*1 Georges MARCIANO, Debtor. Georges Marciano, Appellant,
v. Joseph Fahs, Chapnick, Steven Tagle, Appellees.
Elizabeth No. BAP CC-11-1008-DMkKi. Bankruptcy No. SV 11-10426-VK. United States Appellate Pan-
el, of the Ninth Circuit. Argued and Submitted June 2011. Sept.
Decided *4 Hill, McCarthy,
Daniel J. Farrer & Bur- LLP, rill Angeles, CA, Los for Georges Marciano.
Bradley Brook, E. Badley Law Office of Brook, CA, E. Angeles, Los for Steven Chapniek, Fahs, Joseph Elizabeth Tagle. DUNN, MARKELL, Before: KIRSCHER, Bankruptcy Judges.
OPINION
DUNN, Bankruptcy Judge. per se adopted that, rule even though they ap were on peal, unstayed California judgments en against tered alleged debtor following terminating sanctions for discovery abuses litigation state court constituted claims that were not to bona fide for purposes entering an order for relief § Accordingly, 303.1 the judgment creditors were not precluded from filing involuntary bankruptcy petition against judgment Further, debtor. the bank ruptcy court declined to proceed ings involuntary on the chapter petition 305(a) pursuant § pending resolution of alleged debtor’s state appeals. We AFFIRM. specified, Procedure,
1. Unless
chapter
otherwise
all
ruptcy
Rules 1001-9037. The
section references are to the
Federal Rules of Civil Procedure are referred
Code,
101-1532,
§§
11 U.S.C.
and all "Rule”
to as “Civil Rules.”
references are to the Federal Rules of Bank-
Marciano’s
created a lien on Mr.
the order
OF FACTS2
I. SUMMARY
708.110(d).
assets. See C.C.P.
telegraphed to some
once
Vanderbilt
after the
days
On October
partners:
“Gentlemen
crossing
double
lien,
creditors
judgment
of this
creation
I will
to cheat me.
you have undertaken
Fahs,
Chapnick and Eliza-
Joseph
Steven
long.
law takes too
you,
not sue
for the
(collectively,
“Petitioning
Tagle
beth
you.”
I will ruin
He did.3
Creditors”)
involuntary Chapter
filed an
Georges Marciano
August
On
Petition”)
(“Involuntary
in accor-
petition
which included the above
sent an e-mail
pre-
purpose
dance with
303 for the
long-
other
to his accountant and
language
serving
right
pursu-
to avoid this lien
e-mail was the
employees. This
term
in order to allow all
ant to
in a course of conduct
opening salvo
dis-
participate equally
creditors to
entry
ultimately led to the
of six California
tribution of Mr. Marciano’s assets. Mr.
against Mr. Marci-
judgments
state court
rejects
the notion that
Marciano
amount
aggregate
in the
of $260.3
ano
Petition,
libel, defamation, and intention-
million for
other than in bad
acting
were
Creditors
distress.
al infliction of emotional
faith.
after the
were entered
answer,
than file an
Mr. Marci-
Rather
terminating sanctions
state court entered
him
procedure
ano invoked the
available to
following
repeated
12(b),
pursuant
applicable
under Civil Rule
which
discovery process,
violations of the
1011(b), and filed a motion to
to Rule
*6
“demon-
the trial court characterized as
(“First
Involuntary
the
Petition
dismiss
discovery
pattern
a
strating
consistent
Motion”). In the First Dismiss-
Dismissal
”
terminating
The
sanctions
abuses....
Motion,
al
Mr. Marciano asserted
he
against
Mr. Marciano’s claims
dismissed
served with the
properly
had not been
and struck his an-
judgment
the
creditors
Petition;
Involuntary
alter-
summons
to their cross claims.
swers
the
natively,
sought
he
to have
summons
quashed. He also asserted in the First
judg-
all six
appealed
Involuntary
Pe-
Dismissal Motion
the
ments,
a
post
but he could not afford to
facially
where it
tition was
unconstitutional
the
stay
judgments pending
bond to
the
Chapter
to
11 case
had been filed
initiate
stay pend-
appeals,
requests
and his
bankruptcy
an individual. The
against
by the trial court
ing appeal were denied
ruling denying
its oral
court issued
As a
Appeal.
the state Court
hearing
at its
held
First Dismissal Motion
result,
initiated
judgment
creditors
13,
January
(“January
13 Hear-
on
July
On
various collection efforts.
ing”).
denying
The order
the First Dis-
creditors,
judgment
two
Camille
May
missal Motion
entered
2010.
was
Choi,
Miriam
obtained an order
Abat and
Although
Marciano filed his answer
for Mr. Marciano’s
debtor exam-
February
law,
to
Petition on
ination. Under California
service
relating
complete development
facts as rele-
underlying
to the state
of further
facts
Opinion.
the Discussion section of this
litigation
vant in
court
are set out in detail in the
opinion:
bankruptcy
published
court's
Marciano,
(Bankr.C.D.Cal.
Determining Liability
8. Order Summary Judgment sideration Review. A. General Standards of Order; indepen means review is De novo Relief; and 9. Order for dent, the trial given no deference Stay Temporary Order. 10. Ave. court’s conclusion. See First West (In Me Bldg., LLC v. James re Onecast II.JURISDICTION Cir.2006). dia, (9th Inc.), 439 F.3d jurisdiction had bankruptcy court 157(b)(2)(A) §§ 1334 and test to de apply two-part under 28 U.S.C. We (0). jurisdiction under 28 court bankruptcy We have whether termine v. 158. United States U.S.C. abused its discretion. (9th
Hinkson, F.3d 1261-62 Cir. 2009). First, we consider de novo whether III.ISSUES the correct bankruptcy applied court bankruptcy court 1. Whether requested. the relief Id. legal standard to it determined its discretion when abused Then, bankruptcy court’s we review had not abandoned his that Mr. Marciano & findings fact for clear error. Id. residence. bankruptcy affirm n. 20. We must 2. court erred Whether findings fact unless we conclude court’s that service on Mr. when it determined “(1) (2) ‘illogical,’ ‘implausi they are properly Marciano had been effected. ble,’ ‘support without in inferences may be drawn from the facts 3. Whether ” record.’ Id. it its discretion when entered the abused Marciano Order and the Protec- Sanctions may affirm the We tive Order. supported by basis ruling court’s See, Whether e.g., the record. Heilman v. Heilman (9th when it denied the (In abused its discretion Heilman), re 430 B.R. (In Dismissal Motion and the related Second 2010); Kipperman BAP FDIC v. Cir. Center, Inc.), motions for reconsideration. Money re Commercial (9th 2008); B.R. 826-27 Cir. BAP see court erred 5. Whether the Beach, McSherry City Long also v. Summary Judgment it granted when (9th Cir.2009). *8 1129,1135 F.3d Motion. bankruptcy 6. court erred Whether Relating B. Review to the Standards of adopted per when it se rule Dismissal Motion. First by the unstayed judgments held Petition- bankruptcy The existence of the subject ing Creditors were not to bona fide of law jurisdiction question court’s is a dispute. Reebok to de novo review. See bankruptcy court erred Whether Int’l, Enters., 970 F.2d Ltd. v. Marnatech when it entered the Order for Relief. (9th Cir.1992). 552, review de 554 “We pro that service of bankruptcy novo the determination 8. Whether (In Pringle v. it cess was sufficient.” Rubin abused its discretion when denied Inc.), 1077, Media, 387 F.3d 1081 of 11 while the re Focus Chapter proceedings (9th Cir.2004). appeal. Order for Relief was on
35 (In W., L.P.), of question is a law re Smith re BCE 319 F.3d Ripeness (9th 1166, Cir.2003); Chang Greenpoint v. 1170 viewed de novo. See United (9th (In States, 911, Cir.2003); Mortgage Funding, Inc. v. 327 F.3d 921 Herrera re Herrera), Davis, 698, (9th 422 BAP Soc’y, Nat’l Inc. v. 307 B.R. 709 Cir. Audubon 2010). (9th 835, Cir.), F.3d amended 312 849 (9th Cir.2002).
F.3d 416 A court’s decision to deny a findings, motion for additional re Relating to C. Standards Review of an consideration or order or amended Discovery Appeal. Orders on for of reviewed abuse discre owe substantial deference to “We Lawson, Perry, tion. Weiner v. Settles & interpretation court’s of its (In Weiner), 1216, Inc. re 161 F.3d 1217 own and will not overturn that in orders (9th Cir.1998); (In Hopkins v. Cerchione terpretation unless we are convinced that (9th Cerchione), 540, re B.R. 414 545 Cir. it abuse of discretion.” Illi amounts to 2009). BAP nois Inv. Trust No. 7163 v. Allied 92 (In Indus.,
Waste Inc. re Tech. Resource Relating E.Standards Review to the (7th 376, Cir.2010); Corp.), F.3d 624 386 Summary Judgment Order Networks, see also v. First Bass Order Pacific Relief. Inc., (9th Cir.1996) 79 1152 at *1 n. 1 F.3d Whether there is a “bona fide decision); (unpublished Rogers v. Alaska dispute” purposes for the 303 is a Co., 116, (1961). 290 F.2d Steamship question of fact reviewed for clear error. Liberty Mfg. v. Fishing Tool & Vortex to impose We review the refusal (In Systems, Fishing Sys Inc. re Vortex discovery for an sanctions abuse discre tems, Inc.), (9th 1057, 277 F.3d Cir. Avery Corp. tion. v. See Dennison Allen 2002). “[fjindings However of fact made Co., dale Mut. Ins. 310 F.3d summary judgment proceedings are not (9th Cir.2002). ‘clearly entitled erroneous’ standard review the We of review because the trial court has not permit discovery court’s refusal to further weighed the the conventional evidence on a ruling summary judgment before mo (InWyle Family sense.” C.H. Rider & v. Mackey tion for an abuse discretion. v. Energy Corp.), re United 102 B.R. Bank, (9th Pioneer Nat’l 867 F.2d (9th 1989), Cir. BAP 51 B.R. 594-95 Cir.1989); Higgins also Vortex see v. Fish (9th 1985). Rather, Cir. BAP the review (9th Inc., ing Sys., 379 F.3d Cir. ing position court must stand the same 2004). We review court’s the court and apply below the standards grant decision whether to or protective 56(c). Thus, forth in Rule we set Civil der for an abuse discretion. See Foltz review de novo a court’s deci Co., v. State Farm Mut. Ins. Auto. grant summary judgment. Wood sion (9th Cir.2003). 1122, 1130 F.3d (In Sys., v. Stratos Dev. re Ahaza Product *9 Inc.), Cir.2007) 1118, (9th 482 F.3d Relating D. Standards Review to the of (stating Appeals both Court of Second Dismissal Order. BAP to a apply and the de novo review summary grant We review issues of federal statu court’s of construction, tory including interpretation judgment). Accordingly, when the deter Code, provisions dispute of of the Bankruptcy de mination that there is no bona fide purposes novo. for 303 is in the con- Bagel Corp. v. of made Einstein/Noah chapter a ruptcy petition court of analysis, our summary judgment of a text 11 of title— a 7 or this applying rather than de novo review is In the con- standard. clearly erroneous entities, more each by three or there is a determining whether text of a claim either a holder of which is §of dispute purposes for bona fide contin- person that is not against such to eval- is not asked bankruptcy court “[a] a liability gent as to or dispute, of a potential uate the outcome liability or bona fide are there merely to determine whether but noncontingent, if un- amount ... such dis- legitimate to a give facts that rise aggregate at least disputed claims owed, money is agreement over whether $13,475 more than the value of cases, or, much.” Vortex in certain how secur- property lien on of the debtor at 1064. Fishing, 277 F.3d by held the holders of ing such claims such claims.... court’s a We review Rab law de novo. interpretation of state provides: Rule 1010 Univ., 350 kin v. Ore. Health Sciences involuntary petition of an On the (9th Cir.2003). 967, 970 F.3d ..., shall forthwith issue the clerk an for service. When involun- summons V. DISCUSSION filed, be tary petition is service shall Orders, Appeal. A. Ten One The summons made on the debtor.... entitled Generally, party “a is copy be served with a shall until final single appeal, to a to be deferred provided petition in manner for entered, been which judgment has complaint a summons and service of any stage claims of error [trial court] 7004(a) (b). by If can- Rule or service Digital litigation may be ventilated.” made, may not be so the court order Direct, Inc., 511 Equip. Corp. Desktop v. petition that the summons and be served L.Ed.2d U.S. S.Ct. by mailing copies party’s to the last (1994). An is such a “order for relief’ address, pub- at least one known Accordingly, or final order. lication in a manner and form directed timely is as to each of the orders on appeal peti- summons and by the court. The entry of appeal prior that were entered may party any- on the tion be served the Order for Relief. 7004(e) Rule Rule [Civil where. 4(1) or apply when service is made ] Properly Exer- B. The Court attempted under this rule. cised Jurisdiction Over added.) (Emphasis Involuntary and the Petition. 7004(a)(1) applicable Rule makes Civil delay. The In- appeal This is all about 4(c)(1), requires that the sum- Rule which voluntary filed on Petition was October Involuntary Peti- mons be served with for Relief was not and the Order 7004(b)(1) Rule authorizes service of tion. until entered December Petition the summons 303(b) procedure establishes the Section mail: first class commencing involuntary bankruptcy 303(b) appeal, case. As relevant to this than an infant an individual other Upon provides: by mailing copy incompetent, [involuntary petition] to summons and involuntary person
An case *10 dwelling house or usual the individual’s by filing commenced with bank- place place of abode or to the where Creditors Properly regularly individual Served Mr. conducts a Marciano In business Accor- 7001(b)(1). dance With Rule profession. or As his first appeal, issue on 7004(f)provides: Rule Marciano asserts the bankruptcy If jurisdiction the exercise of is consis- court erred it when failed to dismiss the tent with the Constitution and of laws Involuntary Petition upon based defective States, the United serving summons service. case, Under the facts of this we ... in accordance with this rule or the agree with the bankruptcy court that ser of subdivisions Rule appli- [Civil 4] vice of made the summons and Involuntary Peti cable these tion was rules is juris effective estab- sufficient create personal diction over Mr. personal jurisdiction purposes lish Marciano for over of the person adjudicating Involuntary Petition. any [involuntary with respect debtor] to a case under the Code or a civil 31, 2009, On October the Petitioning proceeding Code, arising under the or Creditors served the Involuntary Petition arising related to case under the and summons on Mr. Marciano U.S. Code. Mail at two addresses: 1000 N. Crescent Drive in Beverly Hills (“Beverly Hills Ad 7004(f), Under Rule the bankruptcy court dress”), Stars, and Avenue of the personal had jurisdiction over Mr. Marci- Floor, (“Los 24th Angeles in Los Angeles ano if requirements three were met: Address”). Motion, his First Dismissal (1) Mr. Marciano asserted service of the Involun has process been made in tary Petition should be dismissed because accordance with Rule 7004 [] or Civil he had properly been not served (2) 4; Rule the court has matter Involuntary Petition and summons.4 He jurisdiction under section 1334 of the supported the First Dismissal Motion with Code; jurisdiction exercise of declaration, in which he averred that the consistent with the Constitution Beverly Hills Address was his residential laws of the United States. until August address had left he Cali 10 COLLIER ON BANKRUPTCY returned; fornia had 2009 he had ¶ (Alan 7004.07 Henry N. Resnick & J. been outside the United States continu Sommer, eds., 2010), 16th ed. citing ously; and as of the date declara (Bankr. Tipton, 257 B.R. tion, 19, 2009, November he had not reen E.D.Tenn.2000). tered the United States. He further 4. Notwithstanding 23, 2009, vigorous Mr. Marciano's for November 17 and and for De- and sustained to contest efforts Court, involun- 7 and cember before this are tary bankruptcy proceedings, his first action stayed entirety upon their based the auto- Petition, Involuntary after the matic that was effectuated under 11 taken even before service of the 362(a)(1) pursuant U.S.C. to an involun- summons, Petition and was to file in State tary Chapter petition that was filed Litigation Court a "Notice of Automatic against Georges defendant Marciano in the Stay,” which entirety: is set forth below in its Court, United States Central PLEASE TAKE NOTICE that all actions California, Division, Angeles District of Los against Georges above-cap- Marciano in the 27, 2009, commencing on October case no. action, including any tioned efforts to col- A 2:09-bk-39630-VK. true and correct upon lect entered copy involuntary petition is attached Georges in the Marciano matters scheduled hereto as Exhibit A. hearing and the examinations scheduled *11 exact, location of proximate, the let alone Angeles that the Los Address
averred Browne, bankrupt- The alleged the law firm of new residence. the address of his “which is and has been George, cy Woods & court was allowed to draw the inference litigation].” in the court my [state counsel of Mr. Marci- documentary that evidence Ange- that the use of the Los He declared would have ano’s current residence pleadings as his address les Address Beverly that the harmed his assertion litiga- “in in the state court pro per” filed dwelling place not his Hills Address was fraudulently and without his tion was done purposes for of ser- place usual of abode regularly that had never knowledge, he 7004(b)(1). Rule vice under activi- any conducted of his own business bankruptcy court further deter Address, that Angeles ties at the Los the filings mined that current Califor Ange- mail at the Los he does not receive that Mr. Secretary nia of State evidence Georges Declaration les Address. See of conducting regularly Marciano was busi Marciano, 19, 2009. dated November Address, Beverly at the Hills where ness court, noting that Mr. agent for Mr. Marciano was listed as subject any Marciano had been entities,5 and where his ad separate four examination, at the present cross was not filings forth in was the dress set those hearing on the First Dismissal Mo court Beverly Hills Address. Id. at 34:25-35:9. tion, piece paper “one of and had not filed signifi Finally, court found out” tangibly that indicates that he moved Mr. Marci cant the fact the website Address, Beverly Hills determined of the candidacy for the promote ano used to his was not that Mr. Marciano’s declaration governor office of of the State of California Beverly sufficient to establish Beverly as the used the Hills Address dwelling house Hills Address was not his at he could contacted.6 address which be Tr. of Jan. place or usual abode. at Id. 37:1-9. on the H’ring Relying at 34:14-24. findings, Based on these Cantu, analysis of the court in v. Garcia properly determined that service of (Bankr.W.D.Tex. B.R. 511-15 Involuntary Petition and summons on 2006), bankruptcy court found that Mr. preclude Mr. Marciano was sufficient to presented Marciano had no evidence Petition for dismissal Beverly Hills Ad he had abandoned at insufficiency of service. Id. 34:25-35:9. dress as his residence. Id. 36:6-12. agree. We 2. The Exercise Court’s persuasive also find the discussion We Adjudicating Jurisdiction the “Adverse Inference Garcia v. Cantu of Involuntary Petition Was Consis- actual docu- Rule.” If Mr. Marciano had tent With Constitution. mentary evidence that he had abandoned jurisdiction personal In addition to Beverly dwelling as his Hills Address Marciano, abode, over place place or usual he should jurisdiction matter over the Instead, had provided have it. involuntary proceedings pursuant to 28 self-serving declaration in prepared 1334(a), “... coyly which the district which he avoided disclosure U.S.C. copy website text is includ- filings are included as Ex. 2 to 6. A of the relevant 5. The relevant Petitioning re- request judicial ed Ex. 3 to the Creditors’ Creditors’ for judicial support opposition quest notice filed in support of their notice filed in opposition to the First Dismissal Motion. their the First Dismissal Motion.
39 original courts shall have and exclusive formed the debtor after the commence- 11,” jurisdiction of all cases under title and ment of the case but before the case is 157(a), pursuant closed, dismissed, § pro 28 U.S.C. which or converted to a case may 7, vides that court pro chapter 13, “[e]ach district or whichever oc- that all first;” vide cases under title 11 ... 1129(a)(15)(B), § curs which re- shall be bankruptcy judges that, referred to the quires if the holder of an unsecured for the district.” The District Court for claim objects to confirmation of plan, the Central District of California entered “the property value of the to be distributed its order of August reference on 1984. under the plan is not than project- less previously We have that held invol ed disposable “[a]n income of debtor” that untary petition that sufficient on its face the debtor receives for a years; least five and which 1141(d)(5), contains the essential allega precludes which entry tions subject jurisdic invokes the matter a discharge until all payments due under tion of the court.” Wechsler v. the plan have been completed. Trade, (In
Macke Int’l
Inc.
re Macke Int’l
The Petitioning
responded
Creditors
Trade, Inc.),
(9th
370 B.R.
Cir.
that Mr. Marciano’s own declaration raised
2007),
BAP
citing Bakonyi v. Boardroom the factual possibility that he had no
(In
Sys.
Works),
re Quality Laser
Info.
“earnings from
performed by
services
(9th
211 B.R.
1997),
BAP
Cir.
debtor,”
precluded
which
Mr. Marciano’s
mem.,
(9th Cir.1998).
Specifically, Mr. Marciano asserts ano’s challenge constitutional prema- was the provisions of ture. Abuse Prevention and Consumer Protec (“BAPCPA”)
tion Act of 2005 which au The bankruptcy agreed, stating thorize the involuntary Chapter the time to determine whether Mr. petition against an individual debtor “earnings personal Marciano had from ser- violate the Thirteenth prohibi Amendment might vices” that property constitute involuntary tion servitude. Mr. the estate was after an order for relief was primarily 1115(a)(2), 303(f) Marciano relies then, entered. Until authorized which includes the definition of property use, Mr. Marciano to acquire, “continue of the estate from “earnings per- services or dispose property involuntary if an Marciano was served Because Mr. commenced.”
case had not been *13 (2) 7004(b)(1), with Rule the accordance and ruled that unless bankruptcy court juris- had matter bankruptcy court in the entered until an order for relief was Involuntary Peti- adjudicate the diction case, by Mr. issue raised the constitutional (3) tion, the constitutional issues and pro- The limited ripe. Marciano was not by ripe, Marciano were not raised Mr. bankruptcy court re- ceedings before the properly court could exercise as to whether quired only a determination Mr. Marciano personal jurisdiction over their Petitioning satisfied Creditors 7004(f). Accordingly, the pursuant to Rule 303(b) § such that proof of burden bankruptcy court did not abuse its discre- appropri- for relief was entry of an order tion when it denied the First Dismissal H’ring at 37:15- ate. Tr. of Jan. Motion. 40:25. Did Not Abuse C. The Court no error in the bank We find Its Discretion When It Limited Dis- ruptcy court’s refusal to reach the consti covery Prior to Its Determination of challenging the con tutional issue. “When Entry An Whether Order of for Relief statute, it incumbent stitutionality of a is Appropriate. Was in its upon challenger to show 1, 2010, February after the bank- On is unconstitutional to operation the statute ruptcy court denied the First Dismissal 2A and him in his situation.” Statutes Motion, answer, filed his in (7th § Statutory 45:11 ed. Construction allegations which he denied the essential 2011). provisions Chapter The of sim Involuntary His Petition. asserted Marciano at ply applicable were not to Mr. answer also contained affirmative defens- the time he raised the constitutional issues es, insufficiency lack including process, ie., Dismiss, be in the First Motion to personal jurisdiction, and failure to state entered. cause no order for relief had been claim, Final- requested and abstention. a constitutional anticipate “Courts will ly, the answer contained counterclaims necessity in advance of the of decid issue (2) 303(i)(l) costs, §to pursuant it, ing accept constitutional issues for fees, attorneys damages proximately adjudication controversy ‘pre is when the Involuntary of the caused ” mature.’ 16 Am.Jur.2d Constitutional Petition, punitive damages. (2010). § Although Law 118 the discus April On avoid sion of the doctrine constitutional respect held a status conference with Clemente, 409 B.R. ance set forth Peti- prosecution (Bankr.D.N.J.2009), inter 294-96 is tion, at which the court enunci- esting, particularly where the constitution its views as to the limited issues to be ated 1115(a)(2) raised, ality of the con decided in its determination of whether it Dismiss, text of the First Motion to to enter an order for re- appropriate was correctly applied The court’s lief under ripeness. ripeness doctrine of doc April scheduling order entered Order”), trine “reflects the determination that forth the sched- (“Scheduling set real, only proceedings courts should ‘a substan on the Involun- decide ule for further Petition, tary scope and defined the controversy,’ tial hypothetical not mere proceedings. those further question.” Wright, Cooper 13B Miller & (3d may Fed. Practice & Proc. 3532.2 ed. file a Creditors (the 2008). Summary Judgment Motion for “MSJ”) regarding ing whether an order for discovery process, the bankruptcy relief should be entered [Mr. court expressly provided in the Scheduling in connection Marciano] with this invol Order “[t]here is no discovery untary proceeding. bringing parties which the may otherwise be enti- MSJ, the Petitioning may rely Creditors undertake,” tled to parties advised the upon following par facts which the of dates the court anticipated being avail- acknowledged ties have to the Court are resolve, able telephone, any discov- *14 undisputed:7 judgments the Los ery disputes the parties might encounter Angeles County Superior Court in an prior to the continued status hearing aggregate exceeding amount mil $260 3, for scheduled June 2010. lion have against been entered [Mr. eight Marciano] and in judg favor of Discovery disputes did in fact arise. On (the ment “Judgments”), creditors 9, 2010, April Mr. Marciano noticed deposi- which more than million is attribut $90 tions for each of Petitioning Creditors, the able to in the Peti favor of 19, place 22, to take April April April and (2) Creditors; tioning appeals pend are 23, date, 2010. On the same Mr. Marciano (S) ing respect Judgments; to the served production document requests and paying Judg [Mr. Marciano] is not the interrogatories on the Petitioning Credi- ments; (tí except and the automatic for tors, responses for which were due May stay upon that arose filing the the 14, 2010, 2010. On April Petitioning involuntary petition, there was and is Creditors notified Mr. Marciano of their no stay in preventing collection effect general opposition to the discovery; on upon Judgments. Based on these 18, 2010, April undisputed facts, the request Petitioning MSJ will Creditors (1) that the Court determine: whether notified Mr. objections Marciano of their to claims, the Petitioning Creditors’ each of depositions. noticed which upon is based his or her own Los light discovery of the disputes that Angeles Superior Court 7026-l(c) had developed, LBR imposed the Marciano], “subject are [Mr. to requirement with the bankruptcy dispute bona fide liability as to court a 303(b) stipulation written dispute. amount” under 11 U.S.C. when (l)(c) each, appealed Marciano has LBR provides but was not in part: relevant 7026— voluntarily paying any of them nor was (3) Moving Papers. If counsel are un- stay there a preventing effect collec able to dispute, party resolve the upon any tion prior them to the auto seeking discovery must file and serve a matic which arose when this invol together notice of motion awith written filed; untary case was whether stipulation by parties. [Mr. generally paying Marciano] is not they his debts as become pursuant due (A) stipulation must be contained 303(h)(1). to U.S.C. in 1 identify, document and sep- must (Emphasis original.) arately and with particularity, each disputed Because Mr. issue that Marciano believed that remains be de- ad- ditional factual might issues develop dur- termined at the hearing and the con- "[T]here's no paying as to the facts. The not them. Let's decide whether on that are, basis, itself, particular yes, facts for this exercise in and of an order for relief can judgments, yes, they there are entered are April H’ring not be entered.” Tr. of law, stayed yes, under state Mr. Marciano is 38:15-20. joint completed never stipulation and authorities of The was points
tentions and filing by Petitioning each issue. for Creditors. Ul- party each as to timately, Creditors did not (B) simply stipulation must depositions, their which the appear to the document con- refer the court May parties agreed had to be reset forming taining discovery request 13, 2010, respond and failed to dispute. For exam- the basis of the re- production Mr. Marciano’s document sufficiency if of an answer to ple, issue, interrogatories. stipu- quests interrogatory contain, verbatim, lation must both May Mr. Marciano filed On allegedly and the interrogatory Motion”) (“Marciano Discovery motion answer, followed each insufficient be heard at the June 2010 continued contentions, separated stated. party’s hearing. In the Marciano Discov- status (C) stipulation In the absence of such Motion, requested that ery *15 noncoop- or a declaration of counsel of discovery bankruptcy the court enter sanc- by party, the opposing eration the (1) striking the Involun- tions as follow: discovery the court will not consider tary dismissing Petition and the involun- motion. (2) case, tary Chapter ordering prompt (4) Cooperation Counsel: Sanctions. discovery compliance pending with the re- The failure of counsel either to co- (3) monetary sanctions quests, imposing procedure pro- in ... or to operate this against Petitioning and their the Creditors the information moving party vide the $9,000,represent- counsel in the amount of re- necessary prepare stipulation to the ing incurred the amount fees costs days the quired by this rule within 7 by Mr. Marciano in connection with the in LBR meeting of counsel [described Motion, Discovery reliev- Marciano 7026-l(c)(2) in imposi- will result the ] ing obligation Mr. Marciano of his sanctions, including tion of the sanctions discovery rules meet and confer .to by authorized 7037 and LBR [Rule] Petitioning in connection with Creditors 9011-3. protective they with a motion for order Petitioning It appears Creditors threatening were to file. made known to Marciano their intent Mr. At Hearing the June 10 on the Marciano order, protective to seek a and that the Motion,8 Discovery bankruptcy court parties agreed Petitioning that the Credi- discovery determined sanctions stipulation by required tors would file the Petitioning Creditors did 23, 2010, in con- April connection with the appear appropriate light in of the admit templated protective motion for order. On tedly confusing order the court 18, 2010, April Petitioning Creditors 30, April (“April had entered on provided Mr. Marciano he charac- what Order”), which the joint stipulation” terized as a “deficient proposed stipulated edited the order sub any points without and authorities to which parties respect mitted to their They with respond. Marciano could did it joint discovery disputes provided such that provide stipulation points a draft simply on Court will evaluate the issues April “[t]he and authorities which 21, April Stipulation Mr. Marciano on 2010. identified in the at the status responded 3, 8. The June was 2010 status conference 10, reset court to June ”
conference to be held on June 2010.... particular, objects to the court determined that the finding of the bankruptcy court that its Petitioning Creditors reasonably could April 30 Order could have interpret- been have in reading April concluded ed aas of all discovery until the June discovery Order that all stayed had been 3 status Giving conference. substantial pending Hearing. the June 10 deference to the bankruptcy court’s inter- pretation Order, own April its entered order concluding that interpretation its (“Marciano is neither Order”), Discovery partially illogical, implausible, nor support without granting Motion, Discovery Marciano may inferences that be drawn from the which directed the Petitioning Creditors to record, facts we find no abuse of complete serve written responses to the discretion in allowing the Petitioning Cred- production requests document in- and the itors to seek protective order in the Joint terrogatories by July ap- and to Stipulation. The bankruptcy pear court’s inter- deposed August be on 3 and pretation April precludes 30 Order 2010. The Discovery Marciano Order also any finding dilatory behavior by scheduled a hearing the issuance of a order, might Creditors which protective support which was to be raised in (“Joint a waiver of joint stipulation right to seek a Stipulation”) protective order. by July be filed 2010 in compliance with *16 7026-l(c)(3).
LBR Stipulation The Joint Second, Mr. Marciano timely was filed asserts the required by as the Marci- entry of the Protective Order Discovery improp ano Order. was er because it deprived him of the opportu day On the before the hearing on the nity issues,” to conduct discovery “on all Stipulation, Joint Petitioning the Creditors with the result that he precluded was from filed summary their motion for defending himself in proceedings the (“Summary Motion”), Judgment seeking the Motion for Summary Judgment. The determination entry that of an order for running colloquy between bankruptcy the relief appropriate was as a matter of law. court and Mr. Marciano as reflected the At the July Hearing on the Stipu- Joint transcripts of the hearings April held lation, the court determined 15, 2010, July June establishes that that Summary Judgment because the Mo- the primary issue on which Mr. Marciano tion solely was based upon agreed the discovery wanted to take was his conten facts identified in the Scheduling Order tion Petitioning that Creditors had April entered a stay discovery filed Involuntary Petition in bad faith. pending Summary resolution of the Judg- ment Motion was appropriate. The order July At Hearing, the bankruptcy (“Protective Order”) staying discovery was court clarified that it denying was not dis- September entered on covery, but rather it was “staging” appeal,
On discovery. Marciano chal It undisputed was lenges entry of the Summary Protective Order Judgment brought Motion was First, grounds. on two he asserts agreed that the on the facts identified the bank- bankruptcy court ruptcy abused its discretion Scheduling court its Order. when it allowed Creditors court therefore determined protective that, to seek a untimely order in an ordering before discovery, additional manner, ie., after the responses time for it appropriate was to decide “whether the discovery to the requests were due. facts that are in dispute not are sufficient liability July- dispute Tr. of bona fide as to or an order for relief.” to enter un- H’ring noncontingent, at 46:8-11. amount ... if such disputed aggregate claims least 26(b), adjudi- in the applicable Rule Civil $13,475 any than the value of more pursuant Petition cation of the secur- property lien on of the debtor 7026, provides that “Un- to Rules 9014 and ing such claims held the holders order, ... by court less otherwise limited such claims.... discovery may regard- obtain parties] [the matter that is rele- ing any nonprivileged claim defense....” any party’s
vant to
(h)
timely
petition
controvert-
[If
26(b)(1)
added.).
(Emphasis
Rule
Civil
ed],
trial,
court shall order
after
that because he
Mr. Marciano contends
in an involun-
relief
the debtor
defense,
faith
an affirmative
pled bad
tary
chapter
under the
under which
case
him
deprived
of his
the Protective Order
filed,
petition
only
was
if—
Involuntary Pe-
opportunity to defend the
generally
paying
the debtor is
that Civil Rule
tition. We observe
such debtor’s debts as such debts be-
26(b)(2)(C)(iii)
authorizes
come due unless such debts are the
court,
motion,
discovery
to limit
on its own
dispute
of a bona fide
as to
26, if it
by Civil Rule
otherwise allowed
liability or amount....
expense
determines that “the burden or
correctly
noted
discovery outweighs
likely
its
proposed
303(b)
language
“does not contain
case,
benefit, considering the needs of the
regarding
good
petitioning
faith of the
discovery in
importance
... and the
Marciano,
creditors.”
(1) by entities, three or filed more each of petition faith, in bad for— which is a claim either a holder of (A) against such caused person any damages proximately that is not contin- gent liability filing; as to of a such or or the (B) punitive damages. None of points these tends indicate that further discovery directed the Peti- added.) (Emphasis Ordinarily, the bank- tioning Creditors would any genuine raise ruptcy court would not reach the issue of issues of material fact respect to the faith Involuntary bad unless until the Summary Judgment Motion. We conclude Ross, Petition was dismissed. that the bankruptcy court did not abuse its (Bankr.S.D.N.Y.1986) (the B.R. discretion in determining that requiring court need not reach the affirmative de- discovery further on the issue of the Peti- fense that involuntary petition was not tioning Creditors’ alleged bad faith at this filed in faith if good an order for relief is stage in proceedings pro- would not entered). (In Kaplan See also v. Breslow duce evidence relevant to its determi- Venture), re WLB-RSK B.R. 2004 nation of Summary Judgment Motion. (9th WL 3119789 at *6 n. 13 Cir. BAP Accordingly, the bankruptcy court could 2004)(unpublished disposition). properly scope limit the of discovery pend- adjudication ing Involuntary Peti- summary judgment When motion for tion. Limiting discovery pre- did not is filed advance of the close of discovery clude Mr. Marciano from defending in litigation, always the court has discre- against Petition. findWe tionary call to make in determining how no abuse of entry discretion discovery much require allow or in ad- Protective Order. summary vance of its judgment determina- tion. vigorously Counsel for Mr. Marciano D. Court Did Not Abuse argued before the court that Its Discretion When It Declined To the Petitioning good Creditors’ lack of Stay Proceedings on the Involuntary 1) faith was relevant because two of the Petition Pursuant to 305. three Creditors were the most aggressive among creditors “[Notwithstanding a bankruptcy court’s in their collection efforts Mr. Mar- jurisdiction involuntary over an pur- case 2) ciano; Creditor, the third Petitioning 305(a) suant to provides that the joined Tagle, Ms. the Involuntary may dismiss an involun- Petition after her case, settlement tary suspend overtures proceeding all in that *18 3) rebuffed; case, were thereby Petitioning juris- decline to exercise Trade, diction.” opposed Creditors Macke Int’l 370 B.R. Marciano’s motion at 305(a) provides 246. Section in relevant for relief from appeals continue his part: creditors, against judgment his including appeals his judgments by held court, after notice and a hearing, Petitioning Creditors. He made those title, may dismiss a case under this or points same in opposition his declaration in may all suspend proceedings in a case Summary Motion,
to the Judgment further title, under this at if—time stating that he by was advised counsel for (1) the interests of creditors and the they Creditors that “relied debtor would be by better served such upon counsel’s advice in deciding whether suspension;.... dismissal or to file the [Involuntary Decla- Petition].” ration McCarthy of Daniel J. in Opposition sought Mr. Marciano such dismissal or Motion, Summary to the Judgment p. at suspension involuntary by case mo- (“Second Motion”) 14. tion Dismissal filed 46 Did Not 26, 2010,9 2. The Court “until such time as
April
Denying
Abuse Its Discretion in
from the
by Mr. Marciano
pending appeals
For
Requests
Mr. Marciano’s Three
by
petitioning
held
default
305(a).
§
“Stay”
Under
and five other default
creditors
are resolved.” The Second Dis
creditors
305(a)(1)
§
is appropri-
Dismissal under
by
bankrupt
Motion was heard
missal
in
where the court
“only
ate
the situation
Hearing; the order
cy court at the June 10
and the debtor’
finds that both ‘creditors
Motion was
denying the Second Dismissal
‘better served’
a dismissal.”
would be
2,
July
entered
Eastman,
In Its
14 F.3d
Section
of
two-step process
this
also is
appeal
Mr. Marciano asserts on
We believe
deciding
of
a
bankruptcy
appropriate
that the
court erred as a mat
in the context
305(a)
respect
pending
§
in
a
motion with
to a
denying
ter of law
his motion for
305(a)
that,
“stay.”
Involuntary
bankruptcy
§
Petition. The
Mr. Marciano states
effect,
findings that con-
bankruptcy
in
the
court concluded court first must make
(1)
adjudication
Involuntary
considering
tinuing
that the
for
a
the
of the
same factors
305(a)
305(a)
appropriate.
§
§
to a
Petition is or is not
While no
apply
dismissal also
statutory
to
“stay,”
specific
guide
if
factors do not favor
cause is stated
those
dismissal,
court,
development of the
they
“stay.” bankruptcy
cannot favor a
the
that
the
bankrupt
provided guidance
Mr. Marciano contends
the
case law has
as to
make,
cy court
it
in
fac-
erred when
failed
factors to consider. Those were the
305(a)
request
§
connection with his
for a
Single
tors identified in the Monitor
Lift
“stay,”
factual
independent
findings
op
as
applied by
bankruptcy
case and
posed
relying
findings
on the same
it
Mo-
respect
to the Second Dismissal
made in connection with
request
had
his
“totality
appropriate
tion under the
305(a)
§
for a
dismissal. We find no error
circumstances standard.”
Macke Int’l
See
bankruptcy
application
in the
court’s
of Trade,
if
Only
In its is similar to the time of its decision go forward Bankruptcy other Code sections allow it need to consider it should would whether court to determine wheth- Involuntary outright dismiss the Petition bankrupt- it appropriate er continue a simply “stay” adjudication of the cy example, case or to dismiss it. For instance, Petition, Involuntary until the 1112(b) § allows the court ei- concluded. appeals state had Chapter convert a to a ther to case case Chapter or to dismiss the case Findings 4. The Court’s 1112(b), application § In its entirely. Support the Second Dismissal bankruptcy court must first determine Clearly Order Are Not Erroneous. “cause,” whether articulated statute, Mr. Marciano contends that change exists the manner court abused its discretion Chapter proceeding. which the case is suspend when it failed to Only finding after “cause” does a bank- 305(a). First, § court reach the issue of what Petition under he asserts ruptcy to do 1112(b) give with the case. Section offers the court failed to 305(a) Chapter primary choices of conversion to dis- consideration to the first missal, appointment economy efficiency or even the of a trus- Factor: “the choice, making disagree tee or examiner. its administration.” We 305(a) “primary” Factors can be court is directed to evalu- ate which of relief under alternative is the “best inter- where the determination 305(a) totality ests of the creditors and the estate.” See is based Trade, Materials, Corp. Rollex Int’l v. Associated Inc. circumstances. See Macke error, [bankruptcy stay, opportunities cause the denied the more to correct its but court] parties Appellant’s Opening predicted later to do so.” Brief incurred the costs. refused court], however, [bankruptcy had two at 13:3-19. *21 B.R. at 247. the record a debtor’s duties under the We observe and Code. appeal us on both before before it the Second Dismissal Mo- after denied Second, disputes Mr. Marciano that no
tion,
great
to
went
alternative forum was available to deter-
lengths to address Mr. Marciano’s con-
interests,
parties’
mine the
pointing to the
economy
efficiency
cerns about the
pending
appeals.
state court
In the con-
early
April,
administration. As
ease,
text of this
the third and fourth
a motion
court had invited
305(a)
i.e.,
Factors,
§
pro-
whether federal
summary judgment
agreed
on the
facts
ceedings
necessary
just
are
to reach a
adju-
that it believed would be sufficient to
solution,
equitable
and whether there
anis
involuntary petition. Many of
dicate the
alternative means of
an
achieving
equitable
the costs of administration of which Mr.
assets,
distribution of
sufficiently
are
relat-
complains
Marciano
were incurred as a
305(a)
ed to the second
Factor that a
repeated attempts
result of his
to continue
separate analysis of them is not warranted.
discovery, as discussed above.
Based on
position
his entrenched
judgments
Petitioning
Creditors
respect
“efficiency”
to
of adminis-
With
would not
appeal,
stand on
tration, Mr. Marciano’s concerns sound
refuses
acknowledge
consequences
“premise
prompt
hollow. There
that a
for the
Petitioning
interests
Credi
a bankruptcy
determination of whether
”
tors if the
ap
are affirmed on
Kidwell,
proceed
case is to
is needed....
peal. Mr. Marciano
appeal
asserts on
argued
tors could work out a less
out-of-
5. The
Not
Court Did
arrangement,
option
no such
was
Abuse Its Discretion
It De-
When
brought
to the attention of the
nied Mr. Marciano’s Motions for
judg-
court. We observe that even if the
Reconsideration
the Second Dis-
ments were reduced
amount
missal Order.
appeals,
nothing
state court of
there is
suggest
timely requested
this record to
that Mr. Marciano Mr. Marciano
reconsid-
(“First
them,
for Reconsidera-
pay
plenty
suggest
would
eration
Motion
tion”)
Order,
that he would not.
of the Second Dismissal
as-
*23
serting
bankruptcy
that the
court failed to Mr.
appeal
Marciano asserts on
that the
bankruptcy court
findings
respect
“stay”
make
with
to a
abused its discretion
305(a),
when it denied his
§
motions for reconsidera-
distinguished
as
from find-
tion of the Second Dismissal Order.
ings
respect
to dismissal under
305(a).
bankruptcy
The
court denied
To establish that the bankruptcy
the First Motion for Reconsideration on court abused its discretion in denying the
305(a)
the basis that applying the
Fac-
reconsideration,
motions for
Mr. Marciano
tors
support
“stay”
pro-
did not
of the
must demonstrate
newly
the existence of
ceedings
only
where the
factor on which discovered evidence that was not available
economy
focused was the
at the
original
time of the
hearing, or that
efficiency
of administration.
bankruptcy
court committed clear er
bankruptcy court
although
observed that
ror or made a decision that
manifestly
was
argued
Marciano
that “the interests of unjust, or that there was an intervening
Petitioning
Creditors would be better
change in controlling law. Zimmerman v.
by suspension
unnecessary
served
because
Oakland,
(9th
City
255 F.3d
expenses would be
...
avoided
evi-
[a]s
Cir.2001).
denced
objections,
their vociferous
The motions for reconsideration
clearly
Creditors
do not believe
were based neither on new
nor
evidence
on
suspension
inis
their best interests.” The
intervening
change
controlling law.
bankruptcy court further noted that Mr.
Instead, Mr. Marciano asserted that
only
Marciano focused
on
economy
of bankruptcy court had committed clear er
administration, but did not address the
ror
grant
when it failed to
him a “stay” of
“efficiency” of administration. The bank-
proceedings
Involuntary
Peti
ruptcy court
suspension
concluded that a
tion.
previously
We
have held that
proceedings
while the state court
applica
did not err in its
appeals
substantially
were resolved would
305(a)
tion of the
Accordingly,
Factors.
delay the
administration of the
we conclude that the bankruptcy court did
Marciano,
Petition.
come of Marciano, B.R. at 420. the court stage, summary judgment At the determined bankruptcy court and determine the evidence weigh does not at issue and five were only factors three matter, but determines truth of the Motion, ie., *24 Summary Judgment trial. for genuine a issue there is whether claims Petitioning Creditors’ whether 249, 106 at S.Ct. 2505. Id. dispute as subject a bona fide of were amount, whether Mr. liability or and to whether determining the context of In paying his debts generally was Marciano of dispute purposes for is a bona fide there bankruptcy The they become due. as is not asked bankruptcy court “[a] (1) Mr. that because court determined of a dis outcome potential to evaluate paying the was not Marciano whether merely to determine but pute, (2) creditors, in the record the evidence legiti to a give that rise there are facts not have Mr. Marciano did that reflects money is over whether disagreement mate in judgments pay assets to sufficient cases, owed, or, how much.” in certain (3) plan to full, Marciano had no and Mr. at 1064. As the 277 F.3d Fishing, Vortex totality of the judgments, in the pay the “[o]nly dis emphasized, circumstances, generally Mr. Marciano the out might that affect putes over facts they as became paying his debts was not law will governing of the suit under come Marciano, 421. Mr. B.R. at 446 due. summary judg entry of preclude properly dispute this determina- Marciano does not Marciano, quot B.R. at ment.” that be- except to assert appeal, tion on Inc., Lobby, Liberty v. ing Anderson fide dis- are bona judgments cause the 248, 106 S.Ct. U.S. that he constitute debts pute, they cannot pur- for they become due paying is not as five ele court identified poses of 303. Petitioning Creditors ments 303(b) §§ and pursuant must establish essence, therefore, only element In (h) Summary prevail on the in order to claims of the is whether the dispute thereby en obtain Judgment Motion subject are the judgment creditors Mar against Mr. try of an order for relief liability or amount. dispute fide bona ciano: judgment pro- summary Typically, (2)
(1)
present
hold
must
moving party
three or more creditors
ceedings
establishing
that are
its entitle-
Marciano]
claims
facie case
prima
[Mr.
(3)
liability
summary judgment.
are
Once
contingent
not
as to
ment to
established, the
dispute as
case has been
subject
prima
of a bona fide
facie
not the
(4)
non-moving party
shifts to the
aggre-
in the
burden then
liability
or amount
genuine
of a
$13,475,
the existence
to establish
gate amount of at least
preclude
that would
of material fact
not
issue
generally
is
[Mr. Marciano]
granting the
the order
appeal directed to
rejected Mr. Marci-
14. The
Motion,
Judgment
he does
Summary
the lack of “bad faith”
because
ano's assertion that
Petitioning
the Involun-
Creditors in
in the context
not address the issue
upon which
tary
is an element
Petition also
opening
Judgment
in his
Summary
Motion
prevail. Al-
Creditors must
purposes
for
appeal, he has waived it
brief on
though
included this conclu-
this discussion.
issue on
court as an
sion of
entry
summary judgment.
upon
judgment,
See Celotex claim based
in the ab-
Catrett,
Corp.
stay,
v.
477 U.S.
106 sence of a
to a bona
(1986).
2548,
1. The
Court Did Not Err
issue,
general
is in accord with the
rule.
When It Concluded That the State
undertaking
given,
per-
“Unless an
is
Judgments
Court
Were Not Bona
fecting
appeal
stay
of an
enforce-
shall
Dispute
Liability
Fide
To
or
As
or
trial
judgment
ment
order
Amount.
judgment
court if the
or order is for ...
money
money.”
Most
payment
courts
have considered the
or the
Cal.
917.1(a)(1).
issue have held that no bona
P.
“The
fide
Code. Civ.
respect
judg-
involuntary petition
many
exists with
to state court
an
is but one of
judgment
may
ments where the
debtor has not means
which a
creditor
something
pending appeal.
attempt
obtained
seek to
collection
“[A]
Drexler,
upon
judgment.”
difficulty
its
56 B.R. at
court also noted the essential
implementing Byrd’s analytical approach:
967.
difficulty
The inherent
and lack of neces-
out that the
points
Marciano
sity in
engaging
analysis
such
Fourth Circuit has declined to follow the
itself,
by Byrd
borne out
as the court
majority
approach, on the basis
sub
only
cursory
made a
examination into
questions may
stantial
remain about a
pending appeals, finding
alleged
liability, notwithstanding judg
debtor’s
presented
debtor
no
support
evidence to
ments in a
In re
creditor’s favor. See
and,
his likelihood of
appeal
success on
However,
Byrd,
at
357 F.3d
thus,
“failed to raise
substantial fac-
Byrd,
subjective
“a debtor’s
beliefs do not
tual
legal questions
or
about the contin-
at
give
dispute.”
rise to
bona fide
Id.
viability
judgments.”
ued
of those
enough
alleged
440. It is not
for an
debt-
Investors, LLC,
In re AMC
406 B.R. at
simply
validity
refuse
concede
438).
(quoting
Byrd,
F.3d
Instead,
petitioning
of a
claim.
creditor’s
The AMC Investors court further ob-
to assert that a debt is in
fide dis
bona
Byrd
rejection
served that the
court’s
pute, a
present
debtor must
evidence to
majority
approach
upon
was based
support
arguments.
factual
legal
his
interpretation
incorrect
of the definition of
*26
Id. “Indeed it will
case in
be the unusual
101(5),
“claim”
specifically,
that
dispute
which a bona fide
in the face
exists
entry
judgment
the
of a
does not
create
judg
of claims reduced to
court
state
right
payment.
to
Id. at 486.
ments.” Id. at 438. Mr. Marciano asserts
Byrd
phrase
The
reads
the
that
court should have fol
right
“whether or not such
is reduced to
Byrd approach
lowed the
him
and allowed
judgment” to mean that the definition of
opportunity
an
to rebut
claim “permits some creditors who have
prima
Creditors’
facie case.
not reduced their claims
judgment
to
to
involuntary petitions,
file
just
pre-
as it
disagree.
We
the Ninth Cir
vents other creditors who have reduced
cuit,
purposes
for
a bona fide
judgment
their claims
filing.”
to
from
dispute requires an objective basis for ei
agrees
While this court
that the relevant
ther a factual or a legal dispute as to the
language
right
pay-
clarifies that a
to
validity of
Liberty
Mfg.
the debt.
Tool &
may
ment
exist even if it has not been
(In
Fishing Sys.,
v. Vortex
Inc.
re Vortex
judgment;
to
disagrees
reduced
it
Inc.),
Fishing Sys.,
Finally, ously court deter- Mr. Marciano’s motion granting stay pending stay mined that a Rule appeal, pending appeal under Bankruptcy the Federal Rules of Proce- minating sanctions are not in bona fide dure and Rule 62 of the Federal Rules dispute purposes for or when it Procedure, potentially of Civil as made Summary entered the Judgment Order applicable by Rule 7062 of the Federal and the resulting Order for Relief. The Rules of Procedure? properly juris- asserted diction over the Petition. Fi- Opening Appeal, In his Brief on points nally, Marciano out that after the Order court did not abuse for Relief “brought was entered he its through discretion its orders with re- again motion part emergency his [sic] spect discovery process pro- to the in the stay motion.” He summarizes his con- it, ceedings before nor when it refused to obtaining stay cerns for not under the dismiss or proceedings on the 305(a) Factors. He concludes that in- Involuntary Petition. curring expenses Chapter in the 11 case Accordingly, respect with to the issues until the state court appeals are resolved appeal, before us in this we AFFIRM the sense, yet “made no the Court denied the orders of the bankruptcy court. renewed motion out of hand order en- January tered 2011. That was an
abuse of discretion.” MARKELL, Bankruptcy Judge, dissenting.
The order to which he refers is not the
Instead,
Stay
order on the
Motion.15
it is
I respectfully dissent.
I believe the ma-
the order denying the second motion for
jority incorrectly applies
adopts
the law
reconsideration of the Second Dismissal
points.
on at least two
Initially, I think it
Order.
Opening
Nowhere
his
Brief
is
policy
adopt
incorrect and bad
“per
does Mr.
any alleged
Marciano articulate
regarding
se” rule
undisputed claims.
error
court in denying
Next, I believe
majority opinion
im-
Stay
Accordingly,
Motion.
he has
properly
incorrectly
good
limits
faith
waived
appeal.
review of
order on
principles
respect
to the commence-
(In
Lehtinen),
Price v. Lehtinen
re
ment
involuntary
and conduct of
cases.
(9th
2005),
B.R.
aff'd,
Cir. BAP
(9th Cir.2009);
VI. CONCLUSION fide liability as to the debtor’s court did not err when underlying the debt judgment, even if it judgments concluded that held the debtor appeal has taken an from that Creditors were not default judgment and that appeal pending. Giv- judgments, but instead were distinctly en the policies federal embodied based on terminating sanctions resulting in Section especially under the from Mr. repeated discovery Marciano’s here, present disagree facts I litigation. abuses the state court that Section Nei- *30 requires, intended, ther did the 303 Congress court err when it and such judgments determined that based on ter- an inflexible rule. Stay by
15. The Stay Motion was heard the January bank- on the Motion was entered 24, 2011; ruptcy January court on the order 59 Commercial, LLC., Henry 418 per se rule S. Miller adopt to the The first court (Bankr. Drexler, (Bankr.N.D.Tex.2009); B.R. 960 56 B.R. 920-23 In re was S.D.N.Y.1986). that a claim Prisuta, Drexler held 474 In re B.R. see also unstayed judgment final by an represented (Bankr .W.D.Pa.1990). subject of a fide can the bona
never be Byrd acknowledged general While pending ap a subject if to dispute, even enforceability unstayed judgments, of Drexler Id. at 967. reasoned peal. §in Byrd nothing noted that filing creditors from judgment precluding whole, Bankruptcy as a mandated Code merely on the involuntary petitions based unstayed judgments of final holders appeal would invol pendency of render involuntary petitions entitled file be to step of with other untary petitions out subject judgments ap their are to while remedies, these because debt collection peal. Byrd, As stated “the Code does may be utilized holders other remedies existence of a bona fide not make the judgments, even while unstayed final of dispute depend on whether a claim has appeals. to judgments are their judgment.” Id. After own words: been reduced to con Id. In Drexler’s sidering underlying purpose of the contrary princi- to the It be basic would 303(b), dispute clause in bona fide effect a radi- respecting, and would ples of, coercing en- creditors from debtors long-standing prevent cal alteration forceability unstayed legitimately disputed of final of into settlement pendency of debtor’s involuntary to hold that of claims based on the threat dispute” fide appeal created “bona Byrd per concluded that the bankruptcy,2 § 303. meaning of Code within Rather, Byrd inappropriate. se rule was unstayed final was (footnote omitted). ruled that the Id. fide prima facie evidence that no bona adopted other courts While several have arose dispute presumption existed. The rule,1 the Circuit per Drexler’s se Fourth upon presentation judgment, rejected unpersua it as Appeals Court alleged then to the the burden shifted Corp. Byrd v. Platinum Fin. Serv. sive. the existence of debtor demonstrate (4th (In re F.3d Cir. Byrd), 357 dispute by presenting bona fide evidence 2004). are in See Other courts accord. Houseboats, Inc., legal questions. or factual of substantial e.g., In re Starlite (Bankr.D.Kansas 2010); In re Id. at 438-40. B.R. 375 2. The 1. See In ponent, But see Collier on ing identified 484 n. 20 of "bona 16th ed. pay language tary petitions and the Some (Alan only results). legislative debts as can be problem Senator courts relevant re AMC 2011) N. Resnick fide (Bankr.D.Del.2009) (listing on a debtor’s dispute” following (listing cases have allowing the Investors, LLC, history Max legislative & interpreted Baucus Henry to the statute. is thin on statement granting explained simply. general failure to history: reaching J. Sommer ¶ Section 303’s Montana, 303.11 B.R. involun- addition conflict- involun- its Drexler cases). [1] eds., pro- n. Max Cong. tary pretation ty ruptcy for not have bona fide I believe this ruptcy ceedings .... [sic] debtors but Baucus)). stigma Drexler, Rec. one is relief even who would rather system paying Code over allows 17,151 necessary his or her as a club amendment as a tool is a involuntary questions about their prevent misuse of the bank- B.R. at 966 when the debtor's creditors to use legitimate of coercion.... liability. This protect (statement pay up although simply bankruptcy pro- (quoting 130 debtors than good the Bank- rights of of Sen. reason liabili- suffer inter- faith who *31 60 303(b)’s controversy per
The
over the
rule has
tion
se
term “bona
dispute.”
fide
continued
Byrd.
after
The
Subsequent
Delaware bank-
to both Drexler and AMC In
Investors,
ruptcy
LLC, vestors,
court in In re AMC
the Supreme
empha
Court has
484-87, rejected
that,
406 B.R. at
Byrd
sized
Congress
when
does not define
term,
instead followed Drexler. AMC
Investors
we must look
at
first
its ordinary
offered
grounds
several different
meaning.
Servs.,
for re-
Ransom v. FIA Card
, —U.S.
Investors,
jecting Byrd. According
-,
to AMC
724, 178
131 S.Ct.
N.A.
Byrd’s approach
(2011);
unnecessarily
“was
intru- L.Ed.2d 603
Hamilton v. Lanning,
-
sive into
-,
the trial court’s ruling
2464, 2471,
and under-
U.S.
130 S.Ct.
objective
(2010).
analysis
mine[d]
of bona fide
key portion
L.Ed.2d
disputes.”
at 485.
question
Id.
AMC Investors
term in
fide”
gen
“bona
which
further determined that Byrd required erally
good faith;
means “1. Made in
with
analysis of the
Sincere;
debtor’s asserted factual
out fraud or deceit. 2.
genuine.”
legal
(9th
that was difficult
issues
and un-
2009).
Black’s Law Dictionary 199
ed.
necessary,
Byrd’s
that
analysis
(“bona
English
ren- See also
Dictionary
Oxford
entry
dered “the
completely
good faith,
fide” means “in
with sincerity;
(last
irrelevant in determining the
genuinely.”)
of a
13, 2011),
existence
Sept.
visited
claim.” Id. at 485-86. AMC Investors
http://www.oed.com/view/Entry/21238?.4
also asserted that Byrd conflicted with
construing §
Courts
generally
have
States,
Butner v. United
440 U.S.
interpreted “bona
dispute”
fide
according
(1979),
S.Ct.
I find the reasoning of both Drexler and statute does results, not lead to absurd our AMC unpersuasive. to be only Investors Both task is apply the statute as worded. disregard cases plain meaning Trustee, of Sec- v. Lamie U.S. 540 U.S. 3. AMC argued Byrd also Investors mis- determining standard for whether a bona fide (see construed the definition of claim rejected by exists—a standard most 101(5)). my analysis Because does not turn circuits, including the Ninth Circuit. See Lib claim, upon the definition of I do not address Tool, erty Mfg. Fishing Sys., & v. Vortex Inc. argument. this (In Inc.), Fishing Sys., re Vortex 277 F.3d (9th cases). Cir.2002) (listing dictionary per- definition of fide bona haps justify subjective, could good faith
61
(2004).
nonbankruptcy
under
from that set forth
157 L.Ed.2d
124 S.Ct.
Similarly, aspects
law.
of
automatic
un-
actually
to exclude
Congress
meant
If
362)
(see
pro-
§
and claims estimation
from the cate-
appeal
on
stayed judgments
502(c))
(see
drastically
§
can
cedure
dispute,
fide
subject to bona
of claims
gory
playing field from outside of
change the
to amend
prerogative
Congress’s
it is
sole
Drexler and AMC Investors
bankruptcy.
in-
actual
conform
its
its
to
with
statute
all,
persua-
at
let alone a
offer no reason
As we
Id. at
S.Ct.
tent.
one,
could not move
why Congress
sive
stated,
recently
away
nonbankruptcy playing
from the
field
statutory interpretation,
argot
of
subject
all
of claims
by precluding
holders
a statute additional
we will not read into
dispute
from
an involun-
to bona fide
terms,
expand
to
or
or
so as
words
tary bankruptcy petition.
coverage, when
contract
the statute’s
of the statute as writ-
plain language
reasoning
Nor is AMC Investors’ other
leads to absurd
neither absurd nor
ten is
that it
opined
AMC
compelling.
Investors
results.
unnecessary and difficult for bank-
is both
analyze
to
whether
ruptcy courts
have
Scholz),
(In
447 B.R.
re
Meyer v. Scholz
any
legal
factual or
issue
genuine
there is
2011)
(9th
(citing La
BAP
Cir.
unstayed
appeal
judg-
in an
raised
from
1023).
538, 124
mie,
S.Ct.
540 U.S.
necessity
But that
was determined
ment.
with Drex-
precisely
problem
This
court’s
and it is not the
role
by Congress,
Both substitute
and AMC Investors.
ler
necessity. As for
second-guess
involuntary bank-
of how
judgment
their
court need
difficulty,
not
“[t]he
for that of Con-
ruptcies should commence
dispute,
fide
the merits of the bona
resolve
303(b). Ransom,
§in
gress,
expressed
one exists.”
simply determine whether
but
Lamie undermine most
and
Hamilton
Byrd,
unusual case in which a bona fide quirements 303(b) of Section are met. Be- exists the face of claims reduced state cause of the long tradition of requiring court judgments.” Byrd, 357 F.3d 438. good faith to initiate proceeding in But if ever there were a case which the court, federal I also ground. dissent this debtor could dispute, claim a this would be it. In considering And whether a slavishly honoring the state-court fil ing judgment appropriate, sanctions here was introduces strate- courts gic have considerations for broad discretion future to examine the petitioning equi ty creditors. If such future creditors can con- compare vince a state court to enter a motivation judgment by underlying sanctions, default or as they bankruptcy filing can effectively purposes behind dismantle alleged debtor’s the enactment chapter assets 11. In re SGL through an (3d adroit use of Section Corp., usu- Carbon F.3d Cir. ally in 1999); a manner (In that is more advantageous Marsch), Marsch v. re Marsch to them they (9th than if simply were to the Cir.1994); left F.3d In re Van remedies afforded state-court Wash, Inc., Owen Car B.R. 673-74 majority upholds au Yet the (Bankr.C.D.Cal.1988).5 weight to ef discovery so as “staging” court’s these considerations thority indicates taking from fectively prevent Marciano involuntary cases principles apply credi concerning the discovery petitioning collusive well, in the case of especially *34 underlying purpose faith. The good tors’ Holding See, re Bicoastal e.g., In filings. filing always involuntary bankruptcy of an (Bankr.M.D.Fla. Co., B.R. 919-21 402 may grounds for dis relevant and be is (Bankr. Sul, 2009); B.R. 555 re 380 In amounts to abuse missal if it an Winn, C.D.Cal.2007); 49 B.R. In re See, e.g., In re Bi bankruptcy process. (Bankr.M.D.Fla.1985). As Collier 239 Co., 919-21; Holding 402 B.R. at coastal that invol states, generally agreed “[I]t Winn, Sul, 555; In re 49 B.R. at In re and good in faith filings must be untary an giving Marciano B.R. at 239. Without not. they if consequences flow are that discovery, the bank to take opportunity consequence.” possible one Dismissal is reversible error ruptcy committed (Alan ¶ N. 303.16 on Bankruptcy Collier determining incorrectly prematurely Sommer, eds., 16th Henry & J. Resnick adduce facts that could not Marciano added.).6 2011) (Emphasis ed. had creditors showing petitioning that the bankruptcy process. abused the Wash, “[t]he in Owen Car stated Van As 1112(b) history of indicates I legislative short, majority, believe unlike the underlying intent Congress’ subjective that motivations that the powers bankruptcy filing to dismiss are rele- equitable involuntary broad retain for entry con the order be able before of court will vant even petitions; ‘[t]he arise, hold otherwise undermines to relief. To they factors as sider other gave to the that Congress broad discretion appro to reach an powers equitable use its ” on a case- investigate bankruptcy courts Id. in individual cases.’ result priate of propriety by-case basis 95-595, at 405-06 No. (quoting H.R.Rep. (whether involuntary), voluntary or filings 5963, 6362 and (1977), 1978 U.S.C.C.A.N. bankrupt- and to ensure equity, to do 95-989, (1978), 117-18 S.Rep. No. are dis- purposes improper cies filed 5903). Van Owen Car U.S.C.C.A.N. expeditious in manner. an pensed with good faith emphasized further Wash “ Conclusion7 implicit prerequi an ‘be viewed as should pro of filing or continuation site to the above, respect- I stated For the reasons ” of Code.’ ceeding Chapter under fully dissent. Victory at 674 Const. (quoting Id. (Bankr.C.D.Cal.
Co., Inc., 549, 558 9 B.R. 1981)). nominally 1112(b) Although Collier this section of 6. regard, that Section I 5. In this believe of Section faith in the context deals with bad 303(i), pro- involuntary chapter 11 applies to this listing as a conse- dismissal requires ceeding. “cause” That section precedes logically quence filing faith of bad dismiss, beyond that a it is cavil order damages Section determination good can such faith constitute lack 303(i), recognizes bad faith and thus it See, Corp., e.g., Carbon In re SGL "cause.” involuntary an support dismissal of can alone background die For F.3d at 160. petition. chapter filing requirement good faith Gertz, The Mojdehi & Janet Dean Ali M.M. see about the have concerns Although I also Chapter Requirement in Implicit "Good Faith” chapter 11 relief entry an order for a Ratio- A in Search Liquidations: Rule debtor, the record unwilling individual (2006). nale?, L.Rev. 143 14 Am. Bankr.Inst. develop adequately facts related here does Fitzgerald In re Ontson PLACIDE and Placide, Ann
Lori Debtors. Margulies Firm, Law APLC, Appellant,
v. Fitzgerald Placide; Ontson Lori Placide, Appellees. Ann BAP No. CC-10-1466-KiSaPa. *35 Bankruptcy No. LA 10-36656 AA. States Bankruptcy Appellate United Pan-
el, of the Ninth Circuit. Argued May and Submitted 2011. Sept.
Decided 2011. Ordered Published Oct. to those Accordingly, concerns. just I will Chemerinsky, Erwin Constitutional Issues that involuntary chapter note 11 cases Posed in the Abuse and Consumer may individuals raise serious constitutional of2005, Protection Act 79 Am. Bankr.L.J. Howard, issues. See generally Margaret (2005). 586-88 Bankruptcy Bondage, 191; 2009 U. Ill. L.Rev.