By: Scott B. Riddle, Esq.
Trusted Net Media Holdings, LLC v. The Morrison Agency, Inc. (In re Trusted Net Media Holdings, LLC), No. 07-13429 (11th Cir. April 29, 2008) (click here for pdf of opinion). The basic facts are the following –
On April 20, 2002, Morrison, as a creditor, filed an involuntary bankruptcy petition against its debtor Trusted Net, requesting liquidation of Trusted Net’s assets pursuant to Chapter 7 of the Bankruptcy Code. Morrison’s petition listed Morrison as the only petitioning creditor of Trusted Net, and described Morrison’s claim against Trusted Net as “Trade Debt/Judgment” in an amount “[n]ot less than [$]534,000.00.” …
The debtor Trusted Net, whose assets were at that time under the control of a state-court-appointed receiver, filed no response to Morrison’s involuntary petition. Accordingly, the bankruptcy court entered an Order for Relief on May 15, 2002 and appointed a Chapter 7 trustee. The trustee marshaled Trusted Net’s assets in preparation for liquidation. …
Shortly thereafter, and more than four years after commencement of the case, Trusted Net … filed a motion to dismiss the entire bankruptcy case for lack of subject matter jurisdiction. Similar to Huffman’s motion two years earlier, Trusted Net argued that § 303(b)’s requirements must be met for the bankruptcy court to have subject matter jurisdiction, and that Morrison’s petition violated § 303(b) because: (1) at the time it filed its involuntary petition, Morrison was not the holder of a non-contingent, undisputed claim, and (2) Morrison’s involuntary Chapter 7 petition was not joined by three holders of non-contingent, undisputed claims.
The Bankruptcy Court held that § 303(b)’s requirements were not subject matter jurisdictional and any defense that the debtor may have had were waived. The District Court affirmed, finding the Bankruptcy Court’s order to be “thorough, well-reasoned, and correct in every respect.”
The Eleventh Circuit reversed, with instructions to the District Court to remand to the Bankruptcy Court to find whether the requirement of § 303(b) were met. The issue was whether the requirements of the Code could be waived –
Trusted Net asserts that, at the time Morrison’s involuntary petition was filed, Morrison’s petition failed to meet the § 303(b) requirements because: (1) Morrison’s claim against Trusted Net was the subject of a bona fide dispute; and (2) Trusted Net had twelve or more non-insider holders of undisputed, non-contingent claims, yet Morrison’s petition was not filed by three petitioning creditors. In response, Morrison argues that its petition established the prima facie grounds for commencing an involuntary bankruptcy case and, in any event, Trusted Net waived any potential objections to Morrison’s petition by waiting four years to raise them. Trusted Net does not contest that its four-year delay would normally constitute a waiver; instead, it contends that the § 303(b) requirements are subject matter jurisdictional and hence incapable of being waived.
After a thorough analasys, the Eleventh Circuit held that § 303(b) were jurisdictional based upon binding precedent in In re All Media Properties, Inc., 646 F.2d 193 (5th Cir. 1981), aff’g
5 B.R. 126 (Bankr. S.D. Tex. 1980), but it stated that this holding was not necessarily the most well-reasoned position –
Under our prior panel precedent rule, holdings made or adopted by an earlier panel–including express jurisdictional holdings–must be followed. See Main Drug, Inc. v. Aetna U.S. Healthcare, Inc., 475 F.3d 1228, 1231 (11th Cir. 2007); Knight v. Columbus, Ga., 19 F.3d 579, 585 (11th Cir. 1994). And All Media’s characterization of § 303(b) as imposing non-waivable jurisdictional requirements upon the bankruptcy court is holding, rather than dictum, because a determination that § 303(b) is subject matter jurisdictional was a necessary predicate for the court’s consideration of All Media’s argument–which was raised neither in the pleadings nor at trial–that the creditor Best, Inc. did not satisfy the statutory
requirement of having an unsecured or undersecured claim. See Black v. United States, 373 F.3d 1140, 1144 (11th Cir. 2004) (“Dictum is a term that has been variously defined as a statement that neither constitutes the holding of a case, nor arises from a part of the opinion that is necessary to the holding of the case.”); see also United States v. Shields, 49 F.3d 707, 710 n.11 (11th Cir.) (interpreting United States v. Osburn, 955 F.2d 1500 (11th Cir. 1992), and stating that certain language was “holding rather than dictum because a determination that the statutory scheme in fact favored growers who have just completed their harvest over growers who have not yet harvested their marijuana plants was a necessary predicate to the Osburn court’s subsequent consideration of the defendants’ constitutional challenge to that sentencing distinction”), vacated, 65 F.3d 900 (11th Cir. 1995) (en banc).
Therefore, we conclude that we are bound by All Media’s decision that the requirements of § 303(b) must be satisfied in order for the bankruptcy court to have subject matter jurisdiction over an involuntary bankruptcy case. We recognize that the weight of authority–and, in our view, the superior reasoning–lie against that holding. Nevertheless, All Media’s holding in this regard is prior panel precedent, and therefore controls. See United States v. Steele, 147 F.3d 1316, 1317-18 (11th Cir. 1998) (en banc) (“Under our prior precedent rule, a panel cannot overrule a prior one’s holding even though convinced it is wrong.”).