In re Rillema

1

In Re: Kurt A. Rillema, Alleged Debtor.

No. 23-31360

United States Bankruptcy Court, N.D. Ohio, Western Division

March 25, 2024

Chapter 7

MEMORANDUM OF DECISION AND ORDER

MARY ANN WHIPPLE, JUDGE

One petitioning creditor, Beau Harvey ("Harvey" or "Petitioning Creditor"), filed an involuntary Chapter 7 petition against Kurt A. Rillema ("Rillema" or "Alleged Debtor") under § 303 of the Bankruptcy Code, 11 U.S.C. § 303. [Doc. # 1] ("Involuntary Petition"). Rillema filed a Motion to Dismiss and for Sanctions [Doc. # 8] ("Motion") with respect to the Involuntary Petition. Alleged Debtor's Motion asserts that Harvey holds a claim that is the "subject of a bona fide dispute as to liability or amount" and argues that he is therefore not eligible under § 303(b) to commence an involuntary bankruptcy case against Rillema. As the only Petitioning Creditor, if Harvey is not eligible to file a case against Rillema it will have to be dismissed. See 11 U.S.C. § 303(b)(1), (2). The Motion seeks other relief from Harvey that needs to be addressed now only if the case is dismissed.

The district court has original and exclusive jurisdiction over this case as a case under Title 11. 28 U.S.C. § 1334(a). It has been referred to this court by the district court under its standing general order of reference. 28 U.S.C § 157(a); General Order 2012-7 of the United States District Court for the Northern District of Ohio. The Motion is a core proceeding that this court may hear and determine as it concerns the administration of the estate and adjustment of the debtor-creditor relationship. 28 U.S.C. § 157(b)(1) (b)(2)(A) and (O); In Re Haymond, 633 B.R. 520 526-27 (Bankr.S.D.Tex. 2021); see In re Taberna Preferred Funding IV, LTD., 594 B.R. 576, 581 (Bankr. S.D.N.Y. 2018).

Under § 303(b), an involuntary case is commenced "by the filing with the bankruptcy court of a petition under chapter 7 or chapter 11" of the Bankruptcy Code. 11 U.S.C. § 303(b). Representing himself, Harvey filed the Involuntary Petition on currently numbered Official Form 105, titled "Involuntary Petition Against an Individual."^[1] Bankruptcy Rule 9009(a) requires the use where available of Official Forms, like Official Form 105, as prescribed by the Judicial Conference of the United States. They are generally required to be used "without alteration." Fed.R.Bankr.P. 9009(a). The Involuntary Petition, like the form, is five pages long, with no information added on Page 5. There are no attachments to the Involuntary Petition. The printed form, which Harvey signed manually as the only petitioner, states that it is being signed under penalty of perjury and declares that the information provided is true and correct. [Doc. # 1, p. 4/5]. The Involuntary Petition form is all Harvey filed (and all that he was required to file) to start the process of trying to force Rillema into a Chapter 7 case in this court.

For the most part, Harvey filled out the Involuntary Petition form.^[2] It is mostly a check the box form. Some of the statutory elements that must be met before an order for relief is entered against a debtor in an involuntary case are pre-printed on the form, being swept within the signature and declaration under the penalty of perjury. For example, in conclusory fashion at Part 3, Question 11, captioned Allegations, the statement is printed that "Each petitioner is eligible to file this petition under 11 U.S.C. § 303(b)." That conclusory printed averment on the Official Form sweeps in exactly the eligibility issue raised in the Motion, namely whether the claim(s) alleged by Harvey against Rillema is the subject of bona fide dispute as to either liability or amount. At Part 3, Question 13, captioned "Each petitioner's claim," Harvey typed in the following information:

Name of Petitioner

Nature of petitioner's claim

Amount of the claim above

value of any lien

Beau Harvey

Conversion and Unsecured debts

due and legally undisputed

$218,403.16

Purchase Money due from

property purchase

$201,392.44

Total: $419,795.60

[See Doc. # 1, p. 3/5]. This is the only information in the Involuntary Petition form about Harvey's alleged claim(s) against Rillema.

The Clerk issued a summons to Harvey, [Doc. # 2], who served it on the Alleged Debtor with a copy of the Involuntary Petition, [Doc. #3]. Fed.R.Bankr.P. 1010(a). As specified by Bankruptcy Rule 1011(b), the summons stated that the deadline for response to the Involuntary Petition was 21 days after service of the summons, which occurred on August 1, 2023. [Doc. #3]. Alleged Debtor timely filed the Motion. The Motion requests dismissal of the Involuntary Petition, on the grounds that Harvey is not an eligible petitioning creditor because the debt alleged to be owed to Harvey by Rillema is "hotly contested and disputed." [Doc. # 8, p. 1 at ¶ 2 (main document)]. It also seeks sanctions against Harvey under § 303(i) for filing an "improper and abusive" petition and sealing of the records related to the Involuntary Petition under § 303(k).

There are five exhibits (A through E) comprising 121 pages attached to the Motion. They include a complaint against Rillema that Harvey filed in the United States District Court for the Northern District of Ohio (84 pages), Rillema's motion to dismiss that complaint under the doctrine of forum non conveniens and Rule 12(b)(6) of the Federal Rules of Civil Procedure (24 pages), Judge James G. Knepp's Memorandum of Opinion and Order granting Rillema's motion to dismiss the district court complaint, the Judgment Entry of dismissal of the district court complaint (2 pages), and a purported Civil Appeal Statement in the Sixth Circuit Court of Appeals challenging the dismissal (2 pages). The reason for dismissal of the district court complaint was procedural, based on an arbitration clause in a limited liability company operating agreement between Harvey and Rillema as members of an LLC called 522 Reynolds, LLC formed in 2019. Harvey's Northern District of Ohio federal court lawsuit was dismissed on July 28, 2023, and Harvey immediately thereafter filed his Involuntary Petition in this court on July 31, 2023.

With leave of court, [Doc. # 14], Harvey filed an untimely three-page response to the Motion, [Doc. # 15], making conclusory arguments that there is no defense to his claim(s) against Rillema and thus "there is no dispute viable or contestable" despite counsel's equally conclusory arguments to the contrary in the Motion.

Before the court authorized the late response to the Motion and Harvey formally filed it, Alleged Debtor jumped the gun and filed his reply to Harvey's response. [Doc. # 13]. Rillema's reply is 77 pages long, five of which are counsel's arguments in reply and 71 of which are additional Exhibits marked 1 through 9. Exhibit 1 to the Reply is an excerpt from the Michigan Limited Liability Company Act. Exhibit 2 to the Reply is Rillema's Verified Petition to Compel Arbitration against Harvey filed on August 11, 2023, in the United States District Court for the Eastern District of Michigan. Exhibits 3 through 9 to Alleged Debtor's Reply are various filings and orders made in that proceeding.

Alleged Debtor followed up his Reply by filing, without leave of court, a document called his "Supplement to Reply to Response to Motion to Dismiss." [Doc. # 17]. Attached as an Exhibit to the supplement is a sixteen-page order that grants Rillema's motion to compel arbitration of the parties' claims around the 522 Reynolds, LLC Operating Agreement and appoints an arbitrator.

On March 15, 2024, Rillema filed, again without leave of court, another "Supplement to Motion to Dismiss," [Doc. # 21], "advising" the court of more litigation and court proceedings involving the parties around the 522 Reynolds, LLC property in Toledo. In total, it is 232 pages long, consisting mostly of additional exhibits. They include more filings and orders from the Eastern District of Michigan lawsuit/arbitration, including an affidavit and attached exhibits, [Doc. # 21, Ex. B], and documents from a Chapter 11 bankruptcy case Harvey apparently filed in the Eastern District of Michigan. The second supplement, as are the Motion, the Reply and the first supplement, are replete with counsel's arguments and statements about facts, Harvey's credibility and an argument that Harvey's bankruptcy filing is a judicial admission that Rillema doesn't owe Harvey anything.

LAW AND ANALYSIS

I. Eligibility to be a Petitioning Creditor Under § 303(b) of the Bankruptcy Code

Under § 303 of Title 11, an involuntary case may be commenced only by holders of claims that are not contingent as to liability^[3] or the subject of a bona fide dispute as to liability or amount. 11 U.S.C. § 303(b). The burden rests on the petitioning creditor to establish its qualification under § 303(b). Riverview Trenton R.R. Co. v. DSC, Ltd. (In re DSC, Ltd.), 486 F.3d 940, 944 (6th Cir. 2007).^[4] The eligibility requirements of § 303(b) are not jurisdictional. In re Bowshier, 313 B.R. 232, 239 (Bankr. S.D. Ohio 2004); In re Kidwell, 158 B.R. 203, 208-09 (Bankr. E.D. Ca. 1993). Rillema argues that Harvey is not eligible to commence this case because his claim(s) is subject to bona fide dispute as to liability or amount. He points to the federal court litigation and arbitration between the parties and the order compelling arbitration to show that there is a bona fide dispute over Harvey's claim(s).

The Bankruptcy Code does not define bona fide dispute as used in § 303(b). In DSC, Ltd., the Sixth Circuit Court of Appeals adopted a test to determine whether a claim is subject to bona fide dispute. The court stated that Congress made clear that it intended to disqualify a petitioning creditor when there is any legitimate basis for the alleged debtor not...