Janice D. Loyd, U.S. Bankruptcy Judge.
On April 4, 2016 (the "Petition Date"), CO & G Production Group, LLC ("CO & G"), Spoon Resources, LLC ("Spoon"), Acadiana Maintenance Services ("Acadiana") and Great American Insurance Company("Great American") (collectively, the "Petitioning Creditors") filed an involuntary proceeding under Chapter 7 of the Bankruptcy Code, 11 U.S.C. § 101, et seq.
On June 1, 2016, the Court entered its Order denying Agrawal's Motion to Dismiss on the basis that on its face the Involuntary Petition had stated a claim for relief under the standards of Rule 12(b)(6) of the Federal Rules of Civil Procedure, as made applicable by Fed R. Bankr. P. 7012 [Doc. 25], and that any claim that the Petitioning Creditors had acted in "bad faith" was not ripe for adjudication unless the Court had previously entered an order of dismissal of the Involuntary Petition. Agrawal thereafter filed his Answer to the Amended Involuntary Petition essentially asserting that a bona fide dispute existed as to liability and amount with each of the Petitioning Creditors claims as required by § 303(a)(1).
A Scheduling Conference was conducted by the Court on July 14, 2016. Given the fact that the Petitioning Creditors had stated in prior pleadings that they were the holders of state court judgments, the Court directed the parties to submit on or before October 14, 2016, a summary of the state court proceedings giving rise to any judgments entered in favor of the Petitioning Creditors as well as briefs containing legal authority supporting their respective contentions as to whether a bona fide dispute existed pursuant to § 303(b)(1). These instructions to the parties were memorialized in the Court's Order of July 15, 2016, setting an evidentiary hearing on the Petitioning Creditors' Involuntary Chapter 7 Petition on November 2, 2016. [Doc. 40].
In its Memorandum Opinion and Order Resolving Certain Legal Standing Issues in Involuntary Case entered on November 1, 2016 (the "Order") [Doc. 51], this Court found Petitioning Creditors CO & G, Great American and Acadiana were the holders of final unappealed, or appealed but not stayed, judgments against Agrawal: (1) a judgment in favor of CO & G in the District Court of Tulsa County for approximately $11 million; (2) a judgment in favor of Great American in the District Court of Oklahoma County for $31,344.92 plus costs and, (3) a judgment in favor of or Acadiana in the District Court of Beaver County in the amount of $3,132.82. As to Spoon, the Court found that it was the holder of a judgment in the District Court of Okmulgee County in the amount of $20,000; however, the District Court had pending issues as to whether additional damages were appropriate, making the $20,000 judgment in Spoon's favor interlocutory and thus not a "final" judgment for purposes of § 303(b)(1).
In its Order the Court found that applying the objective standards of determining whether a "bona fide dispute" existed as expressed by the Tenth Circuit in Bartmann v. Maverick Tube Corp., 853 F.2d 1540, 153-44 (10th Cir. 1988), the judgments held by the Petitioning Creditors were not subject to a bona fide dispute notwithstanding Agrawal's subjective displeasure with them.
The Court has jurisdiction over this bankruptcy case pursuant to 28 U.S.C. § 1334(b). Reference to the Court of this contested matter is proper pursuant to 28 U.S.C. § 157(a). The determination of whether an order for relief should be entered in an involuntary bankruptcy case is a core proceeding as contemplated by 28 U.S.C. § 157(b) (2)(A).
By its previous Order, the Court found that the Petitioning Creditors established a prima facie case that their claims are not subject to a bona fide dispute. Bartmann v. Maverick Tube Corp., 853 F.2d 1540, 1543-44 (10th Cir. 1988). The burden then shifted to the alleged debtor, here Agrawal, to present evidence of bona fide dispute. Id. The Court found that Agrawal did not meet his burden of proof with regard to the existence of a bona fide dispute. Having found a sufficient number of creditors who hold claims in the necessary amount to determine that the Petitioning Creditors are eligible for the filing of the Involuntary Petition, however, is not enough. The next step is to determine whether Agrawal is not paying his debts as they fall due. Before the bankruptcy court may enter an order for relief in an involuntary proceeding, it must additionally find that "the debtor is generally not paying such debtor's debts as such debts become due unless such debts are the subject of a bona fide dispute as to liability or amount." 11 U.S.C. § 303(h)(1). The Petitioning Creditors carry the burden of proof to show by a preponderance of the evidence that a debtor is generally not paying its debts as they become due. Bartmann, 853 F.2d at 1546; In re Harmsen, 320 B.R. 188, 197 (10th Cir. BAP 2005); In re Better Care, Ltd., 97 B.R. 405 (Bankr. N.D. Ill.1989).
The Court conducted an evidentiary hearing on November 2 and 4, 2016, on the issue as to whether the Petitioning Creditors can establish that Agrawal was not paying his debts as they become due. As required by § 303(h)(1), a finding by this Court that Agrawal is generally not paying his debts as such debts become due is a prerequisite to the entry of an order of relief. Paradise Hotel Corp. v. Bank of Nova Scotia, 842 F.2d 47, 51 (3rd Cir. 1988) (recognizing that petitioning creditor must produce evidence establishing debtor was not paying its debts as such debts become due); In re Miller, 444 B.R. 446 (Bankr. N.D. Okla. 2011) (before bankruptcy court may enter an order for relief in an involuntary proceeding, it must find that "the debtor is generally not paying such debtor's debts as such debts become due unless such debts are subject of a bona fide dispute as to liability or amount."); In re Food Gallery at Valleybrook, 222 B.R. 480, 486 (Bankr. W.D. Pa. 1998) (recognizing bankruptcy court may not enter involuntary relief unless the debtor is generally not paying its debts as such debts become due); In re Brooklyn Resource Recovery, Inc., 216 B.R. 470, 481 (Bankr. E.D.N.Y. 1997). It is fundamental that the determination of whether the debtor is generally paying such debts as they become due must be made as of the date of the filing of the petition. In re Bishop, Baldwin, Rewald, Dillingham & Wong, Inc., 779 F.2d 471, 475 (9th Cir. 1985); In re Edwards, 501 B.R. 666, 682 (Bankr. N.D. Tex. 2013); In re Laclede Cab Co., 76 B.R. 687, 691 (Bankr. E.D. Mo.1987).
The other test employed by the courts to determine whether the debtor is generally paying his debts as they fall due is a more mechanical, "mathematical test". This test employs a two-step inquiry. The first step is to determine which debts the debtor was paying as of the filing of the petition and which debts the debtor was not paying as of that time. In re ELRS Loss Mitigation, LLC., 325 B.R. at 631; In re R. N. Salem Corp., 29 B.R. 424, 428 (S.D. Ohio 1983). Once the court has determined that there are debts the debtor is not paying as they become due, the court engages in the second step of the inquiry which requires the court to compare the number and amount of unpaid debts with the number and amount of paid debts. That comparison is to take into account the materiality of that nonpayment as well as a debtor's general conduct of its financial affairs. In re Better Care, Ltd., 97 B.R. 405 (Bankr. N.D. Ill.1989); In re The Leek Corporation, 52 B.R. 311, 314 (Bankr. M.D. Fla.1985).
Whether the Court employs the "totality of circumstances test" or the "mathematical test", the evidence presented by the Petitioning Creditors establishes that Agrawal was not generally paying his debts under § 303(h)(1). Looking to the first step of the mathematical test, the evidence showed the following with regard to Agrawal's debts, all but one of which are represented by judgments:
CREDITOR JUDGMENT AMOUNT CREDITORS' EXHIBIT # Calvary Portfolio Services $18,174.07, accrued 7-D LLC interest, attorney fees and costs of $10,717.21 with interest at 24.990% Production Control $137,329.02 8, Claim 2-1 Services, Inc. Discover Bank $9,995.24 9-F, 15-K Citibank South Dakota3 $12,472.96, $1,800.00 15-A attorney fees, $219.00 costs Kenneth Redford, et al $6,500.00, $2,650.00 15-B attorney fees Cach, LLC $13,210.24, $1,981.53 15-C attorney fees Ten Hoeve Bros., Inc. Unknown 15-D Fesco, L.P. of Texas $15,922.00 15-E Frontier Well Service, Inc. $9,080.90 (lien — non-judgment) 15-F CO & G Production Group $11,017,379.78 3-J, 15-G Chris Holland $68,700.00 1-D, 22 Great American Ins. Co. $31,344.92 6-F Acadiana Maintenance $3,132.82 5-G Services Spoon Resources $20,000.00 4-D
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In his testimony, Agrawal testified that in his opinion he didn't "owe" any of these debts, but he didn't deny the existence of the judgments relating to the them. He further testified that he had never paid on any of those judgments because he didn't owe them. Gary Ballenger, the representative for Great American, testified that he sought collection efforts to obtain payment on the judgment but no payments have ever been made. Ronald Walker, the general manager of CO & G which has the $11 million judgment, testified that numerous garnishments and other collection efforts had been made to collect on the judgment but only $10.00 as ever been collected.
The mathematical test also requires the court to take into account the debtor's general conduct of his financial affairs. In the present case, the Court regards this as a significant consideration. Jerry Parent, the Member Manager of Petitioning Creditor Spoon Resources, and Ronald Walker, the general manager of CO & G, both testified as to Agrawal's litigiousness and extensive experience in how to manipulate court proceedings to frustrate his creditors. Parent testified that he has been involved in thirteen (13) separate lawsuits with Agrawal. The Oklahoma District Court docket sheets reflect that over the past twenty years Agrawal has been a party to approximately 100 lawsuits, including six (6) as a defendant in Cleveland County, sixteen (16) as a defendant in Oklahoma County (out of a total of fifty-nine lawsuits in which he was a party), as well thirty-six (36) appellate cases in the Oklahoma Court of Civil Appeals or the Supreme Court (29 as a petitioner or appellant).
Even more troubling to the Court in considering Agrawal's overall conduct of his financial affairs was his credibility and candor as a witness. Extracting the most basic information from him by testimony was difficult and argumentative. Even attempting to ascertain Agrawal's primary residence was difficult with Agrawal testifying that he moved about, sometimes sleeping at a house titled in the name of his wife (although she lives elsewhere), sometimes at a house titled in the name of his daughter, sometimes sleeping in his office (titled in the name of company owned by his daughter) and sometimes he sleeps in his car ("I do not have a primary residence"). He has not owned any real property in his name since approximately 1985. Rental properties are owned by his children's trust managed by a corporation owned by his wife. He performs some maintenance and other jobs for such rental properties but does not receive any income. Several businesses which he assists in managing owned by his children or companies owned by his children operate out of an office located at 4133 Lincoln Boulevard in Oklahoma City which is titled in the name of Vance Properties I owned by his children. He manages Vance Properties but testified he receives no income from those companies. Agrawal's wife has been employed for years by the Federal Aviation Administration, but he says he does not know what her job there is because of
The Court now turns to the application of the evidence to the "totality of the circumstances test" enunciated in Bartmann. First, the filing of the involuntary petition is in the best interests of all creditors. It is evident to the Court that collection of any debt from Agrawal has proven to be difficult, if not impossible, by Arawal's strategy of employing a combination of litigation and making himself judgment proof. Bringing Agrawal within the jurisdiction of the Bankruptcy Court would be the most effective way to consolidate in one court, here the "umbrella" of the Bankruptcy Court, the most fair and equitable way to determine what assets, if any, Agrawal has and to equitably distribute such assets if available. There is no assurance that the appointment of a Chapter 7 Trustee would lead to the recovery of significant assets in this case. At the same time, there is even less assurance of payments to creditors if matters are allowed to proceed as they have in state court.
Second, it appears that the Petitioning Creditors, principally because of Agrawal's legal and financial maneuverings, have not had an adequate remedy under state law. Numerous garnishments, orders for hearing on assets and other post-judgment collection proceedings appear to have recovered virtually nothing for the creditors.
Third, it does not appear that the filing of an involuntary bankruptcy would cause harm to any businesses employing the services of Agrawal or to creditors of those businesses. Accepting as true Agrawal's testimony, it appears that he is only reimbursed for expenses but not paid a salary or other income by the various entities which he claims are owned by his children. If that is, indeed, the fact, Agrawal is not prohibited from continuing to render services, and those entities are not injured by the bankruptcy.
Fourth, the filing of the involuntary petition cannot be said to be an effort at forum shopping by the Petitioning Creditors because the proper forum for any Agrawal bankruptcy was in the Western District of Oklahoma where he resides.
Another factor in the "totality of the circumstances test" is whether the motives of the Petitioning Creditors were "something other than a self-center desire to get paid." While not articulating this factor in opposition to the Petitioning Creditors, the only apparent defense presented by Agrawal to the involuntary bankruptcy is a related one that CO & G filed the involuntary petition as a litigation tactic to prevent the Tulsa District Court from conducting a hearing on Agrawal's motion to vacate the $11 million judgment. Given the evidence presented in this case conclusively showing that the requirements for an order for relief in an involuntary proceeding have been met, including the Tulsa judgment being final, this Court need not speculate as to what other motives or strategy may have been behind CO & G joining as a Petitioning Creditor. It is not necessary under the "totality of circumstances test" that the court find that all five factors set forth in Bartmann, or any additional factors, be determinative. In its prior Order this Court made clear that it will not go behind the Tulsa District Court judgment or any other final state court judgment to determine the underlying factual merit of the judgment. This Court is not to sit as an appellate court to determine the validity of a final state court judgment or collaterally attack the same
For the reasons set forth above and in the Court's Order of November 1, 2016, upon consideration of the Amended Petition filed on April 6, 2016, against the above-named Debtor, Krishna Kumar Agrawal, aka Kris Agrawal, the Court finds that the requirements of Bankruptcy Code § 303 have been met, and an order for relief under Chapter 7 of the Bankruptcy Code (Title 11 of the United States Code) is
