Minnesota attorney John Murrin has seen his share of ups and downs. His is a tale of significant commercial success and failure and, most recently, a lawsuit that is a one-case civil procedure exercise with state court judgments, sanctions, contempt findings, a state court appeal, and another, a denied petition to the state Supreme Court, federal involuntary bankruptcy filings, and, most recently, an appeal of a recent federal bankruptcy court ruling to the U.S. District Court. Murrin finally seems to have notched a win of sorts (at least for now).
U.S. District Court Judge Joan N. Ericksen (D. Minn.) addressed Murrin’s appeal of decisions of the U.S. Bankruptcy Court (Kishel, J.) in regard to Murrin’s involuntary bankruptcy. To toss someone into “involuntary bankrtupcy,” three or more creditors must show that the debtor is “generally” not paying his debts. Congress did not get mired in the details so as to explain what “generally” means in the statute so the question is left for the courts to answer.
Involuntary bankruptcy is an extreme remedy that has a significant detrimental impact on the debtor’s credit rating and non-petitioning creditors….Therefore, it is not appropriate for the Court to affirm that Murrin was generally not paying his debts without factual findings and comparative analysis on the total amount and number of claims.
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Courts have held that preservation of assets for routine debt collection is an improper purpose for filing an involuntary bankruptcy petition.
In reviewing Judge Kishel’s order, Judge Ericksen pointed to the bankruptcy court’s reliance on In re Feinberg. The Feinberg case outlined four factors that should be considered when determining whether a debtor is “generally not paying” his debts: (1) the number of unpaid claims; (2) the amount of the claims;(3) the materiality of nonpayment; and (4) the overall conduct of the debtor’s financial affairs. Judge Ericksen noted that in Murrin’s case, Judge Kishel only took into account the third and fourth factors and that his failure to consider the first and second factors was clear error.
This seems to be a small victory in an entrenched war that seems already lost by Murrin but this latest reversal seems to be a setback to at least some of his creditors.