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i. Marciano v. Gottlieb (In re Marciano), 708 F.3d 1123 (9th Cir. 2013)
Issue: Whether a judgment creditor's unstayed non-default judgment on appeal is a claim in bona fide dispute under Section 303(b)(1) of the Bankruptcy Code that prevents the creditor from filing an involuntary bankruptcy petition against the debtor.
Holding: The Ninth Circuit joined the majority view in holding that an unstayed non-default state judgment is a claim not in bona fide dispute as to liability or amount under 11 U.S.C. § 303 (b)(1). The minority view is that an unstayed non-default state court judgment makes a prima facie showing under Section 303(b)(1), but the debtor still may prove a bona fide dispute as to liability or amount exists. The court found that unstayed judgments entitle the holder to payment under California law notwithstanding an appeal. The court found that its holding provides an objective standard for Section 303(b)(1), instead of requiring a bankruptcy court to analyze the merits of an appeal and become "an odds maker on appellate decision-making." The Ninth Circuit also found federalism problems with the minority approach because it fails to give full faith and credit to the unstayed state court judgment. Lastly, the court found that its holding reinforces the involuntary bankruptcy policy of preventing depletion of assets and unequal treatment of creditors.
ii. In re Houston Regional Sports Network, LP, 505 B.R. 468 (Bankr. S.D. Tx. 2014).
Issue: Seven entities filed or joined in involuntary Chapter 11 petition against alleged debtor, a limited partnership that operated a regional sports network. Limited partner, which also was creditor of alleged debtor, filed motion to dismiss.
Holding: Involuntary Chapter 11 petition brought against alleged debtor, a limited partnership that operated a regional sports network, was not filed in subjective bad faith; although, pursuant to alleged debtor's organizational documents, its general partner could only place alleged debtor into bankruptcy by the unanimous consent of its directors, the filing of an involuntary petition was not barred by this provision, and even if one of alleged debtor's limited partners "colluded" with two of its affiliated entities, the petitioning creditors, to orchestrate an involuntary filing as an "end run" around the general partner agreement's unanimity provision, in breach of said provision, the evidence reflected that it did so not in bad faith, but for the purpose of preserving value and rehabilitating alleged debtor. Further, involuntary Chapter 11 petition was not filed in objective bad faith; case was not futile, as alleged debtor held valuable media rights agreements with two professional sports teams and so, if properly operated, could be run profitably, and though one of alleged debtor's limited partners, in seeking dismissal, threatened, by exercising veto rights through its appointed director to the board of alleged debtor's general partner, to render any hope of reorganization to be futile, such alleged futility arose only because of limited
©2014 William L. Norton III
