In re Smith
| Decision Date | 14 December 1990 |
| Docket Number | No. 90-7663-8P7.,90-7663-8P7. |
| Citation | 123 BR 423 |
| Parties | In re B. Warren SMITH, Debtor. |
| Court | U.S. Bankruptcy Court — Middle District of Florida |
Allan C. Watkins, Tampa, Fla., William S. Jonassen, Largo, Fla., for alleged debtor.
First Florida Bank, Eric E. Ludin, St. Petersburg, Fla., for creditor.
ORDER ON DEBTOR'S MOTION FOR SUMMARY JUDGMENT
THIS IS an involuntary Chapter 7 liquidation case and the matter under consideration is the Debtor's Motion for Summary Judgment. It is the contention of the Debtor that there are no genuine issues of material facts, and that the Debtor is entitled to a judgment in his favor as a matter of law dismissing with prejudice the involuntary Petition filed against him. This contention is based on the claim asserted by the Debtor first, that he has more than twelve creditors and, since the Petition was filed only by one creditor, First Florida Bank, N.A. (First Florida), it lacks standing to maintain this involuntary Petition and obtain the entry of an Order for Relief as a matter of law. Second, it is the contention of the Debtor that he is generally paying his debts as they become due and, therefore, First Florida is not entitled to an order of relief against him in any event.
The relevant facts as they appear from the record are without dispute and are as follows:
On May 2, 1989, First Florida was awarded a Final Judgment against the Debtor and several non-Debtor co-defendants for $1,041,092.88. As of the date of the filing of the involuntary petition, the amount remaining unpaid on the judgment was $379,007.56. It appears that the only asset of the Debtor that could be used to satisfy the judgment obtained by First Florida is the Debtor's interest in an ERISA qualified Pension and Retirement Plan. It is the contention of First Florida that it could reach the Debtor's pension plan only in the bankruptcy court, and this is the reason why First Florida filed an involuntary Petition against the Debtor.
The Debtor opposes the filing of the involuntary Petition and objects to the entry of the Order for Relief. It is the contention of the Debtor that since he has 25 creditors, the involuntary Petition cannot be maintained by one individual creditor because of the requirement of Bankruptcy Code § 303(b)(2).
Bankruptcy Code § 303(b)(2) provides:
The Debtor attached to his Answer a list of his 25 creditors. A review of the record indicates that four of the creditors listed by the Debtor are his employees who were and still are employed by him and who work on a farm owned by the Debtor, and who are paid wages as they accrue. Fourteen of the remaining creditors of this Debtor are holders of claims that represent regular recurring monthly expenses connected with the operation of the Debtor's business, such as bills for maintenance, utilities, and the like. These bills range in amount from $20-$275 and are expenses for goods and services which were received by the Debtor on a regular basis prior to and after the filing of the involuntary Petition.
It is a well-established proposition that insignificant debts which are customarily paid on a regular basis should not be counted to defeat an involuntary petition. Denham v. Shellman, 444 F.2d 1376 (5th Cir.1971). In Denham, the Debtor claimed to have eighteen creditors, seventeen of whom held small, insignificant debts which were customarily paid monthly. The Denham Court held that small current debts which are contracted to be paid monthly cannot be used by an alleged Debtor to increase the number of his creditors to greater than twelve in an effort to defeat an involuntary petition by a sole creditor. Id. at 1378-79.
Even though Denham was decided under the Bankruptcy Act of 1898, it is still good law as the Bankruptcy Code, like the Bankruptcy Act of 1898, requires three petitioning creditors to maintain an involuntary petition if the debtor has more than twelve creditors. § 303(b)(1). Although Denham was decided by the Fifth Circuit before the Eleventh Circuit was created, it is still precedent in this Court. See Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir. 1981). This Court is therefore satisfied that de minimis debts owed by the Debtor on the date of filing are not to be considered in determining the number of creditors needed to join in an involuntary petition against the Debtor under § 303(b). See, also In re Blaine Richards & Company, Inc., 10 B.R. 424 (Bankr.E.D.N.Y.1981); In re Skye Marketing Corp., 11 B.R. 891 (Bankr.E.D.N.Y.1981). In sum, subtracting the four employee-creditors and the fourteen de minimis-creditors of this Debtor, it appears to this Court that this Debtor has only seven creditors to be considered when determining the number of creditors required to file an involuntary Petition under § 303 of the Bankruptcy Code.
It is without dispute that First Florida bears the burden of showing that the debtor is not paying debts as they become due and that its claim is no longer the subject of a bona fide dispute. In re Rubin, 769 F.2d 611, 615 (9th Cir.1985). As First Florida is the holder of a State Court Judgment against the Debtor, it is clear that the Debtor's debt to First Florida is not the subject of a bona fide dispute.
The general rule is that the failure of a debtor to meet the liability of a single creditor does not warrant the granting of an Order for Relief. In re LeSher International, Ltd., 32 B.R. 1 (Bankr.S.D. N.Y.1982). Other factors must be considered, such as the amount of the debts not being paid and the number of creditors not being paid in determining whether the Debtor is generally paying his debts as they become due. In re Arker, 6 B.R. 632 (Bankr.E.D.N.Y.1980). Additionally, the Court also must consider whether the interest of creditors and the Debtor would be better served by dismissing the case and allowing the creditors to pursue their nonbankruptcy remedies. In re R.V. Seating, Inc., 8 B.R. 663 (Bankr.S.D.Fla.1981).
There are two exceptions to the rule which denies a single creditor the ability to obtain an Order for Relief. One exception arises upon the showing of special circumstances amounting to fraud, artifice or scam by the debtor. A second exception arises when a debtor has a sole creditor who is without an adequate remedy under nonbankruptcy law if an Order for Relief is not entered.
Considering these exceptions seriatim, first, there is nothing in this record to warrant the finding that there are special circumstances which amount to fraud, artifice or scam by the Debtor. cf In re 7 H Land and Cattle Company, 6 B.R. 29 (Bankr.D.Nev.1980).
Relying on the second exception to the general rule, First Florida contends that this Debtor has only one meaningful asset, the Debtor's 401-K Employee Retirement Income Security Act (ERISA) plan, which could be used to satisfy First Florida's claim, and because of Fla.Stat. § 222.21(2)(a), it would not be able to reach the Debtor's interest in his ERISA plan in the state court. Fla.Stat. § 222.21(2)(a) provides as follows:
It is contended by First Florida that the result would be different in bankruptcy court because this Court and other bankruptcy courts have held that by virtue of the Supreme Court decision in Mackey v. Lanier Collections Agency & Service, Inc., 486 U.S. 825, 108 S.Ct. 2182, 100 L.Ed.2d 836 (1988), Fla.Stat. § 222.21(2)(a) is preempted by federal legislation, thus, the Debtor's interest in the ERISA plan would be included in his bankruptcy estate and subject to the claims of creditors, including the claim of First Florida.
It is true that this Court, and other bankruptcy courts, have, in fact, held that ERISA preempts any other legislation on the subject, and a debtor's interest in an ERISA plan cannot be exempted pursuant to Fla.Stat. § 222.21(2)(a). See Mackey, supra; In re Conroy, 110 B.R. 492 (Bankr. D.Mont.1990); In re Sellers, 107 B.R. 152 (Bankr.E.D.Tenn.1989); In re Gardner, In re Parrish, In re Palmer, 118 B.R. 860 (Bankr.M.D.Fla.1990); In re Martin, In re Langford, 119 B.R. 297 (Bankr.M.D.Fla. 1990). Based on the foregoing, First Florida urges the entry of an Order for Relief because it contends that only in a bankruptcy context could...
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