EBEL, Circuit Judge.
In this appeal, we address whether a debtor met the prerequisites to maintain a claim of bad faith against petitioning creditors pursuant to section 303(i) of the Bankruptcy Code, 11 U.S.C. § 303(i), after the underlying involuntary bankruptcy petition was dismissed without objection by the debtor.
In September 1986, Quintek, Inc. ("Quintek"), along with several other subcontractors, petitioned the United States Bankruptcy Court for the District of Utah to place R. Eric Peterson Construction Company, Inc. ("Peterson") in involuntary bankruptcy pursuant to 11 U.S.C. § 303. Quintek's counsel sent letters to all subcontractors with whom Peterson did business informing them of the involuntary petition. That publicity, in addition to the filing, had a disastrous effect on Peterson's financial health.
Peterson opposed the bankruptcy petition, alleging that it had paid its bills in timely fashion and that the creditors' claims were the subject of bona fide disputes, making the petition nonmeritorious pursuant to 11 U.S.C. § 303(b)(1). Peterson further alleged that the petition itself had been filed without adequate investigation of the company's financial status.
In October 1987, the petitioning creditors moved to dismiss the involuntary petition pursuant to 11 U.S.C. § 303(j)(1).
Record, Vol. III, at 4-5. The written order of dismissal recited the following:
Record, Vol. II, Doc. 53, at 1-2. Peterson proceeded to file its complaint alleging bad faith against the petitioning creditors pursuant to 11 U.S.C. § 303(i).
In November 1987, in the context of considering a request by Peterson for examination of the creditors pursuant to Bankruptcy Rule 2004, one of the creditors argued that Peterson had consented to dismissal of the involuntary petition and that the bankruptcy court therefore had been stripped of jurisdiction to hear the bad faith claim.
Peterson appealed the bankruptcy court's summary judgment to the United States District Court for the District of Utah, alleging that genuine issues of material fact remained on the issue of bad faith. In July 1990, after submission of briefs on the issue of whether Peterson had presented sufficient evidence of bad faith to avoid summary judgment, but before oral arguments, the district court affirmed the bankruptcy court's summary judgment order on the grounds, raised sua sponte, that the bankruptcy court had no jurisdiction to hear the claim. The district court found that Peterson had consented to dismissal of the bankruptcy petition and that Peterson had therefore failed to comply with the jurisdictional prerequisites to maintain an action under 11 U.S.C. § 303(i). The basis for this conclusion was the written order of dismissal of the involuntary petition, which recited that Peterson "did not oppose" the motion for dismissal. Because neither party had raised the issue of consent on appeal, the district court did not have the transcript of the bankruptcy court's dismissal hearing when it made its sua sponte jurisdiction ruling.
Peterson filed a timely appeal from the district court's order. Peterson argues that it did not consent to dismissal of the petition and that it had no opportunity to argue its lack of consent to the district court. We have jurisdiction to hear the appeal pursuant to 28 U.S.C. § 158(d).
II. Standard of Review
We must construe the meaning of the word consent in section 303(i), and we must determine whether Peterson's undisputed conduct constituted consent as a matter of law. We consider these issues de novo. United States v. Morgan, 922 F.2d 1495, 1496 (10th Cir.), cert. denied, ___ U.S. ___, 111 S.Ct. 2803, 115 L.Ed.2d 976 (1991); In re Ruti-Sweetwater, Inc., 836 F.2d 1263, 1266 (10th Cir.1988).
Section 303 of the Bankruptcy Code, 11 U.S.C. § 303, governs petitions for involuntary bankruptcy. When a bankruptcy court dismisses a petition for involuntary bankruptcy, the debtor may, under certain circumstances, recover costs and, in the case of a bad faith filing, it may also recover damages from the petitioning creditors. Section 303(i) provides in relevant part:
(emphasis added). Thus, the text of the statute makes a damage award contingent on three prerequisites. First, the court must have dismissed the petition. Second, the dismissal must be other than on consent of all petitioners and the debtor. Third, the debtor must not have waived its right to recovery under the statute. In the instant case, no one disputes that the bankruptcy judge dismissed the petition or that Peterson did not waive its rights under the section. The only question remaining is whether Peterson consented to dismissal.
We are aware of only two cases that have addressed the meaning of consent in this statute. See In re Int'l Mobile Advertising Corp., 117 B.R. 154, 157 (Bankr. E.D.Pa.1990), aff'd, No. 90-6349, 1991 WL 156588, 1991 U.S. Dist. LEXIS 11294 (E.D.Pa. Aug. 13, 1991); In re Kelton Motors, Inc., 121 B.R. 166, 186-87 (Bankr. D.Vt.1990).
In International Mobile Advertising, the debtor and petitioning creditor filed a joint motion to dismiss. The Order for Dismissal noted explicitly that "the Debtor has not waived its rights to damages caused by the filing of the within proceeding." 117 B.R. at 155. The debtor then sought damages pursuant to section 303(i). Even though it was clear that the debtor had not waived its claim, the bankruptcy court held that the debtor could not recover damages because both the debtor and the petitioning creditor had consented to dismissal. The court stated, "The parties cannot, by agreement, empower a federal court to hear a matter which it lacks statutory jurisdiction to consider." Id. at 157. On appeal, the district court broadened the bankruptcy court's holding by ruling that the Senate Judiciary Committee Report accompanying the bill that enacted section 303 "together with the express language in the statute clearly indicate that Congress intended that the remedy provided for in Section 303 be reserved for contested petitions and not in situations where the petitions are, by mutual consent, voluntarily dismissed." International Mobile Advertising, 1991 WL 156588, at *1, 1991 U.S. Dist. LEXIS 11294, at *3 n. 1 (emphasis added).
Kelton Motors reached the opposite result. In that case, the debtor filed for Chapter 11 protection after creditors filed a petition for involuntary bankruptcy against it. Before filing to convert the matter to a voluntary proceeding, the debtor reserved, in open court, the right to seek damages against the petitioning creditors under section 303(i) for the initial involuntary petition. The creditors argued that by filing voluntarily under Chapter 11, the debtor had waived its right to claim damages under section 303(i). According to the creditors' argument, the debtor's voluntary filing under Chapter 11 prevented the bankruptcy court from ruling on the merits of the involuntary petition, and therefore the debtor had not satisfied the prerequisites of section 303(i).
The bankruptcy court rejected the creditors' argument, holding that the reservation of the right to seek damages "qualified" the debtor's consent:
Kelton Motors, 121 B.R. at 186-87.
We find neither of these cases completely persuasive. We begin our analysis by attaching a common sense meaning to the word consent. A debtor should not be required actively to oppose dismissal of an involuntary bankruptcy in order to preserve a claim for damages under section 303(i) if that petition was wrongfully brought. A more passive statement of nonopposition to the creditors' motion to dismiss the petition should not indicate consent, at least where, as here, the debtor simultaneously manifests its intention to seek damages under section 303(i).
Under Quintek's interpretation of consent, the debtor would face a Hobson's choice if the creditors moved to dismiss the involuntary petition. On the one hand, the debtor wants to remove the stigma of the involuntary bankruptcy petition as soon as possible. On the other hand, the debtor wishes to preserve its rights to recover costs or damages from the petitioning creditors. However, the debtor cannot seek damages pursuant to section 303(i) until after dismissal of the involuntary petition has occurred. Therefore, as Quintek reads section 303(i), for a debtor to preserve its rights to recover under that section, it would be required to oppose the petitioner's motion to dismiss, even though doing so prolongs the period that the involuntary bankruptcy remains pending, accentuates the prejudice caused by the involuntary petition, and prevents actual recovery until after dismissal, which the debtor really favors but is artificially being forced to oppose. Nothing in the language of the statute requires us to give it such an illogical reading. Cf. Paradise Hotel Corp. v. Bank of Nova Scotia, 842 F.2d 47, 52 (3d Cir.1988).
To make matters more absurd, Quintek's interpretation of consent would require the bankruptcy court to waste its scarce resources holding a hearing that neither party really wants. If the debtor is required to oppose the motion to dismiss, the bankruptcy court must hear the motion although in reality neither the petitioning creditors nor the debtor wish the bankruptcy proceeding to continue. We agree with the bankruptcy court that construing consent in this manner to require such actions against self-interest by the debtor leads to a "ridiculous result." Record, Vol. IV, at 19.
Moreover, Quintek's argument blurs the distinction between a section 303(j)(1) dismissal and a section 303(j)(2) dismissal.
In this case, Peterson did not oppose the motion to dismiss. However, neither did it consent to the motion. The only language that might indicate otherwise is counsel's phrase "if we would go along with the dismissal."
Our holding is not inconsistent with the result in International Mobile Advertising. Because the parties in that case moved jointly to dismiss (unlike in the instant case), the court dismissed the case pursuant to section 303(j)(2). It is therefore beyond dispute that the debtor there consented to the dismissal, and the court properly declined to allow a damage claim under section 303(i). We do, however, disagree with the district court's language in International Mobile Advertising that "the petition must be contested" to make section 303(i) damages available. 1991 WL 156588, at *1, 1991 U.S. Dist. LEXIS 11294, at *3. We are not inclined to engraft such an additional requirement onto the statute, particularly when it would lead to the illogical results pointed out above.
We also respectfully disagree with Kelton Motors because it holds that explicit nonwaiver of the right to seek damages under section 303(i) necessarily precludes a finding of consent to dismissal. In contrast to International Mobile Advertising, which sought to add an additional requirement to section 303(i), Kelton Motors seeks to delete a requirement. Section 303(i) clearly requires nonconsent, in addition to nonwaiver. To say that nonwaiver alone is sufficient would read out of the statute the nonconsent requirement. In fact, a situation like the one in International Mobile Advertising demonstrates that a debtor may seek explicitly to reserve the right to damages and yet, by affirmatively consenting to the dismissal, fail to meet all the prerequisites of section 303(i). The statute requires both nonconsent and nonwaiver, and although a clear statement of nonwaiver of a damage claim under section 303 may help a court in interpreting whether ambiguous conduct by the debtor should be construed as consent, if the debtor and all other parties to an involuntary petition unequivocally consent to its dismissal, the language of section 303(i) bars a subsequent damage claim regardless of whether the debtor sought to preserve such a claim.
IV. Other Issues
Peterson also asks us to reverse the bankruptcy court's summary judgment ruling
Quintek makes three arguments that go to the merits of the bad faith claim. First, Quintek contends that any bad faith must lie with Quintek's former counsel, rather than with Quintek or its owner. Second, Quintek contends that Peterson should have mitigated its damages caused by the filing of the petition. Third, Quintek contends that Peterson's claims of bad faith are frivolous and that subjecting Quintek to the continued costs of litigation is therefore unjust.
Today, we decide only whether Peterson met the prerequisites necessary to bring its bad faith claim under section 303(i). We do not consider the legal merit of Peterson's claim. Quintek must direct its arguments regarding bad faith to the district court upon remand.
In summary, we hold that, as a matter of law, Peterson did not consent to dismissal within the meaning of 11 U.S.C. § 303(i) and that the bankruptcy court therefore could hear Peterson's bad faith claim for damages against Quintek. Accordingly, we REVERSE the district court's jurisdictional ruling, VACATE the district court's affirmance of the bankruptcy court, and REMAND the case to the district court to consider Peterson's appeal of the bankruptcy court's summary judgment.
11 U.S.C. § 303(j).
Record, Vol. III, at 4.