In re: Georges Marciano, et al v. Steven Chapnick, et al, No. 11-60070 (9th Cir. 2013)
Annotate this CaseIn this appeal, appellant principally argued that, because the judgments obtained by the Petitioning Creditors were on appeal when the involuntary petition was filed, the bankruptcy court should have dismissed the petition as not meeting the requirements of section 303(b)(1) of the Bankruptcy Code. First, the court held that the bankruptcy court did not err in denying appellant's motion to dismiss for defective service of process. The court then held that an unstayed non-default state judgment was not subject to bona fide dispute for purposes of section 303(b)(1). Therefore, the bankruptcy court did not err in finding that the Petitioning Creditors held claims meeting the requirements of section 303(b)(1). Finally, the bankruptcy court did not abuse its discretion in concluding that further discovery would have been unlikely to produce any evidence material to the pending summary judgment motions. Accordingly, the court affirmed the judgment.
Court Description: Bankruptcy. Affirming the bankruptcy court’s summary judgment, the panel held that an involuntary bankruptcy petition met the requirements of 11 U.S.C. § 303(b)(1) even though the judgments obtained by the petitioning creditors were on appeal when the petition was filed. Following the “Drexler” rule, and declining to follow the approach of the Fourth Circuit, the panel held that an unstayed state judgment on appeal is per se a “claim against [the debtor] that is not contingent as to liability or the subject of a bona fide dispute as to liability or amount,” and thus meets the requirements of § 303(b)(1) for the claims of petitioning creditors. The panel also held that service of the summons and complaint was proper, and the bankruptcy court did not err in entering an order precluding discovery as to the petitioning creditors’ alleged bad faith in filing the involuntary petition. Dissenting, Judge Ikuta wrote that the majority’s adoption of a per se rule for claims arising from certain state court judgments created a circuit split, was contrary to In re Vortex Fishing Sys., Inc., 277 F.3d 1057 (9th Cir. 2001), and erased a protection given to debtors under the Bankruptcy Code.
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