T3 Troy, LLC and TPG Troy LLC

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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK 	FOR PUBLICATION
In re:
TPG TROY, LLC,
Alleged Debtor.
Case No. 12-14965 (MG)
Chapter 7
In re:
T3 TROY, LLC,
Alleged Debtor.
Case No. 12-14966 (MG)
Chapter 7
MEMORANDUM OPINION AND ORDER GRANTING MOTION TO DISMISS
INVOLUNTARY PETITIONS
A P P E A R A N C E S:
KASOWITZ, BENSON, TORRES
& FRIEDMAN LLP
Counsel for TPG Troy LLC and T3 Troy LLC
1633 Broadway
New York, New York 10019
By: 	Andrew K. Glenn, Esq.
Michele L. Angell, Esq.
STAMELL & SCHAGER, LLP
Counsel for SPQR Capital (Cayman) Ltd.,
Lansdowne Capital, S.A., and Crest One SpA,
Petitioning Creditors
1 Liberty Plaza, 35th Floor
New York, NY 10006
By: 	Jared B. Stamell, Esq.
Andrew R. Goldenberg, Esq.
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MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
On December 21, 2012 (the “Petition Date”), SPQR Capital (Cayman) Ltd., Lansdowne
Capital, S.A., and Crest One SpA (together, the “Petitioners”) filed these involuntary Chapter 7
cases against TPG Troy LLC and T3 Troy LLC (the “Troy Entities”). Pending before the Court
in both cases is the Motion of TPG Troy LLC and T3 Troy LLC to Dismiss Involuntary Petitions
(“Motion,” ECF Doc. # 11), 1 which is supported by the Declaration of Lauren P. Rubin (ECF
Doc. # 12). Petitioners filed an objection to the Motion (ECF Doc. # 33). The Troy Entities
filed a Reply (ECF Doc. # 35), which is supported by the Declaration of David J. Abrams (ECF
Doc. # 36). 2 A hearing on the Motion was held May 1, 2013.
The Petitioners commenced these cases against the Troy Entities to recover what they
have not yet been able to recover in numerous lawsuits in multiple other venues. The Petitioners
allege that the Troy Entities, which were dissolved in 2007, should be held liable for notes issued
by a non-debtor because the Troy Entities were the alter egos of the issuer that defaulted on the
notes. The Court finds that the Involuntary Petitions must be dismissed because the alleged alter
ego claims are the subject of a bona fide dispute and, in addition, the Troy Entities have
established grounds for abstention under section 305(a)(1) of the Bankruptcy Code. Therefore,
the Court GRANTS the Troy Entities’ Motion and DISMISSES these cases. In addition, within
twenty-one (21) days after the date of this Order, the Troy Entities may apply to the Court, upon
a proper showing, to recover their costs, reasonable attorney’s fees, and damages, as provided in
section 303(i) of the Code.
1 	As the filings in both cases are identical, all ECF document references will be from the TPG Troy LLC
case, Case No. 12-14965, unless otherwise indicated.
2 	On April 29, 2013, the Petitioners filed a Sur-Reply (ECF Doc. # 40) in violation of the briefing schedule
and without authorization from the Court. Upon request of the Troy Entities, the Court struck the Sur-Reply and
annexed declarations at the hearing on the Motion.
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I. 	BACKGROUND
Petitioner SPQR Cayman is a Cayman Islands holding company affiliate of SPQR
Capital LLP (“SPQR Capital”), a London based hedge fund that has commenced multiple actions
in various courts based on the purported claims that are the basis for the Involuntary Petitions.
Petitioner Crest One SpA is an entity with an office in Rome, Italy and is 100% owned by
Petitioner SPQR Cayman. Petitioner Lansdowne Capital, S.A. is an entity with an office in
Luxembourg and is 100% owned by Petitioner SPQR Cayman.
The Troy Entities were Delaware limited liability companies before the filing of a
certificate of cancellation with the Delaware Secretary of State on December 17, 2007. The Troy
Entities’ principal business was the ownership, directly or indirectly, of securities of TIM Hellas
Telecommunications S.A. (“TIM Hellas”), a Greek société anonyme that provided mobile
telecommunications services in Greece, and its affiliates. When the Troy Entities dissolved in
2007, they ceased all business and stopped incurring debts, to the extent they ever did, and
receiving income. As a result of its dissolution, the Troy Entities have no fixed creditors and no
material assets.
A. 	The Dispute
According to the complaints filed in the New York State Actions (defined below), in June
2005, the Troy Entities and six other investment funds (collectively, the “Sponsors”) acquired a
majority stake in TIM Hellas. Around November 2005, the Sponsors bought the remaining
shares of TIM Hellas, their TIM Hellas shares were cancelled, and they were awarded shares in
Hellas Telecommunications, S.à.r.l. (“Hellas”), the ultimate parent of TIM Hellas and its
affiliates. The Sponsors paid approximately €1.4 billion for their interests in Hellas. In addition,
the Sponsors made “deeply subordinated shareholder loans” to Hellas that were evidenced by
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convertible preferred equity certificates (“CPECs”). See Rubin Decl. Ex. E at Ex. B, at 55 n.6.
The allegation in the New York State Actions is that Hellas’s later redemptions of the CPECs
from the Sponsors (the “CPEC Redemptions”) were fraudulent conveyances that may be
unwound under New York law.
The redemptions at issue in the New York State Actions arise from the issuance of
payment-in-kind notes (“PIK Notes”) and subordinated notes (“Sub Notes,” and together with
the PIK Notes, the “Notes”). On December 21, 2006, a Hellas subsidiary, Hellas
Telecommunications Finance, S.C.A. (“Hellas Finance”), a Luxembourg partnership limited by
shares, issued the PIK Notes with a total face value of €200 million. See id. at 11. The PIK
Notes were to mature in 2015 and were guaranteed by another Hellas subsidiary, Hellas
Telecommunications I, S.à r.l. (“Hellas I”), a Luxembourg private limited liability company.
Concurrently with the issuance of the PIK Notes, a separate Hellas subsidiary, Hellas
Telecommunications (Luxembourg) II (“Hellas II”), a Luxembourg partnership limited by
shares, issued the Sub Notes with a total face value of €960 million. The Sub Notes were to
mature in 2015, and were subordinate to “all existing and future indebtedness of the issuer’s
subsidiaries,” and to other obligations described in the offering memorandum. See Rubin Decl.,
Ex. F at Ex. B, at 245.
The offering memoranda for the Notes explained that Hellas would use a portion of the
proceeds to redeem the CPECs from the Sponsors. See Motion ¶¶ 9, 11. These are the same
redemptions that Petitioners seek to unwind in the New York State Action based on the PIK
Notes (Index No. 653357/2011) (the “PIK Notes Action”) and the Sub Notes (Index No.
653181/2011 (the “Sub Notes Action,” and together with the PIK Notes Action, the “New York
State Actions”). The offering memorandum for the PIK Notes further explained that neither
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Hellas Finance nor Hellas I had any revenue-generating operations, and that their ability to pay
the PIK Notes would depend on dividends from the guarantor’s subsidiaries that might be
insufficient to allow repayment to holders of the PIK Notes. Both Notes are subject to an
indenture under which the Bank of New York served as trustee.
On or about December 21, 2006, Hellas redeemed CPECs from the Sponsors for an
aggregate price of approximately €973.7 million. See Rubin Decl., Ex. E ¶ 137; Rubin Decl., Ex.
F ¶ 149. In early 2007, the Sponsors sold all of their Hellas shares to Weather Investments
S.p.A. (“Weather”), a company limited by shares under the laws of Italy, for approximately €3.4
billion (including assumed debt). See Rubin Decl., Ex. D at 3. It was not until October and
November 2009, respectively, almost three years after Weather bought the shares, that the Issuer
defaulted on the Notes.
B. 	The Litigations
Petitioners’ affiliates have filed at least thirteen actions in the United States and Europe in
the past two and a half years, including, most recently, these involuntary cases. Almost every
action—and certainly those commenced in the United States—has been filed using virtually
identical complaints and asserted against nearly identical groups of defendants. The Troy
Entities have disputed liability in all actions in which they are defendants on numerous factual
and legal grounds asserted in various court filings. Below is a summary of the various actions.
1. 	Four New York State Court Actions. Petitioners, through SPQR Capital’s
assignee, Cortlandt Street Recovery Corp. (“Cortlandt”),3 initially filed suit in the Supreme Court
3 	According to the Troy Entities, Cortlandt is nothing more than a “recovery” vehicle that was formed in
New York for the purpose of bringing the New York State Actions. In an affidavit filed in the PIK I Notes Action,
the Chief Operating Officer of SPQR Capital, Laurence Sudwarts, who also signed the Involuntary Petitions on
behalf of SPQR Cayman, swore that “SPQR Capital and its affiliates own more than 25% of the outstanding” PIK
Notes, and that SPQR Capital purportedly assigned to Cortlandt its “rights to recover payment of [the] PIK Notes . .
. for enforcement in” the PIK Notes Action.
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of New York on October 6, 2010 (Index No. 651693/2010) (“PIK Notes I Action”), seeking to
recover on the same PIK Notes at issue in the PIK Notes Action. The five defendants in that
action moved to dismiss in April 2011 on several grounds, including forum non conveniens and
failure to state a cause of action. After full briefing, and five days before oral argument on the
motion to dismiss was scheduled to occur, Cortlandt advised that it would seek to file an
amended complaint. In January 2012, Cortlandt moved to amend the complaint and add the
Troy Entities as two of thirty-four new defendants to the PIK Notes I Action. This case is
ongoing and the Troy Entities are named defendants.
On November 15, 2011, Cortlandt filed the Sub Notes Action, naming the Troy Entities
as two of thirty-three defendants. On December 5, 2011, Cortlandt, along with Wilmington
Trust Company (“WTC”), as alleged indenture trustee, filed the PIK Notes Action, which is
duplicative of the PIK Notes I Action. The Troy Entities are named as two of twenty-nine
defendants. On April 25, 2012, all defendants moved to dismiss both of these complaints on
several grounds, including prior dissolution, lack of personal jurisdiction, forum non conveniens,
lack of standing and failure to state a cause of action. Oral argument was scheduled for May 2,
2013.
On or about December 5, 2011, Cortlandt and WTC also commenced an action in the
Supreme Court of New York (Index No. 653363/2011) against Hellas Finance and Hellas I by
filing a motion for summary judgment in lieu of complaint. That motion and Hellas Finance and
Hellas I’s cross-motion to dismiss have been fully briefed and were scheduled for oral argument
in April 2013. This case is ongoing and the Troy Entities are not named defendants.
2. 	Two Delaware Federal Actions. On December 12, 2011, Petitioners, through
Cortlandt, and WTC filed complaints nearly identical to those filed in the New York State
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Actions in the District Court of Delaware seeking to recover on the same PIK Notes and Sub
Notes at issue in the New York State Actions (Case Nos. 11 Civ. 1271; 11 Civ. 1272) (the
“Delaware Actions”). All defendants in the Delaware Actions were defendants in the New York
State Actions, including the Troy Entities. Cortlandt and WTC ultimately dismissed the
Delaware Actions on June 6, 2012.
3. 	Three SDNY Actions. On November 29, 2012, Petitioners, through Cortlandt, and
WTC filed complaints nearly identical to those filed in the New York State Actions in the
Southern District of New York seeking to recover on the same PIK Notes and Sub Notes at issue
in the New York State Actions (Case Nos. 12 Civ. 8685; 12 Civ. 8686) (the “SDNY Actions”).
All defendants in the SDNY Actions are defendants in the New York State Actions, including
the Troy Entities. The defendants in the SDNY Actions expect to move to dismiss the
complaints. In addition, on December 21, 2012, Cortlandt filed an action against Deutsche Bank
AG, London Branch (“Deutsche Bank”) in the Southern District of New York also seeking to
recover on the Sub Notes (Case No. 12 Civ. 9351). Cortlandt seeks to hold Deutsche Bank liable
as a signatory to the Sub Notes Indenture and for allegedly violating its obligation as the Security
Agent under that Indenture. This action remains pending.
4. 	Two California Actions. On December 21, 2011, Petitioners, through Cortlandt,
and WTC filed complaints nearly identical to those filed in the New York State Actions in the
Central District of California seeking to recover on the same PIK Notes and Sub Notes at issue in
the New York State Actions (Case Nos. 11 Civ. 10571; 11 Civ. 10573) (the “California
Actions”). The California Actions were brought against four limited partners of a defendant in
the New York State Actions, TPG Capital, L.P. The California Actions were voluntarily
dismissed in May 2012. The Troy Entities were never named defendants.
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5. 	Two European Proceedings. In November 2009, Hellas II, the issuer of the Sub
Notes, was placed into administration, similar to a chapter 11 bankruptcy in the United States, in
London, England under the auspices of the High Court of Justice of England and Wales (the
“High Court of Justice”). On December 1, 2011, the administration was converted to a
compulsory liquidation, and liquidators were appointed to represent Hellas II and its creditors
(the “Liquidators”). 	In December 2011, the Liquidators commenced a lawsuit in Luxembourg
(the “Luxembourg Proceeding”) seeking relief under Luxembourg law concerning the CPEC
Redemptions.
6. 	The Liquidators’ SDNY Bankruptcy Proceeding. On February 16, 2012, the
Liquidators filed a proceeding under chapter 15 of the Bankruptcy Code in this Court (Case No.
12-10631(MG)) (the “SDNY Bankruptcy Proceeding”). As part of the Liquidators’ statement
filed pursuant to Bankruptcy Rule 1007(a)(4), the Liquidators identified the Troy Entities on
Schedule A as two of thirty-three “parties to U.S. Litigation” that are located in or outside the
United States. On March 14, 2012, this Court issued an Order granting recognition of Hellas II’s
compulsory liquidation proceeding pending before the High Court of Justice as a foreign main
proceeding, among other things.
C. 	The Parties’ Arguments
The Troy Entities argue that the petition should be dismissed for many reasons. First,
Petitioners purportedly fail to meet their burden under section 303(b)(1) of the Code because the
alleged claims are the subject of a bona fide dispute, both factually and legally. The Troy
Entities strongly dispute Petitioners’ claims for alter ego liability, as documented in their New
York State Motions to Dismiss, which assert: (i) the Troy Entities are not signatories to the
purported contracts at issue, and no alleged facts support alter ego liability for a breach of
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contract action, (ii) the New York Business Corporation Law (the “NY BCL”) does not apply to
the redemptions in question because the NY BCL does not govern the conduct of foreign entities,
as the issuers of the Notes and the Troy Entities all are, and (iii) the plaintiffs were notified of,
and consented to, the transfers that plaintiffs now contend were fraudulent, thereby rendering
them unavoidable as a matter of New York law. See Rubin Decl., Ex. A.
The Petitioners contend that their alter ego claims are not, in fact, subject to a bona fide
dispute, either legally or factually. They assert that the parties are not arguing over the fact that
the Petitioners are owed a debt or the amount of the debts owed to Petitioners—the parties only
disagree about whether the Troy Entities are obligated to the Petitioners under the Notes based
on alter ego liability. According to Petitioners, alter ego liability is sufficient to establish
liability in an involuntary case, and there is “no doubt” that the Troy Entities were the alter ego
of the Issuers. See Reply at 16. They additionally argue that the existence of pending litigation
does not create a bona fide dispute.4
Second, the Troy Entities argue that Petitioners have failed to show that the Debtors are
not generally paying their debts as they become due, based on the concept that the Troy Entities
are dissolved and thus have no debts. As such, they argue, the Petitions should be dismissed
pursuant to section 303(h)(1). Petitioners take issue with the Troy Entities’ contention that, as
dissolved entities, they are current on their obligations. Petitioners allege they have shown the
existence of at least three creditors of the Troy Entities who have not been paid, based on the fact
that “the Debtors are liable on the Notes as the alter ego of the Issuers and it is not disputed that
the Notes are in default and the Creditors are owed €110,983,958.00.” See Reply at 22.
4 	Oddly enough, Petitioners also assert that the Troy Entities are parties in only two pending New York state
court actions, that this litigation has not proceeded beyond the dispositive motion stage, and that no determination
has been made whatsoever as to the Debtors’ liability.
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Third, the Troy Entities contend that the Petitions should be dismissed because the
putative Debtors no longer exist, and entities with no continued existence after dissolution cannot
be debtors under the Code. In response, Petitioners argue that the Troy Entities cannot escape
liability through dissolution because the long-standing rule is that debtors may not shield
themselves from liability through dissolution after incurring such liability. Moreover, the Troy
Entities are “vigorously” represented by competent and expensive counsel. See Reply at 9
(citing Collins v. Kohlbert & Co. (In re Southwest Supermarkets, LLC), 325 B.R. 417, 431
(Bankr. D. Ariz. 2005) (denying a motion to dismiss an involuntary petition because “[i]f there is
no such entity, then who hired [two prominent law firms] to seek its dismissal?”)).
Petitioners also argue that a certificate of cancellation is not operative where the wind-up
is improper. Here, Petitioners allege that the Troy Entities’ affairs were not properly wound up
because their assets have not been accounted for and distributed—in particular, the Troy Entities
did not make provisions for such future liability as alleged. However, at the hearing, Petitioners
acknowledged they have not moved to rescind the certificate of dissolution in Delaware.
Fourth, the Troy Entities claim the Petitions are facially deficient because the Petitioners
failed to check the required boxes alleging that the putative Debtors are (i) persons against whom
an order for relief may be entered under the Bankruptcy Code, and (ii) failing to pay their debts
as they become due, unless such debts are the subject of a bona fide dispute as to liability or
amount. The Petitioners have since filed an amended petition which checks both boxes (ECF
Doc. # 24).
Fifth, the Troy Entities argue that the Court should abstain from hearing the cases
pursuant to section 305(a)(1) of the Code because the interests of all parties involved would be
better served by a dismissal. In particular, there is pending non-bankruptcy litigation over
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collection of the same purported claims underlying the Petitions; federal proceedings are not
necessary because the state law claims can be adequately determined in the state court
proceedings; there is no legitimate federal bankruptcy purpose to the cases, as there are no assets
for distribution or known creditors of the Troy Entities; Petitioners improperly commenced the
cases as a litigation tactic to coerce the Troy Entities into settling the claims; and there is already
a foreign insolvency proceeding underway.
The Petitioners argue against abstention, claiming that adjudication in the bankruptcy
court will better serve all creditors for many reasons: the New York litigation does not provide a
means for achieving equitable distribution of the Debtors’ assets; litigating in the bankruptcy
forum will help centralize the various disputes related to this case; complete relief is not
available outside of bankruptcy given the unavailability of chapter 5 powers, together with
expansive disclosure and investigatory powers that are afforded a trustee under the Bankruptcy
Code; and the Petitioners chose this forum to preserve claims under Bankruptcy Code sections
544 and 550 to avoid and recover fraudulent transfers, among other things.
In addition, the Troy Entities assert that they should be awarded fees, costs and damages
under section 303(i) because the cases were filed in bad faith. Petitioners contend that the
Debtors’ bad faith claim and request for fees and damages is meritless.
II. 	DISCUSSION
A. The Cases Must Be Dismissed Because There Is a Bona Fide Dispute Whether
the Troy Entities are Liable to Petitioners as Alter Egos of the Issuers
Having previously commenced at least eleven actions in the United States, asserting
essentially the same contested claims, the Petitioners commenced these involuntary bankruptcy
cases. Liability of the Troy Entities is predicated on an alter ego theory. No contractual
relationship exists between the Petitioners and the TPG Entities. Alter ego liability is
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quintessentially a heavily fact driven theory of liability. Delaware law—the place where the
TPG Entities were formed—imposes a heavy burden on a plaintiff to establish liability based on
an alter ego theory. See, e.g., Official Committee of Unsecured Creditors v. Bay Harbour Master
Ltd. (In re BH S&B Holdings LLC), 420 B.R. 112, 133-34 (Bankr. S.D.N.Y. 2009). Simply
repeating the mantra of domination and control sufficient to disregard separate corporate
existence does not make it so; and, it doesn’t make it so in these cases. For present purposes it is
sufficient to say that liability of the Troy Entities based on alter ego is the subject of a bona fide
dispute.
1. 	Section 303(b)
Section 303(b)(1) of the Bankruptcy Code provides, in pertinent part:
An involuntary case . . . is commenced . . . . (1) by three or more
entities, each of which is either a holder of a claim against such
person that is not contingent as to liability or the subject of a bona
fide dispute as to liability or amount . . .
11 U.S.C. § 303(b)(1). A creditor must satisfy both prongs of this test: the claim must not be
subject to a bona fide dispute either as to liability or as to amount. See In re Aminian, No. 07
Civ. 12957 (AJG), 2008 WL 793574, at *2 (Bankr. S.D.N.Y. Mar. 25, 2008).
In determining whether there is a “bona fide dispute” under section 303(b)(1), the court
“must determine whether there is an objective basis for either a factual or a legal dispute as to the
validity of the debt.” Key Mech. Inc. v. BDC 56 LLC (In re BDC 56 LLC), 330 F.3d 111, 117
(2d Cir. 2003), abrogated on other grounds by Adams v. Zarnel (In re Zarnel), 619 F.3d 156 (2d
Cir. 2010), (quoting In re Busick, 831 F.2d745, 750 (7th Cir. 1987)) (brackets omitted). “The
reasoning behind the objective standard is that . . . Congress intended to disqualify a creditor
whenever there is any legitimate basis for the debtor not paying the debt, whether that basis is
factual or legal.” Key Mech., 330 F.3d at 117-18 (quotation marks omitted). A debtor should not
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be forced or pressured to pay a disputed debt upon the commencement of an involuntary
bankruptcy case. See In re Stillwater Asset Backed Offshore Fund Ltd., 485 B.R. 498, 505
(Bankr. S.D.N.Y. 2013).
Although a bankruptcy court must determine whether a bona fide dispute exists, “it is not
called on to resolve such dispute.” Id. That being said, the court may address the merits of the
dispute and it “may be required to conduct a limited analysis of the legal issues in order to
ascertain whether an objective legal basis for the dispute exists.” Id. (quoting In re Rimell, 946
F.2d 1363, 1365 (8th Cir. 1991)). The court may hold an evidentiary hearing if necessary.
Petitioners bear the burden of establishing a prima facie case that no bona fide dispute exists.
See Stillwater, 485 B.R. at 505; Key Mech., 330 F.3d at 118. Once a prima facie case has been
established, the burden shifts to the putative Debtors to demonstrate the existence of a bona fide
dispute. 	See id.
Pending litigation over a claim strongly suggests, but does not establish, the existence of
a bona fide dispute. See, e.g., Shinko v. Miele, 29 Fed. App’x. 890 (3d Cir. 2002) (holding that a
bona fide dispute existed where the alleged claim had been “seriously contested in many rounds
of state court litigation”); Adell v. John Richards Homes Bldg. Co., L.L.C. (In re John Richards
Homes Bldg. Co., L.L.C.), 312 B.R. 849, 853 (E.D. Mich. 2004) (filings by putative debtor in
pending litigation, such as an answer denying claims and asserting affirmative defenses,
indicated bona fide dispute), aff’d, 439 F.3d 248 (6th Cir. 2006); In re C&C Dev. Gr., LLC, No.
11-32362-BKC-AJC, 2012 WL 1865442, at *2 (Bankr. S.D. Fla. May 22, 2012) (“This case
should be dismissed under 11 U.S.C. §303(b) because [petitioning creditor’s] claim asserted in
the Involuntary Petition is the subject of numerous bona fide disputes as to liability and amount
which are being litigated in the pending State Court Action.”). In particular, “the existence of
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affirmative defenses may suggest that a bona fide dispute exists.” Liberty Tool Mfg. v. Vortex
Fishing Sys., Inc. (In Re Vortex Fishing Sys., Inc.), 277 F.3d 1057, 1067 (9th Cir. 2002) (citing 2
COLLIER ON BANKRUPTCY ¶ 303.03(2)(b)(I), at 303-23 (15th ed. rev. 1998)).
2. 	A Bona Fide Dispute Exists Here
Petitioners have failed to meet their burden of showing that a bona fide dispute does not
exist. The plethora of ongoing litigation that involves the same nucleus of facts speaks strongly
to the likelihood that there is a bona fide dispute in this case. There are three New York actions
that are still ongoing in which the Troy Entities are named defendants—two were scheduled for
oral argument this month and an amended complaint was filed in the third action—and the
Petitioners make the same claims against the Troy Entities in those proceedings as they do in the
Involuntary Petitions.
In addition, as noted by the Petitioners and as made clear at the hearing on the Motion,
the Troy Entities “vigorously” dispute the factual underpinnings of the Petitioners’ alter ego
claims. In particular, the Troy Entities argue that they are not liable under the contracts as alter
egos of the Issuers because no facts support alter ego liability; the NY BCL does not govern the
conduct of foreign entities; the Petitioners were made aware of and consented to the transactions
at issue; and the Troy Entities did not engage in a fraudulent redemption transaction, as
evidenced by the fact that the Notes did not go into default until three years after the Troy
Entities sold their shares to Weather in a purported arms-length transaction. “The court’s
objective is to ascertain whether a dispute that is bona fide exists; the court is not to actually
resolve the dispute.” Aminian, 2008 WL 793574, at *2 (quotation omitted). The Court finds that
a bona fide—and in fact, hotly contested—dispute exists as to whether the Petitioners hold
claims against the Troy Entities based on alter ego liability.
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B. 	Abstention is Warranted Under Section 305(a)(1)
Section 305(a)(1) of the Bankruptcy Code permits a bankruptcy court to dismiss any
bankruptcy case where “the interests of creditors and the debtor would be better served by such
dismissal . . .” 11 U.S.C. § 305(a)(1). This Court has considered the following factors in
rendering an abstention decision under Section 305(a):
1) 	The economy and efficiency of administration;
2) 	Whether another forum is available to protect the interests
of both parties or there is already a pending proceeding in a
state court;
3) 	Whether federal proceedings are necessary to reach a just
and equitable solution;
4) 	Whether there is an alternative means of achieving an
equitable distribution of assets;
5) 	Whether the debtor and the creditors are able to work out a
less expensive out-of-court arrangement which better
serves all interests in the case;
6) 	Whether a non-federal insolvency has proceeded so far in
those proceedings that it would be costly and time
consuming to start afresh with the federal bankruptcy
process; and
7) 	The purpose for which bankruptcy jurisdiction has been
sought.
In re Monitor Single Lift I, Ltd., 381 B.R. 455, 464-65 (Bankr. S.D.N.Y. 2008) (citing cases).
“While all factors are considered, not all are given equal weight in every case.” Id. at 465. “The
decision to abstain under § 305(a)(1) should be made on a case-by-case basis.” Id. at 464
(citations omitted).
The Debtors have met their burden of showing that abstention is proper under section
305(a). First, another forum—in fact, multiple forums—are available to protect the interests of
both parties, as there are several proceedings already pending in state and federal courts (factor
2). In addition, federal proceedings are not necessary because the primary claims at issue are
based on state law and these alter ego claims can be adequately determined in the state court
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proceedings (not to mention the transactions occurred beyond the reach-back periods for federal
bankruptcy avoidance law) (factor 3). Third, a foreign insolvency proceeding is already
underway (factor 6). Last, it is questionable whether the bankruptcy proceeding was filed for a
proper purpose; Petitioners are pursuing the same exact claims in many other venues that they
are pursuing in this Court (factor 7).
C. 	Other Potential Grounds for Dismissal
As discussed above, the Troy Entities assert that because they have been dissolved and no
longer exist, there are grounds for dismissal under sections 303(h)(1) and 303(a) of the Code.
Section 303(h)(1) of the Bankruptcy Code provides, in relevant part, that “the court shall order
relief against the debtor in an involuntary case . . . only if – the debtor is generally not paying
such debtor’s debts as such debts become due unless such debts are the subject of a bona fide
dispute as to liability or amount.” 11 U.S.C. § 303(h)(1). “The petitioning creditors have the
burden of proving . . . that the debtor is generally not paying its bills on time.” In re A&J
Quality Diamonds, Inc., 377 B.R. 460, 463 (Bankr. S.D.N.Y. 2007) (citing In re Palace Oriental
Rugs, Inc., 193 B.R. 126, 129 (Bankr. D. Conn. 1996)). Once this burden is met, the burden
shifts to the putative debtor to show that there is a dispute as to a material fact, such as the
existence of the liability or its amount. See A&J Quality Diamonds, 377 B.R. at 463.
Section 303(a) provides: “An involuntary case may be commenced . . . only against a
person . . . that may be a debtor under the chapter under which such case is commenced.” 11
U.S.C. § 303(a) (emphasis added). Entities with no continued existence after dissolution
generally cannot be debtors under the Bankruptcy Code. See In re Soderberg & Schafer CPAS,
LLC, 441 B.R. 262, 266 (Bankr. N.D. Ohio 2010) (dismissing claims brought against a wound-
up entity but stating that “[a] company's certificate of cancellation [may be] nullified on the
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ground that the company was not ‘wound up’ in compliance with Delaware law”); In re Segno
Commc’ns, Inc., 264 B.R. 501, 507 (Bankr. N.D. Ill. 2001) (“Once state law says that the
corporation is dead, [w]e know of no rule of bankruptcy which has the power of resurrection . . .
Thus, if the result of dissolution is an end to the existence of the corporation, it may be likened to
the death of a natural person.”) (internal citations and quotation marks omitted); but see In re
Collins v. Kohlbert & Co. (In re Southwest Supermarkets, LLC), 325 B.R. 417, 431 (Bankr. D.
Ariz. 2005) (denying dissolved and cancelled defendants’ motion to dismiss where counsel was
retained).
In order dismiss these cases under section 303(h) or 303(a), the Court would likely have
to determine whether the Troy Entities are liable as alter egos for the Issuer’s debts and whether
their dissolution was improper, both of which are contested issues. Because the Court finds two
other grounds upon which to dismiss these cases, it is not necessary to delve into these fact-
intensive inquiries.
D. 	Fees, Costs and Damages under Section 303(i)
Section 303(i) provides:
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.
11 U.S.C. § 303(i).
There is a presumption that costs and attorney’s 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. See In re Mountain Dairies, 372 B.R. 623, 637 (Bankr. S.D.N.Y.
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2007) (quoting In re Squillante, 259 B.R. 548, 553-54 (Bankr. D. Conn. 2001)); see also In re
Skyworks Ventures, Inc., 431 B.R. 573, 576 (Bankr. D.N.J. 2010) (awarding fees and costs is the
“majority rule”); In re Silverman, 230 B.R. 46, 50 (Bankr. D.N.J. 1998) (attorneys’ fees and
costs are “typically . . . awarded upon dismissal” of an involuntary petition). “[B]ad 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). Instead, “the exercise of the court’s discretion is based on the totality of the
circumstances . . .” Mountain Dairies, 372 B.R. at 637 (quoting Squillante, 259 B.R. at 553-54).
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 Petitioners may file a response to
such application not later than seven (7) days after the application is filed.
III. 	CONCLUSION
For the reasons stated above, the Motion is GRANTED and the involuntary chapter 7
petitions filed in the above-referenced cases are hereby DISMISSED.
IT IS SO ORDERED.
Dated: 	May 9, 2013
New York, New York
_____Martin Glenn____________
MARTIN GLENN
United States Bankruptcy Judge
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