In re Black (17-50064)

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Alleged debtor was in an accident while driving the petitioning creditor’s vehicle, and petitioning creditor was injured and retained counsel. Petitioning creditor eventually obtained a default judgment and planned to file an involuntary petition to use a bankruptcy trustee to assert first-party non-assignable state law claims against insurers. Insurers provided alleged debtor with counsel to seek to set aside the default judgment, and the petitioning creditor obtained a writ of execution that went unsatisfied and immediately filed the petition. Alleged debtor responded to the petition, seeking dismissal of the case on several grounds, including bad faith. The court found the alleged debtor overcame the presumption that the involuntary petition was filed in good faith, and the case was dismissed. The court noted that the involuntary petition strategy itself raised serious questions of good faith; that the case was a two-party dispute and an improper attempt at debt collection; that it was abnormal to consider filing an involuntary petition prior to executing on a judgment; that petitioning creditor's counsel, both in state court and in bankruptcy, made misleading statements and took misleading actions that constituted questionable conduct, may have contributed to obtaining the default judgment, and raise ethics concerns; that the race to file the petition appeared to be an attempt to cut off alleged debtor's ability to seek review of the judgment; and that alleged debtor should be allowed to pursue his own state law claims and there is no wasting asset.

Date: 
Thursday, March 2, 2017
Published: 
No
Index Heading: 
Dismissal