JOAN N. FEENEY, Bankruptcy Judge.
The matters before the Court are Cross-Motions for Summary Judgment with respect to an "Answer to Involuntary Petition" filed by the alleged debtor, Steven C. Fustolo (the "Alleged Debtor" or "Fustolo"), pursuant to which he seeks dismissal of the Involuntary Petition filed by three creditors: 50 Thomas Patton Drive, LLC ("Patton Drive"); the Patriot Group, LLC ("Patriot"); and Richard Mayer ("Mayer") (collectively, the "Petitioning Creditors"). Specifically, in his Answer, the Alleged Debtor challenged the claim of Patton Drive and his alleged liability to it, disputing the claim in its entirety. In addition, he asserted that he had more than 12 creditors and that the Involuntary Petition failed to meet the requirement of 11 U.S.C. § 303(b), namely that each of the petitioning creditors holds a claim that is "not contingent as to liability or the subject of a bona fide dispute as to liability or amount."
The issues presented include whether this Court should adopt the majority view that an unstayed, non-default state judgment on appeal is not subject to bona fide dispute for purposes of § 303(b)(1), see In re Drexler, 56 B.R. 960, 967 (Bankr. S.D.N.Y.1986), or the minority view, which requires the petitioning creditors to make a prima facie case but affords the alleged debtor the opportunity to demonstrate the existence of a bona fide dispute as to liability or amount. See Platinum Fin. Servs. Corp. v. Byrd (In re Byrd), 357 F.3d 433, 438 (4th Cir.2004).
This is a core matter over which this Court has jurisdiction. See 28 U.S.C. §§ 1334(b), 157(b)(1), and (b)(2)(A).
On May 6, 2013, the Petitioning Creditors filed an Involuntary Petition against the Alleged Debtor seeking the entry of an order for relief under Chapter 7. Each Petitioning Creditor is a judgment creditor of the Alleged Debtor. The Petitioning Creditors have alleged that (1) they are eligible to file the petition pursuant to 11 U.S.C. § 303(b); (2) the Alleged Debtor is a person against whom an order for relief may be entered; and (3) the Alleged Debtor is generally not paying his debts as they become due.
On May 7, 2013, the Petitioning Creditors caused a summons and a copy of the petition to be served upon the Alleged Debtor by first class mail, postage prepaid at his home address. The Alleged Debtor filed his Answer to the petition, which he
With respect to Patton Drive, the Alleged Debtor contested his liability with respect to a judgment obtained by Patton Drive (the "Patton Drive Judgment") based upon "fundamental errors committed by the Superior Court in calculating the damages assessed against Fustolo and the other defendants," and the stay of the judgment pursuant to Mass. R. Civ. P. 62(d). The Alleged Debtor also alleged that Patton Drive is a fully secured creditor. The Alleged Debtor, however, did not deny that he is a person against whom an order for relief may be entered. In addition, he did not deny that he is generally not paying his debts as they become due.
The Court scheduled a hearing on Fustolo's request to dismiss the Involuntary Petition set forth in his Answer to the Involuntary Petition. Prior to the hearing, on July 19, 2013, the Petitioning Creditors filed a "Request for Judicial Notice," asking the Court to take judicial notice of various facts and statements set forth in certain documents prepared and adopted by Fustolo and filed in the Suffolk Superior Court, Department of the Massachusetts Trial Court, in a pending civil action, captioned 50 Thomas Patton Drive LLC v. Steven C. Fustolo, et al., Civil Action No. 09-3567-BLS2, together with the affidavit of Cliff Schorer ("Schorer"), the manager and sole owner of Patton Drive. In addition, prior to the hearing, the Alleged Debtor, as noted above, filed a Motion to Supplement Answer to Involuntary Petition, as well as Schedules D and F, and a Summary of Schedules, and an affidavit.
The Court conducted a hearing, as scheduled, on July 23, 2013. At the conclusion of the hearing, the Court directed the Petitioning Creditors to file a motion for summary judgment. In accordance with the Court's order, the Petitioning Creditors filed a Motion for Summary Judgment on August 15, 2013, together with the affidavits of Schorer, Mayer, John C. Howe ("Howe"), the Chief Executive Officer of Patriot, and Jonathan M. Horne, Esq., counsel to the Petitioning Creditors, and numerous exhibits. In addition, they filed a "Petitioning Creditors' Statement of Undisputed Facts and Memorandum of Law in Support of Motion for Summary Judgment."
The Alleged Debtor filed an "Opposition of Steven C. Fustolo to Petitioning Creditors' Motion for Summary Judgment and a Cross-Motion for Summary Judgment and Assessment of Fees and Damages pursuant to 11 U.S.C. § 303(i)." He also filed a Response to the Petitioning Creditors'
As will be discussed more fully below, the Court finds that there are no material facts in dispute and the cross-motions are ripe for summary judgment. See Fed. R.Civ.P. 56(a), made applicable to this proceeding by Fed. R. Bankr.P. 7056. Based upon the Involuntary Petition, the Answer to the Involuntary Petition, as supplemented, as well as the affidavits and exhibits, including the 28-page Memorandum of Findings and Rulings and Judgment issued by the Suffolk Superior Court, the Court makes its findings of fact and conclusions of law in accordance with Fed. R. Bankr.P. 7052.
Patriot is a judgment creditor of the Alleged Debtor pursuant to a judgment entered in favor of Patriot by the Middlesex Superior Court, Department of the Massachusetts Trial Court on May 26, 2011 in a civil action captioned The Patriot Group, LLC v. Steven C. Fustolo, et al., Civil Action No.2010-00529 (the "Patriot Judgment"). The Middlesex Superior Court entered judgment against the Alleged Debtor "in the amount of $20,423,216.44, plus interest on the principal sum of $13,600,000 at the contract rate of nineteen percent (19%) from April 25, 2011, pursuant to Count I of the Verified Complaint."
The Alleged Debtor never filed an appeal with respect to any part of the judgment entered by the Middlesex Superior Court in favor of Patriot, and the time within which the Alleged Debtor could have filed a notice of appeal has expired. He has not paid the Patriot Judgment or any portion of it, although he asserts that "upon information and belief Patriot foreclosed upon its collateral." He has neither challenged his liability for the Patriot Judgment nor disputed any of the $20,423,216.44 amount of his indebtedness.
On February 19, 2009, Mayer initiated a civil action in the Middlesex Superior Court, Department of the Massachusetts Trial Court, captioned Richard Mayer v. Steven C. Fustolo, et al., Civil Action No. MICV 2009-00674. On February 8, 2011, the Middlesex Superior Court entered an Agreement for Judgment in Mayer's favor and against the Alleged Debtor pursuant to which the Middlesex Superior Court adjudicated, and the Alleged Debtor expressly stated and agreed, that he is indebted to Mayer in the amount of $150,000.00, plus interest at a rate of eighteen percent (18%) per annum accruing from September 13, 2008 to the present
On July 17, 2008 the Alleged Debtor owned and controlled 50 TPD Realty, LLC ("TPD"). On July 17, 2008, Patton Drive sold certain real property located at 50 Thomas Patton Drive, Randolph, Massachusetts (the "Randolph Property") to TPD. As consideration for the sale by Patton Drive of the Randolph Property to TPD, the Alleged Debtor executed and delivered to Patton Drive two interest bearing promissory notes on behalf of TPD as the maker, and in favor of Patton Drive as the holder, one in the amount of $900,000 and the other in the amount of $350,000 (the "Randolph Notes"). According to the Alleged Debtor, TPD executed the two promissory notes in favor of Patton Drive "only in partial consideration of the purchase price."
The Alleged Debtor executed and delivered to Patton Drive his personal guaranty of the Randolph Notes (the "Fustolo Guaranty"). The Randolph Notes are in default. The loans memorialized by the Randolph Notes have never been repaid in full, and the Fustolo Guaranty is in default.
On and after September 18, 2008, the Alleged Debtor owned and controlled Revere Beach Holdings, LLC ("RBH"). On and after September 18, 2008, the Alleged Debtor was attempting to obtain construction financing for a condominium project in Revere, Massachusetts (the "Revere Beach Project") which was being developed by RBH. On September 18, 2008, the Alleged Debtor executed and delivered to Patton Drive two interest bearing promissory notes on behalf of RBH as the maker, and in favor of Patton Drive as the holder, one in the amount of $1.1 million and the other in the amount of $400,000 (the "RBH Notes").
The RBH Notes were issued in consideration of an aggregate $1.5 million loan made by Patton Drive to RBH (the "RBH Loan") for the purpose of assisting the Alleged Debtor and RBH in securing construction financing for the Revere Beach Project.
According to Patton Drive, it made the RBH Loan on the condition that the proceeds would remain in a blocked account in the United States held by RBH's counsel pending closing of construction financing for the Revere Beach Project that the Alleged Debtor represented to Patton Drive would occur within days. The Alleged Debtor, in response, asserts that that fact is not material as he is not personally liable to Patton Drive for any outstanding debt due or arising out of the RBH Notes.
The Alleged Debtor represented to Patton Drive that the RBH Loan would be repaid from the proceeds of a construction financing for the Revere Beach Project. RBH, however, never paid any amounts due and owing under the RBH Notes.
On August 21, 2009, Patton Drive initiated a civil action against the Alleged Debtor and his various affiliates in the Suffolk Superior Court, captioned 50
In the Patton Drive Litigation, the Defendants asserted, among other the defenses, that Patton Drive charged usurious interest rates of 35% to as much as 130% on the Randolph Notes, but failed to provide advance notice to the Massachusetts Attorney General based on its intent to charge usurious rates as required by law. The Randolph Notes were executed on July 17, 2008. On September 12, 2008, Patton Drive forwarded a usury notification to the Massachusetts Office of the Attorney General. The Randolph Notes were amended on September 18, 2008 at the time the RBH Notes were executed. The Criminal Bureau of the Office of the Attorney General received the usury notification on September 24, 2008.
On September 28, 2011, the state court, Roach, J., issued a 33-page Memorandum of Findings and Rulings. At the conclusion of its Memorandum, the court directed the parties to submit, within 14 days, proposed forms of final judgment. The Alleged Debtor, together with the other defendants, submitted a proposed form of judgment and a revised proposed form of judgment. In an affidavit dated October 18, 2011, executed in conjunction with the revised proposed judgment, the Alleged Debtor calculated the amounts due under the TPD loans as totaling $2,457,552. Although the Petitioning Creditors assert that the Alleged Debtor's affidavit constitutes an admission as to liability to Patton Drive under the Fustolo Guaranty, the Alleged Debtor maintains a dispute as to a material fact exists because the October 18, 2011 affidavit was signed only after the Suffolk Superior Court issued its Memorandum, which included allegedly usurious interest rates and required the parties to utilize such rates of interest in filing proposed forms of final judgment.
On October 21, 2011, the Suffolk Superior Court entered the Patton Drive Judgment. It provides in pertinent part, the following:
The Judgment included the full amounts of interest provided for by the underlying contracts, as well as provisions for the payment of attorneys' fees and costs. Specifically, the state court in its Memorandum of Findings and Rulings determined that the Randolph Notes, which were executed on July 17, 2008, were amended on September 18, 2008, to modify the terms of, and interest rates applicable to, the Randolph Notes, i.e., the $350,000 and $900,000 notes. The default interest rate applicable to both notes was increased from 18% to 35%. According to the state court, the Note Modification Agreements were executed by Fustolo and others as guarantors. The state court also found that, prior to the amendments of the Randolph Notes, "[o]n September 12, 2008, Schorer forwarded a `usury notification form' to the Massachusetts Office of the Attorney General," although "[t]he Attorney General's Office did not docket receipt of the form(s) until September 23, 2008[sic],"
Attorney Edmands in his affidavit established that although Patton Drive recovered judgments against defendants other than the Alleged Debtor with respect to Counts Five through Seven, it never pled that Fustolo was a co-obligor on the RBH Notes or that he guaranteed the RBH Notes. He also established that Patton Drive never produced any guaranty by any party, including Fustolo, of the RBH Notes, and never introduced any evidence that Fustolo guaranteed the RBH Notes. In addition, the Superior Court's Memorandum of Findings and Rulings contained no finding that such a personal guaranty concerning the RBH Notes existed. Patton Drive did not submit an affidavit or evidence to contest the contents of Attorney Edmands's affidavit.
On November 20, 2011, the Alleged Debtor filed a Notice of Appeal and Statement of Issues on Appeal (the "Appeal Filings") relating to the Patton Drive Judgment.
(emphasis supplied). The Alleged Debtor did not state specifically that he was appealing the Suffolk Superior Court's findings and conclusions that he violated Chapter 93A, although damages were not awarded to Patton Drive under Count Eight.
The Alleged Debtor filed, but later withdrew on August 9, 2013, an Emergency Motion for Stay of Judgment. In the Emergency Motion for Stay of Judgment (the "Stay Motion"), he stated:
Patton Drive contends that the Alleged Debtor has admitted he owes damages awarded to it on its contract claims. At a deposition held on October 4, 2011, the Debtor testified: "So they got a contract claim, as they should get a contract claim. We owe them the money. I owe them the money." He also stated that "the contract claim is the only thing the judge [the Suffolk Superior Court] got right," although he stated he was referring to the direct contract obligation of RBH alleged in Counts Six and Seven of the Complaint.
Patton Drive also asserts that the Alleged Debtor has not paid any portion of the Patton Drive Judgment. The Debtor, however, states that certain payments were made against the judgment but erroneously were not credited by the Suffolk Superior Court. Countering the Petitioning Creditors' contention, in partial reliance upon the state court's Memorandum, that he never tendered payment to Patton Drive under the Fustolo Guarantee, the Alleged Debtor asserts:
In September or November of 2010, Patton Drive foreclosed upon its pledge of Fustolo's membership interest in TPD and sold Fustolo's ownership to Patton Drive or an affiliate of Patton Drive, generating an unknown amount.
The Randolph Notes and all amounts due under them are secured by a mortgage on 50 Thomas Patton Drive, Randolph, Massachusetts, valued between $6 million and $6.5 million, which mortgage is subordinate to a first mortgage held by Stoneham Savings Bank in the original sum of $3.45 million. The Randolph Notes also are secured by mortgages on real property located at 5 High Street Medford, Massachusetts, which is valued between $5.4 million and $5.8 million. The Petitioning Creditors, however, maintain that the collateral pledged for the Randolph Notes does not provide complete or sufficient security for all of the amounts due under them, adding that any factual issue of whether the Randolph Notes are secured is immaterial because the Patriot Judgment of approximately $20 million is wholly unsecured and exceeds $14,425.20, the sum by which undisputed claims in the aggregate must exceed, pursuant to § 303(b)(1), "the value of any lien on property of the debtor securing such claims held by the holders of such claims."
The Patton Drive Judgment against Fustolo on Count Four exceeds the total liability of TPD, which he guaranteed, as it incorrectly includes approximately $4.0 million awarded to Patton Drive for breach of the RBH Notes which he did not guaranty, a point conceded by counsel to the Petitioning Creditors at the hearing held on October 23, 2013. Both Fustolo in his affidavit and Attorney Edmands in his affidavit
The United States Bankruptcy Appellate Panel of the First Circuit succinctly set forth the standard for determining summary judgment motions in Weiss v. Wells Fargo Bank, N.A. (In re Kelley), 498 B.R. 392 (1st Cir. BAP 2013). It stated:
In re Kelley, 498 B.R. at 397 (footnote omitted).
Applying that standard to the Cross-Motions for Summary Judgment, the Court finds that the material facts necessary to decide the Cross-Motions are not in dispute. Although the parties dispute certain facts, such as payments made by the Alleged Debtor to Patton Drive prior to entry of the Patton Drive Judgment and the value of collateral to secure Patton Drives debt, the Court finds that the disputed facts are not material to resolution of the issue of whether an order for relief should enter with respect to the Involuntary Petition.
Section 303 of the Bankruptcy Code provides in relevant part the following:
11 U.S.C. § 303(b)(1). At the time the Involuntary Petition was filed against the Alleged Debtor, the applicable amount by which undisputed claims had to exceed the value of any lien on property of the debtor securing such claims was $14,425. See 11 U.S.C. § 104(c).
A critical issue, which this Court must address is whether to follow the Drexler rule or the Byrd rule. In a recent decision, the United States Court of Appeals for the Ninth Circuit considered "a question of first impression" germane to resolution of the cross-motions before this Court, namely whether [u]nder § 303(b)(1) of the Bankruptcy Code, 11 U.S.C. § 303(b)(1), ... an unstayed state judgment on appeal [is] per se a "claim against [the debtor] that is not contingent as to liability or the subject of a bona fide dispute as to liability or amount?'" Marciano v. Chapnick (In re Marciano), 708 F.3d 1123, 1124 (9th Cir.2013) (quoting 11 U.S.C. § 303(b)(1)). In answering the question in the affirmative, the Court observed:
Marciano, 708 F.3d at 1126 (footnote omitted). The Ninth Circuit concluded that the Drexler rule was "correct as a matter of both statutory interpretation and federalism." Id.
In support of its holding, the Ninth Circuit, while noting that the petitioning creditors were free under California law to collect the amounts owed under the judgments at the time the involuntary petition was filed, considered an unstayed state court judgment to be an objective measure of the validity of the claim and warned of "`turn[ing] the court into an odds maker on appellate decision-making.'" Marciano, 708 F.3d at 1127 (quoting In re AMC Investors, LLC, 406 B.R. 478, 485 (Bankr. D.Del.2009)).
The Ninth Circuit also considered "a central purpose of the involuntary bankruptcy laws — to `protect the threatened depletion of assets or to prevent the unequal treatment of similarly situat[ed] creditors,'" as well as the concomitant prevention of a race to the courthouse, determining that the Drexler rule served that purpose. Id. (quoting In re Manhattan Indus., Inc., 224 B.R. 195, 200 (Bankr. M.D.Fla.1997)).
In contrast to the approach taken by the Ninth Circuit in Marciano and the court in Drexler, the Fourth Circuit in In re Byrd stated that "[t]he mere fact that a judgment is pending appeal does not mean that a bona fide dispute exists, any more than the fact that a state court has rendered judgment means that a bona fide dispute does not exist." 357 F.3d at 439. It added that "a debtor's subjective beliefs do not give rise to a bona fide dispute." Id. at 440. The Fourth Circuit addressed the conclusion of the district court which reversed the decision of the bankruptcy court. According to the Fourth Circuit, the district court focused on "`the preclusive effect given to [each] judgment under the law of the forum in which the judgment was rendered,'" such that the issue was whether under state law the unstayed state court judgments were final for purposes of res judicata. Byrd, 357 F.3d at 440. The Fourth Circuit concluded that such an approach "asks the wrong question." Id. In short, the court reversed the decision of the district court because the alleged debtor failed "to raise any substantial
In Metz v. Dilley (In re Dilley), 339 B.R. 1 (1st Cir. BAP 2006), the United States Bankruptcy Appellate Panel of the First Circuit cited Byrd with approval, noting that the petitioning creditors must establish a prima facie case at which point the burden shifts to the alleged debtor to establish a bona fide dispute, adding that circuit courts and courts in the First Circuit addressing the issue of what constitutes a bona fide dispute have adopted an objective standard. 339 B.R. at 6. See., e.g., In re Lever Dev., LLC, No. 11-44639-MSH, 2012 WL 5053441 (Bankr.D.Mass. Oct. 18, 2012); In re LaStanza Diva Ristorante, Inc., No. 08-18911, 2009 WL 995462 (Bankr.D.Mass. April 10, 2009). No decisions in the First Circuit, however, have involved unstayed state court judgments on appeal.
In Montana Dept. of Revenue v. Blixseth, No. 2:13-cv-01324-JAD, 2013 WL 5408668 (D.Nev. Sept. 25, 2013), the United States District Court for the District of Nevada certified a question of law requiring resolution of conflicting decisions to the United States Court of Appeals for the Ninth Circuit. It stated:
2013 WL 5408668 at *2. Notably, in In re Byrd, the Fourth Circuit observed:
In re Byrd, 357 F.3d at 440 n. 2. Notably, the Byrd decision preceded the 2005 amendments to § 303(b)(1) occasioned by BAPCPA. No First Circuit decisions address the issue raised by the Nevada district court.
The first issue the Court must resolve is whether Fustolo's assertion that Patton Drive is fully secured warrants dismissal of the Involuntary Petition. The plain language of § 303(b)(1) compels the conclusion that all claims are to be considered in comparing the total amount of claims and the value of any lien on property of the debtor securing such claims. Where Patriot holds an unsecured claim of approximately $20 million, it is clear that that sum exceeds the value of any liens on property of the Alleged Debtor by $14,425. Secondly, Patton Drive foreclosed the Alleged Debtor's pledged membership interest in TPD so he no longer has even an indirect interest in the property located at 50 Thomas Patton Drive, Randolph, Massachusetts, which secures Patton Drive's claim. In addition, although Patton Drive has mortgages on property located in Medford, Massachusetts, the Debtor, individually, does not own 5 High Street Medford, Massachusetts; rather, according to the Superior Court, "his corporate entities, Huntington Properties and 5 High Street... are the owners as tenants in common of 5 High Street, Medford, Massachusetts." Thus, the issue of whether Patton Drive is fully or partially secured is irrelevant to resolution of the cross-motions for summary judgment.
Although the Petitioning Creditors argue that the Drexler rule should apply to unstayed state court judgments, this Court shall apply the Byrd rule under the circumstances of this case for two reasons. In the first place, bankruptcy courts and the bankruptcy appellate panel in this circuit have adopted the burden shifting approach set forth in Byrd, although not specifically with respect to unstayed state court judgments on appeal. In the second place, the Petitioning Creditors conceded at the October 23, 2013 hearing that a bona fide dispute exists as a result of the inclusion in the Patton Drive Judgment of damages attributable to the Alleged Debtor's ostensible guaranty of promissory notes executed by RBH. Because Patton Drive neither asserted in its Verified Complaint nor alleged in its requests for finding that Fustolo had executed a guaranty of the RBH notes, because Patton Drive
418 B.R. at 921-22 (emphasis in original). See also In re Baron, No. 12-37921, 2013 WL 3233518 at *7 (Bankr.N.D.Tex. June 26, 2013); In re Soderberg and Schafer CPAS, LLC, 441 B.R. 262, 265 (Bankr. N.D.Ohio 2010).
Because of the $4 million added to the Patton Drive Judgment as a result of the Alleged Debtor's phantom guaranty of the RBH Notes, and the evidence presented by the Alleged Debtor, together with the admission of counsel to the Petitioning Creditors, the Court concludes that the Alleged Debtor has sustained his burden and rebutted the presumption associated with unstayed state court judgments as to a portion of the Patton Drive Judgment.
In this regard, the Court must determine the issue of whether Mass. R. Civ. P. 62(d) ("[e]xcept as otherwise provided in these rules, the taking of an appeal from a judgment shall stay execution upon the judgment during the pendency of the appeal.") and Mass. Gen. Laws ch. 235, § 16 ("No execution shall issue upon a judgment until the exhaustion of all possible appellate review thereof, and the receipt by the clerk of the trial court of the appropriate rescript or order.") effectuate a stay of the Patton Drive Judgment or whether, as the Petitioning Creditors contend, the Patton Drive Judgment is distinct from an execution to enforce it and thus is not stayed by operation of law during an appeal. The Petitioning Creditors contend that because they are not prohibited from conducting post-judgment discovery or requesting attachment of real property the judgment itself is not stayed. See A.W. Farrell Assocs., LLP v. Haddon, 72 Mass.App.Ct. 1115, 893 N.E.2d 96 (2008). The Court concludes that the Petitioning Creditors' contentions are consistent with the finality of the judgment for purposes of claim preclusion, as well as the Alleged Debtor's decision to seek an Emergency Motion for Stay of Judgment.
The final issue for resolution is whether the dispute as to the $4 million attributable to the phantom guaranty of the RBH Notes included in the Patton Drive Judgment warrants exclusion of Patton Drive as a petitioning creditor, thereby compelling dismissal of the Involuntary Petition because of lack of the requisite number of petitioning creditors.
Section 303(b)(1) requires that a petitioning creditor hold a "claim" against the debtor. Section 101(5)(A) of the Bankruptcy Code defines a "claim" as a "right to payment, whether or not such right is reduced to judgment." 11 U.S.C. § 101(5)(A). Here, the issue is whether the Court can consider the components of the Patton Drive Judgment as separate claims for purposes of § 303(b)(1). The second and third counts of Patton Drive's Verified Complaint concern the TPD Notes and the fourth count concerns Fustolo's Guaranty. Count Four references the Fustolo Guaranty executed on July 17, 2008 as modified on September 18, 2008. The Final Judgment entered on October 21, 2011 sets forth judgments on Counts Two and Three in favor of Patton Drive and against TPD in the amounts of $810,587.11 and $1,903,551.87, respectively, and these are the sums which Fustolo guaranteed. Accordingly, this Court concludes
As the Court in Montana Dept. of Revenue v. Blixseth, observed, there are conflicting decisions regarding whether a bona fide dispute as to any amount disqualifies the claim in total. See 2013 WL 5408668 at *2. Under the circumstances of this case, the Court must determine the issue.
According to the court in In re Miller, 489 B.R. 74 (Bankr.E.D.Tenn.2013),
489 B.R. at 82 (citing In re Focus Media, Inc., 378 F.3d 916, 926 (9th Cir.2004), cert. denied, 544 U.S. 968, 125 S.Ct. 1742, 161 L.Ed.2d 616 (2005)).
Because the Petitioning Creditors hold judgments, their "claims" could be considered, and in the case of the Patriot and Mayer are, their judgments, not the underlying claims for breach of contract. In the case of Patton Drive, however, where its judgment is subject to a bona fide dispute in the calculation of its damages due to the phantom guaranty of the RBH notes, its claim must be evaluated somewhat differently than those of Patriot and Mayer. Patton Drive's total claim has discrete damage components only two of which the Debtor seriously challenged, namely the approximately $4 million attributable to the "guaranty" of the RBH Notes and the amounts attributable to the usurious default interest rates applicable to the Randolph Notes.
The Alleged Debtor, in his proposed form of judgment and revised proposed form of judgment, as well as in his affidavit associated with the computation of damages, submitted to the Suffolk Superior Court, included sums due pursuant to his guaranty of the TPD notes, as well as default interest at 35%. In his Statement of Issues on Appeal, he indicated that the issues related to "the calculation of interest and default fees on the promissory notes at issue" and "the amount of the damages award against Defendant Steven C. Fustolo," an obvious reference to the $4 million phantom guaranty. In his deposition conducted on October 4, 2011, he admitted that he breached his contract with Patton Drive, stating: "So they got a contract claim, as they should get a contract claim. We owe them the money. I owe them the money."
This Court finds the rationale of the court in In re DemirCo Holdings, Inc., No. 06-70122, 2006 WL 1663237 (Bankr. C.D.Ill. June 9, 2006), and its progeny to be persuasive. In that case, the court stated:
In re DemirCo Holdings Inc., 2006 WL 1663237, at *3. See also Alan N. Resnick and Henry J. Sommer, eds., Collier on Bankruptcy ¶ 303.11[2] (16th ed. 2013). In Collier, the authors observed:
Id. at ¶ 303.11[2], 303-33-35 (footnotes omitted).
Under the circumstances of this case, it would defy logic to adopt what has been characterized as an "all-or-nothing" approach, see In re Miller, 489 B.R. 74, 83 (Bankr.E.D.Tenn.2013). This Court concludes that the finality of the Patton Drive Judgment is dispositive and entitled to full faith and credit with respect to all issues raised by the Alleged Debtor, including application of the usurious default interest rates to the Randolph Notes, other than the $4 million added due to the guaranty of the RBH Notes. Because counsel to the Petitioning Creditors conceded the existence an error in the Patton Drive Judgment with respect to the damages attributable
In accordance with the foregoing, the Court shall enter the order for relief.
Marciano, 708 F.3d at 1127.
