Opinion ID: 3163849
Heading Depth: 2
Heading Rank: 2

Heading: authority to file

Text: Mr. Ullrich argues that the Bankruptcy Court had no jurisdiction over this case because Mr. Welt lacked the authority, as an ABC assignee, to put Nica into bankruptcy. To the extent he argues the Bankruptcy Court lacked jurisdiction even 14 Case: 14-14685 Date Filed: 12/17/2015 Page: 15 of 21 to decide the authority-to-file question, Mr. Ullrich is surely wrong.9 “[I]t is familiar law that a federal court always has jurisdiction to determine its own jurisdiction.” United States v. Ruiz, 536 U.S. 622, 628, 122 S. Ct. 2450, 2454 (2002). Indeed, bankruptcy courts have consistently ruled on authority-to-file questions after implicitly assuming jurisdiction pursuant to 28 U.S.C. § 1334. 10 See generally, e.g., Winter v. Bel-Aire Invs., Inc. (In re Bel-Aire Invs., Inc.), 97 B.R. 88 (Bankr. M.D. Fla. 1989); In re Am. Int’l Indus., Inc., 10 B.R. 695 (Bankr. S.D. Fla. 1981); In re Al-Wyn Food Distribs., Inc., 8 B.R. 42 (Bankr. M.D. Fla. 1980). Rather than dismissing the case for lack of subject matter jurisdiction based on an authority-to-file challenge, these courts rightly assumed jurisdiction in order to address the challenge. The Bankruptcy Court here was not wrong to do the same. Its ruling once it got to the merits, however, was wrong. 11 As we discussed, an ABC is a state-law alternative to bankruptcy. The idea is that bankruptcies have a spate of potentially useful but complex procedures and protections, while ABCs may offer a simpler and cheaper process. See generally Jeffrey Davis, Florida’s Beefed-Up Assignment for the Benefit of Creditors as an 9 Counsel seems to have conceded as much at oral argument. 10 Section 1334(a) states that “district courts shall have original and exclusive jurisdiction of all cases under title 11.” 28 U.S.C. § 1334(a). 11 We reject the Appellees’ contention that Mr. Ullrich waived his authority-to-file argument on appeal. He has challenged the propriety of this bankruptcy from the beginning, and he repeatedly raised the issue during the proceedings below, in both the Bankruptcy Court and the District Court. Although the District Court does not seem to have addressed the argument, its failure to do so does not convert Mr. Ullrich’s diligent presentation of the issue into a waiver. 15 Case: 14-14685 Date Filed: 12/17/2015 Page: 16 of 21 Alternative to Bankruptcy, 19 U. Fla. J. L. & Pub. Pol’y 17 (2008). Entities may opt to use the ABC process because, in their particular circumstance, it’s more flexible, faster, more private, and less supervised than bankruptcy. See Jonathan T. Edwards, The Crossroads: The Intersection of State Law Remedies and Bankruptcy, 18 J. Bankr. L. & Prac. 2, Art. 4 (April 2009). Florida courts have described the ABC as “an alternative to bankruptcy [that] allows a debtor to voluntarily assign its assets to a third party in order to liquidate the assets.” Hillsborough Cty. v. Lanier, 898 So. 2d 141, 143 (Fla. 2d DCA 2005). ABCs and bankruptcies are alternative proceedings. An entity deliberately chooses to pursue one or the other. Nica certainly did. When it selected Mr. Welt to serve as its ABC assignee and irrevocably transferred its assets to him, Nica intended the application of a specific statutory mechanism, and conferred powers consistent with that scheme. Nica did not, however, grant Mr. Welt the freewheeling power to pull it out of the very framework from which his powers as assignee arose and plunge it into a different legal system not of its choosing. To the extent any entity would ever desire to confer such a power in these circumstances, it must do so explicitly and plainly. We will not read this extraordinary power into the template language from Florida’s ABC statute. 16 Case: 14-14685 Date Filed: 12/17/2015 Page: 17 of 21 “It is well-settled that a bankruptcy filing is a specific act requiring specific authorization.” In re N2N Commerce, Inc., 405 B.R. 34, 41 (Bankr. D. Mass. 2009) (quotation omitted) (collecting cases). In determining whether a bankruptcy filing was authorized, we look to state law. Price v. Gurney, 324 U.S. 100, 106, 65 S. Ct. 513, 516 (1945) (“If the District Court finds that those who purport to act on behalf of the corporation have not been granted authority by local law to institute the proceedings, it has no alternative but to dismiss the petition.”). Florida courts have long held that the authority to file a bankruptcy petition rests with a corporation’s board of directors. 12 See, e.g., In re Bel-Aire Invs., Inc., 97 B.R. at 89–90 (“There is no question that the authority to manage the affairs of the corporation does not include the right to file a [bankruptcy] petition.”); In re Am. Int’l Indus., Inc., 10 B.R. at 696–97 (requiring “a specific resolution of the board of directors authorizing the action” in order to file a voluntary Chapter 7 bankruptcy petition); In re Al-Wyn Food Distribs., Inc., 8 B.R. at 43 (“The few cases that have been reported on this topic are old, but they are uniform in result. They hold that the president of a corporation has no general power to file a petition, nor is such a power implied. . . . [T]he filing of any sort of bankruptcy petition is a special act requiring special authorization.”) (emphasis added)). Thus, 12 The same is true of most other courts. See In re Arkco Props., Inc., 207 B.R. 624, 628 (Bankr. E.D. Ark. 1997) (“In virtually every instance, this authority [to file bankruptcy petitions] has been held to rest solely with the board of directors.”). 17 Case: 14-14685 Date Filed: 12/17/2015 Page: 18 of 21 in order to decide whether Mr. Welt had the power to singlehandedly take Nica from its ABC into bankruptcy, we must examine whether Nica ever granted him “specific,” “special” authorization to do so. Mr. Welt drew his powers as ABC assignee from the ABC agreement executed on July 12, 2007. This agreement tracks almost exactly the language of Florida’s ABC statute.13 Compare Doc. 20-2, with Fla. Stat. § 727.104(b). The relevant provisions are set out below: The ASSIGNEE shall take possession and administer the estate in accordance with the provisions of chapter 727, Florida Statutes, and shall liquidate the assets of the ESTATE with reasonable dispatch and convert the ESTATE into money, collect all claims and demands hereby assigned as may be collectible, and pay and discharge all reasonable expenses, costs, and disbursements . . . . If funds of the ESTATE shall not be sufficient to pay [] debts and liabilities in full, then the ASSIGNEE shall pay from funds of the ESTATE such debts and liabilities, on a pro rata basis and in proportion to their priority as set forth in s. 727.114, Florida Statutes. .... To accomplish the purposes of this assignment, the ASSIGNOR hereby appoints the ASSIGNEE its true and lawful attorney, irrevocable, with full power and authority to do all acts and things which may be necessary to execute the assignment hereby created; to demand and recover from all persons all assets of the ESTATE; to sue 13 The few deviations are immaterial to this case. In the fifth paragraph, the ABC agreement omits “and protect and preserve” from the sentence beginning: “The assignee shall take possession of, and protect and preserve, all such assets and administer the estate in accordance with the provisions of chapter 727 . . .” Fla. Stat. § 727.104(b). In the seventh paragraph, the ABC agreement uses “In the event that” instead of “If.” Id. Neither of these differences speaks to the assignee’s authority to file a bankruptcy petition on the assignor’s behalf. 18 Case: 14-14685 Date Filed: 12/17/2015 Page: 19 of 21 for the recovery of such assets; to execute, acknowledge, and deliver all necessary deeds, instruments, and conveyances; and to appoint one or more attorneys under her or him to assist the ASSIGNEE in carrying out her or his duties hereunder. The ASSIGNOR hereby authorizes the assignee to sign the name of the ASSIGNOR to . . . any instrument in writing, whenever it shall be necessary to do so, to carry out the purpose of this assignment. The ASSIGNEE hereby accepts the trust created by the assignment, and agrees with the ASSIGNOR that the ASSIGNEE will faithfully and without delay carry out her or his duties under the assignment. Doc. 20-2:2–3 (emphasis added). Clearly, none of this language authorizes (much less, specifically or specially authorizes) the assignee to initiate bankruptcy proceedings.14 Bankruptcy is never mentioned in the ABC agreement or in the form language from the Florida statute. Instead, as one would expect, the procedures, rights, and duties associated with an ABC proceeding are thoroughly delineated, with repeated references to Florida’s ABC statute and none to the U.S. Bankruptcy Code. Under Florida law, that should be the end of it. See In re Al-Wyn Food Distribs., Inc., 8 B.R. at 43 (noting that power to file a bankruptcy petition will not be implied, but rather “is a special act requiring special authorization”). Without specific authorization to file a bankruptcy petition, Mr. Welt lacked the authority to 14 We have not located—and the parties have not identified—any Florida case law addressing whether the ABC statute confers authority to file a bankruptcy petition on an assignee. 19 Case: 14-14685 Date Filed: 12/17/2015 Page: 20 of 21 do so. But one might still claim (as the Bankruptcy Court did) that the residual power granted to an ABC assignee by the power-of-attorney paragraphs is broad enough to encompass the authority to file a bankruptcy petition. As this argument goes, the ABC agreement granted Mr. Welt “full power and authority” to do anything, including signing Nica’s name to “any instrument in writing”—such as a voluntary bankruptcy petition. However, this argument overlooks the full import of those clauses, which all come back to giving only the authority “necessary to execute the assignment hereby created” and “necessary . . . to carry out the purpose of this assignment.” Fla. Stat. § 727.104(b) (emphasis added); Doc. 20-2:2–3 (emphasis added). These power-of-attorney paragraphs gave Mr. Welt broad power to act on behalf of Nica, yes, but only in furtherance of the ABC. Pulling Nica out from the ABC and casting it into bankruptcy did not “execute the assignment” or “carry out [its] purpose.” Just the opposite—it terminated the assignment. We cannot say that Florida’s ABC statute carries within it the seeds of its own destruction. Its form language, which “shall be” adopted “in substantially the [listed] form” in all ABCs, Fla. Stat. 727.104(b), does not grant an assignee the authority to unilaterally override the assignor’s original choice of a legal regime. Absent explicit and plain authorization by the assignor, a Florida ABC assignee cannot initiate Chapter 7 bankruptcy proceedings. 20 Case: 14-14685 Date Filed: 12/17/2015 Page: 21 of 21 Nica deliberately selected an ABC as its preferred mode of liquidation and executed an agreement manifesting that intent, consistent with Florida law. It trusted Mr. Welt to “faithfully and without delay carry out her or his duties under the assignment.” Fla. Stat. § 727.104(b); Doc. 20-2:3. He didn’t do that. Instead, when trouble started, he terminated the ABC by purporting to send Nica into bankruptcy. Mr. Welt had no such authority. We therefore REVERSE and REMAND with instructions to the District Court to remand to the Bankruptcy Court for dismissal of the bankruptcy case. REVERSED and REMANDED. 21