Credit Union Liquidity Servs., L.L.C. v. Green Hills Dev. Co. (In re Green Hills Dev. Co.)

• Decision Date: 03 February 2014
• Docket Number: No. 12–60784.,12–60784.
• Citation: 741 F.3d 651
• Parties: In the Matter of GREEN HILLS DEVELOPMENT COMPANY, L.L.C., Debtor. Credit Union Liquidity Services, L.L.C., Creditor, formerly known as Texans Commercial Capital, L.L.C., Appellant, v. Green Hills Development Company, L.L.C., Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

741 F.3d 651

In the Matter of GREEN HILLS DEVELOPMENT COMPANY, L.L.C., Debtor.Credit Union Liquidity Services, L.L.C., Creditor, formerly known as Texans Commercial Capital, L.L.C., Appellant,

v.Green Hills Development Company, L.L.C., Appellee.

No. 12–60784.

United States Court of Appeals, Fifth Circuit.

Feb. 3, 2014.

Toby L. Gerber, Esq., Theodore W. Daniel, Esq., John Nicholas Schwartz, Fulbright & Jaworski LLP, Dallas, TX, Jeffrey Ryan Barber, Sr., Esq., Attorney, Jones Walker LLP, Jackson, MS, for Appellant.

Douglas Cole Noble, Oliver Stephen Montagnet, III, Esq., McCraney, Montagnet, Quin & Noble, P.L.L.C., Ridgeland, MS, for Appellee.

Appeal from the United States District Court for the Southern District of Mississippi.

Before WIENER, DENNIS, and OWEN, Circuit Judges.

PRISCILLA R. OWEN, Circuit Judge:

Credit Union Liquidity Services, L.L.C. (CULS) ¹ appeals the dismissal of its petitionfor involuntary bankruptcy filed against Green Hills Development Company, L.L.C. (Green Hills) pursuant to 11 U.S.C. § 303. Because we hold that CULS lacked standing to bring the involuntary petition, we affirm the bankruptcy court's dismissal on this alternative ground.

I

Green Hills entered into a construction loan agreement with CULS as part of a plan to develop approximately 403 acres of land in Brandon, Mississippi (the property). Under that agreement, Green Hills executed a promissory note (the Note) for $14.5 million as well as a related security agreement and Deed of Trust on the property. At closing, CULS dispersed $8,250,000 to enable Green Hills to acquire the property and reserved $5,500,000 for construction advances.² Separately, in order to provide additional funding for the development, Green Hills also formed the Stonebridge Public Improvement District (the PID) pursuant to Mississippi law.³ The PID entered into a trust indenture, with the Bank of the Ozarks as trustee, through which the PID issued bonds, using the proceeds to improve the property.

Green Hills requested and received from CULS six disbursements from the construction reserve totaling $4,455,566.92. Request for a seventh draw was made, but CULS did not provide the funds. Green Hills made some of the payments required under the Note, ultimately repaying approximately $5,921,930.36 of the loan's principal, although its payments were not always timely. Toward the end of 2008, the relationship between Green Hills and CULS soured, and Green Hills did not repay the outstanding balance of $8,074,348.57 when the Note matured on November 3, 2008. Green Hills also fell behind in its bond obligations to the PID.

Green Hills filed suit against CULS in Texas state court (the Texas Litigation), seeking damages estimated to exceed $20 million, an injunction preventing CULS from collecting its debt under the Note, and other relief. Green Hills asserted a wide variety of claims and theories to invalidate the loan agreement and offset its debt, including fraud, promissory estoppel, breach of contract, breach of fiduciary duty, equitable estoppel, unconscionability, duress, reformation, equitable subordination, and various statutory claims. CULS answered and filed a counterclaim for $8,315,065.09, the amount it claimed was then owed under the loan agreement. CULS also filed a motion for summary judgment on all of Green Hills's claims and its own counterclaims. The state court held a hearing on that motion, among others, at which it partially granted and partially denied summary judgment in favor of CULS. The Texas court did not issue a written order, but the record includes a proposed order that CULS prepared and filed with the Texas court after the hearing. That proposed order would have granted summary judgment to CULS only on Green Hills's claims under the Texas Deceptive Trade Practices Act. Subsequently, and after dismissal of the bankruptcy petition at issue in this appeal, the Texas Litigation was removed to the Federal District Court for the Northern District of Texas.⁴

As the Texas Litigation was proceeding in state court, CULS filed a petition for involuntary bankruptcy against Green Hills in the Bankruptcy Court for the Southern District of Mississippi. Green Hills filed a motion to dismiss the petition, arguing that involuntary bankruptcy was an improper vehicle to resolve what was essentially a two-party dispute and that CULS lacked standing because its claim against Green Hills was subject to a bona fide dispute as to liability or amount. CULS filed a motion for summary judgment on all claims. The bankruptcy court took all motions under advisement pending trial. At the conclusion of the trial, the bankruptcy court issued a written opinion dismissing the petition. The court held that CULS had failed to offer sufficient evidence that Green Hills was generally not paying its debts as they came due, and that, pursuant to § 303(h)(1), relief was not appropriate. The bankruptcy court held in the alternative that relief under § 303(h)(1) was improper because Green Hills's debt to CULS was subject to a bona fide dispute. The court reached this conclusion despite holding that CULS's claim was not subject to a bona fide dispute for the purposes of standing to file the petition under § 303(b). CULS filed a motion for reconsideration or a new trial, which the bankruptcy court denied. CULS then appealed to the district court, which affirmed the judgment, expressing agreement with the bankruptcy court's analysis. This appeal followed.

II

After CULS filed its notice of appeal, the district court in which the Texas Litigation was pending issued an order denying in part another motion by CULS for summary judgment. We granted Green Hills's motion to take judicial notice of that order. Shortly before oral argument, the district court in the Texas Litigation issued another order, this time granting CULS's motion to clarify the summary judgment order. CULS has filed an unopposed motion to take judicial notice of that order. As the content of that order is capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned, we grant CULS's motion to take judicial notice of the clarification order.⁵

III

In general, we review a bankruptcy court's findings of fact for clear error and conclusions of law de novo.⁶ To the extent that we are presented with a mixed question of law and fact, we consider the question de novo,⁷ although we have recognized that the “underlying facts” in mixed questions should be reviewed for clear error.⁸ Whether a debt is subject to a “bona fide dispute” is a question of fact, which we review for clear error.⁹

IV

Recognizing that involuntary bankruptcy is a particularly severe remedy, Congress limited the circumstances in which creditors may force a debtor into such a proceeding.¹⁰Section 303 of Title 11 permits creditors to file an involuntary petition against a debtor.¹¹ Ordinarily, a case under § 303 may be commenced only by three or more holders of qualifying claims; however, if the alleged debtor has fewer than twelve creditors, a single claimholder may file the petition.¹² A claimholder does not have standing to file a petition under § 303(b) if its claim is “the subject of a bona fide dispute as to liability or amount.” ¹³ We conclude that CULS's claim was subject to a bona fide dispute, so CULS did not have standing to file the petition for involuntary bankruptcy. We therefore affirm the dismissal of its petition on that alternative ground.

We first address and reject CULS's assertion that Green Hills has forfeited any argument regarding § 303(b) by failing to file a cross-appeal. It is well established that an appellee may, without filing a cross appeal, advance an argument that “involve[s] an attack upon the reasoning of the lower court” so long as the appellee does not “attack the decree with a view either to enlarging his own rights thereunder or of lessening the rights of his adversary.” ¹⁴ We have repeatedly affirmed this principle. ¹⁵ Every other circuitcourt likewise recognizes that an appellee is not limited to the reasoning of the district court and may raise any argument that is supported by the record to defend the judgment.¹⁶ This rule accords with the principle that we may affirm on any grounds supported by the record.¹⁷ Green Hills does not enlarge its rights by arguing an alternative ground for affirmance; to the contrary, the result—dismissal of the petition—is identical. We may therefore consider whether the court should have dismissed the petition because CULS lacked standing under § 303(b).

Under § 303(b), an involuntary petition may be brought only by the “holder of a claim ... that is not ... the subject of a bona fide dispute as to liability or amount.” ¹⁸ The provisions of § 303(b) were amended by Congress in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).¹⁹ Prior to BAPCPA, the provision did not include the phrase “as to liability or amount,” and some courts, including this one, interpreted the pre-BAPCPA § 303(b) to deny standing to a creditor only when there was a bona fide dispute as to liability.²⁰ A dispute as to the amount of the claim, even if as to the total amount of the claim (for example, through an offsetting counterclaim), was not considered a basis to deny standing.²¹ By adding the phrase “as to liability or amount” to § 303(b), Congress changed its meaning.²² Post–BAPCPA cases have recognized that a bona fide dispute as to the amount of the debt is now sufficient to deny a creditor standing to bring an involuntary petition. ²³ Thus, to the extent that our pre-BAPCPA precedent suggests to the contrary, that precedent is no longer good law.

The bankruptcy court held that a bona fide dispute did not exist under § 303(b). Although the court acknowledged that BAPCPA modified § 303(b) to “clarify that the bona fide dispute may relate either to liability on the claim or to the amount of the claim,” it nevertheless...