In re Manchester Lakes Associates, Bankruptcy No. 84-01551-A.
| Decision Date | 22 March 1985 |
| Docket Number | Bankruptcy No. 84-01551-A. |
| Citation | 47 BR 798 |
| Parties | In re MANCHESTER LAKES ASSOCIATES, A Virginia Limited Partnership, Alleged Debtor. |
| Court | U.S. District Court — Virgin Islands, Bankruptcy Division |
William E. Cox, McChesney, Pyne & Duncan, P.C., Fairfax, Va., for petitioning creditors.
Ronald L. Walutes, Annandale, Va., for Manchester Developers, Inc.
MARTIN V.B. BOSTETTER, Jr., Bankruptcy Judge.
This matter arises out of the motion by petitioning creditors for summary judgment and an entry of an order for relief against the alleged debtor, Manchester Lakes Associates ("Manchester Lakes"). Barrett Penan & Company, P.A., Geo Systems of Virginia, Inc. and Perceptions, Inc., petitioning creditors herein, filed an involuntary Chapter 11 petition against Manchester Lakes under section 303(b) of Title 11 of the United States Code ("the Bankruptcy Code") on December 7, 1984.
An answer was filed to the involuntary petition on December 31, 1984 by Manchester Developers, Inc. ("Manchester Developers"), a general partner of the alleged debtor. The answer admits that Manchester Lakes has had its principal place of business for the 180 days preceding the filing within the District in which this Court is located and further admits that Manchester Lakes is a "person" against whom an order for relief may be entered. The answer indicates, however, that Manchester Developers is not informed as to whether any debts are owing by the alleged debtor to the petitioning creditors.
Furthermore, Manchester Developers' answer raises two defenses to the entry of an order for relief. Initially, Manchester Developers alleges that another entity, Dominion Federal Savings and Loan Association, has been so involved in the management and direction of Manchester Lakes as to constitute a general partner of the alleged debtor. Moreover, Manchester Developers alleges in the answer that Dominion Federal Savings and Loan Association and other corporations under control of that corporation, Dominion Mortgage Center, Inc., Appraisal Service of America, Inc. and Development Corporation of America, as general partners of Manchester Lakes have the ability to pay the debts of the alleged debtor as they become due.
Manchester Developers also alleges in its answer that the involuntary petition has been filed in bad faith in that an employee of Dominion Federal Savings and Loan Association solicited third party creditors who would be willing to file such a petition against Manchester Lakes.
Subsequent to the filing of an answer by Manchester Developers, the petitioning creditors filed a motion for summary judgment and for entry of an order for relief against the alleged debtor on February 12, 1985. Argument was heard on the motion on February 26, 1985 and on March 6, 1985 at which time this Court took the matter under advisement.
During the argument in this matter, counsel for the petitioning creditors pointed out that the alleged debtor had failed to file any affidavits in response to those affidavits filed on behalf of the petitioning creditors in support of the motion for summary judgment. In response, the alleged debtor argued that the supporting affidavits of the petitioning creditors were faulty in that the affiants did not aver that a demand for payment had been made of the alleged debtor for each of the respective debts. At a continuation of the initial hearing on March 6, 1985, counsel for the petitioning creditors argued that an averment that a demand for payment had been made was not required. Counsel did, however, file amendments to the supporting affidavits, each of which indicated that the creditors had made a demand for payment of their respective debts.
A summary judgment motion under Rule 56 of the Federal Rules of Civil Procedure shall be granted if there is no genuine issue as to a material fact and if the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c). Rule 56 has been made applicable specifically to proceedings under the Bankruptcy Code. R.Bankr.P. 7056. Furthermore, in those instances in which a motion for summary judgment is supported by affidavits, the party in opposition to entry of summary judgment must file a response setting forth specific facts showing that there is a genuine issue as to a material fact. Fed.R. Civ.P. 56(e). Failing that, the adverse party should file an affidavit stating why an affidavit under Rule 56(e) cannot be filed. Fed.R.Civ.P. 56(f). If a response of the sort indicated above is not forthcoming, summary judgment shall be entered "if appropriate." Fed.R.Civ.P. 56(e); see In re McEvoy, 37 B.R. 197, 19-200 (Bankr.E.D. Va.1984). In the case sub judice, the alleged debtor still has not filed counter-affidavits or any other response as required under Rule 56.
The petitioning creditors base their application for the entry of an order for relief on section 303(h) of the Bankruptcy Code. Section 303(h) requires a court to order relief based on the proper filing of an involuntary petition if the debtor "is generally not paying such debtor's debts as such debts become due" if those debts are undisputed. 11 U.S.C. § 303(h)(1). Neither the Bankruptcy Code nor its legislative history define the term "generally not paying debts." The Report of the Bankruptcy Commission sets forth certain guidelines but states that determination of the issue must be made on a case-by-case basis. Report of the Commission on Bankruptcy Laws of the United States, 1973, Pt. II, 75 n. 5. One court described generally not paying debts as "including regularly missing a significant number of payments to creditors or regularly missing payments which are significant in amount in relation to the size of the debtor's operation." In re All Media Properties, Inc., 5 B.R. 126, 143 (Bankr.S.D.Tex.1980), aff'd 646 F.2d 193 (5th Cir.1981) (per curiam).
The petitioning creditors have the burden of establishing that the debtor is generally not paying its debts as they become due. In re SBA Factors of Miami, Inc., 13 B.R. 99, 100 (Bankr.S.D.Fla.1981). The affidavit in support of the involuntary petition filed on behalf of the petitioning creditor, Barrett Penan & Company, P.A., avers that the alleged debtor owes to the creditor $10,885.00, that part of the debt has been due since May 31, 1984, that all of the debt has been due since July 31, 1984 and that no payments have been made by the alleged debtor since July 31, 1984.
The affidavit in support of the involuntary petition on behalf of the petitioning creditor, Geo Systems of Virginia, Inc., avers that the alleged debtor owes to the creditor $60,669.68, that part of the debt has been due since August 31, 1984, that all of the debt has been due since November 15, 1984 and that the alleged debtor has made no...
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