Second Circuit Affirms Slashing of Unreasonable Fees In Dismissed Involuntary Bankruptcy Case

Relevance

Involuntary bankruptcy exists as a remedy "for the benefit of the overall creditor body …. [I]t was not intended to redress the special grievances, no matter how legitimate, of particular creditors …." In re Murray, 900 F.3d 53, 59-60 (2d Cir. 2018). The Circuits have been consistent. In re Edgar A. Reyes-Colon, 922 F.3d 13, 15 (1st Cir. 2019) (affirmed dismissal of involuntary petition filed by only two creditors; as least three petitioners required; parties engaged in "twelve years of litigation concerning the number of [debtor's] creditors and whether he might … be placed in bankruptcy involuntarily for 'equitable' reasons."); In re 8 Speeds 8 Inc., 921 F.3d 1193, 1196 (9th Cir. 2019) (dissent) ("Involuntary bankruptcy is a drastic course of action that carries significant consequences, and '[f]iling an involuntary petition should be a measure of last resort' …. [T]he fee-shifting and damages provision of [Code] §303(i) are intended to deter frivolous filings …. The Majority [in this case] holds that … a third party who appears for a debtor and successfully defends against an involuntary petition can never request that the debtor be awarded costs, a reasonable attorney's fee, or damages."); In re Anmuth Holdings LLC, 2019 WL 1421169, *1, *27 (Bankr. E.D.N.Y. Mar. 27, 2019) (petitioning creditors "abuse[d] the power given to [them] … to file an involuntary bankruptcy petition"; these petitions "lacked any merit"; court awarded debtors attorneys' fees, punitive damages, retroactive dismissal of the involuntary petitions, and an injunction against future filing by petitioning creditors).