Vibe Micro, Inc. v. SIG Capital, LLC, No. 17-16277 (9th Cir. 2019)
Annotate this CaseA 50% shareholder of an involuntary debtor may not seek damages under 11 U.S.C. 303(i). The Ninth Circuit affirmed the district court's decision affirming the bankruptcy court's denial of a request for statutory damages made by a 50% shareholder, holding that it did not have standing under section 301(i) because it was not the debtor. In this case, relevant House and Senate Reports suggest that only the debtor has standing to seek section 303(i) damages; appellate courts in this circuit have twice considered whether a non-debtor can seek damages under section 303(i), and twice those courts have decided it cannot; and reading section 303(i) to permit only the debtor to seek damages is consistent with its purpose and the policy interests underlying it.
Court Description: Bankruptcy. The panel affirmed the district court’s decision affirming the bankruptcy court’s denial of a request for statutory damages made by a 50% shareholder in an involuntary debtor following dismissal of the bankruptcy case. The panel held that the shareholder lacked standing to seek damages under 11 U.S.C. § 303(i) because it was not the debtor. Dissenting, Judge Bennett wrote that Miles v. Okun (In re Miles), 430 F.3d 1083 (9th Cir. 2005), holding that a third party could not seek damages under § 303(i), was not dispositive, and the shareholder did not lack standing to seek damages and attorneys’ fees that would be awarded to the debtor, regardless of the debtor’s ability to defend itself in the bankruptcy action, and notwithstanding that the shareholder actually obtained a dismissal on behalf of the debtor.
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