In re Marciano

Georges Marciano (debtor) sued five of his former employees for theft in California state court. Three employees (the petitioning creditors) brought cross-complaints against Marciano, alleging defamation and intentional infliction of emotional distress. The state court ultimately entered judgments in the petitioning creditors’ favor for $55 million, $35 million, and $15.3 million, respectively. Marciano appealed, but the judgments were not stayed during the appeal. Under California law, the petitioning creditors were entitled to immediate payment of their judgments at that point. To collect on the judgments, the petitioning creditors filed an involuntary chapter 11 petition against Marciano pursuant to 11 U.S.C. § 303(b)(1). Under Section 303(b)(1), three or more entities that each hold a claim that is neither (1) contingent as to liability nor (2) the subject of a bona fide dispute as to liability or amount can file an involuntary-bankruptcy petition against a debtor if the claims in the aggregate exceed a certain amount. The bankruptcy court granted summary judgment for the petitioning creditors, and a bankruptcy appellate panel affirmed. Marciano appealed to the federal appellate court, arguing that because the state-court judgments were on appeal when the involuntary petition was filed, the judgments did not satisfy § 303(b)(1)’s requirements that the creditors’ claims not be contingent or subject to a bona fide dispute.