National Medical Imaging, LLC v. U.S. Bank, N.A.
National Medical Imaging, LLC v. U.S. Bank, N.A.
Opinion of the Court
MEMORANDUM OPINION
. As compared to the thorny history underlying this case, the issue before the Court is simple: have Plaintiffs adequately alleged that Defendant Ashland, LLC filed involuntary bankruptcy petitions against them in bad faith pursuant to 11 U.S.C. § 303(i)(2)?
I. FACTUAL AND PROCEDURAL HISTORY
The parties in this bankruptcy case are familiar foes, having spent over a decade litigating the aftermath of a complex secu-ritization transaction. In 2000, Plaintiffs were affiliated with certain limited partnerships (the “NMI LPs”) that operated diagnostic imaging centers. The NMI LPs entered into master leases and equipment schedules (the “Master Leases”) with DVI Financial Services, Inc. (“DVI Financial”) to finance the purchase of medical diagnostic equipment. The leases were secured by a limited guaranty executed by Maury Rosenberg, the managing member of NMI, and an additional guaranty by NMI.
DVI Financial then transferred some of the Master Leases to DVI Funding, LLC, which held them directly, and the remainder were securitized and assigned to the DVI Receivables corporations. At the same time, DVI Funding entered into indentures with U.S. Bank, acting as trustee of
A. The First Round of Litigation and the Settlement Agreement
In December 2003, U.S. Bank Portfolio Services, a Lyon subsidiary, filed lawsuits against the NMI LPs, NMI, and Rosenberg in Pennsylvania state court, alleging that the NMI LPs had defaulted on their Master Lease obligations. Several of the DVI entities then filed involuntary Chapter 11 bankruptcy petitions against NMI. On August 12, 2005, Rosenberg, NMI, the NMI LPs, and Lyon entered into a comprehensive Settlement Agreement to resolve these disputes. Pursuant to the Settlement Agreement, the involuntary bankruptcy petitions were dismissed, and Lyon agreed to restructure the repayment obligations of the NMI LPs under the Master Leases and to release NMI from all claims except those arising under the Settlement Agreement. In return, Rosenberg and NMI executed new guaranties of repayment and confessions of judgment in favor of Lyon. On March 2, 2007, DVI Funding sold all of its interests in the Master Leases to Defendant Ashland Funding, LLC (“Ashland”).
B. Round Two: Judgment is Confessed, the Involuntary Petitions are Filed, and the Rosenberg Bankruptcy is Adjudicated in Florida
In March 2008, Lyon notified NMI and Rosenberg that the NMI LPs had defaulted on their repayment obligations under the Settlement Agreement, and in July 2008, Lyon filed a confession of judgment against Rosenberg and NMI in Pennsylvania state court. In November 2008, DVI Funding, despite having no remaining interest in the Master Leases, together with five other DVI entities, filed involuntary bankruptcy petitions against NMI and Rosenberg in the United States Bankruptcy Court for the Eastern District of Pennsylvania. Rosenberg moved to dismiss the involuntary petitions against him and to transfer venue to the United States Bankruptcy Court for the Southern District of Florida, where he resides. The Rosenberg bankruptcy proceedings were transferred to that district.
Following the transfer of venue, and while Rosenberg’s motion to dismiss the involuntary petition was still pending, the petitioners filed a second amended petition which substituted Ashland in place of DVI Funding. Rosenberg moved to strike the second amended petition as improperly filed without leave of court. After a hearing on Rosenberg’s motion to dismiss the amended involuntary petition, the Florida Bankruptcy Court issued a memorandum opinion and order dismissing the amended involuntary bankruptcy petition against Rosenberg (“Rosenberg 7”).
On September 27, 2011, the United States District Court for the Southern District of Florida issued a memorandum opinion' and order substantially affirming the Florida Bankruptcy Court’s decision (“Rosenberg II”),
C.The Eastern District Bankruptcy Court Gives Collateral Estoppel Effect to Rosenberg I
In the Pennsylvania bankruptcy proceedings, Ashland was added as a petitioner in the Second Amended Petition as successor to DVI Funding, and later joined the other petitioners in filing a Third Amended Petition. After Rosenberg I, the Bankruptcy Court for the Eastern District of Pennsylvania dismissed the involuntary bankruptcy petitions against NMI on the basis of the collateral estoppel effect of Rosenberg Z’s holdings that (1) the DVI entities and Ashland were not real parties in interest and (2) Lyon was the only creditor because the Settlement Agreement constituted a novation.
D. Rosenberg’s § 303(i) Adversary Proceeding
While the appeals to the Southern District of Florida and Eleventh Circuit were pending, Rosenberg brought a § 303(i) sanctions claim in an adversary proceeding in the Florida Bankruptcy Court.
E. NMI’s § 303(i) Adversary Proceedings
On May 27, 2014, Plaintiffs brought claims' for attorneys’ fees and costs under
NMI filed the instant amended complaint on September 21, 2016, in accordance with the Order of this Court granting NMI’s request to withdraw the reference from the Bankruptcy Court. The amended complaint seeks compensatory and punitive damages under 11 U.S.C. § 303(i)(2) arising from the involuntary bankruptcy suit brought by Defendants.
II. STANDARD OF REVIEW
Pursuant to Federal Rule of Civil Procedure 12(b)(6), dismissal of a complaint for failure to state a claim upon which relief can be granted is appropriate where a plaintiffs “plain statement”' lacks enough substance to show that he is entitled to relief.
III. DISCUSSION
Ashland argues that its dismissal from this case is warranted for the following five reasons; (1) its dismissal from the Florida bankruptcy action compels • its dismissal here; (2) NMI has not alleged that Ash-land was a “petitioner” under § 303(i)(2); (3) NMI has not .sufficiently pleaded that Ashland acted in bad faith; (4) NMI has failed to plead.that its damages were; proximately caused by Ashland filing the petition in bad faith; and (5) § 303(i)(2) does not provide for joint and several liability.
A. Whether the Florida Bankruptcy Holdings Have Preclusive Effect
In the amended complaint, NMI seeks to hold Defendants liable under
Ashland attempts to downplay the distinction between its role in the Florida bankruptcy proceedings and its role in the Pennsylvania bankruptcy proceedings, calling the difference “hyper-technical.”
Ashland Funding was not a petitioning creditor. Ashland Funding was a party to a second amended involuntary petition that had no effect on these bankruptcy proceedings. The Court dismissed the First Amended Petition — to which Ashland Funding was not a party — and denied Rosenberg’s motion to strike the second amended petition as moot. Accordingly, there exists no statutory basis under § 303(i) of the Bankruptcy Code to impose sanctions against Ashland Funding.24
Here, in contrast, there is a basis under § 303(i) to impose sanctions against Ash-land. This is a crucial distinction, and one that undermines Ashland’s preclusion argument. In the Florida proceedings, Ash-land was never a petitioner by virtue of the petition being dismissed before Ash-land was substituted for DVI Funding.
B. Whether NMI Has Sufficiently Pleaded that Ashland Is a Petitioner
Next, Ashland argues that NMI has not sufficiently pleaded that Ashland is a petitioner for purposes of § 303(i)(2). According to Ashland, because Defendant Fox executed the second and third amended petitions on behalf of Ashland without authorization, Ashland cannot be considered a petitioner in this case. Although § 303(i) does not define “petitioner,” Ash-land urges the Court to read into the statute a requirement that a petitioner authorize the filing of an involuntary petition.
Ashland next argues that NMI has not pleaded that Ashland acted in bad faith. Ashland contends that NMI improperly lumps Ashland together with the other Defendants, and notes that merely alleging bad faith by the other Defendants is not sufficient to state a claim against Ash-land. However, NMI alleges bad faith by all Defendants. NMI contends, inter alia, that Defendants filed and prosecuted multiple involuntary bankruptcy petitions even though they were not creditors of NMI and “lacked standing to initiate or pursue” the involuntary bankruptcy cases, and that they did so “as a collection tactic to harass and cause embarrassment and economic ruin to the Putative Debtors, in an effort to extract more than what was owed in connection with a disputed debt.”
In conducting this fact-intensive review, courts may consider a number of factors, including, but not limited to, whether: the creditors satisfied the statutory criteria for filing the petition; the involuntary petition was meritorious; the creditors made a reasonable inquiry into the relevant facts and pertinent law before filing; there was evidence of preferential payments to certain creditors or of dissipation of the debtor’s assets; the filing was motivated by ill will or a desire to harass; the petitioning creditors used the filing to obtain a. disproportionate advantage for themselves rather than to protect against other creditors doing the same; the filing was used as a tactical advantage in pending actions; the filing was used as a substitute for customary debt-collection procedures; and the filing had suspicious timing.29
This exhaustive analysis is ill-suited to resolution at this preliminary stage. The facts alleged in the amended complaint, taken as true, support an inference that Ashland and the other Defendants acted in concert and in bad faith in filing the underlying involuntary petition, which this and other courts found to lack merit..
D. Whether NMI Has Sufficiently Pleaded Damages
Ashland’s fourth argument for dismissal is .that NMI has not adequately pleaded that the second and third amended petitions (as opposed to the original petition) proximately caused the harm alleged in the amended complaint, and that any asserted damages are too speculative to state a claim. According to Ashland, the amended complaint fails to set forth sufficient allegations of harm caused specifically by Ashland.
As noted, § 303(f)(2) states that a court “may grant judgment.. .against any petitioner that filed the petition in bad faith... for any damages proximately caused by such filing.” For the purposes of § 303(f), courts have not made a distinction
E. Whether § 303(i)(2) Provides for Joint and Several Liability
Finally, Ashland erroneously argues that it must be dismissed from the case because § 303(i) does not allow for joint and several liability. Whether joint and several liability is available is within the discretion of the Court, and it is to be determined 'based- on the totality of the circumstances.
IV. CONCLUSION
, For the reasons stated above, Ashland’s Motion to Dismiss will be denied. An appropriate Order will be entered.
. 11 U.S.C. § 303(i)(2) provides that when a bankruptcy court dismisses an involuntary bankruptcy petition the court may grant judgment "against any petitioner that filed the petition in bad faith, for — (A) any damages proximately caused by such filing; or (B) punitive damages.”
. Defendants U.S. Bank, Lyon Financial Services, Jane Fox (Director of Operations for Lyon), DVI Funding, DVI Receivables XIV, DVI Receivables XVI, DVI Receivables XVII, DVI Receivables XVIII, and DVI Receivables XIX filed an answer to the complaint, and Defendant Ashland Funding, LLC filed a motion to dismiss.
. The Court previously granted NMI's Motion to Withdraw the References from the Bankruptcy Court as to their § 303(i)(2) damages claims, and this action followed. Plaintiffs have filed a parallel action in Bankruptcy Court for the Eastern District of Pennsylvania, seeking attorneys' fees and costs under § 303(f)(1).
. The following background is drawn from the Court’s September 1, 2016 Opinion granting Plaintiffs’ Motion to Withdraw the References from the Bankruptcy Court as to their § 303(i)(2) damages claims.
. In re Rosenberg, 414 B.R. 826 (Bankr. S.D. Fla. 2009).
. Id. at 832 n.3.
. Order Affirming in Part and Reversing in Part Bankruptcy Court’s Orders, DVI Receivables XIV, LLC, et al. v. Rosenberg, No. 10-24347, Doc. No. 11 (S.D. Fla. Sept. 27, 2011),
. In re Rosenberg, 472 Fed.Appx. 890 (11th Cir. 2012).
. In re Nat’I Med. Imaging, LLC, 439 B.R. 837, 847-52 (Bankr. E.D. Pa. 2009).
. DVI Receivables XIV, LLC v. Nat'l Med. Imaging, LLC, 529 B.R. 607, 627 (E.D. Pa. 2015).
. Nat’l Med. Imaging, LLC v. Ashland Funding LLC, 648 Fed.Appx. 251, 252-53 (3d Cir. 2016).
. Rosenberg v. DVI Receivables, XIV, LLC, Adv. No. 10-3812 (Bankr, S.D, Fla.).
. Memorandum Opinion Granting Ashland's Motion to Dismiss, Rosenberg v. DVI Receivables, XIV, LLC, Adv. No. 10-3812, Doc. No. 168 (Bankr. S.D. Fla. Mar. 23, 2012).
. Rosenberg v. DVI Receivables XIV, LLC, 818 F.3d 1283, 1286 (11th Cir. 2016).
. NMI is also seeking attorneys-’ fees and costs against Defendants under 11 U.S.C. § 303(i)(l) in the Bankruptcy Court for the Eastern District of Pennsylvania.
. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).
. ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 (3d Cir. 1994); Fay v. Muhlenberg Coll., No. 07-4516, 2008 WL 205227, at *2 (E.D. Pa. Jan. 24, 2008).
. Twombly, 550 U.S. at 555, 564, 127 S.Ct. 1955.
. Id. at 570, 127 S.Ct. 1955.
. Doc. No. 6-1 at 8-20.
. Id. at 8.
. Doc. No. 11 at 2.
. Memorandum Opinion Granting Ashland’s Motion to Dismiss, Rosenberg v. DVI Receivables, XIV, LLC, Adv. No. 10-3812, Doc. No. 168 (Bankr. S.D. Fla. Mar. 23, 2012).
. See Nat'l Med. Imaging, LLC v. Ashland Funding LLC, 648 Fed.Appx. 251, 254 (3d Cir. 2016) ("[T]he Bankruptcy Court dismissed Ashland as a party to the adversary proceeding because Ashland was not listed as a petitioning creditor on the petition the Bankruptcy Court dismissed.”).
. Doc. No. 6-1 at 11-12.
. The cases cited by Ashland in support of its interpretation of the term "petitioner” are unpersuasive. See, e.g., Scott v. Graphic
. Doc. No. 2 ¶ 6.
. In re Forever Green Athletic Fields, Inc., 804 F.3d 328, 336 (3d Cir. 2015).
. E.g., In re ELRS Loss Mitigation, LLC, 325 B.R. 604, 630 (Bankr, N.D, Okla. 2005) (‘‘[W]hether a petitioner is one of the original filers, or joins the petition at a later date, that petitioner undertakes significant responsibilities and assumes the risks set forth in § -303(i),".); see also In re Promotion Dynamics, Inc., No, 92-16539S, 1992 WL 391276, at *1 (Bankr. E.D. Pa. Dec. 16, 1992) ("We believe that an award of attorneys' fees or costs incurred in defending an unsuccessful involuntary petition should ordinarily be granted against the petitioners from which damages are requested under § 303(i)(l) unless cause for not doing so is established.”).
. See Doc. No. 2 ¶72 (alleging that the "commencement and continued prosecution” of the involuntary bankruptcy proceedings "(1) caused Plaintiffs to lose preferred provider status with major insurers; (2) caused phy- ■ sicians to lose confidence in the Plaintiffs’ stability and to divert their patients to other providers; (3) caused lenders to cutoff the Plaintiffs’ access to receivables, thereby creating a liquidity crisis; (4) caused vendors to put the companies on a COD basis, thereby further eroding cash and liquidity; and (5) destroyed Plaintiffs’ reputations in the community, and torpedoed planned acquisitions and expansion”).
. See Clearpath Util. Sols., LLC v. US Crossings Unlimited, LLC, No. 2:15CV1620, 2016 WL 4987092, at *3 (W.D. Pa. Sept. 19, 2016) ("Plaintiff’s contention that defendant's asserted entitlement to lost profit damages is too speculative is 'misplaced at the motion to dismiss stage.”); In re Suboxone (Buprenorphine Hydrochloride & Naloxone) Antitrust Litig., 64 F.Supp.3d 665, 698 (E.D. Pa. 2014) ("[T]he Third Circuit has been reluctant to grant motions to dismiss based on speculative or complex damages.”); Prudential Ins. Co. of Am. v. Prusky, 413 F.Supp.2d 489, 495 (E.D. Pa. 2005) (stating that the "case lacks the necessary factual development to support a finding that the claim for monetary damages is impermissibly speculative” at the motion to dismiss stage).
. E.g., In re Maple-Whitworth, 556 F.3d 742, 746 (9th Cir. 2009) (stating that a "bankruptcy court has discretion to hold all or some petitioners jointly or severally liable for costs and fees, to apportion liability according to petitioners’ relative responsibility or culpability, or to deny an award against some or all petitioners, depending on the totality of the circumstances”); In re Rosenberg, No. 09-13196-BKC-AJC, 2012 WL 3990725, at *8 (Bankr. S.D. Fla. Sept. 11, 2012) ("Other courts have routinely imposed joint and several liability under Section 303(i).”).
Reference
- Full Case Name
- NATIONAL MEDICAL IMAGING, LLC v. U.S. BANK, N.A.
- Status
- Published