Via Volo 5th Circuit: Brazos Emergency Physicians Assn. v. Woods (In re Brazos Emergency Physicians Assn.)
Citation: Brazos Emergency Physicians Association, P.A., et al. v. Patrick G. Woods, M.D., et al. (In re Brazos Emergency Physicians Association, P.A.), Case No. 11-50927 (5th Cir. June 22, 2012)
A business dispute among members of a physicians group led to two state-court actions and the placing of the Debtor in receivership by the state court.
Following the expiration of the second and final receivership, the Debtor filed a Chapter 11 bankruptcy petition. After a two-day evidentiary hearing, the Bankruptcy Court held that the bankruptcy petition was filed in bad faith to gain an advantage in the state-court litigation. The Bankruptcy Court’s bad faith determination was based on the fact that the Debtor’s creditors were mostly insiders and affiliates, and as there was no pressure from creditors, the filing’s only purpose was to gain control of the derivative claims prosecuted by the appellees.
This is an appeal of the Bankruptcy Court’s Order, affirmed by the District Court, dismissing a debtor’s Chapter 11 bankruptcy petition as a bad faith filing.
The Fifth Circuit affirmed the decisions of the United States District Court and the United States Bankruptcy Court for the Western District of Texas dismissing the Debtor’s Chapter 11 bankruptcy petition. The Fifth Circuit examined whether the bankruptcy court’s dismissal of the Debtor’s Chapter 11 petition was clearly erroneous. The Bankruptcy Court held that the Debtor’s Chapter 11 petition was filed in bad faith to gain an advantage in state-court litigation. The Bankruptcy Court found that the Debtor’s creditors were mainly insiders and affiliates and there was no pressure from creditors to seek bankruptcy protection. Thus, the only purpose of the petition was to gain an unfair advantage in state-court shareholder litigation being prosecuted derivatively by the appellees. The Fifth Circuit agreed with the reasons stated by the District Court affirming the Bankruptcy Court’s finding of bad faith and, consequently, that dismissal of the Debtor’s bankruptcy petition was not an abuse of discretion.
Judge(s): King, Jolly, and Graves (Per curiam) (non-precedential except under limited circumstances set forth in 5th Cir. R. 47.5.4.