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Mouhaffel v. Southeast Holdings, LLC of Montana

United States District Court, M.D. Louisiana

September 30, 2019

ASSAD MOUHAFFEL
v.
SOUTHEAST HOLDINGS, LLC OF MONTANA

          RULING AND ORDER

          BRIAN A. JACKSON, JUDGE

         Before the Court is an appeal of an order issued by the United States Bankruptcy Court for the Middle District of Louisiana granting a Motion for Attorney's Fees, Costs, and Punitive Damages (Doc. 1) filed by Southeast Holdings, LLC of Montana, Appellee, against Assad Mouhaffel, Appellant. For the reasons that follow, the order of the Bankruptcy Court is AFFIRMED.

         I. BACKGROUND

         This appeal arises from the filing and dismissal of an involuntary petition. On July 12, 2018, Mouhaffel filed an involuntary petition under Chapter 7 of the United States Bankruptcy Code. The alleged debtor, Southeast Holdings, filed a Motion to Dismiss, arguing that the petition did not meet the requirements under 11 U.S.C. §303, and that Mouhaffel's claim is the subject of a bona fide dispute as to liability in pending lawsuits in more than one Louisiana state court.[1] Southeast argued that Mouhaffel's petition was filed in bad faith to thwart the prosecution of its lawsuit against Mouhaffel in state court. Mouhaffel argued that there is no bona fide dispute and that dismissal is unwarranted. On August 31, 2018, the Bankruptcy Court held a hearing on the motion.

         On September 4, 2018, the Bankruptcy Court granted the Motion to Dismiss in favor of Southeast and dismissed the petition. Soon after, Southeast filed a Motion for Attorney's Fees, Costs, and Punitive Damages seeking $8, 516.20 in attorney's fees and costs and the imposition of $10, 000.00 in punitive damages against Mouhaffel for filing the involuntary petition in bad faith. On October 26, 2018, the Bankruptcy Court held a hearing on the motion and granted $8, 141.20 in attorney's fees and $5, 000.00 in punitive damages. Thereafter, Mouhaffel timely filed a Notice of Appeal challenging the Bankruptcy Court's Order. Mouhaffel did not appeal the Bankruptcy Court's decision to dismiss the petition.

         II. LEGAL STANDARD

         In bankruptcy appeals, district courts review bankruptcy court rulings and decisions under the same standards employed by federal courts of appeal. Carrieri v. Jobs.com Inc., 393 F.3d 508, 517 (5th Cir. 2004). A bankruptcy court's findings of fact are reviewed for clear error and its conclusions of law de novo. Id. Under the "clearly erroneous" standard, a district court will reverse "only if, on the entire evidence, we are left with the definite and firm conviction that a mistake has been made." Walker v. Cadle Co., 51 F.3d 562, 565 (5th Cir. 1995).

         Therefore, in addressing Mouhaffel's appeal of the Bankruptcy Court's order, the question the Court must answer is whether the Bankruptcy Court correctly awarded attorney's fees and costs under 11 U.S.C. §303(i)(1) and punitive damages under §303(i)(2).

         III. DISCUSSION

         This appeal implicates 11 U.S.C. §303, which is the provision of the Bankruptcy Code that governs involuntary petitions. An involuntary petition may be commenced by a creditor under Chapter 7 or 11. The creditor who files is the "petitioning creditor" and, the person or entity on whose behalf the petition is filed is the "alleged debtor." If a bankruptcy court dismisses an involuntary petition under §303(i), the alleged debtor may be awarded attorney's fees and costs at the discretion of the bankruptcy court. Upon a finding of bad faith on the part of petitioning creditor(s) in filing the petition, the Court may also impose punitive damages.

         A. Award of Attorney's Fees under §303(i)(1)

         Under §303(i)(1), if the court dismisses an involuntary petition other than on consent of all petitioners and the alleged debtor, and if the alleged debtor does not waive the right to judgment under this subsection, the court may grant judgment against the petitioning creditor(s) and in favor of the alleged debtor for costs and reasonable attorney's fees. Mouhaffel argues that the Bankruptcy Court erred in using the proper test for awarding attorney's fees and costs. Mouhaffel further argues that the Bankruptcy Court should have adopted a good faith presumption of which the burden of rebutting the presumption is placed on the alleged debtor. (Doc. 7 at pg. 7). Mouhaffel also asserts that whether the petitioner filed in bad faith is the proper test to determine an award under this section.

         The Court finds that the Bankruptcy Court was not required to apply a had faith test as a prerequisite to exercising its discretion to award attorney's fees and costs under this section. According to the plain language of §303(i)(1), all that is required is a dismissal of the petition on grounds other than the consent of all parties and no waiver of the alleged debtor's right to judgment under the section. Here, the Bankruptcy Court dismissed the petition without a waiver from Southeast and on grounds consistent with this section. Thus, the Court finds no error in the Bankruptcy Court's discretion to award attorney's fees and costs to Appellee.

         B. Award of Punitive Damages ...


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