In re: Zenga

Qi obtained a $2,500,000 state court judgment against the Zengas and filed involuntary chapter 7 bankruptcy petitions against them. They moved to dismiss, asserting that because they had 12 or more creditors, the involuntary petitions required at least three petitioning creditors (11 U.S.C. 303(b)(1)), and that the cases were not in the best interest of creditors. Qi argued that the Zengas were estopped from presenting evidence that they had more than 11 creditors due to their responses to post-judgment sworn interrogatories in the state court proceedings. The bankruptcy court denied the motions to dismiss and entered orders for relief against the Zengas. The Sixth Circuit Bankruptcy Appellate Panel vacated, holding that the threshold number of petitioning creditors is not jurisdictional. The Supreme Court’s 2014 holding in Law v. Siegel cannot be extended to prevent use of equitable doctrines when the statutory provision is not jurisdictional. Given the bankruptcy court’s failure to find actual and substantial detriment to Qi and Qi’s inability to point to any detriment other than loss of time, the court held that the bankruptcy court erred in applying equitable estoppel to bar the Zengas from introducing evidence of the existence of more than 11 creditors. View "In re: Zenga" on Justia Law