Delaware Bankruptcy Court Sidesteps Decision on “Novel” Bar to Joinder Doctrine; Movant Failed to Demonstrate Bad Faith For Involuntary Chapter 7 Petition

In re Luxeyard, Inc., 556 B.R. 627 (Bankr. D. Del. 2016)

Declining to opine upon the “bar to joinder doctrine,” the Delaware Bankruptcy Court in this Opinion applied the Third Circuit’s “totality of the circumstances” bad faith test to deny a motion to bar the joinder of additional petitioners to an involuntary petition under Section 303(c) of the Bankruptcy Code.  Simply put, the Debtor did not carry its burden to show there was a bad faith filing, and therefore, the Court need not consider the bar to joinder doctrine.

Jinsun, LLC (“Jinsun”), whose sole manager and employee is Kevin Casey,… Read More

Commencing an Involuntary Just Got Riskier – Petitioning Creditors May Face State Law Damages in Addition to Those Under Bankruptcy Code Section 303(i)

Rosenberg v. DVI Receivables XVII, LLC, No. 15-2622, 2016 WL 4501675 (3d Cir. Aug. 29, 2016)

In this federal preemption Opinion, the Third Circuit Court of Appeals held that section 303(i) of the Bankruptcy Code does not preempt state law claims by non-debtors for damages based on the filing of an involuntary bankruptcy petition.  The Court did not, however, opine on whether section 303(i) preempts state law claims brought by debtors.

The appeal originated from a 2008 involuntary bankruptcy proceeding commenced against Maury Rosenberg and his affiliated businesses.  The petition was dismissed and Mr. Rosenberg recovered fees, costs, and $6 million… Read More

Court Dismisses Involuntary Chapter 11 Case on Findings of Bad Faith and Failure to Meet Standards under Section 303

In re Metrogate, LLC, No. 15-12593 (KJC), 2016 WL 3150177 (Bankr. D. Del. May 26, 2016), (with note regarding In re Diamondhead Casino Corp., No. 15-11647 (LSS), 2016 WL 3284674 (Bankr. D. Del. June 7, 2016))

In this Opinion, the Delaware Bankruptcy Court dismissed an involuntary chapter 11 case against Metrogate, LLC f/k/a Advance Realty Group, LLC (“Metrogate”) on findings that it failed to meet the standards under section 303 of the Bankruptcy Code and was filed in bad faith.  Judge Kevin J. Carey’s ruling clarified statutory requirements under section 303 and confirmed bad faith as an independent ground… Read More

Petitioning Creditors Cannot Meet High Burden For “Extreme Remedy” of Appointment of Interim Trustee

In re Diamondhead Casino Corp., 540 B.R. 459 (Bankr. D. Del. Nov. 13, 2015)

In this Memorandum Opinion, Judge Silverstein of Delaware’s Bankruptcy Court held, on a limited record, that the petitioning creditors did not met their burden of proof to show that an interim trustee is necessary during the “gap period”—that is, the period between the filing of the involuntary case and the Court’s decision on whether to enter an order for relief.  In so holding, the Court relied primarily on the undisputed facts that debtor Diamondhead Casino Corporation (“Diamondhead”) is (and has been) a non-operating entity… Read More

Third Circuit Holds That Bad Faith Determined by the Totality of the Circumstances Provides an Independent Basis for Dismissing an Involuntary Petition

In re Forever Green Athletic Fields, Inc., No. 14-3906, 2015 WL 6080665 (3d Cir. Oct. 16, 2015)

Despite no dispute that the petitioning creditors satisfied the statutory requirements for commencing an involuntary chapter 7 proceeding under section 303(b)(1) of the Bankruptcy Code and that the putative debtor was not paying its debts as they came due, this precedential Opinion of the Third Circuit Court of Appeals adopted the “totality of the circumstances” standard for determining bad faith under section 303 and affirmed the decisions of the lower courts that dismissed the proceeding as a bad faith filing.

In ruling so,… Read More