on the owners of a corporation.”
Sims,
Last but not least on this topic, the court cites Judge Friendly’s dissenting opinion in the
Gibraltor
case as being solid and enlightening authority explaining the policy behind the three-creditor requirement.
In re Gibraltor Amusements, Ltd.,
B. Bona Fide Dispute.
Finally, this court will address the “bona fide dispute” issue: whether one who holds an unstayed judgment, even if on appeal, is, as a matter of law, the holder of a claim that is not the subject of a bona fide dispute as to liability or amount, or may a bankruptcy court “go behind the judgment” and find a bona fide dispute, and if so, does there appear to be a bona fide dispute here?
As noted by counsel for the Nussbaum Entities, there are many courts that have held that an unstayed judgment (even if on appeal) is not the subject of a bona fide dispute, for purposes of Section 303(b). Indeed, it is without a doubt, the majority view.
See, e.g., In re Drexler,
First, the court believes it is pertinent to note the Bankruptcy Code’s definition of “claim” at Section 101(5). It is a broad definition: “right to payment,
whether or not it is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal equitable, secured, or unsecured” (emphasis added), also, “a right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment....” Moving from Section 101(5) to Section 303(b), Section 303(b) indicates that it is not enough merely to hold a Section 101(5) claim against the alleged debtor to commence an involuntary petition. It has to be a certain kind of claim: one more narrow than that defined in Section 101(5); it has to be a claim not the subject of a
bona fide dispute as to liability or amount.
However, unfortunately, the Bankruptcy Code does not define “bona fide dispute as to liability or amount.” In the face of there being no codal definition, the Fifth Circuit held in
Sims
(a case decided before the 2005 Bankruptcy Code amendments) that one measures “bona fide dispute” by an
objective
yard stick.
Sims,
The Fifth Circuit in
Sims
elaborated that a petitioning creditor has the burden of proof of establishing a prima facie case that no bona fide dispute exists with respect to its claim. Then, the burden shifts to the alleged debtor to present
*921
evidence demonstrating that a bona fide dispute exists.
Id.
at 221. Presumably, having a judgment goes a long way toward establishing a claim not subject to a bona fide dispute.
In
re
Byrd,
Most courts essentially hold no.
See, e.g., In re Drexler,
In reconciling all the authority on this (including the court’s own authority in
In re Briggs,
To be clear: An appeal alone does not create a bona fide dispute. But a highly specialized fact pattern can conceivably guide a court to make an exception to the general rule recognizing the finality/enforceability of an unstayed judgment.
See In re Prisuta,
In any event, here, the court finds no highly specialized fact pattern, like in Briggs, to make an exception to the rule that, where there is an unstayed judgment (even if on appeal) there is no bona fide dispute. Here, there was a full jury trial, a multi-day trial, with active participation by the Alleged Debtor and litigation of all facts and law. There is not the same risk of a creditor abusing the bankruptcy process as there is in a case where there has been a default judgment or some sort of obvious mistake with the judgment, such as naming a non-party as a liable party. So here, the court concludes that the Motion to Dismiss must be denied as to the standing of the Nussbaum Entities. The court concludes that the fact that the Nussbaum Entities have an unstayed judgment, that was tried with participation by Miller and has no patent irregularities on its face, means that the Nussbaum Parties are holders of claims not the subject of a bona fide dispute. The court has looked at the appellate briefs. Indeed, there are genuine issues that could go either way on appeal. But this court’s holding in Briggs should not be construed to mean that this *923 court views its role in probing into the details of the judgment as being a forecaster or odds-maker on the appeal. It is simply about looking, in an objective and unobtrusive way, at the judgment and circumstances, and determining if there is something so irregular about the unstayed judgment that any reasonable person would consider there to be a bona fide dispute as to liability or amount.
Last but not least, back to the question of the relevance of the amendment to Section 303(b)(1) in BAPCPA in this context. 3 The court concludes that the amendment to Section 303(b)(1) has minimal relevance in the context of a final, unstayed judgment. Yet, the amendment cannot be ignored. It did something. It has some significance. It appears to this court that the amendment at least clarified, and perhaps even expanded the universe of when is there a “bona fide dispute” with regard to a claim. Now, it is clear that a claim is the subject of a bona fide dispute if either the liability itself is in dispute or merely the amount is in dispute. If nothing else, this signals that Congress continues to caution that holders of questionable claims ought not to be allowed to force companies into bankruptcy against their will. But, again, even under the new statute, the Nussbaaum Entities with their unstayed judgment, that is not fraught with some sort of obvious irregularity, passes muster.
IV. CONCLUSION.
The court will hold a trial on October 28, 2009, at 9:30 a.m., and will hear evidence on the contested factual questions concerning: (a) whether the Nussbaum Entities are, in reality, one versus three petitioning creditors; (b) whether the Alleged Debtor is or is not generally paying its debts as they become due; and (c) whether abstention pursuant to Section 305 is appropriate.
IT IS SO ORDERED.
Notes
. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA”) amended Section 303(b)(1) of the Bankruptcy Code to add the words "as to liability or amount” after the words "bona fide dispute,” so that now the petitioning creditors’ claims must not be the "subject of a bona fide dispute as to liability or amount." 11 U.S.C. § 303(b)(1) (emphasis added).
. But see In re Noiris,
. Most of the published opinions that discuss the bona fide dispute issue pre-date the 2005 BAPCPA amendments. Of those opinions that post-date BAPCPA, this court could find only two which address the relevance, if any, of the amendment to the bona fide dispute language.
In re C.W. Mining, Co.,