IN RE ROSENBERGBankruptcy No. 09-13196-BKC-AJC. Adversary No. 10-03812-BKC-AJC.
471 B.R. 307 (2012)
In re Maury ROSENBERG, Alleged Debtor.
Maury Rosenberg, Plaintiff,
DVI Receivables, XIV, LLC, et al., Defendants.
Maury Rosenberg, Plaintiff,
DVI Receivables, XIV, LLC, et al., Defendants.
United States Bankruptcy Court, S.D. Florida.
March 26, 2012.
Allison R. Day, Esq., Miami, FL, Bonnie R. Golub, Carlos E. Sardi, Esq., Philadelphia, PA, for Alleged Debtor and Plaintiff.
Peter H. Levitt, Esq., Stephen P. Drobny, Esq., Miami, FL, Jeffrey A. Blaker, Esq., West Palm Beach, FL, Andrew J. Marchese, Fort Lauderdale, FL, for Defendants.
ORDER GRANTING IN PART AND DENYING IN PART MOTION OF PETITIONING CREDITOR DEFENDANTS AND U.S. BANK DEFENDANTS TO DISMISS ADVERSARY COMPLAINT
A. JAY CRISTOL, Bankruptcy Judge.
THIS MATTER came before the Court for hearing upon the Motion to Dismiss Adversary Complaint [D.E. Adv. #18] filed by Defendants DVI Receivables, XIV, LLC, DVI Receivables, XVI, LLC, DVI Receivables, XVII, LLC, DVI Receivables, XVIII, LLC, DVI Receivables, XIX, LLC and DVI Funding, LLC (collectively, the "Petitioning Creditor Defendants" or the "Petitioning Creditors") and by Lyon Financial Services, Inc. d/b/a U.S. Bank Portfolio Services ("Lyon"), U.S. Bank, N.A. ("USB") and Jane Fox (collectively, the "U.S. Bank Defendants"). The Court has reviewed the adversary complaint, the motion to dismiss and the memorandum in opposition filed by the Alleged Debtor, Maury Rosenberg [D.E. Adv. # 42] and has considered the argument of counsel at the hearing. For the reasons set forth below, the Court grants the motion to dismiss as to all state law claims and as to the Sections 303(i) and 105(a) claims against the U.S. Bank Defendants and denies the motion to dismiss as to the Section 303(i) claims against the Petitioning Creditor Defendants.
This adversary proceeding arises from the dismissal of an involuntary chapter 7 bankruptcy petition filed against Maury Rosenberg. Rosenberg moved to dismiss the involuntary petition on various grounds. In granting his motion, this Court concluded that Rosenberg's guaranty runs to Lyon or USB, not to the Petitioning Creditors and that the Petitioning Creditors are not real parties in interest. The Court also ruled that the Petitioning Creditors are judicially estopped to assert creditor status because, in an earlier Pennsylvania state court case, Lyon, not the Petitioning Creditors, sued Rosenberg to collect on the same debt. Finally, the Court concluded that the debt is contingent, because a demand for payment was not made on Rosenberg, and that a bona fide dispute exists concerning a portion of the debt. See Order and Memorandum Opinion Granting Motion of Alleged Debtor Maury Rosenberg to Dismiss Involuntary Chapter 7 Case, dated August 21, 2009 (the "Dismissal Order") [D.E. # 96]. That Order was affirmed on appeal in all respects but one, with respect to the contingency nature of the claim(s). However, such decision does not affect the issues before the Court on the subject Motion to Dismiss.
After the dismissal of the involuntary petition, Rosenberg filed a motion for sanctions against the Petitioning Creditors and various other parties under Section 303(i) of the Bankruptcy Code. The Court determined that, in order to attempt to seek relief against parties other than the Petitioning Creditors, Rosenberg was required to file an adversary complaint and to join the additional parties. Rosenberg then filed the instant adversary proceeding, which has superseded the earlier-filed motion for sanctions.
In this adversary proceeding, Rosenberg sues the Petitioning Creditors, as well as additional parties (the U.S. Bank Defendants), for attorneys fees, costs and damages pursuant to 11 U.S.C. § 303(i) and 11 U.S.C. § 105. In addition, Rosenberg seeks to recover damages based on state law claims of abuse of process and malicious prosecution and state law theories of recovery such as respondeat superior.
CLAIMS UNDER 11 U.S.C. § 303(i)
Section 303(i) of the Bankruptcy Code grants bankruptcy courts authority to impose sanctions on petitioning creditors after an involuntary bankruptcy case is dismissed. It provides:
The interpretation of a statute begins "with the language of the statute itself." United States v. Ron Pair,
At the hearing on April 7, 2011, the Court noted that Section 303(i) uses the term "petitioner" rather than "petitioning creditor" and suggested that the term "petitioner" may be broader than "petitioning creditor" and might authorize sanctions against corporate officers who sign involuntary petitions. The Court has reviewed the case authority submitted by the parties on this issue, and has found reported cases applying Section 303(i) to impose liability on parties who were not the petitioning creditors. See In re Oakley Custom Homes, Inc.,
Courts have allowed an alleged debtor whose case is dismissed to impose Section 303(i) liability against not only the actual petitioning creditors, but also on those who act for or on their behalf of those creditors as agents or control persons. Oakley, 168 B.R. at 232. The court in Oakley specifically found an agency relationship between an individual and the petitioning creditors based on the individual holding himself out as an agent to both of the original Petitioning Creditors and for actively participating in events pertinent to the involuntary bankruptcy petition. Id. at 234. The Oakley court concluded that "[b]ecause of such agency, and other significant roles played, acts initiated, and conduct undertaken by [the agent], he has subjected himself to the jurisdiction of [th]e Court. . . . [and] due to the admitted agency relationship ... and express authority granted ... by [the principal] to [the agent], the actions of [the agent] are attributable to and, in part, may properly be considered, action of [the petitioning creditor principal]." Id. at 234-235.
The Movants argue that relief pursuant to the doctrine of respondeat superior is unavailable under 11 U.S.C. § 303(i). However, it is well-settled that an employer may be subject to direct liability for the failure to control or supervise its employees when third parties are injured by the tortious acts of such employees. Moreover, an employer is vicariously liable for compensatory damages resulting from the negligent acts of employees committed within the scope of their employment even if the employer is without direct fault. National R.R. Passenger Corp. v. Rountree Transport and Rigging, Inc.,
A corporation can also be held "directly liable" for damages, including punitive damages, for the acts of its managing agents or those in a decision-making position. See Schropp v. Crown Eurocars, Inc.,
Moreover, U.S. Bank, N.A., as a disclosed principal, may be held directly liable for the acts of Ms. Fox and/or Lyon, who allegedly acted as agent for U.S. Bank, N.A. In this case, the Complaint alleges an agency relationship between Lyon and U.S. Bank, N.A. The Complaint alleges that Lyon, at all relevant times, through the acts of Ms. Fox, openly acted as the agent for U.S. Bank N.A. Indeed, this Court found in its Dismissal Order that Ms. Fox testified on numerous occasions that Lyon and U.S. Bank N.A. maintained a contractual relationship establishing Lyon's role to act on behalf of and be compensated as an agent of U.S. Bank N.A. See, e.g., [10/01/08 J. Fox Dep., at pp. 33, 35] [04/22/09 J. Fox Dep., at pp. 172-173]. The Court noted that the record evidence indicated that Lyon has consistently identified itself as the agent for U.S. Bank N.A. in this case. See, e.g., [Ex. 75 (Settlement Agreement in the Original Bucks County Action defining Lyon "as agent for U.S. Bank, National Association as Trustee or Collateral Agent")] [Ex. 27 (Limited Guaranty defining Lyon "as agent for the Trustee")] [Ex. 49 (Complaint filed in Second Bucks County Action filed by Lyon "as agent for U.S. Bank, National Association as Trustee or Collateral Agent")]. A principal who knowingly permits its agent to act in an unauthorized manner remains liable to third parties who believe in good faith that the principal consented to the agent's acts.
Courts have determined that "causing" the improper filing of an involuntary petition may create personal liability under Section 303(i) against those who execute the involuntary petition. See Jaffe v. Wavelength, Inc. (In re Wavelength, Inc.),
The Court believes Rosenberg has alleged sufficient facts in his Complaint to properly seek to impose Section 303(i) liability not only on all the Petitioning Creditors, but upon those actually signing the Involuntary Petition on behalf of the Petitioning Creditors, to wit, the U.S. Bank Defendants.
CLAIMS UNDER 11 U.S.C. § 105(a)
The adversary complaint relies on the Court's powers under Section 105(a) to support the Alleged Debtor's claims against the U.S. Bank Defendants. Although the Court's powers under Section 105(a) are broad, Section 105(a) does not authorize the Court to rewrite Section 303(i) to incorporate concepts of aiding and abetting liability, control person liability or disclosed principal liability.
A bankruptcy court's general and equitable powers "must and can only be exercised within the confines of the Bankruptcy Code." Norwest Bank Worthington v. Ahlers,
Section 105(a) may be utilized only in a manner consistent with the provisions of the Bankruptcy Code. See Johnson v. First Nat'l Bank of Montevideo,
Section 105 permits courts to impose contempt sanctions in certain circumstances. See In re Hardy,
Section 303(i) is a carefully written and detailed remedial provision. The Court's equitable powers under Section 105(a) may not be used to rewrite the statute to create damages remedies against additional parties. The Court must reject Rosenberg's attempt to impose liability on parties other than the Petitioning Creditors based on Section 105(a) or using Section 105(a) in conjunction with Section 303(i). Accordingly, Rosenberg's claims against the U.S. Bank Defendants under Section 105(a) fail to state a claim upon which relief may be based. The Court does not need to rely on Section 105(a) as support for the claims against the Petitioning Creditors, as Section 303(i) provides ample authority for such claims.
PREEMPTION OF STATE LAW CLAIMS OF MALICIOUS PROSECUTION AND ABUSE OF PROCESS
The Court concludes that Rosenberg's state law claims for malicious prosecution and abuse of process are preempted by Section 303(i). The Supremacy Clause of Article VI of the United States Constitution provides Congress with the power to preempt state law. Louisiana Pub. Serv. Comm'n v. Fed. Comm. Comm'n,
Congress can expressly state its intent to preempt state law. When a statute is silent on the issue of preemption, the intent to preempt state law is implied if Congress has legislated comprehensively and occupied an entire field of regulation, leaving no room for state law to be applied. See Intern'l Paper Co. v. Ouellette,
In the bankruptcy arena, Congress has enacted a comprehensive statute—the United States Bankruptcy Code, as amended—which governs the field of federal bankruptcy law and grants the federal courts exclusive jurisdiction over bankruptcy cases. This exclusive jurisdiction extends to the filing of involuntary bankruptcy petitions and the remedies available for an improper filing. See MSR Exploration, Ltd. v. Meridian Oil, Inc.,
In Section 303(i) of the Bankruptcy Code, Congress enacted a comprehensive framework of remedies for alleged debtors aggrieved by improper involuntary bankruptcy filings. Koffman v. Osteoimplant Tech., Inc.,
See also Stone Crushed P'ship v. Kassab Archbold Jackson & O'Brien, 589 Pa. 296,
Rosenberg cites R.L. LaRoche, Inc. v. Barnett Bank of S. Florida,
Based on the reasoning in the majority of cases holding that state law causes of action are not available to an involuntary debtor who successfully obtains the dismissal of an involuntary petition, the Court concludes that Rosenberg's state law causes of action for abuse of process and malicious prosecution are preempted by federal law and fail to state causes of action upon which relief may be based.
AIDING AND ABETTING LIABILITY
Section 303(i) does not expressly provide for aiding and abetting liability, as some federal statutes do. The Supreme Court has disapproved the notion of engrafting aiding and abetting liability into a federal remedial statute that does not expressly provide for such liability.
In Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A.,
511 U.S. at 176-77, 114 S.Ct. 1439.
Many federal statutes contain provisions allowing courts to impose liability on aiders and abettors. Section 303(i) does not. Accordingly, the Court concludes that Rosenberg's claims based on "aiding and abetting" liability fail to state claims upon which relief may be based, as that there is no cause of action under Section 303(i) for aiding and abetting liability.
JOINT AND SEVERAL LIABILITY
Rosenberg alleges that the Petitioning Creditor Defendants are jointly and severally liable for any amounts awarded under Section 303(i). In awarding fees, costs or damages under 11 U.S.C. § 303(i), a bankruptcy court must consider the totality of the circumstances, not principles of tort liability to impose joint and several liability. In In re Maple-Whitworth,
Id. at 745-746.
While tort concepts and class theories of liability may be irrelevant to the flexible considerations of the court, a bankruptcy court nonetheless has discretion to hold all or some petitioners jointly or severally liable, to apportion liability or to deny an award against some or all petitioners depending on the totality of the circumstances. Id. See, e.g., In re Southern California Sunbelt Developers, Inc.,
SECTION 303(i) ALLOWS AWARD OF APPELLATE FEES
Lastly, the Movants argue that Section 303(i) does not allow an award of appellate attorney's fees and/or prejudgment interest on attorney's fees. It is well-settled that an alleged debtor can recover legal fees incurred after dismissal of an involuntary case. See In re John Richards Homes Bldg. Co., LLC.,
1. The motion to dismiss is denied as to the Section 303(i) claims alleged in Counts I and VIII against the Petitioning Creditor Defendants.
2. The motion to dismiss is granted with prejudice as to the malicious prosecution and abuse of process claims alleged in Counts XV and XVI against the Petitioning Creditor Defendants and the U.S. Bank Defendants.
3. The motion to dismiss is granted with prejudice as to the Section 105 claims alleged in Counts III and X against Lyon.
4. The motion to dismiss is granted with prejudice as to the Section 105 claims alleged in Count VII and XIV against USB.
5. The motion to dismiss is granted with prejudice as to the Section 105 claims alleged in Counts II and VIII against Fox.
6. The Court denies dismissal of Rosenberg's claim for appellate attorneys fees and reserves ruling on the issue of whether prejudgment interest may be awarded.
7. This order is without prejudice to any state law claims and remedies the Debtor may have against any of the Defendants herein for conduct other than the filing of the involuntary bankruptcy petition that was dismissed by this Court.
8. All relief requested but not specifically granted herein is DENIED.
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