Michael N. Sofris, APC v. Maple-Whitworth, Inc. (In Re Maple-Whitworth, Inc.)

375 B.R. 558, 2007 Bankr. LEXIS 3174, 48 Bankr. Ct. Dec. (CRR) 245, 2007 WL 2703140
CourtUnited States Bankruptcy Appellate Panel for the Ninth Circuit
DecidedSeptember 4, 2007
DocketBAP No. CC-06-2096-KNB, Bankruptcy No. LA 04-32868 AA
StatusPublished
Cited by6 cases

This text of 375 B.R. 558 (Michael N. Sofris, APC v. Maple-Whitworth, Inc. (In Re Maple-Whitworth, Inc.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Appellate Panel for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Michael N. Sofris, APC v. Maple-Whitworth, Inc. (In Re Maple-Whitworth, Inc.), 375 B.R. 558, 2007 Bankr. LEXIS 3174, 48 Bankr. Ct. Dec. (CRR) 245, 2007 WL 2703140 (bap9 2007).

Opinions

OPINION

KLEIN, Bankruptcy Judge.

The procedure to obtain attorney’s fees and costs under 11 U.S.C. § 303(i) in a dismissed involuntary bankruptcy is in issue.

The question is whether one may seek such an award from fewer than all petitioners, the answer to which necessitates determining the nature of the liability. We conclude that § 303(i) liability is joint and several, that a debtor need not join all petitioners in a request for a § 303(i) award, and that, unless the court makes a specific apportionment, a petitioner is entitled seek contribution from other jointly and severally liable petitioners who were not joined in the debtor’s motion. Hence, [563]*563we AFFIRM the award of $42,257 against fewer than all of the petitioning creditors.

FACTS

The former involuntary alleged debtor, Maple-Whitworth, Inc., owns an apartment building in Beverly Hills, California, as to which two competing factions claimed corporate ownership and control: the Marlowe-Shlush Faction and the Mayman-Na-than Faction.

While the details, the skullduggery, and the dramatis personae are fascinating, all that matters for our purposes is that the involuntary bankruptcy case was an intermission in state-court litigation between the two factions over corporate control.

In the midst of that state-court litigation, appellant Sofris (Michael Sofris, APC, a professional law corporation owned by attorney Michael Sofris, which for convenience we refer to as an individual), who is aligned with the Mayman-Nathan Faction, joined by four individuals, filed an involuntary chapter 7 petition against Maple-Whitworth on October 28, 2004. Seven other petitioners holding small claims eventually, and in two phases, joined the petition pursuant to § 303(c).

The bankruptcy court recognized the Marlowe-Shlush Faction as being in control of the debtor corporation for purposes of the bankruptcy and dismissed the involuntary petition on October 11, 2005, making it explicit that the final determination of corporate ownership and control eventually would be made in the on-going litigation in state court.

After dismissal, the Marlowe-Shlush Faction moved on behalf of Maple-Whit-worth for an award of costs and fees of $42,257, and punitive damages of $100,000 against appellant Sofris but, viewing Sofris as a ringleader who should bear primary responsibility, did not name the other eleven petitioners in the motion.

Sofris objected that the motion was procedurally and substantively defective. Without asserting any claims for contribution, he contended that the phrase “the petitioners” in § 303(i) requires all petitioners to be served before the court can consider an award and that a court cannot pick and choose among petitioning creditors when making an award.

In addition, based on a release executed on the corporation’s behalf by a member of the Mayman-Nathan Faction, Sofris contended that Maple-Whitworth had waived its § 303(i) rights.

After continuing the initial hearing to permit service on all petitioners, the court awarded the requested $42,257 in fees and costs but, ruling that the petition was not filed in bad faith, rejected § 303(i)(2) damages. The court noted that the release executed by the Mayman-Nathan Faction would be effective if that faction later prevailed in the state-court litigation but did not at that time make further detailed findings regarding why it had previously recognized the Marlowe-Shlush Faction.2 Thus, in an order entered February 27, 2006, with accompanying findings that described the liability as “joint arid several,” the court awarded $42,257 against all of the petitioners who were served with the motion, without naming them. Sofris timely appealed.

On reconsideration, the court twice amended the order. The first amendment [564]*564named the ten of the twelve petitioners against whom the award was made. The second amendment deleted five of those ten petitioners because notice to them was defective. In the end, the $42,257 order was against only the five initial petitioners, each of whom was listed by name.

Neither of the amended orders was appealed.

ISSUES

1. Whether it was error to consider a § 303(i)(1) award without all petitioners having been named and served.

2. Whether it was error to award fees and costs under § 303(i)(1) against fewer than all the petitioners.

3. Whether the amount awarded under § 303(i) was correct.

STANDARDS OF REVIEW

We review statutory construction questions de novo. Duffy v. Dwyer, 303 B.R. 437, 439 (9th Cir. BAP 2003), aff'd, 426 F.3d 1041 (9th Cir.2005). Fee and cost awards under § 303(i) are reviewed for abuse of discretion. Higgins v. Vortex Fishing Sys., Inc., 379 F.3d 701, 705 (9th Cir.2004) (“Vortex Fishing II").

JURISDICTION

Federal subject-matter jurisdiction was premised on 28 U.S.C. § 1334(a) in this core proceeding under § 157(b). We have jurisdiction over this final order. 28 U.S.C. §§ 158(a) & (c).

DISCUSSION

The substantive nature of the liability of petitioning creditors affects the procedure for obtaining fee and cost awards under § 303(i) in dismissed involuntary cases. Sofris agrees that the liability is joint and several and so argued to the bankruptcy court. This comports with the statute, as we further explain before turning to the procedural implications of joint and several liability and the merits of the amount of the award.

I

Section 303(i) does not specify the nature of the award it authorizes to be made against petitioners when an involuntary petition is dismissed other than on consent of all petitioners and the debtor if the debtor has not waived the right to recovery.

Sofris argues that the term “the petitioners” in § 303(i)(1) means that a fee and cost award must be joint and several and may only be made against all petitioning creditors.

A

As all statutory analysis begins with the language of the statute, we look to § 303(i) and note that, where there is a dismissal without the debtor having waived compensation, the court “may” award attorney’s fees and costs against “the petitioners” and, as against any petitioner that filed the petition in bad faith, may also award “damages proximately caused by such filing” and “punitive damages.” 11 U.S.C. § 303(i).3

[565]*565This creates a compensation scheme that, in the precise words of the statute, provides for awards of an “attorney’s fee,” “costs,” “damages proximately caused,” and “punitive damages.” Fees and costs “may” be awarded against “the petitioners.”

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375 B.R. 558, 2007 Bankr. LEXIS 3174, 48 Bankr. Ct. Dec. (CRR) 245, 2007 WL 2703140, Counsel Stack Legal Research, https://law.counselstack.com/opinion/michael-n-sofris-apc-v-maple-whitworth-inc-in-re-maple-whitworth-bap9-2007.