In re Fustolo

Summary

The Bankruptcy Court considers cross-motions for summary judgment concerning an involuntary Chapter 7 petition filed against Steven C. Fustolo by three judgment creditors. The principal issue is whether an unstayed state-court judgment on appeal is subject to a bona fide dispute under 11 U.S.C. § 303(b)(1). The court also addresses the petitioning creditors’ claims, collateral securing certain debts, and whether the statutory requirements for an involuntary case are satisfied.

Holdings

1. The court adopted the Byrd burden-shifting approach: an unstayed state-court judgment generally establishes a prima facie showing that the claim is not subject to a bona fide dispute, but the alleged debtor may rebut that presumption by presenting objective evidence of a bona fide dispute as to liability or amount.
2. A bona fide dispute concerning a discrete portion of Patton Drive's judgment did not disqualify Patton Drive in its entirety. The undisputed portions of its claim could be counted for purposes of § 303(b)(1), and Patton Drive qualified as a petitioning creditor.
3. The petitioning creditors satisfied the statutory claim-value requirement because Patriot held an approximately $20 million unsecured claim, which alone exceeded the statutory excess threshold after accounting for liens.
4. Summary judgment was appropriate because the factual disputes identified by the parties were not material to whether an order for relief should enter.

Questions Presented

1. Whether an unstayed state-court judgment on appeal is categorically not subject to a bona fide dispute under 11 U.S.C. § 303(b)(1), or whether the alleged debtor may rebut a presumption of no bona fide dispute.
2. Whether Patton Drive qualified as a petitioning creditor when part of its judgment was subject to a bona fide dispute as to amount.
3. Whether the petitioning creditors' claims exceeded the value of liens securing those claims by the statutory threshold under 11 U.S.C. § 303(b)(1).
4. Whether summary judgment was appropriate because no material facts were genuinely disputed.

Disposition

other