2008 Chapter 11 Open Forum: Year In Review

dismiss. The bankruptcy court, once again, denied the motion to dismiss, holding that the debtor had waived its objections to the validity of the involuntary petition. This time, however, the debtor appealed.

Recognizing that both the weight of authority and the better reasoning favored the conclusion that the section 303(b) requirements are non-jurisdictional in nature, the Eleventh Circuit held just the opposite and reversed the lower courts. Relying upon what it considered to be settled circuit precedent,¹⁶ the court held that the section 303(b) requirements could not be waived -- even four years after the commencement of the case -- because section 303(b) contained requirements that were subject matter jurisdictional in nature.

• In re Student Fin. Corp., 378 B.R. 73 (Bankr. D. Del. Nov. 2007) (Carey, J.)
• Automatic stay took effect upon filing of petition, not when the debtor consented to an order for relief. The debtor was current on its lease payments as of the date of the filing of an involuntary petition. The debtor, however, did not consent to an order for relief until several months after the initial filing. During that interim period, the debtor defaulted on the lease, and the lessor took actions against the debtor (i.e., accelerated the lease payments and drew down on a letter of credit) without first seeking relief from the automatic stay. The bankruptcy court noted that the automatic stay took effect upon the filing of the petition and held that the lessor's actions were void because they violated the automatic stay. See supra Part I.B.
• In re Continuum Care Servs., Inc., 375 B.R. 692 (Bankr. S.D. Fla. Sept. 2007) (Olson,

J.) Go on the offense with an involuntary petition. Mr. Bombart was the principal of the debtor before he was supplanted by the estate representative, appointed after an involuntary chapter 11 petition was filed against his company. Counsel for the debtor in possession attempted to retrieve relevant company documents and information believed to be in Bombart's possession and essential to administration of the bankruptcy case. When Mr. Bombart ignored court orders compelling discovery, the court held him in civil contempt and directed the U.S. Marshal to apprehend him and bring him before the court. Limited liability just took on a whole new meaning.

J. Other Issues

* Solidus Networks, Inc. v. Excel Innovations, Inc. (In re Excel Innovations, Inc.),

502 F.3d 1086 (9th Cir. Sept. 2007) (Goodwin, J.) Court enjoined non-debtor entities from arbitrating under section 105(a). As a matter of first impression, the Ninth Circuit laid out the standard for using section 105(a)'s inherent authority to issue injunctions against non-debtor entities. In this case, the debtor was a co-defendant (along with the debtor's former CEO) in an arbitration proceeding commenced

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The All Media Properties, Inc. opinion, upon which the Eleventh Circuit relied, was decided by a bankruptcy court in Houston and later affirmed by Unit A of the Fifth Circuit mere months before the Eleventh Circuit split from the Fifth Circuit on October 1, 1981.