Hager v. Gibson
| Decision Date | 28 February 1997 |
| Docket Number | No. 95-2574,95-2574 |
| Citation | 108 F.3d 35 |
| Parties | Bankr. L. Rep. P 77,295 Harry G. HAGER, Plaintiff-Appellant, v. Ruth A. GIBSON, Trustee for Preference, Ltd., Defendant-Appellee. |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: Frank James Santoro, Marcus, Santoro & Kozak, P.C., Portsmouth, Virginia, for Appellant. Alvin Powers Anderson, Anderson, Franck & Davis, P.C., Williamsburg, Virginia, for Appellee. ON BRIEF: Karen M. Crowley, Marcus, Santoro & Kozak, P.C., Portsmouth, Virginia, for Appellant. Ruth A. Gibson, Norge, Virginia, for Appellee.
Before LUTTIG and MICHAEL, Circuit Judges, and PHILLIPS, Senior Circuit Judge.
Affirmed by published opinion. Senior Judge PHILLIPS wrote the opinion, in which Judge LUTTIG and Judge MICHAEL joined.
Harry Hager appeals from the denial of his motion to dismiss a bankruptcy proceeding for lack of subject matter jurisdiction. He contends that the filing in behalf of the corporate debtor was not properly authorized. We agree with the district court that the filing, though initially deficient, was authorized by later ratification which validated it for jurisdictional purposes. We therefore affirm.
In 1987, Donald J. Roop and his wife, Sandra Roop, incorporated Preference, Ltd. (Preference) under Virginia law for the purpose of operating an Orvis retail establishment in Colonial Williamsburg; each owned fifty percent of the corporation's stock at incorporation. The Roops divorced after the incorporation, and Hager purchased Mrs. Roop's shares in the corporation for $150,000. At all relevant times since, Hager was a fifty percent shareholder in Preference and a director of the corporation; Roop, a fifty percent shareholder, president and a director; and Hager's son Christian, a director and secretary/treasurer of the corporation. When Hager purchased Mrs. Roop's stock, Crestar Bank (Crestar), which had extended a running line of credit to Preference, required Hager to personally guarantee the credit line, as had Roop.
Hager's personal relationship with Roop declined along with the financial fortunes of the corporation, and by late 1992 Roop and Hager communicated only through their attorneys, though Roop continued to operate the Orvis retail establishment. Learning of Preference's troubled financial status and the tension between Hager and Roop, Crestar demanded immediate payment of the balance due on the Preference note. According to Hager, Crestar pressured him personally by invoking the personal guarantee and demanding payment either from Preference's account or Hager's personal funds. Hager then purchased the note and Crestar assigned its rights under the note to Hager in his own name, on December 30, 1992. Hager then closed the Orvis establishment and retained the services of a liquidation firm to liquidate its inventory.
In March 1993 Roop set about filing for bankruptcy on behalf of Preference. He prepared a notice to be distributed to Hager as the only other shareholder. The notice, dated March 11, 1993, read in part: JA at 25-26. Roop sent the notice through certified mail to Hager personally, and Hager refused the letter. Roop also forwarded the notice to Hager's attorney, Troy Titus. Titus responded to the notice by writing Roop's attorney, JA at 34.
Roop hired one Stephen D. Harris to act as independent counsel for Preference at the special meeting. Harris and Roop met on March 29 at the designated location, but neither Hager nor Titus attended. Roop, as the only shareholder present, voted to place the company in bankruptcy. To memorialize his vote, Roop executed a resolution that stated, "[Harris] has advised [Preference] that Harry G. Hager is precluded from voting on this particular resolution because of his claim of the status of a secured creditor." JA at 44-45. Because he was the only shareholder present and able to vote on the matter, the resolution stated that Roop had the authority to place Preference in bankruptcy with his vote alone. There is no evidence that Hager or Titus ever received a copy of the resolution.
Roop filed a voluntary petition on behalf of Preference under Chapter Seven of the Bankruptcy Code on April 26, 1993. The Bankruptcy Court appointed Ruth Gibson to act as trustee (hereafter, the Trustee). On December 14, 1993, the Trustee demanded by letter that Hager turn over certain funds that she alleged properly belonged to the debtor. Hager acknowledged receipt of the letter but did not otherwise respond to the demand. The Trustee then responded to Hager's inaction by filing an adversary proceeding against Hager on August 18, 1994, expanding on the allegations made in the earlier letter but demanding the same relief.
On December 20, 1994, Hager filed a Motion to Determine Compliance with Local Rule 203 and to Dismiss the Case and all Related Adversary Proceedings. 1 In his motion, Hager claimed that Roop improperly called the special meeting of shareholders and incorrectly assumed that Hager was precluded from voting. Hager contended that Roop did not have the authority to place Preference in bankruptcy by himself and therefore had improperly filed for bankruptcy on behalf of Preference. Because of Preference's allegedly improper filing, Hager claimed the bankruptcy court did not have subject matter jurisdiction over the proceeding and that the court should therefore dismiss the proceeding.
The bankruptcy court denied Hager's motion, holding that the doctrine of laches prevented Hager from raising his jurisdictional argument twenty months after Preference had filed for bankruptcy. JA at 128. Alternatively, the bankruptcy court ruled that notice to Hager of Preference's special meeting was sufficient and that Hager's failure to participate in that meeting constituted a waiver of any claim that Roop lacked authority to file for bankruptcy on behalf of Preference. JA at 129. Hager then timely appealed the order of the bankruptcy court to the district court.
The district court ruled that the doctrine of laches did not prevent a court from considering Hager's subject matter jurisdiction objection because either a party or the court sua sponte could raise the issue of subject matter jurisdiction at any time during a proceeding. JA at 228. Addressing the jurisdictional issue, the court first held that Roop's notice to Hager of the special meeting was sufficient. JA at 230. And, with regard to the validity of the resolution authorizing Roop to file for bankruptcy on behalf of Preference, the court held that although Hager was not barred from voting at the special meeting by virtue of his status as a secured creditor of the corporation, his delay of more than a year in complaining of Roop's action constituted a ratification by Hager of Roop's action which under Virginia corporate law validated, by relation back, the filing for jurisdictional purposes. JA at 231, 232. On this basis, the court denied Hager's motion to dismiss for lack of subject matter jurisdiction.
This appeal by Hager followed.
The parties do not dispute the facts upon which the district court relied in making its jurisdictional ruling. The only issues on appeal, therefore, are issues of law that are reviewed de novo. See, e.g., Schatz v. Rosenberg, 943 F.2d 485, 489 (4th Cir.1991). Specifically, our "review of subject matter jurisdiction is plenary." Sea "B" Mining Co. v. Director, OWCP, 45 F.3d 851, 854 (4th Cir.1995) (citing Tazco, Inc. v. Director, OWCP, 895 F.2d 949, 950-51 (4th Cir.1990)).
Hager's contention is simple. His basic point is that under Price v. Gurney, 324 U.S. 100, 65 S.Ct. 513, 89 L.Ed. 776 (1945), a federal bankruptcy court has no power to entertain a voluntary petition for bankruptcy filed in behalf of a corporation by one then without authority under state corporate law to file for the corporation. Here, he says that--as the district court properly held--Roop lacked authority under Virginia law to file for Preference at the time of filing. And, he concludes, the bankruptcy court therefore never acquired jurisdiction to entertain the proceeding so that upon Hager's objection, the petition should have been dismissed.
The Trustee, in response, does not challenge the district court's determination that Roop was without authority under state law at the time of filing. But, she contends that--as the district court held--under Virginia corporate law Hager's long delay in raising any objection to the filing constituted ratification by him, as holder of all the other corporate stock, of the filing by Roop in behalf of the corporation. And, she concludes, under Virginia law this ratification operated by relation back to validate the filing, hence to supply jurisdiction in the bankruptcy court to entertain the proceeding as of the time of filing.
Hager then counters that the district court erred in holding that his conduct constituted ratification under Virginia law, and alternatively, that ratification doctrine could not, in any event, be applied to correct a jurisdictional defect existing at the time of filing, because to do so would violate both the principle that subject matter jurisdiction cannot be supplied by waiver or consent and the rule that subject matter jurisdiction is determined as of the time of commencement of an action.
We take these counter-contentions in order.
Hager's reliance on Price v. Gurney is valid to a point, but the case does not take him as far as he needs and claims it to do. It does...
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...Price v. Gurney, 324 U.S. 100, 106 (1945) (holding that courts must dismiss petitions filed without proper authority); Hager v. Gibson, 108 F.3d 35, 39 (4th Cir. 1997) (relying on Price for the proposition that "the bankruptcy court does not acquire jurisdiction unless those purporting to a......