Opinion ID: 782085
Heading Depth: 3
Heading Rank: 1

Heading: Key

Text: 32 Key claimed that it was owed $231,938 for HVAC work. In seeking dismissal, BDC introduced documentary evidence of a preexisting dispute concerning Key's performance. Specifically, the record contained several letters from BDC to Key, beginning in January 2001, notifying Key that it was in default and demanding performance. The letters also warned Key that if it failed to complete the work, BDC would hire another contractor and backcharge Key for any shortfall or other damages. Key disputed BDC's claim that it was current on its payments and blamed faulty electrical work performed by other contractors for the problems with the HVAC work. BDC ultimately hired another contractor, Dyn-aire, to complete the work under Key's contract. Key claims that even after accounting for any offset for these costs, it is still owed approximately $35,000, but there has been no determination that this amount is, in fact, owed. The Bankruptcy Court found that Key's claim was subject to a bona fide dispute. 33 On appeal, the District Court agreed and rejected Key's contention that at least $35,183 of its claim was undisputed and that, as to that amount, the claim should proceed. The court found that the numbers used to reach the $35,182.66 figure appear to be taken from correspondence between Key and BDC, and do not factor in all potential direct and indirect damages that BDC faced as a result of Key's failure to complete its work. Key I, 2002 WL 449856, at . 34 Key argues that the District Court erred in treating BDC's counterclaims as a defense to the total claim rather than a diminution of the amount. (Br. for Appellant at 18.) BDC responds that [t]he potential contractual damages arising from Key's default ... are not limited to counterclaims, but rather, ... go to the determination as to the existence of Key's claim. (Br. for Appellee at 21.) BDC cites the District Court's finding that Key's numbers do not consider all potential direct and indirect damages caused by Key's breach, suggesting that its costs and damages will exceed any amount Key could recover. 35 While it is clear that a claim is not subject to a bona fide dispute simply because the debtor has an unrelated counterclaim against a petitioning creditor, where a claim for offset arises out of the same transaction and is directly related to the creditor's underlying claim, and, if valid, could serve as a complete defense to that claim, a bona fide dispute exists. See, e.g., Chi. Title Ins. Co. v. Seko Inv., Inc. (In re Seko Inv., Inc.), 156 F.3d 1005, 1008-09 (9th Cir.1998). Here, BDC alleges that Key's default caused undetermined damages likely to exceed any amount Key could recover. Since BDC's claim for offset arises out of the same transaction and relates to Key's claim, and, if valid, would extinguish the claim, the Bankruptcy Court correctly concluded that a bona fide dispute exists.