A Fox Rothschild financial restructuring and bankruptcy team led by Brett Axelrod secured an important appellate victory that makes clear debtors waive the opportunity to offer affirmative defenses if they don’t comply with court deadlines.
In a published opinion issued March 22, 2023, the U.S. Bankruptcy Appellate Panel of the Ninth Circuit ruled that a lower court was wrong to dismiss a case on procedural grounds after the appellee failed to timely contest a petition. The court found in favor of firm client Sphere Acquisitions (Sphere), remanding Bella Hospitality Group’s (Bella) involuntary chapter 7 case back to the bankruptcy court.
The case involved a $45,000 lien filed against two properties owned by Bella in Henderson, NV. Sphere purchased the liens in January 2022 and filed the involuntary chapter 7 bankruptcy case against Bella the following month. In the process, Sphere disclosed it had purchased the liens, but did not attach a required signed statement that the liens were not transferred for the purpose of commencing the case.
Bella did not file a response within the required 21 days of service. Sphere subsequently requested and received an order for relief.
In May 2022, 68 days after the entry of the order for relief, Bella moved to dismiss the case. Bella argued Sphere lacked standing because the company did not file the required signed statement.
Sphere opposed the motion, arguing Bella had waived such a defense when it failed to respond to the petition in a timely manner. The bankruptcy court, however, dismissed the case on the grounds it lacked subject matter jurisdiction.
Sphere appealed, prompting the appellate court to overturn the lower court’s order with instruction for the case to be reinstated and the Trustee reappointed.
Axelrod was assisted by Fox attorney Audrey Noll.
Original source can be found here.