• January 9, 2012

Attorney John Murrin – of DIAL L-A-W-Y-E-R-S fame – was thrown into involuntary bankruptcy by his creditors after failing to pay over $460,000 in sanctions and costs for pursuing frivolous claims, engaging in bad-faith litigation, and failing to comply with several court orders (which led Hennepin County District Court Judge Denise Reilly to issue a bench warrant) after all of Murrin’s claims were dismissed and he was enjoined from further pursuing claims related to the underlying lawsuit.

In a recent ruling, U.S. Bankruptcy Court Judge Gregory Kishel (D. Minn.) held that Murrin’s creditors met the requirements of 11 U.S.C. § 303(b)(1) and could throw him into bankruptcy.

Murrin challenged the involuntary bankruptcy, in part, because he claimed that his liabilities were subject of a bona fide dispute.  So, what standard did the petitioning creditors need to meet in order to commence the involuntary bankruptcy?

According to 11 U.S.C. § 303(b)(1), an involuntary bankruptcy petition may be filed:

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, or an indenture trustee representing such a holder, if such noncontingent, undisputed claims aggregate at least $10,000 more than the value of any lien on property of the debtor securing such claims held by the holders of such claims

This provision acts as a safety-value so that potential creditors do not attempt to throw putative debtors into involuntary bankruptcy while there are still questions regarding a liability or amount owed that could be left to the trial court.

The Eighth Circuit has an objective standard in determining whether there is a “bona fide dispute” for purposes of 11 U.S.C. § 303(b)(1).  This standard provides that “a bona fide dispute exists if there are ‘substantial’ factual and legal questions raised by the debtor bearing upon the debtor’s liability.” This objective determination is based on a balancing test.

  • First, the petitioning creditors need to allege and show evidence that there is no dispute over liability or amount due.
  • If that evidence is produced, the putative debtor must present evidence that there is a dispute.

According to the Memorandum, the petitioning creditors cited more than enough evidence to show that there was no bona fide dispute and Murrin’s dissatisfaction with the sanctions was not enough to meet his burden.

Although I have not been a lawyer long, I know that many judges try to hide their enmity for parties in written orders.  Judge Kishel, however, did not shy away from expressing how he really felt about Murrin’s actions. Here are a couple bench slap nuggets:

Describing why sanctions were appropriate considering Murrin’s deficient pleading:

[Sanctions were appropriate after it was established that] the Murrins had not had the necessary fruits of a pre-suit investigation of fact […] to tie the petitioning creditors as active tortfeasors into John Murrin’s rambling narrative of chicanery.

The Murrins had been more than made whole, but persisted in maintaining suit against the remaining defendants without the basis for an objectively-framed prima facie case against them.

Describing the Murrin’s specific challenge under 11 U.S.C. § 303(b)(1):

John Murrin harbored no good faith in his challenge to the original judgment for attorney fees[…] And because John Murrin’s liability on an unstayed judgment was so clear cut, he could have no bona fide dispute with the contempt sanctions later imposed on him as a consequence of his unexcused and unfounded resistance to the post-judgment collection process.

Regarding the Murrins’ testimony:

Neither of the Murrins’ testimony had sufficient credibility, either internally or externally.

Ouch.

The Memorandum (as well as previous court decisions in this case) makes it perfectly clear that any judge (district court, appellate court, bankruptcy court) that touched this case was convinced that John Murrin deserved the Rule 11 sanctions that coming to him.

Because Minnesota Litigator is all about practice pointers, I think it is always worth remembering these important (and potentially cost-saving) tips:

  1. Suing everyone and their mother in a “kitchen sink” approach is not a smart litigation tactic. Make sure all claims have (at least some) basis in law or fact.
  2. Don’t make judges angry – probably a good point in non-litigation circumstances too.

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