Forever Green Athletic v. , 804 F.3d 328 ( 2015 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 14-3906
In re: FOREVER GREEN ATHLETIC FIELDS, INC.,
Debtor
CHARLES C. DAWSON; KELLI DAWSON,
Appellants
_____________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civ. No. 2-14-cv-00641)
District Judge: Honorable Stewart Dalzell
_____________
Argued: July 9, 2015
Before: FUENTES, NYGAARD, and ROTH, Circuit Judges
(Opinion Filed: October 16, 2015)
Aris J. Karalis, Esq. [ARGUED]
Robert W. Seitzer, Esq.
Maschmeyer Karalis
1900 Spruce Street
Philadelphia, PA 19103
Attorneys for Debtor, Forever Green Athletic Fields, Inc.
Steven K. Eisenberg, Esq. [ARGUED]
Stern & Eisenberg
1581 Main Street
Suite 200
Warrington, PA 18976
Attorney for Appellants, Charles C. Dawson and Kelli
Dawson
Frederic J. Baker, Esq.
United States Department of Justice
Office of the Trustee
833 Chestnut Street
Suite 500
Philadelphia, PA 19107
Attorney for Trustee, Frederic J. Baker
Robert H. Holber, Esq.
41 East Front Street
Media, PA 19063
Attorney for Trustee, Robert H. Holber
2
OPINION OF THE COURT
FUENTES, Circuit Judge.
Creditors who file an involuntary bankruptcy petition
against a debtor must satisfy several statutory requirements
before obtaining relief. See 11 U.S.C. § 303. Everyone
agrees the creditors who filed the petition in this case met
those requirements. The question is whether their petition
may nonetheless be dismissed as a bad-faith filing. We hold
that bad faith provides an independent basis for dismissing an
involuntary petition. For the following reasons, we will
affirm.
I.
The parties are familiar foes. Founded by Keith Day,
Forever Green Athletic Fields sells artificial turf playing
fields. In 2005, Forever Green sued one of its competitors,
ProGreen, for $5 million for diversion of corporate assets (the
“Bucks County Action”). Charles Dawson, who is an owner
of ProGreen and a former Forever Green sales representative,
would be liable if damages are awarded in that suit.
That same year, Charles and his wife, Kelli Dawson,
sued Forever Green for unpaid commissions and wages (the
“Louisiana Action”). On March 2, 2011, after years of
litigation, the Louisiana court entered a consent judgment in
favor of the Dawsons. With interest and other costs, this
judgment now totals more than $300,000. To date, Forever
Green has not paid a penny on this judgment.
3
While the Louisiana Action was still running its
course, the parties to the Bucks County Action agreed to
arbitrate their claims. However, on March 30, 2011, just a
few weeks after the consent judgment was entered in the
Louisiana Action, ProGreen filed a motion to terminate the
arbitration. In support of this motion, ProGreen argued that
“it has become clear that [Forever Green] is insolvent” and
that Keith Day does not “have the ability or desire to pay the
Arbitrator’s fees and expenses.” Supp. App. 505. In
addition, ProGreen said that “Charles and Kelli Dawson have
a $300,000+ judgment against [Forever Green] and expect
judgments in the same amount against [Day] very soon. As
such, any monies paid as advance deposits to the Arbitrator
by [Forever Green] are subject to execution and
garnishment.” Id. The next month, the Dawsons transferred
their judgment in the Louisiana Action to Pennsylvania and
obtained a writ of execution against the arbitrator and his law
firm. At that point, with his fees in peril, the arbitrator
recognized he was adverse to the Dawsons, so he suspended
the arbitration until the fee issue was resolved.
During his deposition, Charles Dawson offered some
strategic insight into these actions. With the consent
judgment in hand, he intended to “[f]ind any available asset
that Forever Green may have and try to use the lien to seize
it.” Id. at 710. He testified, “I’m going to use that judgment
to levy any monies I can find anywhere, whether it be the
arbitrator or anyone else. So, yeah, if we can get the lien
paid, that’s my number one objective. If I can get it paid, I’m
very happy.” Id. at 711.
In response to the suspension of the arbitration,
4
Forever Green filed a complaint in state court trying to
reinstate the arbitration (the “Philadelphia Action”). Day
testified that Forever Green was forced to file this complaint
because “Charles Dawson and his counsel were determined to
derail the arbitration and this was our own legitimate response
to it.” Id. at 198. According to Day, Charles Dawson and his
counsel had “threatened to put [Forever Green] into
bankruptcy” if Forever Green did not agree to terminate the
arbitration. Id. at 199. After Forever Green commenced the
Philadelphia Action, the Dawsons’ counsel sent a letter to
Forever Green saying that the arbitration was in an “indefinite
state of suspension” and “[u]nless and until the [consent
judgment] for about $300,000.00 is paid off in full, that
indefinite state of suspension will continue.” Id. at 568.
The judge in the Philadelphia Action issued a
scheduling order for the parties to brief the issues identified in
Forever Green’s complaint. The Dawsons’ brief was due on
May 3, 2012. They never filed it. Instead, they chose a
different tack.
Two weeks before their brief was due, the Dawsons
and the law firm Cohen Seglias Pallas Greenhall & Furman,
which was owed $206,000 from Forever Green, filed an
involuntary Chapter 7 bankruptcy petition against Forever
Green. Justifying this decision, Charles Dawson said that his
counsel “suggested the best way to get to [Forever Green’s]
assets would be involuntary bankruptcy.” App. 268. It is
undisputed that the Dawsons and Cohen Seglias satisfied the
statutory criteria for commencing an involuntary bankruptcy
case because (1) they are three creditors, (2) they each hold
an uncontested claim against Forever Green, and (3) their
claims aggregate at least $15,325 more than the value of liens
5
on Forever Green’s property. See 11 U.S.C. § 303(b).
Despite the petitioning creditors’ facial compliance with the
statute, Forever Green moved to dismiss the petition as a bad-
faith filing.
The Bankruptcy Court convened an evidentiary
hearing on the motion. In addition to receiving evidence of
the parties’ course of conduct in the years leading up to the
filing, the Bankruptcy Court heard testimony about Forever
Green’s financials. It was established that Forever Green has
essentially shut down its business—in 2012, its operating
account had no activity and its balance never exceeded $30.
Forever Green’s focus has been on winding down its affairs
and recovering assets for its approximately 50 creditors. As
for the balance sheet, Forever Green has $6 million in assets,
the largest by far being its claims against ProGreen for $5
million. On the other side of the ledger, Forever Green has
$2.3 million in debts, including a $1.3 million secured line of
credit.
Although Forever Green itself has not been paying any
of its debts, Day has personally paid off hundreds of
thousands of dollars of Forever Green debt. He explained
that he has paid debts for which he had “financial personal
guarantees.” App. 256. Day acknowledged that neither he
nor Forever Green has paid anything to the Dawsons, but he
said that secured creditors and certain unsecured creditors are
ahead of them in the pecking order. Day also is personally
funding all of Forever Green’s current litigation, including
this suit and the suspended arbitration against ProGreen.
After the parties made their pitches as to whether the
petition was filed in bad faith, the Bankruptcy Court ruled in
6
Forever Green’s favor and granted the motion to dismiss. It
explained that, because bankruptcy courts are courts of
equity, a petitioning creditor (for involuntary bankruptcies) or
debtor (for voluntary bankruptcies) must come to the court for
a proper purpose. Involuntary Chapter 7 proceedings, it said,
are intended to protect creditors from debtors who are making
preferential payments to other creditors or from the
dissipation of the debtor’s assets. Creditors who file petitions
for other reasons—such as to collect on a personal debt, to
gain an advantage in pending litigation, or to harass the
debtor—act in bad faith. The Bankruptcy Court concluded
that, even though the petitioning creditors met the statutory
filing requirements, Charles Dawson was a bad-faith creditor
because he was motivated by two improper purposes: to
frustrate Forever Green’s efforts to litigate its claim against
ProGreen and to collect on a debt. The District Court
affirmed. The Dawsons (without Cohen Seglias) filed this
appeal.1
II.
We discuss three issues on appeal. First, whether an
involuntary petition may be dismissed as a bad-faith filing.
Second, whether the Bankruptcy Court erred in finding bad
1
The District Court had jurisdiction under 28 U.S.C. §
158(a)(1), and we have jurisdiction under 28 U.S.C. §§
158(d)(1) and 1291. We employ the same standard of review
over the Bankruptcy Court’s decision as that exercised by the
District Court. We review the Bankruptcy Court’s findings of
fact for clear error and its legal determinations de novo. In re
Zinchiak, 406 F.3d 214, 221-22 (3d Cir. 2005).
7
faith. And third, whether other good-faith creditors could
have cured the petition.
A.
Section 303 of the Bankruptcy Code, which governs
involuntary cases under Chapter 7 or 11, contains three
requirements for commencing an action against a debtor who
has twelve or more creditors: (1) there must be three or more
petitioning creditors; (2) each petitioning creditor must hold a
claim against the debtor that is not contingent as to liability or
the subject of a bona fide dispute; and (3) the claims must
aggregate at least $15,325 more than the value of liens on the
debtor’s property. 11 U.S.C. § 303(b)(1). It is undisputed
that the Dawsons and Cohen Seglias satisfied these three
requirements. The Code further provides that the court “shall
order relief against the debtor in an involuntary case . . . only
if . . . the debtor is generally not paying such debtor’s debts as
such debts become due.” Id. § 303(h)(1). The parties agree
Forever Green is not paying its debts.
Section 303 has one reference to bad faith. It says that
if the court dismisses an involuntary petition, it may award
damages against any creditor “that filed the petition in bad
faith.” Id. § 303(i)(2). As one might expect, because the only
mention of bad faith is in § 303(i)(2) and deals with post-
dismissal damages, the vast majority of litigation concerning
bad faith centers on that provision. In the typical case, the
creditors do not satisfy the § 303(b) requirements for filing
the petition in the first instance (e.g., fewer than three
creditors filed the petition or the creditors’ claims were
subject to bona fide disputes). Following dismissal, debtors
8
invariably file motions for damages under § 303(i)(2),
arguing the petition was filed in bad faith.2
Less often litigated is the issue here, namely, whether
bad faith may serve as a basis for dismissal even where the
criteria for commencing a suit are satisfied and where the
debtor is admittedly not paying its debts as they become due.
According to the Dawsons, we cannot engage in a bad-faith
inquiry in these circumstances. They say a creditor’s
subjective motivations are irrelevant because § 303(b)(1)
contains objective criteria for who may file an involuntary
petition, and if they are satisfied, § 303(h)(1) provides that the
court “shall order relief” against a debtor who is not paying
its debts. Some courts have been receptive to this position.3
2
See, e.g., In re John Richards Homes Bldg. Co., 439 F.3d
248, 257 (6th Cir. 2006); In re Bayshore Wire Prods. Corp.,
209 F.3d 100, 102-03 (2nd Cir. 2000); In re Express Car &
Truck Rental, Inc., 440 B.R. 422, 433 (Bankr. E.D. Pa. 2010);
In re Skyworks Ventures, Inc., 431 B.R. 573, 578-79 (Bankr.
D.N.J. 2010); In re Silverman, 230 B.R. 46, 49 (Bankr. D.N.J.
1998).
3
See, e.g., In re WLB-RSK Venture, No. BAP CC-03-1526-
MOPMA, 2004 WL 3119789, at *6 n.13 (B.A.P. 9th Cir.
Nov. 24, 2004) (“Section 303 sets forth the standards for
granting or denying an order for relief on an involuntary
petition. If the grounds for relief exist under section 303, the
good or bad faith of the petitioning creditor appears
irrelevant . . . .”); In re Knoth, 168 B.R. 311, 315 (D.S.C.
1994) (“[T]he motivation of the petitioning creditors is
irrelevant on the question of whether the involuntary petition
should be granted.”).
9
Section 303, furthermore, discusses bad faith only in the
context of assessing damages after a petition has been
dismissed. If Congress wanted bad faith to be a separate
basis for dismissal, one could argue, the Code would have
included language to that effect. And although this Court has
repeatedly held that a voluntary petition may be dismissed for
bad faith, the provisions of the Code at issue in those cases
permitted dismissal for “cause.”4 Section 303, by contrast,
does not have any similar statutory hook for allowing bad-
faith dismissals. Congress must have intended something by
this distinction, the argument goes.
We disagree that the text of § 303 forecloses bad-faith
dismissals. The Dawsons make much of the fact that they
satisfied § 303(b)(1)’s three requirements for commencing an
involuntary petition. But meeting the § 303(b)(1) criteria,
like pleading a prima facie case in many actions, is just the
first hurdle. It does not bear on other defenses that may
support dismissal. In other words, if the three filing
requirements are not satisfied, we agree the bankruptcy court
must dismiss the case; but if the three requirements are
satisfied, that doesn’t mean the bankruptcy court can’t
4
See, e.g., In re Myers, 491 F.3d 120, 125 (3d Cir. 2007) (“A
bankruptcy filing made in bad faith may be dismissed ‘for
cause’ under 11 U.S.C. § 1307(c).”); In re Tamecki, 229 F.3d
205, 207 (3d Cir. 2000) (“Section 707(a) allows a bankruptcy
court to dismiss a petition for cause if the petitioner fails to
demonstrate his good faith in filing.”); In re SGL Carbon
Corp., 200 F.3d 154, 162 (3d Cir. 1999) (holding that a
“Chapter 11 petition is subject to dismissal for ‘cause’ under
11 U.S.C. § 1112(b) unless it is filed in good faith”).
10
dismiss the case.
The one reference to bad faith in § 303 supports our
conclusion. Section 303(i)(2) allows a bankruptcy court to
award damages following dismissal against “any petitioner
that filed the petition in bad faith.” Under the Dawsons’
reading, courts may engage in a bad-faith inquiry only after
they have dismissed a case for the creditors’ failure to comply
with the statutory filing requirements. We see no reason why
the Code would permit the imposition of damages (including
punitive damages) for bad-faith filings but not allow the same
conduct—such as using involuntary bankruptcy as a litigation
tactic in pending proceedings—to provide a basis for
dismissing the petition. The better view is that, by including
an express reference to bad faith in § 303, Congress intended
for bad faith to serve as a basis for both dismissal and
damages.
Section 303(h)(1), moreover, does not provide that a
bankruptcy court “shall order relief” against a debtor who is
not paying its debts. Rather, the court shall order relief “only
if” the debtor is not paying its debts, meaning a debtor not
paying its debts is a necessary but not sufficient condition for
ordering relief. An “if” or “if and only if” clause would have
been more favorable to the Dawsons.
The bigger flaw in the Dawsons’ argument is that it
overlooks the equitable nature of bankruptcy. Time and
again, we have emphasized that “good faith” filing
requirements have “strong roots in equity.” In re SGL
Carbon, 200 F.3d at 161; see also In re Tamecki, 229 F.3d at
207. “At its most fundamental level, the good faith
requirement ensures that the Bankruptcy Code’s careful
11
balancing of interests is not undermined by petitioners whose
aims are antithetical to the basic purposes of bankruptcy.” In
re Integrated Telecom Express, Inc., 384 F.3d 108, 119 (3d
Cir. 2004). As courts of equity, bankruptcy courts are
equipped with the doctrine of good faith so that they can
patrol the border between good- and bad-faith filings. See In
re SGL Carbon, 200 F.3d at 161; In re Little Creek Dev. Co.,
779 F.2d 1068, 1072 (5th Cir. 1986) (explaining that the
“good faith” requirement protects the “integrity of the
bankruptcy courts by rendering their powerful equitable
weapons . . . available only to those debtors and creditors
with ‘clean hands’”). We will not depart from this general
“good faith” filing requirement in the context of involuntary
petitions for bankruptcy. The majority of courts agree.5
5
See, e.g., In re U.S. Optical, Inc., No. 92-1496, 1993 WL
93931, at *3 (4th Cir. Apr. 1, 1993) (unpublished) (“Courts
are duty bound to conduct an inquiry, if requested, to
determine whether an involuntary petition has been filed in
good faith. Bad faith filings are to be dismissed.” (citations
omitted)); In re Bock Transp., Inc., 327 B.R. 378, 381 (B.A.P.
8th Cir. 2005) (“A bad faith filing can also be cause for the
dismissal of a[n] [involuntary] petition.”); In re Tichy Elec.
Co., 332 B.R. 364, 373 (N.D. Iowa 2005) (same); In re
Alexander, No. 00-10500, 2000 WL 33951465, at *3 (D. Vt.
Aug. 29, 2000) (“[I]nvoluntary petitions filed in bad faith
should be dismissed.”); In re Manhattan Indus., Inc., 224
B.R. 195, 201 (Bankr. M.D. Fla. 1997) (“Section 303(b) of
the Bankruptcy Code does not expressly refer to good faith
filings. Involuntary filings must be made in good faith and
consequences flow if they are not. Dismissal is one possible
consequence.”).
12
Policy considerations lend further support to this
conclusion. “[T]he filing of an involuntary petition is an
extreme remedy with serious consequences to the alleged
debtor, such as loss of credit standing, inability to transfer
assets and carry on business affairs, and public
embarrassment.” In re Reid, 773 F.2d 945, 946 (7th Cir.
1985). Given these serious consequences, courts should be
wary of creditors who may find alluring the “retributive
quality” of thrusting a debtor into bankruptcy.6 Allowing for
the dismissal of bad-faith filings will encourage creditors to
file petitions for proper reasons such as to protect against the
preferential treatment of other creditors or the dissipation of
the debtor’s assets. See In re Silverman, 230 B.R. at 53.
Accordingly, we hold that an involuntary petition filed under
11 U.S.C. § 303 may be dismissed for bad faith.
B.
We review the decision to dismiss the case as a bad-
faith filing for abuse of discretion. In re Myers, 491 F.3d at
125. The determination of bad faith is “a fact intensive
6
Brad E. Godshall & Peter M. Giluhy, The Involuntary
Bankruptcy Petition: The World’s Worst Debt Collection
Device?, 53 Bus. Law. 1315, 1315 (Aug. 1998); see also
David S. Kennedy et al., The Involuntary Bankruptcy
Process: A Study of the Relevant Statutory and Procedural
Provisions and Related Matters, 31 U. Mem. L. Rev. 1, 58
(Fall 2000) (explaining that creditors should not “invoke the
involuntary bankruptcy process . . . based on personal whim
or vindictiveness seeking to collect an unpaid debt”).
13
determination better left to the discretion of the bankruptcy
court.” In re Lilley, 91 F.3d 491, 496 (3d Cir. 1996) (citations
omitted). In terms of allocating burdens of proof, creditors
are presumed to have acted in good faith. See In re Bayshore,
209 F.3d at 105. To dismiss the petition, the debtor must
show by a preponderance of the evidence that the creditors
acted in bad faith. In re Petralex Stainless Ltd., 78 B.R.
7389, 743 (Bankr. E.D. Pa. 1987).
At the outset, we must decide on the standard for
evaluating bad faith, which is not defined in the Code. On
this issue, courts have applied a dizzying array of standards,
mostly with regard to post-dismissal motions for damages
under § 303(i)(2). See In re Bayshore, 209 F.3d at 105-06
(reviewing different standards); Gen. Trading Inc. v. Yale
Materials Handling Corp., 119 F.3d 1485, 1501-02 (11th Cir.
1997) (same). Some courts, for instance, apply an “improper
use” test, which asks whether a “petitioning creditor uses
involuntary bankruptcy procedures in an attempt to obtain a
disproportionate advantage for itself, rather than to protect
against other creditors obtaining disproportionate advantages,
particularly when the petitioner could have advanced its own
interest in a different forum.” In re K.P. Enter., 135 B.R.
174, 179 n.14 (Bankr. D. Me. 1992) (internal quotation marks
omitted). Other courts apply an “improper purpose” test,
which looks to whether the filing “was motivated by ill will,
malice, or a desire to embarrass or harass the alleged debtor.”
In re Bayshore, 209 F.3d at 105. Still others apply an
“objective test,” which assesses what a reasonable person
would have believed and what a reasonable person would
have done in the creditor’s position. In re Wavelength, Inc.,
61 B.R. 614, 620 (B.A.P. 9th Cir. 1986). And yet other
courts have applied a broad “totality of the circumstances”
14
standard, which effectively combines all the tests and looks to
both subjective and objective evidence of bad faith. In re
John Richards, 439 F.3d at 255 n.2.
We adopt the “totality of the circumstances” standard
for determining bad faith under § 303. This standard is most
suitable for evaluating the myriad ways in which creditors
filing an involuntary petition could act in bad faith. It also is
the same standard we apply when reviewing allegations that a
debtor filed a voluntary petition in bad faith. See In re Myers,
491 F.3d at 125; In re Lilley, 91 F.3d at 496. In conducting
this fact-intensive review, courts may consider a number of
factors, including, but not limited to, whether: the creditors
satisfied the statutory criteria for filing the petition; the
involuntary petition was meritorious; the creditors made a
reasonable inquiry into the relevant facts and pertinent law
before filing; there was evidence of preferential payments to
certain creditors or of dissipation of the debtor’s assets; the
filing was motivated by ill will or a desire to harass; the
petitioning creditors used the filing to obtain a
disproportionate advantage for themselves rather than to
protect against other creditors doing the same; the filing was
used as a tactical advantage in pending actions; the filing was
used as a substitute for customary debt-collection procedures;
and the filing had suspicious timing.
Looking at the totality of the circumstances, we
conclude that the Bankruptcy Court did not abuse its
discretion in finding that Charles Dawson filed the
involuntary petition in bad faith. In the Bankruptcy Court’s
view, “Dawson’s prepetition conduct indicates that his
litigation strategy was to use any means necessary to force the
payment of the Consent Judgment and the abandonment of
15
Forever Green’s claims against [ProGreen].” In re Forever
Green Athletic Fields, Inc., 500 B.R. 413, 427 (Bankr. E.D.
Pa. 2013). In the weeks after Dawson obtained the consent
judgment in the Louisiana Action, he filed a motion to
terminate Forever Green’s arbitration proceedings against
ProGreen, which arose from the separate Bucks County
Action and sought $5 million in damages. Light on
meritorious arguments, Dawson’s plan was to use the consent
judgment to garnish the arbitrator’s fees, thereby forcing the
arbitrator to halt the arbitration. Dawson and his counsel said
they would keep the arbitration suspended until Forever
Green paid on the consent judgment. They also threatened to
file an involuntary petition unless Forever Green agreed to
stop the proceedings. Keeping his word, Dawson filed an
involuntary petition after Forever Green tried to reinstate the
arbitration.
As the Bankruptcy Court found, Dawson’s actions ran
counter to the spirit of collective creditor action that should
animate an involuntary filing. He put his own interests above
all others. By trying to end the arbitration, Dawson was
obstructing Forever Green from pursuing its largest asset, the
potential proceeds of which Forever Green could have used to
pay its creditors. He was also using the bankruptcy process to
exert pressure on Forever Green to pay the consent judgment
without regard to Forever Green’s other creditors, many of
which had higher priority claims. Courts routinely find it
improper for creditors to use the bankruptcy courts to gain a
personal advantage in other pending actions or as a debt-
16
collection device.7
Nor is there any evidence that Dawson engaged in the
type of due diligence and sober decision-making process that
should precede any involuntary filing. Instead, the suspicious
timing of Dawson’s filing—days before his responsive brief
was due in the Philadelphia Action—and his threatening
comments to Day suggest he was just using bankruptcy as an
alternative weapon for stopping the arbitration and cashing in
on the consent judgment. If Dawson had done an
investigation prior to filing, he would have learned that
Forever Green was not making preferential payments to its
creditors. Although Day was using his personal assets to pay
some of Forever Green’s creditors who also happened to be
his creditors, the Dawsons offer no argument as to why we
should attribute these payments to Forever Green. Further
absent from the record is any evidence of Forever Green’s
7
See, e.g., In re Nordbrock, 772 F.2d 397, 400 (8th Cir.
1985) (“A creditor does not have a special need for
bankruptcy relief if it can go to state court to collect a debt.”);
In re Tichy, 332 B.R. at 374 (“Bad faith has been found to
exist when a creditor’s actions amount to an improper use of
the Bankruptcy Code as a substitute for customary collection
procedures.”); In re WLB-RSK Venture, 296 B.R. 509, 515
(Bankr. C.D. Cal. 2003) (“[Creditor] filed this involuntary
petition against the alleged debtor as a litigation tactic . . . .”);
In re Silverman, 230 B.R. at 53 (“Filing an involuntary
petition with the intent to gain a strategic advantage . . .
constitutes an improper purpose.”); In re Dami, 172 B.R. 6,
10 (Bankr. E.D. Pa. 1994) (“Where the purpose of the
bankruptcy filing is to defeat state court litigation without a
[bankruptcy] purpose, bad faith exists.”).
17
assets depleting. The only supposed evidence of asset
dissipation is Forever Green’s prosecution of its claims
against ProGreen. But Forever Green is not even footing the
bill for any of its litigation—Day is. And more importantly,
as the Bankruptcy Court said, it is difficult to “credit[] the
notion that the pursuit of Forever Green’s only asset that may
yield a meaningful recovery to its creditors can be
characterized as a dissipation of estate assets. To the
contrary, the very act of prosecuting this claim would be
instrumental to the marshaling of assets integral to any
bankruptcy administration.” In re Forever Green, 500 B.R. at
429-30. Accordingly, the record supports the Bankruptcy
Court’s decision to dismiss the petition as a bad-faith filing.
C.
The Dawsons’ final argument is that, even if Charles
Dawson acted in bad faith, other good-faith creditors should
have been given the chance to cure the petition. This
argument arises from 11 U.S.C. § 303(c), which provides that
“[a]fter the filing of a petition . . . but before the case is
dismissed or relief is ordered” other creditors may join the
petition. This provision provides for joinder of creditors as a
matter of right. See In re FKF Madison Park Grp. Owner,
LLC, 435 B.R. 906, 907-08 (Bankr. D. Del. 2010).
An interesting question percolating in the courts is the
application of the so-called “bar to joinder” rule. Under this
rule, a petition that was filed in bad faith cannot be saved by
joining good-faith creditors under § 303(c) prior to dismissal.
Most courts find this type of curing impermissible and would
18
dismiss such a petition.8 A growing minority, however, find
this rule unjustified because it blindly lumps good- and bad-
faith filers together and needlessly punishes everyone.9 The
Dawsons would like us to adopt the latter view and allow
their petition to be cured.
We need not take a stance on this issue because, even
if we found the “bar to joinder” rule misguided, it is too late
for any creditor to save the petition. The text of § 303(c)
allows creditors to join a petition “before the case is
dismissed.” In the cases discussing the “bar to joinder” rule,
creditors actually sought to join the involuntary petition prior
to dismissal. The courts had to decide whether to dismiss the
petition because of a bad-faith creditor even though other
creditors, if allowed to join, could have cured the
deficiencies. By contrast, there is no evidence here that any
creditor tried to join the petition before the case was
8
See, e.g., Basin Elec. Power Coop. v. Mw. Processing Co.,
769 F.2d 483, 486 (8th Cir. 1985); In re Mylotte, David &
Fitzpatrick, No. 07-11861, 2007 WL 2033812, at *9 (Bankr.
E.D. Pa. July 12, 2007); In re R & A Bus. Assocs., Inc., No.
99-2171, 1999 WL 820859, at *2 (E.D. Pa. Oct. 14, 1999); In
re Centennial Ins. Assocs., Inc., 119 B.R. 543, 546-47 (Bankr.
W.D. Mich. 1990).
9
See, e.g., Fetner v. Haggerty, 99 F.3d 1180, 1181 (D.C. Cir.
1996) (per curiam); In re Hrobuchak, No. 5-14-bk-02098-
JJT, 2015 WL 1651074, at *1 (Bankr. M.D. Pa. Apr. 8,
2015); In re Houston Reg’l Sports Network, L.P., 505 B.R.
468, 477 (Bankr. S.D. Tex. 2014); In re FKF, 435 B.R. at
908; In re Kidwell, 158 B.R. 203, 207 (E.D. Cal. 1993).
19
dismissed, leaving only two good-faith creditors when the
statute requires three. And there was plenty of time for Kelli
Dawson or Cohen Seglias to recruit other potentially curing
creditors—approximately nine months lapsed between the
hearing on the motion to dismiss and the issuance of the
Bankruptcy Court’s decision. Section 303(c), therefore,
provides no aid to the Dawsons. See In re DSC, LTD., 486
F.3d 940, 948 (6th Cir. 2007) (explaining that the language of
§ 303(c) “means that a would-be joining creditor must join, if
at all, before the Court has dismissed an involuntary petition.”
(internal quotation marks omitted)).
III.
For the foregoing reasons, we will affirm the order of
the District Court.
20