Case Name: In the MATTER OF 8SPEED8, INC. Vibe Micro, Inc., Appellant, v. Sig Capital, LLC, Appellee.
Court: United States Court of Appeals for the Ninth
Jurisdiction: United States
Decision Date: 2019-04-29
Citations: 921 F.3d 1193
Docket Number: No. 17-16277
Parties: In the MATTER OF 8SPEED8, INC.
Judges: 
Reporter: Federal Reporter 3d Series
Volume: 921
Pages: 1193–1200

Head Matter:
In the MATTER OF 8SPEED8, INC.
Vibe Micro, Inc., Appellant,
v.
Sig Capital, LLC, Appellee.
No. 17-16277
United States Court of Appeals, Ninth Circuit.
Argued and Submitted November 15, 2018 San Francisco, California
Filed April 29, 2019

Opinion:
THACKER, Circuit Judge:
This case asks whether a 50% shareholder of an involuntary debtor may seek damages under 11 U.S.C. § 303(i). We hold that it may not. Accordingly, we affirm the decision of the district court.
In March 2012, 8Speed8, Inc. was incorporated in the state of Nevada. Appellant Vibe Micro, Inc. is a 50% owner of 8Speed8's voting stock. Appellee SIG Capital, Inc. is a creditor of 8Speed8 and owns 20 million contingent shares.
On December 13, 2013, SIG filed the involuntary bankruptcy petition at the center of this dispute. 8Speed8 never appeared in the bankruptcy action. Instead, on January 10, 2014, Vibe Micro filed a motion to dismiss the bankruptcy. Vibe Micro also asked for costs, fees, and actual and punitive damages under § 303(i). The bankruptcy court held a hearing August 28, 2014. At the hearing, SIG conceded that dismissal was appropriate. The bankruptcy court agreed but denied Vibe Micro's request for statutory attorney's fees and damages.
The court concluded that Vibe Micro did not have standing under § 301(i). The district court affirmed that decision, and this appeal followed.
We review the bankruptcy court's interpretation of bankruptcy statutes de novo. See Sofris v. Maple-Whitworth, Inc. (In re Maple-Whitworth, Inc.) , 556 F.3d 742, 745 (9th Cir. 2009). No deference is given to the district court's review of that decision. See Higgins v. Vortex Fishing Sys., Inc. , 379 F.3d 701, 705 (9th Cir. 2004).
Section 303(i) provides:
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; or
(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 filing; or
(B) punitive damages.
11 U.S.C. § 303(i) (emphasis added).
In In re Miles , we considered whether third parties may seek damages under § 303(i). See Miles v. Okun (In re Miles) , 430 F.3d 1083, 1093-94 (9th Cir. 2005). Specifically, we examined two interpretations of standing to seek § 303(i) damages: Either the presence of the phrase "in favor of the debtor" in § 303(i)(1) (regarding costs and attorney's fees) limits standing to collect all § 303(i) damages to the debtor, or the omission of that phrase from § 303(i)(2) (regarding other damages for bad faith filings) allows persons other than the debtor to collect damages for bad faith filings, but not costs and attorney's fees. See id. at 1093. In evaluating those competing interpretations, we considered legislative history, relevant caselaw, and public policy to determine the proper reading of the statute. See id. (citing Barstow v. IRS (In re Bankr. Estate of MarkAir, Inc. ), 308 F.3d 1038, 1043-46 (9th Cir. 2002) ). With those factors in mind, we concluded that § 303(i) limits standing to recover statutory damages resulting from an involuntary bankruptcy proceeding to the debtor. Those same factors compel a similar result here.
First, the relevant House and Senate Reports suggest that only the debtor has standing to seek § 303(i) damages. See H.R.Rep. No. 95-595, at 324 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6280; S.Rep. No. 95-989, at 34 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5820. According to those reports, "if a petitioning creditor filed the petition in bad faith, the court may award the debtor any damages proximately caused by the filing of the petition." Id. "This specific reference to the 'debtor' is a strong indication that Congress intended only the debtor to have standing to seek damages." Franklin v. Four Media Co. (In re Mike Hammer Prods., Inc.) , 294 B.R. 752, 754 (9th Cir. B.A.P. 2003).
Second, appellate courts in this circuit have twice considered whether a non-debtor can seek damages under § 303(i), and twice those courts have decided it cannot. See In re Miles , 430 F.3d at 1093-94 ; In re Hammer , 294 B.R. at 753-54. Appellant's attempts to distinguish Miles on its facts are unavailing. Appellant notes that, in Miles , the debtor actually appeared in the involuntary proceedings, but in contrast, 8Speed8 never appeared in this case. Although true, Appellant's distinction does not require disparate treatment.
Appellants would have this court believe they are mere martyrs, standing up for the interests of 8Speed8 when no one else would. But, as valiant as Vibe Micro's intentions may have been, they were unnecessary. The Code has within its sections a remedy for cases like this: Section 305 gives the bankruptcy court the power to dismiss an involuntary petition sua sponte. "The court, after notice and a hearing, may dismiss a case . at any time if . the interests of creditors and the debtor would be better served by such ." 11 U.S.C. § 305(a) ; see also In re Accident Claims Determination Corp. , 146 B.R. 64, 67-68 (Bankr. E.D.N.Y. 1992) (dismissing an involuntary petition where the petitioning creditors were intending to harass the debtor and its principals); In re Westerleigh Dev. Corp. , 141 B.R. 38, 41 (Bankr. S.D.N.Y. 1992) (dismissing an involuntary petition after finding that the petition was filed by a corporate shareholder to gain leverage over another shareholder). Accordingly, Vibe Micro's appearance in this case was just as voluntary as was the appearance of the third parties in Miles .
Third, reading § 303(i) to permit only the debtor to seek damages is consistent with its purpose and the policy interests underlying it. Section 303(i) is intended to alleviate the consequences that involuntary proceedings impose on the debtor. Those consequences include "loss of credit standing, inability to transfer assets and carry on business affairs, and public embarrassment." In re Reid , 773 F.2d 945, 946 (7th Cir. 1985). A third party, who intervenes freely in an involuntary action, does not face those same consequences. Even if it did, § 303(i) would still not guarantee costs, fees, or damages. An award under § 303(i) -which states that the court "may" award costs, fees, or damages-is not mandatory. See Susman v. Schmid (In re Reid) , 854 F.2d 156, 159 (7th Cir. 1988) (explaining that an award of attorney's fees under § 301(i) is "committed to the discretion of the district court"); Bankers Tr. Co. BT Serv. Co. v. Nordbrock (In re Nordbrock) , 772 F.2d 397, 400 (8th Cir. 1985) (stating that a motion for attorney's fees is addressed in the discretion of the court); In re Kidwell , 158 B.R. 203, 217 (Bankr. E.D. Cal. 1993) (stating that "the better view is that [an award of costs and fees is] discretionary and not mandatory"); In re Johnston Hawks Ltd. , 72 B.R. 361, 365 (Bankr. D. Haw. 1987) (stating that "the award of attorney's fees and costs is discretionary"). Indeed, "the plain language of the statute clearly contemplates that fees and costs will not be awarded in all cases, even though a party will ordinarily incur attorneys' fees in seeking to dismiss the petition." In re Reid , 854 F.2d at 159.
AFFIRMED.
Dissent by Judge Bennett