249 B.R. 411 | Bankr. N.D. Tex. | 2000
In re Jan McLendon MOSS, Alleged Debtor.
United States Bankruptcy Court, N.D. Texas, Dallas Division.
*412 *413 *414 Michael D. Warner, Seymour Roberts, Jr., Simon, Warner & Doby, L.L.P., Ft. Worth, TX, for alleged debtor.
Craig W. Weinlein, David S. Coale, Carrington, Coleman, Sloman & Blumenthal, L.L.P., Dallas, TX, M. Fletcher Reynolds, Rosenthal, Reynolds, Mateer & Shaffer, P.C., Dallas, TX, for petitioning creditors.
R. Terry Bell, Craig Gant, Bell, Nunnally & Martin, Dallas, TX, for Isaac Lasky.
J. Mark Chevallier, McGuire, Craddock, et al., Dallas, TX, for Phones for All, Inc., et al.
Warren H. Smith, Donohoe, Jameson & Carroll, Dallas, TX, for Official Unsecured Creditors Committee.
Ken Stohner, Jackson & Walker, Dallas, TX, for Bell Atlantic-Virginia, Inc.
Camille R. McLeod, Bickel & Brewer, Dallas, TX, for Peter Sahagen and Sahagen Consulting Group, LLC.
*415 MEMORANDUM OPINION
BARBARA J. HOUSER, Bankruptcy Judge.
This contested involuntary petition was heard on April 19, 2000. The petitioning creditors seek the entry of an order for relief against the alleged debtor. The alleged debtor seeks the dismissal of the involuntary petition or, in the event the Court finds the involuntary filing proper, the transfer of the case to the Central District of California. The Court has jurisdiction over this dispute pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding. 28 U.S.C. § 157(b). Five issues control the outcome.
First, whether the alleged debtor Jan McLendon Moss ("Moss") had twelve or more creditors on the petition date. The Court finds that Moss had twelve or more creditors.
Second, whether there are a sufficient number of petitioning creditors who hold sufficient claims to meet the requirements of § 303(b)(1) and/or (2). The Court finds that while three entities have filed the involuntary petition, those three entities only hold two claims against Moss. The Court further finds that the petitioning creditors hold non-contingent, non-disputed unsecured claims against Moss aggregating at least $10,775.00.
Third, whether Moss is generally paying her non-disputed debts as they become due. The Court finds that Moss is not generally paying her non-disputed debts as they become due.
Fourth, whether special circumstances exist which remove the three creditor requirement of § 303(b)(1). Under the facts of this case, such an exception exists and an order for relief is appropriate.
Fifth, whether venue of this case is proper in the Northern District of Texas and/or whether this case should be transferred to the Central District of California. Venue is proper here and the case will not be transferred.
I. Contentions of the Parties
An involuntary chapter 7 petition (the "Involuntary Petition") was filed against Moss on February 9, 2000 (the "Petition Date") by petitioning creditors Larry O. Littleton ("Littleton"), Neville Charles Christopher Small ("Small") and Neville Beresford Wolfe Braithwaite ("Braithwaite") (collectively, the "Petitioning Creditors"). Thereafter, Moss filed a Motion for Order Dismissing Involuntary Petition or, in the Alternative, Transferring Venue to the Central District of California (the "Motion to Dismiss or Transfer"). In the Motion to Dismiss or Transfer, Moss contends that she had twelve or more creditors on the Petition Date; that Small and Braithwaite hold a single claim against her; and therefore, the Involuntary Petition lacks the requisite number of petitioning creditors with the requisite amount of claims.[1] Moss further contends that she has been generally paying her non-disputed debts as they become due; that the petitioning creditors filed the Involuntary Petition in bad faith; that this is essentially a two-party dispute between Moss and Littleton; that Littleton has an adequate remedy under state law that he is actively pursuing; and finally, that venue in the Northern District of Texas is improper.
The Petitioning Creditors contend that Moss had less than twelve creditors on the Petition Date and therefore only one petitioning creditor was required to properly file the Involuntary Petition. Alternatively, the Petitioning Creditors contend that if Moss had twelve or more creditors on the Petition Date, Small and Braithwaite each hold a right to payment against Moss and, along with Littleton, the required three creditors are present here. Finally, the Petitioning Creditors contend that in the event the Court concludes that the *416 Involuntary Petition is otherwise defective, special circumstances exist which remove the three creditor requirement of § 303(b)(1) and that venue is proper here.
II. The Underlying Facts
Littleton's claims against Moss arose on April 7, 1995, when Moss entered into an employment contract with Littleton. See Exhibit 1.[2] Under that contract, Littleton was to form a Texas corporation called the Renaissance Group, Inc. ("Renaissance"), become its president, and set up offices in Dallas to conduct the corporation's business. Renaissance was to be a venture capital company for a group of wealthy investors, including Moss.
When Moss entered into the employment contract, she claimed to speak on behalf of that group of investors, and to be hiring Littleton on their behalf. These representations by Moss were false because no such group of investors existed. In an attempt to add credibility to her misrepresentations, Moss forged the signature of a supposed group member named Kent S. Powell, M.D. to the employment contract. Moss never paid Littleton pursuant to the employment contract.
Littleton sued Moss in August 1995 in the 160th District Court of Dallas County, Texas (the "Dallas State Court"). After two failed attempts to settle this litigation, a third settlement was reached on April 22, 1998 with the assistance of a court-appointed mediator. Both Moss and Littleton accepted the mediator's settlement proposal. See Exhibit 2. That proposal required Moss to make a series of payments to Littleton to avoid having an agreed judgment entered against her. After Moss failed to make any of the required payments, on June 26, 1998, the Dallas State Court entered a final judgment for $1.8 million in Littleton's favor, plus post-judgment interest at the rate of 10% per annum and court costs (the "Judgment"). See Exhibit 3. As of the Petition Date, Moss owed Littleton in excess of $2,000,000.00 on the Judgment.
Littleton undertook post-judgment discovery in an effort to collect the Judgment. Moss provided at least two affidavits regarding her assets in lieu of post-judgment asset depositions. See Exhibits 5 and 6. Littleton filed a Motion for Turnover Order in the Dallas State Court and on November 19, 1998, a Turnover Order was signed by the Dallas State Court directing Moss to assign various assets to Littleton. See Exhibit P. On December 18, 1998, the Dallas State Court entered an Amended Turnover Order (the "Turnover Order") requiring Moss to turnover essentially those same assets to the Dallas County Sheriff on or before December 28, 1998. See Exhibits 4 and Q. The Turnover Order listed numerous assets which Moss had admitted owning in her prior affidavits including: (1) funds in three bank accounts; (2) all funds Moss received as a result of a settlement with certain family members in June 1996 (the "McLendon Settlement Agreement"); (3) her stock in a California corporation called World Without Walls, Inc.; (4) her stock in a Costa Rica corporation called Rancho Playa Bejuco; (5) future payments to her from a family trust (the "Gay Noe McLendon Trust"); and (6) future payments to her of certain oil royalties.
Notwithstanding the Turnover Order requiring her to do so, Moss has never turned over any of those assets to the Dallas County Sheriff. While Moss appealed the Turnover Order, she never posted a supersedeas bond in connection with that appeal. See Exhibit R. To date, it appears that Moss has made no effort to comply with the Turnover Order.[3] Moss's *417 appeal of the Turnover Order and a motion filed by Littleton to hold Moss in contempt are currently pending in the Dallas Court of Civil Appeals. See Exhibit BB.
Pursuant to the McLendon Settlement Agreement, Moss was entitled to receive, among other sums, the sum of $1,000,000.00 from two Dallas family-based partnerships controlled by her brother, Bart McLendon, called Tri-State Theatres and The McLendon Company. See Exhibit 7A. That million dollars is to be paid over twenty-five (25) years without interest in monthly installments of $3,333.33. Littleton garnished this indebtedness in July 1998. Since September 1, 1998, these monthly installments have been paid into the registry of the Dallas State Court. To date, nineteen monthly payments (or approximately $63,333.27) have been paid into that registry. See Exhibit 8. In February 1999, the Dallas State Court entered an interlocutory partial summary judgment that Littleton had properly garnished the twenty-five year stream of monthly payments aggregating $1,000,000.00. See Exhibit 9.
Beginning in mid-1999, Littleton also garnished several oil royalty checks to be paid to Moss by Texaco Production and Exploration, Inc. ("Texaco"). Approximately $18,074.22 has been trapped by these garnishments as of the Petition Date. See Exhibit 10. That money is also being held in the registry of the Dallas State Court.
During May 1998, while Moss was supposed to be making payments to Littleton pursuant to their settlement, Moss entered into a transaction with her brother, Bart McLendon, Tri-State Theatres and The McLendon Company. Pursuant to this transaction, Moss released Tri-State Theatres and The McLendon Company from an obligation to pay her at least $575,000.00, and released several liens on real property in Texas that secured that obligation. In exchange, Bart McLendon caused Tri-State Theatres and The McLendon Company to pay $500,000.00 to Moss. Despite her contractual obligations to make payments to Littleton during this same time period, Moss did not pay any of those funds to Littleton. Moss apparently transferred those funds to two of her corporations, World Without Walls and Rancho Playa Bejuco.[4]
Upon discovery of the facts surrounding the May 1998 transaction, Littleton sued Moss, Bart McLendon, Tri-State Theatres and The McLendon Company in August 1998 to undo that alleged fraudulent transfer. The fraudulent transfer case was consolidated into the earlier-filed garnishment case. Over $200,000.00 has been paid into the registry of the Dallas State Court during the pendency of the fraudulent transfer portion of the case because of lis pendens filed by Littleton on all of the Texas properties affected by the alleged fraudulent transfer. See Exhibits 13, 14, and 15. Although the fraudulent transfer action was set for trial in February 2000, Moss's lawyers stated to Littleton's lawyers that the action would not proceed to trial in the Dallas State Court because Moss would file for relief under the Bankruptcy Code in California before trial could occur.
During post-judgment discovery against Moss, Littleton also became aware of two additional transfers made by Moss to a company controlled by her son, "Moss Micro." One transfer, made in late 1996 or early 1997, was for $50,000.00. The other, made in January 1997, was for $200,000.00. It appears that no value was given by *418 Moss Micro in exchange for those transfers. In early 2000, Littleton sued Moss Micro in Dallas State Court to undo those alleged fraudulent transfers. See Exhibit 12.
The claim of Small and Braithwaite arises pursuant to an agreement entered into by them with Moss and Renaissance on or about May 5, 1995. See Exhibit 21. Pursuant to that agreement, Small and Braithwaite invested $25,000.00 with Moss to be used to purchase shares in Desert Moon Development Corp., Inc. ("Desert Moon"), a corporation specializing in medical technology and sales. Small and Braithwaite contend that they are owed $25,000.00 by Moss pursuant to their agreement with her.
Moss has made various inconsistent statements with respect to the claim of Small and Braithwaite. Moss initially admitted that Small and Braithwaite held a claim against her in the amount of $10,775.00. See Exhibit CC. However, at trial, Moss introduced an exhibit that inconsistently described the claim of Small and Braithwaite as having an "amount owed" of $9,464.00, but then went on to state that it was "disputed as to amount." See Exhibit B. But Moss then testified at trial that the amount currently owed to Small and Braithwaite was "either very very small or that [she] repaid the $25,000.00 in full."
Moss resides in the Central District of California. She lives in an apartment which she subleases from her fiancé, Ernest Owens. See Exhibits C and D. Moss is unemployed. She owns no real estate in California. Her only other assets include her car (claimed as exempt in the Dallas State Court action), a small bank account, and a right to receive payments from the Gay Noe McLendon Trust.
III. The Involuntary Petition
The Petitioning Creditors must satisfy the requirements of 11 U.S.C. § 303 by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 286, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991); In re Eastown Auto Co., 215 B.R. 960, 968-69 (6th Cir. BAP 1998); In re Xacur, 216 B.R. 187, 194 (Bankr.S.D.Tex.1997); In re Everett, 178 B.R. 132, 139 (Bankr.N.D.Ohio 1994).
A. Who May Be Subject to an Involuntary Petition
Section 303 authorizes the filing of an involuntary petition under chapter 7 or 11 against an entity who is eligible to become a debtor. Moss is eligible for relief under chapter 7 or 11.
B. Eligible Creditors with Qualifying Claims on the Petition Date
Section 303(b) dictates who can properly file an involuntary chapter 7 or 11 case against an eligible debtor and provides:
(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 of a bona fide dispute, or an indenture trustee representing such a holder, if such claims aggregate at least $10,000 [now $10,775.00] more than the value of any lien on property of the debtor securing such claims held by the holder 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 $10,000 [now $10,775.00] of such claims;
11 U.S.C. § 303(b).
Thus, if there are twelve or more eligible creditors holding qualified claims on the Petition Date, three or more entities must participate in the involuntary filing and must hold unsecured claims aggregating *419 $10,775.00. If there are less than twelve creditors, a single creditor with an unsecured claim of $10,775.00 may file the involuntary petition. The policy considerations for these requirements are twofold: (1) "the fear that involuntary bankruptcy might be used by one or two recalcitrant creditors as a means of harassing an honest debtor" and (2) "the possibility that the threat of an involuntary petition would be used to compel the debtor to make preferential payments to one or more litigious creditors." Matter of Sims, 994 F.2d 210, 217 (5th Cir.1993), cert. denied, 510 U.S. 1049, 114 S.Ct. 702, 126 L.Ed.2d 669 (1994).
Moss contends that she had twelve or more qualified creditors on the Petition Date. The Petitioning Creditors disagree. While counting creditors with non-contingent, non-disputed unsecured claims existing as of the petition date sounds relatively straightforward, much case law exists with respect to these issues. As relevant here, the courts are divided on the question of whether small, recurring creditors should be counted for purposes of § 303(b).
In Denham v. Shellman Grain Elevator, Inc., 444 F.2d 1376 (5th Cir.1971), the Fifth Circuit held that small, recurring bills, contracted to be paid monthly and on demand, such as claims for rent, groceries, and utilities are excluded from the creditor count and cannot be used by an alleged debtor to increase the number of creditors to greater than twelve in an effort to defeat an involuntary petition. While Denham was decided under the prior Bankruptcy Act, the Fifth Circuit declined to overrule it in a case decided under the Bankruptcy Code. Matter of Runyan, 832 F.2d 58, 60 (5th Cir.1987) ("Assuming without deciding that Denham remains viable after the enactment of the Bankruptcy Code, we conclude that the $600 to $800 claims appellants seek to exclude are much too large to constitute `small' claims under Denham's rationale. Typically, the creditors excluded for § 303(b) purposes are those with claims of less than $25.").
Until overruled,[5] this Court is bound to follow Denham and exclude small, recurring claims from the creditor count. Although recognizing that at least one court has used the Denham rationale to exclude claims of up to $275.00, see, e.g., In re Smith, 123 B.R. 423 (Bankr.M.D.Fla. 1990), this Court concludes that is an inappropriate extension of Denham. This Court will apply Denham narrowly and exclude four creditors: (1) the City of San Juan Capistrano $20.99; (2) San Diego Gas and Electricity $58.00; (3) the Gas Company of Monterey Park. California $10.62; and (4) Wells Fargo Bank $25.04. Even with these claims excluded from the § 303(b) creditor count, this Court finds that Moss had twelve or more qualifying creditors in existence on the Petition Date.[6]
*420 C. Whether Small and Braithwaite Hold One or Two Claims
Moss next contends that Small and Braithwaite hold a single claim against her, thereby causing the Involuntary Petition to be improperly filed. If an alleged debtor has twelve or more qualifying creditors, an involuntary petition may be commenced ". . . by three or more entities, each of which is . . . a holder of a claim against such person that is not contingent as to liability or the subject of a bona fide dispute, . . ." 11 U.S.C. § 303(b)(1). As relevant here, the Bankruptcy Code requires that the Involuntary Petition be filed by "three entities" and that each of those entities hold a separate claim against Moss.
A claim is defined as a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured. . . ." 11 U.S.C. § 101(5)(A). Thus, while Small and Braithwaite are separate "entities" as defined by the Bankruptcy Code, the issue is whether Small and Braithwaite each have a right to payment from Moss separate from the other under applicable non-bankruptcy law.
The claim of Small and Braithwaite arises pursuant to a written agreement. That agreement defines Small and Braithwaite jointly as "INVESTORS" and Moss promises the same performance to them jointly as Investors. See Exhibit 21. Moreover, Moss testified that she considered her obligation to them to be a joint obligation and that all payments made by her to them pursuant to the agreement were made to them jointly. Cancelled checks corroborate Moss's testimony. See Exhibit J. Nothing in the agreement discloses a contrary intention. Small and Braithwaite did not appear or testify at the hearing.
General contract principles control the parties' respective rights and obligations. The agreement contains no choice of law provisions. However, since it appears that Small and Braithwaite were expected to execute the agreement within the State of Texas, and because one of the other parties to the agreement, Renaissance, is a Texas corporation, the Court will apply Texas state law to determine the rights of the parties.
In Guynn v. Corpus Christi Bank & Trust, 620 S.W.2d 188, 190 (Tex. App.1981, writ ref'd n.r.e.), the court stated:
Whether the liability of several promisors, whose interests are separate, is joint or several depends on the intention of the parties. The fact that several parties are named as promisors, while several others are named as promisees, is ordinarily indicative of a joint undertaking. Such a prima facie indication will not be controlling if the instrument, when considered in its entirely, discloses a contrary intention.
See also United States Gypsum Co. v. Sampson, 496 S.W.2d 687 (Tex.App.1973, no writ). Moreover, Section 297 of the Restatement (Second) of Contracts provides as follows:
(1) Where a party to a contract makes a promise to two or more promisees for the benefit of two or more beneficiaries, the manifested intention of the parties determines whether he promises the same performance to all, a separate performance to each, or some combination.
(2) Except to the extent that a different intention is manifested or that the interest of the obligees in the performance or in the remedies for breach are distinct, *421 the rights of obligees of the same performance are joint.
In light of the terms of the agreement, Moss's uncontradicted testimony that she considered her obligation to Small and Braithwaite to be a joint one, and the cancelled checks made payable to Small and Braithwaite jointly, this Court concludes that Small and Braithwaite hold a single claim against Moss for purposes of § 303(b).[7]
D. The Petitioning Creditors Hold Unsecured Claims Aggregating at Least $10,775.00
Although Moss failed to identify this issue: (i) in her Motion to Dismiss or Transfer, (ii) in the Joint Pre-Conference Statement filed on April 7, 2000, or (iii) at the pretrial conference held with the Court, Moss contended at trial that the Petitioning Creditors did not hold unsecured claims aggregating $10,775.00.
The Court finds that Moss waived her right to raise this issue by not identifying it timely. See Valley Ranch Dev. Co., Ltd. v. F.D.I.C., 960 F.2d 550, 554 (5th Cir.1992) (holding that the pre-trial order controls the scope of the trial and that claims or issues omitted from the pre-trial order are waived); see also Marschand v. Norfolk & Western Ry. Co., 81 F.3d 714, 716 (7th Cir.1996); Correa v. Hospital San Francisco, 69 F.3d 1184, 1195 (1st Cir. 1995), cert. denied, 517 U.S. 1136, 116 S.Ct. 1423, 134 L.Ed.2d 547; Rios v. Bigler, 67 F.3d 1543, 1549 (10th Cir.1995).
Alternatively, the Court will address the merits of this contention. Moss contends that because Littleton has garnished the $1,000,000.00 stream of payments to be paid to her over twenty-five years in monthly installments of $3,333.33, and because Littleton has garnished certain Texaco oil royalties, Littleton's claim is fully secured and/or "has been paid." Neither position is correct.
Because a chapter 7 trustee will be required to investigate the alleged perfection of Littleton in the $1,000,000.00 stream of payments, and because the trustee will have certain strong-arm powers under § 544 in connection with that investigation, the Court declines to determine whether Littleton is properly perfected in the $1,000,000.00 stream of payments by virtue of his garnishment of those funds and the orders entered by the Dallas State Court. However, for purposes of the remainder of the Court's analysis, the Court will assume that Littleton has a perfected lien on the $1,000,000.00 stream of payments.
As of the Petition Date, Littleton was owed in excess of $2,000,000.00 on the Judgment. Interest continues to accrue on the Judgment at the rate of 10% per annum. Thus, interest on the Judgment exceeds $200,000.00 annually. Because no interest is required to be paid on the $1,000,000.00 stream of payments pursuant to the McLendon Settlement Agreement,[8] at best Littleton has garnished Moss's right to receive $3,333.33 monthly or $39,999.96 annually. Interest accruing on the Judgment exceeds the annual stream of payments garnished by Littleton in the Dallas State Court.
*422 With respect to the Texaco royalties, Moss contends that prior to Littleton's garnishment of those revenues, she received a monthly royalty check generally in the range of $3,000.00. Again, Moss contends that because this stream of income has been garnished by Littleton, Littleton's claim is either fully secured or "has been paid."
Littleton contends that the Texaco royalties must be garnished from time-to-time, that there is no garnishment of the entirety of the Texaco royalty stream. See Petitioning Creditors' Supplemental Brief, filed on April 24 at p. 3. Even assuming that Moss is correct, and assuming further that the average monthly payment of $3,000.00 continues indefinitely on those oil reserves, that money, together with the other garnished funds discussed above, is insufficient to cover the accruing interest on the Judgment.
The Judgment, with interest, exceeds the value of any collateral which may secure that Judgment. Thus, this Court finds that Littleton has a non-contingent, non-disputed unsecured claim against Moss of at least $10,775.00.[9]
E. Is Moss Generally Paying Her Debts as They Become Due
The Petitioning Creditors contend that Moss is not generally paying her debts as they become due. Needless to say, Moss disagrees. The parties do agree, however, that in determining whether an alleged debtor is generally not paying her debts as they become due, this Court must look to four factors: (1) the number of unpaid claims; (2) the amount of such claims; (3) the materiality of the non-payments; and (4) the debtor's overall conduct in her financial affairs. In re Norris, 183 B.R. 437, 456-57 (Bankr.W.D.La.1995). An analysis of each of these factors in light of the facts of this case demonstrates that Moss is not generally paying her debts as they become due.
Moss admits that of the sixteen creditors she listed in her Motion to Dismiss or Transfer,[10] she is only making regular payment to her small, recurring obligations. The unpaid claims against Moss total at least $2.2 million, which consists of approximately 99% of the amount of her total debts. See In re Concrete Pumping Serv. Inc., 943 F.2d 627 (6th Cir.1991) (holding that debtor was not paying debts as they became due where debtor was in default on 100% of its debt to only one creditor); In re Fischer, 202 B.R. at 351 (reversing dismissal of involuntary petition because debtor was not paying two outstanding debts which exceeded $2.1 million and debtor failed to establish that he was paying anywhere close to 50% of his current liabilities); In re Garland Coal & Mining Co., 67 B.R. 514, 521 (Bankr.W.D.Ark. 1986) (debtor generally not paying debts as they become due where, although the debtor was paying most of its creditors in number, the total debt which it was not paying exceeded 50% of its outstanding liabilities); Hill v. Cargill, Inc., 8 B.R. 779, 780-81 (D.Minn.1981) (finding that although the debtor paid its small consumer creditors, relief was appropriate due to the overwhelming total amount of unpaid claims).
There are several debts that Moss asserts she is generally paying when they come due. The Court finds this testimony to be incomplete and therefore inaccurate. *423 For example, Moss contends that she is paying her credit card debt to Wells Fargo and Citibank on a monthly basis. As far as it goes, that appears to be true. However, a closer analysis reveals that Wells Fargo has actually closed the Moss credit card account and each statement contains the following warning: "Your account is in serious condition! Your credit standing has been affected. It is urgent you contact us immediately at 1-800-988-8941." See Exhibit F-2. In addition, the balance owed to Wells Fargo is within a few hundred dollars of Moss's credit limit and the amount being paid monthly is only the minimum payment. That payment covers slightly more than the accruing finance charge, but barely reduces the outstanding balance on the card.
Similarly, Moss claims to be making regular payments on a Citibank Preferred Mastercard. The Court first notes that this card is not in Moss's name. Rather, the card is in the name of Moss's fiancé, Ernest Owens. Citibank is not a creditor of Moss. Mr. Owens has apparently loaned this card to Moss for her use. Moss is apparently the sole user of the card. Of course, Citibank will ultimately look to Owens for nonpayment, not Moss. While Moss does appear to be making payments to Citibank monthly, the outstanding balance on the account is within a few hundred dollars of Mr. Owens' credit limit and the amount being paid monthly is the minimum payment. Like Wells Fargo, this payment only covers slightly more than the accruing finance charge. See Exhibit F-1.
Moss also claims to be making regular payments to Cox Communications, her cable and internet provider. She introduced checks payable to Cox Communications. See Exhibit K-5. But the statements from Cox Communications reveal that Moss has not been generally paying her debt to Cox Communications on a timely basis. Exhibit I-1 contains the following warning: "Disconnect notice. Your account is seriously past due and service is subject to disconnection without further notice."
As to the materiality of Moss's non-payments, Moss has not made any payment on the Judgment; Moss has not made a payment to Small and Braithwaite since January 1997; the total amount of indebtedness owed to her law firm has increased by over $100,000.00 since August 1998, apparently without payment; Moss owes or will owe potentially significant sums to the United States, the State of California and the State of Louisiana for taxes arising from the McLendon Settlement Agreement or otherwise.
Moss has paid those creditors whose claims she wants to pay, rather than all of her outstanding debts. Moreover, it appears that Moss has attempted to delay creditors through the transfers of assets she has made. Her intentions with regard to the non-payment of at least the Littleton Judgment is evidenced by Exhibit 20, an e-mail sent on October 12, 1998 to her brother, Bart McLendon, in which she states ". . . don't worry about money going to Littleton; it won't because I ain't that stupid. . . ." Moss's overall conduct of her financial affairs has been poor.
For all of these reasons, the Court finds that Moss has not been generally paying her debts as they become due.[11]
*424 Because Moss had twelve or more creditors on the Petition Date, and because the Petitioning Creditors only hold two claims against Moss, the Involuntary Petition is defective. Thus, absent the existence of an exception to the three creditor requirement, this Court would be bound to dismiss the Involuntary Petition.
F. Whether There Is A Special Circumstance Exception to the Three Creditor Requirement Applicable in this Case
This Court has found that the three creditor requirement is not applicable in a case involving alleged fraudulent conveyances and preferential transfers. In re Norriss Bros. Lumber Co., Inc., 133 B.R. 599 (Bankr.N.D.Tex.1991). Based upon the alleged fraudulent transfers to or for the benefit of her brother, Bart McLendon, and certain of his related entities; the alleged fraudulent transfers to or for the benefit of her son and/or his company, Moss Micro; Moss's failure to comply with the Turnover Order; Moss's inability to explain the loss of significant sums of money paid to her within the last few years pursuant to the McLendon Settlement; Moss's inability to identify the whereabouts of certain monies and assets, including stock certificates in two wholly owned corporations, World Without Walls and Rancho Playa Bejuco, special circumstances within the meaning of In re Norriss Bros. Lumber Co., Inc. exist here.
Moss disputes that the judicially created "special circumstances" exception is applicable. Moss correctly points out that this special circumstances exception originally developed in single creditor cases where the courts were analyzing whether the failure to pay a single creditor could constitute a failure to pay debts generally. See, e.g., In re Concrete Pumping Service, Inc., 943 F.2d at 630; Matter of 7H Land & Cattle Co., 6 B.R. 29, 33 (Bankr.D.Nev. 1980). Relying on one court's refusal to follow Norriss, Moss contends that the Norriss expansion of that exception to the three creditor requirement of § 303(b)(1) was unwarranted. See In re Rothery, 211 B.R. 929, 934-935 (9th Cir. BAP 1997), rev'd on other grounds, 143 F.3d 546 (9th Cir.1998).
This Court disagrees. If an exception to one of the technical requirements of § 303(b) exists when there is fraud, trick, artifice or scam by an alleged debtor, this Court sees no logical reason why that exception should not be available to avoid dismissal of an involuntary petition on other technical grounds. In light of Moss's conduct here, the Court concludes that all creditors will be benefitted by the entry of an order for relief against Moss.
G. Requested Transfer to the Central District of California
Moss seeks a transfer of this case to the Central District of California where she resides. Two questions arise in connection with the requested venue transfer. First, is venue proper in the Northern District of Texas? Second, even if venue is proper here, should the case be transferred to the Central District of California for the convenience of the parties or in the interest of justice?
Venue would only be proper in the Northern District of Texas if Moss's principal assets are located here. 28 U.S.C. § 1408(1). Based upon the evidence, this Court finds that Moss's principal assets are currently located in the Northern District of Texas. Moreover, all other non-exempt assets should be here pursuant to the Turnover Order.
Moss's assets can be summarized as follows. Moss has a right to receive $1,000,000.00 pursuant to the McLendon Settlement in monthly installments of $3,333.33. Those monies have been garnished in the Dallas State Court and approximately $63,000.00 is currently in the registry of the Dallas State Court. Moreover, an interlocutory summary judgment has been granted that those proceeds have been properly garnished by Littleton. Thus, that asset currently resides in the Northern District of Texas.
*425 Moss has rights to receive certain oil royalties from Texaco. That asset is also subject to garnishment in Dallas State Court and approximately $18,000.00 is in the registry of the Dallas State Court.
Various voidable transfers are alleged to have occurred here. A chapter 7 trustee will investigate these transfers by Moss to various of her family members and their related entities. If the trustee believes that Moss has fraudulently transferred her assets, he will either substitute into that fraudulent transfer litigation currently pending in state court in the Northern District of Texas[12] or bring an adversary proceeding in this Court to recover that property for the benefit of all creditors.[13]
The only other assets Moss identified at trial are her car (presumably exempt), a small bank account in California, her stock in two defunct corporations (World Without Walls and Rancho Playa Bejuco although she is not sure if stock certificates were ever issued or where the corporate documents are), and a right to receive monthly payments from the Gay Noe McLendon Trust. However, those assets (except for her car which she claimed as exempt) are all subject to the Turnover Order. Those assets are not here due to Moss's refusal to comply with that order.
Thus, this Court finds that Moss's principal assets are located in the Northern District of Texas or should be located in the Northern District of Texas and that venue is proper here.
Moss seeks a transfer of the case to the Central District of California. To transfer, the Court must find a transfer to be in the interest of justice or for the convenience of the parties. 28 U.S.C. § 1412. The decision to transfer or retain a case lies within the sound discretion of the court. Matter of Commonwealth Oil Refining Co., Inc., 596 F.2d 1239 (5th Cir. 1979), cert. denied, 444 U.S. 1045, 100 S.Ct. 732, 62 L.Ed.2d 731 (1980). The burden of establishing that a case should be transferred is on the moving party and must be shown by a preponderance of the evidence. See, e.g., In re Weatherly Frozen Food Group, Inc., 133 B.R. 862 (Bankr.N.D.Ohio 1991); In re Pope Vineyards, 90 B.R. 252 (Bankr.S.D.Tex.1988); In re Toxic Control Technologies, Inc., 84 B.R. 140 (Bankr. N.D.Ind.1988).
In exercising its discretion, this Court must weigh a number of factors including:
(1) the proximity of creditors of every kind to the Court;
(2) the proximity of the debtor to the Court;
(3) the proximity of the witnesses necessary to the administration of the estate;
(4) the location of the assets;
(5) the economic administration of the estate; and
(6) the necessity for ancillary administration.
Commonwealth Oil, 596 F.2d at 1247. According to the Commonwealth Oil court, the most important of these considerations is whether the requested transfer would promote the economic and efficient administration of the estate. Id.
The Court concludes that this case can be administered more economically and efficiently in the Northern District of Texas. Since Moss is unemployed and has few assets in the State of California, the heart of this case will be the investigation and potential recovery of transferred assets. Since the primary beneficiaries of those transfers have already been sued in the Northern District of Texas and, in some instances, actually reside in the Northern District of Texas, that litigation *426 can be handled more efficiently and economically here.
The Petitioning Creditors are Moss's largest creditors. They want the case administered here. Moss's lawyers hold a significant unsecured claim. They reside here. Other potentially significant creditors (the United States and the State of Louisiana for unpaid taxes) can participate here as easily as they could participate in the Central District of California.
Witnesses whose testimony may be necessary to the administration of this estate appear to be divided fairly evenly between Texas and California. While Moss and her son reside in California, Moss's brother and his entities, Tri-State Theatres and The McLendon Company reside here.
The fact that Moss resides in California is beyond dispute. Obviously, it would be more convenient for her if the case were transferred to California. However, after taking all of the evidence into consideration and weighing all of the relevant factors, the Court concludes that Moss failed to carry her burden of establishing that this case should be transferred to the Central District of California.
*427 MEMORANDUM OPINION
STEVEN A. FELSENTHAL, Bankruptcy Judge.
Isaac Lasky moves the court for the allowance of an administrative expense under 11 U.S.C. § 503(b)(1) to be paid by the bankruptcy estate of Phones for All, Inc., the Chapter 11 debtor in possession. Phones for All and its Official Committee of Unsecured Creditors oppose the motion. The court conducted an evidentiary hearing on the motion on April 27, 2000.
The determination of an administrative expense to be paid by a bankruptcy estate constitutes a core matter over which this court has jurisdiction to enter a final judgment. 28 U.S.C. §§ 157(b)(2)(A) and 1334. This memorandum opinion contains the court's findings of fact and conclusions of law. Bankruptcy Rules 7052 and 9014.
In this motion, Lasky requests payment of employment severance benefits as an administrative expense. Phones for All and Lasky entered into an employment contract on April 1, 1999. Under the agreement, Lasky agreed to assume the position of Phones for All's executive vice president for a base annual salary of $165,000 to be paid in equal monthly installments. Phones for All also agreed to pay Lasky a semi-annual bonus and to reimburse his out of pocket expenses. Phones for All and Lasky further agreed that Lasky would receive severance pay in the *428 event of the termination of his employment without cause, to be paid commencing on the date of his termination and continuing until April 1, 2002. The employment agreement, in section VII D(3), specifically provides:
Good Reason or Early Termination by the Company. In the event of Early Termination or Termination for Good Reasons, Employee shall be entitled to Severance Pay commencing on the date of termination and concluding for the remainder of the Term of the Employment (see Section 1, April 1, 2002), or twelve (12) months, whichever is greater (the "Severance Period") . . . the Company shall pay Employee Severance Pay for the Severance Period at the annual rate of Employee's Base Salary plus the prior semi-annual period's bonus, annualized, at the time of termination.
Sahagen Consulting Group, L.L.C., an entity affiliated with the debtor's equity holder, guaranteed the employment agreement.
When Lasky reported for work, Phones for All assigned him the positions of president and chief executive officer. Lasky did not request additional or different compensation because of that assignment. Rather, he worked under and Phones for All paid him pursuant to their employment agreement.
Phones for All filed its petition for relief under Chapter 11 of the Bankruptcy Code on November 18, 1999. Effective December 8, 1999, Phones for All terminated Lasky's employment. The parties agree that Lasky satisfactorily performed his employment obligations and that Phones for All terminated his employment without cause. Phones for All paid Lasky his base salary, both before and after the filing of the bankruptcy petition.
Lasky contends that his employment termination triggered section VII D(3) of the employment contract, entitling him to severance pay of $432,601.65. Because Phones for All terminated his employment post-petition, Lasky claims the severance benefit must be paid as an administrative expense under § 503(b)(1). Phones for All and the creditors' committee contend, however, that the debtor paid Lasky his post-petition wages and that his severance benefits amount to a pre-petition claim against the bankruptcy estate.
Section 503(b)(1) provides that administrative expenses include "the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case. . . ." Lasky contends that because of his post-petition termination, his severance benefits constitute wages or salary to be paid as an administrative expense. The court must determine whether "wages" or "salaries" under § 503(b)(1) include severance benefits. To answer that issue, the court must read the Bankruptcy Code in its entirety giving meaning to each of its provisions. United Savings Ass'n of Texas v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365, 370-72, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988). The court must recognize that where Congress has specifically included a provision in one section of the Code but not another, a court cannot read that provision into the other section. See Immigration and Naturalization Service v. Cardoza-Fonseca, 480 U.S. 421, 432, 107 S.Ct. 1207, 94 L.Ed.2d 434 (1987).
Under the priorities of the Bankruptcy Code, 11 U.S.C. § 507, the bankruptcy estate pays administrative expenses under § 503(b) before the payment of pre-petition claims against the estate. 11 U.S.C. § 507(a)(1). Section 507 then assigns priorities to unsecured pre-petition claims. Section 507(a)(3)(A) provides third priority for up to $4,300 for "wages, salaries, or commissions, including vacation, severance, and sick leave pay earned by an individual" within 90 days before the filing of the bankruptcy petition. The Code expressly includes severance pay within wages, salaries and commissions for priority *429 unsecured wage claims but does not expressly include severance pay within wages, salaries and commissions for administrative expenses. The court may not read the Code to render the express language of § 507(a)(3)(A) superfluous or unnecessary. Woodfork v. Marine Cooks & Stewards Union, 642 F.2d 966, 970-71 (5th Cir.1981). Rather, the court must read the Code to give meaning to each provision. To do so, the court infers that Congress intended to include severance pay within wages for unsecured priority wage claims but not for administrative expense wage claims. The court therefore reads the Code to not include severance pay within wages, salaries and commissions entitled to an administrative expense.
This reading fulfills the Code's scheme. The Code classifies claims derived from pre-petition unsecured contracts generally at the same priority, to share pro rata in the bankruptcy estate. Within that class of claims, however, Congress provides priorities based on matters of public policy determined in the legislative process. But, to deliver the payments to those creditors as so classified and prioritized, Congress has determined that the bankruptcy estate must first pay its expenses of administration. Congress has narrowly defined those expenses, as here relevant, by including wages earned post-petition but without pre-petition contractual severance benefits.
Lasky has a claim against the bankruptcy estate under the Code's scheme based on pre-petition rights under the employment agreement. Under the agreement, he obtained a right to the severance pay upon entry of the agreement, conditioned upon a termination without cause. Lasky testified that he negotiated for that benefit as a condition to accepting employment. He further testified that he negotiated the guarantee to assure payment should a termination occur. Thus, upon entry of the contract, Lasky obtained a conditional right to payment. A conditional right to payment constitutes a claim under the Code. 11 U.S.C. § 101(5)(A). As just analyzed, a bankruptcy estate pays claims after payment of administrative expenses. As the Code classifies Lasky's contractual right as a claim against the bankruptcy estate, he may not receive his severance benefits as an administrative expense. In re T & T Roofing and Sheet Metal, Inc., 156 B.R. 780, 782 (Bankr.N.D.Tex.1993).
With the filing of the bankruptcy petition, Phones for All continued to employ Lasky, until terminating his employment on December 8, 1999. After the debtor terminated Lasky's employment and following the filing of this motion, Phones for All moved to reject the employment agreement under 11 U.S.C. § 365. If the employment agreement constitutes an executory contract, if rejected by the debtor, the Code provides that Lasky may file a rejection claim, which may include his severance benefits. 11 U.S.C. §§ 365(a) and 502(g). If the employment agreement does not constitute an executory contract, then, as analyzed above, Lasky held a claim against the estate upon the filing of the petition. For purposes of the priority of his severance claim, the post-petition termination only triggers the pre-petition right to payment, placing the matter squarely within the Code's definition of a claim.
This statutory scheme notwithstanding, courts have recognized that severance benefits derived from pre-petition contracts may, nevertheless, become administrative expense wages. Except for the Second Circuit, those cases involve contractual arrangements where the terminated employee earned his severance pay post-petition or where the debtor gave the severance benefit in lieu of other benefits or rights operating post-petition. See, e.g., In re Public Ledger, Inc., 161 F.2d 762 (3rd Cir.1947); In re Jeannette Corp., 118 B.R. 327 (Bankr.W.D.Pa.1990); In re Allegheny Int'l, Inc., 118 B.R. 276 (Bankr.W.D.Pa. 1990); In re Miami General Hospital, Inc., 89 B.R. 980 (Bankr.S.D.Fla.1988); In re St. Louis Globe-Democrat, Inc., 86 B.R. 606 (Bankr.E.D.Mo.1988). Here, Lasky *430 earned his severance benefit when he entered the agreement, pre-petition. The Second Circuit has held that severance pay which arises out of the termination of an employee during a bankruptcy is an administrative expense entitled to priority. In re W.T. Grant Co., 620 F.2d 319, 320-21 (2nd Cir.1980); In re Unishops, Inc., 553 F.2d 305, 308 (2nd Cir.1977); Straus-Duparquet, Inc. v. Local Union No. 3 Int'l Brotherhood of Electrical Workers, 386 F.2d 649, 651 (2nd Cir.1967). The Court has explained that severance pay is compensation for the hardship which all employees, regardless of their length of service, suffer when they are terminated and that it is therefore earned when the employees are dismissed. But the Second Circuit has further observed: "it appears to be the general rule that when severance pay, like vacation pay, represents compensation for the employee's past services, it is not an administrative expense entitled to priority." Trustees of Amalgamated Ins. Fund v. McFarlin's, Inc., 789 F.2d 98, 104 (2nd Cir.1986).
Under Lasky's contract, he earned his severance benefit when he entered the contract. He receives the severance compensation for that prior act. The act occurred pre-petition. Under the terms of this contract, the Second Circuit would therefore apparently consider the severance pay to have been earned pre-petition and thus not be entitled to administrative expense priority.
Whether or not severance benefits fit within the statutory requirement of wages or salaries, § 503(b)(1)(A) also requires that to qualify as an administrative expense, the payment of the severance compensation must benefit Phones for All's estate and its creditors. "[A]ctual, necessary costs and expenses of preserving the estate," § 503(b)(1), requires that the expense benefit the estate and its creditors. NL Indus. Inc. v. GHR Energy Corp., 940 F.2d 957, 966 (5th Cir.1991). To meet this test, the expense must arise from a transaction with the debtor and the services supplied must enhance the ability of the debtor's business to function as a going concern. In re TransAmerican Natural Gas Corp., 978 F.2d 1409, 1416 (5th Cir.1992).
Until his termination, Lasky performed his functions as the debtor's president and chief executive officer. That work enhanced the debtor's ability to function as a going concern. But, for that work, Lasky received his base salary of $165,000 annually, paid in equal monthly installments. Lasky produced no evidence that suggests that the debtor induced Lasky to continue working post-petition by offering severance compensation. Phones for All did not commit to nor represent to Lasky that it would assume his employment agreement pursuant to § 365 of the Bankruptcy Code. Lasky did not testify nor did he produce any evidence that suggests that he would not have continued to work, but for his severance benefit. To the contrary, he testified that he insisted on the severance benefit as a condition to employment pre-petition in the first place. Consequently, the debtor had already received the benefit derived by the severance compensation when Lasky commenced his employment, which was pre-petition. Indeed, Lasky obtained a guaranty from an entity affiliated with the debtor's equity holder. As a result, Lasky did not rely on the bankruptcy estate, post-petition, to pay him severance compensation in the event of termination. Under these facts and circumstances, the severance provision of his employment agreement did not actually impact his decision to continue to work post-petition.
Payment of a severance benefit of $432,601.65 does not further benefit nor add to the benefit derived from Lasky's services post-petition and compensated by his base salary. Even if the severance compensation may be construed as wages or salary under § 503, Lasky has failed to establish a benefit to the estate and its creditors from the severance compensation not already obtained from and compensated by his base salary.
*431 Like other unsecured creditors in this case, Lasky may assert his pre-petition contractual right to payment and may be able to include a portion as an employee priority claim to be paid from the bankruptcy estate with the other unsecured creditors. Like many of those creditors who have provided goods and services to Phones for All post-petition, Lasky has been compensated for the actual services rendered post-petition. More, he may not receive.
For purposes of completeness, should an appellate court conclude that Lasky's severance compensation should be included as administrative expense wages either as a matter of statutory construction or based on the facts of this case and further conclude that the severance compensation benefits the estate, then this court would find that the severance pay should be prorated to the portion attributable to work performed for Phones for All as a debtor in possession. See, e.g., In re Jartran, Inc., 732 F.2d 584 (7th Cir.1984); In re Health Maintenance Foundation, 680 F.2d 619 (9th Cir.1982); In re Mammoth Mart, Inc., 536 F.2d 950 (1st Cir. 1976); In re Public Ledger, 161 F.2d 762 (3rd Cir.1947). Lasky worked for the debtor in possession from November 18, 1999, to December 8, 1999. Payment of his entire contractual benefit of $432,601.65 is completely out of proportion to the benefits derived in that limited period of time of service, post-petition. Indeed, payment of the entire sum would harm the creditors by depleting beyond a pro rata assessment their distributions from the estate. Meanwhile, Lasky enjoys the benefit of a third party guarantee of his severance compensation. Consequently, the court would pro-rate the severance compensation for the period of time he actually worked for the debtor in possession. Accordingly, for purposes of complete findings, the court would award, on a prorated basis, $10,776.57 as an administrative expense for severance compensation for Lasky.[1]
Based on the foregoing, the court will enter an order denying the motion for the allowance and payment of an administrative expense.
NOTES
[1] At trial, Moss additionally asserted that the Petitioning Creditors do not hold the requisite amount of claims. Moss contends that Littleton's claim is fully secured and that Small and Braithwaite are owed less than $10,775.00.
[2] Petitioning Creditors' Exhibits are identified as Exhibits 1-21; Moss's Exhibits are identified as Exhibits A-CC.
[3] Moss asserts that she has not turned over assets because she "has paid" the Judgment. See Post-Trial Brief Regarding Opposition to Involuntary Petition at p. 11. For reasons explained below, this Court finds such assertion to be inaccurate at best and is part of the reason the Court views Moss's testimony with skepticism.
[4] Notwithstanding substantial sums of money being invested into these corporations, neither was operating on the Petition Date. Moss testified that she did not believe stock certificates were actually issued for either of these corporations, did not know of the existence or location of the corporate formation documents for either of them and, with the exception of a small amount (approximately $5,000.00) of inventory of World Without Walls, could not testify as to what, if any, assets remain in them today.
[5] A number of courts have refused to follow Denham. See In re Okamoto, 491 F.2d 496, 498 (9th Cir.1974) ("[I]t appears to us that the Denham court ignored unambiguous Congressional direction. . . . [W]hen less than three creditors join in the petition . . . the Act provides that the alleged bankrupt must have less than twelve creditors and expressly excludes certain types of creditors from the required computation. Since Congress made no distinction between large and small claims, we cannot arrogate unto ourselves the power to do so and thereby engraft an additional exception to the Act."); Matter of Rassi, 701 F.2d 627, 632 (7th Cir.1983) ("[R]egardless of how wise and salutary the exclusion of small, recurring claims might be, Congress has not specifically authorized exclusion, and . . . we have no authority to engraft it onto those that Congress expressly provided."); In re Eastown Auto Co., 215 B.R. at 967-68; In re Fischer, 202 B.R. 341, 349-350 (E.D.N.Y. 1996); In re Reid, 107 B.R. 79, 82 (Bankr. E.D.Va.1989); In re De Leonard, 44 B.R. 922, 923 (Bankr.E.D.Pa.1984); In re Hoover, 32 B.R. 842, 847-48 (Bankr.W.D.Okla.1983); see also In re Sedona Inst., 220 B.R. 74, 84 (9th Cir. BAP 1998) (Russell, J., dissenting).
[6] Section 303(b)(2) excludes employee claims, insider claims and claims of any transferee of any voidable transfers from the creditor count. The Petitioning Creditors failed to offer any evidence that would permit this Court to exclude any of Moss's creditors on those grounds. It was their burden to do so. See In re James Plaza Joint Venture, 67 B.R. 445, 448 (Bankr.S.D.Tex.1986); In re Global Waste Co., 207 B.R. 542, 544 (Bankr.N.D.Ohio 1997); In re McDonald Trucking Co., Inc., 76 B.R. 513, 517 (Bankr.W.D.Pa.1987); see also Atlas Mach. & Iron Works, Inc. v. Bethlehem Steel Corp., 986 F.2d 709, 715 (4th Cir.1993).
[7] Several courts have held that joint holders of an obligation are counted as one creditor. See In re Atwood, 124 B.R. 402, 409 (S.D.Ga. 1991) (affirming unpublished bankruptcy decision holding joint holders of judgment constitutes single creditor for purposes of § 303(b)); In re T.P. Herndon & Co., 87 B.R. 204, 206 (Bankr.M.D.Fla.1988) (finding because promissory note was made payable to a single entity, a probate estate, petitioning creditors held single right to payment constituting only one claim for purposes of § 303(b) even though note had been assigned to heirs); In re Averil, Inc., 33 B.R. 562, 563 (Bankr. S.D.Fla.1983) (concluding joint holders of promissory note constituted single creditor); In re McMeekin, 16 B.R. 805, 809 (Bankr. D.Mass.1982) (looking to Massachusetts law which states that a promissory note made payable to two or more individuals is enforceable only by all of them).
[8] Absent a default in timely payment. See Exhibit 7A at p. 7.
[9] In light of the Court's conclusion regarding Littleton's claim, the Court does not need to determine the precise amount of the Small and Braithwaite claim. However, the credible evidence is that Small and Braithwaite do hold an unsecured claim against Moss.
[10] Moss states that she had sixteen creditors on the Petition Date in both her Motion to Dismiss or Transfer and in the Joint Pre-Conference Statement filed on April 7, 2000. However, at trial Moss contended that she had eighteen creditors as of the Petition Date. These and other inconsistencies in Moss's positions and testimony were of concern to the Court. However, for the reasons stated previously at pp. 418-19, the Court concludes that Moss had twelve or more creditors on the Petition Date.
[11] Moss also contends that the Involuntary Petition should be dismissed because (i) this is a two party dispute between Moss and Littleton and Littleton has another adequate remedy and (ii) the Petitioning Creditors failed to establish that they filed the Involuntary Petition in good faith. The Court disagrees. The two party dispute cases relied upon by Moss are distinguishable. Unlike this case, the courts in those cases found that only a single creditor was not being paid and, as a result, the courts further considered whether there were other adequate remedies available to the disgruntled creditor (whether there was a "special need" for bankruptcy relief). See, e.g., Paroline v. Doling, 116 B.R. 583, 586 (Bankr.S.D.Ohio 1990). In addition, the Court finds that the Petitioning Creditors acted in good faith.
[12] Approximately $200,000.00 sits in the registry of the Dallas State Court in connection with the already filed fraudulent transfer lawsuit.
[13] Alternatively, the trustee could substitute into the state court litigation and then remove it to this Court. 28 U.S.C. § 1452.
[1] The calculation for this pro-rated amount is as follows:
December 9, 1999 to March 31, 2000 = 113 days
April 1, 2000 to March 31, 2001 = 365 days
April 1, 2001 to March 31, 2002 = 365 days
TOTAL = 843 days
$432,601.65 divided by 843 days = $513.17 per diem
November 18, 1999 to December 8, 1999 = 21 days (inclusive)
$513.17 per diem [] 21 days = $10,776.57