Source: http://openjurist.org/262/f3d/985
Timestamp: 2013-05-26 03:57:33
Document Index: 114909984

Matched Legal Cases: ['§ 1003', '§ 303', '§ 187', '§ 16', '§ 16', '§ 1003', '§ 303', '§ 303', '§ 1003']

262 F3d 985 In Re: Vortex Fishing Systems Inc | OpenJurist
262 F. 3d 985 - In Re: Vortex Fishing Systems Inc	Home262 f3d 985 in re: vortex fishing systems inc
262 F3d 985 In Re: Vortex Fishing Systems Inc 262 F.3d 985 (9th Cir. 2001)
Submitted June 4, 2001*Filed August 28, 2001
NOTE: SEE AMENDED OPINION AT 277 F.3d 1057.
The initial petition for involuntary bankruptcy, filed on January 25, 1999, included four petitioning creditors: Byron Lambert, Liberty Tool & Manufacturing, Inc. ("Liberty Tool"), Vortex Lures Ltd ("VLP"), and Viking Lures Manufacturing, Inc. ("Viking"). On February 4, 1999, Byron Lambert filed a motion to withdraw as a petitioning creditor, citing a misunderstanding of the nature of the procedure asits reason for withdrawing. The Bankruptcy Court granted this motion on February 24, 1999. On March 22, 1999, Bert and Leora Vincent, Higgins' in-laws, filed a motion to join the involuntary petition, which the Court granted. On March 24, 1999, the Bankruptcy Court conducted a hearing on the involuntary petition. On April 30, 1999 and May 3, 1999, respectively, two additional creditors, Telenational Marketing and Witchcraft Tape Products filed motions to join the involuntary petition.
The BAP also held that Bankruptcy Rule §§ 1003(b) did not require the Bankruptcy Court to give notice to Vortex's other creditors and upheld the court's determination that Vortex was generally paying its debts as they came due.
This timely appeal followed.1
We have not previously had occasion to decide the appropriate standard of review for determinations of whether there is a "bona fide dispute" for the purposes of 11 U.S.C. §§ 303. We agree with the other circuits that have held that this is essentially a factual inquiry and adopt a clearly erroneous standard of review. See In re Sims, 994 F.2d 210, 221 (5th Cir. 1993); In re Rimell, 946 F.2d 1363, 1365 (8th Cir. 1991). A bankruptcy court is not asked toevaluate the potential outcome of a dispute, but merely to determine whether there are facts that give rise to a legitimate disagreement over whether money is owed, or, in certain cases, how much.
Appellants' contention calls for an omniscience far beyond the scope of the judiciary. At the time it made its motion, the Bankruptcy Court could well have believed that the three remaining petitioners had bona fide claims. If it had suspected that none of the other claims were bona fide, the court certainly was not obligated to force Byron-Lambert to remain a party on the chance that a bona fide creditor would turn up. The Bankruptcy court did not abuse its discretion in allowing Byron-Lambert to withdraw as an involuntary petitioner.
[w]e agreed to a specific payment plan, predicated upon the completion of the new mold and the funding we would be receiving from the marketing company. When it became obvious that the new mold would be late, you personally called me to inform me you were behind and that you knew that we would not be able to keep our payments as agreed, and stated that you had no problems with that
.. . . .3 Thus, this evidence establishes that the validity of Liberty's claim is subject to bona fide dispute because Liberty's alleged breach of the contract to construct a mold may have resulted in its waiver of its right to collect on the open account. Additionally, Liberty may have rendered impossible Debtor's ability to make payments on the open account.
Additionally, based on the dispute over the source of any liability owed to Higgins and Vortex Lures, there is a substantial disagreement as to which state's statute of limitations is applicable. In a bankruptcy case, the court must apply federal choice of law rules. See Lindsay v. Beneficial Reinsurance Co. (In re Lindsay), 59 F.3d 942, 948 (9th Cir. 1995). Federal choice of law rules follow the approach of the Restatement (Second) of Conflict of Laws. See Chuidian v. Philippine Nat'l Bank, 976 F.2d 561, 564 (9th Cir. 1992). Under the Restatement, if the claims of Vortex Lures and Higgins are based on the Utex Agreement, Texas law may apply. See RESTATEMENT (SECOND) OF CONFLICT OF LAWS§§ 187 (1989).[ ] Under Texas law, an action on a contract must be brought within four years of the date the cause of action accrues. See Tex. Civ. Prac. & Rem. Code Ann. §§ 16.004(c) (Vernon 1999);Kansa Reinsurance Co. v. Congressional Mortgage Corp., 20 F.3d 1362, 1369 (5th Cir. 1994). An acknowledgment of the validity of a claim is admissible to defeat the statute of limitations if it is in writing and signed by the party to be charged. See TEX CIV. PRAC. & REMX. CODE ANN. §§ 16.065 (Vernon 1999). Even if the June Letter was considered an acknowledgment of the claims' validity, the claims would still be time-barred because the statute of limitations would have run in June 1998 and the Petition was not filed until 1999. Thus, the claims of Vortex Lures and Higgins would be barred by the statute of limitations and subject to a bona fide dispute.
Caird Eng'g Works v. Seven-Up Gold Mining Co. , 111 P.2d 267, 283 (Mont. 1940). However, a legal entity must act in its corporate capacity before it will be held liable, because the mere act of incorporation alone is insufficient. See Kirkup v. Anaconda Amusement Co., 197 P. 1005, 1007 (Mont. 1921). The law in Arizona is similar. See John Deere Co. v. First Interstate Bank of Ariz., 709 P.2d 890, [895 ] (Ariz. Ct. App. 1985) (stating that "[a] corporation may be bound on an agreement made in its name by its promoters prior to incorporation where the corporation subsequently adopts the agreement by express ratification or by acceptance of benefits related to it " and holding that a corporation impliedly ratified a financing statement entered into by a promoter by acting pursuant to it for ten years). The court found that there were not corporate minutes or board resolution that expressly ratified the Vortex Agreement. Thus, the question of whether Debtor either expressly or impliedly ratified the Vortex Agreement by other acts or conduct is in bona fide dispute.
Accordingly, the court did not clearly err in determining that the claims of Vortex Lures and Higgins were subject to bona fide disputes.
Pursuant to a court order, on March 22, 1999, Vortex submitted a list of its creditors to the Bankruptcy Court. It was agreed that this list could not be released without a court order. Appellants never moved for the list to be released. Instead, they argue that the Bankruptcy Court was required to notify each of the creditors on the list of the pending involuntary petition. They base their claim on Bankruptcy Rule §§ 1003(b), which reads:
If the answer to an involuntary petition filed by fewer than three creditors avers the existence of 12 or more creditors, the debtor shall file with the answer a list of all creditors with their addresses, a brief statement of the nature of their claims, and the amounts thereof. If it appears that there are 12 or more creditors as provided in §§ 303(b) of the Code, the court shall afford a reasonable opportunity for other creditors to join in the petition before a hearing is held thereon.
FED. R. BANK. P. 1003. The purpose of this rule is to allow petitioners who discover that a debtor has more than twelve creditors to join additional creditors in order to prevent their involuntary petition from failing for insufficient petitioners. See 11 U.S.C. §§ 303(b)(1); In re Kidwell, 158 B.R. 203, 209 (Bankr. E.D. Cal. 1993); In re Iowa Coal Min. Co., Inc., 242 B.R. 661, 668 (Bankr. S.D. Iowa 1999); Elsub, 70 B.R. at 799-800. Here, more than three putative creditors filed the involuntary petition; the provisions of §§ 1003(b) were therefore not triggered.
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