IBM Credit Corp. v. Compuhouse Systems, Inc., Civ. A. No. 94-1323.
| Decision Date | 28 March 1995 |
| Docket Number | Civ. A. No. 94-1323. |
| Parties | IBM CREDIT CORPORATION, Appellant, v. COMPUHOUSE SYSTEMS, INC., D & H Company, Inc., Tracy's Trustworthy Hardware, Fayette Broadcasting Corp., WCVI/WPAR Radio, Patti Hensel, Patricia C. Shavel, Manager/Proprietor Shavel Photography, and Jeffrey K. Rasco, President Ad-Star, Inc., Defendants. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Katarincic & Salmon, Robert J. Ridge, Pittsburgh, PA, for appellant.
Rothman Gordon and Paul R. Yagelski, Pittsburgh, PA, for appellees.
Pending before the Court is the Appeal of IBM Credit Corporation from a final Order of the United States Bankruptcy Court for the Western District of Pennsylvania which granted the Motion of Appellee, Compuhouse Systems, Inc., to Dismiss for Lack of Subject Matter Jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1), and Bankruptcy Rule 1011(b). Jurisdiction is based on 28 U.S.C. § 158(a). The issues on appeal have been fully briefed by the parties. For the reasons set forth below, the order of the Bankruptcy Court will be reversed, and the case remanded.
IBM Credit Corporation hereinafter ICC; Ad-Star, Inc. hereinafter Ad-Star; and Shavel Photography initiated the involuntary bankruptcy proceedings against Appellee Compuhouse Systems, Inc. hereinafter Compuhouse by filing an Involuntary Petition under Chapter 7 of the Bankruptcy Code on March 31, 1994. ICC thereafter filed a Motion for Appointment of an Interim Trustee and a Motion for Expedited Hearing. An emergency hearing was held by the Bankruptcy Court on April 7, 1994. The Bankruptcy Court granted ICC's Motion for Appointment of an Interim Trustee. Compuhouse did not file an Answer to the Involuntary Petition filed by ICC, Ad-Star, and Shavel Photography; rather, Compuhouse filed a "Motion to Dismiss . . . and for Costs, Attorney's Fees, Damages and Punitive Damages and to Prohibit Addition of Additional Creditors."
Several "Notices of Joinder to Involuntary Petition" were then filed by additional creditors pursuant to 11 U.S.C. § 303(c). Specifically, Fayette Broadcasting Corp. filed a claim for $831.81 (Volume II of Appellant's Appendix, Exhibit 26); Tracy's Trustworthy Hardware filed a claim for $16,690.32 (Exhibit 27); Patti Hensel filed a claim for $196.00 (Exhibit 29); WCVI/WPAR Radio filed a claim for $3,098.99 (Exhibit 30); and, D & H Company, Inc. filed a claim for $9,881.68 (Exhibit 31).
In its Motion to Dismiss, Compuhouse alleged that the Involuntary Petition should be dismissed on a number of grounds. Compuhouse argued that ICC lacked standing to file the petition because there was a bona fide dispute as to the ICC claim. The alleged bona fide dispute involved a civil action filed by ICC in the Court of Common Pleas of Fayette County, Pennsylvania. Compuhouse alleged that ICC was seeking, through its involuntary bankruptcy proceedings, to recoup monies owed for a claim which was in dispute in the Court of Common Pleas of Fayette County. Compuhouse concluded that because it had disputed the claim in Fayette County and had also filed a counterclaim in that action, that the claim of ICC was subject to a bona fide dispute.
Compuhouse also argued in its Motion to Dismiss that Ad-Star and Shavel Photography lacked standing to file the petition because there was a bona fide dispute as to their claims. With respect to the Ad-Star claim, Compuhouse specifically argued that "Ad-Star had an agreement with Compuhouse by which it would trade off various services and/or equipment with Compuhouse and has received either the amount of its claim or in excess of its claim in trade, equipment and/or services." (Volume I of Appellant's Appendix, Exhibit 23, PP 00237, ¶ (b)) Compuhouse did not make any specific allegations as to why the Shavel Photography claim was subject to a bona fide dispute. The petition, according to Compuhouse, should therefore have been dismissed for failure to satisfy the jurisdictional requirements of 11 U.S.C. § 303(b)(1).
Additionally, Compuhouse argued that the petitioning creditors filed the involuntary bankruptcy petition in bad faith because they knew, or should have known, that their respective claims were legitimately disputed. Compuhouse asked the Bankruptcy Court not to consider the claims of the joining petitioners due to the bad faith filing of the original petition. The Bankruptcy Court scheduled a hearing on the Motion to Dismiss for June 1, 1994. The Order issued by the Bankruptcy Court stated that (Volume I of Appellant's Appendix, Exhibit 24, PP 00287) At the June 1, 1994, hearing, counsel for Compuhouse and counsel for ICC appeared. The witnesses that appeared on behalf of the petitioning creditors were Russell J. Wargin, an employee of IBM Corporation; Patti Denise Hensel, a creditor who filed a joinder to the involuntary petition; and Richard J. Loading, an employee of Kelly Associates who performed bookkeeping and accounting services for two radio stations WCVI/WPQR Radio, a creditor who filed a joinder to the involuntary petition. Allan Bruce Armstrong, the executive vice president of Compuhouse, testified on behalf of Compuhouse.
At the June 1, 1994, hearing, counsel for ICC attempted to introduce the affidavit of Mr. Carr, the owner of joining petitioner Fayette Broadcasting Corp.; an affidavit from Patricia Shavel of Shavel Photography; and deposition testimony of Mr. Rasco of Ad-Star, but the Bankruptcy Court rejected all of these submissions. The Bankruptcy Court stated, (Volume I of Appellant's Appendix, Exhibit 3, PP 00063)
In a Memorandum Opinion and Order dated June 20, 1994, 168 B.R. 305, the Bankruptcy Court granted Compuhouse's Motion to Dismiss, holding that there was a bona fide dispute as to the ICC debt, and that the involuntary petition was not brought by at least three petitioning creditors as required by 11 U.S.C. § 303(b)(1). In reaching this conclusion, the Bankruptcy Court found that only two of the debts owed to petitioning creditors qualified under Section 303(b)(1) and these debts did not amount to the minimum $5,000. The Bankruptcy Court refused to consider the other petitioning creditors because "no other petitioning creditor saw fit to appear at the hearing to establish the bona fides of the debt owed to it by debtor." (Volume I of Appellant's Appendix, Exhibit 1, Bank.Ct.Mem.Op. and Order, p. 9-10 168 B.R. at 309) The Bankruptcy Court further held that the involuntary petition was not filed in bad faith.
In reviewing an order of a bankruptcy court, a district court must apply a clearly erroneous standard to the court's findings of fact. Fed.R.Bank.P. 8013, In re Gillingham, 150 B.R. 907 (W.D.Pa.1993). A bankruptcy court's conclusions of law, however, are subject to plenary review. Landon v. Hunt, 977 F.2d 829, 830 (3d Cir.1992).
ICC argues that the Bankruptcy Court's Order should be reversed because at the time of the June 1, 1994, hearing, there were five petitioning creditors (Hensel, WCVI, Shavel's, Tracy's Hardware and D & H) whose verified claims satisfied the jurisdictional requirements of 11 U.S.C. § 303(b)(1). ICC contends that the Bankruptcy Court erred in failing to consider these verified claims based on the failure of these creditors to appear as "live witnesses" at the hearing on the motion to dismiss set by the Bankruptcy Court. ICC also argues that the Bankruptcy Court erred in concluding that ICC's $153,000 claim that was part of the Involuntary Petition could not be considered under 11 U.S.C. § 303(b)(1) because the claim was the subject of a bona fide dispute.
Compuhouse argues that ICC has not demonstrated that Compuhouse was not paying its debts as they came due. Compuhouse also argues that the Bankruptcy Court did not abuse its discretion in requiring ICC to demonstrate jurisdiction through live witnesses rather than affidavits or verified petitions. Finally, Compuhouse argues that ICC's claim was subject to a bona fide dispute and that there is sufficient evidence of record to demonstrate this.
The Involuntary Petition was filed pursuant to 11 U.S.C. § 303(b)(1). This section provides:
11 U.S.C.A. § 303(b)(1) (1993).1
We first address whether the Bankruptcy Court erred in failing to consider the claims of the petitioners who filed joining petitions. The joining petitioners filed their petitions pursuant to 11 U.S.C. § 303(c) which provides:
(c) After the filing of a petition under this section but before the case is dismissed or relief is ordered, a creditor holding an unsecured claim that is not contingent, other than a creditor filing under subsection (b) of this section, may join in the petition with the same effect as if such joining creditor were a petitioning creditor under subsection (b) of this section.
11 U.S.C.A. § 303(c) (1993).
ICC argues that absent a finding of bad faith, the Bankruptcy Court cannot bar additional creditors from joining the petition under Section 303(c). Specifically, ICC states that "in...
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