United States District Court, D. Nevada
RICHARD F. BOULWARE, II UNITED STATES DISTRICT JUDGE.
case was taken on appeal from the Bankruptcy Court on
10/1/14. A status conference was held on 12/12/14. Before the
Court are Appellant Vibe Micro's Opening Brief [ECF No.
17], Appellee SIG Capital's Answering Brief [ECF No. 19],
and Appellant Vibe Micro's Reply Brief [ECF No. 24].
case is an appeal from a final order of the United States
Bankruptcy Court for the District of Nevada, issued on
September 18, 2014. [ECF No. 1]. The issue on appeal is
whether the bankruptcy court erred in holding, as a matter of
law, that Vibe Micro, Inc., a shareholder of the involuntary
debtor, 8Speed8, Inc., did not have standing to seek
statutory remedies under 11 U.S.C. 303(i), and against SIG
Capital, Inc., Petitioner, for costs, attorneys' fees,
and damages, on behalf of the debtor, 8Speed8, Inc.
Court relies on and reiterates the findings of fact of the
bankruptcy court, which are reviewed for clear error. In
re Summers, 332 F.3d 1250, 1252 (9th Cir. 2003). On
December 13, 2013, Appellee SIG Capital, Inc., a Nevada
corporation, filed an involuntary petition for relief under
Chapter 7 of the U.S. Bankruptcy Code, against the Debtor,
8Speed8, Inc. SIG and Vibe Micro are both shareholders of
8Speed8. SIG was also a creditor of 8Speed8, lending money to
fund 8Speed8's development of payment services kiosk
systems. A shareholder dispute arose between SIG and Vibe
Micro, and Vibe Micro initiated arbitration proceedings
against SIG. Subsequent to the initiation of arbitration
proceedings, in December 2013, SIG filed an involuntary
bankruptcy petition against 8Speed8. 8Speed8 never appeared
in the bankruptcy action. Vibe Micro appeared, and asserted
that it was representing the interest of 8Speed8, and stated
in its pleadings that the debtor was not represented in the
proceedings. [ECF No. 18, p 93, Transcript of Bankruptcy
January 2014, Vibe Micro moved to dismiss the bankruptcy.
Vibe Micro also sought to obtain fees and costs, actual
damages, and punitive damages pursuant to 11 U.S.C. 303(i).
SIG opposed the motion, and the parties agreed that further
discovery was necessary before the Court could decide the
merits of dismissal on the grounds asserted by Vibe Micro.
However, in June 2014, SIG decided that dismissal was
appropriate, and filed its own motion to dismiss.
Bankruptcy Court held a hearing on both motions to dismiss in
August 2014. At this hearing, the Court deemed it appropriate
to dismiss the case since both parties had moved to dismiss.
It then allowed SIG and Vibe Micro to present oral arguments
on the issue of Vibe Micro's entitlement to receive fees
under 11 U.S.C. 303(i).
Bankruptcy Court issued a verbal ruling on the motions on
September 15, 2014. It held that under a Ninth Circuit
holding, In re Miles, 430 F.3d 1083 (9th Cir. 2005),
only the debtor has standing to seek damages under Section
303(i). It entered an order dismissing the bankruptcy case
and denying Vibe Micro any attorneys' fees and costs, and
damages, on September 18, 2014.
appeal to the District Court, the Bankruptcy Court's
conclusions of law are reviewed de novo, and its
factual findings are reviewed for clear error. In re
Summers, 332 F.3d 1250, 1252 (9th Cir. 2003).
Interpretation of statutes, and standing issues, are issues
of law, which are reviewed by the appellate court de
novo. In re Mike Hammer Prod., Inc., 294 B.R.
752, 753 (9th Cir. B.A.P. 2003).
statute at issue in this case is 11 U.SC. § 303(i).
Section 303(i), which provides for costs and fees in the
resolution of bankruptcy proceedings, states: “If the
court dismisses a petition under this section other than on
consent of all petitioners and the debtor, and if the debtor
does not waive the right to judgment under this subsection,
the court may grant judgment - (1) against the petitioners
and in favor of the debtor for - (A) costs; or (B) a
reasonable attorney's fee; or (2) against any petitioner
that filed the petition in bad faith, for - (A) any damages
proximately caused by such filing; or (B) punitive damages.
The Ninth Circuit analyzed the language of this statute in
In re Miles, which, on its face, “is ambiguous
as to whether damages…can be awarded only in favor of
the debtor or in favor of other parties.” 430 F.3d 1083
(9th Cir. 2005). Looking at legislative history, determining
that “reading 303(i)(2) to allow third parties to seek
damages could invite abuse of the system”, and
determining that “reading 303(i) to limit standing to
the debtor is consistent with the admittedly rather sparse
authority addressing this issue, ” the Ninth Circuit
held that appellants in that case, a putative debtor's
wife and children, did not have standing to recover damages
under the statute. In re Miles, 430 F.3d 1083 (9th
Micro argues that for purposes of fees and costs, it
functioned as the Debtor in the bankruptcy action, and thus
had standing to seek an award on 8Speed8's behalf. Vibe
Micro argues that it was a fifty percent vested shareholder
trying to protect the Debtor, 8Speed8. SIG disputes the
contention that Vibe Micro was a fifty percent vested
shareholder, and rather, states that Vibe Micro, SIG, and
Luxor, each were thirty percent shareholders in 8Speed8. The
bankruptcy court did not make a factual determination as to
Vibe Micro's ownership interest in 8Speed8, and the Court
does not deem this determination material to whether, under
In re Miles, a shareholder, rather than the Debtor
itself, may recover under Section 303(i). Vibe Micro raises
facts regarding SIG's purposes in bringing the
involuntary bankruptcy petition, and alleges that SIG was
bringing it in bad faith, to subvert and/or evade the
arbitration proceedings that Vibe Micro had initiated amongst
the shareholders, and to liquidate 8Speed8. The bankruptcy
court did not make a determination as to whether the petition