Court Opinion

ID: 3038173
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:57:59.301875+00
Date Added: 2024-06-11T11:25:23.744574
License: Public Domain

United States Bankruptcy Appellate Panel
                         FOR THE EIGHTH CIRCUIT

                                     __________

                                    No. 04-6082WM
                                     __________

In re: Bock Transportation, Inc.,        *
                                         *
      Debtor.                            *
                                         *
Bock Transportation, Inc.,               *
                                         *   Appeal from the United States
      Debtor - Appellant,                *   Bankruptcy Court for the
                                         *   Western District of Missouri
            v.                           *
                                         *
George T. Paul;                          *
Cross Midwest Tire, Inc., and            *
Oakland Lubrication Co., Inc.,           *
                                         *
      Creditors - Appellees.             *

                                     __________

                               Submitted: June 1, 2005
                                 Filed: July 5, 2005
                                    __________

Before KRESSEL, Chief Judge, SCHERMER, and DREHER, Bankruptcy Judges.
                               __________

KRESSEL, Chief Judge.
       George T. Paul filed an involuntary Chapter 7 bankruptcy petition against Bock
Transportation, Inc. Bock Transportation appeals the bankruptcy court’s1 order for
relief. The principal issue in this appeal is whether the bankruptcy court abused its
discretion when it denied Bock Transportation’s motion to dismiss the involuntary
petition. We conclude that it did not and affirm.

                                 BACKGROUND

       On December 24, 2001 Paul loaned Bock Transportation $100,000.00. At the
time of the loan, the principals of Bock Transportation were Steven Bock and
Michael Meador, Paul’s son-in-law. In return for the loan, Bock Transportation
executed a promissary note indicating the full amount would be paid by June 30,
2002. Meador resigned from Bock Transportation in September 2002 and Steven
Bock became the sole principal of Bock Transportation. On August 1, 2003 Paul
filed suit in Jasper County District Court against Bock Transportation and against
Steven Bock and Meador individually for payment on the $100,000.00 note. The
Jasper County Circuit Court entered a judgment on August 12, 2003 finding Bock
Transportation indebted to Paul for $100,000.00 and finding neither Steven Bock nor
Meador personally liable for the debt. The debt remains unpaid.

       On September 16, 2003, Paul took Steven Bock’s deposition during post
judgment discovery. During the deposition Steven Bock positively identified eight
creditors. He was unable to identify others, but made vague reference to more.
Paul’s attorney, Kevin Checkett, asked Steven Bock to notify him by September 30,
2003 if Bock Transportation had more creditors and identify them. Steven Bock
agreed. Checkett stated that if he did not hear from Steven Bock, through his

      1
          The Honorable Jerry W. Venters, Chief Judge, United States Bankruptcy
Court for the Western District of Missouri.
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attorney, Henry Johnson, he would assume that Bock Transportation had only eight
creditors. Johnson did not respond to Checkett by the agreed upon date.

       In a letter to Checkett dated August 24, 2004 Steven Bock’s new attorney, Dan
Nelson, indicated that Bock Transportation had more than twelve creditors, but he did
not currently have a list. In an August 25, 2004 letter to Checkett, Nelson indicated
that Steven Bock had identified “eight or nine” creditors during the September 16,
2003 deposition, but now has “identified at least 17 current creditors of Bock
Transportation, Inc. and he assures me there are many more as well.” Neither Steven
Bock, nor Bock transportation ever produced the list of additional creditors as
promised in the September 16, 2003 deposition.

       Paul filed an involuntary Chapter 7 bankruptcy petition against Bock
Transportation on August 27, 2004. On September 23, 2004, Bock Transportation
filed a motion to dismiss the petition because it was filed in bad faith.

       On September 29, 2004, two additional creditors joined in the petition. On
October 1, 2004 the bankruptcy court denied Bock Transportation’s motion to dismiss
the involuntary petition. On December 6, 2004 the bankruptcy court entered an order
for relief. Bock Transportation now appeals from that order.

                             STANDARD OF REVIEW

       We review the bankruptcy court’s factual findings for clear error and its
conclusions of law de novo. Blackwell v. Lurie (In re Popkin & Stern), 223 F.3d 764,
765 (8th Cir. 2000); Wendover Fin. Servs. v. Hervey (In re Hervey), 252 B.R. 763,
765 (B.A.P. 8th Cir. 2000). A factual finding is clearly erroneous “when although
there is evidence to support it, the reviewing court on the entire evidence is left with
the definite and firm conviction that a mistake has been committed.” U.S. v. U.S.
Gypsum Co., 333 U.S. 364, 395 (1948); In re Waugh, 95 F.3d 706, 711 (8th Cir.

                                          -3-
1996). We review the bankruptcy court’s finding that Paul did not know Bock
Transportation had twelve or more creditors and its finding that the case was not filed
in bad faith for clear error. Cedar Shore Resort, Inc. v. Mueller (In re Cedar Shore
Resort, Inc.), 235 F.3d 375, 379 (8th Cir. 2000).

      We review the court’s decision to deny the motion to dismiss the case for an
abuse of discretion. Id.; Banks v. Vandiver (In re Banks), 267 F.3d 875 (8th Cir.
2001). An abuse of discretion occurs if the bankruptcy court fails to apply the proper
legal standard or fails to show proper procedures in making its determination.
Chamberlain v. Kula (In re Kula), 213 B.R. 729, 735 (B.A.P. 8th Cir. 1997).

                                    DISCUSSION

       Bock Transportation claims that George T. Paul filed an involuntary petition
in bad faith because he had actual knowledge that Bock Transportation had more than
twelve creditors or, in the alternative, because Paul filed the involuntary petition for
an improper purpose.

       The Bankruptcy Code allows an involuntary case to be commenced when three
or more entities holding claims against the debtor file a petition under either Chapter
7 or 11. 11 U.S.C. § 303(b)(1). If the debtor has fewer than twelve creditors, one
creditor may file the petition. 11 U.S.C. § 303(b)(2). Other creditors, who have not
filed under 11 U.S.C. § 303(b) may join the petition with the same effect as if it had
been a petitioning creditor, as long as the petition was filed in good faith. 11 U.S.C.
§ 303(c); Basin Elec. Power Coop v. Midwest Processing Co., 769 F.3d 483, 486
(8th Cir. 1985).

Knowledge of Number of Creditors
       Bock Transportation first claims that Paul filed the involuntary petition in bad
faith because he had actual knowledge that it had twelve or more creditors. The

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Bankruptcy Code does not explicitly require that a bankruptcy petition be filed in
good faith, but the Eighth Circuit has found that the Code contains an implicit good
faith requirement. Cedar Shore Resort, Inc., 235 F.3d at 379. A bad faith filing can
also be cause for the dismissal of a petition. Basin Elec. Power Coop, 769 F.3d at
486.

       Proving an involuntary petition was filed in bad faith requires an inquiry into
the creditor’s knowledge. Where fewer than three creditors file the petition and the
debtor has twelve or more creditors, the threshold question is whether the creditor
knew the debtor had twelve or more creditors. Basin Elec. Power Coop, 769 F.3d
483 at 486. In Basin Electric, the court stated “While an involuntary petition may be
cured after filing when a single creditor files in good faith believing the debtor has
fewer than twelve creditors, a single creditor may not file an involuntary petition
knowing the debtor has twelve or more creditors.” Id.

      In Basin Electric, it was not necessary to determine the level of knowledge
required because the filing creditor admitted having actual knowledge that the debtor
had twelve or more creditors. Id, at 485. The same may not be said here. The
bankruptcy court had to decide whether Paul knew Bock Transportation had twelve
or more creditors.

       The question of knowledge is a factual one and reviewed for clear error. In this
case there is evidence presented that would support both parties’ positions. The
bankruptcy court implicitly and necessarily found that Paul did not know Bock
Transportation had twelve creditors. In its findings, the court stated “There’s been
no indication that there are more than twelve judgment creditors.” During post
judgment discovery, Steven Bock named eight creditors for Bock Transportation but
was unable to positively identify more. Johnson, promised Checkett a list of its other
creditors if more existed, but never delivered that list. In addition, during the
bankruptcy court hearing, Checkett testified that at the time Paul filed the involuntary

                                          -5-
petition he knew of only eight creditors. These facts support a finding that Paul did
not know there were twelve or more creditors.

        The bankruptcy court found that because Bock Transportation’s attorney did
not produce the list, it would be a waste of time and resources for Paul to look for
more than the eight creditors about which he already knew. The bankruptcy court
reasoned that even though Bock Transportation was under no obligation to provide
a list of creditors, since it had promised to do so, that promise should have been
fulfilled. When the list was not provided, Paul filed a petition based on the
information he had available. Therefore it was not bad faith to file an involuntary
petition based upon the debtor having fewer than twelve creditors.

       Although the bankruptcy court did not make an explicit finding in its oral
ruling, it implicitly and necessarily found that Paul did not know Bock Transportation
had twelve or more creditors and therefore did not file the petition in bad faith. In
light of the conflicting evidence, we cannot say the bankruptcy court was clearly
erroneous or abused its discretion when it denied the motion to dismiss the
involuntary petition.

Improper Purpose
        Bock Transportation also claims that Paul filed an involuntary petition against
it for an improper purpose. The filing of an involuntary petition for a non-bankruptcy
purpose is evidence of bad faith. Basin Elec. Power Coop, 769 F.3d at 487. Bock
Transportation claims Paul’s motivation was to make Steven Bock individually liable
for Bock Transportation’s debt when the Missouri state court had already found he
was not. Filing an involuntary bankruptcy against Bock Transportation has no effect
on Steven Bock’s individual liability on a debt. What Bock Transportation really
argues is that threatening an involuntary petition was intended to get Steven Bock to

                                          -6-
 personally pay its debt to Paul. However our inquiry is not into the threat of the
filing, but the filing itself. The actual filing of the petition had no improper purpose.

     The bankruptcy court found that the involuntary petition was not filed for an
improper purpose and we do not find that conclusion to be clearly erroneous.

                                   CONCLUSION

        We conclude that the bankruptcy court did not abuse its discretion in
denying the motion to dismiss, and we affirm the bankruptcy court’s order for
relief.

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