United States District Court, D. Maryland, Southern Division
W. Grimm United States District Judge
Chen, Chaohong Shi, Li Che, Zhengang Zhang, KZDJ, Inc.
(“KZDJ”), and Paxi, LLC
(“Paxi”) filed an involuntary bankruptcy proceeding
against Peide Yan in the United States Bankruptcy Court for
the District of Maryland on July 15, 2016. Invol. Pet., ECF
No. 2-1; Order Entering Relief Under Chapter 7 on Invol. Pet.
(“Order Entering Relief”), ECF No. 1-1. Because
they filed their petition pursuant to 11 U.S.C. §
and there were fewer than twelve creditors, one or more of
the six Petitioning Creditors had to hold non-contingent,
undisputed, unsecured/undersecured claims that totaled at
least $15, 775. See 11 U.S.C. § 303(b)(2).
concede that “Zhang, Che, and KZDJ did not hold
eligible claims against Yan because each was an insider of
Yan and their claims were still the subject of a litigation
pending in the Circuit Court for Montgomery County, Maryland
in Zhengang Zhang, et al. v. Peide Yan, et al, No.
405780.” Appellees' Opp'n & Br. 2, ECF No.
13. And, the Bankruptcy Court entered an Order Determining
that Paxi, LLC Does Not Qualify as a Petitioning Creditor
(“Order Disqualifying Paxi”), ECF No. 13-10. The
remaining creditors, Chen and Shi, jointly held a single
claim against Yan (Hr'g Tr. 116:19-21 (“Chen and
Shi, accounted to one, because their judgment was one
judgment, not two creditors, but one.”); Chen & Shi
Jmt., ECF No. 13-4), which they alleged was for $339, 208.77,
see Invol. Pet. Yan acknowledged that Chen and Shi
jointly held a judgment against him, but disputed the claimed
amount, insisting that it was in the amount of $216, 000. The
Bankruptcy Court concluded that, because Yan did not dispute
that he owed the amount of the judgment, Chen and Shi held a
non-contingent, undisputed claim for purposes of 11 U.S.C.
§ 303(b). It granted the relief that the Petitioning
Creditors requested in the involuntary petition under Chapter
7 of the Bankruptcy Code. Order Entering Relief.
sides filed notices of appeal. ECF No. 1 in PWG-17-742; ECF
No. 1 in PWG-17-870. I consolidated the appeals and directed
the parties to brief their appeals as cross-appeals, ECF No.
5, which they have done, ECF Nos. 13, 14, 15, 16. Appellant
Yan contends that the Bankruptcy Court erred in issuing the
Order Entering Relief Under Chapter 7 on Involuntary
Petition, ECF No. 1-1, because, in his view, Appellees
“failed to meet their prima facie burden of
establishing that any of the[m] . . . was the holder of a
claim against Yan that was not contingent as to liability or
the subject of a bona fide dispute as to liability or
amount.” Yan Br. 4-5. Appellees challenge the
Bankruptcy Court's Order Disqualifying Paxi, ECF No.
13-10, and Order Denying Motions for Reconsideration (of the
Order Disqualifying Paxi) (“Order Denying
Recons.”), ECF No. 13-13. Appellees' Opp'n
& Br. 22. They raise the following issues:
1. Did the bankruptcy court err in determining that Paxi, LLC
(“Paxi”) was not a qualified
2. Did the alleged debtor, Peide Yan
(“Yan”), waive the defense of
Paxi's lack of standing by failing to assert Paxi's
lack of capacity within 21 days of service of the Involuntary
Summons in either Yan's Answer, Supplemental Answer, or a
motion to dismiss the involuntary petition?
3. Was Yan estopped from contesting Paxi's eligibility as
a petitioning creditor by virtue of having admitted in his
list of creditors and amended list of creditors that Paxi
held a valid claim against Yan?
4. Did Paxi have standing to be a petitioning creditor under
applicable federal law even if Paxi lacked such standing
under state law?
5. Even if Paxi lacked standing to be a petitioning creditor
as of the petition date, did the subsequent reinstatement of
Paxi's charter also reinstate Paxi's eligibility as a
Id. at 24-25.
reviewed the parties' briefs and the record, I find oral
argument unnecessary. See Fed. R. Bankr. P. 8012;
Loc. R. 105.6. There is a single issue, the answer to which
makes all other issues that the parties raise moot: Whether
Paxi had authority, despite the forfeiture of its rights to
do business in Maryland and use its name, to take action to
place Yan into involuntary bankruptcy in order to protect the
undisputed obligation owed to it. Because it did have this
authority, such that it was a qualified petitioning creditor,
the Petitioning Creditors met the statutory requirements of
§ 303(b)(2) based on Paxi's claim, regardless of
whether Chen and Shi's claim was disputed. Yan's
challenge to the Order Entering Relief, based on his belief
that Chen and Shi's claim did not qualify, consequently
becomes moot. Also moot are the issues Appellees raised
regarding waiver and estoppel, because Yan could not have
succeeded on a challenge to Paxi's ability to bring the
petition. The question of the effects of Paxi's later
reinstatement on its previous eligibility also becomes moot,
as Paxi was eligible in the first place. Accordingly, the
Bankruptcy Court's Order Disqualifying Paxi is reversed,
which renders its Order Denying Motions for Reconsideration
moot, and the Bankruptcy Court's Order Entering Relief
Under Chapter 7 on Involuntary Petition is affirmed.
Court has jurisdiction over appeals from the bankruptcy
court. 28 U.S.C. § 158. It is well established that this
Court “reviews a bankruptcy court's findings of
fact for clear error and conclusions of law de novo.”
Rosen v. Kore Holdings, Inc. (In re Rood), 448 B.R.
149, 157 (D. Md. 2011); see In re Official Comm. of
Unsecured for Dornier Aviation (N. Am.), Inc., 453 F.3d
225, 231 (4th Cir. 2006). Also, this Court reviews the
bankruptcy court's application of law to fact for abuse
of discretion. Coggins & Harman, P.A. v. Rosen (In re
Rood), No. DKC-12-1623, 2013 WL 55650, at *2 (D. Md.
Jan. 2, 2013).
crux of this case is the Bankruptcy Court's Order
Disqualifying Paxi as a petitioning creditor, in which it
reasoned that “the forfeiture of Paxi, LLC's right
to do business and the right to the use of its name rendered
it ineligible to be a petitioning creditor with respect to