TPG Troy, LLC

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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
TPG TROY, LLC,
Debtor.
NOT FOR PUBLICATION
Chapter 7
Case No. 12-14965
In re:
T3 TROY, LLC,
Debtor.
Chapter 7
Case No. 12-14966
MEMORANDUM OPINION GRANTING AWARD OF ATTORNEYS’ FEES AND
DENYING REQUEST FOR PUNITIVE DAMAGES
A P P E A R A N C E S:
KASOWITZ, BENSON, TORRES & FRIEDMAN LLP
Counsel for the Alleged Debtors
1633 Broadway
New York, New York 10019
By: 	Andrew K. Glenn, Esq.
Michele Angell, Esq.
STAMELL & SCHAGER, LLP
Counsel for the Petitioning Creditors,
SPQR Capital (Cayman) Ltd., Lansdowne
Capital SA, and Crest One SpA
1 Liberty Plaza, 35 th Floor
New York, New York 10006
By: 	Jared B. Stamell, Esq.
Andrew R. Goldenberg, Esq.
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MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
Pending before the Court is TPG Troy, LLC and T3 Troy, LLC’s (the “Troy Entities”)
Motion for Attorneys’ Fees, Costs and Damages Pursuant to 11 U.S.C. § 303(i) (the “Motion,”
ECF Doc. # 46). 1 The Motion is supported by the declaration of Michele L. Angell (ECF Doc. #
47). The Motion was filed in response to the decision of this Court dismissing the involuntary
chapter 7 bankruptcy petition filed by the Petitioning Creditors. See In re TPG Troy, LLC, 492
B.R. 150, 162 (Bankr. S.D.N.Y. 2013) (“The Court will address whether the Troy Entities are
entitled to costs, reasonable attorney’s fees and damages upon a proper showing in a separate
application which must be filed within twenty-one (21) days after the date of this Order.”).
The Petitioning Creditors filed a response (ECF Doc. # 62), as well as a motion for a jury
trial and a motion to withdraw the reference (ECF Doc. ## 50, 56 and 57). The Petitioning
Creditors also filed two declarations of Jared B. Stamell, one regarding “Improper Conduct by
Debtors,” and the other regarding “Pre-Filing Investigation.” (ECF Doc. ## 60 and 61.)
The Troy Entities filed a response (ECF Doc. # 66), supported by the declarations of
Michael M. Fay and Michele L. Angell (ECF Doc. ## 67 and 68).
The motion to withdraw the reference remains pending in the district court, but the
pendency of that motion does not stay the administration of the case in the bankruptcy court. See
FED. R. BANKR. P. 5011(c). With respect to the demand for a jury trial, counsel for the
Petitioning Creditors consented at the hearing on the Motion to the Court determining the
amount of attorneys’ fees and costs (without a jury), but continued to press the argument that the
Petitioning Creditors are entitled to a jury to the extent that an award of punitive damages is
1 	The pleadings in both cases are substantially the same. Accordingly, all docket citations correspond to the
docket entries in Case No. 12-14965.
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concerned.2 As explained below, the Court in the exercise of its discretion declines to award
punitive damages to the Troy Entities, making the issue of the jury demand moot.
For the reasons explained below, the Court grants the Troy Entities’ motion for attorneys’
fees and costs in the amount of $513,427.16 pursuant to section 303(i)(1) of the Bankruptcy
Code.
I. 	BACKGROUND
On December 21, 2012, the Petitioning Creditors commenced these cases by filing
involuntary petitions against the Troy Entities. The involuntary cases were based on vigorously
contested litigation commenced by the Petitioning Creditors’ purported assignee against the Troy
Entities and others over the last three years in eleven prior lawsuits, of which seven are still
pending (collectively, the “Prior Lawsuits”).
The Petitioning Creditors have filed almost all the Prior Lawsuits using virtually identical
complaints, against nearly identical groups of defendants, in jurisdictions spanning from New
York to Delaware to California to Luxembourg. The Prior Lawsuits allege losses incurred as a
result of defaulted PIK Notes and Sub Notes issued by Luxembourg subsidiaries of Hellas, a
Luxembourg company limited by shares. The Troy Entities were two of eight entities that
2 	The following colloquy took place at the June 28, 2013 hearing:
THE COURT: Do you agree that your client is not entitled to a jury trial on the
issue of attorneys’ fees and costs under 303(i)(1)?
MR. STAMELL: May I answer it the following way, that under those
circumstances, we would not find it necessary to argue the point of whether
there is a jury—a right to a jury.
THE COURT: So absent punitive damages, you agree that your client either is
not entitled or doesn’t demand a jury with respect to attorneys’ fees and costs
under 303(i)(1), correct?
MR. STAMELL: I don’t want to waive the argument I’m not entitled but we
would not—we would be content to consent to Your Honor determining the
fees.
June 28, 2013 Hearing Tr. 39:7-20.
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owned a portion of Hellas when the Notes were issued by Hellas subsidiaries. The issuers of
those Notes—who are not the Troy Entities—defaulted nearly three years after their issuance,
and two and a half years after the Troy Entities sold their interests in Hellas to an unaffiliated
third party for substantial value above the amount of Hellas’ debt.
On January 14, 2013, the Troy Entities’ counsel sent Petitioning Creditors’ counsel a
letter with a discussion of Bankruptcy Code sections 303(b), (h), and (i), noting that the Troy
Entities disputed their claims, and offering them the opportunity to withdraw the Involuntary
Petitions with no section 303(i)(1) penalty. The Petitioning Creditors initially responded to the
January 14 Letter on January 15, 2013, stating that they would consider the Troy Entities’
position. However, on January 22, 2013, Petitioning Creditors requested, and this Court issued,
a second involuntary summons in each case. Then, on February 12, 2013, Petitioning Creditors
filed Bankruptcy Rule 2004 motions (“Rule 2004 Motions”) seeking immediate examination of
the Troy Entities and several non-debtors (the “Non-Debtor 2004 Parties”).
On February 15, 2013, the Troy Entities timely filed their motions to dismiss the
involuntary petitions. In their motions, the Troy Entities noticed the Petitioning Creditors’
objection deadline for March 11, 2013. On February 17, 2013, the Troy Entities also requested
that the Petitioning Creditors agree to hold the Rule 2004 Motions in abeyance pending this
Court’s decision on the motions to dismiss. Petitioning Creditors refused, claiming that the Rule
2004 Motions should be heard particularly because of the Troy Entities’ decision to file their
motions to dismiss. Accordingly, on February 25, 2013, the Troy Entities and Non-Debtor 2004
Parties filed an objection to the Rule 2004 Motions, incurring additional attorneys’ fees. In the
Rule 2004 Objection, the Troy Entities expressly requested that the Court consider the Rule 2004
Motions and Objection with respect to any section 303(i) award the Court later issued.
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On March 4, 2013, this Court denied the Rule 2004 Motions without prejudice pending a
hearing and decision on the Troy Entities’ motions to dismiss. (ECF Doc. # 23.) Still undeterred
in their quest to obtain discovery, Petitioning Creditors served the Troy Entities the next day with
discovery requests purportedly under Federal Rule of Civil Procedure 34, demanding production
by April 7, 2013 of many of the same types of documents about which the Court denied
discovery in the Rule 2004 Order.
Also on March 4, 2013, just one week before their deadline, Petitioning Creditors’
counsel requested from the Troy Entities an extension until March 22, 2013 to respond to the
motions to dismiss, and proposed that the Troy Entities reply by April 5, 2013. The Troy
Entities’ counsel explained that while they could reply by the April 5 deadline under the
schedule, an April 5 reply deadline would be overly burdensome if they received the Petitioning
Creditors’ objection on March 22 because Passover fell on March 25 through April 2. The Troy
Entities’ counsel offered the Petitioning Creditors an extension until March 15, which the
Petitioning Creditors refused. Instead, on March 7, 2013, the Petitioning Creditors requested
from the Court an objection deadline extension of nearly a month, until April 8, 2013.
On March 11, 2013, the Court denied the Petitioning Creditors’ request, and set the
objection deadline to March 15, 2013. The Petitioning Creditors sent the Court another letter
requesting a further extension. Upon consent of the Troy Entities, the Court granted an
extension until March 18, 2013, at noon.
On March 18, 2013, Petitioning Creditors filed their objection. The Troy Entities timely
filed a reply on April 5, 2013, as well as the Abrams Declaration in support thereof. On the same
day, the Troy Entities also responded and objected to the Petitioning Creditors’ March 5, 2013
discovery requests, incurring additional attorneys’ fees.
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On April 29, 2013—two days before the hearing on the motions to dismiss—Petitioning
Creditors filed an unauthorized sur-reply (the “Sur-Reply”). Petitioning Creditors annexed
declarations (the “Declarations”) to the Sur-Reply of alleged additional noteholders purporting to
support the involuntary cases, none of which had joined under section 303(c) of the Bankruptcy
Code. Petitioning Creditors never asked either the Troy Entities or the Court for permission to
file a sur-reply in the many rounds of negotiations surrounding the scheduling orders. On May 1,
2013, the Troy Entities moved to strike the Sur-Reply and Declarations, and during the hearing
on the motions to dismiss that same day, the Court struck the Sur-Reply on the record after
Petitioning Creditors invited the Court to do so. See May 1, 2013 Hearing Tr. 23:23-24:8.
On May 9, 2013, the Court dismissed the involuntary petitions (“Dismissal Opinion”),
finding that Petitioning Creditors’ claims were subject to a bona fide dispute, and also
concluding that the Court would abstain under section 305(a) in any event. In re TPG Troy,
LLC, 492 B.R. at 160-61. In addition, the Court authorized the Troy Entities to file this
Sanctions Motion within twenty-one days. Id. at 162. On May 22, 2013, Petitioning Creditors
filed a notice of appeal of the Dismissal Opinion (ECF Doc. ## 45).
By their Motion, the Troy Entities seek reasonable attorneys’ fees pursuant to Bankruptcy
Code section 303(i)(1) in the total amount of $513,427.16 (see ECF Doc. # 46, Ex. A, and ECF
Doc. # 75). In addition, the Troy Entities seek a punitive damages award of two times attorneys’
fees and costs under Bankruptcy Code section 303(i)(2).
In their objection to the Motion, the Petitioning Creditors argue that they filed the
involuntary petition in good faith, as they were trying to preserve the statute of limitations for
non-Petitioning Creditor holders of the Subordinated Notes. They also accuse Kasowitz,
Benson, Torres & Friedman LLP (“KBT&F”) of improper conduct, specifically, that KBT&F
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was the agent of Debtors and their affiliates when it also acted as the lawyers for the
Subordinated Noteholders, thereby creating a conflict of interest.3 The Petitioning Creditors also
argue that the Debtors must prove bad faith by clear and convincing evidence, and that liability
and damages are issues for a jury. They also argue that they have already made a motion to
withdraw the reference and requested a jury trial on this motion in the Southern District of New
York. 4 In addition, the Petitioning Creditors take issue with the size of the Troy Entities’
counsel’s attorneys’ fees, and argue against an award of punitive damages by alleging that the
Debtors have not applied the proper standard set forth by the Supreme Court in making a
punitive damages award determination (see Opposition at 20).5
The Court held a hearing on the Motion on June 28, 2013. Parties submitted additional
materials to the Court on July 12, 2013 (ECF Doc. # 77, 78).
3 	The Petitioning Creditors did not file a motion to disqualify the Troy Entities’ counsel. Based on the record
in this Court, there is no basis for such relief in any event.
4 	In an Order entered on June 20, 2013, the Court denied the Petitioning Creditors’ motion for a stay of the
bankruptcy proceeding pending decision by the district court on the motion to withdraw the reference and for an
order granting them a jury trial. (ECF Doc. # 64.) With respect to the motion for a jury trial, the June 20 Order also
concluded that rules permit the bankruptcy court to determine, on its own motion or the motion of a party, whether
the Petitioning Creditors are entitled to a jury trial. Id. at 1-2.
5 	Petitioning Creditors also contend the sanctions motion should be deferred because the Debtors’ motion
requests this Court to decide issues identical to the ones appealed, and would directly affect the outcome of the
appeal, or alter the scope of the order of dismissal. Petitioning Creditors’ “Divestiture Rule” argument is entirely
without merit. It is well-established that, absent a stay pending appeal, lower courts retain jurisdiction “to decide
issues and proceedings different from and collateral to those involved in the appeal.” See In re Board of Dirs. Of
Hopewell Int’l Ins. Ltd., 258 B.R. 580, 583 (Bankr. S.D.N.Y. 2001) (citing In re Allen-Main Assocs., Ltd. P’ship,
243 B.R. 606, 608-09 (D. Conn. 1998)). A bankruptcy court also retains jurisdiction, absent a stay pending appeal,
to enforce the order or judgment appealed from, because in so doing, “the court does not disrupt the appellate
process so long as its decision remains intact for the appellate court to review.” Hopewell, 258 B.R. at 583 (quoting
In re Prudential Lines, Inc., 170 B.R. 222, 243 (S.D.N.Y. 1994), appeal dismissed, 59 F.3d 327 (2d Cir. 1995)). In
addition, section 303(i) case law is clear that an appeal of an involuntary case dismissal does not divest the
bankruptcy court of jurisdiction to rule on attorney’s fees, costs and damages under section 303(i). See In re VII
Holdings Co., 362 B.R. 663, 666 n.3 (Bankr. D. Del. 2007) (holding that the concept of lower courts retaining
jurisdiction absent a stay pending appeal “has been extended to motions for damages under section 303(i) following
an appeal of a dismissal order”); see also Allen-Main Assocs., 243 B.R. at 608-09.
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II. 	DISCUSSION
A. The Troy Entities are Awarded Reasonable Attorneys’ Fees Pursuant to Section
303(i)(1)
Bankruptcy Code section 303(i) reads as follows:
(i) 	If the court dismisses a petition under this section other
than on consent of all petitioners and the debtor, and if the
debtor does not waive the right to judgment under this
subsection, the court may grant judgment –
(1) against the petitioners and in favor of the debtor for –
(A) costs; or
(B) a reasonable attorney’s fee; or
(2) against any petitioner that filed the petition in bad faith,
for –
(A) any damages proximately caused by such filing; or
(B) punitive damages.
“There is a presumption that costs and attorneys’ fees will be awarded to a putative
debtor where an involuntary petition is dismissed. The petitioner bears the burden of proof on
justifying a denial of costs and fees.” TPG Troy, 492 B.R. at 162 (citing In re Mountain Dairies,
372 B.R. 623, 637 (Bankr. S.D.N.Y. 2007)); see also In re Skyworks Ventures, Inc., 431 B.R.
573, 576 (Bankr. D.N.J. 2010) (awarding attorneys’ fees and costs is the “majority rule”); In re
Silverman, 230 B.R. 46, 50 (Bankr. D.N.J. 1998) (fees and costs are “typically . . . awarded upon
dismissal” of an involuntary petition); In re K.P. Enter., 135 B.R. 174, 177 (Bankr. D. Me. 1992)
(fairness dictates that attorney’s fees and costs generally should be awarded upon an involuntary
case’s dismissal).
Moreover, “[u]nder the terms of the statute, bad faith is not a prerequisite to an award of
costs and attorney’s fees under § 303(i)(1).” Lubow Mach. Co. v. Bayshore Wire Prods. Corp.
(In re Bayshore Wire Prods. Corp.), 209 F.3d 100, 105 (2d Cir. 2000). Because section
303(i)(1) is a “fee-shifting provision,” attorneys’ fees and costs incurred in preparing and
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litigating the section 303(i) motion itself may be included in the award. See Orange Blossom
Ltd. P’ship v. S. Cal. Sunbelt Developers, Inc. (In re S. Cal. Sunbelt Developers, Inc.), 608 F.3d
456, 461-62 (9th Cir. 2010).
In deciding whether to award fees, costs and actual damages:
Most 	of 	the 	courts 	. 	. 	. 	have 	adopted 	a 	“totality 	of 	the
circumstances” test, in which certain factors are to be considered.
These include (1) the merits of the involuntary petition; (2) the role
of any improper conduct on the part of the alleged debtor; (3) the
reasonableness of the actions taken by the petitioning creditors;
and (4) the motivation and objectives behind the filing of the
petition.
In re Taub, 438 B.R. 761, 775 (Bankr. E.D.N.Y. 2010) (quoting 2 COLLIER ON BANKRUPTCY ¶
303.11 (Alan N. Resnick & Henry J. Sommer eds. 16th ed.)).
Based on the totality of the circumstances, the Court grants the Troy Entities’ motion for
their attorneys’ fees. Petitioning Creditors have put forward no evidence to rebut the
presumption that the Troy Entities are entitled to an award of attorneys’ fees. All parties to the
involuntary petitions have been embroiled in countless lawsuits over the same claims in forums
spanning from New York to Luxembourg. In addition, much of the work that is the subject of
the request for attorneys’ fees arises out of conduct initiated by Petitioning Creditors. The Troy
Entities’ counsel had no choice but to defend or respond to the various actions taken by
Petitioning Creditors throughout this dispute. Moreover, a finding of bad faith is not required for
a court to award reasonable attorneys’ fees under this section. Accordingly, the Troy Entities’
request for attorneys’ fees under section 303(i)(1) of the Bankruptcy Code is granted. The Court
has carefully reviewed the fee application and concludes that the amount of fees and costs sought
in this case are reasonable under the circumstances.
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B. The Court Declines to Award Punitive Damages under § 303(i)(2) and Therefore
the Issue of Petitioning Creditors’ Entitlement to a Jury Trial is Moot
Section 303(i)(2) of the Bankruptcy Code gives the Court discretion to award punitive
damages upon a finding that the involuntary petition was filed in bad faith. “Because ‘bad faith’
is not defined in the [B]ankruptcy [C]ode, and because there is no legislative history addressing
the intended meaning of this language, courts have used different approaches to determine
whether a petition was filed in bad faith for purposes of § 303(i)(2).” Bayshore Wire Prods., 209
F.3d at 105 (brackets omitted). Moreover, petitioning creditors are presumed to have acted in
good faith by filing an involuntary petition, and the objecting party has the burden of proving
bad faith. See In re Synergistic Techs., Inc., No. 07-31733-SGJ-7, 2007 WL 2264700, at *6
(Bankr. N.D. Tex. Aug. 6, 2007); In re Reveley, 148 B.R. 398, 406 (Bankr. S.D.N.Y. 1992). It is
unclear whether the standard of proof for establishing bad faith is clear and convincing evidence
or preponderance of the evidence. In re Synergistic Techs., Inc., 2007 WL 2264700, at *6-7
(preponderance of the evidence); In re Reveley, 148 B.R. at 406 (same); but see Revson v.
Cinque & Cinque, 221 F.3d 71, 79 (2d Cir. 2000) (concluding that “bad faith” must be shown to
impose sanctions under inherent power of the court or 28 U.S.C. § 1927, and “to impose
sanctions under either authority, the trial court must find clear evidence that (1) the offending
party’s claims were entirely meritless and (2) the party acted for improper purposes”); In re
Green, 422 B.R. 469, 474 (Bankr. S.D.N.Y. 2010) (in awarding sanctions under inherent power
of the court, the court must find bad faith based on clear evidence).
It is unclear whether the Court would need to hold an evidentiary hearing to determine
whether the Petitioning Creditors acted in bad faith in filing the involuntary cases. However, the
Court need not address this issue because it declines to award punitive damages against the
Petitioning Creditors. Section 303(i)(2) clearly states that the Court “may” grant judgment for
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punitive damages for a bad faith filing. The Troy Entities’ counsel acknowledged at the hearing
that an award of punitive damages under section 303(i)(2) is discretionary. See June 28, 2013
Hearing Tr. 15:5-8. The amount of attorneys’ fees and costs awarded by the Court in this case is
very substantial and will hopefully serve as a deterrent to similar misconduct in the future. The
aggressive litigation conduct by Petitioning Creditors’ counsel has substantially increased the
attorneys’ fees and costs expended to defend the Troy Entities against the improperly filed
involuntary petitions.6
Given that the Court has declined to award punitive damages to the Troy Entities, the
Court need not decide whether Petitioning Creditors have a right to a jury trial on the issue of
punitive damages.
III. 	CONCLUSION
Accordingly, for the reasons set forth above, the Court grants the Troy Entities’ motion
for attorneys’ fees and costs in the amount of $513,427.16, but does not award punitive damages.
Counsel for the Troy Entities should prepare a judgment consistent with this opinion.
Dated: July 18, 2013
New York, New York
_____Martin Glenn____________
MARTIN GLENN
United States Bankruptcy Judge
6 	At the June 28, 2013 Hearing, counsel for the Petitioning Creditors sought to raise an argument for the first
time that the attorneys’ fees were not reasonable because they were billed to Texas Pacific Group, Ltd., and not the
Troy Entities. The issue was not raised in the parties’ briefs and the Court declined to consider the argument. The
Troy Entities were previously dissolved, but that did not deter the Petitioning Creditors from filing the involuntary
petitions. That the Troy Entities’ affiliates were paying for the defense of improperly filed involuntary petitions is
not a basis for denying reimbursement for attorneys’ fees and costs for successfully mounting the defense. The
Petitioning Creditors should not be able to wage their global war without consequences.
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