In re Trusted Net Media Holdings, LLC
| Decision Date | 23 April 2008 |
| Docket Number | No. 07-13429.,07-13429. |
| Citation | 525 F.3d 1095 |
| Parties | In Re: TRUSTED NET MEDIA HOLDINGS, LLC, Debtor. Trusted Net Media Holdings, LLC, Plaintiff-Appellant, v. The Morrison Agency, Inc., Defendant-Appellee. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Ralph Goldberg, Decatur, GA, for Plaintiff-Appellant.
Michael James King, Greenberg, Traurig, LLP, Atlanta, GA, for Defendant-Appellee.
Appeal from the United States District Court for the Northern District of Georgia.
Before HULL and WILSON, Circuit Judges, and ALBRITTON,* District Judge.
This appeal presents the question of whether 11 U.S.C. § 303(b)'s requirements for filing an involuntary bankruptcy petition are subject matter jurisdictional in nature. Both the district court and the bankruptcy court held that they are not. Our precedent, though, says otherwise. Thus, although we believe our precedent should be reexamined, we must reverse.
Appellee The Morrison Agency, Inc. ("Morrison") is a creditor of Appellant Trusted Net Media Holdings, LLC ("Trusted Net"). On April 20, 2002, Morrison, as a creditor, filed an involuntary bankruptcy petition against its debtor Trusted Net, requesting liquidation of Trusted Net's assets pursuant to Chapter 7 of the Bankruptcy Code. Morrison's petition listed Morrison as the only petitioning creditor of Trusted Net, and described Morrison's claim against Trusted Net as "Trade Debt/Judgment" in an amount "[n]ot less than [$]534,000.00."
Morrison's involuntary petition stated that Morrison was "eligible to file this petition pursuant to 11 U.S.C. § 303(b)." As described in more detail below, § 303(b) permits the commencement of an involuntary bankruptcy case against a debtor (1) by three or more creditors holding non-contingent, undisputed claims against that debtor, or (2) by a single holder of a non-contingent, undisputed claim if there are fewer than twelve such creditors of the debtor. At the time Morrison filed its involuntary petition against Trusted Net, § 303(b) also required that the petitioning creditor(s)' non-contingent, undisputed claims against the debtor aggregate at least $11,625 (the threshold sum is now $13,475). See 11 U.S.C. § 303(b) (2008); 11 U.S.C. § 303(b) (2001).
The debtor Trusted Net, whose assets were at that time under the control of a state-court-appointed receiver, filed no response to Morrison's involuntary petition. Accordingly, the bankruptcy court entered an Order for Relief on May 15, 2002 and appointed a Chapter 7 trustee. The trustee marshaled Trusted Net's assets in preparation for liquidation.
The bankruptcy case proceeded through administration for two years. In April 2004, David W. Huffman, an officer and controlling member of Trusted Net, filed a motion to dismiss the case. Huffman was also a creditor of Trusted Net as to his deferred salary. Huffman's motion to dismiss argued, among other things, that Morrison's petition violated § 303(b) in two ways: (1) Morrison's claim against Trusted Net was subject to a bona fide dispute, and therefore Morrison did not hold a non-contingent, undisputed claim against the debtor; and (2) Morrison's single-creditor petition was insufficient because Trusted Net had twelve or more creditors holding non-contingent, undisputed claims. Huffman argued that the involuntary petition's failure to satisfy § 303(b) divested the bankruptcy court of subject matter jurisdiction. The Chapter 7 trustee opposed the motion. The bankruptcy court conducted a hearing and, on May 13, 2004, denied Huffman's motion to dismiss. No appeal was taken from the bankruptcy court's denial of Huffman's motion to dismiss.
Another two years later, in April 2006, five of Trusted Net's creditors, including Morrison (but not including Huffman), settled with the trustee as to the amount of their respective claims. Huffman objected to the settlement of the claims of three of the creditors, including Morrison. On July 14, 2006, the bankruptcy court overruled Huffman's objections and approved the settlements.
Shortly thereafter, and more than four years after commencement of the case, Trusted Net (through counsel retained at Huffman's behest) filed a motion to dismiss the entire bankruptcy case for lack of subject matter jurisdiction. Similar to Huffman's motion two years earlier, Trusted Net argued that § 303(b)'s requirements must be met for the bankruptcy court to have subject matter jurisdiction, and that Morrison's petition violated § 303(b) because: (1) at the time it filed its involuntary petition, Morrison was not the holder of a non-contingent, undisputed claim, and (2) Morrison's involuntary Chapter 7 petition was not joined by three holders of non-contingent, undisputed claims.
On October 10, 2006, the bankruptcy court denied Trusted Net's motion to dismiss. With regard to Trusted Net's subject matter jurisdiction argument, the bankruptcy court held that § 303(b) of the Bankruptcy Code was not jurisdictional and that "any argument by the Debtor that the petitioning creditor's claims are the subject of a bona fide dispute or that more than one petitioning creditor was required to put this Debtor into bankruptcy has been waived."
Trusted Net appealed the bankruptcy court's ruling to the district court. The district court affirmed without elaboration, finding the bankruptcy court's order to be "thorough, well-reasoned, and correct in every respect." Trusted Net appealed to this Court.
In this appeal, Trusted Net does not contest the bankruptcy court's finding that Trusted Net, through its four-year delay, waived its arguments that Morrison's claims are subject to bona fide dispute and that more than one petitioning creditor was required. Rather, Trusted Net raises a single jurisdictional claim: that these requirements in § 303(b) are subject matter jurisdictional, and thus cannot be waived.
In bankruptcy appeals, this Court independently examines the factual and legal findings of the bankruptcy court using the same standards as did the district court. In re Elec. Mach. Enters., 479 F.3d 791, 795 (11th Cir.2007). Where, as here, we review the bankruptcy court's legal determinations, we do so de novo. Id.
The issue Trusted Net raises—whether 11 U.S.C. § 303(b)'s requirements for the filing of an involuntary bankruptcy petition must be met to bestow upon the bankruptcy court subject matter jurisdiction—has divided the circuits and lower courts that have considered it. We approach the issue by first setting forth the statutory framework for bankruptcy court jurisdiction and the commencement of involuntary bankruptcy cases. We then discuss briefly the split in authority on the issue and, finally, the case of In re All Media Properties, Inc., 646 F.2d 193 (5th Cir. Unit A May 1981), aff'g 5 B.R. 126 (Bankr.S.D.Tex. 1980), which Trusted Net contends settles the issue for this circuit.
Congress established the jurisdiction of the bankruptcy courts in Title 28. Kontrick v. Ryan, 540 U.S. 443, 453, 124 S.Ct. 906, 914, 157 L.Ed.2d 867 (2004). Section 1334 of Title 28 provides that "the district courts shall have original and exclusive jurisdiction of all cases under title 11 [the Bankruptcy Code]," and "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(a)-(b).
Section 151 of Title 28 provides that the bankruptcy courts are "a unit of the district court." 28 U.S.C. § 151. Pursuant to 28 U.S.C. § 157(a), "[e]ach district court may provide that any or all cases under title 11 [the Bankruptcy Code] and any or all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for the district." 28 U.S.C. § 157(a). Section 157(b)(1) further provides that bankruptcy courts "may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11, referred under subsection (a) of this section, and may enter appropriate orders and judgments, subject to [appellate] review" by the district court. 28 U.S.C. § 157(b)(1).1 Thus, bankruptcy court jurisdiction exists, by reference from the district courts, "in three categories of proceedings: those that `arise under title 11,' those that `arise in cases under title 11,' and those `related to cases under title 11.'" In re Toledo, 170 F.3d 1340, 1344 (11th Cir.1999) (citation omitted); see also In re Atlanta Retail, Inc., 456 F.3d 1277, 1287 (11th Cir.), cert. denied, ___ U.S. ___, 127 S.Ct. 836, 166 L.Ed.2d 676 (2006).
In turn, Title 11, the Bankruptcy Code, contains nine chapters. Chapter 7, governing liquidation, is the substantive chapter operative in this case, and § 303(b), the procedural statute at issue, is contained in Chapter 3, entitled Case Administration.2 Further, Chapter 3 of Title 11 is divided into four subchapters, including Subchapter I, entitled "Commencement of a Case." See 11 U.S.C. §§ 301-308. Sections 301 and 302 of Subchapter I concern the commencement of, respectively, voluntary bankruptcy cases and joint cases filed by a debtor and his or her spouse. See 11 U.S.C. §§ 301-302. Section 303 of Subchapter I, at issue here, addresses the commencement of involuntary cases. See 11 U.S.C. § 303.
Although bankruptcy cases are often commenced on the debtor's own initiative, "Section 303 of the Bankruptcy Code allows creditors in some instances to hale a debtor into bankruptcy court by filing an involuntary petition." 2 William L. Norton, Jr. & William L. Norton III, Norton Bankruptcy Law & Practice § 22:1 (3d ed.2008). Section 303(a) provides that "[a]n involuntary case may be commenced only under chapter 7 or 11 of this title, and only against a person . . . that may be a debtor under the chapter under which such case is commenced." 11 U.S.C. § 303(a). Section 303(b), the...
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