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Timestamp: 2016-12-09 07:41:49
Document Index: 618017307

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

In re: MAURY ROSENBERG, Debtor. DVI RECEIVABLES XIV, LLC, DVI RECEIVABLES XVII, LLC, DVI RECEIVABLES XVIII, LLC, DVI RECEIVABLES XIX, LLC, DVI FUNDING, LLC, LYON FINANCIAL SERVICES, INC., U.S. BANK, N.A., DVI RECEIVABLES XVI, LLC, Plaintiffs-Appellants,v.MAURY ROSENBERG, Defendant-Appellee
Appeal from the United States District Court for the Southern District of Florida. D.C. Docket Nos. 1:12-cv-23886-RSR; 10-bkc-03812-AJC.
For Dvi Receivables Xvii, LLC, Dvi Receivables Xviii, LLC, Dvi Receivables Xix, LLC, Dvi Funding, LLC, Lyon Financial Services, Inc., Dvi Receivables Xvi, LLC, Dvi Receivables Xiv, LLC, U.S. Bank, NA, Plaintiffs - Appellants: Peter H. Levitt, Larry I. Glick, Stephen Trivett Maher, Shutts & Bowen, LLP, Miami, FL.
For Maury Rosenberg, Defendant - Appellee: Paul J. Battista, William Barry Blum, Allison R. Day, Carlos E. Sardi, Genovese Joblove & Battista, PA, Miami, FL.
DVI Receivables XIV, LLC; DVI Receivables XVI, LLC; DVI Receivables XVII, LLC; DVI Receivables XVIII, LLC; DVI Receivables XIX, LLC; DVI Funding, LLC (collectively, the " DVI Entities" ); Lyon Financial Services, Inc. d/b/a U.S. Bank Portfolio Services (" Lyon" ); and U.S. Bank, N.A. (" USB" ) (collectively, " Appellants" ) appeal the district court's decision affirming the bankruptcy court's final order awarding appellee Maury Rosenberg attorney's fees and costs, pursuant to 11 U.S.C. § 303(i)(1). After careful review of the record and the parties' briefs, and with the benefit of oral argument, we affirm in part, vacate in part, and remand for further proceedings.
The DVI Entities filed an involuntary bankruptcy petition against appellee Rosenberg. After the bankruptcy court dismissed the petition, the court awarded attorney's fees and costs to appellee Rosenberg. We begin by describing the alleged debts that the DVI Entities used Page 1257
as the basis for filing the involuntary petition against Rosenberg.
Beginning in November 2000, certain limited partnerships affiliated with Rosenberg (the " NMI LPs" ) entered into equipment leases with DVI Financial Services, Inc. (" DVI Financial" ) to finance the acquisition of medical equipment. Lessor DVI Financial bought the equipment and leased it to the NMI LPs, which were to make lease payments to DVI Financial. As security for the payment of the NMI LPs' obligations under these leases, appellee Rosenberg executed an individual limited guaranty to DVI Financial. DVI Financial agreed to act as the servicing agent for the leases, which were part of complex securitization transactions involving the parties on appeal.
As part of the 2005 settlement, Rosenberg executed another individual limited guaranty, which superseded all prior guaranties. Rosenberg personally guaranteed the sums identified in the guaranty agreement to " the Agent," defined as " Lyon Financial Services, Inc. d/b/a/ U.S. Bank Portfolio Services as successor servicer for the [DVI Entities] and as agent for the Trustee." The maximum amount of Rosenberg's limited guaranty was $7,661,945.00, to be reduced each month by a certain sum for each monthly payment made under the settlement agreement. The obligations created by Rosenberg's 2005 limited guaranty ran solely to Lyon, and only Lyon could demand payment of such obligations. Also as part of the 2005 settlement, Rosenberg executed a confession of judgment in favor of Lyon.
In March 2008, Lyon notified Rosenberg of an alleged default due to the NMI LPs' failure to make the requisite monthly payments. In July 2008, Lyon, as agent for Trustee USB, filed a complaint in confession of judgment against Rosenberg and others in Pennsylvania state court to collect on the amounts allegedly due under the 2005 confession of judgment and limited Page 1258
guaranty made in connection with the equipment leases. The DVI Entities were not plaintiffs in this state court action. In August 2008, Lyon obtained the requested judgment for $4,724,866.16 against Rosenberg individually. At Rosenberg's request, the Pennsylvania state court stayed execution of the judgment pending resolution of a dispute over the validity and amount of debt allegedly owed by Rosenberg to Lyon.
The November 7, 2008 involuntary petition nominally listed the DVI Entities as the " petitioning creditors." Lyon was not expressly named on the petition as a petitioning creditor, either in its capacity as successor servicer for the DVI Entities or as agent for Trustee USB. However, abundant evidence showed that Lyon actually filed the petition on behalf of each DVI Entity. The petition's signature blocks show that Jane Fox, the Director of Operations for Lyon, signed the petition individually on behalf of each DVI Entity.[1] In addition, for each DVI Entity, the petition listed " Jane Fox c/o U.S. Bank Portfolio Services, as Servicer" and " 1310 Madrid Street, Suite 103[,] Marshall, MN 56258" as the name and mailing address of the " Individual Signing in Representative Capacity." Lyon did business as " U.S. Bank Portfolio Services," and this mailing address under Fox's signature was Lyon's too.
According to her deposition testimony concerning her role as the signer, Fox believed that only Lyon had the authority to sign the involuntary petition, and that none of the DVI Entities had the authority to do so on their own behalf because Lyon Page 1259
was granted broad authority to act for the DVI Entities. Fox testified that she understood Lyon's authority to include the filing of the petition on behalf of the DVI Entities. While the DVI Entities were the original creditors in the underlying transactions, Lyon on its own made the decision to file the petition against Rosenberg and then Lyon actually filed it.
On August 21, 2009, the bankruptcy court granted Rosenberg's motion to dismiss and dismissed the involuntary petition with prejudice (" Dismissal Order" ). The bankruptcy court found, inter alia, that the DVI Entities were not eligible creditors of Rosenberg because his 2005 guaranty did not run to the DVI Entities. Rather, Rosenberg's obligations under his individual limited guaranty, if any, ran only to Lyon in its capacity as successor servicer and as agent for Trustee USB. Moreover, the DVI Entities were not the " real parties in interest" --rather, they were just " pass through vehicles" created solely to facilitate the securitization transactions. The DVI Entities therefore lacked standing as a matter of law to file an involuntary petition against Rosenberg.
The bankruptcy court dismissed the case in August 2009 but retained jurisdiction to award Rosenberg his costs, reasonable attorney's fees, and damages (if appropriate) under 11 U.S.C. § 303(i). The Dismissal Order was appealed to, and affirmed by, both the district court in 2011 and then this Court in 2012. DVI Receivables XIV, LLC v. Rosenberg (In re Rosenberg), Case No. 10-24347 (S.D. Fla. Sept. 27, 2011), aff'd, 472 F.App'x 890 (11th Cir. 2012).[2]
Meanwhile, on December 27, 2010, Rosenberg filed in the bankruptcy court a separate adversary complaint against Appellants and Fox, initiating adversary proceeding number 10-03812. In his adversary complaint, Rosenberg asserted federal claims to recover attorney's fees, costs, and damages he incurred because of the filing of the involuntary petition, which the bankruptcy court had dismissed in August 2009.[3] Specifically, Rosenberg's adversary complaint sought relief under § 303(i) of the Bankruptcy Code. Relevant to this appeal, § 303(i)(1) grants courts the discretion to award costs and attorney's fees to discourage creditors from improperly filing involuntary Page 1260
petitions under § 303. Section 303(i) provides:
Under the plain language of the § 303(i)(1) statute, there are two prerequisites to obtain a judgment against the petitioners for attorney's fees and costs: (1) the bankruptcy court must have dismissed the involuntary petition other than on consent of all petitioners and the debtor; and (2) the debtor must not have waived his right to recover under § 303(i). In addition, if the involuntary petition was filed in bad faith, § 303(i)(2) allows the court to award (A) " any damages" proximately caused by the filing of a petition and (B) punitive damages. Id. § 303(i)(2).
In his adversary proceeding and regarding the 2009 Dismissal Order, Rosenberg sought different types of recovery, including: (1) reasonable attorney's fees and costs incurred by two law firms (Weir & Partners, LLP and Genovese Joblove & Battista, P.A.) on his behalf to defend against the involuntary petition, obtain the dismissal of the petition in the bankruptcy court, and sustain the dismissal in all appeals, pursuant to § 303(i)(1); (2) damages--including compensatory, consequential, special, and punitive damages--suffered by Rosenberg and proximately caused by the bad-faith filing of the petition, pursuant to § 303(i)(2); and (3) the payment of all costs and expenses incurred by Rosenberg to prosecute this adversary proceeding itself, pursuant to § 303(i).
On August 10, 2012, U.S. District Judge Patricia Seitz granted the motion to withdraw reference only as to Rosenberg's bad-faith claims for damages under § 303(i)(2). Judge Seitz found that because claims for damages under § 303(i)(2), unlike claims for fees and costs under § 303(i)(1), require a finding of the petitioner's " bad faith," they were analogous to common-law claims for malicious prosecution and thus triable by a jury. Accordingly, Rosenberg's § 303(i)(2) claims were withdrawn for the purpose of a jury trial, but Rosenberg's claims for attorney's fees and costs remained referred to the bankruptcy court.
On August 28, 2012, the bankruptcy court conducted a bench trial on Rosenberg's § 303(i)(1) claims for attorney's fees and costs. At trial, Rosenberg sought to recover four categories of fees: (1) fees incurred to obtain the dismissal of the Page 1261
involuntary petition in the bankruptcy court; (2) fees incurred to sustain that dismissal on appeal in the district court and then in this Court; (3) fees incurred in the adversary proceeding itself to recover the first two categories of fees, called " fees on fees" ; and (4) fees incurred to prosecute his bad-faith claims for damages under § 303(i)(2).
During the trial, Appellants questioned whether fees incurred for the adversary proceeding itself--including the bad-faith claims for damages--were premature. Appellants requested that the bankruptcy court defer ruling on the premature issue of attorney's fees related to the adversary proceeding until after the district court's jury trial on the bad-faith claims for damages because Rosenberg had not yet prevailed on those bad-faith claims.
On September 11, 2012, and after the bench trial, the bankruptcy court entered an Order Determining Reasonable Amounts of Attorneys' Fees and Costs Recoverable Against Petitioning Creditors, Pursuant to 11 U.S.C. § 303(i)(1) (" Attorney's Fee Order" ).
The bankruptcy court also found that it had the authority to award the fees and costs that Rosenberg incurred not only (1) in obtaining the dismissal but also (2) in defending the two appeals from the Dismissal Order (" appellate fees" ). The bankruptcy court reasoned that the denial of appellate fees--for sustaining the dismissal on appeal--would frustrate the legislative intent behind § 303(i). The bankruptcy court rejected the argument that appellate fees must be sought in the appellate court, finding that it was appropriate for a bankruptcy court to award appellate fees under the § 303(i) statute in the Bankruptcy Code, " [n]otwithstanding whether the District Court and/or the Eleventh Circuit might well have granted fees." The bankruptcy court declined to defer consideration of the " fees on fees," which were Rosenberg's fees incurred in the adversary proceeding to recover fees and costs under § 303(i)(1). The bankruptcy court found that it was appropriate to award fees and costs for the services provided in the adversary proceeding to date, even though the proceeding had not yet concluded. The bankruptcy court reasoned that " [a]n award of fees and costs in this Adversary Proceeding is not premised upon which party 'prevails'" in the proceeding, and, under § 303(i)(1), Rosenberg had already " prevailed" on the merits.
As to which parties were subject to § 303(i) liability, the bankruptcy court reiterated its " view that the term 'petitioner,' as used in [§ ] 303(i), may be construed to include those agents and/or principals who sign the involuntary petition on behalf of the creditors or who cause the petitioning creditors to file the petition." The bankruptcy court then turned to Lyon's liability, finding: (1) Fox, as an employee of Lyon, executed the involuntary petition and caused the filing of same; (2) Fox, on Page 1262
behalf of Lyon, exercised exclusive control over the DVI Entities, acting within the scope of her employment as Director of Operations with Lyon; (3) Lyon acted on behalf of USB, the Trustee for the securitized transactions; (4) these parties--Fox, Lyon, and the DVI Entities--were intertwined; and (5) based on principles of agency, Fox signed the petition as an officer of Lyon which acted as the servicer and agent for the DVI Entities; and thus (6) Lyon, as Fox's principal, is liable for the fees and costs.[4]
Accordingly, the bankruptcy court held the DVI Entities and Lyon, as their agent, jointly and severally liable for $1,034,295.45 of Rosenberg's attorney's fees and approximately $39,019.37 in costs, minus certain costs incurred in connection with Rosenberg's claims against dismissed third parties. However, the bankruptcy court did not indicate the amounts, or percentages, of the total fee award corresponding to each of the four categories of fees sought by Rosenberg during the bench trial. The bankruptcy court reserved jurisdiction to award additional fees and costs " for the completion of the Adversary Proceeding, through the jury trial." The award in the Attorney's Fee Order encompassed fees for work performed by Rosenberg's attorneys from November 11, 2008--shortly after the filing of the involuntary petition on November 7, 2008--to August 25, 2012. The attorneys' work during this time period included: (1) fees incurred to obtain the dismissal of the involuntary petition in the bankruptcy court on August 21, 2009; (2) fees incurred to sustain that dismissal on appeal in the district court and then in this Court, which affirmed the dismissal on July 6, 2012; (3) " fees on fees," representing fees incurred in the adversary proceeding itself to recover the first two categories of fees; and (4) part of the fees incurred to prosecute Rosenberg's bad-faith claims for damages.
As further background, Lyon's parent company, U.S. Bank Corp. Equipment Finance, was wholly owned by appellant USB. After entry of the 2012 Attorney's Page 1263
Fee Order, appellant Lyon subsequently merged with USB. Though both Lyon and USB are listed as appellants, they are now a single entity. However, because the bankruptcy court found Lyon--but not USB--liable for Rosenberg's attorney's fees and costs, we refer only to Lyon in our discussion of liability, see infra part III.C.
G. District Court Bad-Faith Damages Trial Under § 303(i)(2)
Appellants filed an amended Rule 50(b) motion for judgment as a matter of law, seeking to reduce the damages award. See Fed.R.Civ.P. 50(b). Judge Seitz granted in part and denied in part Appellant's Rule 50(b) motion, concluding that the evidence supported the jury's finding of bad faith but not the verdicts for punitive damages or compensatory damages for loss of reputation or loss of wages. On September 29, 2014, Judge Seitz entered an amended final judgment in favor of Rosenberg, holding the DVI Entities and USB, as Lyon's successor in interest,[5] jointly and severally liable for only $360,000 in compensatory damages for emotional distress[6] stemming from the bad-faith filing of the involuntary petition.
On September 24, 2013, the district court affirmed the bankruptcy court's 2012 Attorney's Fee Order in all respects, addressing three issues in particular. First, the district court found that the bankruptcy court did not err in awarding Rosenberg his appellate fees for defending the dismissal in the appeals, as it was " reasonable to conclude that the rationale behind Congress's enhanced protection of alleged debtors from involuntary petitions at the trial level extends to the appellate level." Second, the district court concluded that Appellants waived any challenge to the bankruptcy court's award of attorney's fees incurred in litigating Rosenberg's § 303(i)(2) bad-faith claims for damages before Judge Seitz in the district court because Appellants raised that issue for the first time on appeal. Nevertheless, the district court briefly considered the merits and rejected the argument that attorney's fees for prosecuting a bad-faith-damages claim under § 303(i)(2) are categorically unavailable under § 303(i)(1).
Third, the district court found that the bankruptcy court did not err in awarding fees and costs against Lyon, rather than only the DVI Entities. The district court reasoned that the record shows (1) Fox, the Director of Operations of Lyon, filed the involuntary petition without any authorization from the directors of the DVI Entities; (2) Fox, acting within the scope of her employment as the Director of Operations of Lyon, nevertheless exercised " exclusive control" over the DVI Entities; (3) the DVI Entities were merely " pass through vehicles" " created solely for the purposes of the securitization transactions" Page 1264
that gave rise to the involuntary petition; (4) a unique, " intertwined" relationship existed between the DVI Entities and Lyon; (5) the involuntary petition was signed by Lyon's Director of Operations in her professional capacity; and thus (6) the bankruptcy court did not err in holding Lyon liable for the filing of the involuntary petition.
" In a bankruptcy case, this Court sits as a second court of review and thus examines independently the factual and legal determinations of the bankruptcy court and employs the same standards of review as the district court." Brown v. Gore (In re Brown), 742 F.3d 1309, 1315 (11th Cir. 2014) (quotation marks omitted). Where, as here, the district court affirms the bankruptcy court's order, we review the bankruptcy court's decision. Id. We review the bankruptcy court's factual findings for clear error and its legal conclusions de novo. Id.
On appeal, there are four categories of attorney's fees we must address: (1) fees incurred to obtain the dismissal of an involuntary petition in the bankruptcy court; (2) fees incurred to sustain that dismissal on appeal to the district court and this Court; (3) " fees on fees," representing fees incurred in the adversary proceeding itself to recover the first two categories of fees; and (4) fees incurred to prosecute bad-faith claims for damages under § 303(i)(2). In addition, Appellants argue that the bankruptcy court erred in entering a judgment for any attorney's fees and costs against Lyon, which they contended was not a " petitioner" under § 303(i).
When these preconditions are met, § 303(i)(1) provides that the bankruptcy court " may grant judgment . . . against the petitioners and in favor of the debtor for--(A) costs; or (B) a reasonable attorney's fee . . . ." Id. § 303(i)(1). Section 303(i)(1) Page 1265
does not limit the attorney's fee to only the fees incurred in the bankruptcy court. Rather, while the bankruptcy court is the court deciding what is a reasonable attorney's fee, nothing in § 303(i)(1) indicates that a court may award only those fees incurred at the trial level. And nothing in § 303(i)(1) precludes appellate fees or limits fees to only those incurred before the date of the dismissal.
Further, we reject Appellants' argument that, even if § 303(i)(1) authorizes appellate fees in sustaining a dismissal on appeal, only appellate courts, and not bankruptcy courts at the trial level, may award them. Of course, under Federal Rule of Appellate Procedure 38, appellate courts may award damages and costs if an appeal is frivolous. See Fed. R. App. P. 38 (" If a court of appeals determines that an appeal is frivolous, it may . . . award just damages and single or double costs to the appellee." (emphasis added)). For purposes of Rule 38, appellate courts are usually in the best position to evaluate whether an appeal is frivolous or had some merit.
We recognize that the only other circuit to rule on this issue has interpreted § 303(i)(1) to preclude the bankruptcy court from awarding any appellate fees. See Higgins v. Vortex Fishing Sys., Inc., 379 F.3d 701, 708-09 (9th Cir. 2004) (" [Section] 303(i)(1), which expressly grants discretionary authority to award fees at the trial level, should not be construed to grant similar authority to award fees at the appellate level." ). In Higgins, the Ninth Circuit acknowledged that its interpretation of § 303(i)(1) created " a discrepancy that only Congress can rectify. Despite Congress's clear intent to award attorney's fees and costs to an alleged debtor who successfully defends an involuntary bankruptcy bid, the debtor remains exposed to appellate attorney's fees unless it can be demonstrated that the appeal was frivolous under Rule 38." Id. at 709 n.3.[7]
We disagree with Higgins. In bankruptcy cases, Rule 38 is not the exclusive vehicle for awarding attorney's fees incurred to defend an appeal from the dismissal of an involuntary bankruptcy petition. Section 303(i)(1) is the statutory vehicle here. Notably, § 303(i)(1) contains no requirement that the debtor show that the petitioner acted in bad faith to recover the debtor's attorney's fees. Rather, the precondition is a dismissal of the involuntary bankruptcy petition. Section 303(i)(1)'s precondition of Page 1266
a dismissal reflects Congress's intent to award fees and costs to alleged debtors whose involuntary petitions are dismissed. As observed earlier, there is no language in § 303(i)(1) limiting " a reasonable attorney's fee" to those fees incurred only in initially obtaining the dismissal by the bankruptcy court. Absent any express limiting language in § 303(i)(1), we decline to construe § 303(i)(1) as precluding appellate fees and limiting fee awards to only those incurred before the date of the dismissal in the bankruptcy court. Section 303(i)(1) compensates debtors who obtain a dismissal and successfully defend against involuntary bankruptcy litigation, which may or may not end at the trial level.
We find further support for our conclusion in the distinction between fee-shifting and sanctions provisions. See Bus. Guides, Inc. v. Chromatic Comm's Enters., Inc., 498 U.S. 533, 553, 111 S.Ct. 922, 934, 112 L.Ed.2d 1140 (1991) (holding that Federal Rule of Civil Procedure 11 was not a fee-shifting provision because Rule 11 sanctions (1) were not " tied to the outcome of [the] litigation," instead turning on whether a " specific filing" was well founded, and (2) shifted the costs of a " discrete" portion of the litigation rather than the litigation as a whole). By contrast, it appears that § 303(i)(1) is a fee-shifting statute because any fees are tied to the outcome--the dismissal--and shift the costs of the litigation as a whole from the alleged debtor to the creditors that improperly filed the bankruptcy petition. See 11 U.S.C. § 303(i)(1).
In Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990), the Supreme Court held that the sanctions provisions of Rule 11 did not authorize the award of attorney's fees incurred on appeal. In its analysis, however, the Supreme Court noted: " As Rule 11 is not a fee-shifting statute, the policies for allowing district courts to require the losing party to pay appellate, as well as district court attorney's fees, are not applicable." Id. at 409, 110 S.Ct. at 2462. This language suggests that the policies for awarding appellate fees are applicable to cases involving fee-shifting statutes such as § 303(i)(1), subject to the bankruptcy court's discretion.
B. Fees for Prosecuting Bad-Faith Claims for Damages Under § 303(i)(2)
Under an exclusive reading of the two subsections, a debtor can recover attorney's fees under § 303(i)(1) if the petition is dismissed and may recover damages under § 303(i)(2) if the dismissed petition was filed in bad faith. Stated another way, the award of attorney's fees in Page 1267
§ 303(i)(1) applies to only the dismissal phase of the case (at trial and on appeal), and the award of damages in § 303(i)(2) applies only to the phase of prosecuting the bad-faith-filing claims.
Courts addressing this issue have concluded that a bankruptcy court may award attorney's fees under § 303(i)(1) incurred to prosecute bad-faith claims for damages under § 303(i)(2). See, e.g., In re S. Cal. Sunbelt Developers, Inc., 608 F.3d 456, 463-64 (9th Cir. 2010)[8] (" [I]f the court finds that the debtor is eligible for an award of fees, then . . . the fee award presumptively encompasses all aspects of the § 303 action, including proceedings on claims under § 303(i)(2)." ); Glannon v. Carpenter (In re Glannon), 245 B.R. 882, 894-95 (D. Kan. 2000); In re Landmark Distribs., Inc., 195 B.R. 837, 845 (Bankr. D.N.J. 1996) (" [U]pon dismissal of an involuntary petition pursuant to [§ ] 303(i), the court may grant judgment against petitioning creditors and in favor of the alleged debtor for costs and reasonable attorneys' fees whether related to the alleged debtor's efforts to dismiss the petition pursuant to § 303(i)(1), or to prove bad faith or establish damages pursuant to § 303(i)(2)." ); In re Advance Press & Litho, Inc., 46 B.R. 700, 703 (Bankr. D. Colo. 1984) (" [N]othing in the Code or case authority limit[s] an award to the date of dismissal. Preparation for and attendance at the hearing on attorney's fees, costs and damages are also part of the matters which are occasioned as a result of an Involuntary Petition. As such, they are compensable under § 303(i)." ).
The decision in Glannon contains the most comprehensive analysis of this issue. In Glannon, the U.S. District Court for the District of Kansas found that § 303(i)(1), which allows for attorney's fees and costs, " applies to all phases of a § 303 proceeding in which the bankruptcy petition was dismissed," while § 303(i)(2), which allows for proximately caused and punitive damages, " provides a debtor additional recovery if the court finds that the petition was filed in bad faith." 245 B.R. at 894. Construing the § 303(i) statute as a whole, the district court in Kansas reasoned that attorney's fees and costs were " recoverable under § 303(i) without drawing a distinction between the defensive phase, in securing dismissal, or in the offensive phase, in being made whole where there was bad faith." Id.
That said, there remains an issue of timing. The bankruptcy court may grant only " reasonable" attorney's fees under § 303(i)(1). And determining reasonableness necessarily requires consideration of the litigation as a whole and the total number of hours reasonably expended. At the time of the 2012 Attorney's Fee Order, the bad-faith proceedings had only just begun. They continued for two years thereafter. Indeed, as Appellants point out, on March 13, 2013, in the bankruptcy court, Rosenberg filed a motion to supplement the award, seeking approximately Page 1268
$2.1 million in additional fees and costs incurred in the bad-faith proceedings after the Attorney's Fee Order on September 11, 2012.[9]
For these reasons, we vacate the limited portion of the award attributable to the attorney's fees and costs incurred by Rosenberg solely to prosecute his bad-faith claims for damages under § 303(i)(2). We remand for the district court to remand to the bankruptcy court to remove this fourth category of fees and then to consider such fees along with the motion to supplement the award.[10]
Appellants contend that, under the unambiguous meaning of the term " petitioner" in § 303(i), only the petitioning creditors (and not their agents or principals) may be liable for attorney's fees and costs. According to Appellants, because Lyon was not expressly listed as a " petitioner" on the involuntary petition, the bankruptcy court erred by entering judgment against Lyon.
We disagree. First, we do not view this case as presenting an issue of third party or agency liability--rather, the narrow question is whether Lyon was in fact the actual petitioner here and thus properly held liable under § 303(i)(1).
Virtually all of the evidence supports that Lyon was the de facto petitioning creditor. Lyon, through Fox, executed the 2005 settlement agreement containing the individual limited guaranty that Rosenberg made in connection with the equipment leases. The DVI Entities were not parties to this settlement, and any payment obligations created by the limited guaranty were owed to Lyon, not to the DVI Entities. Lyon successfully sued Rosenberg in Pennsylvania state court to collect on the amounts allegedly due under the limited guaranty--the same alleged debts nominally asserted by the DVI Entities in the involuntary petition against Rosenberg.
Under these circumstances, the bankruptcy court did not clearly err in finding that Lyon and the DVI Entities were " intertwined," and that Lyon, through Fox, signed the involuntary petition albeit in the name of the DVI Entities. Abundant evidence demonstrates that Lyon, the only entity that signed the petition and caused it to be filed, was the petitioning creditor within the meaning of § 303(i)(1). Thus, we cannot say that the bankruptcy court erred in holding Lyon liable for Rosenberg's attorney's fees and costs.[11]
For the foregoing reasons, we affirm the district court's affirmance of the bankruptcy court's award of the following three categories of attorney's fees and costs: (1) fees to obtain the dismissal, (2) appellate fees, and (3) fees on fees. We vacate the district court's affirmance of the bankruptcy court's award of the fourth category of fees and costs--those incurred to prosecute Rosenberg's bad-faith claims for damages--as prematurely entered in 2012.