Opinion
Case No. 06-13062.
January 8, 2007
MEMORANDUM OF DECISION ON ORDER FOR RELIEF
Presently before the Court is an involuntary petition filed by Business Information Solutions, Inc. ("BIS"). Furnier Thomas, LLP ("F T") filed an answer, contesting the involuntary petition. A trial was held on November 20, 2006. At the trial, F T raised the following defenses: (1) the debt that F T allegedly owes BIS is disputed; and (2) F T is generally paying its debts as they become due. See 11 U.S.C. § 303(b) (h)(1). For the reasons that follow, the Court finds that the entry of an order for relief is warranted.
The petition was filed after the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA").
BONA FIDE DISPUTE
BIS contends that it is eligible to file the involuntary petition under 11 U.S.C. § 303(b)(2). Because F T has not filed a list of creditors, pursuant to Fed.R.Bankr.P. 1003(b), it cannot contest the sufficiency of the number of petitioners. See In re Bowshier, 313 B.R. 232, 240-41 (Bankr. S.D. Ohio 2004) (Walter, J.) (debtors who did not file a list of creditors waived any defense regarding the number of petitioning creditors). Thus, the only contested issue under § 303(b)(2) is whether the claim of BIS is "the subject of a bona fide dispute as to liability or amount."
Section 303(b) provides, in relevant part:
An involuntary case against a person is commenced by the filing with the bankruptcy court of a petition under chapter 7 . . . of this title —
(1) by three or more entities, each of which is either a holder of a claim against such person that is not contingent as to liability or the subject of a bona fide dispute as to liability or amount . . . if such noncontingent, undisputed claims aggregate at least $12,300 more than the value of any lien on property of the debtor securing such claims held by the holders of such claims;
(2) if there are fewer than 12 such holders, . . . by one or more of such holders that hold in the aggregate at least $12,300 of such claims[.]
BIS holds a state court judgment against F T in the amount of $75,656.80 for attorney's fees and costs. See Ex. M. F T did not appeal the judgment. See Ex. 4. It did seek to vacate the judgment. See Ex. E. However, the state court denied F T's motion to vacate. See Ex. F. F T did not appeal the denial of its motion to vacate. See Ex. 4.
Although it appears as though F T has exhausted its options for disputing the judgment, it takes the position that the claim is still disputed. F T asserts that because BIS currently seeks to supplement the judgment with additional fees and that because F T opposes that relief, the claim of BIS remains the subject of a bona fide dispute. See Exs. 1 2. It is unclear from BIS's state court pleading whether it seeks to modify its $75,656.80 judgment or merely seeks an additional judgment. See Ex. 1. However, the only fact that is material to the § 303(b)(2) analysis is whether F T disputes that BIS is the holder of a claim of at least $12,300. See In re Demirco Holdings, Inc., No. 06-70122, 2006 WL 1663237, at *3 (Bankr. C.D. Ill. June 9, 2006) (under BAPCPA, a bona fide dispute does not arise unless the dispute has the potential to reduce the total of the petitioners' claims below the statutory threshold).
F T does not dispute that it owes BIS at least $75,656.80. This is evident from the following discussion that the Court had with F T's counsel at the hearing.
Court: Don't you concede that at least a portion of the amount has been identified?
Counsel: Yes.
. . .
Court: The fact that they are trying to amend that to increase it doesn't bring the whole $75,000 in dispute.
Counsel: That's correct. I think the base is $75,000.
Because F T concedes that the judgment would only increase, if modified, the Court concludes that there is no bona fide dispute under § 303(b)(2).
GENERALLY PAYING DEBTS AS THEY BECOME DUE
F T is a law firm that stopped practicing law in March of 2005. However, the partnership has not been terminated under Ohio law. For the past twenty months F T has operated to the sole extent of winding up its affairs.
F T contends that it is generally paying its debts as they become due, see 11 U.S.C. § 303(h)(1) , because its creditors, with the exception of BIS, have been satisfied with the pace of payment. Robert R. Furnier, managing partner of F T, testified as follows:
Section 303(h)(1) provides in material part:
. . . [A]fter trial, the court shall order relief against the debtor in an involuntary case . . . only if —
(1) the debtor is generally not paying such debtor's debts as such debts become due . . . [.]
But I believe since April 1st of 2005, that we've paid over $140,000 to our creditors . . . as part of the winding-down process, so that as money comes in, we've worked with each creditor to say, here's the money, this is what we owe. And we haven't had any problem with anyone other than a slow pay in — not at the time of the filing — as far as I know, creditors have been satisfied with the pace of the payments. And the only person that we've had a problem with or the only entity that we've had a problem with is BIS . . . other than that . . . we've whittled this list of creditors . . . down to whatever it is today, which is — of the vendor category, it's probably under $10,000.
Ex. A at 65-66.
To determine whether an entity is generally paying its debts as they become due, according to the Sixth Circuit, a bankruptcy judge must consider "the proportion of the debt being paid — both in terms of the proportion of creditors being paid and the proportion of debt, in dollar value, being paid." In re Concrete Pumping Serv., Inc., 943 F.2d 627, 630 (6th Cir. 1991). Mr. Furnier testified that F T has paid over $140,000 in the past twenty months. During that same period, F T has not paid BIS anything and still owes BIS $75,656.80. See Ex. A at 82. Moreover, F T owes another creditor $55,000 for loans advanced in 2004. See Ex. A at 55. Thus, over the course of twenty months since F T stopped practicing law, it has paid approximately $140,000 and still owes at least $130,656 plus the remaining vendor debt that is "probably under $10,000" according to Mr. Furnier. Because it has taken F T over a year and a half to pay only half of its debts, the Court concludes that F T is generally not paying its debts as they become due under the standards articulated in Concrete Pumping Serv.
Because creditors other than BIS seem satisfied with the pace of payment, according to Mr. Furnier, F T argues that this is essentially a single creditor dispute that falls within the scope of Paroline v. Doling, 116 B.R. 583 (Bankr. S.D. Ohio 1990) (Clark, J.) (articulating the general rule that "if there is but a single debt that a debtor is not paying then the case should be dismissed, since the creditor cannot prove the debtor is generally not paying its `debts' as they become due"). Paroline is distinguishable from this case because the record is clear that F T has multiple creditors and debts. F T has not cited, and the Court is unaware of, any authority for the proposition that a multiple creditor/debt case is to be treated as a single creditor/debt case if only one of the multiple creditors is dissatisfied with the pace of payments.
CONCLUSION
For the foregoing reasons, the Court finds good cause for the entry of an order for relief. An order to this effect will be entered.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.