United States District Court, M.D. Louisiana
RULING AND ORDER
A. JACKSON, JUDGE
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.
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. 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.
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.
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).
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).
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.
Award of Attorney's Fees under §303(i)(1)
§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.
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.
Award of Punitive Damages ...