In re All Media Properties, Inc., Bankruptcy No. 80-00011-HP
| Decision Date | 25 June 1980 |
| Docket Number | 80-00012-HP.,Bankruptcy No. 80-00011-HP |
| Citation | 5 BR 126 |
| Parties | In re ALL MEDIA PROPERTIES, INC., Artlite Broadcasting Company, Debtors. |
| Court | U.S. Bankruptcy Court — Southern District of Texas |
COPYRIGHT MATERIAL OMITTED
COPYRIGHT MATERIAL OMITTED
COPYRIGHT MATERIAL OMITTED
Alister B. Mahon, Minter & Mahon, Arthur L. Moller, Sheinfeld, Maley & Kay, Houston, Tex., for petitioning creditors.
Stanley B. Binion, Reynolds, Allen & Cook, Houston, Tex., for debtors.
This opinion deals with two involuntary Chapter 11 petitions brought under the Bankruptcy Reform Act of 1978 which became effective October 1, 1979. In this opinion that legislation will be referred to as the Code and the Bankruptcy Act of 1898 which was replaced by that legislation will be referred to as the Act. This distinguishing designation is one that is now universally recognized in the field of insolvency.
One of the alleged debtors is All Media Properties, Inc. (hereinafter referred to as All Media) and the other is Artlite Broadcasting Company (hereinafter referred to as Artlite), a wholly owned subsidiary of All Media. Artlite operates a radio station in Houston, Texas. The two involuntary petitions were consolidated for trial by agreement. The evidence was lengthy, the trial consumed some nine and a half days of testimony followed by briefs and oral argument. At the outset of the trial it was agreed that the court would also hear evidence on the applications by the petitioning creditors for the appointment of interim trustees. In midstream the parties and the court agreed that everyone's interest would be better served if any further testimony on the appointment of interim trustees was postponed until after a judgment on the involuntary petitions, but that evidence already presented on that issue could be later considered by the court without being reoffered.
These cases present issues arising under the Code which have not been dealt with in any reported opinions. The issues to be determined include whether each of the petitioning creditors meets the Code requirements for a creditor entitled to bring an involuntary petition, whether the requisite jurisdictional grounds exist and whether each of the alleged debtors is generally not paying its debts as such debts become due. Because of the fact that the questions presented are apparently ones of first impression under the Code, the court will first make an analysis of the requirements of an involuntary petition under the Code and will then make its legal and factual findings applicable to the particular fact situation here presented.
As set forth in 11 U.S.C. § 303 and as is relevant to the cases now before the court, an involuntary case may be commenced under Chapter 7 or Chapter 11 of the Code against any person that may be a debtor under those chapters. In cases such as these where each debtor has more than twelve creditors, § 303(b)(1) provides that a petition may be brought by three or more entities, each of which is a holder of a claim against the alleged debtor that is not contingent as to liability, if such claims aggregate at least $5,000 or more than the value of any lien or property of the debtor securing such claim held by the holders of such claims. Subdivision (c) of § 303 provides that after a petition is brought but before an order for relief is entered or the case dismissed, other qualified creditors may join in the petition with the same effect as if he were an original petitioning creditor. It is provided in § 303(h)(1) that an order for relief shall be entered if the debtor is generally not paying his debts as they become due, that being the allegation here made against both of the debtors.
In determining whether a petitioning creditor is qualified it is necessary first to see if he is, as required by § 303(b), the holder of a claim against the debtor which is not contingent as to liability. Section 101(4)(A) of the Code defines a claim to mean "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; . . ." Under § 303(b)(1) if an entity is the holder of such a right to payment he may join as a petitioning creditor unless his claim is contingent as to liability. It would thus appear that the intent of the Code is to allow the holders of any of the types of claims enumerated in § 101(4)(A) to qualify as a creditor unless his claim is contingent as to liability.
The debtors here contend that the holder of a claim which is unmatured or disputed cannot be a qualified creditor as that establishes that such claims are contingent in the sense that they are not, at the time of the filing of the petition, fixed or liquidated or now owing but rather that such claims require further proceedings or the passage of time. The debtors' contention is summed up by the following statement in their brief: "if the claim asserted by the petitioners would require proof in order to establish the merits of the claim as to the debtor's liability or the amount of this claim, then such a claim could not be considered to be not contingent as to liability."
The decisions under the Act give some guidance of what is meant by "not contingent as to liability", although they may not be controlling.
Under § 59b of the Act, a claim was not necessarily rendered contingent as to liability merely because it was unmatured. For example, in Matter of Myers, 31 F.Supp. 636 (E.D.N.Y.1940) the court held that a holder of notes could properly be a petitioning creditor even though some of the notes were not due until after the involuntary petition was filed, because the obligation was "absolutely owing" at the time of the filing. Similarly, in Kay v. Federal Rubber Co., 46 F.2d 64 (3rd Cir. 1930) a holder of trade acceptances which were not payable until after the involuntary petition was filed was considered to be a qualified creditor. Instead, a contingent claim was defined to be "one as to which it remains uncertain, at the time of the filing of the petition in bankruptcy, whether or not the bankrupt will ever become liable to pay it." In re Mullings Clothing Co., 238 F. 58, 67 (2nd Cir. 1916).1 It was not necessary that a claim be reduced to judgment before it was not contingent as to liability. Rather, the petitioning creditors who were disqualified were those where claims were "open" and "unliquidated" in that they were tort-type claims or quantum meruit claims which required proof as to liability, reasonable value, or damages. Denham v. Shellman Grain Elevator, Inc., 444 F.2d 1376, 1380 (5th Cir. 1971), In re Walton Plywood, 227 F.Supp. 319, 324 (W.D.Wash.1964). Where no additional act or event need have occurred before liability attached, then liability was considered to be non-contingent. In re Trimble Company, 339 F.2d 838, 844 (3rd Cir. 1964).
The Code has gone much further in allowing holders of claims to bring an involuntary petition. Under § 101(4)(A) of the Code a claim means a right to payment whether or not reduced to judgment, whether liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, or undisputed. Section 303(b)(1) gives the right to any holder of a claim except those that are contingent as to liability to be a petitioning creditor.
Thus, Congress has stated that creditors holding, for example, contingent, unliquidated, unmatured, or disputed claims have a right to participate in the bankruptcy process as creditors. Also, there 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.
Furthermore, § 303 indicates that there is a difference between a disputed claim, an unmatured claim, an unliquidated claim and a contingent claim. Otherwise, there would be no necessity to include the word contingent. Stated another way, just because a claim is unliquidated, disputed or unmatured apparently does not mean it is contingent.
The court concludes that claims are contingent as to liability if the debt is one which the debtor will be called upon to pay only upon the occurrence or happening of an extrinsic event which will trigger the liability of the debtor to the alleged creditor and if such triggering event or occurrence was one reasonably contemplated by the debtor and creditor at the time the event giving rise to the claim occurred.
Thus, in the case of the classic contingent liability of a guarantor of a promissory note executed by a third party, both the creditor and guarantor knew there would be liability only if the principal maker defaulted. No obligation arises until such default. In the case of a tort claim for negligence, the parties at the time of the alleged negligent act would be presumed to have contemplated that the alleged tort feasor would be liable only if it were so established by a competent tribunal. Such a tort claim is contingent as to liability until a final judgment is entered fixing the rights of the parties. On the other hand, in the ordinary debt arising from, for example, a sale of merchandise, the parties to the transaction would not at that time view the obligation as contingent. Subsequent...
To continue reading
Request your trial