In re North County Chrysler Plymouth, Inc.
| Decision Date | 24 August 1981 |
| Docket Number | Bankruptcy No. 81-00597-2. |
| Citation | 13 BR 393 |
| Parties | In re NORTH COUNTY CHRYSLER PLYMOUTH, INC., Debtor. |
| Court | U.S. Bankruptcy Court — Western District of Missouri |
Howard D. Lay, Kansas City, Mo., for petitioning creditors.
Thomas E. Thompson, Kansas City, Mo., for debtor.
On February 25, 1981, Chrysler Credit Corporation, hereinafter Chrysler Credit, filed an involuntary petition in bankruptcy for North County Chrysler-Plymouth, Inc., a Missouri corporation, hereinafter North County. Chrysler Credit alleged that North County had less than 12 creditors and that it was "generally not paying its debts as they become due", alleging that North County owed Chrysler Credit $167,503.54 in floor plan financing for which North County had issued checks which were not paid by its bank.
A few days prior to the filing, North County advertised a public auction of its office and shop equipment at its premises. On February 27, 1981, Chrysler Credit applied to this Court for an order directing an accounting and the paying over of the proceeds of the auction to the Court, alleging that the sale would otherwise result in the diminution of the assets of the alleged debtor. The parties appeared by counsel to argue the application and it was sustained. The Court's order provided:
"That North County Chrysler-Plymouth, Inc. and all those for it or on its behalf, are directed to account for and pay all proceeds of the sale of automobile parts, fixtures, and other assets of the dealership out of the ordinary course of business to the Clerk of the United States Bankruptcy Court for the Western District of Missouri."
At about the same time that this involuntary proceeding was begun, Chrysler Credit filed a replevin action against North County in the United States District Court for this judicial district. No. 81-0086-CV-W-1. The new cars held by North County were taken by Chrysler Credit. In the civil suit, North County filed a counterclaim.
A hearing was held on the involuntary petition on March 25, 1981. At that hearing, with leave of court, North County filed its answer out of time. In the answer, North County denied that Chrysler Credit had a non-contingent claim, denied that the value of the property replevined was less than the amount of Chrysler's claim and alleged that North County had more than 12 creditors, thus making the petition defective. After March 25th, three additional evidentiary hearings were held. The parties appeared by counsel on each occasion and evidence was heard. The matter was taken under advisement pending the filing of briefs which have now been received.
Section 303 of the Code, Title 11, U.S.C., permits the filing of an involuntary petition under Chapter 7 "against a person . . . that may be a debtor under the chapter under which such case is commenced." Under Section 103(30) of the Code, a person is defined to include a corporation. Chrysler Credit pleads for relief under Chapter 7 of the Code. The involuntary case "is commenced by the filing . . . of a petition . . .
(1) by three or more entities, each of which is either a holder of a claim against such person that is not contingent as to liability . . . if such claims aggregate at least $5,000 more than the value of any lien on property of the debtor securing such claims held by the holders of such claims . . . "
Section 303(b)(2) permits one creditor to file "if there are fewer than 12 such holders . . .". Relief may be ordered on a controverted petition "after trial . . . if (1) the debtor is generally not paying such debtor's debts as such debts become due . . . ".
The Code has abandoned the requirement that the creditors prove an act of bankruptcy before relief can be ordered in an involuntary proceeding providing instead that ". . . the court shall order relief after a trial in an involuntary case . . . only if the debtor is generally not paying" his debts as they become due.
"Although the precise scope and meaning assigned to the term of `generally not paying\' are left to the courts, it is clear that a court must find more than a prospective inability by the debtor to pay only a few of his debts, and more than a past failure to pay a few of such liabilities." 2 Collier on Bankruptcy, ¶ 303.11 (15th Ed.).
The petitioning creditors have the burden of proof on the issues presented by the filing and North County's answer. In re Perry, 336 F.Supp. 420 (DC S.C.1972); In re J.V. Knitting Services, Inc., 4 B.R. 597 (Bkrtcy.S.D.Fla.1980).
The initial question is whether the involuntary petition is adequate. In its answer, North County alleged that it had twelve or more creditors but failed to comply with the requirements of Rule 104(e), Rules of Bankruptcy Procedure, by not listing the creditors and the amount of their claims. An amended answer was filed on April 1, 1981, with a list of 98 creditors, attached as an exhibit. On April 6, 1981, Chrysler Credit filed an amended petition, adding four additional creditors, whose claims were supported by affidavits attached to the amended petition. North County filed an answer generally denying all of the allegations of the amended petition and incorporating all of the defenses raised in its earlier pleadings. Thus, the absence of sufficient petitioning creditors in the original petition has been preserved for resolution at this time.
Five creditors joined in the amended petition. Four furnished affidavits as to the nature and amount of their respective debts. Three of the petitioning creditors were listed by North County in the attachment to its amended answer. Interestingly enough, Chrysler Credit was not listed as a creditor in the attachment. No affidavit or evidence was offered by the alleged debtor to controvert the affidavits of the petitioning creditors.
Except for Chrysler Credit, none of the petitioning creditors testified at the hearing. However, representatives of Southwestern Bell, the Gas Service Company, Kansas City Power & Light Company, James Auto Supply and Musicord, creditors acknowledged in debtor's answer, did testify that North County had not paid amounts due them. The testimony showed that Southwestern Bell and Kansas City Power & Light had letters of credit which would offset some but not all of the amounts due them. Two of those testifying creditors, James Auto Supply and Musicord, indicated that they wished to join as petitioning creditors.
A petitioning creditor must be an entity holding a claim that is not contingent. Section 303(b)(1). An entity is defined in Section 101(14) to include a person, which in turn is defined broadly in Section 101(3) so as to include all of the parties making claims in this case. Section 101(4) defines a claim to be a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, secured, or unsecured . . ." Obviously Section 303(b)(1) modifies this definition in an involuntary proceeding so that the claim may have all of the attributes of a Section 101(4)(A) claim except that it may not be contingent.
The history of the language of Section 303(b)(1) reflects a gradual easing of the requirements imposed upon the petitioning creditor. 3 Collier on Bankruptcy ¶ 59.141 and 2 (14th Ed.). Requirements that the claim be provable and liquidated have been abandoned in the Code. House Report No. 95-595, 95th Cong. 1st Sess. (1977) (309) reprinted in 2 App. Collier on Bankruptcy (15th Ed.). The qualifications of a petitioning creditor were the subject of an extended analysis in In re All Media Properties, Inc., 5 B.R. 126 (Bkrtcy.S.D.Texas 1980). There the Court concluded that "just because a claim is unliquidated, disputed or unmatured apparently does not mean it is contingent." 5 B.R. at 133. See also In Crateo, Inc. v. Intermark, Inc., 536 F.2d 862 (9th Cir. 1976).
North County contends that a debt which is not reduced to judgment which is offset by a counterclaim, or otherwise "uncertain, tenuous and indefinite" is contingent, citing In re Mullings Clothing Co., 238 F. 58 (2nd Cir. 1916) and In re Arker, 6 B.R. 632 (Bkrtcy.E.D.N.Y.1980). In Mullings, the Court defined a contingent liability as one where there was an uncertainty "at the time of the filing of the petition in bankruptcy, whether . . . the bankrupt will ever become liable to pay it." 238 F. at 67. Arker does not attempt even a general definition of what constitutes a contingent liability but holds, narrowly, that an appeal from a state court judgment, otherwise not stayed, does not affect its finality, i.e., it is not made automatically contingent.
Here, creditors Booth Tow Service, James Auto Supply, Inc., Mike's North Oak Auto Parts, Musicord, and Pete's Tow Service have alleged, either by testimony or affidavit, that they have provided services to North County for which they have not been paid and its amended answer of April 14, 1981 schedules each of these entities as a creditor, even while denying, in its pleadings, that they hold non-contingent claims. But North County offered no evidence that the debts had been paid or that there was otherwise no liability. While the petitioning affidavits lack careful draftsmanship, not utilizing the language of the statute or prior decisions, those affidavits, taken with the listing of the debts by North County are sufficient to establish the claims of the petitioning creditors, at least as to the amount North County admits it owes. The testimony of the two creditors, James Auto Supply, Inc. and Musicord, who appeared and asked to join as petitioners, is credible.
As to each creditor, North County asserts that the failure to allege or produce evidence to the effect that the claim is not contingent is fatal to the validity of the petitioner's status. The argument is not persuasive. By its schedules, North County has admitted the liability. ...
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