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* In re Pace Trustee of Earl H. Pace Irrevocable Trust, 376 B.R 334 (Bankr. M.D. Fla. Sept. 2007) (Jennemann, J.)
No more shenanigans! The court dismissed the case, but not before sanctioning the petitioner for a fraudulent filing. The trustee of an irrevocable trust filed a voluntary chapter 11 petition on behalf of the trust and listed the trust as a "business trust" on the petition.15 On motions of several creditors, the court converted the case to a chapter 7, finding the petition to have been filed in bad faith. After the conversion and appointment of a chapter 7 trustee, the petitioner sought to dismiss the case, this time asserting that he made a mistake when he listed the debtor as a "business trust" on the petition and arguing that the debtor trust was, in fact, not eligible to be a debtor under section 109. In response, the chapter 7 trustee argued that judicial estoppel precluded the petitioner from seeking dismissal on eligibility grounds and asked the court to retain jurisdiction over the case.
The court allowed the parties to conduct discovery to determine the nature of the debtor trust and held a hearing on the motion to dismiss. The parties did not dispute that the debtor trust, in fact, was not a "business trust" and so was not eligible to be a debtor. However, the court agreed that the circumstances of this case supported the application of judicial estoppel because the filing of the chapter 11 petition was nothing more than an abuse of the bankruptcy process to delay creditors. Nevertheless, the bankruptcy court granted the debtor's motion to dismiss, noting that it had limited jurisdiction over an entity not eligible to be a debtor under section 109. But, to be sure that the petitioning trustee's bad acts did not go unpunished, the court used its inherent authority under section 105(a) to sanction the trust and the petitioning trustee (jointly and severally) by awarding reasonable attorneys' fees to the chapter 7 trustee and creditors for costs incurred during the course of the bankruptcy case.
* Trusted Net Media Holdings, LLC v. The Morrison Agency, Inc. (In re Trusted Net Media Holdings, LLC), 525 F.3d 1095 (11th Cir. Apr. 2008) (Hull, J.)
The "jurisdictional" nature of section 303(b), according to the Eleventh Circuit, is "of the non-waivable, subject matter jurisdiction variety." In this case, a single trade creditor filed an involuntary petition against the alleged debtor, arguing that its claim was non-contingent and not subject to a bona fide dispute. The debtor did not respond to the petition, and the bankruptcy court entered an order for relief. Two years later, an officer of the debtor (and a claim holder for his unpaid salary) filed a motion to dismiss the case, arguing that the court never had subject matter jurisdiction over the debtor because the petitioner's claim was subject to a bona fide dispute and that the debtor had more than twelve creditors. See 11 U.S.C. S 303(b). The court denied that motion. Another two years later (four years total), the debtor itself moved to dismiss the case under similar arguments as the former officer's first motion to
15
A "business trust" falls under the definition of a "corporation," see 11 U.S.C. S 101(9)(A)(v). A corporation, in turn is a "person" eligible to be a debtor. See 11 U.S.C. SS 101(41), 109. On the other hand, a trust set up for estate or family planning purposes and not for investment purposes does not fall within the definition of a "corporation" and so would not be eligible to be a debtor in a bankruptcy case.
