PCC Rokita, S.A. v. HH Technology Corp.

• Court: Court of Appeals for the First Circuit
• Decided: July 24, 2025
• Docket: 24-9002
• Status: Published

Opinion

United States Court of Appeals For the First Circuit

No. 24-9002

IN RE: HH TECHNOLOGY CORP.,

Involuntary Debtor.

PCC ROKITA, S.A.; SHANGHAI MORIMATSU CHEMICAL EQUIPMENT CO., LTD.; DFT PROPERTIES, LLC,

Appellants,

v.

HH TECHNOLOGY CORP.; CRAIG R. JALBERT, as Assignee for the Benefit of Creditors of HH Technology Corp.,

Appellees.

APPEAL FROM THE UNITED STATES BANKRUPTCY APPELLATE PANEL FOR THE FIRST CIRCUIT

Before

Montecalvo, Lipez, and Aframe, Circuit Judges.

Ilyas J. Rona, with whom Jin-Ho King and Milligan Rona Duran & King LLC were on brief, for appellants. Francis C. Morrissey, with whom Morrissey, Wilson & Zafiropoulos, LLP was on brief, for appellee HH Technology Corp. D. Ethan Jeffrey and Murphy & King, P.C. on brief for appellee Craig R. Jalbert, as Assignee for the Benefit of Creditors of HH Technology Corp. July 24, 2025 AFRAME, Circuit Judge. Debtors initiate most bankruptcy

cases. But sometimes, creditors are the initiators. Creditors

initiate a bankruptcy case by filing a so-called involuntary

petition. See 11 U.S.C. § 303; Fed. R. Bankr. P. 1003. A single

creditor may file an involuntary petition if the debtor against

whom the petition is filed has fewer than twelve qualified

creditors. See 11 U.S.C. § 303(b)(2). If, however, the debtor

has twelve or more qualified creditors, at least three creditors

must file or subsequently join the petition. See id. § 303(b)(1),

(c).

This appeal presents two principal questions. The first

is whether a bankruptcy court may establish a deadline for

creditors to join a pending involuntary petition. The second is

how defenses to the avoidability of a pre-petition preferential

transfer must be raised and proved. See 11 U.S.C. §§ 303(b)(2);

547(c). The latter question matters because a creditor who

receives an avoidable transfer from the debtor is not a qualified

creditor for purposes of section 303(b). Id. § 303(b)(2).

We conclude that the bankruptcy court may set a deadline

for creditors to join a pending involuntary petition. We also

conclude that a putative debtor need not plead defenses to the

avoidability of a pre-petition preferential transfer in its answer

to the involuntary petition and that any error here in requiring

- 3 - the creditors to disprove defenses to avoidability was harmless.

As a result, we affirm the dismissal of the involuntary petition.

I.

In December 2021, the United States District Court for

the District of Massachusetts partially recognized a multi-

million-dollar foreign judgment obtained by PCC Rokita, S.A. ("PCC

Rokita") against HH Technology Corp. ("HHT" or "Involuntary

Debtor"). See PCC Rokita, SA v. HH Tech. Corp., 575 F. Supp. 3d

227 (D. Mass. 2021). Shortly thereafter, HHT executed a trust

agreement and an assignment for the benefit of creditors to wind

itself down. See Mass. Gen. Laws ch. 203, §§ 40-41 (2024). HHT's

assignee ("Assignee") accepted the assignment and began to wind

down the company.

About two months later, PCC Rokita petitioned the United

States Bankruptcy Court for the District of Massachusetts to

involuntarily place HHT into Chapter 7 bankruptcy. See 11 U.S.C.

§ 303. The Assignee moved to dismiss the involuntary petition and

submitted with its motion a list of fifteen creditors of the

Involuntary Debtor that the Assignee contended were qualified

under section 303(b) of the Bankruptcy Code. See 11 U.S.C.

§ 303(b); Fed. R. Bankr. P. 1003, 1011. For the purposes of

section 303(b), a creditor qualifies if the creditor is neither an

employee nor an insider of the putative debtor and holds a claim

that is (1) "not contingent as to liability or the subject of a

- 4 - bona fide dispute as to liability or amount"; and (2) not avoidable

under certain sections of the Bankruptcy Code. 11 U.S.C. § 303(b).

Because a debtor with twelve or more qualified creditors may be

involuntarily petitioned into bankruptcy only by three or more of

those creditors, id. § 303(b)(1), the Assignee submitted that PCC

Rokita's petition was ineffective.1

Together with its motion to dismiss, the Assignee filed

an answer to the petition. The answer asserted two affirmative

defenses. The first defense was based on the same creditor-

numerosity grounds as the Assignee's motion. The second urged

that dismissal or abstention would best serve the interests of

creditors. See 11 U.S.C. § 305(a)(1) ("The court . . . may dismiss

a case under this title, or may suspend all proceedings in a case

under this title, at any time if . . . the interests of creditors

and the debtor would be better served by such dismissal or

suspension . . . .").

In response to the Assignee's motion and answer, the

bankruptcy court issued an order setting May 23, 2022, as the

deadline for additional creditors to join the involuntary

petition. See 11 U.S.C. § 303(c); Fed. R. Bankr. P. 1003. The

1 The Involuntary Debtor later joined the Assignee's motion and, together with the Assignee, has defended the dismissal of the involuntary petition. When discussing the motion and the subsequent appeals, we will refer generally only to the Assignee.

- 5 - order provided that, absent good cause, the court would deny

motions to join the petition filed after the joinder deadline.

Several days before the joinder deadline was set to

expire, and with no other creditors having joined its involuntary

petition, PCC Rokita moved for an extension. One additional

creditor, Shanghai Morimatsu Chemical Equipment Co. ("Morimatsu"),

subsequently joined; however, the deadline came and went without

a third creditor joining the petition. Shortly thereafter, the

bankruptcy court denied PCC Rokita's motion.

The bankruptcy court then scheduled an evidentiary

hearing on the Assignee's motion to dismiss for July 27, 2022. In

the interim, it authorized PCC Rokita and Morimatsu to take

discovery on how many of the Involuntary Debtor's creditors were

qualified under section 303(b)(2). In the ensuing weeks, PCC

Rokita and Morimatsu served discovery on all of the Involuntary

Debtor's disclosed domestic creditors, as well as on the Assignee

and the Involuntary Debtor itself. During this period, the

Assignee disclosed several more creditors of the Involuntary

Debtor, bringing the total number of putatively qualified

creditors to approximately twenty.

On July 16, 2022, DFT Properties, LLC ("DFT Properties"

and, with PCC Rokita and Morimatsu, "Petitioning Creditors") moved

to join the involuntary petition. DFT Properties explained that

it had recently learned that the Assignee had not obtained the

- 6 - necessary assents to make the assignment valid under Massachusetts

law, see Mass. Gen. Laws ch. 203, § 41 (2024); that the Involuntary

Debtor had made a significant number of large payments shortly

before the petition's filing, some of which were preferential;

that the Assignee did not intend to recover those payments; and

that one of the Involuntary Debtor's principals had formed a new

company that appeared to continue the Involuntary Debtor's

business. DFT Properties submitted that, based on these facts, it

had decided that its interests would be better protected in

bankruptcy proceedings. The bankruptcy court denied the motion to

join, reasoning that DFT Properties had "made a deliberate decision

not to join the petition" before the joinder deadline or to seek

an extension to permit it to ascertain additional information about

the Involuntary Debtor's finances. Order, In re HH Tech. Corp.,

No. 22-10156 (Bankr. D. Mass. July 18, 2022), ECF No. 66.

Beginning on July 27, 2022, the bankruptcy court held an

evidentiary hearing on the Assignee's motion to dismiss. At the

beginning of the hearing, the Petitioning Creditors stated their

position "that the hearing d[id] not need to go forward" because

the court "lack[ed] authority to deny" DFT Properties' joinder

motion. In support, the Petitioning Creditors cited Guterman v.

C.D. Parker & Co., Inc., 86 F.2d 546 (1st Cir. 1936), where,

construing a since-repealed provision of the National Bankruptcy

Act of 1898, we stated that creditors could join an involuntary

- 7 - petition "at any time." The bankruptcy court declined to revisit

its denial of DFT Properties' joinder motion, and the hearing

proceeded with testimony from the Assignee and the Involuntary

Debtor's principals as well as the introduction of other evidence.

After post-hearing briefing and several stipulations by

the parties about the qualifications of certain creditors, the

Involuntary Debtor claimed fifteen qualified creditors, twelve of

whom PCC Rokita and Morimatsu contended were unqualified for

various reasons. In a memorandum opinion, the bankruptcy court

held that the Petitioning Creditors had failed to prove that any

of the twelve challenged creditors were unqualified. See In re HH

Tech. Corp., 649 B.R. 365, 371-81 (Bankr. D. Mass. 2023). The

bankruptcy court then dismissed the involuntary petition on the

ground that the Involuntary Debtor had twelve or more qualified

creditors, but there were only two petitioning creditors -- one

short of the required three. Order, In re HH Tech. Corp., No. 22-

10156 (Bankr. D. Mass. Mar. 31, 2023), ECF No. 113; see 11 U.S.C.

§ 303(b).

The Petitioning Creditors timely appealed to the

Bankruptcy Appellate Panel for the First Circuit ("BAP"), which

affirmed. See In re HH Tech. Corp., 659 B.R. 788 (B.A.P. 1st Cir.

- 8 - 2024). The Petitioning Creditors then timely appealed to this

Court.2 We have jurisdiction under title 28, section 158(d)(1).

II.

The Petitioning Creditors contend that the bankruptcy

court erred in two ways. First, they argue that section 303(c)

affords creditors the right to join an involuntary petition at any

time before its dismissal or the entry of an order for relief.

Because DFT Properties sought to join the petition before its

dismissal, the Petitioning Creditors submit that the bankruptcy

court had to allow DFT Properties' joinder. Second, the

Petitioning Creditors assert that several of the bankruptcy

court's rulings regarding creditor qualifications were incorrect,

as was its resultant finding that the Involuntary Debtor had twelve

or more creditors qualified under section 303(b).

In the Petitioning Creditors' view, each error

separately requires reversal. If DFT Properties had been permitted

to join the petition, there would have been three petitioning

creditors, and the question of whether the Involuntary Debtor had

twelve or more qualified creditors would have been irrelevant.

See 11 U.S.C. § 303(b). If, on the other hand, the Involuntary

2 Although the Petitioning Creditors' appeal is taken from the BAP's decision, we "review the bankruptcy court ruling[s] directly," with the BAP's opinion "serving more or less like an amicus brief (albeit one that can be extremely helpful)." Popular Auto, Inc. v. Reyes-Colon (In re Reyes-Colon), 922 F.3d 13, 17-18 (1st Cir. 2019).

- 9 - Debtor had fewer than twelve qualified creditors, one petitioning

creditor would have sufficed, and the denial of DFT Properties'

joinder motion would have been immaterial. See id.

A.

We begin with the Petitioning Creditors' argument that

the bankruptcy court incorrectly denied DFT Properties' joinder

motion. This argument rests principally on section 303(c) of the

Bankruptcy Code, which provides, in pertinent part, that "[a]fter

the filing of [an involuntary petition] but before the case is

dismissed or relief is ordered, a creditor holding an unsecured

claim that is not contingent . . . may join in the petition." 11

U.S.C. § 303(c). The Petitioning Creditors contend that this

provision gave DFT Properties the right to join the involuntary

petition at any time while it was pending.

1.

Before turning to the Petitioning Creditors' argument,

it is helpful to review several undisputed points. First, it is

clear from section 303(c)'s text and our precedent that the statute

gives creditors the right to join a pending involuntary petition.

See LaRoche v. Amoskeag Bank (In re LaRoche), 969 F.2d 1299, 1305-

06 (1st Cir. 1992); see also Popular Auto, 922 F.3d at 15-16. It

does so by using the sort of language commonly employed by the

Bankruptcy Code to refer to the period during which an involuntary

petition is pending. Compare 11 U.S.C. § 303(c), with id.

- 10 - §§ 303(g), 502(f), 549(b), and Fed. R. Bankr. P. 2001(a). An

involuntary petition is pending from its "filing," 11 U.S.C.

§ 303(c), until the case is dismissed, which disposes of the

petition, id., or an order for relief is entered, which adjudicates

it, see HealthTrio, Inc. v. Centennial River Corp. (In re

HealthTrio, Inc.), 653 F.3d 1154, 1157 (10th Cir. 2011) ("[A]n

order for relief is 'the equivalent of an adjudication under the

Bankruptcy Act of 1898,' and therefore is 'a judgment in rem, a

conclusive determination of the debtor's status in bankruptcy.'"

(quoting Mason v. Integrity Ins. Co. (In re Mason), 709 F.2d 1313,

1315 (9th Cir. 1983))). See generally 2 Collier on Bankruptcy

¶¶ 303.22-.26 (Richard Levin & Henry J. Sommer eds., 16th ed.,

2025 update) [hereinafter Collier]. After an order for relief

enters, the bankruptcy case continues, but the petition, having

been adjudicated, is no longer pending. See In re Alpine Lumber

& Nursery, 13 B.R. 977, 979 (Bankr. S.D. Cal. 1981) ("An

involuntary case is in essence a civil suit requesting a judgment

that an order for relief be entered . . . ."); see also Off. Form

205, Involuntary Petition Against a Non-Individual, 3 (requesting

"that an order for relief be entered against the debtor"). The

reorganization or liquidation of the debtor's estate which follows

- 11 - is essentially the execution of the order for relief.3 Cf. Bank

of Marin v. England, 385 U.S. 99, 108 (1966) (Harlan, J.,

dissenting) (noting that the entry of an order for relief, then

referred to as an "adjudication," "signal[led] the beginning of

bankruptcy administration"); Acme Harvester Co. v. Beekman Lumber

Co., 222 U.S. 300, 306-08 (1911) (similar).

Second, a non-party with a statutory right to intervene

in a civil action does not ordinarily possess an ancillary right

to intervene at any time. See Cameron v. EMW Women's Surgical

Ctr., P.S.C., 595 U.S. 267, 279 (2022) ("Timeliness is an important

consideration in deciding whether intervention should be allowed

. . . ."); Charles A. Wright et al., 7C Fed. Prac. & Proc. Civ.

§ 1916 (3d ed., May 2025 update). Rather, Federal Rule of Civil

Procedure 24 provides that a non-party with a right to intervene

must do so "[o]n timely motion." Fed. R. Civ. P. 24(a). And,

finally, the Federal Rules of Bankruptcy Procedure make Rule 24

and its timely intervention requirement applicable to proceedings

contesting an involuntary bankruptcy petition such as these.4 See

Fed. R. Bankr. P. 1018, 7024; Fed. R. Civ. P. 24(a)(1).

3 Creditors may participate in these subsequent proceedings pursuant to other statutes and rules. See, e.g., 11 U.S.C. § 501(a); Fed. R. Bankr. P. 3002. 4 Although section 303(c) speaks in terms of "joining" an involuntary petition, the procedure contemplated is more akin to intervention under Rule 24 than party joinder under Rules 19(a) and 20(a)(1). See Liberty Tool, & Mfg. v. Vortex Fishing Sys.,

- 12 - 2.

With those points in mind, we return to the dismissal of

DFT Properties' joinder motion. The question which we consider is

whether, when it comes to creditor joinder, section 303(c)

displaces Rule 24's timely intervention requirement and gives

creditors the right to join a pending involuntary petition at any

time.5 See Smith v. U.S. Bank N.A. (In re Smith), 999 F.3d 452,

456 (6th Cir. 2021) ("[A]ny conflict between the Bankruptcy Code

and the Bankruptcy Rules must be settled in favor of the Code."

(quoting United States v. Chavis (In re Chavis), 47 F.3d 818, 822

(6th Cir. 1995))); cf. Law v. Siegel, 571 U.S. 415, 420-21 (2014)

(stating that the bankruptcy court cannot "override explicit

mandates . . . of the Bankruptcy Code" pursuant to its powers under

Inc. (In Re Vortex Fishing Sys., Inc.), 277 F.3d 1057, 1061 (9th Cir. 2002); McGinnis v. Jenkins & Assocs. (In re McGinnis), 296 F.3d 730, 732 (8th Cir. 2002); In re Kidwell, 158 B.R. 203, 212 (Bankr. E.D. Cal. 1993). 5 The Assignee contends that the Petitioning Creditors have forfeited this argument by failing to timely raise or adequately substantiate it below. We disagree. DFT Properties sought to join the petition before its dismissal; to the extent an unqualified right to join a pending petition at any time exists, it was timely exercised. See United States v. Cezaire, 939 F.3d 336, 339 n.2 (1st Cir. 2019) ("Forfeiture is the failure to make the timely assertion of a right . . . ." (quoting Barna v. Bd. of Sch. Dirs. of Panther Valley Sch. Dist., 877 F.3d 136, 147 (3d Cir. 2017))). And, although DFT Properties' joinder motion is somewhat difficult to parse on this point, at the hearing the Petitioning Creditors made sufficiently clear their position that under our precedent, the bankruptcy court lacked the power to dismiss the petition.

- 13 - title 11, section 105(a) (quoting Collier ¶ 105.01)). Focusing on

the clause "[a]fter the filing of [the petition] but before the

case is dismissed or relief is ordered," 11 U.S.C. § 303(c), the

Petitioning Creditors argue that section 303(c) specifies that

creditors may join an involuntary petition at any time that it is

pending, and therefore the bankruptcy court may not set any earlier

joinder deadline.

We do not agree. Where the Bankruptcy Code intends to

give creditors a right to take action at any time during an

involuntary petition's pendency, it uses additional language to

make that intention clear. Section 303(g), for instance, provides

that the court may order the appointment of an interim trustee

upon the request of a party in interest "[a]t any time after the

commencement of an involuntary case under chapter 7 of this title

but before an order for relief in the case." 11 U.S.C. § 303(g)

(emphasis added). This practice is not unique to the Code's

provisions concerning involuntary petitions; rather, the use of

"at any time" or similar language to provide that a specified

action may be taken throughout a statutorily prescribed period

appears at various other places in the Code. See, e.g., id.

§§ 365(d)(2), 942, 1105, 1127(e), 1193(a), 1223(a), 1229(a),

1307(d), 1323(a), 1329(a), 1330(a).

Yet, despite this well-established practice and the use

of "at any time" in the nearby section 303(g), Congress did not

- 14 - include similar language in section 303(c). Compare 11 U.S.C.

§ 303(c), with id. § 303(g). Instead, it referred to the period

during which an involuntary petition is pending and provided that

creditors "may" join the petition without further specifying when

that right could be exercised. Id. § 303(c). "[I]t is generally

presumed" that, where "Congress include[d] particular language in

one section of a statute but omit[ted] it in another section of

the same" statute, "the disparate inclusion or exclusion" was

intentional. Nken v. Holder, 556 U.S. 418, 430 (2009) (quoting

INS v. Cardoza-Fonseca, 480 U.S. 421, 432 (1987)). Thus, the

omission of "at any time" or similar language from section 303(c)

strongly suggests that section 303(c) was not intended to give

creditors the right to join a pending involuntary petition at any

time. See id.

Arguing otherwise, the Petitioning Creditors rely on our

decision in Guterman and the Supreme Court's decision in Canute

Steamship Co. v. Pittsburgh & West Virginia Coal Co., 263 U.S. 244

(1923), both of which stated that creditors could join pending

involuntary petitions "at any time." See Canute, 263 U.S. at 248-

49 (quoting National Bankruptcy Act of 1898, § 59f, 30 Stat. 544,

562 (1898) (repealed 1979)); Guterman, 86 F.2d at 549. But neither

Canute nor Guterman helps the Petitioning Creditors. Both

decisions construed section 59f of the National Bankruptcy Act of

1898, which provided that creditors could "at any time enter their

- 15 - appearance and join in the petition, or file an answer and be heard

in opposition to the prayer of the petition." Canute, 263 U.S. at

247 (emphasis added) (quoting National Bankruptcy Act of 1898,

§ 59f, 30 Stat. 544, 562 (1898) (repealed 1979)); see Guterman, 86

F.2d at 549-50. The Bankruptcy Reform Act of 1978 repealed the

National Bankruptcy Act of 1898, and therefore section 59f is no

longer operative. See Pub. L. 95-598, § 401(a), 92 Stat. 2549,

2682. It was replaced by section 303(c), see Pub. L. 95-598,

§ 101, 92 Stat. 2549, 2559, which, as noted, does not provide a

right to join "at any time," even though the phrase was used in

section 303(g), see Pub. L. 95-598, § 101, 92 Stat. 2549, 2559,

and elsewhere in the newly enacted Bankruptcy Code, see, e.g.,

Pub. L. 95-598, § 101, 92 Stat. 2549, 2561, 2572, 2575 (codified

at 11 U.S.C. §§ 305(a), 363(e), 365(b)(2)(A)).

The Petitioning Creditors contend that, despite

declining to retain the phrase "at any time" in section 303(c),

Congress meant to make no change from section 59f of the National

Bankruptcy Act. But when Congress "amend[s] a statute, we presume

it intends its amendment to have real and substantial effect."

Pierce Cnty. v. Guillen, 537 U.S. 129, 145 (2003) (quoting Stone

v. INS, 514 U.S. 386, 397 (1995)). Nothing has been presented to

undermine that presumption here. While the legislative history of

the Bankruptcy Reform Act shows that Congress intended to retain

certain aspects of prior bankruptcy law, it does not suggest that

- 16 - a right to join a pending involuntary petition at any time was

among them. See, e.g., S. Rep. 95-989, at 32-33 (1978); H.R. Rep.

95-595, at 322-23 (1978). And, as already discussed, ordinary

methods of statutory interpretation support the conclusion that it

was not. See Nken, 556 U.S. at 430.

Although the Petitioning Creditors cite numerous post-

Code decisions regarding joinder under section 303(c), none hold

that a bankruptcy court is prohibited from setting a joinder

deadline.6 A 1983 advisory committee note to the then newly enacted

6 Although the Bankruptcy Reform Act was enacted in 1978, it was not until 1983 that new bankruptcy rules were promulgated by the Supreme Court, see 461 U.S. at 973-1093, and thereafter adopted with only slight changes by Congress, see Pub. L. 98-91, 97 Stat. 607. In the interim, bankruptcy rules corresponding to the repealed bankruptcy laws applied "to the extent not inconsistent" with the amendments made by the Bankruptcy Reform Act. See Pub. L. 95–598, § 405(d), 92 Stat. 2549, 2685. (Suggested interim rules were also promulgated by the advisory committee, but were not binding and did not speak to creditor joinder. See 11 U.S.C. app. Rule 1003 (1982).) Rule 104(e) of these old rules permitted creditors to join an involuntary petition "at any time before its dismissal," which was consistent with the old section 59f of the National Bankruptcy Act, but not the new section 303(c). See 11 U.S.C. app. Rule 104(e) (1976).

The Petitioning Creditors refer in their brief to several decisions issued during that period which, citing Rule 104(e), appear to have assumed that creditors could join an involuntary petition at any time. See Jefferson Tr. & Savings Bank v. Rassi (In re Rassi), 701 F.2d 627, 629 n.2 (7th Cir. 1983); In re N. Cnty. Chrysler Plymouth, Inc., 13 B.R. 393, 399-400 (Bankr. W.D. Mo. 1981); see also In re Elsub Corp., 70 B.R. 797, 813-14 (Bankr. D.N.J. 1987) (citing N. Cnty. Chrysler, 13 B.R. at 399-400). Since these decisions seem not to have appreciated the inconsistency between Rule 104(e) and the new section 303(c), they are of limited utility as it concerns when creditors may join an involuntary petition.

- 17 - Federal Rules of Bankruptcy Procedure likewise fails to tip the

scales in the Petitioning Creditors' favor. See Fed. R. Bankr. P.

1003 advisory committee's note to 1983 amendment; see also In re

Will Foods, No. 17-10754, 2017 WL 3084407, at *3 (Bankr. W.D.N.Y.

July 19, 2017) (quoting the same advisory committee note).

Although the advisory committee note states that section 303(c)

permitted creditors to join an involuntary petition "at any time,"

the phrase "at any time" does not appear in the 1983 Rule itself

or in any of its amendments, see Bankruptcy Rule 1003(d) (1983)

(current version at Bankruptcy Rule 1003(c)); indeed, the relevant

portion of the Rule provides only that the bankruptcy court "must

allow a reasonable time for other creditors to join the petition

before holding a hearing on it," Fed. R. Bankr. P. 1003(c). Given

the language of the Rule itself, it is not necessarily clear that

the advisory committee meant to suggest that the Rule provided an

entirely unrestricted right to join a pending involuntary

petition. And, in any event, such a construction would be

inconsistent with the operative provision of the Bankruptcy Code

for the reasons already explained. Cf. Roy v. Canadian Pac. Ry.

Co. (In re Lac-Mégantic Train Derailment Litig.), 999 F.3d 72, 82

(1st Cir. 2021) ("[A]ny conflict between a statutory provision and

the Bankruptcy Rules would have to be resolved in favor of the

former.").

- 18 - Finally, "[i]n addition to its textual implausibility,"

the interpretation of section 303(c) advanced by the Petitioning

Creditors would have "curious practical consequences." Vaden v.

Discover Bank, 556 U.S. 49, 65 (2009). Bankruptcy courts enjoy

substantial case-management authority. See, e.g., 11 U.S.C.

§ 105(d); Fed. R. Bankr. P. 9029(c); see also Smith v. Terry (In

re Salubrio, L.L.C.), No. 23-50288, 2024 WL 1795773, at *2 (5th

Cir. Apr. 25, 2024); Kreisler v. Goldberg, 478 F.3d 209, 215 (4th

Cir. 2007). That authority, important in all bankruptcy

proceedings, is essential when a bankruptcy court faces an

involuntary petition: the stakes are high, and time is of the

essence. See In re Forever Green Ath. Fields, Inc., 804 F.3d 328,

335 (3d Cir. 2015) ("[T]he filing of an involuntary petition is an

extreme remedy with serious consequences to the alleged debtor

. . . ." (alteration in original) (quoting In re Reid, 773 F.2d

945, 946 (7th Cir. 1985))); Fed. R. Bankr. P. 1013(a)(1) (requiring

that a bankruptcy court "rule on the issues presented" by a

contested involuntary petition "at the earliest practicable

time"). Yet the Petitioning Creditors' interpretation of section

303(c) would divest bankruptcy courts of an important case-

management tool at a critical stage in an involuntary case. See

In re DSC, Ltd., 325 B.R. 741, 745 (Bankr. E.D. Mich. 2005). We

doubt that Congress intended such a result. See Riverview Trenton

- 19 - R.R. Co. v. DSC, Ltd. (In re DSC, Ltd.), 486 F.3d 940, 948 (6th

Cir. 2007).

Because the Petitioning Creditors challenge only the

bankruptcy court's authority under the Bankruptcy Code to set a

joinder deadline, we conclude our analysis here.7 As a result, we

have no occasion to consider the circumstances under which the

denial of a joinder motion filed after a joinder deadline has

passed might constitute an abuse of discretion. See Cameron, 595

U.S. at 279 ("[T]imeliness is to be determined from all the

circumstances . . . ." (quoting NAACP v. New York, 413 U.S. 345,

366 (1973))).

III.

We next address whether the failure of a third creditor

to have joined the involuntary petition before the joinder deadline

required the petition's dismissal. See 11 U.S.C. § 303(b). This

7 In their briefs, the Petitioning Creditors assert that there was "no reasonable basis" to set a later joinder deadline for belatedly disclosed creditors, as the bankruptcy court did here, yet deny DFT Properties' joinder motion, which was filed before the later deadline. They also state that DFT Properties had good reason for its belated joinder. However, the briefs do not assert that the bankruptcy court abused its discretion by failing to allow DFT Properties' belated joinder. And counsel for the Petitioning Creditors confirmed at oral argument that they challenged the denial of DFT Properties' joinder motion based only on the bankruptcy court's inability to set a joinder deadline at all because of section 303(c). Any argument that the bankruptcy court abused its discretion by denying DFT Properties' motion for belated joinder is therefore waived. See W.R. Cobb Co. v. V.J. Designs, LLC, 130 F.4th 224, 239 (1st Cir. 2025).

- 20 - question turns on whether the Involuntary Debtor had twelve or

more creditors qualified under section 303(c). See id. If so,

three creditors would have needed to join the petition, id.

§ 303(b)(1); if not, a single petitioning creditor -- here, PCC

Rokita -- would have sufficed, id. § 303(b)(2).

Creditors may be unqualified for the purposes of section

303(b) for several reasons. See 11 U.S.C. § 303(b). One reason

is a creditor's receipt of a transfer from the debtor that is

avoidable under certain sections of the Bankruptcy Code. See id.

§ 303(b)(2). Below, the Petitioning Creditors sought to

disqualify certain creditors for having received preferential pre-

petition transfers that the Petitioning Creditors claimed were

avoidable under section 547. See In re HH Tech., 649 B.R. at 375-

81; see also 11 U.S.C. § 303(b) (excluding "any transferee of a

transfer that is voidable under section . . . 547"). Section

547(b) specifies the conditions under which preferential pre-

petition transfers may be avoided. See 11 U.S.C. § 547(b).

Section 547(c), in turn, sets up various defenses to avoidability.

See id. § 547(c). If a defense applies, the transfer is not

avoidable, and the creditor is not excludable under section 303(b)

for having received it. See Williams v. Roos, No. 19-cv-01674,

2021 WL 234498, at *3 (W.D. La. Jan. 22, 2021). But see In re

Blaine Richards & Co., 10 B.R. 424, 428 (Bankr. E.D.N.Y. 1981)

(finding a creditor not to be qualified upon a prima facie showing

- 21 - of the creditor's receipt of a transfer avoidable under section

547).

The bankruptcy court declined to exclude the creditors

challenged by the Petitioning Creditors for having received

transfers that were avoidable under section 547. See In re HH

Tech., 649 B.R. at 375-81. In doing so, the court considered

whether defenses to the avoidability of the transfers in question

applied, see id. at 373, and in several instances concluded that

the Petitioning Creditors had failed to meet their burden of

proving that one or more such defenses did not apply, see id. at

375-77, 379-80.

The Petitioning Creditors argue that the bankruptcy

court erred in three ways. First, relying on In re Blaine

Richards, 10 B.R. at 428, they contend that only a prima facie

showing of an avoidable transfer is required to disqualify a

creditor, and defenses to avoidability need not be considered.

But section 303(c) disqualifies a "transferee of a transfer that

is voidable under section . . . 547." 11 U.S.C. § 303(b). And a

transfer is not avoidable under section 547 if a section 547(c)

defense applies. See id. § 547(c); Williams, 2021 WL 234498, at

*3.

Second, the Petitioning Creditors contend that the

bankruptcy court should not have considered section 547(c)

defenses because the Assignee failed to assert them in its answer

- 22 - to the involuntary petition. But section 547(c) does not provide

a defense to an involuntary petition; instead, it enumerates

defenses to the avoidability of certain pre-petition transfers.

See 11 U.S.C. 547(c). The defense to the petition was creditor

numerosity, see id. § 303(b), which the Assignee timely asserted.

Thereafter, it was incumbent upon the Petitioning Creditors to

challenge enough creditors to reduce the number qualified under

section 303(b) to fewer than twelve. See id. The section 547(c)

defenses became pertinent only after the Petitioning Creditors

chose to challenge the qualification of certain creditors because

of their alleged receipt of transfers avoidable under section 547.

And, at that point, the defenses were promptly raised by the

Assignee. The section 547(c) defenses were therefore properly

considered.

Third, the Petitioning Creditors argue that the

bankruptcy court erred by requiring them to disprove the

applicability of section 547(c) defenses to an otherwise avoidable

transfer in order to disqualify a creditor. See In re HH Tech.,

649 B.R. at 373. They contend that the court instead should have

made the Assignee prove that one or more of the defenses applied

to prevent the creditor's disqualification. In a normal avoidance

action under section 547, the burden to prove affirmative defenses

to avoidability would rest with the transferee creditor, i.e., the

party seeking to retain the transfer. See 11 U.S.C. § 547(g); In

- 23 - re Williams, 636 B.R. 720, 737-38 (Bankr. W.D. La. 2021) ("In the

ordinary case, the creditor alleged to have received the

preferential transfer would have the burden of proving the

affirmative defense of ordinary course."). In the section 303(b)

inquiry, the Assignee stands in the shoes of the transferee

creditor, and the Petitioning Creditors stand in the shoes of the

trustee seeking to avoid the transfer. See In re Williams, 636

B.R. at 737-38. Understood accordingly, it would seem correct

that the Assignee, not the Petitioning Creditors, would have the

burden of proof with respect to section 547(c) defenses.8 Id. at

738 ("For purposes of § 303(b)(2), the Debtor has th[e] burden" of

proving affirmative defenses to avoidability).

A potential complication, however, arises from section

547(b), which requires that the trustee -- in whose shoes, to

remind, stand the Petitioning Creditors -- exercise "reasonable

due diligence in the circumstances of the case and tak[e] into

account a party's known or reasonably knowable affirmative

8 Contrary to the Assignee's suggestion, our decision in Popular Auto did not reach or resolve this question. See Popular Auto, 922 F.3d at 19-20 ("The burden of proof with respect to establishing that the Appellee had less than 12 creditors rested with the petitioning creditor. Once the debtor answers that there are more than 12 creditors and files a list in compliance with Bankruptcy Rule 1003(b), the petitioning creditors bear the burden to put the debtor to the test." (quoting Banco Popular de P.R. v. Colon (In re Colon), Nos. 07-053, 06-04675, 2008 WL 8664760, at *4 (B.A.P. 1st Cir. Nov. 21, 2008))). The only other decision cited by the Assignee on this point, Mont. Dep't of Rev. v. Blixseth, 581 B.R. 882, 893 (D. Nev. 2017), did not either.

- 24 - defenses" before commencing an avoidance action under section 547.

11 U.S.C § 547(b); see also HH Tech Corp., 649 B.R. at 373. The

language is a recent addition to section 547, having been adopted

by the Small Business Reorganization Act of 2019. See Pub. L.

116-54, § 3(a), 133 Stat. 1085; see also Collier ¶ 547.02A

(concluding that "[t]he most plausible" reason for the addition

was to address the problem of "preference mills" -- entities that

indiscriminately "pursue[d] preference actions" on behalf of the

trustee, settling many for nuisance value and taking "a percentage

of the recovery" for themselves).

Whether section 547(b) has created a new diligence

element for a section 547 preferential-transfer claim remains

unsettled, as does how such a diligence element would be proved.

Compare Pinktoe Liquidation Tr. v. Dellal (In re Pinktoe Tarantula

Ltd.), No. 18-10344, Adv. Pro. No. 20-50597, 2023 WL 2960894, at

*5 (Bankr. D. Del. Apr. 14, 2023) (holding that trustee must prove

due diligence), and Husted v. Taggart (In re ECS Ref., Inc.), 625

B.R. 425, 454 (Bankr. E.D. Cal. 2020) (same), with Tese-Milner v.

Lockton Cos. (In re Flywheel Sports Parent, Inc.), Nos. 20-12157,

22-01109, 2023 WL 2245382, at *4 (Bankr. S.D.N.Y. Feb. 27, 2023)

(noting that "[o]ther courts have questioned that holding" and

collecting cases). And how this language applies to a section

303(b) inquiry, where no actual preference action is

commenced -- and no prior diligence is therefore

- 25 - possible -- appears so far to have gone almost entirely without

comment. See HH Tech Corp., 649 B.R. at 373.

This case does not require us to resolve section 547(b)'s

effect, if any, on the assignment of burdens of proof in the

context of a contested involuntary petition. The Petitioning

Creditors preserved their section 547 challenges for at most five

of the Involuntary Debtor's fifteen creditors. And the record

shows that the placement of the burden of proof on the section

547(c) defenses made no difference for at least two of those

creditors, enough to meet the twelve-creditor minimum. See Fed.

R. Bankr. P. 9005; Adelson v. Hananel, 652 F.3d 75, 85 (1st Cir.

2011) ("[A]ny error in assigning the burden of proof is harmless

unless the court's decision at the end of the trial turned on

burden of proof rules rather than on the weight of the evidence in

the record." (citation modified)).

Evidence at the hearing, including invoices and witness

testimony, established that the first creditor, Comcast, provided

internet service to the Involuntary Debtor's offices in Beverly,

Massachusetts, and The Woodlands, Texas, for which the Involuntary

Debtor made regular payments. See In re HH Tech., 649 B.R. at

375-76. The evidence further established that those payments,

which are the allegedly preferential transfers here at issue, see

id., were made in the ordinary course of both entities' business

and according to ordinary business terms. The ordinary-course

- 26 - defense would therefore apply. See 11 U.S.C. § 547(c)(2); see

also Hickey v. Nightingale Roofing, Inc., 83 B.R. 180, 183 (D.

Mass. 1988) ("[P]ayments made by a debtor . . . for utilities and

rent, and other similar operating expenses . . . were intended by

Congress to be exempt from recovery as preferences." (quoting In

re Bourgeois, 58 B.R. 657, 659 (Bankr. W.D. La. 1986))). The

evidence was similar for a second creditor, National Grid, which

provided electricity to the Involuntary Debtor's Beverly office.

See In re HH Tech., 649 B.R. at 376-77. The ordinary-course

defense thus would apply to the challenged payments made by the

Involuntary Debtor to National Grid as well. See 11 U.S.C.

§ 547(c)(1), (2).

Taking National Grid and Comcast together with the three

creditors whose qualifications were not challenged and the seven

for whom qualification challenges were not pursued by the

Petitioning Creditors on appeal, there are at least twelve

qualified creditors. Any error in the bankruptcy court's

allocation of the burden of proof for the section 547(c) defenses

was therefore harmless.

IV.

For the reasons described, the bankruptcy court's

judgment is affirmed.

- 27 -