In re Godroy Wholesale Co., Inc.
| Citation | 37 BR 496 |
| Decision Date | 24 February 1984 |
| Docket Number | Bankruptcy No. 4-81-00756-G. |
| Parties | In re GODROY WHOLESALE CO., INC., Alleged Debtor. |
| Court | United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts |
James F. Queenan, Jr., Bowditch & Dewey, Worcester, Mass., for Godroy Wholesale Co., Inc.
Leonard Krulewich, Karger, Krulewich & Arnowitz, Boston, Mass., for Crosley Bldg. Corp. of Maine.
This involuntary Chapter 11 case was commenced by Crosley Building Corporation of Maine ("Crosley") by the filing of a petition under 11 U.S.C. § 303. Godroy Wholesale Company, Inc. ("Godroy") was, at that time, a manufacturer and distributor of general merchandise, operating sixteen variety stores in Massachusetts and New Hampshire under the trade name Godin Stores, Inc.1. Crosley leased Godroy space for a store in Allenstown, New Hampshire for a ten-year term commencing October 1, 1966. Godroy had two five-year options, the first commencing October 1, 1976. Godroy apparently exercised that option. On July 1, 1978, the Allenstown store was closed and the premises vacated by Godroy. Godroy continued to make monthly rental payments through January 1980.2 Whether additional payments were due was disputed. Crosley filed a proof of claim in the amount of $20,682.77 which included unpaid rent, and compensation for water damage to the premises which occurred after the premises were vacated. Godroy's defense to the claim of Crosley was that Crosley unreasonably withheld consent to a proposed assignment of the lease by Godroy and, therefore, Crosley was not entitled to rent for the balance of the lease term.
Crosley's petition was filed pursuant to subsection 303(b)(1) and (2) which reads as follows:
The involuntary petition was contested by Godroy by the filing of an answer and counterclaim. In its answer, Godroy denied that Crosley had a provable claim against it, not contingent as to liability, amounting in the aggregate, in excess of the value of securities, to $5,000 or more; denied that it was unable to pay its debts as they matured; and denied that the number of unsecured claims against it, not contingent as to liability, were fewer than twelve. In its counterclaim, Godroy asserted that Crosley filed the petition in bad faith and sought judgment against Crosley for costs, reasonable attorney's fee, damages proximately caused by the petition filing, and punitive damages, all under § 303(i).
The petition was timely controverted and a trial held. In sum, the Court held that the petitioning creditor failed to show that Godroy was generally not paying its debts as they matured or that Godroy lacked the ability to pay its debts as they matured. See § 303(h). Therefore, the Court found that an order for relief against the debtor should not enter, and dismissed the involuntary petition. The Court also noted that because Godroy had well in excess of twelve creditors on the date of filing, whose claims were not contingent as to liability, none of which joined Crosley's petition, a necessary jurisdictional requirement was not satisfied.3
Because of the potential harm to Godroy of the pendency of the involuntary Chapter 11 proceeding, the Court promptly entered a memorandum and order dismissing the case, but postponed its findings as to damages until such time as the briefs of the parties were received and reviewed. It is the issue of damages which is addressed below.
Initially, although not raised by either party, the Court wishes to make clear that even though it has dismissed the above-captioned proceeding, it has not lost jurisdiction to award costs, attorney's fees and other damages sustained by Godroy. 11 U.S.C. § 303(i) specifically provides that the Court may grant such judgment to a debtor (absent a waiver by the debtor) if the petition is dismissed under § 303. See also In re Cooper School of Art, Inc., 709 F.2d 1104, 10 B.C.D. 971 (6th Cir.1983); H.R.Rep. No. 595, 95th Cong., 1st Sess. 324 (1977); and S.Rep. No. 989, 95th Cong., 2d Sess. 34 (1978), U.S.Code Cong. & Admin. News 1978, p. 5787.
Specifically, 11 U.S.C. § 303(i) provides:
The by this section. H.R.Rep. No. 595, 95th Cong., 1st Sess. 324 (1977) and S.Rep. No. 989, 95th Cong., 2d Sess. 34 (1978). See also In re Camelot, Inc., 25 B.R. 861 (Bkrtcy.E.D.Tenn.1982), aff'd, 30 B.R. 409 (Bkrtcy.E.D.Tenn.1983); In re Ramsden, 17 B.R. 59, 8 B.C.D. 868 (Bkrtcy.N.D.Ga.1981); and 11 U.S.C. § 102(5). The awarding of damages is permissive and properly within the discretion of the Court. See In re Camelot, Inc., supra and In re R.V. Seating, Inc., 8 B.R. 663 (Bkrtcy.S.D.Fla.1981). It is easy to understand why the Bankruptcy Code expanded the provisions for awarding damages as protection for an alleged debtor when one considers the increased ease with which an involuntary petition may now be filed.4 In re SBA Factors of Miami, 13 B.R. 99, 101, 8 B.C.D. 281, 282 (Bkrtcy.S.D.Fla.1981). Cf. In re Mahon, No. 80-02321(2), slip op. .
I find that Crosley should be made to bear the burden of its haphazard actions and am therefore awarding costs and reasonable attorney's fees to Godroy pursuant to § 303(i)(1)(A) and (B). However, at the time of trial, Godroy had not received a bill for legal services and was therefore unable to show its actual out of pocket expenses (It estimated same to be $6,000). Accordingly, Godroy shall have twenty days to file proof of same by way of affidavit.
Since Godroy has not requested judgment under § 303(i)(1)(C), and, moreover, since it appears that this subsection does not apply, no award will be made pursuant to § 303(i)(1)(C).
The Court finds that the petition was filed in bad faith. Crosley's only attempt to discover if Godroy was "generally not paying its debts as such debts became due" was made by its president, McDonald. McDonald asked a long-standing employee of a large chain of hardware stores, located throughout New England, about Godroy's credit reputation and history of bill paying. The employee noted that to the best of his knowledge, Godroy was paying its suppliers. Notwithstanding this information, McDonald decided that Godroy was "generally not paying its debts as such debts became due" based on the fact that he personally failed to receive rental payments due, even though he knew that Godroy disputed that rent was due and owing. McDonald explained his decision to file the involuntary petition by stating that since all other suppliers were paid in a timely fashion, Crosley was Godroy's only "creditor".5 Furthermore, McDonald then stated that because all other suppliers were paid in a timely fashion, and Crosely was Godroy's only creditor ("as defined by the Bankruptcy Act"), only one creditor was needed to commence the involuntary proceeding.
Crosley took no affirmative steps to insure that his suspicions were true. Although Bankruptcy Rule 104(e) (now Rule 1003(d)) specifically recognizes that a single petitioning creditor may be mistaken as to the total number of creditors and therefore permits additional creditors to join an involuntary petition following an answer alleging greater than twelve creditors, this does not imply that a single creditor may commence an involuntary proceeding, without due investigation and escape a "bad faith" finding. See In re Rite-Cap, Inc., 1 B.R. 740, 5 B.C.D. 1209 (Bkrtcy.D.R.I.1979). On the other hand, simply because a single petitioning creditor conducts a cursory investigation does not, as a matter of law, indicate bad faith. In re Crown Sportswear, Inc., 575 F.2d 991 (1st Cir.1978). The Court must investigate the facts before it. From the facts before me I find that Crosley should have made some additional inquiries, to determine the total number of claim holders and the amount of their claims, following the scant evidence it uncovered from its preliminary questioning. See Myron M. Navison Shoe Co. v. Lane Shoe Co., 36 F.2d 454 (1st Cir.1929) and In re Richard L. Herriott, 1 B.C.D. 793 (Bkrtcy.D.Mass.1975).6
While "bad faith" is not defined in the Bankruptcy Code and case law is...
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