Opinion ID: 2979541
Heading Depth: 4
Heading Rank: 2

Heading: Bankruptcy Petition

Text: Next, defendants argue that an unauthorized bankruptcy filing cannot constitute a SRE. Particularly, defendants say that the SRE clause was not triggered because Kahn did not consent to the bankruptcy petition filed by Rhodehamel and, thus, without majority consent, under the Six Ventures organizational and operating documents, Rhodehamel did not have the authority to file the petition, which was later dismissed. Relying on Price v. Gurney, 324 U.S. 100, 106 (1945), defendants argue that because Rhodehamel did not have the authority to file the petition, the bankruptcy court did not have jurisdiction to hear the petition. That is, because the bankruptcy petition was improperly filed and heard, it should be treated as though it never happened. And because the bankruptcy petition is what 111 Debt is relying on as the SRE that exposed defendants to personal liability, if the bankruptcy petition never happened, neither did the SRE. Thus, defendants say they are not liable. As evidence that the bankruptcy petition was improper and that Kahn did not consent, defendants proffer Kahn’s affidavit and a statement from the bankruptcy court during 111 Debt’s motion to grant relief from the automatic stay hearing. First, Kahn’s affidavit, offered with defendants’ response to 111 Debt’s motion for partial summary judgment, states that he had no knowledge and did not consent to Rhodehamel filing the petition. District Court Doc. 61, Exhibit A, at p. 2. Second, as previously stated, the bankruptcy court noted during the hearing that there was “some question about whether or not [Rhodehamel] had proper corporate authority to make the filing, [but] ma[de] no finding in this regard.” Appellants’ Brief, Appendix A. The bankruptcy court also noted that Rhodehamel’s improper filing supported the dismissal of the petition. -8- 111 Debt Acquisitions Holdings, LLC v. Six Ventures Ltd., et al. No. 09-4436 In response, 111 Debt says that defendants’ argument is misplaced because the loan agreement and guaranty are the governing documents to the present matter, not Six Ventures’ internal documents. 111 Debt is correct that the loan and guaranty documents, not Six Ventures’ internal documents, govern the present matter. 111 Debt further argues that all that was required under the loan agreement to trigger a SRE was for a guarantor to consent to, aid, solicit, support, cooperate, collude in or fail to contest a bankruptcy petition on behalf of Six Ventures. Accordingly, 111 Debt says that when Kahn did not contest the bankruptcy petition, the SRE clause was triggered. The district court agreed with 111 Debt, finding “nothing in the language of the Guaranty that requires unanimous consent or approval of the bankruptcy by all Guarantors,” and no “provision that provides a safe harbor for a Guarantor who claims to have objected to that filing after the fact.” District Court Doc. 102, at p. 11. Further, the district court found Kahn’s objection after the bankruptcy petition was filed to be irrelevant, noting that “[n]either Kahn nor McMenamy filed any document or pleading with the bankruptcy court that contested the filing of that bankruptcy at any time or that suggested that the filing was in any way improper.” Id. According to section 10.1 of the loan agreement, “Lender’s agreement not to pursue personal liability of Borrower as set forth above SHALL BECOME NULL AND VOID and shall be of no further force and effect, and the Debt shall be fully recourse to Borrower in the event that . . . any condition or event described in either Section 8.1(f) or Section 8.1(g)” occurs. A section 8.1(g) event includes “any petition for bankruptcy . . . filed by or against, consented to, or acquiesced in by, -9- 111 Debt Acquisitions Holdings, LLC v. Six Ventures Ltd., et al. No. 09-4436 Borrower or a Guarantor.” Thus, a section 8.1(g) event occurred when Rhodehamel, a guarantor, filed the bankruptcy petition on behalf of Six Ventures. It is no answer that Kahn, another guarantor, may have contested the filing. The bankruptcy filing renders the debt fully recourse under section 10.1 if “any Guarantor consents to, aids, solicits, supports, or otherwise cooperates or colludes to cause . . . or fails to contest” the bankruptcy filing (emphasis added). Again, Rhodehamel, a Guarantor, filed the bankruptcy petition and, thus, “consent[ed] to, aid[ed], solicit[ed], support[ed], or otherwise cooperate[d] or collude[d] to cause . . . or fail[ed] to contest” that filing. Under the plain language of the loan documents, therefore, the debt is fully recourse regardless of whether the other guarantors—the defendants—contested the bankruptcy filing.1 Thus, because defendants are liable under the plain meaning of the loan agreement and guaranty, we agree with the district court’s decision to grant partial summary judgment.2 1 Contrary to the district court’s assertion, there is a safe harbor under section 8.1(g) for petitions filed without the consent of the borrower or a guarantor; that protection simply does not apply here. The loan agreement provides that if “such petition or proceeding was involuntary and not consented to by Borrower or a Guarantor” it is a section 8.1(g) event of default “only upon the same not being discharged, stayed or dismissed within 60 days.” There is no reprieve for the defendants under this provision, however, because the bankruptcy petition was dismissed after the 60-day period. 2 Defendants also argue that the district court erred in granting partial summary judgment because 111 Debt’s claim for relief is beyond the scope of the amended complaint, and because holding the defendants liable based on the bankruptcy filing violates public policy. We see no merit to these arguments and affirm for the reasons given by the district court. - 10 - 111 Debt Acquisitions Holdings, LLC v. Six Ventures Ltd., et al. No. 09-4436