In re Atwood, Bankruptcy No. CV 490-111
| Decision Date | 12 February 1991 |
| Docket Number | 88-41165.,Bankruptcy No. CV 490-111 |
| Parties | In re James P. ATWOOD, Debtor. Charles SIPPLE III., and Joel Gibson, Appellants, v. James P. ATWOOD, Appellee. |
| Court | U.S. District Court — Southern District of Georgia |
COPYRIGHT MATERIAL OMITTED
Kathy Horne, J. Hamrick Gnann, Jack K. Berry, Savannah, Ga., Asst. U.S. Trustee Office.
Walter C. Hartridge, Roy E. Paul, Savannah, Ga., for appellee/debtor.
The appellants have moved the Court to reconsider its December 7, 1990 order, which affirmed the bankruptcy court's order granting summary judgment for the debtor and dismissing the case. The appellant's motion has merit. Accordingly, the December 7, 1990 order is VACATED. The bankruptcy court's decision is AFFIRMED IN PART AND VACATED IN PART. The case is remanded to the bankruptcy court, as explained below.
The appellants, Charles Sipple III, ("Sipple") and Joel Gibson ("Gibson"), are creditors of the appellee-debtor, James P. Atwood ("Atwood" or "debtor") by virtue of a judgment entered in their favor, jointly, by the Superior Court of Chatham County. Sipple and Gibson sued Atwood and several other defendants in the Superior Court of Chatham County, on claims arising out of a joint venture arrangement. Michael J. Gannam ("Gannam") performed services as an auditor in that action, and the Superior Court ordered Atwood to compensate him for those services. On June 17, 1986, the Superior Court entered judgment in favor of Sipple and Gibson against the defendants, jointly and severally. As the bankruptcy court noted, the auditor's report suggests that Gibson and Sipple shared one claim in the Superior Court, and Gibson had another, separate claim. Nevertheless, the Superior Court judgment reduced these claims into one judgment, with the full amount in favor of both Gibson and Sipple.
Sipple, Gibson, and Gannam commenced this involuntary bankruptcy proceeding pursuant to 11 U.S.C. § 303(b) in October 1988. On May 8, 1989, Atwood filed a motion for summary judgment. The bankruptcy court granted the summary judgment motion and dismissed the case on January 29, 1990.
Sipple and Gibson have appealed that order. Although the Court originally rejected their contentions and affirmed the bankruptcy court's decision, the Court will now reconsider that decision. The appellants contend that the bankruptcy court erred in concluding that fewer than three claim holders brought the involuntary petition against Atwood. The Court disagrees with the appellants. In addition, they contend that the bankruptcy court erred in concluding that Atwood had twelve or more creditors with claims against him that were not contingent, not subject to bona fide disputes, nor paid postpetition in a voidable transfer. Because the record is not clear on this issue, the Court cannot determine whether the bankruptcy court erred in its determination of this issue. Accordingly, the Court remands this case with instructions.
When a district court reviews a final order of the bankruptcy court, it sits as an appellate tribunal. In re Cornelison, 901 F.2d 1073, 1075 (11th Cir.1990) (per curiam). In this role, the district court is constrained by traditional standards of appellate review. In re Caldwell, 851 F.2d 852, 857 (6th Cir.1988); In re Brown, 851 F.2d 81, 84 (3d Cir.1988). This means that the bankruptcy court's findings of fact are to be accepted as long as they are not clearly erroneous, but its conclusions of law are subject to plenary, or de novo, review. In re Thomas, 883 F.2d 991, 994 (11th Cir.1989); In re Fielder, 799 F.2d 656, 657 (11th Cir.1986); see Bankruptcy Rule 8013; see also, In re Chase & Sanborn Corp., 904 F.2d 588, 593 (11th Cir. 1990) ().
By entering summary judgment, the bankruptcy judge indicated that there were no genuine issues of material fact. In reviewing an order granting summary judgment, a district court must view the case "in the same manner as the bankruptcy court, asking whether there are any genuine issues of material fact and whether the moving party is entitled to judgment as a matter of law, viewing the record and facts in the light most favorable to . . . the nonmoving party." E.g., In re Lawler, 106 B.R. 943, 953 n. 42 (N.D.Tex.1989) (citations omitted); see also In re Cress, 106 B.R. 246 (D.Kan.1989).
As the parties seeking summary judgment, the defendants bear the burden initially of demonstrating that there is no material fact in dispute. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1987). If the moving party demonstrates that the record reveals no genuine issue of material fact, then the non-moving party must rebut the summary judgment motion by identifying specific facts showing a genuine issue of material fact. E.g., Young v. General Foods, Corp., 840 F.2d 825 (11th Cir.1988), cert. denied, 488 U.S. 1004, 109 S.Ct. 782, 102 L.Ed.2d 774 (1989).
All reasonable doubts about the facts are to be resolved in favor of the non-movant, although "the non-moving party . . . bears the burden of coming forward with sufficient evidence of every element that he or she must prove." Rollins v. TechSouth, Inc., 833 F.2d 1525, 1528 (11th Cir.1987); see also Celotex, 477 U.S. at 322, 106 S.Ct. at 2552. Of course, "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986) (emphasis in original).
Because involuntary bankruptcy is a severe remedy, Congress prefers that creditors settle disputes outside bankruptcy. In re Leach, 92 B.R. 483, 487 (Bankr.D.Kan. 1988), amended on other grounds, 102 B.R. 805 (Bankr.D.Kan.1989). Accordingly, the Bankruptcy Code restricts creditors' right to file an involuntary bankruptcy petition. Section 303(b)(1) controls who may file an involuntary case against a debtor, and states in relevant part:
11 U.S.C. § 303(b)(1) (emphasis added).
To determine whether the petitioning creditors have met the requirements of section 303(b), the bankruptcy court must determine whether the petitioning creditors and the debtor's other creditors hold claims that are "not contingent as to liability or the subject of a bona fide dispute."1
Then the court must count the qualifying claims. If there are fewer than twelve non-voidable2 qualifying claims, then one or two of the qualifying creditors may file an involuntary bankruptcy proceeding. If there are twelve or more qualifying claims, excluding voidable claims, the debtor cannot be forced into involuntary bankruptcy by fewer than three of the qualifying creditors. Although this process sounds simple, in practice it is difficult to determine whether a claim is contingent or subject to a bona fide dispute.
In general, a court must count the debtor's creditors as of the date of the petition. If three qualifying creditors join in the petition, the debtor may not defeat the petition by paying one of the debts after the petition is filed. 2 Collier on Bankruptcy, para. 303.081. To determine the total number of qualified creditors a debtor has, however, courts should exclude creditors who receive voidable transfers. 11 U.S.C. § 303(b)(2).
Section 549 of the Bankruptcy Code allows the bankruptcy trustee to avoid certain postpetition transfers of property of the bankruptcy estate. Section 549(b) provides a narrow exception for transfers after the filing of an involuntary petition, but clearly indicates that there is no exception for transfers in exchange for satisfaction of a prepetition debt. Some postpetition payments are not voidable, however. A transfer is voidable only if property of the estate is transferred, 11 U.S.C. § 549, and a debtor's postpetition earnings are not property of the estate. 11 U.S.C. § 541(a)(6).
There is evidence in the record on appeal that Atwood earns money as a retired military officer. The Court cannot determine from the record, however, whether the debts paid after the petition was filed were paid from these earnings, or from property of the estate. If they were paid with postpetition earnings, they may be counted. If, on the other hand, they were paid with property of the estate, the bankruptcy court must exclude them. Because this distinction is critical in deciding whether these claims should be counted, the Court will remand the case to the bankruptcy court to decide this issue.
Some off the debts that Atwood paid after the petition was filed might be characterized as small, recurring claims. The Bankruptcy Code has no specific exception for small, recurring claims, and a literal reading of the Code suggests that all creditors with claims that are not excluded by section 303(b)(2) should be counted to determine whether the debtor has fewer than twelve creditors. Nevertheless, a former Fifth Circuit decision requires that small, recurring debts, such as a monthly utility bill or rental payment, be excluded. Denham v. Shellman Grain Elevator, Inc., 444 F.2d 1376 (5th Cir.1971). Although Denham was decided prior to the...
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