The opinion of the court was delivered by: Matthew F. Kennelly, District Judge
MEMORANDUM OPINION AND ORDER
Semir Sirazi, Mardini, Inc., and Greenstone Capital LLC filed an involuntary bankruptcy petition under 11 U.S.C. § 303, naming Antoin Rezko as the debtor. Rezko moved the bankruptcy court to dismiss the petition. The court denied Rezko's motion and entered an order for relief. Rezko contends that the bankruptcy court erred in denying the motion and in treating his motion as an answer to the involuntary petition. For the reasons stated below, the Court affirms the bankruptcy court's ruling in part and remands the case to the bankruptcy court for further proceedings.
On May 7, 2008, Sirazi, Mardini, and Greenstone Capital filed the involuntary petition that is the subject of this appeal. The petitioning creditors' claims stem from two agreements they had with Rezko.
Sirazi won a state court judgment against Rezko and two entities he owned, based on an agreement known as the Guarantee Agreement. The Guarantee Agreement provided that Sirazi would give a personal guarantee of $1 million dollars for a loan from Broadway Bank to Rezko. For this guarantee, Rezko agreed to pay Sirazi various fees, including $150,000 if the loan was not repaid by January 1, 2003, and $250,000 each quarter thereafter so long as Sirazi's guarantee remained in place. Rezko, along with Abdelhamid Chaib, also agreed to grant Sirazi an ownership interest in Rezko Enterprises if the loan was not repaid on schedule.
After Rezko failed to repay the loan, the fees and interest began accumulating. The bank eventually liquidated Sirazi's $1 million certificate of deposit but returned about $150,000 in accrued interest. Sirazi filed suit in the Circuit Court of Cook County in October 2006. In his answer to the state court complaint, Rezko asserted his Fifth Amendment rights and failed to substantively address the allegations. Rezko also asserted the following affirmative defenses: (1) breach by Sirazi, (2) unenforceable penalty, (3) laches, (4) substantive and procedural unconscionability, and (5) failure to mitigate damages.
The state court granted Sirazi's motion for summary judgment and awarded Sirazi slightly under $5.8 million in damages. Rezko appealed but did not post an appeal bond or obtain a stay of the judgment. The case is pending in the Illinois Appellate Court.
In May 2006, Sirazi and two of the other petitioning creditors, Mardini and Greenstone Capital, entered into another agreement with Rezko and Rezmar Corporation, referred to as the Settlement Agreement. The Settlement Agreement purported to resolve and merge claims arising from previous agreements between the creditors and Rezmar. Sirazi agreed to provide a written guarantee and collateral for loan by Republic Bank to Rezmar. In exchange, Rezmar agreed to pay the three creditors a total of $7.7 million. Rezko agreed to grant the creditors a security interest in distributions allegedly due to him from Heritage Development Partners, LLC, which owned sixty-two acres of land in Chicago. During the litigation, Rezko stated that Heritage Development Partners was wholly owned by another entity. Under the Settlement Agreement, the payment would constitute "full resolution, settlement, and satisfaction" of the prior agreements between the parties. Resp. Ex. 16. Rezko signed the Settlement Agreement in three places: once as chairman of Rezmar; once as "shareholder" of Rezmar; and once more as "Antoin Rezko, individually." Id. The third signature was part of a section of the agreement that purports to bind Rezko as a guarantor on the agreement.
In July 2006, Sirazi, Mardini, and Greenstone Capital filed suit against Rezko and Rezmar in the Circuit Court of Cook County, following their failure to make payments under the Settlement Agreement. Although the trial court denied Rezko's motion to dismiss, it struck several counts of the complaint based on the underlying agreements and allowed the creditors to file an amended complaint alleging those counts in the alternative. Rezko asserted his Fifth Amendment rights in his answer and raised several affirmative defenses. Rezko claimed that (1) he was not individually bound by the settlement agreement; (2) the agreement lacked consideration; (3) the creditors breached by suing under the previous agreements; and (4) the creditors were barred from bringing claims under those agreements. The case is pending before the state trial court.
On May 7, 2008, the petitioning creditors filed the involuntary bankruptcy petition against Rezko based on these two sets of claims. Rezko moved the bankruptcy court to dismiss the petition under Federal Rule of Civil Procedure 12(b)(6), contending that there were multiple bona fide disputes concerning both debts and that the petitioning creditors were ineligible under section 303 for several reasons.*fn1 The bankruptcy court denied Rezko's motion to dismiss in an oral ruling on August 26, 2008. The court found that there were no bona fide disputes as to Rezko's liability on either of the claims and that Rezko had forfeited any arguments based on alleged disputes concerning the amount of the debts because he had failed to press those arguments during briefing. The court stated that it had not used the traditional Rule 12(b)(6) standard, which would have been more favorable to the creditors as the nonmoving parties, in analyzing Rezko's motion to dismiss and that the standard it did use was more akin to a summary judgment standard.
The bankruptcy court then considered whether an answer from Rezko was necessary. When the court asked what issues Rezko would raise in an answer beyond those which the court had already ruled upon, Rezko's counsel responded that he did not know because he had not yet spoken to his client about it. Over counsel's objection, the court ruled that it would not allow Rezko to file an answer and that it would treat Rezko's motion to dismiss as an answer. This exchange took place at the same hearing at which the court made its oral ruling denying the motion to dismiss. The bankruptcy court then entered an order for relief, making its decision appealable.
In his appeal, Rezko contends that the bankruptcy court erred in several ways. He contends that the court erroneously determined the likelihood of success of his claims in his appeal of the Guarantee Agreement judgment and in the pending litigation concerning the Settlement Agreement. He also contends that the court erred when it declined to allow him to file an answer to the petition and take discovery.
A. Existence of Bona Fide ...