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On Friday at about 5:00 p.m. local time, 34 individuals (from the court filings, it appears not represented by counsel) filed an involuntary chapter 11 bankruptcy petition against Bank of America, N.A. (a banking subsidiary of Bank of America Corporation (NYSE: BAC)). In the petition, the individuals assert claims against Bank of America of between $1 million and $30 million each, with a total claimed amount of approximately $60 million. Many of the individual petitioning alleged creditors identify themselves in the signature pages as members of either the "Independent Rights Political Party" or the "Independent Rights Party." On Sunday, Bank of America filed responsive papers with the bankruptcy court, in which it asserts that the petition is clearly invalid and that Bank of America cannot be a debtor in an involuntary bankruptcy case.
Bank of America's Sunday filings consist of an answer to the purported involuntary petition and a motion to dismiss the involuntary case with an accompanying memorandum in support. In those pleadings, Bank of America argues that the "petition has no basis in law or fact and should be immediately dismissed." Additionally, the bank calls the assertion that it owes the petitioners any debt which is not subject to bona fide dispute "frivolous on its face." Court filings say that Bank of America conducted a "preliminary review of its records" over the weekend and acknowledges that it has banking relationships with some of the petitioning creditors. It also states that these banking relationships include mortgage loans serviced by Bank of America and that some of the petitioners "either were the subject of foreclosure proceedings, and/or were debtors in bankruptcy."
Bank of America's first basis for an immediate dismissal of the case is that it is ineligible to be a debtor in this type of bankruptcy case, citing sections 109(b) and 303(a) of the Bankruptcy Code. Because Bank of America is a "bank," it is not eligible to be a debtor under either chapter 7 or chapter 11 of the Bankruptcy Code. Bank of America also notes that the alleged creditors failed to check box 2 in the allegations section of the involuntary petition ("The debtor is a person against whom an order for relief may be entered under title 11 of the United States Code.").
Second, Bank of America argues that the petition fails to adequately allege debts that are not subject to a bona fide dispute and that, therefore, the petitioners lack standing to bring an involuntary bankruptcy case under 10th Circuit caselaw (citing Bartmann v. Maverick Tube Corp., 853 F.2d 1540, 1544 (10th Cir. 1988)). Third, Bank of America asserts that the involuntary petition was filed in bad faith. It expressly denies in its filings that it is failing to pay its debts as they come due and also notes that an outstanding involuntary bankruptcy case could have "potentially serious" consequences for the company:
As is commonplace, various of Bank of America’s commercial agreements provide that an involuntary bankruptcy petition, if not promptly dismissed, is an event of default that could give rise to rights of termination and acceleration. Moreover, many of Bank of America’s commercial agreements are linked by an intricate array of cross-default provisions, under which a default in one agreement may trigger defaults under others. While Bank of America would certainly take the position that a filing as specious as this purported involuntary petition would not trigger the rights of any counterparty, that is not an argument in which Bank of America should be required to engage.
Therefore, Bank of America asks in its pleadings for the bankruptcy court to dismiss the involuntary petition "immediately, and in any event by no later than the close of business on Monday, June 20, 2011."
The bankruptcy case has been assigned to Bankruptcy Judge Michael Romero.
Access copies of the court filings referenced in this article from the links below:
Originally published at: http://blog.ch11cases.com/2011/06/34-individuals-file-pro-se-involuntary.html