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In re Rosenberg

United States Court of Appeals, Eleventh Circuit

February 27, 2015

MAURY ROSENBERG, Defendant-Appellee

Page 1255

Appeal from the United States District Court for the Southern District of Florida. D.C. Docket Nos. 1:12-cv-23886-RSR; 10-bkc-03812-AJC.

For Dvi Receivables Xvii, LLC, Dvi Receivables Xviii, LLC, Dvi Receivables Xix, LLC, Dvi Funding, LLC, Lyon Financial Services, Inc., Dvi Receivables Xvi, LLC, Dvi Receivables Xiv, LLC, U.S. Bank, NA, Plaintiffs - Appellants: Peter H. Levitt, Larry I. Glick, Stephen Trivett Maher, Shutts & Bowen, LLP, Miami, FL.

For Maury Rosenberg, Defendant - Appellee: Paul J. Battista, William Barry Blum, Allison R. Day, Carlos E. Sardi, Genovese Joblove & Battista, PA, Miami, FL.

Before HULL, JULIE CARNES, and WALKER,[*] Circuit Judges.


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HULL, Circuit Judge:

DVI Receivables XIV, LLC; DVI Receivables XVI, LLC; DVI Receivables XVII, LLC; DVI Receivables XVIII, LLC; DVI Receivables XIX, LLC; DVI Funding, LLC (collectively, the " DVI Entities" ); Lyon Financial Services, Inc. d/b/a U.S. Bank Portfolio Services (" Lyon" ); and U.S. Bank, N.A. (" USB" ) (collectively, " Appellants" ) appeal the district court's decision affirming the bankruptcy court's final order awarding appellee Maury Rosenberg attorney's fees and costs, pursuant to 11 U.S.C. § 303(i)(1). After careful review of the record and the parties' briefs, and with the benefit of oral argument, we affirm in part, vacate in part, and remand for further proceedings.


The DVI Entities filed an involuntary bankruptcy petition against appellee Rosenberg. After the bankruptcy court dismissed the petition, the court awarded attorney's fees and costs to appellee Rosenberg. We begin by describing the alleged debts that the DVI Entities used

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as the basis for filing the involuntary petition against Rosenberg.

A. Underlying Debt Dispute

Beginning in November 2000, certain limited partnerships affiliated with Rosenberg (the " NMI LPs" ) entered into equipment leases with DVI Financial Services, Inc. (" DVI Financial" ) to finance the acquisition of medical equipment. Lessor DVI Financial bought the equipment and leased it to the NMI LPs, which were to make lease payments to DVI Financial. As security for the payment of the NMI LPs' obligations under these leases, appellee Rosenberg executed an individual limited guaranty to DVI Financial. DVI Financial agreed to act as the servicing agent for the leases, which were part of complex securitization transactions involving the parties on appeal.

The equipment leases and related assets were ultimately transferred from lessor-servicing agent DVI Financial to the DVI Entities, appellants here. The DVI Entities were special purpose entities created solely for the purpose of the securitization transactions, by which the DVI Entities issued notes, secured by the leases, to noteholders. In other words, DVI Financial, through the DVI Entities, financed the purchase of the medical equipment (which they leased to the NMI LPs) apparently by obtaining loans from and issuing notes to noteholders.

In turn, appellants the DVI Entities assigned all of their rights and interests in the equipment leases to appellant USB, the Trustee for the noteholders. After DVI Financial filed for bankruptcy in August 2003, appellant Lyon took over lessor DVI Financial's servicing obligations with respect to the leases. At the time it assumed the role of successor servicer for the DVI Entities, Lyon was a second-tier subsidiary of USB.

In December 2003, Lyon, as successor servicer, sued Rosenberg and the NMI LPs in Pennsylvania state court to recover the amounts allegedly owed under the equipment leases. On August 12, 2005, Rosenberg, the NMI LPs, and two other entities related to the NMI LPs entered into a settlement agreement with Lyon to restructure the NMI LPs' obligations under the leases. Lyon executed the agreement in its capacity as the successor servicer for the DVI Entities and as agent for Trustee USB. The DVI Entities were not parties to the settlement and did not sign the agreement; rather, Jane Fox signed the agreement on behalf of Lyon as Lyon's Director of Operations.

As part of the 2005 settlement, Rosenberg executed another individual limited guaranty, which superseded all prior guaranties. Rosenberg personally guaranteed the sums identified in the guaranty agreement to " the Agent," defined as " Lyon Financial Services, Inc. d/b/a/ U.S. Bank Portfolio Services as successor servicer for the [DVI Entities] and as agent for the Trustee." The maximum amount of Rosenberg's limited guaranty was $7,661,945.00, to be reduced each month by a certain sum for each monthly payment made under the settlement agreement. The obligations created by Rosenberg's 2005 limited guaranty ran solely to Lyon, and only Lyon could demand payment of such obligations. Also as part of the 2005 settlement, Rosenberg executed a confession of judgment in favor of Lyon.

In March 2008, Lyon notified Rosenberg of an alleged default due to the NMI LPs' failure to make the requisite monthly payments. In July 2008, Lyon, as agent for Trustee USB, filed a complaint in confession of judgment against Rosenberg and others in Pennsylvania state court to collect on the amounts allegedly due under the 2005 confession of judgment and limited

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guaranty made in connection with the equipment leases. The DVI Entities were not plaintiffs in this state court action. In August 2008, Lyon obtained the requested judgment for $4,724,866.16 against Rosenberg individually. At Rosenberg's request, the Pennsylvania state court stayed execution of the judgment pending resolution of a dispute over the validity and amount of debt allegedly owed by Rosenberg to Lyon.

B. 2008 Involuntary Petition

On November 7, 2008, Jane Fox, on behalf of the DVI Entities, filed an involuntary Chapter 7 bankruptcy petition against Rosenberg in the U.S. Bankruptcy Court for the Eastern District of Pennsylvania. Each of the DVI Entities asserted a claim against Rosenberg with respect to the 2005 individual limited guaranty he had made in connection with the equipment leases. The DVI Entities' six claims totaled $5,363,361.56. The involuntary petition was later transferred to the U.S. Bankruptcy Court for the Southern District of Florida.

Section 303 of the Bankruptcy Code governs the filing of involuntary bankruptcy petitions and allows creditors to force debtors into liquidation under Chapter 7 or reorganization under Chapter 11. 11 U.S.C. § 303. The petition must be brought by at least three eligible creditors (unless there are fewer than twelve eligible creditors), with each creditor holding a separate claim against the alleged debtor, and the claims must not be contingent or subject to a bona fide dispute as to liability or amount. See id. § 303(b).

The November 7, 2008 involuntary petition nominally listed the DVI Entities as the " petitioning creditors." Lyon was not expressly named on the petition as a petitioning creditor, either in its capacity as successor servicer for the DVI Entities or as agent for Trustee USB. However, abundant evidence showed that Lyon actually filed the petition on behalf of each DVI Entity. The petition's signature blocks show that Jane Fox, the Director of Operations for Lyon, signed the petition individually on behalf of each DVI Entity.[1] In addition, for each DVI Entity, the petition listed " Jane Fox c/o U.S. Bank Portfolio Services, as Servicer" and " 1310 Madrid Street, Suite 103[,] Marshall, MN 56258" as the name and mailing address of the " Individual Signing in Representative Capacity." Lyon did business as " U.S. Bank Portfolio Services," and this mailing address under Fox's signature was Lyon's too.

Furthermore, the evidence showed that the DVI Entities had no knowledge of the involuntary petition separate from Fox's knowledge. At the time Fox executed the involuntary petition in November 2008, Fox was not an officer, director, or employee of any DVI Entity. Rather, Fox was the Director of Operations for Lyon. There was no meeting of the directors or officers of any DVI Entity to authorize Fox to sign the involuntary petition. In fact, no one at Lyon, including Fox, ever corresponded with any DVI Entity before the filing of the petition. Indeed, as of the petition date, five of the DVI Entities were not even in good standing with the Delaware Secretary of State and had been administratively dissolved. It was not until mid-January 2009 that Lyon's in-house counsel, at Fox's direction, filed certificates of revival for the five DVI Entities to place them in good standing again.

According to her deposition testimony concerning her role as the signer, Fox believed that only Lyon had the authority to sign the involuntary petition, and that none of the DVI Entities had the authority to do so on their own behalf because Lyon

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was granted broad authority to act for the DVI Entities. Fox testified that she understood Lyon's authority to include the filing of the petition on behalf of the DVI Entities. While the DVI Entities were the original creditors in the underlying transactions, Lyon on its own made the decision to file the petition against Rosenberg and then Lyon actually filed it.

On December 3, 2008, Rosenberg moved to dismiss the involuntary bankruptcy petition against him.

C. 2009 Dismissal Order

On August 21, 2009, the bankruptcy court granted Rosenberg's motion to dismiss and dismissed the involuntary petition with prejudice (" Dismissal Order" ). The bankruptcy court found, inter alia, that the DVI Entities were not eligible creditors of Rosenberg because his 2005 guaranty did not run to the DVI Entities. Rather, Rosenberg's obligations under his individual limited guaranty, if any, ran only to Lyon in its capacity as successor servicer and as agent for Trustee USB. Moreover, the DVI Entities were not the " real parties in interest" --rather, they were just " pass through vehicles" created solely to facilitate the securitization transactions. The DVI Entities therefore lacked standing as a matter of law to file an involuntary petition against Rosenberg.

Alternatively, the bankruptcy court also ruled that even if the DVI Entities were real parties in interest, they, as well as Lyon, were judicially estopped from prosecuting the involuntary case. In its complaint against Rosenberg in Pennsylvania state court, Lyon claimed that it was entitled to a judgment for $4,724,866.16. Later, in the bankruptcy proceeding, Lyon took the inconsistent position that Rosenberg's obligations under the 2005 limited guaranty actually ran to the DVI Entities.

The bankruptcy court dismissed the case in August 2009 but retained jurisdiction to award Rosenberg his costs, reasonable attorney's fees, and damages (if appropriate) under 11 U.S.C. § 303(i). The Dismissal Order was appealed to, and affirmed by, both the district court in 2011 and then this Court in 2012. DVI Receivables XIV, LLC v. Rosenberg (In re Rosenberg), Case No. 10-24347 (S.D. Fla. Sept. 27, 2011), aff'd, 472 F.App'x 890 (11th Cir. 2012).[2]

D. Rosenberg's 11 U.S.C. § 303(i) Adversary Proceeding

Meanwhile, on December 27, 2010, Rosenberg filed in the bankruptcy court a separate adversary complaint against Appellants and Fox, initiating adversary proceeding number 10-03812. In his adversary complaint, Rosenberg asserted federal claims to recover attorney's fees, costs, and damages he incurred because of the filing of the involuntary petition, which the bankruptcy court had dismissed in August 2009.[3] Specifically, Rosenberg's adversary complaint sought relief under ยง 303(i) of the Bankruptcy Code. Relevant to this appeal, ...

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