Peterson v. Wyo. Country Builders, LLC (In re Wyo. Country Builders, LLC).

No. WY-13-060 (10th Cir. B.A.P. May 7, 2014)
The B.A.P. affirmed the bankruptcy court’s award of attorney’s fees and costs against the appellant pursuant to 11 U.S.C. § 303(i).
Procedural context:
This appeal arose from the appeal of the bankruptcy court’s award of fees to Appellee WCB after dismissing Appellant Peterson’s involuntary petition against appellee as having been filed in bad faith. On appeal, Peterson argued that the bankruptcy court erroneously awarded fees to WCB’s counsel, failed to consider WCB’s “game-playing,” and failed to offset the fee award against a similar award to Peterson in an earlier involuntary case commenced against her by WCB. Noting that § 303(i) generally limits recovery to the debtor only, the B.A.P. concluded that the fee order awarded fees to and costs to the alleged debtor (WCB), not WCB’s counsel, and dismissed Peterson’s other arguments as largely belied by the facts. On the question of offset, the B.A.P. noted that Peterson had not raised the issue before the bankruptcy court. Under Tenth Circuit precedent, however, a newly raised (but not waived) legal argument may be reviewed on appeal if the party can establish “(1) error, (2) that is plain, which (3) affects substantive rights, and which (4) seriously affects the fairness, integrity, or public reputation of judicial proceedings.” Finding that the failure to raise setoff in the earlier proceedings was due to neglect, the B.A.P. concluded the plain error rule was applicable, but that Peterson had not demonstrated that intervention was necessary to prevent an absurd result or miscarriage of justice.
The facts of this dispute are unusual. Shortly before the scheduled trial in a dispute between WCB and Peterson, WCB filed an involuntary petition against Peterson. Concluding that § 303(b)(1) required three petitioning creditors to initiate an involuntary, the bankruptcy court dismissed the petition and awarded Peterson fees against WCB. Two years later (with unrelated litigation between the parties still ongoing), Peterson filed an involuntary petition against WCB. The bankruptcy court dismissed that petition, too, finding that Peterson had filed the petition improperly, and awarded WCB fees against Peterson. Peterson appealed both the dismissal order and the subsequent fee award; however, the Peterson’s appeal of the dismissal order was dismissed as untimely.
Thurman, Cornish, and Michael.

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