Covey, Matter of, 80-2531
| Citation | 650 F.2d 877,4 C.B.C.2d 719,7 B.C.D. 1069 |
| Decision Date | 05 June 1981 |
| Docket Number | No. 80-2531,80-2531 |
| Parties | 4 Collier Bankr.Cas.2d 719, 7 Bankr.Ct.Dec. 1069, Bankr. L. Rep. P 68,031 In the Matter of Royal G. COVEY and Norma L. Covey, Individually and as partners, d/b/a Covey Dodge, Bankrupts-Appellants. |
| Court | United States Courts of Appeals. United States Court of Appeals (7th Circuit) |
Richard Curtis, Rochester, N. Y., for bankrupts-appellants.
Barry M. Barash, Galesburg, Ill., for appellee.
Before SPRECHER and WOOD, Circuit Judges, and CAMPBELL, Senior District Judge. *
This case involves an appeal of an order of involuntary bankruptcy. In affirming the order of involuntary bankruptcy, we hold, first, that the decision of a bankruptcy court whether to abstain is not reviewable. Second, we hold that creditors holding disputed claims are not, because of those disputes, disqualified from petitioning for involuntary bankruptcy. But third, we hold that, in some circumstances, a dispute can affect whether nonpayment of a debt should be counted in determining whether a debtor is generally paying debts as those debts become due. We hold that bankruptcy courts, prior to issuing an order of involuntary bankruptcy, must initially examine the dispute. If the dispute is of an entire claim, and if resolution of the dispute will not require substantial litigation, bankruptcy courts must, on the record, balance the interests of fairness to a debtor against harm to creditors in determining whether nonpayment of the disputed debts should be counted against the debtor.
In 1978, Royal and Norma Covey, husband and wife, formed a partnership for the sale of Dodge cars and trucks in Kewanee, Illinois, under the trade name "Covey Dodge." The Covey dealership rented property from Anderson Dodge, Inc. Covey Dodge suspended operations on November 7, 1979, and closed its doors a few days later. Two months after Covey Dodge closed its doors, Chrysler Credit Corporation ("Chrysler Credit") filed an involuntary bankruptcy petition in federal bankruptcy court. Three months after that petition was filed, the Coveys, filed a complaint against Chrysler Credit and Chrysler Corporation ("Chrysler Motors") in federal district court alleging, among other things, violations of the federal Automobile-Dealers' Day in Court Act, 15 U.S.C. § 1221 et seq.; violations of the federal antitrust laws; fraud; breach of contract; and violations of certain Illinois laws. After these actions had been filed, the Coveys requested the bankruptcy court to abstain from hearing the involuntary bankruptcy petition until resolution of the district court actions. The bankruptcy court declined to abstain. Thereafter, Chrysler Motors and Anderson Dodge intervened in the bankruptcy proceeding. The three creditors allege trade debts of approximately $109,000. The Coveys dispute approximately all but approximately $500 of these debts.
After a hearing, the bankruptcy court found in favor of all of the petitioning creditors and adjudged the Coveys bankrupt. The district court affirmed without opinion, and the Coveys now appeal to this court. The Coveys argue, first, that the bankruptcy court should have abstained from hearing the bankruptcy petition. Second, the Coveys argue that the creditors who petitioned for involuntary bankruptcy did not properly qualify as petitioning creditors under the Bankruptcy Code. Third, the Coveys argue that they generally were paying their debts as those debts came due.
We begin with the abstention question. The Coveys moved the bankruptcy court under 11 U.S.C. § 305 1 and 28 U.S.C. § 1471(d), 2 to abstain from hearing the bankruptcy case until the district court had heard their actions against the creditors. The bankruptcy court declined to abstain. The Coveys now appeal that decision not to abstain. But the Coveys' appeal on the abstention decision is barred by the plain language of the statutes. Both statutes provide that the decision not to abstain "is not reviewable by appeal or otherwise." See notes 1 and 2, supra. The Covey brief, selectively quoting the statutes, makes no reference to the "not reviewable" command. 3 But ignoring the statute will not make it go away.
As Justice Reed stated in United States v. American Trucking Ass'ns., Inc., 310 U.S. 534, 543, 60 S.Ct. 1059, 1063, 84 L.Ed. 1345 (1940), "(t)here is, of course, no more persuasive evidence of the purpose of a statute than the words by which the legislature undertook to give expression to its wishes." Or, as stated in United States v. Hartwell, 6 Wall. 385, 396, 18 L.Ed. 830, quoted in United States v. Shreveport Grain & Elevator Co., 287 U.S. 77, 83, 53 S.Ct. 42, 44, 77 L.Ed. 175 (1932), "(i)f the language be clear it is conclusive." In this case, the statutory prohibition against appellate review is clear and, therefore, conclusive. As the court stated in In re Unit Parts Co., 9 B.R. 386, 7 BCD 368, 370, CCH Bankruptcy Law Reports P 67,940 (Bkrtcy.W.D.Okla.1981), "(t)he last sentence of section 1471(d) could not express more pointedly that the Bankruptcy Court's decision, either to abstain or not to abstain is 'not reviewable by appeal or otherwise.' " Therefore, we find that the Coveys' argument on this issue is meritless.
The Coveys' second argument is that the creditors who petitioned for involuntary bankruptcy did not properly qualify as petitioning creditors under the Bankruptcy Code. In an involuntary bankruptcy action, where a debtor has more than 12 creditors, three creditors are required to bring the action. Each creditor must be the holder of a claim that is not contingent as to liability, and the claims must aggregate at least $5,000 more than the value of any lien or property of the debtor securing such claims. 11 U.S.C. § 303(b)(1).
In this case, it is not disputed that the Coveys had more than twelve creditors. Chrysler Credit initiated the involuntary bankruptcy. Later, Chrysler Motors and Anderson Dodge joined in the action. 11 U.S.C. § 303(c) provides that after an involuntary petition has been filed, other creditors may join the petition with the same effect as if the joining creditor were a petitioning creditor. The bankruptcy court found that each of the three petitioning creditors is the holder of a claim against the Coveys which is not contingent as to liability and that the claims aggregate at least $5,000 more than the value of any lien on the Coveys' property. The Coveys challenge these findings as clearly erroneous. We now consider the claims of each creditor.
Chrysler Credit's claim is based on two transactions, a capital loan and a floor plan arrangement. After the Coveys defaulted, Chrysler Credit repossessed the inventory of new and used vehicles and sold them. It then sold, at a public auction, the equipment held by the Covey dealership. After crediting the proceeds of these sales to the Coveys, Chrysler Credit contended that the Coveys owed them over $55,000 on the capital note and floor plan. This figure has been subsequently revised by Chrysler Credit to be over $90,000.
The Coveys argue that Chrysler Credit has no claim under Illinois law because it did not give proper notice to the Coveys of its sale of the assets of the Covey dealership. 4 This failure to give notice, the Coveys argue, bars any deficiency judgment for Chrysler Credit.
It may be true that Chrysler Credit did not give proper notice. When considered in the subsequent bankruptcy proceedings, this failure may bar or reduce any deficiency judgment in favor of Chrysler Credit. 5 But the dispute regarding notice does not disqualify Chrysler Credit from initiating the involuntary bankruptcy proceeding.
The provisions of the Bankruptcy Code are quite liberal in allowing holders of claims to bring involuntary petitions. Under 11 U.S.C. § 101(4)(A), a "claim" means a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." 11 U.S.C. § 303(b)(1) gives the right to be a petitioning creditor to any holder of a claim except the holder of a claim contingent as to liability. As the court stated in In re All Media Properties, Inc., 5 B.R. 126, 132, 2 BCD2d 449 (Bkrtcy.S.D.Tex.1980), under the new Code:
(T)here is no longer any requirement that the claims be provable in order for an involuntary petition to be brought. Only holders of claims that are contingent as to liability are denied the right to be petitioning creditors. It is significant that holders of unmatured, disputed and unliquidated claims are not specifically barred from being petitioning creditors. 6
See In re Kreidler Import Corp., 4 B.R. 256, 258 (Bkrtcy.D.Md.1980) (). Thus, the dispute regarding Chrysler Credit's claim does not bar Chrysler Credit from participating as a creditor in the involuntary bankruptcy petition.
We now consider Chrysler Motors' claim against the Coveys. Chrysler Motors argues that it was owed over $27,000, since adjusted to over $25,000, by the Coveys for parts and accessories. The Coveys argue that Chrysler's claim was not proven by testimony and that the figures were arrived at from Chrysler Motors' records, which are disputed by the Coveys.
But, again, the Covey argument really is merely that the Coveys dispute the amount of Chrysler Motors' claim, not that Chrysler Motors has no claim. As we have discussed, that a creditor's claim is disputed does not disqualify a creditor from joining an involuntary bankruptcy petition. The Coveys will have ample opportunity to litigate their disputes with Chrysler Motors in the subsequent bankruptcy proceedings. Therefore, we reject the Coveys' argument that Chrysler Motors does not qualify as a creditor in the involuntary bankruptcy petition.
The third creditor to join the involuntary bankruptcy petition was the Coveys' landlord...
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