[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
April 23, 2008
No. 07-13429 THOMAS K. KAHN
________________________ CLERK
D. C. Docket No. 06-02575-CV-TCB-1
BKCY No. 02-93973
TRUSTED NET MEDIA HOLDINGS, LLC,
Debtor.
__________________________________________________
TRUSTED NET MEDIA HOLDINGS, LLC,
Plaintiff-Appellant,
versus
THE MORRISON AGENCY, INC.,
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
_________________________
(April 23, 2008)
Before HULL and WILSON, Circuit Judges, and ALBRITTON,* District Judge.
HULL, Circuit Judge:
This appeal presents the question of whether 11 U.S.C. § 303(b)’s
requirements for filing an involuntary bankruptcy petition are subject matter
jurisdictional in nature. Both the district court and the bankruptcy court held that
they are not. Our precedent, though, says otherwise. Thus, although we believe
our precedent should be reexamined, we must reverse.
I. BACKGROUND
Appellee The Morrison Agency, Inc. (“Morrison”) is a creditor of Appellant
Trusted Net Media Holdings, LLC (“Trusted Net”). On April 20, 2002, Morrison,
as a creditor, filed an involuntary bankruptcy petition against its debtor Trusted
Net, requesting liquidation of Trusted Net’s assets pursuant to Chapter 7 of the
Bankruptcy Code. Morrison’s petition listed Morrison as the only petitioning
creditor of Trusted Net, and described Morrison’s claim against Trusted Net as
“Trade Debt/Judgment” in an amount “[n]ot less than [$]534,000.00.”
Morrison’s involuntary petition stated that Morrison was “eligible to file this
petition pursuant to 11 U.S.C. § 303(b).” As described in more detail below, §
303(b) permits the commencement of an involuntary bankruptcy case against a
*
Honorable William H. Albritton, III, United States District Judge for the Middle District
of Alabama, sitting by designation.
debtor (1) by three or more creditors holding non-contingent, undisputed claims
against that debtor, or (2) by a single holder of a non-contingent, undisputed claim
if there are fewer than twelve such creditors of the debtor. At the time Morrison
filed its involuntary petition against Trusted Net, § 303(b) also required that the
petitioning creditor(s)’ non-contingent, undisputed claims against the debtor
aggregate at least $11,625 (the threshold sum is now $13,475). See 11 U.S.C. §
303(b) (2008); 11 U.S.C. § 303(b) (2001).
The debtor Trusted Net, whose assets were at that time under the control of a
state-court-appointed receiver, filed no response to Morrison’s involuntary
petition. Accordingly, the bankruptcy court entered an Order for Relief on May
15, 2002 and appointed a Chapter 7 trustee. The trustee marshaled Trusted Net’s
assets in preparation for liquidation.
The bankruptcy case proceeded through administration for two years. In
April 2004, David W. Huffman, an officer and controlling member of Trusted Net,
filed a motion to dismiss the case. Huffman was also a creditor of Trusted Net as
to his deferred salary. Huffman’s motion to dismiss argued, among other things,
that Morrison’s petition violated § 303(b) in two ways: (1) Morrison’s claim
against Trusted Net was subject to a bona fide dispute, and therefore Morrison did
not hold a non-contingent, undisputed claim against the debtor; and (2) Morrison’s
3
single-creditor petition was insufficient because Trusted Net had twelve or more
creditors holding non-contingent, undisputed claims. Huffman argued that the
involuntary petition’s failure to satisfy § 303(b) divested the bankruptcy court of
subject matter jurisdiction. The Chapter 7 trustee opposed the motion. The
bankruptcy court conducted a hearing and, on May 13, 2004, denied Huffman’s
motion to dismiss. No appeal was taken from the bankruptcy court’s denial of
Huffman’s motion to dismiss.
Another two years later, in April 2006, five of Trusted Net’s creditors,
including Morrison (but not including Huffman), settled with the trustee as to the
amount of their respective claims. Huffman objected to the settlement of the
claims of three of the creditors, including Morrison. On July 14, 2006, the
bankruptcy court overruled Huffman’s objections and approved the settlements.
Shortly thereafter, and more than four years after commencement of the
case, Trusted Net (through counsel retained at Huffman’s behest) filed a motion to
dismiss the entire bankruptcy case for lack of subject matter jurisdiction. Similar
to Huffman’s motion two years earlier, Trusted Net argued that § 303(b)’s
requirements must be met for the bankruptcy court to have subject matter
jurisdiction, and that Morrison’s petition violated § 303(b) because: (1) at the time
it filed its involuntary petition, Morrison was not the holder of a non-contingent,
4
undisputed claim, and (2) Morrison’s involuntary Chapter 7 petition was not joined
by three holders of non-contingent, undisputed claims.
On October 10, 2006, the bankruptcy court denied Trusted Net’s motion to
dismiss. With regard to Trusted Net’s subject matter jurisdiction argument, the
bankruptcy court held that § 303(b) of the Bankruptcy Code was not jurisdictional
and that “any argument by the Debtor that the petitioning creditor’s claims are the
subject of a bona fide dispute or that more than one petitioning creditor was
required to put this Debtor into bankruptcy has been waived.”
Trusted Net appealed the bankruptcy court’s ruling to the district court. The
district court affirmed without elaboration, finding the bankruptcy court’s order to
be “thorough, well-reasoned, and correct in every respect.” Trusted Net appealed
to this Court.
In this appeal, Trusted Net does not contest the bankruptcy court’s finding
that Trusted Net, through its four-year delay, waived its arguments that Morrison’s
claims are subject to bona fide dispute and that more than one petitioning creditor
was required. Rather, Trusted Net raises a single jurisdictional claim: that these
requirements in § 303(b) are subject matter jurisdictional, and thus cannot be
waived.
II. STANDARD OF REVIEW
5
In bankruptcy appeals, this Court independently examines the factual and
legal findings of the bankruptcy court using the same standards as did the district
court. In re Elec. Mach. Enters., 479 F.3d 791, 795 (11th Cir. 2007). Where, as
here, we review the bankruptcy court’s legal determinations, we do so de novo. Id.
III. DISCUSSION
The issue Trusted Net raises–whether 11 U.S.C. § 303(b)’s requirements for
the filing of an involuntary bankruptcy petition must be met to bestow upon the
bankruptcy court subject matter jurisdiction–has divided the circuits and lower
courts that have considered it. We approach the issue by first setting forth the
statutory framework for bankruptcy court jurisdiction and the commencement of
involuntary bankruptcy cases. We then discuss briefly the split in authority on the
issue and, finally, the case of In re All Media Properties, Inc., 646 F.2d 193 (5th
Cir. Unit A May 1981), aff’g 5 B.R. 126 (Bankr. S.D. Tex. 1980), which Trusted
Net contends settles the issue for this circuit.
A. Statutory Scheme
1. Title 28
Congress established the jurisdiction of the bankruptcy courts in Title 28.
Kontrick v. Ryan, 540 U.S. 443, 453, 124 S. Ct. 906, 914 (2004). Section 1334 of
Title 28 provides that “the district courts shall have original and exclusive
6
jurisdiction of all cases under title 11 [the Bankruptcy Code],” and “original but
not exclusive jurisdiction of all civil proceedings arising under title 11, or arising
in or related to cases under title 11.” 28 U.S.C. § 1334(a)-(b).
Section 151 of Title 28 provides that the bankruptcy courts are “a unit of the
district court.” 28 U.S.C. § 151. Pursuant to 28 U.S.C. § 157(a), “[e]ach district
court may provide that any or all cases under title 11 [the Bankruptcy Code] and
any or all proceedings arising under title 11 or arising in or related to a case under
title 11 shall be referred to the bankruptcy judges for the district.” 28 U.S.C. §
157(a). Section 157(b)(1) further provides that bankruptcy courts “may hear and
determine all cases under title 11 and all core proceedings arising under title 11, or
arising in a case under title 11, referred under subsection (a) of this section, and
may enter appropriate orders and judgments, subject to [appellate] review” by the
district court. 28 U.S.C. § 157(b)(1).1 Thus, bankruptcy court jurisdiction exists,
by reference from the district courts, “in three categories of proceedings: those that
‘arise under title 11,’ those that ‘arise in cases under title 11,’ and those ‘related to
cases under title 11.’” In re Toledo, 170 F.3d 1340, 1344 (11th Cir. 1999) (citation
1
For non-core proceedings that are “otherwise related to a case under title 11,” the
bankruptcy court may hear the proceeding but “shall submit proposed findings of fact and
conclusions of law to the district court, and any final order or judgment shall be entered by the
district judge after considering the bankruptcy judge’s proposed findings and conclusions and
after reviewing de novo those matters to which any party has timely and specifically objected.”
28 U.S.C. § 157(c)(1).
7
omitted); see also In re Atlanta Retail, Inc., 456 F.3d 1277, 1287 (11th Cir.), cert.
denied, 127 S. Ct. 836 (2006).
2. Title 11
In turn, Title 11, the Bankruptcy Code, contains nine chapters. Chapter 7,
governing liquidation, is the substantive chapter operative in this case, and §
303(b), the procedural statute at issue, is contained in Chapter 3, entitled Case
Administration.2 Further, Chapter 3 of Title 11 is divided into four subchapters,
including Subchapter I, entitled “Commencement of a Case.” See 11 U.S.C. §§
301-308. Sections 301 and 302 of Subchapter I concern the commencement of,
respectively, voluntary bankruptcy cases and joint cases filed by a debtor and his
or her spouse. See 11 U.S.C. §§ 301-302. Section 303 of Subchapter I, at issue
here, addresses the commencement of involuntary cases. See 11 U.S.C. § 303.
Although bankruptcy cases are often commenced on the debtor’s own
initiative, “Section 303 of the Bankruptcy Code allows creditors in some instances
2
Chapter 1 (General Provisions), Chapter 3 (Case Administration), and Chapter 5
(Creditors, the Debtor, and the Estate) apply, with some exceptions, to all debtor-relief cases
brought under the Bankruptcy Code other than those concerning municipal debts. See 11 U.S.C.
§ 103. Chapter 15 (Ancillary and Other Cross-Border Cases) addresses cases involving cross-
border insolvency. 11 U.S.C. §§ 1501 et seq. The remaining five chapters govern the different
forms of bankruptcy relief that are available under the Code. They are: Chapter 7 (Liquidation),
Chapter 9 (Adjustment of Debts of a Municipality), Chapter 11 (Reorganization), Chapter 12
(Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income), and
Chapter 13 (Adjustment of Debts of an Individual with Regular Income). See generally Title 11,
U.S. Code.
8
to hale a debtor into bankruptcy court by filing an involuntary petition.” 2 William
L. Norton, Jr. & William L. Norton III, Norton Bankruptcy Law & Practice § 22:1
(3d ed. 2008). Section 303(a) provides that “[a]n involuntary case may be
commenced only under chapter 7 or 11 of this title, and only against a person . . .
that may be a debtor under the chapter under which such case is commenced.” 11
U.S.C. § 303(a). Section 303(b), the subsection with which we are primarily
concerned, sets forth the prerequisites for commencing an involuntary petition,
specifically who is qualified to do so, as follows:
An involuntary case against a person is commenced by the filing with
the bankruptcy court of a petition under chapter 7 or 11 of this title–
(1) 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, or an indenture
trustee representing such a holder, if such claims aggregate at
least $11,625 more than the value of any lien on property of the
debtor securing such claims held by the holders of such claims;
[or]
(2) if there are fewer than 12 such holders, excluding any
employee or insider of such person and any transferee of a
transfer that is voidable under section 544, 545, 547, 548, 549,
or 724(a) of this title, by one or more of such holders that hold
in the aggregate at least $11,625 of such claims. . . .
11 U.S.C. § 303(b) (2001) (emphasis added) (footnotes omitted).3
3
We quote the 2001 version of the statute, which was in effect at the time Morrison filed
its involuntary petition. Section 303(b)(1) has since been amended to add after the term “a bona
fide dispute” that the claims must not be the subject of a bona fide dispute “as to liability or
9
Once the involuntary petition has been filed, § 303(h) provides that “[i]f the
petition is not timely controverted, the court shall order relief against the debtor in
an involuntary case under the chapter under which the petition was filed.” 11
U.S.C. § 303(h).4 Moreover, § 303(c) states that after the filing of an involuntary
petition, other creditors with non-contingent, unsecured claims may join in the
petition as if they were original petitioning creditors, as follows:
After the filing of a petition under this section but before the case is
dismissed or relief is ordered, a creditor holding an unsecured claim
that is not contingent, other than a creditor filing under subsection (b)
of this section, may join in the petition with the same effect as if such
joining creditor were a petitioning creditor under subsection (b) of this
section.
11 U.S.C. § 303(c).
Against this statutory background, Trusted Net asserts that, at the time
Morrison’s involuntary petition was filed, Morrison’s petition failed to meet the §
303(b) requirements because: (1) Morrison’s claim against Trusted Net was the
subject of a bona fide dispute; and (2) Trusted Net had twelve or more non-insider
amount.” 11 U.S.C. § 303(b)(1) (2008). Additionally, in the current § 303(b), the minimum
aggregate claim value for petitioning creditors is $13,475 rather than $11,625, as it was at the
time of Morrison’s petition. Compare 11 U.S.C. § 303(b) (2008), with id. (2001). See footnote
9, infra.
4
Thereafter, § 303(h) provides: “Otherwise, after trial, the court shall order relief against
the debtor . . . only if–(1) the debtor is generally not paying such debtor’s debts as such debts
become due unless such debts are the subject of a bona fide dispute as to liability or amount; or
(2) within 120 days before the date of the filing of the petition, a custodian . . . was appointed or
took possession [of the debtor’s property].” 11 U.S.C. § 303(h).
10
holders of undisputed, non-contingent claims, yet Morrison’s petition was not filed
by three petitioning creditors. In response, Morrison argues that its petition
established the prima facie grounds for commencing an involuntary bankruptcy
case and, in any event, Trusted Net waived any potential objections to Morrison’s
petition by waiting four years to raise them. Trusted Net does not contest that its
four-year delay would normally constitute a waiver; instead, it contends that the §
303(b) requirements are subject matter jurisdictional and hence incapable of being
waived.
B. Circuit Split
As mentioned above, the circuits, and other courts, are split on whether the
requirements of § 303(b) must be satisfied to convey subject matter jurisdiction
over an involuntary case upon the bankruptcy court or whether, instead, they are
merely “substantive matters which must be proved or waived for petitioning
creditors to prevail in involuntary proceedings.” In re Rubin, 769 F.2d 611, 614
n.3 (9th Cir. 1985). In other words, do the commencement requirements of §
303(b) in Title 11 address the jurisdictional power of the court to hear an
involuntary case or, rather, does Title 28 contain the jurisdictional grant and do §
303(b)’s requirements simply constitute elements that must be established to
sustain an involuntary proceeding?
11
The Ninth Circuit has concluded that “[p]etitioning creditors cannot prevail
unless they show that their claims are not subject to bona fide disputes, but the
bankruptcy court is not without jurisdiction prior to this determination.” Rubin,
769 F.2d at 615. The Ninth Circuit determined that the bankruptcy court is vested
with general power under Title 28 “to exercise jurisdiction of all cases under title
11,” as well as “exclusive jurisdiction of all the property of debtors in such cases.”
Id. (quotation marks and citation omitted). Therefore, the Ninth Circuit has held
that both the “bona fide dispute” and three-petitioning-creditor requirements of §
303(b) can be waived and hence are not subject matter jurisdictional. See id. at
614-15; In re Mason, 709 F.2d 1313, 1318-19 (9th Cir. 1983).
The Second Circuit, on the other hand, has held that § 303(b)’s requirements
are subject matter jurisdictional. In re BDC 56 LLC, 330 F.3d 111, 118 (2d Cir.
2003). It reasoned that “[w]hether an alleged debtor is properly before the
bankruptcy court in an involuntary case is a threshold determination that should be
made at the earliest possible stage of the proceedings,” and the bona fide dispute
requirement of § 303(b), as a prerequisite to bringing an involuntary position, is
such a threshold determination. Id. The Second Circuit further reasoned:
Any creditor wishing to invoke the bankruptcy court’s jurisdiction in
an involuntary case should be required to demonstrate at the earliest
practicable point that its petition satisfies this requirement.
Otherwise, creditors could, on the basis of relatively untested claims,
12
haul a solvent debtor with whom they have legitimate disputes into
bankruptcy court and force it to defend an involuntary proceeding
while the bankruptcy court leaves for a later merits determination
whether the debtor is even properly before it.
Id. at 118-19. Thus, the Second Circuit held that “the requirement that a petitioning
creditor’s claim not be subject to a bona fide dispute [is] both an element of the
condition upon which a controverted order for relief may be entered and a
necessary prerequisite for the bankruptcy court’s jurisdiction.” Id. at 118
(quotation marks and citations omitted).
Most courts to consider the issue have reached the conclusion that § 303(b)’s
filing requirements are not subject matter jurisdictional. See, e.g., Rubin, 769 F.2d
at 614-15; In re Earl’s Tire Serv., 6 B.R. 1019, 1022-23 (D. Del. 1980); In re
Saunders, 379 B.R. 847, 855-57 (Bankr. D. Minn. 2007); In re MarketXT Holdings
Corp., 347 B.R. 156, 161-62 (Bankr. S.D.N.Y. 2006); In re Coppertone Commc’ns,
Inc., 96 B.R. 233, 234-35 (Bankr. W.D. Mo. 1989); In re Alta Title Co., 55 B.R.
133, 136-37 (Bankr. D. Utah 1985).5 The leading commentators agree. See 2 Alan
N. Resnick & Henry J. Sommer, Collier on Bankruptcy (15th ed. 2007) ¶
303.04[9] (“The better argument . . . is that the [three-creditor] requirement [of §
5
Although some bankruptcy courts earlier had reached the same conclusion as the Second
Circuit, that § 303(b) is subject matter jurisdictional, they did so without explanation. See In re
Paczesny, 283 B.R. 715, 718 (Bankr. N.D. Ill. 2002); In re Onyx Telecomms., Ltd., 60 B.R. 492,
496 (Bankr. S.D.N.Y. 1985); In re New Mexico Props., Inc., 18 B.R. 936, 939-40 (Bankr.
D.N.M. 1982).
13
303(b)] can be waived, which suggests that it is not a jurisdictional requirement.”);
2 William L. Norton, Jr. & William L. Norton III, Norton Bankruptcy Law &
Practice § 22:3 (3d ed. 2008) (“Like the three-petitioner requirement, the
undisputed-claim requirement [of § 303(b)] is not jurisdictional, but goes to the
merits. If the point is contested, petitioners cannot prevail unless they show that
their claims are not subject to bona fide dispute, but the bankruptcy court is not
without jurisdiction prior to the determination.”).
Moreover, we find the reasoning of the decisions that hold § 303(b)’s
requirements are not subject matter jurisdictional to be more persuasive, for several
reasons. First, this conclusion comports with the basic nature of subject matter
jurisdiction–i.e., that it is the statutorily conferred power of the court to hear a class
of cases. As a class of cases, involuntary bankruptcy cases unquestionably arise
under Title 11 (the Bankruptcy Code), and thus fall within the Congressional grant
of subject matter jurisdiction to the bankruptcy courts. See 28 U.S.C. § 157(a)
(authorizing bankruptcy courts to hear and determine “any or all cases under title
11 and any or all proceedings arising under title 11 or arising in or related to a case
under title 11”).
Second, the holding that § 303(b) in Title 11 is not subject matter
jurisdictional is consistent with § 303’s statutory language. Section 303(b) does
14
not contain any explicit reference to its requirements being jurisdictional in nature.
And, § 303(h) provides that “[i]f the petition is not timely controverted, the court
shall order relief against the debtor in an involuntary case under the chapter under
which the petition was filed.” Accord Fed. R. Bankr. P. 1013(b) (“If no pleading
or other defense to a petition is filed within the time provided . . ., the court, on the
next day, or as soon thereafter as practicable, shall enter an order for the relief
requested in the petition.”). Thus, the statutory scheme clearly contemplates that
relief will be immediately granted if no timely response is filed. However, a
failure to timely object to an involuntary petition’s compliance with § 303(b)
arguably should not result in relief being immediately entered against the debtor if
the statutory requirements are subject matter jurisdictional and not waivable.
Furthermore, § 303(c) states that a creditor who has not joined in the
involuntary petition may be added as a petitioning creditor before the case is
dismissed or relief is ordered. 11 U.S.C. § 303(c). The statute therefore grants the
court the power to permit one or more creditors to join a petition that may
otherwise be dismissed. But, it seems anomalous at best to hold that a bankruptcy
court, which lacks jurisdiction over an involuntary case because the petition was
defectively filed, may subsequently create jurisdiction for itself by permitting
additional creditors to join the petition. Cf. Newman-Green, Inc. v. Alfonzo-
15
Larrain, 490 U.S. 826, 832, 109 S. Ct. 2218, 2222 (1989) (interpreting 28 U.S.C. §
1653 to permit a trial or appellate court to allow a party to amend its pleadings “to
remedy inadequate jurisdictional allegations, but not defective jurisdictional
facts”); Elend v. Basham, 471 F.3d 1199, 1206 (11th Cir. 2006) (holding, with
regard to standing, that a court “lacks the power to create jurisdiction by
embellishing a deficient allegation of injury”) (quotation marks and citation
omitted). Therefore, if § 303(b) is read to be a matter of subject matter
jurisdiction, some tension arises between subsection (b) and subsections (c) and (h)
of § 303. Interpreting § 303(b) as non-jurisdictional, on the other hand, results in a
harmonious operation of the statutory subsections.
Third, the Second Circuit’s reasoning in BDC–that § 303(b) is subject matter
jurisdictional because an early, threshold determination of the § 303(b)
requirements is needed–is unpersuasive. Apart from BDC’s failure to account for
the import of § 303(c) and § 303(h), it ignores the fact that subject matter
jurisdiction turns only upon whether the court has the statutorily-conferred power
to hear the case before it, and therefore has nothing necessarily to do with the
speedy determination of claims or whether an alleged debtor–or any other party–is
“properly before the . . . court.” BDC, 330 F.3d at 118. BDC’s rationale also fails
on its own terms, as the facts of this case show. If § 303(b)’s requirements are
16
subject matter jurisdictional, an involuntary debtor could raise a § 303(b) challenge
at any point in the proceedings, whereas if § 303(b) is not jurisdictional, § 303(h)
and Rule 1013 would require that the issue of the petitioning creditors’ compliance
with § 303(b) be determined at the outset–as a threshold matter–or be forever
waived. Consequently, a policy in favor of determining the sufficiency of an
involuntary petition at the outset of the case is best served by a non-jurisdictional
reading of § 303(b).
Fourth, this Court has interpreted similar “commencement of a case”
language, found elsewhere in the Bankruptcy Code, to be non-jurisdictional. In In
re Pugh, 158 F.3d 530, 530 (11th Cir. 1998), we considered whether 11 U.S.C. §§
546(a) and 549(d), which establish limitations periods on a bankruptcy trustee’s
commencement of adversary proceedings to avoid certain pre- and post-petition
transfers, liens, and offsets involving the debtor’s assets, “operate to divest a
bankruptcy court of subject matter jurisdiction once they have elapsed, or . . .
constitute statutes of limitations that can be waived.” Section 546(a) provided, at
the time the Pugh bankruptcy case began, that “[a]n action or proceeding under
section 544, 545, 547, 548, or 553 of this title [governing the trustee’s authority to
avoid certain pre-petition transactions involving the debtor’s assets] may not be
commenced after the earlier of–(1) two years after the appointment of a trustee . . .
17
or (2) the time the [bankruptcy] case is closed or dismissed.” 11 U.S.C. § 546(a)
(1988). Section 549(d) provided (and still provides) that “[a]n action or
proceeding [to avoid post-petition transfers] may not be commenced after the
earlier of–(1) two years after the date of the transfer sought to be avoided; or (2)
the time the [bankruptcy] case is closed or dismissed.” 11 U.S.C. § 549(d).
Sections 546(a) and 549(d) are similar to § 303(b) in that both statutes expressly
provide conditions under which a proceeding under Title 11 may be “commenced.”
In Pugh, the debtors lost an avoidance action to which they had not raised
the limitations defense, and on appeal they argued that the limitations periods
established in §§ 546(a) and 549(d) were subject matter jurisdictional, such that the
failure to earlier raise them could not constitute a waiver. Pugh, 158 F.3d at 530-
32. This Court acknowledged that we had not considered the question before, but
that there was a split of authority elsewhere regarding
whether these code provisions constitute grants of subject matter
jurisdiction that leave a court without any authority to hear certain
proceedings–i.e., that extinguish the right of action itself by divesting
a court of its subject matter jurisdiction over certain proceedings–after
the limitations period has elapsed, or whether they are true statutes of
limitations that restrict the power of a court to grant certain remedies
in a proceeding over which it has subject matter jurisdiction.
Id. at 533-34. After considering the statutory language, existing authority,
legislative history, and overall statutory scheme, this Court concluded that §§
18
546(a) and 549(d) are waivable statutes of limitation rather than restrictions on the
bankruptcy courts’ subject matter jurisdiction. See id. at 534-38. Among other
things, this Court in Pugh relied upon the fact that the subject matter jurisdiction of
the bankruptcy courts derives from 28 U.S.C. § 157, and that neither § 546(a) nor §
549(d) explicitly refers to jurisdiction. Id. at 538. Thus, for reasons that apply
equally well to § 303(b), this Court in Pugh held that statutory conditions within
the Bankruptcy Code upon the “commence[ment]” of a bankruptcy action are not
subject matter jurisdictional. Pugh, 158 F.3d at 532-33; 11 U.S.C. §§ 546(a),
549(d).
C. All Media
Ordinarily, our discussion would end here. However, Trusted Net contends
that we are not free to apply our own judgment to the interpretation of § 303(b)
because this Court’s predecessor, in All Media, already decided the issue
presented. See In re All Media Properties, Inc., 646 F.2d 193 (5th Cir. 1981), aff’g
5 B.R. 126 (Bankr. S.D. Tex. 1980). In All Media, the former Fifth Circuit issued
a summary affirmance “on the basis of the Memorandum Opinion of Bankruptcy
Judge E.H. Patton, Jr., reported at 5 B.R. 126 (Bkrtcy., 1980).” Id. at 193. Thus, it
adopted both the holding and the reasoning of the bankruptcy court’s published
19
opinion in the case.6
The parties do not dispute that the All Media decision is binding upon this
Court.7 What they do contest is whether All Media controls: In other words,
whether All Media actually and squarely held that § 303(b)’s requirements are
subject matter jurisdictional.
All Media concerned involuntary Chapter 11 petitions brought against two
related (parent and wholly owned subsidiary) companies involved in the operation
of a radio station. The involuntary petitions were brought under the then-recently-
enacted Bankruptcy Code.8 All Media, 5 B.R. at 130-31. The two debtors, All
Media and Artlite, contested the petitions; the bankruptcy court consolidated the
cases and conducted a trial. Id. at 131. The court then issued its memorandum
6
Henceforth, when discussing the All Media case we refer to the bankruptcy court’s
opinion unless otherwise stated.
7
In Bonner v. City of Prichard, 661 F.2d 1206, 1207 (11th Cir. 1981) (en banc), this
Court accepted as binding precedent all Fifth Circuit cases decided before October 1, 1981. We
have also held that when an earlier panel of this Court has expressly adopted a lower court’s
order, that order is binding precedent unless and until overruled by the Supreme Court or this
Court sitting en banc. See Dickerson v. Alachua County Comm’n, 200 F.3d 761, 768 & n.8
(11th Cir. 2000) (holding that a plaintiff’s 42 U.S.C. § 1985(3) civil rights conspiracy claim was
controlled by Chambliss v. Foote, 562 F.2d 1015, 1015 (5th Cir. 1977), a former Fifth Circuit
case that, like the circuit court opinion in All Media, affirmed simply “on the basis of the district
court’s [published] opinion”).
8
Before 1979, bankruptcy rights and actions were governed by the Bankruptcy Act of
1898 (the “Act”). In re Alvarez, 224 F.3d 1273, 1278 n.13 (11th Cir. 2000). Effective October
1, 1979, the Act was repealed and replaced by the current Bankruptcy Code (the “Code”). Id.;
Mitsubishi Int’l Corp. v. Clark Pipe & Supply Co., 735 F.2d 160, 162 n.2 (5th Cir. 1984).
20
opinion on the debtors’ challenges to the involuntary petitions. As the court
described it,
[t]he issues to be determined include whether each of the petitioning
creditors meets the Code requirements for a creditor entitled to bring
an involuntary petition, whether the requisite jurisdictional grounds
exist and whether each of the alleged debtors is generally not paying
its debts as such debts become due.
Id.9
The bankruptcy court first analyzed involuntary proceedings under the new
Code framework, discussing how to determine whether a petitioning creditor’s
claim is “not contingent as to liability.” Id. at 131-33. Next, since both
debtors–All Media and Artlite–had asserted defenses to the petitioning creditors’
9
At the time the involuntary petitions were filed in All Media, § 303(b) of the Bankruptcy
Code provided that:
An involuntary case is commenced by the filing with the bankruptcy court of a
petition under chapter 7 or 11 of this title–,
(1) 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 an indenture trustee
representing such a holder, if such claims aggregate at least $5,000 more than the
value of any lien on property of the debtor securing such claims held by the holders
of such claims; [or]
(2) if there are fewer than 12 such holders, excluding any employee or insider
. . . , by one or more of such holders that hold in the aggregate at least $5,000 of such
claims . . . .
11 U.S.C. § 303(b) (1980). Later amendments to § 303(b) increased the threshold dollar value of
petitioning creditors’ claims and added the requirement that their claims not be “the subject of a
bona fide dispute as to liability or amount.” Id. (2008). (As mentioned in footnote 3 supra, the
version of § 303(b) in effect when Morrison filed its involuntary petition did not include the
phrase “as to liability or amount.”)
Except for the $5,000 minimum aggregate claim amount, which was $11,625 for
Morrison and is $13,475 at present, every requirement that existed in § 303(b) at the time of the
All Media decision existed in § 303(b) as of the date Morrison filed its petition.
21
claims, the bankruptcy court examined “to what extent defenses can be asserted to
defeat an involuntary petition under the Code.” Id. at 133-36. After reviewing the
evidence, the court concluded that the petitioning creditors’ claims were not
contingent as to liability and therefore they satisfied the requirements of § 303(b).
Id. at 136-42. Consequently, the court held, it was entitled to reach the ultimate
issue of whether All Media and Artlite had been failing generally to pay their debts
as such became due. Id. at 138, 142. It decided this final issue, as to each debtor,
in favor of the petitioning creditors. Id. at 142-48.
The procedural posture of All Media differed dramatically from that of the
present case, in that both All Media debtors immediately appeared and challenged
the petitioning creditors’ status and, thus, there was no waiver issue. Rather, the
relevant issue before the All Media court was whether the petitioning creditors’
claims were non-contingent as to liability and were valued, in the aggregate, at
least $5,000 more than the value of any liens on the debtor’s property that secured
the claims, as required by § 303(b). Nevertheless, the All Media opinion is riddled
with references to § 303(b)’s requirements as “jurisdictional.” For example, the
court stated,
This is not to say that the requirement that the petitioning creditors be
holders of claims that are not contingent as to liability is not
jurisdictional. It is only to say that this requirement does not mean
that all claims must necessarily be liquidated, undisputed, matured, or
22
reduced to judgment for the court to have jurisdiction.
Id. at 133. Additionally, the court stated that “[s]ince [All Media’s petitioning
creditors] are holders of claims not contingent as to liability and together their
claims exceed $5,000 this court has jurisdiction to determine whether All Media
has been generally paying its debts as they become due.” Id. at 142. And, with
respect to Artlite, the court concluded that because its petitioning creditors
possessed non-liability-contingent claims, “the jurisdictional requirements of §
303(h)(1) have been met and . . . there is jurisdiction to determine whether Artlite
was generally not paying its debts as they became due.” Id. at 138.
In this case, Morrison argues that although All Media repeatedly referred to
the involuntary petition filing requirements as jurisdictional, it never stated that
they are subject matter jurisdictional. Morrison is correct that All Media never
actually used the term “subject matter jurisdiction.” Moreover, there is some
language in the All Media opinion that suggests that the court, in speaking of
jurisdiction, may have been referring not to the court’s power to hear involuntary
bankruptcy cases, but rather to the court’s authority to bring an involuntary debtor
before it, or to a substantive matter that must be proven only if put in issue. See id.
at 137 (“The intent of § 303(b) is that those who are not meeting their obligations
can be forced to submit to the jurisdiction of the bankruptcy court.”); see also id. at
23
134 (“[W]here the issues concerning defenses to a claim of a petitioning creditor
are not clear and require adjudication of either substantial factual or legal
questions, the creditor should be recognized as qualified to join in the bringing of
an involuntary bankruptcy petition. On the other hand, if it is clear that the claim is
barred and the alleged debtor raises that defense, then that creditor should not be
allowed to participate in the involuntary petition.”).
However, in spite of this somewhat loose language, the All Media court
made clear elsewhere in its opinion that the “jurisdictional” nature of § 303(b) to
which it referred was in fact of the non-waivable, subject matter jurisdiction
variety. In the clearest example, the court stated:
In its brief All Media states that Best, Inc. is not entitled to bring an
involuntary petition because its claims are fully secured. Although
this issue was not raised by the pleadings or at trial, it may go to
jurisdiction and it should be considered since a court can take notice
and dismiss a claim for lack of jurisdiction on its own motion.
Id. at 140. To place this statement in context, the debtor All Media (after the trial)
made a “full security” argument, contending that the creditor Best, Inc. could not
comply with the § 303(b) requirement that debt to petitioning creditors exceed the
value of any liens securing that debt.10 Although the court rejected All Media’s
10
Section 303(b) requires that an involuntary petition be brought by a creditor or creditors
who hold non-contingent, undisputed claims against the debtor that are worth a certain, specific
dollar amount “more than the value of any lien on property of the debtor securing such
claims . . . .” 11 U.S.C. § 303(b). As mentioned above, at the time of the All Media case the
24
argument about Best’s claim on the facts, the court expressly reached the issue,
despite All Media’s failure to plead it or raise it at trial. The above-quoted
language demonstrates that the court did so because it considered non-compliance
with § 303(b) to be a non-waivable jurisdictional defect.11 Id. at 140-41.
Under our prior panel precedent rule, holdings made or adopted by an earlier
panel–including express jurisdictional holdings–must be followed.12 See Main
Drug, Inc. v. Aetna U.S. Healthcare, Inc., 475 F.3d 1228, 1231 (11th Cir. 2007);
Knight v. Columbus, Ga., 19 F.3d 579, 585 (11th Cir. 1994). And All Media’s
characterization of § 303(b) as imposing non-waivable jurisdictional requirements
upon the bankruptcy court is holding, rather than dictum, because a determination
that § 303(b) is subject matter jurisdictional was a necessary predicate for the
court’s consideration of All Media’s argument–which was raised neither in the
pleadings nor at trial–that the creditor Best, Inc. did not satisfy the statutory
requirement of having an unsecured or undersecured claim. See Black v. United
threshold amount was $5,000; the current amount is $13,475. Compare id. (2008), with id.
(1980).
11
All Media’s express consideration of the alleged § 303(b) violations as non-waivable
jurisdictional defects distinguishes the case from the sort of “drive-by jurisdictional rulings” that
the Supreme Court has held “should be accorded no precedential effect on the question whether
the federal court had authority to adjudicate the claim in suit.” Arbaugh v. Y & H Corp., 546
U.S. 500, 511, 126 S. Ct. 1235, 1242-43 (2006) (quotation marks and citation omitted).
12
Admittedly, Pugh did not cite or rely on the All Media opinion. However, Pugh
concerned the interpretation of 11 U.S.C. §§ 546(a) and 549(d), not 11 U.S.C. § 303(b). In re
Pugh, 158 F.3d at 530.
25
States, 373 F.3d 1140, 1144 (11th Cir. 2004) (“Dictum is a term that has been
variously defined as a statement that neither constitutes the holding of a case, nor
arises from a part of the opinion that is necessary to the holding of the case.”); see
also United States v. Shields, 49 F.3d 707, 710 n.11 (11th Cir.) (interpreting United
States v. Osburn, 955 F.2d 1500 (11th Cir. 1992), and stating that certain language
was “holding rather than dictum because a determination that the statutory scheme
in fact favored growers who have just completed their harvest over growers who
have not yet harvested their marijuana plants was a necessary predicate to the
Osburn court’s subsequent consideration of the defendants’ constitutional
challenge to that sentencing distinction”), vacated, 65 F.3d 900 (11th Cir. 1995)
(en banc).
Therefore, we conclude that we are bound by All Media’s decision that the
requirements of § 303(b) must be satisfied in order for the bankruptcy court to
have subject matter jurisdiction over an involuntary bankruptcy case. We
recognize that the weight of authority–and, in our view, the superior reasoning–lie
against that holding. Nevertheless, All Media’s holding in this regard is prior
panel precedent, and therefore controls. See United States v. Steele, 147 F.3d
1316, 1317-18 (11th Cir. 1998) (en banc) (“Under our prior precedent rule, a panel
cannot overrule a prior one’s holding even though convinced it is wrong.”).
26
IV. CONCLUSION
Accordingly, we reverse the district court’s order affirming the bankruptcy
court’s denial of Trusted Net’s motion to dismiss on waiver grounds. The district
court is instructed to remand the case to the bankruptcy court so that the latter may
consider whether the requirements of 11 U.S.C. § 303(b) have been satisfied.
REVERSED AND REMANDED.
27