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In re Covey

decided: June 2, 1981.

IN THE MATTER OF: ROYAL G. COVEY AND NORMA L. COVEY, INDIVIDUALLY AND AS PARTNERS, D/B/A COVEY DODGE, BANKRUPTS-APPELLANTS .


Appeal from the United States District Court for the Central District of Illinois, Peoria Division. No. 80-1141 -- Robert D. Morgan, Judge .

Before Sprecher and Wood, Circuit Judges, and Campbell, Senior District Judge.*fn*

Author: Sprecher

This case involves an appeal of an order of involuntary bankruptcy. In affirming the order of involuntary bankruptcy, we hold, first, that the decision of a bankruptcy court whether to abstain is not reviewable. Second, we hold that creditors holding disputed claims are not, because of those disputes, disqualified from petitioning for involuntary bankruptcy. But third, we hold that, in some circumstances, a dispute can affect whether nonpayment of a debt should be counted in determining whether a debtor is generally paying debts as those debts become due. We hold that bankruptcy courts, prior to issuing an order of involuntary bankruptcy, must initially examine the dispute. If the dispute is of an entire claim, and if resolution of the dispute will not require substantial litigation, bankruptcy courts must, on the record, balance the interests of fairness to a debtor against harm to creditors in determining whether nonpayment of the disputed debts should be counted against the debtor.

I

In 1978, Royal and Norma Covey, husband and wife, formed a partnership for the sale of Dodge cars and trucks in Kewanee, Illinois, under the trade name "Covey Dodge." The Covey dealership rented property from Anderson Dodge, Inc. Covey Dodge suspended operations on November 7, 1979, and closed its doors a few days later. Two months after Covey Dodge closed its doors, Chrysler Credit Corporation ("Chrysler Credit") filed an involuntary bankruptcy petition in federal bankruptcy court. Three months after that petition was filed, the Coveys, filed a complaint against Chrysler Credit and Chrysler Corporation ("Chrysler Motors") in federal district court alleging, among other things, violations of the federal Automobile-Dealers' Day in Court Act, 15 U.S.C. § 1221 et seq.; violations of the federal antitrust laws; fraud; breach of contract; and violations of certain Illinois laws. After these actions had been filed, the Coveys requested the bankruptcy court to abstain from hearing the involuntary bankruptcy petition until resolution of the district court actions. The bankruptcy court declined to abstain. Thereafter, Chrysler Motors and Anderson Dodge intervened in the bankruptcy proceeding. The three creditors allege trade debts of approximately $109,000. The Coveys dispute approximately all but approximately $500 of these debts.

After a hearing, the bankruptcy court found in favor of all of the petitioning creditors and adjudged the Coveys bankrupt. The district court affirmed without opinion, and the Coveys now appeal to this court. The Coveys argue, first, that the bankruptcy court should have abstained from hearing the bankruptcy petition. Second, the Coveys argue that the creditors who petitioned for involuntary bankruptcy did not properly qualify as petitioning creditors under the Bankruptcy Code. Third, the Coveys argue that they generally were paying their debts as those debts came due.

II

We begin with the abstention question. The Coveys moved the bankruptcy court under 11 U.S.C. § 305*fn1 and 28 U.S.C. § 1471(d),*fn2 to abstain from hearing the bankruptcy case until the district court had heard their actions against the creditors. The bankruptcy court declined to abstain. The Coveys now appeal that decision not to abstain. But the Coveys' appeal on the abstention decision is barred by the plain language of the statutes. Both statutes provide that the decision not to abstain "is not reviewable by appeal or otherwise." See notes 1 and 2, supra. The Covey brief, selectively quoting the statutes, makes no reference to the "not reviewable" command.*fn3 But ignoring the statute will not make it go away.

As Justice Reed stated in United States v. American Trucking Ass'ns., Inc., 310 U.S. 534, 543, 60 S. Ct. 1059, 1063, 84 L. Ed. 1345 (1940), "(t)here is, of course, no more persuasive evidence of the purpose of a statute than the words by which the legislature undertook to give expression to its wishes." Or, as stated in United States v. Hartwell, 73 U.S. (6 Wall.) 385, 396, 18 L. Ed. 830, quoted in United States v. Shreveport Grain & Elevator Co., 287 U.S. 77, 83, 53 S. Ct. 42, 44, 77 L. Ed. 175 (1932), "(i)f the language be clear it is conclusive." In this case, the statutory prohibition against appellate review is clear and, therefore, conclusive. As the court stated in In re Unit Parts Co., 9 B.R. 386, 7 BCD 368, 370, CCH Bankruptcy Law Reports P 67,940 (Bkrtcy.W.D.Okla.1981), "(t)he last sentence of section 1471(d) could not express more pointedly that the Bankruptcy Court's decision, either to abstain or not to abstain is "not reviewable by appeal or otherwise.' " Therefore, we find that the Coveys' argument on this issue is meritless.

III

The Coveys' second argument is that the creditors who petitioned for involuntary bankruptcy did not properly qualify as petitioning creditors under the Bankruptcy Code. In an involuntary bankruptcy action, where a debtor has more than 12 creditors, three creditors are required to bring the action. Each creditor must be the holder of a claim that is not contingent as to liability, and the claims must aggregate at least $5,000 more than the value of any lien or property of the debtor securing such claims. 11 U.S.C. § 303(b)(1).

In this case, it is not disputed that the Coveys had more than twelve creditors. Chrysler Credit initiated the involuntary bankruptcy. Later, Chrysler Motors and Anderson Dodge joined in the action. 11 U.S.C. § 303(c) provides that after an involuntary petition has been filed, other creditors may join the petition with the same effect as if the joining creditor were a petitioning creditor. The bankruptcy court found that each of the three petitioning creditors is the holder of a claim against the Coveys which is not contingent as to liability and that the claims aggregate at least $5,000 more than the value of any lien on the Coveys' property. The Coveys challenge these findings as clearly erroneous. We now consider the claims of each creditor.

A

Chrysler Credit's claim is based on two transactions, a capital loan and a floor plan arrangement. After the Coveys defaulted, Chrysler Credit repossessed the inventory of new and used vehicles and sold them. It then sold, at a public auction, the equipment held by the Covey dealership. After crediting the proceeds of these sales to the Coveys, Chrysler Credit contended that the Coveys owed them over $55,000 on the ...


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