When there’s a dissent in a circuit court’s decision, the opinion is ordinarily reported and precedential, but the Ninth Circuit isn’t officially reporting a split decision on an involuntary bankruptcy petition.
In an appeal involving a judgment for copyright violation, the majority on the Ninth Circuit panel decided that the 14 plaintiffs jointly holding one judgment satisfied the three-petitioning-creditors numerosity requirement for filing an involuntary petition under Section 303(b).
A district judge sitting by designation “respectfully” dissented. Characterizing the holders of the judgment as holding only one claim because the judgment was not divisible on its face, the dissenter would have affirmed the bankruptcy court and dismissed the petition for a lack of three petitioning creditors.
The panel marked the opinion as nonprecedential. Why? Were they unsure about the correct answer, or did they believe that the situation was unlikely to arise again and thus didn’t warrant being an officially reported opinion?
Indeed, the situation is unlikely to arise again, because the dissenter told future plaintiffs how to draft a jointly held judgment that would give rise to more than one creditor.
The Judgment
Fourteen copyright-holders sued a defendant for copyright violation. In settlement, the court entered a $3 million stipulated judgment on behalf of all 14 plaintiffs. On its face, the stipulation did not apportion the judgment among the plaintiffs.
The 14 plaintiffs filed an involuntary chapter 7 petition against the defendant, who was an individual. The debtor filed a motion to dismiss, contending that he had more than 12 creditors and that the judgment only represented one claim.
Affirmed by the district court, the bankruptcy court dismissed the petition, believing that the petitioners had not satisfied the numerosity requirement of Section 303(b)(1). When a debtor has 12 or more creditors, the section says that an involuntary petition must be filed by “three or more entities, each of which is . . . a holder of a claim against such person that is not contingent as to liability or the subject of a bona fide dispute as to liability or amount . . . .” [Emphasis added.] The claims must aggregate not less than $18,600.
The Majority’s Opinion
The debtor conceded at oral argument that each of the 14 plaintiffs had a right to payment — that is, by definition, a claim to some portion of the $3 million judgment. Consisting of Circuit Judges Kim M. Wardlaw and Patrick J. Bumatay, the majority therefore said that “the Creditors satisfy the numerosity requirement.”
“Moreover,” the majority said, “their right to payment is individually enforceable because the judgment is ‘easily divisible,’” citing a bankruptcy court in Massachusetts. Furthermore, the merger of each plaintiff’s claim into the judgment “does not alter the debt obligation.”
Because the complaint contained a detailed list of each plaintiff’s ownership of the infringed copyrights, the majority said that the “$3 million judgment can be readily divided according to those established interests.” The judgment represented the claims of 14 creditors, because “the list of copyright interests attached to the complaint makes clear what each individual Creditor is owed in total.”
The majority reversed dismissal of the involuntary petition and remanded.
The Dissenter
District Judge Jack Zouhary of Toledo, Ohio, dissented for two reasons.
First, Judge Zouhary said that the judgment merged the plaintiffs’ claims. The $3 million stipulated judgment, he said, “bears no relation to the actual or statutory damages stemming from the copyright violations.”
Second, Judge Zouhary said that “nothing in the judgment indicates how the money is to be split — meaning it is not ‘easily divisible.’” Making a practice point for future plaintiffs, he said that the judgment “could have easily done so by utilizing additional language in the settlement agreement.” Retaining individual rights to payment “was the duty of counsel in the initial suit — not the district court, and certainly not this panel.”
Judge Zouhary “respectfully” dissented.
Observations
What’s the right (or better) answer? You decide for yourself.
For the debtor’s creditors as a whole, there’s a practical advantage in the majority’s opinion. With the debtor in bankruptcy, there will be no rush to the courthouse by one or more of the 14 creditors trying to collect the judgment first.
And, the debtor might have other creditors who won’t be foreclosed from taking their share of the debtor’s assets.
Perhaps practical considerations underlay the majority’s decision.
When there’s a dissent in a circuit court’s decision, the opinion is ordinarily reported and precedential, but the Ninth Circuit isn’t officially reporting a split decision on an involuntary bankruptcy petition.
In an appeal involving a judgment for copyright violation, the majority on the Ninth Circuit panel decided that the 14 plaintiffs jointly holding one judgment satisfied the three-petitioning-creditors numerosity requirement for filing an involuntary petition under Section 303(b).
A district judge sitting by designation “respectfully” dissented. Characterizing the holders of the judgment as holding only one claim because the judgment was not divisible on its face, the dissenter would have affirmed the bankruptcy court and dismissed the petition for a lack of three petitioning creditors.
The panel marked the opinion as nonprecedential. Why? Were they unsure about the correct answer, or did they believe that the situation was unlikely to arise again and thus didn’t warrant being an officially reported opinion?
Indeed, the situation is unlikely to arise again, because the dissenter told future plaintiffs how to draft a jointly held judgment that would give rise to more than one creditor.