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In re Hunt

United States District Court, E.D. Louisiana

February 14, 2019

IN RE RICHARD EDWARD HUNT

         SECTION M(1)

          ORDER & REASONS

          BARRYW. ASHE UNITED STATES DISTRICT JUDGE

         This case is an appeal of several bankruptcy court orders in the case In re Richard Edward Hunt, No. 18-10802, an involuntary bankruptcy commenced by petitioner/appellant Issis Roxanna Arais-Elwin("Elwin").[1] Elwin's appellant brief solely addresses the bankruptcy court's dismissal of the involuntary bankruptcy and its denial of a motion for reconsideration of the dismissal.[2]Having considered Elwin's appellant brief and the applicable law, the Court issues this Order & Reasons.

         I. BACKGROUND

         Elwin filed an involuntary petition for bankruptcy under Chapter 7 against Richard Edward Hunt ("Hunt") on March 30, 2018.[3] In the petition, Elwin alleged that Hunt owed Elwin $50, 353 in child support, $250, 000 in damages for harassment and personal injuries, and $1, 000, 000 in damages for injury to their minor child.[4] Hunt answered the involuntary petition on April 17, 2018, denying that he owed child support on the ground that the state court granted Hunt's motion for a new trial on the judgment of child support, making the judgment unenforceable.[5] Hunt stated that the new trial was set to begin on or about May 23, 2018, and that Elwin had requested a continuance.[6] Hunt also averred that he owed none of the claimed damages because Elwin had never filed a tort action against him.[7]

         On May 14, 2018, the bankruptcy court held an evidentiary hearing on Elwin's motion to waive a filing fee and Hunt's answer contesting the involuntary petition, whereupon the bankruptcy court entered orders and oral reasons for granting the motion to waive the filing fee, dismissing the petition, and denying Hunt's oral motion for punitive damages for Elwin's initiation of the involuntary bankruptcy.[8] Thereafter, Elwin filed a motion requesting that the bankruptcy court enter written findings of fact and conclusions of law, [9] a motion for a hearing for same, [10] and a motion for reconsideration of the order of dismissal.[11] The bankruptcy court denied the request for a hearing, [12] entered written findings of fact and conclusions of law as to the dismissal, [13] and, treating the motion for reconsideration as a motion for new trial or to alter or amend judgment, denied the motion with reasons.[14]

         In its reasons for dismissal, the bankruptcy court found that Elwin lacked standing under 11 U.S.C. § 303(b)(2) because Elwin failed to make a prima facie case, as the lone-filing creditor, that she had a claim of at least $15, 775 that was not contingent as to liability or the subject of a bona fide dispute as to liability or amount.[15] In reviewing Hunt's debts to Elwin, the bankruptcy court found that the Civil District Court for the Parish of Orleans ("State Court") had entered an order on April 26, 2011, requiring Hunt to pay Elwin $234 per month in child support. While the State Court increased the award to $712 per month on November 8, 2013, the State Court subsequently granted Hunt's motion for a new trial on the amount of child support and scheduled a hearing for January 25, 2016. At the time Elwin filed the involuntary petition on March 30, 2018, the State Court hearing on child support had been continued, but was set to be heard on May 23, 2018.[16] (In fact, though, ahead of the May 14, 2018 hearing on the contested bankruptcy filing, Elwin had removed the state-court proceedings to the Eastern District of Louisiana.[17]) Given that the State Court's grant of the new trial rendered the $712 per month judgment unenforceable, the bankruptcy court calculated Hunt's debt using the $234 per month judgment.[18] Accordingly, the bankruptcy court found that Hunt owed Elwin a maximum of $11, 935.49 in unpaid child support that was not the subject of a bona fide dispute at the time of the hearing. The bankruptcy court also found that the damages claims were disputed and unliquidated and also were unsubstantiated by any evidence put forth by Elwin. As a result, the court found that these claims were contingent as to liability and should be disregarded for purposes of the test for permitting an involuntary petition under 11 U.S.C. § 303(b)(2). Therefore, the bankruptcy court concluded that the amount of $11, 935.49 comprised the total of claims not the subject of a bona fide dispute, or, more precisely, that Elwin had not carried her burden of establishing that no bona fide dispute existed as to claims of at least $15, 775.[19]

         In the bankruptcy court's reasons for denying Elwin's motion for reconsideration of the dismissal, the court noted that Rule 1013(a) of the Federal Rules of Bankruptcy Procedure requires it to "determine the issues of a contested petition at the earliest practicable time and forthwith ... dismiss the petition," if appropriate. The bankruptcy court indicated that it gave 21 days' notice of the hearing on the contested petition (the customary period for motions), rather than a shorter period, because Elwin failed to provide sufficient information on Hunt for the court to schedule an expedited hearing. This had the effect of affording Elwin more, not less, notice than is typical for a hearing on a contested petition. Having provided ample notice and an evidentiary hearing at which Elwin offered evidence, questioned Hunt, and testified, and having received no new evidence upon Elwin's motion to reconsider the dismissal, the bankruptcy court concluded that a new trial or amended judgment was unwarranted.[20] Elwin simply failed to meet the statutory threshold for an involuntary petition. Although Elwin also complained about the State Court's grant of a new trial (among many other complaints about the State Court's allegedly corrupt handling of her case), the bankruptcy court noted that the Rooker-Feldman doctrine precluded the bankruptcy court from reviewing the State Court's judgment granting the new trial on the question of child support.

         II. ARGUMENT ON APPEAL

         Elwin makes three essential arguments in her appellate brief. First, Elwin contends that the bankruptcy court erred in not using the 2013 judgment of $712 per month in child support to calculate Hunt's debt because the judgment was not the subj ect of a bona fide dispute. Elwin cites In reMarciano, 446 B.R. 407 (Bankr. CD. Cal. 2010), aff'd, 459 B.R. 27 (B.A.P. 9th Cir. 2011), qff'd, 708 F.3d 1123 (9th Cir. 2013), for the proposition that a bona fide dispute does not exist in relation to a debt secured by a state-court judgment when the state-court proceedings are litigated in bad faith.[21] Elwin insists that the bankruptcy court should have conducted a limited analysis of the merits of the State Court's grant of new trial in making its determination as to whether a bona fide dispute existed.[22] If the bankruptcy court had done so, suggests Elwin, it would have concluded that no bona fide dispute existed because the motion for a new trial was filed beyond the time period allowed in article 1974 of the Louisiana Code of Civil Procedure.[23]

         Second, Elwin argues that the Rooker-Feldman doctrine is inapplicable because she is a "state court winner" rather than a "state court loser," and because she does not complain of an injury caused by a state-court judgment but only of the "state court's utter failure to follow state procedural and substantive law."[24] Given that no trial has yet been held, Elwin submits, no bona fide dispute concerning the child support judgment exists.[25]

         Finally, Elwin claims that she was not afforded due process in connection with the bankruptcy court's May 14, 2018 hearing. Elwin asserts that it was improper for the bankruptcy judge to treat Hunt's answer as a motion to dismiss, [26] that she should have been given notice that the bankruptcy judge could dismiss her case at the evidentiary hearing, [27] and that she should have been afforded more time for discovery.[28]

         III. LAW & ANALYSIS

         A. Bona Fide Dispute

         To determine whether a bona fide dispute exists under 11 U.S.C. § 303(b), the Fifth Circuit follows the Eighth Circuit's objective standard that "includes a clearly erroneous standard of review." In re Sims, 994F.2d2lO, 221 (5th Cir. 1993) (quoting In re Rimell, 946 F.2d 1363, 1365 (8th Cir. 1991)). The court articulated the methodology for applying the objective standard as follows:

[T]he petitioning creditor must establish a prima facie case that no bona fide dispute exists. Once this is done, the burden shifts to the debtor to present evidence demonstrating that a bona fide dispute does exist. Because the standard is objective, neither the debtor's subjective intent nor his subjective belief is sufficient to meet this burden. The court's objective is to ascertain whether a dispute that is bona fide exists; the court is not to actually resolve the dispute. This does not mean that the bankruptcy court is totally prohibited from addressing the legal merits of the alleged dispute; indeed, the bankruptcy court may be required to conduct a limited analysis of the legal issues in order to ascertain whether an objective legal basis for the dispute exists. Finally, because the determination as to whether a dispute is bona fide will often depend ... upon an assessment of witnesses' credibilities and other factual considerations, the bankruptcy court's determination in this regard is a factual finding that may be overturned on appeal only if it is clearly erroneous.

Id. (quoting In re Rimell, 946 F.2d at 1365 (citations omitted)). "[T]he existence of a bona fide dispute must be determined as of the date the petition was filed." In re Norris, 114 F.3d 1182, 1997 WL 256808, at *5 (5th Cir. Apr. 11, 1997). When considering whether a bona fide dispute exists, courts determine whether the litigated claim directly challenges the liability or amount of the debt. See In re Green Hills Dev. Co., 741 F.3d 651, 659 (5th Cir. 2014). "Bankruptcy courts routinely consider the evidence and character of pending but unresolved litigation as evidence of a bona fide dispute." Id.

         The bankruptcy court determined that Elwin failed to make a prima facie case that debts surpassing the statutory threshold were not the subject of a bona fide dispute. In making this determination, the bankruptcy court specifically found that the State Court granted Hunt's motion for a new trial of the 2013 judgment awarding $712 per month in child support.[29] The bankruptcy court cited Gilley v. Wendy's, Inc., 723 So.2d 517, 523 (La.App. 1998), for the proposition that, under Louisiana law, "the granting of a new trial has the effect of vacating and setting aside the original judgment."[30] Thus, the 2011 State Court judgment awarding $234 per month in child support was the only enforceable judgment by which Hunt's child support obligation could be calculated. The bankruptcy court concluded, at a minimum, that Elwin did not carry her burden under Sims of establishing a prima facie case that the 2013 child support judgment was not the subject of a bona fide dispute.[31] The bankruptcy court reiterated this conclusion in denying Elwin's motion for reconsideration, finding that she "raised no manifest error of law or fact or newly discovered evidence."[32] This Court agrees; the bankruptcy court's finding that a bona fide dispute existed as to the State Court's child support judgment is not clearly erroneous.

         Elwin's reliance on In re Marciano is misplaced. There, the Ninth Circuit upheld a per se rule that unstayed non-default state-court judgments on appeal are not subject to a bona fide dispute under 11 U.S.C. § 303(b)(1). 708 F.3d at 1128. Here, the State Court granted a new trial, vacating and setting aside the 2013 child support judgment, thereby effectively reinstating the 2011 judgment - a matter altogether distinct from the appeal of a judgment as was the case in In re Marciano. Moreover, Elwin does not challenge the bankruptcy court's factual finding that the State Court granted a new trial to determine child support. Rather, Elwin challenges the merits of the State Court's decision to grant the new trial.[33]

         B. The Rooker-Feldman Doctrine

         Although Elwin challenges both the merits of the State Court's grant of new trial on child support and the integrity of the State Court proceedings in general, the bankruptcy court said it was prohibited from reviewing the State Court's judgment under the Rooker-Feldman doctrine, which provides that "federal district courts, as courts of original jurisdiction, lack appellate jurisdiction to review, modify, or nullify final orders of state courts." Weekly v. Morrow,204 F.3d 613, 615 (5th Cir. 2000). The Rooker-Feldman doctrine bars "cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments." ExxonMobil Corp. v. Saudi Basic Indus. Corp.,544 U.S. 280, 284 (2005). The four elements of the Rooker-Feldman doctrine are: (1) a ...


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