Summary:
Bridgetree successfully sued, among others, Redf Marketing and its president and 50% owner, Roselli, for trade secret misappropriation, obtaining a judgment of $678,292 in federal district court. Following the entry of the judgment, Roselli and Redf made representations to the district court that they could neither post a bond nor continue operating without bankruptcy. In response, Bridgetree filed an involuntary Chapter 7 bankruptcy for Redf and Roselli, who sought dismissal of the involuntary bankruptcy.
Pursuant to 11 U.S.C. §§ 303 (b) & (h), for an involuntary bankruptcy to proceed, Bridgetree was required to show the following:
1. If the Debtor has more than twelve (12) qualifying creditors*, three holders of noncontingent, undisputed debts totaling at least $14,425 more than the value of any collateral against which a lien is held; or
2. If the Debtor has less than twelve (12) qualifying creditors* holding noncontingent, undisputed debts:
a. The Debtor’s obligation owed to the creditor is not contingent as to liability or the subject of a bona fide dispute as to liability or amount; and
b. The Debtor is not generally paying its debts as they become due.
* Such creditors do not include employees, insiders of the debtor, or transferees of a voidable transfer from the debtor.
Roselle ultimately asserted that he had 25 qualifying creditors. The court found that the debt for insurance, which was paid in advance for future coverage, was not a qualifying creditor. The tithing pledge, while a moral obligation, was not a debt. The lawn maintenance contractor, however, was a legal debt, because of its one-year term. The court then disallowed several potential claims as qualifying creditors because those creditors were subject to avoidance under 11 U.S.C. § 549, as Roselli had made post-petition payments, even if those payments were monthly, ordinary personal expenses. See In re Skye Marketing Corp., 11 B.R. 891, 896 (Bankr. E.D.N.Y. 1981). Because she was an insider, the debt to the Roselli’s accountant was not a qualifying creditor. The corporate credit cards for Redf that Roselli guaranteed were “an absolute continuing guaranty” and therefore not contingent, rendering them qualifying creditors. In re Hill, 5 B.R. 79, 82 (Bankr. D. Minn. 1980). Lastly, the bankruptcy court determined that the various BB&T and Bank of America claims, including a MasterCard and Visa, were separate qualifying creditors. As such, Roselli had fourteen (14) qualifying creditors and Bridgetree was ineligible to bring an involuntary petition.
Out of “an abundance of caution”, the bankruptcy court also addressed the other issues raised by the parties. The Court rejected Roselli’s argument that Bridgetree was not a eligible to bring an involuntary petition as its claim was subject to a bona fide dispute, as Bridgetree held an unstayed judgment that, even if reduced, had an undisputed claim for more than $14,425. In re Mt. Country Partners 2012 Bankr. LEXIS 2876, at *9 (Bankr. S.D. W.Va. June 25, 2012).
The bankruptcy court also found that while Roselli was paying most of his creditors, he was not paying Bridgetree, whose claim dwarfed all of the others. As such 11 U.S.C. § 303(h)(1), was satisfied.
Lastly, the bankruptcy court held that Bridgetree had not brought this involuntary petition in bad faith. Despite “bad blood” between the parties, “Bridgetree’s decision to file the involuntary bankruptcy was based on its attorneys’ review of financial information and post-trial representations of Roselli and the other Defendants.” Nor, as the bankruptcy court’s own painstaking review showed, was it obvious that Roselli had more than twelve creditors, making Bridgetree ineligible to bring this petition on its own.
For a copy of the opinion, please see:
Roselli- Qualifying Creditors for Involuntary Bankruptcy.pdf
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