Georges Marciano v. Steven Chapnick

This case presents a question of first impression in this court: Under § 303(b)(1) of the Bankruptcy Code, 11 U.S.C. § 303 (b)(1), is an unstayed state judgment on appeal per se a “claim against [the debtor] that is not contingent as to liability or the subject of a bona fide dispute as to liability or amount?” Our answer to that question is “yes.”

I.

In 2007, Georges Marciano sued five of his former employees in California Superi- or Court, alleging theft. Three employees — Joseph Fahs, Steven Chapnick, and Elizabeth Tagle (the “Petitioning Creditors”)^ — cross-complained, alleging defamation and intentional infliction of emotional distress. As a sanction for a pattern of discovery abuses, the state trial court struck Marciano’s answers to the cross-claims. After a jury trial on damages, the trial court entered judgments in favor of Fahs, Chapnick, and Tagle for $55 million, $35 million, and $15.3 million, respectively.

Marciano appealed the three judgments to the California Court of Appeal but did not post a bond to stay them during appeal. See Cal.Civ.Proc.Code § 917.1(1) (“Unless an undertaking is given, the perfecting of an appeal shall not stay enforcement of…

dissenting:

The initiation of an involuntary bankruptcy case can have substantial consequences for a debtor, including “loss of credit standing, inability to transfer assets and carry on business affairs, and public embarrassment.” In re Reid, 773 F.2d 945, 946 (7th Cir.1985). To avoid potential abuses, the Bankruptcy Code precludes creditors from forcing debtors into bankruptcy based on claims that are subject to a bona fide dispute, 11 U.S.C. § 303 (b)(1), and we have required bankruptcy courts to scrutinize such claims on a case-by-case basis. See In re Vortex Fishing Sys., Inc. (Vortex), 277 F.3d 1057, 1064 (9th Cir. 2001). But the majority departs from this precedent, adopting an unsupported per se rule that claims arising from certain state court judgments are never subject to a bona fide dispute. This new rule creates a circuit split, see In re Byrd, 357 F.3d 433, 438 (4th Cir.2004) (rejecting this per se rule), is contrary to our case law, see Vortex, 277 F.3d at 1064 , and erases a protection given to debtors under the Code. I respectfully dissent.

I

A

In this case, a state court awarded some $95.3 million in damages to three of Marciano’s former employees for…

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

IN RE: GEORGES MARCIANO, No. 11-60070 Debtor. BAP No.

GEORGES MARCIANO, 11-1008

Appellant,

v. OPINION

STEVEN CHAPNICK; JOSEPH FAHS;

ELIZABETH TAGLE,

Appellees,

and

DAVID K. GOTTLIEB, Chapter 11 Trustee, Intervenor.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel Kirscher, Markell, and Dunn, Bankruptcy Judges, Presiding

Argued and Submitted November 7, 2012—Pasadena, California

Filed February 27, 2013 IN RE: MARCIANO

Before: Susan P. Graber, Sandra S. Ikuta, and Andrew D. Hurwitz, Circuit Judges.

Opinion by Judge Hurwitz; Dissent by Judge Ikuta

SUMMARY*

Bankruptcy

Affirming the bankruptcy court’s summary judgment, the panel held that an involuntary bankruptcy petition met the requirements of 11 U.S.C. § 303(b)(1) even though the judgments obtained by the petitioning creditors were on appeal when the petition was filed.

Following the “Drexler” rule, and declining to follow the approach of the Fourth Circuit, the panel held that an unstayed state judgment on appeal is per se a “claim against…