On an issue of first impression, the First Circuit has held that a bankruptcy court need not retain jurisdiction to entertain an alleged debtor’s post-dismissal request for attorneys’ fees under Section 303(i)(1).

A bank filed an involuntary chapter 11 petition against an individual. Eventually, the bankruptcy court dismissed the involuntary petition because there were only two petitioning creditors when the debtor had 15 creditors in total.

The dismissal order contained no reservation of jurisdiction for anything.

The district court and the First Circuit both upheld dismissal of the involuntary petition. The circuit court’s mandate came down two months after the circuit court’s judgment. One day short of one year after the mandate, the debtor filed a motion in bankruptcy court under Section 303(i)(1) to recover more than $900,000 in attorneys’ fees.

“If the court dismisses a petition under this section other than on consent of all petitioners and the debtor,” Section 303(i)(1) provides that “the court may grant judgment — (1) against the petitioners and in favor of the debtor for — (A) costs; or (B) a reasonable attorney’s fee.”

The bankruptcy court denied the motion for attorneys’ fees, reasoning that the bankruptcy court had no subject matter jurisdiction after dismissal. The district court affirmed for lack of jurisdiction and also believed that the motion for fees was untimely. The district court’s affirmance led to the alleged debtor’s appeal to the First Circuit.

Jurisdiction

The bank argued on appeal that the bankruptcy court lacked jurisdiction because there was no retention of jurisdiction in the dismissal order. In her August 1 opinion, Circuit Judge Laura Montecalvo said that the issue was a question of first impression among the circuits.

Judge Montecalvo said that “the question of post-dismissal (or post-closure) jurisdiction is a case- and fact-specific inquiry. Post-dismissal jurisdiction depends on the basis for jurisdiction over the proceeding and the specific circumstances and nature of the proceeding itself.” She observed that the debtor’s motion for fees under Section 303(i)(1) gave rise to “arising under” jurisdiction because “the Bankruptcy Code itself creates the cause of action or provides the substantive right invoked.”

Next, Judge Montecalvo inquired as to whether dismissal ended the bankruptcy court’s jurisdiction over post-dismissal Section 303(i)(1) motions. Citing the Tenth Circuit, she said that the “purpose of § 303(i) ‘is not negated by dismissal of the underlying bankruptcy case.’” She also adopted the Tenth Circuit’s statement that “‘[n]o part of § [303(i)] suggests that a claim exists only while the bankruptcy case remains pending.’”

“For these reasons,” Judge Montecalvo said, “a bankruptcy court need not provide a jurisdiction-retention statement referring to § 303(i) claims to later exercise subject-matter jurisdiction over the same post dismissal.” She therefore held that the bankruptcy court erred in holding that there was no post-dismissal jurisdiction.

Timeliness

Just because there was jurisdiction, it didn’t mean that the motion for fees was timely. That’s where the alleged debtor slipped up: by waiting one year to file the motion. But what’s the deadline, and where it is found?

Neither the Bankruptcy Rules nor the local bankruptcy rules contained a deadline for a motion under Section 303(i). However, the local rules of the district court require an application for fees within 14 days following issuance of the mandate. In the absence of a local rule, Bankruptcy Rules 1018 and 9014 adopt Rule 54(d)(2) and impose a 14-day deadline.

Under the local district court rule, Judge Montecalvo held that the motion was “undeniably untimely.” She therefore affirmed dismissal of the motion for attorneys’ fees.