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Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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~ 

PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

In re ) 

) 

R. ERIC PETERSON CONSTRUCTION ) 

COMPANY I INC • I ) 

) 

Debtor. ) 

) 

) 

R. ERIC PETERSON CONSTRUCTION ) 

COMPANY I INC. I ) 

) 

Appellant, ) 

) 

FIL~D United States Court of Appeals Tenth Circuit 

DEC 13 1991 

ROBERTL.HOECKER 

Clerk 

vs. ) No. 90-4122 

QUINTER, 

) 

INC. I et al., ) 

) 

Appellees. ) 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF UTAH 

(D.C. No. 89-C-1059-S) 

(Bankruptcy No. 86C-04158) 

Duane H. Gillman (Janet A. Goldstein with him on the brief) of 

MCDowell & Gil1man, P.C., Salt Lake City, Utah for PlaintiffAppellant. 

Jeffrey Weston Shields (David R. Olsen with him on the brief) of 

Suitter Ax1and Armstrong & Hanson, Salt Lake City, Utah for 

Defendants-Appellees. 

Before BALDOCK, Circuit Judge, MCWILLIAMS, Senior Circuit Judge, and EBEL, Circuit Judge. 

EBEL, Circuit Judge. 

Appellate Case: 90-4122 Document: 01019324092 Date Filed: 12/13/1991 Page: 1 
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. 1 This 

issue turns on whether the debtor consented to dismissal of the 

bankruptcy petition when it did not object to the creditors' 

voluntary dismissal of the bankruptcy petition, although at the 

same time specifically reserving a claim against the creditors 

under section 303(i) for the alleged bad faith filing of the 

bankruptcy petition. We hold that the debtor did not consent to 

the dismissal within the meaning of 11 u.s.c. § 303(i) and that 

~ the debtor therefore met the prerequisites to maintain the claim 

for damages against the petitioning creditors. 2 

I. Facts 

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 

1 The appellant has moved to supplement the record to include 

the following items: two transcripts, a pleading, an affidavit, 

and two district court briefs. ~1 of these items were before one 

or both of the lower courts in this case. We will grant the 

appellant's motion as to all items except the briefs. Briefs in 

the district court are not ordinarily an appropriate part of our 

record on appeal. lOth Cir. R. 10.2.4. 

2 The district court treated the section 303(i) prerequisites 

as requirements for subject matter jurisdiction. For purposes of 

our opinion, we need not decide whether these prerequisites are 

jurisdictional or merely elements of a cause of action under 

section 303(i). 

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Appellate Case: 90-4122 Document: 01019324092 Date Filed: 12/13/1991 Page: 2 
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 t~ely 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)(l). 3 At a 

hearing on the motion, the bankruptcy court asked if Peterson 

objected to dismissal. The following colloquy then occurred: 

MR. BOONE [Counsel for Peterson]: I would like to 

indicate a reservation. The debtor does not object to 

the petition being dismissed, but it is the debtor's 

feeling that this petition was filed in bad faith and it 

wishes to assert a cla~ under 303([i]). And we would 

like to reserve the right, if we would go along with the 

dismissal, subject to reserving in the Court's 

jurisdiction and the right to have the bad faith claim 

adjudicated under 303([i]). 

MR. GOODMAN [Counsel for Quintek]: There are no 

objections to that, your Honor. 

3 It is relevant to note that the petitioners sought dismissal 

under 11 u.s.c. § 303(j)(1) (which is "on the motion of a 

petitioner") rather than under 11 u.s.c. § 303(j)(2) (which is "on 

consent of all petitioners and the debtor" [emphasis added]). See 

Record, Vol. III, at 3. Had Peterson agreed to a dismissal under 

§ 303(j)(2), it could not deny having given consent to the 

dismissal. 

-3-

Appellate Case: 90-4122 Document: 01019324092 Date Filed: 12/13/1991 Page: 3 
THE COURT: Case will be dismissed subject to the 

Court reserving jurisdiction to hear appropriate 

proceedings under 303([i]), which motion the Court will 

require to be brought, if at all, within 60 days. 

Record, Vol. III, at 4-5. The written order of dismissal recited 

the following: 

At the hearing, the Court considered the recommendations 

and arguments of counsel, including debtor's position 

that it did not oppose the Motion. The Court also 

considered debtor's request that the Court retain 

jurisdiction to consider debtor's claims under 

Bankruptcy Code§ 303(i)(2) •••• Accordingly, IT IS 

HEREBY ORDERED that the involuntary petition filed in 

the proceeding be and hereby is dismissed. IT IS 

FURTHER ORDERED that the Court retains jurisdiction to 

consider any claim debtor may wish to assert under 

Bankruptcy Code§ 303(i)(2). 

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. 4 The bankruptcy court rejected that argument, 

finding that "the debtor did not consent but simply did not 

contest the dismissal of the case, at least it did not consent 

within the meaning of Section 303(i)." Record, Vol. IV, at 22. 

Ultimately, the creditors moved for summary judgment, alleging 

that no evidence of bad faith existed that would entitle Peterson 

4 A condition to bringing a bad faith claim under section 

303(i) is that the dismissal of the bankruptcy petition was "other 

than on consent of all petitioners and the debtor." 11 u.s.c. § 

303(i). 

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Appellate Case: 90-4122 Document: 01019324092 Date Filed: 12/13/1991 Page: 4 
to relief. In October 1989, the bankruptcy court granted this 

motion. 

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 §YA 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). 

-5-

Appellate Case: 90-4122 Document: 01019324092 Date Filed: 12/13/1991 Page: 5 
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 

(lOth Cir.), cert. denied, 111 s. Ct. 2803 (1991); In re RutiSweetwater. Inc., 836 F.2d 1263, 1266 (lOth Cir. 1988). 

III. Discussion 

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: 5 

If the court dismisses a petition under this section 

other than on consent of all petitioners and the debtor, 

and if the debtor does not waive the right to judgment 

under this subsection, the court may grant judgment -- (1) against the petitioners and in favor of the 

debtor for -- (A) costs; 

(B) a reasonable attorney's fee; or 

(2) against any petitioner that filed the petition in bad faith, for -- (A) any damages proximately caused by such 

5 The version of section 303(i) set forth here reads as it did 

when Quintek filed the petition for involuntary bankruptcy. Se~tion 303(i) was amended soon after. See Bankruptcy Judges, Un~ted States Trustees, and Family Far.mer Bankruptcy Act of 1986, 

Pub. L. 99-554, § 204, 100 Stat. 3088, 3097 (1986). The changes 

had no effect on the meaning of the section as applicable to this 

case. 

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Appellate Case: 90-4122 Document: 01019324092 Date Filed: 12/13/1991 Page: 6 
filing; or 

(B) punitive damages. 

(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 pe~itioners 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 Co~., 117 B.R. 154, 157 (Bankr. E.D. Pa. 1990), 

aff'd, No. 90-6349, 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 

-7-

Appellate Case: 90-4122 Document: 01019324092 Date Filed: 12/13/1991 Page: 7 
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 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: 

[W]hat good is the parties' express reservation of a 

debtor's right to a judgment under § 303(i) if, by the 

parties giving consent to the dismissal of the 

involuntary petition simultaneously with the non-waiver 

-8-

Appellate Case: 90-4122 Document: 01019324092 Date Filed: 12/13/1991 Page: 8 
of judgment, the debtor would lose its right to that 

very judgment? As a practical matter in the proceeding 

sub iudice, if [the debtor] had understood its express non-waiver of its right to a judgment under § 303(i) 

might not also qualify its consent to the entry of a 

dismissal of the involuntary petition, then it is likely [the debtor] would not have consented to the dismissal 

of the involuntary petition. The preservation of a 

right to a judgment subsumes any consent, thus, we hold 

[the debtor's] reservation of right to a § 303(i) 

judgment necessarily-qualified [the debtor's] consent to 

the dismissal of the involuntary petition in the first 

place • • 

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 

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Appellate Case: 90-4122 Document: 01019324092 Date Filed: 12/13/1991 Page: 9 
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. Mothing 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) dismissa1. 6 

6 Section 303(j) provides three methods of dismissing an 

involuntary petition prior to adjudication on the merits: 

Only after notice to all creditors and a hearing may the 

court dismiss a petition filed under this section -- (1) on the motion of a petitioner; 

(2) on consent of all petitioners and the debtor; or 

(3) for want of prosecution. 

~ 11 u.s.c. §303(j). 

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Appellate Case: 90-4122 Document: 01019324092 Date Filed: 12/13/1991 Page: 10 
• 

Here the bankruptcy court dismissed pursuant to section 303(j)(l), 

which does not require the debtor's consent, rather than pursuant 

to section 303(j)(2), which does require a debtor's consent. 

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." 7 Taken alone, this phrase might give 

us pause. In the context of counsel's full statement, which 

responded to the court's request for objections to the motion to 

dismiss, however, this phrase does not indicate consent. 

A bankruptcy court's failure to render a decision on the 

merits on an involuntary petition does not in itself prevent that 

court from hearing a section 303(i) damages claim. Where, as 

here, the debtor does not affirmatively consent to dismissal and 

where a fair reading of the record makes it clear that the debtor 

intended not to waive its rights under section 303(i), the 

bankruptcy court may entertain a claim for damages pursuant to 

section 303(i). 

Our holding is not inconsistent with the result in 

International Mobile Advertising. Because the parties in that 

7 As indicated previously, the precise statement made by 

Peterson's counsel was the following: 

I would like to indicate a reservation. The debtor does 

not object to the petition being dismissed, but it is 

the debtor's feeling that this petition was filed in bad 

faith and it wishes to assert a claim under 303([i]). 

And we would like to reserve the right, if we would go 

along with the dismissal, subject to reserving in the 

Court's jurisdiction and the right to have the bad faith 

claim adjudicated under 303([i]). 

Record, Vol. III, at 4. 

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Appellate Case: 90-4122 Document: 01019324092 Date Filed: 12/13/1991 Page: 11 
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 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. 8 

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 

8 The reference in International Mobile Advertising to 

legislative history is quite unpersuasive. The court there 

purported to rely on language in the Senate report accompanying 

the bill enacting§ 303(i). The exact language quoted by the 

court from the Senate report was: "Subsection (i) [of § 303 of 

the Bankruptcy Code] permits the court to award costs, reasonable 

attorney's fees, or damages if an involuntary petition is 

dismissed other than [by] consent of all petitioning creditors and 

the debtor." International Mobile Advertising, 1991 u.s. Dist. 

LEXIS 11294, at *3 n.1 (quoting s. Rep. No. 989, 95th Cong. 2d 

Sess. 34 (1978), reprinted in 1978 u.s.c.c.A.N. 5787, 5820). The 

language relied upon parrots the language of the statute almost 

word for word and, in our view, provides no guidance at all beyond 

the words in the statute. Moreover, that report's observation 

that nonmeritorious petitions may nonetheless put a debtor out of 

business, s. Rep. No. 989, at 33, reprinted in 1978 u.s.c.c.A.N. 

at 5819, suggests that Congress intended the availability of 

section 303(i) to depend on the merit, or lack thereof, of the 

petition, rather than upon whether dismissal was contested. 

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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. 9 

III. Other Issues 

Peterson also asks us to reverse the bankruptcy court's 

summary judgment ruling for Quintek on the merits of the bad faith 

cla~. Peterson asserts that sufficient evidence of bad faith 

exists in the record to preclude summary judgment. The district 

court never reached this issue because of the court's 

9 It is ambiguous in Kelton Motors whether the court ever 

dismissed the involuntary petition. Compare Kelton Motors, 12 

B.R. at 173-74 (petitioning creditors asserted that no dismissal 

of the involuntary petition had taken place) and id. at 186 

("there was no separate adjudication of a dismissal of the 

involuntary petition") with id. at 186-87 (debtor consented to 

dismissal after explicitly reserving right to seek damages under 

section 303(i)). To the extent that Kelton Motors stands for the 

proposition that dismissal is not a prerequisite to seeking 

damages under section 303(i), we disagree. 

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.... 

jurisdictional holding. We therefore remand this issue to the 

district court. See Singleton v. Wulff, 428 u.s. 106, 120 (1976) 

("It is the general rule •.• that a federal appellate court does 

not consider an issue not passed upon below."). 

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. 

V. Conclusion 

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. 

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