United States Court of Appeals 

For the First Circuit 

No. 15-1340 

STEVEN C. FUSTOLO, 

Plaintiff, Appellant, 

v. 

50 THOMAS PATTON DRIVE, LLC; THE PATRIOT GROUP LLC; 

RICHARD MAYER, 

Defendants, Appellees. 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF MASSACHUSETTS 

[Hon. Rya W. Zobel, U.S. District Judge] 

Before 

Torruella, Lynch,* and Kayatta, 

Circuit Judges. 

 David M. Nickless, with whom Nickless, Phillips and O'Connor, 

was on brief for appellant. 

 Michael J. Fencer, with whom Howard P. Blatchford, Jonathan 

M. Horne, and Jager Smith P.C., were on brief, for appellees 50 

Thomas Patton Drive, LLC, and Richard Mayer. 

 Colleen C. Cook, with whom Michael Paris, Jack I. Siegal, and 

Nystrom Beckman & Paris LLP, were on brief, for appellee The 

Patriot Group LLC. 

 * Judge Lynch heard oral argument in this matter and 

participated in the semble, but she did not participate in the 

issuance of the panel's opinion. The remaining two panelists issue 

this opinion pursuant to 28 U.S.C. § 46(d). 
February 24, 2016 
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KAYATTA, Circuit Judge. We hold in this case that a 

claim to payment that 50 Thomas Patton Drive, LLC ("Patton Drive") 

holds against Steven Fustolo ("Fustolo") "is not contingent as to 

liability or the subject of a bona fide dispute as to liability or 

amount" within the meaning of section 303(b)(1) of the Bankruptcy 

Code. 11 U.S.C. § 303(b)(1). We therefore affirm the decision of 

the bankruptcy court, which found Patton Drive qualified to join 

with two other creditors also holding non-contingent, undisputed 

claims to force Fustolo into an involuntary bankruptcy proceeding. 

I. 

Patton Drive's claims against Fustolo arise out of four 

promissory notes issued to Patton Drive by Fustolo's affiliate 

companies in connection with two real estate transactions. Fustolo 

personally guaranteed two of the notes (the "Guaranteed Notes"), 

which together totaled $1.25 million, but did not guarantee the 

other two notes (the "Unguaranteed Notes"), which together totaled 

$1.5 million. When the principal debtors defaulted on all four 

notes, Patton Drive sued the debtor companies and Fustolo, 

asserting that Fustolo was personally liable on his guarantee. 

The Massachusetts state court found Fustolo liable for breach of 

contract and rejected Fustolo's argument that Patton Drive's 

technical violation of a state usury statute should reduce the 

amount of interest owed on the notes. The court entered a final 

judgment against Fustolo in favor of Patton Drive in the amount of 
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roughly $6.76 million.1 Fustolo contends that this judgment 

overstated his liability by approximately $4 million because it 

erroneously assumed that he had guaranteed all of the notes. In 

response, Patton Drive demurs, declining to offer any defense of 

the state court's damages calculation. Fustolo lodged a timely 

appeal of the state court judgment but did nothing further to 

prosecute the appeal, which we are told has rested more or less 

dormant on the state court's appellate docket for at least four 

years. 

Meanwhile, Fustolo, who admittedly has at least twelve 

creditors, failed to satisfy his financial obligations to at least 

two of those other creditors, The Patriot Group LLC ("Patriot") 

and Richard Mayer ("Mayer"). On May 6, 2013, eighteen months after 

entry of the state court judgment, Patton Drive joined with Patriot 

and Mayer to file a petition with the United States Bankruptcy 

Court, seeking to place Fustolo into involuntary Chapter 7 

bankruptcy, and to thereby cause Fustolo's debts to be determined 

 1 The court also found, inter alia, that Fustolo and his 

affiliates had violated a state statute by engaging in unfair and 

deceptive business practices. See Mass. Gen. Laws ch. 93A, §§ 2, 

11. The parties dispute whether Fustolo was assigned any 

independent monetary liability for this violation, but it is 

undisputed that the judgment held all defendants jointly and 

severally liable for attorneys' fees and costs as to this and other 

counts. 
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and his assets gathered and liquidated in an orderly fashion to 

satisfy those debts. See 11 U.S.C. §§ 303(b)(1), 701 et seq. 

The creditors' ability to force Fustolo into bankruptcy 

rests on 11 U.S.C. § 303(b)(1), which provides that involuntary 

bankruptcy proceedings may be commenced via petition to the 

bankruptcy court 

by three or more entities, each of which is 

. . . a holder of 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 . . . if such noncontingent, 

undisputed claims aggregate at least 

[$14,425] more than the value of any lien on 

property of the debtor securing such claims 

held by the holders of such claims. 

11 U.S.C. § 303(b)(1); see also id. § 104(a). Fustolo does not 

dispute that Patriot and Mayer hold eligible claims against him. 

Nor does Fustolo dispute that the total amount of those undisputed 

claims exceeds the value of any related liens on his property by 

the statutorily requisite amount. However, Fustolo maintains that 

Patton Drive has not asserted a claim that qualifies it to serve 

as a petitioning creditor because his pending state court appeal 

subjects Patton Drive's judgment to "bona fide dispute as to 

liability or amount." Id. § 303(b)(1). 

Following an evidentiary hearing in the bankruptcy court 

on Fustolo's challenge to their qualifications to initiate an 

involuntary proceeding, the three petitioning creditors moved for 

summary judgment. Fustolo opposed the motion and filed his own 
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cross-motion for summary judgment. On December 16, 2013, the 

bankruptcy court granted summary judgment to the petitioning 

creditors, thus authorizing involuntary bankruptcy proceedings to 

commence against Fustolo. 

In assessing whether Patton Drive's state court judgment 

constituted a qualifying claim despite Fustolo's appeal, the 

bankruptcy court employed the approach approved by the Fourth 

Circuit in In re Byrd, 357 F.3d 433 (4th Cir. 2004). Under this 

approach, the court did not accord the state court judgment against 

Fustolo dispositive force in establishing the absence of a bona 

fide dispute concerning the right to payment recognized and 

affirmed in that judgment. Instead, the court began with a 

presumption that the judgment foreclosed any bona fide dispute, 

but then proceeded to assess the merits of Fustolo's pending state 

court appeal to determine whether Fustolo's case "exemplifie[d] 

the rare circumstance where the amount of the judgment is in bona 

fide dispute." Upon examination, the court found a bona fide 

dispute as to the portion of the judgment that awarded damages 

against Fustolo on the Unguaranteed Notes because, among other 

things, Patton Drive did not oppose the contention that it had no 

right to recover against Fustolo on those notes. At the same time, 

the bankruptcy court separately assessed Patton Drive's right to 

payment on the portion of the state court judgment that covered 

Fustolo's breach of contract on the Guaranteed Notes. Finding 
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this portion of the judgment free of bona fide dispute, the 

bankruptcy court granted summary judgment to Fustolo's creditors 

and denied Fustolo's cross-motion. 

Fustolo then appealed to the district court and found 

himself jumping from the frying pan into the fire. The district 

court eschewed the Fourth Circuit's merits-based analysis of the 

preclusive effect of an appealed state court judgment, opting 

instead for the approach announced in In re Drexler, 56 B.R. 960 

(Bankr. S.D.N.Y. 1986), and adopted by the only other circuit court 

to have decided this issue, see In re Marciano, 708 F.3d 1123, 

1124 (9th Cir. 2013). Under the so-called Drexler rule, an 

unstayed state court judgment, whether or not subject to appeal, 

per se constitutes a claim that is not subject to bona fide 

dispute. See Drexler, 56 B.R. at 967. Therefore finding that 

Fustolo's appeal in state court, however meritorious, could not 

raise a bona fide dispute as to Patton Drive's claim, the district 

court affirmed the bankruptcy court's order. 

Fustolo now appeals to this court pursuant to 28 U.S.C. 

§ 158(d)(1),2 urging us, first, to reject the district court's 

 2 Although no party addresses whether a bankruptcy court's 

order for relief in favor of a petitioning creditor in an 

involuntary suit is the sort of final order over which this court 

has appellate jurisdiction, we follow our sister circuits in 

finding no apparent impediment. See In re HealthTrio, Inc., 653 

F.3d 1154, 1160 (10th Cir. 2011); In re McGinnis, 296 F.3d 730, 

731 (8th Cir. 2002) (per curiam); In re Mason, 709 F.2d 1313, 1315–

18 (9th Cir. 1983); see also Bullard v. Blue Hills Bank, 135 S. 
- 8 - 

decision to apply Drexler's categorical rule and, second, to reject 

the bankruptcy court's determination that, even under Byrd's more 

debtor-friendly burden-shifting rule, Patton Drive qualifies as a 

petitioning creditor because it holds a claim on the Guaranteed 

Notes that is free of bona fide dispute. For slightly different 

reasons, we affirm. 

II. 

A.

 In bankruptcy proceedings, summary judgment is 

appropriate when the movant has shown that there is no genuine 

dispute as to any material fact and that the movant is entitled to 

judgment as a matter of law. Fed. R. Bankr. P. 7056; Fed. R. Civ. 

P. 56(a). We review the bankruptcy court's grant of summary 

judgment de novo. In re Colarusso, 382 F.3d 51, 57–58 (1st Cir. 

2004). In undertaking this review, we afford no deference to the 

district court's intermediate decision. In re Healthco Int'l, 

Inc., 132 F.3d 104, 107 (1st Cir. 1997). 

B. 

We begin with the creditors' argument that we can easily 

resolve this appeal by adopting the district court's conclusion 

that the Drexler rule applies and that Patton Drive's claim is 

 

Ct. 1686, 1695 (2015) (suggesting that a bankruptcy court order 

that "allows the bankruptcy to go forward and alters the legal 

relationships among the parties" is appealable). 
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therefore categorically free from bona fide dispute. If the 

creditors are correct on this point, we need not--and indeed 

cannot--look behind the state court judgment to assess its merits. 

On the facts of this case, however, we cannot hold that the Drexler 

rule applies. 

The Drexler rule, followed by the Ninth Circuit, see 

Marciano, 708 F.3d at 1124, has much to commend it. It is simple 

to apply, and it reduces the waste of assets inherent in opening 

the opportunity for a financially troubled party to argue the 

merits of issues previously adjudicated in state court. It also 

arguably accords to a state court judgment the sort of respect and 

finality reflected in the Full Faith and Credit Act, which requires 

that federal courts give state court judgments "the same full faith 

and credit . . . as they have by law or usage in the courts of 

such State . . . from which they are taken." 28 U.S.C. § 1738; 

see also Marciano, 708 F.3d at 1128.3

 3 The creditors take this observation one step further and 

argue that 28 U.S.C. § 1738 fully estops Fustolo from arguing the 

existence of a bona fide dispute as to the state court judgment in 

light of the fact that, under Massachusetts law, "a trial court 

judgment is final and has preclusive effect regardless of the fact 

that it is on appeal." O'Brien v. Hanover Ins. Co., 692 N.E.2d 

39, 44 (Mass. 1998). Fustolo, though, does not ask us in this 

litigation to reject the fact or legal effect of the state court 

judgment. Rather, he seeks only to establish that the amount of 

his liability is subject to bona fide dispute. See Marciano, 708 

F.3d at 1134 (Ikuta, J., dissenting) ("[D]etermining whether a 

claim based on a state court judgment is subject to a bona fide 

dispute does not require us to [decide anew] any issue [already] 

decided in a state court proceeding."). And we have found no 
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More importantly, the Drexler rule fits with Congress's 

apparent purpose in requiring each claim underlying an involuntary 

petition to be free of "bona fide dispute." In usual course, 

bankruptcy serves as a haven for debtors seeking protection from 

creditors and hoping to make a fresh start. See In re Fahey, 779 

F.3d 1, 8–9 (1st Cir. 2015). But the Bankruptcy Code also serves 

another, "often conflicting," purpose: to "ensure fair payment to 

creditors." In re Energy Res. Co., 871 F.2d 223, 230 (1st Cir. 

1989). Section 303 of the Bankruptcy Code thus allows creditors 

who satisfy certain conditions to force a debtor into bankruptcy, 

so that the disposition of the debtor's assets can proceed in a 

more orderly fashion. 

The requirement that the petitioning creditors' claims 

be free of bona fide dispute was added by the Bankruptcy Amendments 

and Federal Judgeship Act of 1984, Pub. L. No. 98-353, § 426(b), 

98 Stat. 333, 369. The Bankruptcy Code does not define the term 

"bona fide dispute," but courts have more or less settled on 

finding a bona fide dispute when "there is either a genuine issue 

of material fact that bears upon the debtor's liability or a 

meritorious contention as to the application of law to undisputed 

facts." In re BDC 56 LLC, 330 F.3d 111, 117 (2d Cir. 2003) (citing 

 

Massachusetts precedent suggesting that the existence of a 

judgment estops a litigant from arguing that the judgment is 

persuasively contested. 
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cases), abrogated on other grounds as recognized in In re Zarnel, 

619 F.3d 156, 169 (2d Cir. 2010). The self-evident purpose of the 

"no bona fide dispute" requirement, as courts have repeatedly 

recognized, is "to prevent creditors from using involuntary 

bankruptcy 'to coerce a debtor to satisfy a judgment even when 

substantial questions may remain concerning the liability of the 

debtor.'" Byrd, 357 F.3d at 438 (quoting In re Prisuta, 121 B.R. 

474, 476 (Bankr. W.D. Pa. 1990)); see also BDC 56 LLC, 330 F.3d at 

117–18; In re Tikijian, 76 B.R. 304, 313–14 (Bankr. S.D.N.Y. 1987) 

("It was stated by the proponent of the [1984] amendment . . . 

that the primary purpose of the addition of the bona fide dispute 

language was to prevent creditors from using involuntary 

bankruptcy as a club to coerce a debtor to pay debts as to which 

the debtor, in good faith, had legitimate defenses."). With that 

purpose in mind, courts generally try to determine whether, 

objectively, there is a dispute about a debt that reasonably 

warrants resolution by a factfinder or, in the case of a dispute 

of law, a court. See In re Busick, 831 F.2d 745, 750 (7th Cir. 

1987) ("[T]he bankruptcy court must determine whether there is an 

objective basis for either a factual or a legal dispute as to the 

validity of debt."). When such a dispute exists, we do not allow 

the creditor to coerce the debtor's surrender by credibly 

threatening to use the claim as a basis for an involuntary 

petition. 
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But when the creditor already holds a state court 

judgment upon which execution is possible, allowing the creditor 

to join in forcing a bankruptcy proceeding adds little material 

weight to the creditor's ability to coerce payment of the debt. 

The absence of a stay also undercuts the debtor's ability to argue 

that the state courts view the debt as not quite collectable. 

Consistent with these reasons, the Drexler rule applies only to 

"unstayed" state court judgments--those judgments that actually 

entitle a creditor to access the debtor's assets. Drexler, 56 

B.R. at 967 n.11; see also, e.g., In re Raymark Indus., Inc., 99 

B.R. 298, 299–300 (Bankr. E.D. Pa. 1989). 

Turning to the instant case, a Massachusetts trial 

court's judgment is effectively stayed by operation of state law 

for the purposes of execution, even absent a court order, while an 

appeal is pending. See Mass. Gen. Laws ch. 231, § 115; id. ch. 

235, § 16; Mass. R. Civ. P. 62(a). Thus, Patton Drive could not 

execute in Massachusetts courts on its judgment. See, e.g., C.F. 

Tr., Inc. v. Peterson, No. 961375H, 1998 WL 1284163, at *2–3 (Mass. 

Super. Ct. May 21, 1998) (refusing execution on a confessed 

judgment on a promissory note pending debtors' appeal).4

 4 The creditors have offered no argument that Massachusetts 

law provides an equitable exception for appeals that have stagnated 

as long as Fustolo's has, and so we consider any such argument 

waived without fully foreclosing the possible existence of a state 

law exception. See United States v. Zannino, 895 F.2d 1, 17 (1st 

Cir. 1990). 
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The courts below treated this wrinkle as inconsequential 

in light of the fact that Massachusetts law does not automatically 

stay the other legal effects of a judgment pending appeal. In 

particular, the courts below held that Patton Drive's state court 

judgment is unstayed because of the availability of postjudgment 

discovery and attachment under Massachusetts law regardless of a 

pending appeal. See A.W. Farrell Assocs., LLP v. Haddon, No. 07-

P-596, 2008 WL 4130828, at *3–4 (Mass. App. Ct. Sept. 9, 2008) 

(unpublished opinion) (discovery); Borne v. Haverhill Golf & 

Country Club, 791 N.E.2d 903, 919 (Mass. App. Ct. 2003) 

(attachment). But these tools would have been available to Patton 

Drive even prior to the judgment that fixed its rights. See Mass. 

R. Civ. P. 4.1 (prejudgment attachment); id. 26 (discovery). And 

the fact that a trial court's judgment is stayed in some senses 

under Massachusetts law pending appeal, while remaining unstayed 

in others, does not by itself tell us whether the judgment is 

stayed or unstayed for the purposes of the Drexler rule. 

We are not persuaded that a judgment is unstayed for 

bankruptcy purposes merely because that judgment continues to have 

some legal effects despite a creditor's legal inability to execute. 

The Bankruptcy Code defines a "claim" as, in relevant part, a 

"right to payment." 11 U.S.C. § 101(5)(A) (emphasis supplied). 

And in construing the requirement that such a claim be free from 

bona fide dispute, courts applying the Drexler rule have focused 
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not on the abstract existence of a legal right, but rather on the 

claim-holder's ability to vindicate that right in court. See, 

e.g., Marciano, 708 F.3d at 1127 (no bona fide dispute when 

"Petitioning Creditors were free under California law to collect 

the amounts owed under the judgments at the time the involuntary 

petition was filed" (emphasis supplied)); id. at 1131 (Ikuta, J., 

dissenting) ("The majority's reasoning seems to be that . . . 

because an unstayed state court judgment is immediately 

enforceable, there can be no objective basis for dispute as to the 

'claim's' liability or amount." (emphasis supplied)); Drexler, 56 

B.R. at 967 (unstayed state court judgment not subject to bona 

fide dispute because a contrary holding would "effect a radical 

alteration of[] the long-standing enforceability of unstayed final 

judgments" (emphasis supplied)). Because the ability to execute 

on a state court judgment provides a crucial link in the rationale 

that justifies the bright line, automatic nature of the Drexler 

rule, we find that rule inapplicable when, as here, execution on 

the judgment is stayed, even if only by automatic operation of 

state law.5 Patton Drive's state court judgment is therefore not 

categorically insulated from bona fide dispute. 

 5 We leave open the question of whether the Drexler rule would 

apply in the event of an unstayed state court judgment that has 

been appealed. 
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C. 

Even though a state court judgment does not necessarily 

establish the absence of bona fide dispute when that judgment is 

effectively stayed, the judgment must nevertheless play some role 

in our analysis. The fact that a state court has already 

considered and adjudicated the merits of a claim, and entered 

judgment on the claim, weighs heavily in favor of finding the claim 

beyond bona fide dispute. See Byrd, 357 F.3d at 438 (state court 

judgments were "strong evidence that [the creditor's] claims were 

valid"). This observation is particularly salient where the 

judgment is stayed by virtue of the automatic operation of state 

law and not because a state court has probed the merits of the 

judgment and found reason to suspect that it may be incorrect. 

But despite the weight we would normally attach to a 

state court judgment, here we have a judgment that appears on its 

face to be in error because it holds Fustolo personally liable for 

roughly $4 million on the Unguaranteed Notes and, notably, Patton 

Drive as the holder of the judgment offers no reason at all to 

think otherwise. As the bankruptcy court recognized, Patton 

Drive's de facto concession on this point certainly creates a bona 

fide dispute as to the amount of Patton Drive's right to payment 

on the judgment. 

As Patton Drive points out, however, the dispute over 

the judgment concerns only a portion of the judgment. Fustolo 
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makes no real effort to deny that he owes, at least, the principal 

due under the Guaranteed Notes, which totals $1.25 million.6 Based 

on this concession, Patton Drive asks us to rule that any dispute 

concerning the amount of the liability represented by the judgment 

can be ignored, because the amount admittedly owed well exceeds 

the amount necessary to justify Patton Drive's joinder as a 

petitioning creditor under 11 U.S.C. § 303(b)(1). 

In making this argument, the creditors essentially ask 

us to read an implicit materiality requirement into the statutory 

language "bona fide dispute as to liability or amount." 11 U.S.C. 

§ 303(b)(1). Prior to 2005, some courts had held--as the 

bankruptcy court held here--that a claim to a disputed amount could 

nevertheless form the basis of an involuntary petition if the 

undisputed portion of the claim could independently qualify the 

creditor. See, e.g., In re Focus Media, Inc., 378 F.3d 916, 925–

27 (9th Cir. 2004); BDC 56 LLC, 330 F.3d at 120; IBM Credit Corp. 

v. Compuhouse Sys., Inc., 179 B.R. 474, 479 (W.D. Pa. 1995); In re 

Willow Lake Partners II, L.P., 156 B.R. 638, 642–43 (Bankr. W.D. 

 6 Fustolo makes a fleeting intimation in his brief that, under 

Begelfer v. Najarian, 409 N.E.2d 167 (Mass. 1980), Patton Drive's 

failure to comply with state usury law should relieve him of his 

debt even on the Guaranteed Notes' unpaid principal, see id. at 

173–74. But Fustolo supplies this court with no developed reason 

to entertain such a farfetched argument, and so any effort to claim 

that Fustolo's liability on the Guaranteed Notes' principal is 

subject to bona fide dispute is waived for lack of development. 

See Zannino, 895 F.2d at 17. 
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Mo. 1993). In 2005, however, Congress amended section 303 to add 

the language "as to liability or amount." Bankruptcy Abuse 

Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-

8, § 1234, 119 Stat. 23, 204. Faced with a dearth of clarifying 

legislative history, courts are more or less evenly split on 

whether the 2005 amendment was intended to change the prevailing 

law by establishing that "a dispute as to any portion of a claim, 

even if some dollar amount would be left undisputed, means there 

is a bona fide dispute as to the amount of the claim," In re Vicor 

Techs., Inc., No. 12-39329, 2013 WL 1397460, at *5 (Bankr. S.D. 

Fla. Apr. 5, 2013), or simply to reinforce the then-prevailing 

interpretation, see In re DemirCo Holdings, Inc., No. 06-70122, 

2006 WL 1663237, at *3 (Bankr. C.D. Ill. June 9, 2006) (a dispute 

as to amount is immaterial unless it "ha[s] the potential to reduce 

the total of [the petitioning creditors'] claims to an amount below 

the statutory threshold.").7

 7 Compare, e.g., Vicor, 2013 WL 1397460, at *5; In re Skyworks 

Ventures, Inc., 431 B.R. 573, 578 n.1 (Bankr. D.N.J. 2010); In re 

Rosenberg, 414 B.R. 826, 845–46 (Bankr. S.D. Fla. 2009); In re 

Excavation, Etc. LLC, No. 09-60953, 2009 WL 1871682, at *2 (Bankr. 

D. Or. June 24, 2009); In re Metro Cremo & Sons, Inc., No. 1:08-

bk-01798, 2008 WL 5158288, at *4 n.8 (M.D. Pa. Sept. 29, 2008); In 

re Mountain Dairies, Inc., 372 B.R. 623, 634 (Bankr. S.D.N.Y. 

2007); In re Reg'l Anesthesia Assocs. PC, 360 B.R. 466, 469–70 

(Bankr. W.D. Pa. 2007); In re Euro-Am. Lodging Corp., 357 B.R. 

700, 712 n.8 (Bankr. S.D.N.Y. 2007) (no materiality requirement), 

with, e.g., In re Stewart, Nos. 14-03177, 14-03179, 2015 WL 

1282971, at *6 (Bankr. S.D. Ala. Mar. 18, 2015); In re EM Equip., 

LLC, 504 B.R. 8, 18 (Bankr. D. Conn. 2013); In re Roselli, No. 12-

32461, 2013 WL 828304, at *9 (Bankr. W.D.N.C. Mar. 6, 2013); In re 
- 18 - 

We decline to read a materiality requirement into 

section 303. As discussed above, the bona fide dispute provision 

strikes a balance between the Bankruptcy Code's dual purposes of 

ensuring the orderly disposition of creditors' claims and 

protecting debtors from coercive tactics. See supra Part II.B. 

Limiting petitioning creditors to only those claims that are of 

undisputed value is in line with those aims. Accordingly, and in 

the absence of persuasive contrary authority or illuminating 

legislative history, we follow the straightforward reading of 

section 303, which places no qualifiers on the requirement that 

any asserted claim be free of "bona fide dispute as to . . . 

amount." 

D. 

Our conclusions that this judgment upon which execution 

is stayed under Massachusetts law is not categorically insulated 

from bona fide dispute, that there exists a bona fide dispute as 

to the amount that will ultimately be due under the judgment, and 

that a dispute as to amount need not be material to generate a 

disqualifying bona fide dispute under 11 U.S.C. § 303(b)(1), bring 

us to Patton Drive's last, two-part argument: First, Patton Drive 

 

Miller, 489 B.R. 74, 82–83 (Bankr. E.D. Tenn. 2013); In re Mountain 

Country Partners, LLC, No. 12-20094, 2012 WL 2394714, at *3 (Bankr. 

S.D. W. Va. June 25, 2012); In re Tucker, No. 5:09-bk-914, 2010 WL 

4823917, at *6 (Bankr. N.D. W. Va. Nov. 22, 2010); DemirCo, 2006 

WL 1663237, at *3 (requiring materiality). 
- 19 - 

contends that we should look beneath the state court judgment to 

the underlying contract claims that gave rise to the judgment and 

treat its right to payment on the Guaranteed Notes as its 

qualifying claim. Second, Patton Drive asks us to find that 

Fustolo's efforts to contest the interest due on the Guaranteed 

Notes do not suffice to subject its claim on those notes to bona 

fide dispute as to amount. We address these arguments in turn. 

1. 

To consider the claim on the Guaranteed Notes as the 

claim held by Patton Drive that qualifies it as a petitioner under 

section 303(b)(1), we first confront Fustolo's contention that 

Patton Drive's claim on the Guaranteed Notes no longer exists 

because it merged into and became part of the state court judgment. 

Hence, in Fustolo's view, our conclusion that the judgment itself 

is subject to a bona fide dispute ends the relevant inquiry. We 

do not doubt that a merger of this type can occur. See Restatement 

(Second) of Judgments § 18, cmt. a ("When the plaintiff recovers 

a valid and final personal judgment, his original claim is 

extinguished and rights upon the judgment are substituted for 

it."). But we also see no reason to view such a merger as operative 

in all contexts. Cf. Boynton v. Ball, 121 U.S. 457, 466 (1887) 

("[N]otwithstanding the change in [a debt's] form from that of a 

simple contract debt . . . by merger into a judgment of a court of 

record, it still remains the same debt[.]"); In re Richard A. 
- 20 - 

Turner Co., 209 B.R. 177, 180 (Bankr. D. Mass. 1997) (separating 

a single, jointly held judgment into its three underlying component 

claims and so finding that the judgment-holders qualified as 

petitioning creditors). Here, for instance, Fustolo should not be 

allowed to argue, on the one hand, that the judgment is not final 

for purposes of establishing that Patton Drive's claim on the 

judgment is subject to bona fide dispute, yet argue, on the other 

hand, that we should treat the judgment as final for purposes of 

displacing the underlying contract claims. Once we have already, 

to Fustolo's advantage, looked beneath the surface of the state 

court judgment in order to identify its vulnerable components, we 

see no principled reason to then ignore what is, but for the 

potential operation of merger, an independent claim capable of 

standing on its own merits. 

Alternatively, Fustolo argues that even if Patton Drive 

could have asserted only its claim under the Guaranteed Notes as 

its qualifying claim in the petition, it did not do so. Rather, 

the involuntary bankruptcy petition asserts as Patton Drive's 

claim the entire state court judgment. This is true. But Fustolo 

concededly knew from the start that the liability represented by 

the judgment consisted of two separate components, one of which 

was the liability under the Guaranteed Notes. Indeed, in Fustolo's 

initial answer to the involuntary petition, Fustolo contested the 

state court's calculation of the amount of interest due on the 
- 21 - 

Guaranteed Notes specifically, and Fustolo has continued to raise 

this argument throughout the litigation. Patton Drive's 

memorandum in support of summary judgment before the bankruptcy 

court, in turn, made clear that Patton Drive understood the state 

court judgment to "encompass[] . . . separate damages components," 

one of which was Fustolo's liability on the Guaranteed Notes. 

Fustolo gives us no reason to think that his strategy would have 

changed had Patton Drive asserted only its claim under the 

Guaranteed Notes from the outset. 

Certainly, Patton Drive could have sought to formally 

amend the claim it asserted in its involuntary petition. See Fed. 

R. Bankr. P. 7015; see also id. 1018; Fed. R. Civ. P. 15. But 

given that Patton Drive had no way of knowing how the bankruptcy 

court would rule on the preclusive effect of the state court 

judgment or on the issue of merger, and given that Fustolo's 

liability on the Guaranteed Notes formed an obvious, separately 

calculated amount within the asserted claim, we cannot fault Patton 

Drive for failing to do so. Accordingly, we hold that a 

petitioning creditor may be permitted to rely on an undisputed 

component claim that underlies a disputed multi-part judgment that 

the creditor has asserted as its qualifying claim, where the amount 

of that undisputed claim is clearly severable from the amount of 

the total judgment and where the debtor both has notice of that 

reliance and is not prejudiced by that reliance. See In re 
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Cumberland Farms, Inc., 284 F.3d 216, 226 (1st Cir. 2002) ("Under 

the liberal pleading regime prescribed by the Federal Rules of 

Civil Procedure, non-compliance with . . . procedural rules does 

not always preclude consideration of unpleaded claims . . . ."). 

2. 

Our decision that neither merger of the claim on the 

Guaranteed Notes into the judgment nor Patton Drive's assertion of 

the state court judgment in the petition precludes Patton Drive 

from relying only on the claim under the Guaranteed Notes to 

qualify it as a petitioning creditor brings us to the second part 

of Patton Drive's two-part argument: whether the claim under the 

Guaranteed Notes is indeed free of bona fide dispute. Fustolo 

argues that the $2.7 million due on the Guaranteed Notes is 

disputed as to amount, claiming that Patton Drive is not entitled 

to the Guaranteed Notes' full default interest rate of 35% because 

Patton Drive failed to timely submit a required "usury notification 

form" to the state attorney general before levying interest rates 

in excess of 20%. Mass. Gen. Laws ch. 271, § 49(d); see also Clean 

Harbors, Inc. v. John Hancock Life Ins. Co., 833 N.E.2d 611, 625 

(Mass. App. Ct. 2005) (requiring usury notice to be on file with 

state attorney general before disbursal of loan proceeds). But 

under Massachusetts law, "[t]he appropriate remedy" to a violation 

of the usury statute 
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is arrived at by balancing a number of factors 

including the importance of the public policy 

against usury, whether a refusal to enforce 

the [usurious] term will further that policy, 

the gravity of the misconduct involved, the 

materiality of the provision to the rest of 

the contract, and the impact of the remedy on 

the parties' rights and duties. 

Begelfer v. Najarian, 409 N.E.2d 167, 189 (Mass. 1980). 

"[D]etermining what relief is appropriate, if any," is a matter up 

to "the [trial] judge's discretion, under equitable principles." 

Clean Harbors, 833 N.E.2d at 625 (emphasis supplied) (noting that 

"the de minimis nature of the delay in filing the [statutorily 

required usury] notices" may be a factor in determining remedy). 

Given the discretion that state law affords trial courts in this 

matter, and given the state trial court's cogent explanation for 

its determination that Patton Drive was entitled to the full 

default interest rate on the Guaranteed Notes despite its technical 

violation of the usury statute, Fustolo has failed to overcome our 

strong presumption that state court findings, even when not 

categorically binding, are free of bona fide dispute. 

Because the amount of Fustolo's liability on the 

Guaranteed Notes, which formed separately delineated counts of the 

state court judgment, is not subject to bona fide dispute, and 

because there is no injustice in considering Patton Drive's claim 

on the Guaranteed Notes separately from Patton Drive's claim on 

the judgment within which its underlying contract claims are 
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submerged, we find that Patton Drive qualifies as a petitioning 

creditor and that the bankruptcy court therefore did not err in 

allowing Patton Drive to join with Patriot and Mayer to initiate 

involuntary bankruptcy proceedings against Fustolo. 

Conclusion

 To summarize: Patton Drive holds a claim against Fustolo 

for $2.7 million under the Guaranteed Notes. Fustolo conceded 

that he owes the principal due. His only challenge is to the 

interest due, and that challenge rests on an entirely unsupported 

assertion that a state trial court abused its broad equitable 

discretion in not penalizing a technical timing requirement of 

state usury law in a commercial transaction. And while Patton 

Drive's claim would otherwise be merged into a final judgment, in 

this context--to Fustolo's benefit otherwise--we do not accord the 

judgment its customary finality and effect. Accordingly, we affirm 

the bankruptcy court's grant of summary judgment to Fustolo's 

creditors.