E.D.N.C.: In SilverDeer, L.L.C.- Attorneys' Fees for Involuntary Bankruptcy

Summary: Creditors filed an involuntary Chapter 7 bankruptcy for SilverDeer.  On the motion of SilverDeer, the bankruptcy court dismissed the involuntary bankruptcy finding that the pursuant to 11 U.S.C. § 303(b)(1), the claims of the creditors were subject to a bona fide dispute.  Subsequently, the bankruptcy court awarded Howard Jacobson, the manager/member of SilverDeer, his attorney fees and costs incurred defending SilverDeer, pursuant to 11 U.S.C. § 303(i). On appeal, the District Court held that the award of attorneys' fees to Jacobson, rather than directly to SilverDeer itself, contravened the provisions of  § 303(i)(1), which allows for such costs "in favor of the debtor".  Even if such an award to SilverDeer was eventually paid to Jacobson, this short cut was not permissible, since the Creditors could have a potential right of setoff this award amounts owed by SilverDeer. Despite this, the District Court found that SilverDeer was entitled to its attorneys' fees, even though  Jacobson, the member/manager, had also acted as the attorney for SilverDeer.   That the business activities of SilverDeer had not been disrupted by the involuntary bankruptcy, also did not preclude the award of attorneys' fees, since  § 303(i) does not have such a requirement.  The attorneys' fees awarded by the bankruptcy court, including the spent related to the Motion for Attorneys' Fees, were appropriate.  See In re S.  Cal.  Sunbelt Developers, Inc., 608 F.3d 456 (9th Cir.); rejecting In re Fox, 171 B.R.  31 (Bankr.  E.D.Va.  1994). SilverDeer, L.L.C.- Attorneys’ Fees for Involuntary Bankruptcy.PDF