Source: http://openjurist.org/994/f2d/210
Timestamp: 2015-10-13 12:29:16
Document Index: 140137988

Matched Legal Cases: ['§ 303', '§ 303', '§ 303', '§ 101', '§ 303', '§ 303']

994 F2d 210 Sims Subway Equipment Leasing Corporation v. Sims Sims Subway Equipment Leasing Corporation | OpenJurist
994 F. 2d 210 - Sims Subway Equipment Leasing Corporation v. Sims Sims Subway Equipment Leasing Corporation HomeFederal Reporter, Second Series 994 F.2d.
994 F2d 210 Sims Subway Equipment Leasing Corporation v. Sims Sims Subway Equipment Leasing Corporation 994 F.2d 210
62 USLW 2002, 29 Collier Bankr.Cas.2d 443,24 Bankr.Ct.Dec. 735,Bankr. L. Rep. P 75,307
In the Matter of Earl SIMS, Jr., Debtor.SUBWAY EQUIPMENT LEASING CORPORATION, Subway Restaurants,Inc., and Subway Sandwich Shops, Inc.,Appellants-Cross-Appellees,v.Earl SIMS, Jr., Appellee-Cross-Appellant.In the Matter of Dorothy SIMS, Debtor.SUBWAY EQUIPMENT LEASING CORPORATION, Subway Restaurants,Inc., and Subway Sandwich Shops, Inc.,Appellants-Cross-Appellees,v.Dorothy SIMS, Appellee-Cross-Appellant.
Nos. 92-3212, 92-3213.
Daniel K. Rester, Richard B. Easterling, Hoffman, Sutterfield, Ensenat & Bankston, Baton Rouge, LA, for appellants-cross-appellees.
James C. Ferguson, Baton Rouge, LA, for appellee-cross-appellant.
Before DUHE and BARKSDALE, Circuit Judges, and HUNTER1, District Judge.
Principally at issue is whether, and when, a creditor corporation filing an involuntary bankruptcy petition under 11 U.S.C. § 303 may be held to be the alter ego of another, and thus not considered a requisite separate entity for filing purposes. The district court held, inter alia, that the three petitioning corporations--Subway Equipment Leasing Corporation (SEL), Subway Restaurants, Inc. (SRI), and Subway Sandwich Shops, Inc. (SSS)--are alter egos of another corporation, and therefore count as only one corporation. SEL, SRI, and SSS (the creditors) appeal from that court's reversal of the bankruptcy court's entry of orders for relief in their separate involuntary bankruptcy proceedings against Earl Sims, Jr. and his wife, Dorothy Sims (the debtors). We REVERSE the judgments of the district court, and REMAND for further proceedings in the bankruptcy court.
Between 1981 and 1987, the debtors entered into four franchise agreements with DAI. Two were in Baton Rouge, on property subleased from SSS; two, in New Orleans, with subleases from SRI. SEL entered into equipment leases for the four franchises. In June 1988, the debtors defaulted on the sublease and equipment lease at one of the New Orleans shops; that September and October, at the other three.2
In January 1987, Earl Sims became a development agent for DAI3; but in 1988, they became involved in several disputes regarding that work. As noted, the debtors defaulted that June on the leases with SRI and SEL at one of the franchises. Earl Sims testified that DAI began withholding payment in August 1988 for his development agent work. The debtors allege that DAI applied the withheld funds to past-due rent on the equipment leases and attorney's fees. As also noted, that September and October, the debtors defaulted at the other three locations.
In bankruptcy court, after several false starts commencing in November 1988, the creditors filed separate amended involuntary petitions against the debtors in June 1990.4 The debtors moved to dismiss for bad faith filing. After a hearing in December 1990, the bankruptcy court denied the motions to dismiss and entered orders for relief, granting the involuntary petition in each proceeding. The debtors appealed to the district court.
We first address the three issues raised by the debtors' cross-appeals. It is more than well-settled that a party cannot appeal from a judgment unless "aggrieved" by it. E.g., Deposit Guaranty Nat'l Bank v. Roper, 445 U.S. 326, 333-34, 100 S.Ct. 1166, 1171-72, 63 L.Ed.2d 427 (1980). Simply stated, a party who has obtained a judgment in his favor, granting the relief sought, is not aggrieved by it. A cross-appeal filed for the sole purpose of advancing additional arguments in support of a judgment is "worse than unnecessary", because it disrupts the briefing schedule, increases the number (and usually the length) of briefs, and tends to confuse the issues. Jordan v. Duff & Phelps, Inc., 815 F.2d 429, 439 (7th Cir.1987), cert. dismissed, 485 U.S. 901, 108 S.Ct. 1067, 99 L.Ed.2d 229 (1988). Such arguments should, instead, be included in the appellee's answering brief.
Similarly, the second issue is not proper for a cross-appeal. The debtors assert that the district court erred by not finding that the creditors and their counsel "intentionally committed outright fraud and deceptions upon the Court". But, they do not seek to alter the judgments, which, as noted, granted the relief sought. In any event, their unnecessarily verbose, rambling allegations of fraud upon the court, and their repetitious attacks on the veracity and integrity of the creditors (including witnesses and counsel), are wholly unwarranted on the record before us.5
Finally, the debtors maintain that they are entitled to sanctions, because the creditors' appeals are frivolous. A cross-appeal, however, is an improper vehicle for such a request. Obviously, the district court did not--and could not--consider a request for sanctions for a frivolous appeal to this court. See Fed.R.App.P. 38. Accordingly, there is no decision on this issue from which the debtors could cross-appeal. (In any event, the appeals are not frivolous.)
The creditors contend that the district court erred in (1) applying the "alter ego" theory to treat them (SEL, SRI, and SSS) as one creditor; (2) holding that the debtors were current on all obligations as of September 1988; (3) considering DAI as a party; (4) addressing the issue of bad faith filing, and considering the controversy between DAI and Earl Sims as the basis for finding that the creditors filed in bad faith; and (5) relying upon proffered evidence which was excluded by the bankruptcy court, when the debtors did not challenge that ruling on appeal to the district court.
The key issue is the alter ego ruling. The other claimed errors flow from it: if the creditors are not the alter egos of DAI, it follows that the district court erred in considering Earl Sims' development agent dispute with DAI, which is the basis for its conclusions that the debtors were current on all obligations as of September 1988, and that the creditors' claims were contingent and subject to bona fide disputes; erred in considering DAI as a party; erred in holding that the creditors filed the petitions in bad faith; and erred in relying on the proffered evidence.
As stated, when a debtor has more than 12 creditors, § 303(b)(1) requires an involuntary petition to be brought by three or more entities, each of which must be the holder of a claim against the debtor that is not contingent as to liability or the subject of a bona fide dispute. It is undisputed that SEL, SRI, and SSS each hold separate claims against the debtors, based on the previously described subleases and equipment leases. The district court's conclusions that those debts are contingent and subject to bona fide disputes are based on its consideration of Earl Sims' development agent dispute with DAI. Accordingly, as noted, the dispositive issue, with respect to the creditors' qualifications under § 303(b)(1), is whether they have identities separate from DAI.
The Bankruptcy Code's definition of "entity" includes "person"; and "person" includes "corporation". 11 U.S.C. §§ 101(15), 101(41). The Code is silent, however, regarding whether, or under what circumstances, the separate identity of a corporate creditor should be disregarded for § 303(b)(1) purposes. Only a few cases have addressed the issue. Moreover, the debtors have not cited, nor have we found, any case in which the corporate identity of a petitioning creditor has been disregarded.
The only case to treat the issue in significant detail is In re Gibraltor Amusements, Ltd., 291 F.2d 22 (2d Cir.), cert. denied, 368 U.S. 925, 82 S.Ct. 360, 7 L.Ed.2d 190 (1961), which involved an involuntary petition filed under the Bankruptcy Act's predecessor to § 303(b). Two of the three petitioning creditors were The Wurlitzer Company and Wurlitzer Acceptance Corporation (WAC). The debtor contended that WAC was not a separate creditor, because it was a wholly-owned subsidiary, controlled by Wurlitzer. Although WAC's business consisted solely of financing the sales of Wurlitzer's products, it had obtained its own bank financing and had been a separate corporate taxpayer. Id. at 24. The evidence indicated that both corporations had "scrupulously honored" the separate corporate form of WAC. Id. WAC's claim was based on two notes that had been purchased from Wurlitzer long before the filing of the petition, and there was "no evidence of attempted subversion of the Bankruptcy Act." Id.
The majority held that ordinary principles of corporation law did not warrant disregarding WAC's corporate identity, because there was no fraud and the corporate form had been strictly honored as to assets and inter-corporate transactions. Id. at 24-25. The fact that Wurlitzer handled most of WAC's collections was "not enough from which to infer an internal disregard of WAC's separate identity," and "was undoubtedly cheaper and more efficient." Id. at 25 n. 1.
The majority further concluded that neither the language nor the policy of the Bankruptcy Act required a different result:
The courts have long evinced a disposition to honor the separate corporate entity in bankruptc