Mitchell v. Weinman (In re Mitchell)

No. CO-11-086 (B.A.P. 10th Cir. Dec. 3, 2012)
Affirming the Bankruptcy Court for the District of Colorado, the Bankruptcy Appellate Panel for the Tenth Circuit held that: (1) the bankruptcy court (“BC”) had subject matter jurisdiction (“SMJ”) to enter an order approving a settlement agreement (the “SA”) dismissing an involuntary bankruptcy petition against Elizabeth C. Mitchell (“Mitchell”); (2) the fact that not all creditors were notified of the SA did not render the BC’s dismissal order void; and (3) the BC did not abuse its discretion in denying Mitchell’s request for relief from the dismissal and denying her motion to reconsider that order. First, the requirements to file an involuntary petition against a person under section 303(b) do not need to be met for a BC to have SMJ over a § 303 proceeding. Nowhere in § 303(b) does the word “jurisdiction” appear, nor is there any indication that the section’s requirements are jurisdictional. To hold that a BC lacks jurisdiction over an involuntary case because a petition is defectively filed would also render § 303(c) superfluous because this provision gives the court the power to permit more creditors to join a petition that may otherwise be dismissed. Thus, the BC had SMJ over Mitchell’s involuntary case, regardless of whether the involuntary petition against her met § 303(b)’s requirements. Additionally, no joint involuntary petition (“JIP”) had been filed which would arguably deprive the bankruptcy court of SMJ. (Section 303(a) says that an involuntary petition may only be commenced against a “person…that may be a debtor,” suggesting that a JIP is not contemplated under the Code.) Mitchell’s case was merely jointly administered with an affiliate, Chameleon Entertainment Systems, Inc. (“Chameleon”), which had a separate involuntary petition filed against it. Second, the BC’s order dismissing Mitchell’s involuntary case was not void for lack of notice. The BC did err when it held that the nonpetitioning, nonjoining creditors (the “Uninformed Creditors”) did not need to be notified regarding the SA between the creditors who filed the involuntary petition against Mitchell and Chameleon (the “Petitioning Creditors”). However, Mitchell could not rely on this defective notice because of the invited error doctrine which prevents a party from inducing action by a court and later seeking reversal on the ground that the requested action was error. Mitchell invited error by seeking approval of the SA and entry of the order dismissing her case without requesting a hearing. While section 303(j)(2) requires notice to all creditors before an involuntary petition can be dismissed, the provision is aimed at protecting nonpetitioning creditors, not the debtor. None of the Uninformed Creditors appealed the dismissal order, indicating that they did not wish to pursue their legal rights. Third, the BC committed a harmless error in finding that the filing of the involuntary petition against Mitchell never created a bankruptcy “case” because the BC ultimately did not abuse its discretion in denying Mitchell’s motion to reopen the case under § 350(b) and her request for relief under §303(i). Section 350(b) only permits a court to open a case that has been “closed.” Mitchell’s case had been dismissed. Additionally, the BC could not award Mitchell her requested relief: § 303(i) damages against her former attorney and the Petitioning Creditors. The plain language of § 303(i) only permits a court to grant a judgment in favor of the debtor against the petitioner(s) who filed the involuntary petition. Mitchell’s former attorney was not a petitioner. Section 303(i) damages could not be assessed against the Petitioning Creditors because Mitchell signed the SA which waived her right to recovery and provided for the dismissal of her case. The BC committed a harmless error in ruling that it did not have jurisdiction to determine the validity of the SA because it analyzed whether Mitchell should be entitled to relief from the order approving the SA and the dismissal order. Mitchell had claimed that the SA should be set aside because it was the result of improper actions by the parties’ attorneys, but the BC did not abuse its discretion in concluding that this claim was untimely and that any effort to unwind the SA would be inequitable to the other parties to the case. Finally, the BC did not abuse its discretion in denying Mitchell’s motion to reconsider the order denying her motion to reopen the case based on newly discovered evidence. Mitchell’s new evidence consisted of a CD that purported to show that her attorney’s secretary cut and pasted her signature on a draft SA that she would not have approved. However, this fact was readily ascertainable when the SA was submitted to the BC.
Procedural context:
Mitchell appealed the BC’s order denying her motion to reopen her dismissed involuntary case and the order denying reconsideration of that order. The parties did not elect to have their appeal heard by the United States District Court. Mitchell argued that the BC lacked jurisdiction to enter an order approving the SA and the Dismissal Order. Second, even if the BC had jurisdiction, Mitchell contended that the BC erred when it entered the Dismissal Order without notice to the Uninformed Creditors. Third, in denying her motions to reopen and reconsider, Mitchell contended that the BC erroneously ruled that (1) no bankruptcy case had ever been created, and (2) it lacked jurisdiction to review her claims that the SA was the result of improper actions by the parties’ attorneys.
The Petitioning Creditors filed involuntary Chapter 7 petitions against Mitchell and Chameleon. The two cases were jointly administered at Mitchell and Chameleon’s behest. In each involuntary case, Mitchell filed a motion to dismiss the petitions for failing to comply with § 303(b)(1)’s commencement requirements. Mitchell also alleged that the petitions had been filed in bad faith and sought damages § 303(i) or Rule 9011. The hearing date for Mitchell’s motion was vacated she and Chameleon entered into the SA with the Petitioning Creditors. Under the SA, Mitchell’s involuntary petition would be unconditionally dismissed and Chameleon’s would be dismissed if the Petitioning Creditors received $75,0000. Both Mitchell and Chameleon also agreed to release any § 303(i) claims. Mitchell signed the SA individually and on behalf of Chameleon. In accordance with the SA, Mitchell and Chameleon filed a second motion to dismiss the involuntary petitions. Notice was sent to everyone, except the Uninformed Creditors. No objections were filed and Mitchell’s attorney, on behalf of Mitchell and Chameleon, filed a motion requesting the entry of an order of dismissal in Mitchell’s case and an order for relief in Chameleon’s case. (Chameleon’s creditors had not yet been paid the required $75,000.) The BC entered the requested orders. Three years later, Mitchell filed several motions to reopen her case.
Cornish, Rasure, and Somers, Bankruptcy Judges.

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