Opinion ID: 787272
Heading Depth: 3
Heading Rank: 2

Heading: Three-Entity Requirement

Text: 31 The eight petitioning creditors include ABC and five of its affiliates. The affiliates' qualifications as petitioning creditors were determined at summary judgment, whereas ABC's qualifications were determined after trial. Focus now contends that ABC and its affiliates are disqualified as petitioning creditors because they illicitly transferred or acquired claims for the purpose of initiating the involuntary bankruptcy in violation of Bankruptcy Rule 1003(a), which provides: 32 A transferor or transferee of a claim shall annex to the original and each copy of the petition a copy of all documents evidencing the transfer, whether transferred unconditionally, for security, or otherwise, and a signed statement that the claim was not transferred for the purpose of commencing the case and setting forth the consideration for and terms of the transfer. An entity that has transferred or acquired a claim for the purpose of commencing a case for liquidation under chapter 7 or for reorganization under chapter 11 shall not be a qualified petitioner. 33 Here, the petition would not satisfy the three-entity requirement of § 303(b)(1) only if Focus is correct that ABC and its five affiliates are disqualified as petitioning creditors under Rule 1003, in which case only NBC and Paxson would remain. 34 During the trial concerning ABC's petition, ABC offered testimony that its affiliates had turned to ABC to facilitate the collection of debts owed them by Focus. Tanya Menton, an attorney for ABC, testified in reference to these debt collection efforts that, in my humble opinion ... there was a transfer of all of the claims [from the ABC affiliates] to ABC, Inc. She explained, however, that the affiliates did not come to [her] and ask that [she] file a petition for involuntary bankruptcy, but instead sought her help in collecting their claims against Focus. Relying on Menton's testimony, Focus argues that ABC and its five affiliates cannot be qualified petitioning creditors because they transferred or acquired a claim for the purpose of commencing a case for liquidation under chapter 7 in violation of Rule 1003(a). 9 35 Rule 1003 endeavors to curtail trafficking in claims. Sims, 994 F.2d at 216 n. 6; In re Butcher, 32 B.R. 572, 575 n. 9 (Bankr.E.D.Tenn.1983). Without Rule 1003, such trafficking could enable entities without proper claims to acquire them and thus become petitioning creditors, or facilitate claim-splitting by companies seeking to satisfy the three-entity requirement. See In re Averil, Inc., 33 B.R. 562, 563 (Bankr.S.D.Fla.1983) (expressing concern that[i]f the co-owners of a single obligation qualify as separate claimants ... [the] legislative purpose [of requiring a joint effort to launch an involuntary proceeding] would be frustrated). 36 Here, the bankruptcy court did not err in finding that there were no illicit transfers. Notwithstanding Menton's testimony, the bankruptcy court observed: 37 Nobody testified to there being an oral or written request for transfer. Ms. Menton's feeling that those entities wanted ABC, Inc. to collect the debt from Focus falls far short of there being a legally valid transfer or an assignment from the subsidiaries to ABC, Inc. Moreover there was no testimony about any particular subsidiary. 38 In addition, Focus' contention that the ABC affiliates transferred their claims to ABC is contradicted by a prior agreement between ABC and Focus. According to that agreement, ABC could not claim for itself debts owed to separately incorporated media stations, even if those stations were affiliates of ABC. Consistent with the agreement, ABC never did contend that it qualified as a petitioning creditor based on the debts owed to the five ABC affiliates that separately filed their own petitions. 10 Thus, the bankruptcy court did not err in rejecting Menton's characterization of the facts and finding instead that ABC's affiliates had not transferred their claims to ABC. 39 We therefore conclude that ABC and its five affiliates were not subject to disqualification as petitioning creditors under Rule 1003. Given that NBC, Paxson and the five ABC affiliates each holds claims against Focus that are not subject to a bona fide dispute, the bankruptcy court correctly concluded that there was no triable issue of fact regarding § 303(b)(1)'s three-entity requirement.