Murie Graphic Design Inc
Case Information
UNITED STATES BANKRUPTCY COURT DISTRICT OF IDAHO
IN RE: Case No. 24-00419-NGH MURIE GRAPHIC DESIGN INC.,
Chapter 7 Debtor.
MEMORANDUM OF DECISION
On Oсtober 1, 2024, Christi Murie filed a motion to dismiss this chapter 7 case.
Doc. No. 14. Murie seeks dismissal under § 707(a) on the grounds that the case was filed without the requisite corporate authority. Murie Graphic Design Inc. (“Debtor”) objected to the motion. Doc. No. 17. The parties filed a statement of undisрuted facts. Doc. No. 20. The Court heard oral arguments on December 9, 2024, and took the matter under advisement. The following decision resolves the matter.
BACKGROUND
Debtor, through its president and director, James Albert, filed a petition for relief under chapter 7 of the Bankruptcy Code in July 2024. Doс. No. 1. According to the stipulated facts, Murie became the sole shareholder, officer, and director of the Debtor after her spouse passed away in 2013. Doc. No. 20 at ¶ 2. In September 2016, Murie and Albert “signed a Stock Purchase Agreement, transferring Murie’s stock interests to Albert, subjеct to certain payments and contingencies.” Id. at ¶ 4. Albert also signed a “Stock Pledge Agreement, whereby he pledged his entire stock interest to secure the payment of the purchase price (and the loan that was included in the Stock Purchase Agreement).” Id. at ¶ 6. Therеafter, Murie discontinued day-to-day management of Debtor, did not attend or request to attend corporate meetings, and was not otherwise involved in Debtor’s operations. Id. at ¶ 8. Albert executed a Consent of Director and Shareholder in Lieu of a Special Meeting, аdopting resolutions naming him director, president, secretary, and treasurer of Debtor. Id. at ¶ 9; Doc. No. 16. As of the petition date, Albert still owed Murie a significant sum under the terms of the Promissory Note and Stock Purchase Agreement. Id. at ¶ 10. “When the Debtor began to have problems financially, Albеrt caused the Debtor’s bankruptcy counsel to compose a letter which was sent to Murie.” Id. at ¶ 8. Murie did not respond to the letter or contact Albert or Debtor’s bankruptcy counsel. Id. at ¶ 9. A few months after the letter to Murie, Albert initiated this chapter 7 case on behalf of Debtor. As required by Local Bankruptcy Rule 1002-1(c), Albert submitted a Statement Regarding Authority to Sign and File Petition and provided the resolutions adopted by the board that authorized the filing. Doc. No. 6.
Murie argues that cause exists to dismiss the case due to a lack of corporate authority to file. She asserts that the decision to file a bankruptcy petition requires shareholder approval under I.C. §§ 30-29-1202 and 30-29-1402, that she is the majority shareholder pursuant to the Stock Pledge Agreement, and, because she did not approve the filing, Albert lacked corporate authority to file the petition. The Debtor disagrees with Murie’s contention that she is a majority shareholder and that I.C. §§ 30-29-1202 and 30-29-1402 apply. Alternatively, Debtor argues that, even assuming Murie has rights, she waived them.
ANALYSIS
Section 707(a) contains a non-exhaustive list of factors constituting cause to
dismiss a chapter 7 case. “It is generally accepted that a bankruptcy case filed on behalf
of an entity by one without authority under state law to so act for that entity is improper
and must be dismissed.”
In re Real Homes, LLC
,
In Idaho, corporations are subject to the Idaho Business Corporation Act, I.C. §§ 30-29-101 to 1704, which is modeled after the Model Business Corporation Act (“MBCA”). Addressing corporate governance, I.C. § 30-29-801 provides that subject to valid shareholder agreements and any permissible limitation set forth in the articles of incorporation, “all corporate powers shall be exercised by or under the authority of the board of directors, and the business affairs of the corporation shall be managed by or under the direction and subject to the oversight of the board of directors.”
Courts across the country have held that authority to file a bankruptcy petition lies
with the board of directors unless provided otherwise by the corporation’s organizational
documents.
See Ullrich v. Welt (In re Nica Holdings, Inc.)
,
Murie acknowledges the Debtor’s organizational documents are silent regarding authority to file but argues other provisions of the Idaho Business Corporation Act apрly to require shareholder approval, specifically I.C. §§ 30-29-1202 and 30-29-1402.
A. Idaho Code § 30-29-1202 does not apply In pertinent part, I.C. § 30-29-1202 provides:
(a) A sale, lease, exchange or other disposition of assets, other than a disposition described in section 30-29-1201, Idaho Code, requires approval of the corporation’s shareholders if the disposition would leave the corporation without a significant continuing business activity. A corporation will conclusively be deemed to have retained a significant continuing business activity if it retains a business activity that represented, for the corporation and its subsidiaries on a consolidated basis, at least twenty-five percent (25%) of total assets at the end of the most recently completed fiscal year, and either twenty-five percent (25%) of income from continuing operations before taxes or twenty-five percent (25%) of revenues from continuing operations for the most recently completed fiscal year. (b) To obtain the approval of the shareholders under subsection (a) of this section, the board of directors shall first adopt a resolution authorizing the disposition. The disposition shall then be apprоved by the shareholders.
Murie argues that a bankruptcy petition falls within the “disposition of assets” described
in subsection (a). And, therefore, the filing lacked corporate authority because the board
did not submit the resolution to shareholders for approval. This Court considered a
similar issue in
In re Quarter Moon Livestock, Co.
,
In Quarter Moon , the corporation’s board adopted a resolution to file a chapter 7 petition for relief. The board acted without shareholder approval. Shareholders holding a 50% interest moved for dismissal arguing the filing was not authorized under state law. Like Murie, “they urge[d] that the decision to file the petition constitutes a sale or disposition of all or substantially all of the company’s assets other than in the ordinary course of its business” under I.C. § 30-1-79, which required shareholder approval. 116 B.R. at 779-80. The Court declined adopting the shareholders’ interpretation of the statute to include a bankruptcy petition. In doing so, the Court considered the statutory scheme and its purpose.
Under the state law, a disposition of such nature triggers “dissenters’ rights,” i.e., “a shareholder either agrees to the sale, or he is presented with an opportunity to demand the purchase of his stock.” Id. at 780. The Court in observed that the “protections afforded by the statutes are not necessary, however, with respect to a decision to file for bankruptcy.” Id. To note, dissenters’ rights were not triggered if the disposition was “pursuant to an оrder of a court having jurisdiction in the premises or a sale for cash on terms requiring that all or substantially all of the net proceeds of sale be distributed to the shareholders in accordance with their respective interests.” Id. Put another way, it is unnecessary to “extend special protection to minority shareholders where the liquidation is either judicially supervised, or where there is to be a distribution of the sale proceeds in a manner which will fairly respect the stockholders’ interest.” Id.
As “[a]ll stockholders will receive distributions from the bankruptcy estate, after
payment of creditor claims, according to their respective stock interest . . . . Clearly, the
bankruptcy process is designed to promote the same goals as intended by the legislature
under the state laws.”
Murie argues that unlike
Quarter Moon
, her interests as the majority shareholder
“are not adequately protected by statute or through a bankruptcy proceeding.” However,
the Court’s decision in
Quarter Moon
did not rest on the shareholders’ minority status. Rather, the Court declined to interpret the statute to include a petition for relief given the
statutes design and purpose.
See
We are told that this statute prohibits the filing of a voluntary petition in bankruptcy by authority of a resоlution of the board of directors, and that a shareholders’ vote is required to authorize such action. No case decided by the [state] courts is cited in support of this assertion. But it is said that the filing of such a petition is a conveyance of all of the corporate property, and so plainly within the statutory prohibition. We cannot agree . . . . [I]t seems too plain to need elaboration that the statute does not in terms affect the initiation of a bankruptcy proceeding, and was passed for a wholly different purpose.
Here, the Court similarly does not find Murie’s argument persuasive, nor has it found any
binding authority that comes to the result sought by Murie. One unpublished decision
exists, in which a bankruptcy court determined that a petition for relief was an “action
consistent” with the disposition described in a MBCA-modeled statute.
In re Zebranek &
Doughten, P.A.,
Moreover, while the applicable statutes have been superseded and the Idaho Business Corporation Act has undergone several revisions in the time since Quarter Moon was decided, the legislature has not amended the statutes to specifically include a bаnkruptcy filing in I.C. § 30-29-1202.
In short, Murie did not cite, nor could the Court find, any authority that would compel the Court’s departure from . The Court declines to adopt an expansive reading of the state statute to include a petition for relief.
B. Idaho Code § 30-29-1402 does not apply
Murie also relies on I.C. § 30-29-1402, which requires shareholder approval to
dissolve a corporation. Murie argues the filing was subject to this provision given that
dissolution “is the undoubted effect of a Chapter 7 bankruptcy filing.” However, the
Code does not provide for dissolution of corporations.
See
6
Collier on Bankruptcy
¶
727.01 (16th ed. 2024). “After liquidation, any dissolution of the corporation or
partnership that the parties desire must be effectuated under state law.”
Id. See also NLRB v. Better Bldg. Supply Corp.
,
CONCLUSION
As the Debtor obtained authorization from its board of directors to file the bankruptcy petition, and additional shareholder approval under I.C. §§ 30-29-1202 and 30-29-1402 was not required, the Court concludes the filing was made with corporate authority and no cause exists to dismiss the case. Accordingly, the Court will deny the motion to dismiss and enter an order consistent with this decision.
DATED: January 23, 2025
_________________________ NOAH G. HILLEN Chief U.S. Bankruptcy Judge
Notes
[1] Unless otherwise indicated, all statutory citations are to the Bankruptcy Code, Title 11 U.S.C. §§ 101–1532. Additionally, all citations to “Rule” are to the Federal Rules of Bankruptcy Procedure.
[2] Murie relies on the following provision of the Stock Pledge Agreement: “while there is an outstanding amount due pursuant to the Stock Purchase Agreement, the Pledgee’s security interest will not go below 51% of the Sаle Shares. Pledgee will remain majority stockholder as long as there is an outstanding balance on the Stock Purchase Agreement.” Doc. No. 20 at Ex. 6.
[3] As noted, the Idaho Business Corporation Act, §§ 30-29-101 et seq. applies in this case. While it is a different statute, Murie’s counsel acknowledgеd at the December 9 hearing that I.C. § 30-29-1202 is fundamentally equivalent to the statute at issue in .
[4] The Idaho Business Corporation Act creates similar rights but calls them “appraisal rights.” See I.C. § 30-29-1302.
[5] The opposing shareholders in held a 50% interest.
[6] These revisions largely tracked the most recent version of the MBCA. Although there have been instances in which the Idahо legislature has altered provisions of the MBCA.
[7] Because the Court finds that shareholder approval was not required, the Court will not address the arguments raised by the parties concerning the nature and extent of Murie’s interest under the Stock Pledge Agreement and whether Murie waived any rights she may have had.