Murrin v. Hanson (In re Murrin)Murrin v. Hanson (In re Murrin)
ORDER
John Murrin appeals three final orders of the United States Bankruptcy Court for the District of Minnesota. Trustee Randall Seaver opposes the appeal separately, and the other Appellees join together in opposition. For the reasons set forth below, the Court affirms the orders denying relief from the bankruptcy stay, and reverses and remands the decision of the bankruptcy court that granted Chapter 7 bankruptcy relief.
I. BACKGROUND
In August 2004, John Murrin and his wife, DeVonna Murrin, invested $600,000 in Avidigm Capital Group, Inc. in exchange for a promissory note. Avidigm was a vehicle for real estate speculation dealing in distressed properties. Avidigm ceased operations and the Murrins brought suit in Hennepin County District Court against Avidigm and 45 other named defendants. The Murrins reached settlement agreements with several of the defendants totaling $707,000 — an amount greater than their initial investment in Avidigm. They
The remaining defendants in the state court litigation had only tangential connections to Avidigm or were employed in a clerical capacity by the company. Ultimately, the Hennepin County District Court terminated the Murrins’ lawsuit as to all the remaining defendants in a June 13, 2008 order that was adverse to the Murrins. The Murrins unsuccessfully appealed, and the Minnesota Court of Appeals later granted costs and disbursements to the appellees and against the Murrins.
After the dispositive rulings of the state trial court, several of the defendants made motions for imposition of sanctions on the Murrins and LaNave. The trial court granted these motions. In an order dated December 8, 2008, the trial court awarded attorney fees and costs to each movant and entered judgment jointly and severally against the Murrins and LaNave for a total of $432,966.38 in attorney fees and $32,484.86 in costs and disbursements. LaNave settled with the defendants for an undisclosed amount. Later, the Murrins were adjudicated in contempt in connection with the post judgment collection of the sanctions judgment. The Murrins appealed the contempt adjudications as well as the awards of fees and costs. These issues were consolidated on appeal to the Minnesota Court of Appeals.
While that appeal was pending, four of the awardees of attorney fees and costs joined together (several other state court defendants joined later) and filed involuntary bankruptcy petitions against the Murrins under 11 U.S.C. § 303. The bankruptcy court questioned the filing of involuntary bankruptcy while the Murrins’ appeal was pending in state court. The petitioners explained that an investigation revealed that John Murrin transferred $385,000 to his 83-year-old mother in late 2008. The petitioners argued that the involuntary petition could not be delayed without risking further asset transfers to insiders. The Murrins responded with a motion to dismiss the involuntary bankruptcy petition. At a hearing on the Mur-rins’ motion, the parties stipulated to a grant of relief from the automatic bankruptcy stay to allow the proceedings in the Minnesota Court of Appeals to go forward. The parties agreed to delay the bankruptcy proceedings until the Minnesota Court of Appeals ruled on the Murrins’ appeal.
The Minnesota Court of Appeals affirmed the Hennepin County District Court as to the imposition of sanctions and findings of contempt as to John Murrin but reversed as to DeVonna Murrin. Murrin v. Mosher, Nos. A09-314, A09-315, A09-816, A09-1400,
John Murrin now appeals all aspects of the bankruptcy court’s January 4, 2012 order as well as orders issued on November 18, 2010
II. DISCUSSION
This Court sits in review of bankruptcy court decisions pursuant to 28 U.S.C. § 158(a) (2006). The Court reviews the bankruptcy court’s conclusions of law de novo and its factual findings for clear error. Dapec, Inc. v. Small Bus. Admin. (In re MBA Poultry, LLC),
A. Jurisdictional challenge
Murrin argues that the bankruptcy court’s Orders denying Murrin’s request to lift the automatic bankruptcy stay and its Order granting relief under Chapter 7 were barred by the Rooker-Feldman doctrine. That doctrine generally provides that lower federal courts-including bankruptcy courts—do not have jurisdiction over appeals from a state court judgment. See Friends of Lake View Sch. Dist. v. Beebe,
The involuntary bankruptcy petition at issue here was brought by the state court winners and does not challenge—but instead seeks to enforce—the state court judgment for sanctions against Murrin. The involuntary bankruptcy petition more likely furthers the state court’s purpose by ensuring Murrin fulfills his financial obligation imposed by that court’s judgment. This case does not fit into the scope of Rooker-Feldman doctrine, and the Court has subject matter jurisdiction.
B. Statutory requirements for involuntary bankruptcy under 11 U.S.C. § 303
Involuntary bankruptcy provides a method for creditors to force a debtor into bankruptcy proceedings if certain statutory criteria are met. Involuntary bankruptcy petitions are rare compared to voluntary ones in part due to the statutory burdens placed on petitioning creditors.
(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 as to liability or amount, ...
(h) ... after trial, the court shall order relief against the debtor in an involuntary case under the chapter under which the petition was filed, only if—
(1) the debtor is generally not paying such debtor’s debts as such debts become due unless such debts are the subject of a bona fide dispute as to liability or amount; ...
11 U.S.C. § 303(a), (h). The petitioning creditors bear the burden of proving that the debtor is generally not paying debts as they become due and that their claims are not subject to a bona fide dispute. See Rimell v. Mark Twain Bank (In re Rimell),
1. Three or more creditors requirement
Section 303(b)(1) of the Bankruptcy Code allows for the filing of an involuntary bankruptcy petition against a debtor if commenced “by three or more entities, each of which is ... a holder of a claim against such [debtor].” 11 U.S.C. § 303(b)(1). A “claim” is defined as a “right to payment, whether or not such a right is reduced to a judgment.” 11 U.S.C. § 101(5)(A). Where creditors are owed separate and distinct payments, and the creditors merely enforce their rights to payment with a joint judgment, courts have found the creditors to be holders of distinct claims. See, e.g., Tichy Elec.,
Here, the involuntary bankruptcy petition was commenced by three distinct creditors, (Terri Hanson, Colleen Turgeon, and Glenn Smogoleski). Despite the debt arising from one judgment, the amount owed to each debtor was specified. See Murrin,
2. Generally not paying debts
In a controverted involuntary bankruptcy case, the petitioning creditors must prove that “the debtor is generally not paying such debtor’s debts as such debts become due.” 11 U.S.C. § 303(h)(1). Like the three creditor requirement, the “generally not paying” requirement helps to further the purpose of involuntary bankruptcy by “protect[ing] the interests and desires of the creditors as a whole.” Crum & Forster Managers Corp. of New York v. Basin Elec. Power Coop.,
“Generally” is not specifically defined in the Bankruptcy Code. Most courts use a totality of the circumstances test to determine whether a debtor is “generally not paying” his debts.
(1) the number of unpaid claims;
(2) the amount of the claims;
(3) the materiality of nonpayment; and
(4) the overall conduct of the debtor’s financial affairs.
Id.; see also Crown Heights Jewish Cmty. Council v. Fischer (In re Fischer),
Here, the bankruptcy court listed all four factors from Feinberg but only discussed the third and fourth factors. In Feinberg, the panel remanded the case because “the bankruptcy court did not apply the appropriate factors for determination of ‘generally not paying.’ ” Feinberg,
The Court’s own cursory review of the record from the bankruptcy proceedings indicates that Murrin reported over $1,700,000 in secured debt on his Schedule D. This appears to be far more than the unpaid unsecured debt of $550,000 due to the petitioning creditors. It is certainly possible that involuntary bankruptcy is appropriate where the only unpaid debts are those of the petitioning creditors. But courts that have reached such a conclusion have generally done so when the unpaid debt or debts constitute the majority of the overall debt. See, e.g., In re Euro-American Lodging Corp.,
A portion of the unpaid indebtedness evident from the record is connected to a finding of contempt, a finding that included the possibility of 90 days in jail. Contempt arising from nonpayment presupposes that a person has the ability to pay, but is unwilling to pay. An inquiry into how Murrin’s unpaid indebtedness compares to his general indebtedness is especially relevant here, where the unpaid indebtedness arises in part from a state court finding of contempt. The factual findings and legal conclusions by the bank
8. Bona fide dispute as to liability or amount
Murrin argues that a bona fide dispute as to liability and amount of the debt exists. “[CJourts need not address the complex issue of ‘bona fide dispute’ if they can determine that the debtor is generally paying its debts as they became due.” 2-303 Collier on Bankruptcy § 303.11; see also In re Palace Oriental Rugs, Inc.,
C. Orders denying relief from the automatic stay
Murrin appeals the November 18, 2010 Order denying relief from the automatic bankruptcy stay. “A decision to grant or deny a motion for relief from the automatic stay is within the discretion of the bankruptcy court and as such, is reviewed for an abuse of discretion.” Wiley v. Hartzler (In re Wiley),
In making the determination of whether to grant relief from the stay, the court must balance the potential prejudice to the debtor, to the bankruptcy estate, and to the other creditors against the hardship to the moving party if it is not allowed to proceed in state court. The factors used to balance the hardships are: (1) judicial economy; (2) trial readiness; (3) the resolution of preliminary bankruptcy issues; (4) the creditor’s chance of success on the merits; (5) the cost of defense or other potential burden to the bankruptcy estate and the impact of the litigation on other creditors.
The Court reviewed the transcript from the hearing on Murrin’s motion for relief from the automatic stay for abuse of discretion. The bankruptcy court denied Murrin’s request for relief from the stay because it found “no real compelling need to go to [the state court] forum” because Murrin had already received a final order on the sanctions judgment from the Minnesota Court of Appeals and a denial of review from the Minnesota Supreme Court. (Tr. 13:8-17, Nov. 18, 2010, ECF No. 139). The bankruptcy court also noted that its refusal to lift the stay in November, 2010 did not foreclose the possibility of pursuing additional state court actions in the future, after the trial on Chapter 7 bankruptcy. (Tr. 12:17-13:7, Nov. 18, 2010, ECF No. 139). It also considered judicial economy and trial readiness in addition to any prejudice to Murrin. (Tr. 10:22-14:17, Nov. 18, 2010, ECF No. 139). The Court finds that the bankruptcy court did not abuse its discretion in denying Murrin’s motion for relief from the automatic stay.
As to the February 9, 2012 Order denying Murrin’s motion, the Court need not consider that Order separately because the underlying Order of January 4, 2012 is reversed and remanded.
D. Additional arguments
Murrin also argues that the bankruptcy court’s Orders are unconstitutional, that venue is improper, and that the bankruptcy judge impermissibly based some of his findings on his personal recollections of Murrin from another case. The Court need not reach these arguments as it finds that the petitioning creditors have not met their burden of demonstrating that Murrin was generally not paying his debts as they became due.
III. CONCLUSION
Based on the files and records herein, and for the reasons stated above, IT IS ORDERED THAT:
1. The November 18, 2010 Order of the Bankruptcy Court is AFFIRMED.
2. The January 4, 2012 Order of the Bankruptcy Court is REVERSED and REMANDED.
3.The Appeal from the February 9, 2012 Order and Appellant’s Motion to Strike Material from Appellee’s Briefs [Docket No. 22] are DISMISSED as moot.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Notes
. Murrin's Notice of Appeal states that he appeals from the “Order denying Debtor's Motion for Relief from Stay dated the 18th of November, 2011.” There is no order from the bankruptcy court with that date. The Court proceeds under the assumption that Murrin intended to appeal the order with the same name dated November 18, 2010.
. Although the Court finds that Rooker-Feld-man doctrine does not apply in this case, it notes that the record is unclear as to the status of the state court litigation. For example, a March 6, 2009 Order finding Murrin in constructive civil contempt of court required him to serve 90 days imprisonment if he did not comply with the Order. Upon Murrin’s failure to comply, a bench warrant was issued on March 13, 2009. That warrant apparently expired without an arrest. The Hennepin County District Court issued a second contempt order on April 24, 2009. The contempt orders were affirmed, as to John Murrin, by the Minnesota Court of Appeals. Murrin,
. See, e.g., Vortex Fishing,
. The Eighth Circuit, on a joint motion of the parties, vacated the Bankruptcy Appellate Panel’s judgment and opinion in Feinberg and remanded the case with instructions that the Bankruptcy Appellate Panel dismiss the appeal. (Bankruptcy Petition No. 98-53157, ECF No. 26, Jan. 12, 2000).