Opinion
Case No.: 8:18-bk-11997-SC
2023-07-26
IN RE: QDOS, INC., Debtor(s).
Damian D. Capozzola, Timothy R. Laquer, Law Offices of Damian D. Capozzola, Los Angeles, CA, for Debtor. Michael J. Hauser, Santa Ana, CA, for U.S. Trustee.
Damian D. Capozzola, Timothy R. Laquer, Law Offices of Damian D. Capozzola, Los Angeles, CA, for Debtor. Michael J. Hauser, Santa Ana, CA, for U.S. Trustee.
ORDER ABSTAINING AND DISMISSING INVOLUNTARY PROCEEDING
Scott C. Clarkson, United States Bankruptcy Judge
On July 20, 2023, the Court held a hearing in this case on its Order to Show Cause ("OSC") why the Court should not Abstain from this Bankruptcy Case issued June 14, 2023 [Dk. 361]. Appearances are as noted in the record. Having fully considered the briefings filed by both parties in response to its OSC, the docket as a whole, the oral arguments at the hearing, and for the reasons set forth on the record and discussed below, the Court finds that the relevant factors weigh in favor of this Court exercising its discretion to ABSTAIN from the proceeding, and hereby DISMISSES the proceeding.
I. Introductory Statement
Consideration of the Abstention Doctrine has sometimes caused courts to analyze whether they are frivolously abdicating their role and jurisdiction in bankruptcy cases. See, e.g., In re Nina Merchandise Corp., 5 B.R. 743 (J. Burton R. Lifland, Bank. S.D.N.Y. 1980). This Court undertakes its duties of exercising jurisdiction in a very serious manner, and it is quite cognizant of the long, winding, and significant Bankruptcy Code jurisdictional road, from the passage of the Bankruptcy Code in 1978 (11 U.S. Code § 101, et seq.), to Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), to Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989), to Stern v. Marshall, 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). But a simple application of the abstention factors in this case assuages the Court of these concerns, even in the face of the inflammatory and accusatory tone of Petitioning Creditors' briefings in this matter.
Petitioning Creditors include Carl Wiese as trustee for the Wiese Family Trust dated as of October 31, 2023, Matthew Hayden, Rich Jerskey, Miami Dolphins, Ltd., and Jim Maddox.
Petitioning Creditors accuse this Court of having a perceived "complete disregard for the substantial progress made by the district court," asserting, in no uncertain terms, that this Court's abstention would be akin to "simply throw[ing] up its hands and pleading 'no mas.' " Creditors' Brief filed June 29, 2023 ("Creditors' Brief"), Dk. 364, Pg. 7:10-13. Nothing could be further from the truth. This Court, in the interests of justice for all parties, has engaged in a fulsome legal analysis of the issues. That Petitioning Creditors are disappointed with this Court's views are not grounds warranting such accusations, and the Court is disappointed with the tenor of Petitioning Creditors' brief. Of particular note, Petitioning Creditors' accuse this Court of believing that abstention is a "novel solution that may allow the bankruptcy court to walk away from a 'tar baby' case." Id. Pg. 8:6-8. Despite the implication in the pleadings, this Court has never used such an undignified word to describe this case, and would not do so regarding any case before it. Such language is, in this Court's view, unnecessary, unprofessional and unbecoming.
II. Background
This involuntary proceeding has a lengthy procedural history, which includes multiple dismissals and multiple appeals, and has spanned over five years. Pre-petition, two creditors, Carl Weise and Matthew Hayden, filed an action with the Superior Court of California, County of Orange. Thereafter, on May 31, 2018, Weise and Hayden, joined by Felice Terrigno, commenced this involuntary Chapter 7 action against QDOS, Inc. ("Debtor" or "Alleged Debtor"). Debtor filed a motion to dismiss, alleging that there were an insufficient number of qualified petitioning creditors. Finding that two of the then-four petitioning creditors were not qualified, the Bankruptcy Court issued an order dismissing the involuntary petition. The Court's order was appealed, and the BAP reversed and remanded in part, and affirmed in part. In relevant part, the BAP found that the petitioning creditors were entitled to receive additional procedural safeguards that were not provided by the Bankruptcy Court the first time around.
Jim Maddox joined as a petitioning creditor after the filing of the motion to dismiss.
This case was transferred from Judge Mark S. Wallace upon his retirement to this Court on February 24, 2022, in accordance with Administrative Order 22-04.
After remand, multiple other parties joined the petitioning creditor body, including Rich Jerskey and the Miami Dolphins, Ltd., and the parties filed cross-motions for summary judgment, based on the alleged insufficiency of the number of qualified petitioning creditors. Again, the Bankruptcy Court determined that two of the four petitioning creditors, Mr. Hayden and Mr. Wiese, were not qualified and held that the involuntary petition was unsustainable on that basis. Again, the matter was appealed, this time to the District Court. The Bankruptcy Court was reversed and remanded as to issue of whether Hayden and Wiese were qualifying petitioning creditors.
Following the issuance of the remand order, on May 31, 2023, the Court held a hearing where the issue of abstention was discussed. Thereafter, on June 14, 2023, the Court entered its "OSC" why the Court should not Abstain from this Bankruptcy Case [Dk. 361] and requiring further briefing on the issue. Petitioning Creditors filed their brief in opposition to abstention on June 29, 2023 [Dk. 364], along with a supporting Request for Judicial Notice [Dk. 366]. Debtor filed its brief in support of abstention on the same day [Dk. 365]. Thereafter, on July 12, 2023, Petitioning Creditors filed multiple documents: Notice of Intent to Cross-Examine Declarant Richard Gillam [Dk. 367], Evidentiary Objection to Declaration of Richard Gillam [Dk. 368], Reply [Dk. 369], Request for Judicial Notice [Dk. 370]. Likewise, on the same day, Debtor filed its Reply [Dk. 371], Notice of Intent to Cross-Examine Declarant Carl Wiese [Dk. 372], and Notice of Intent to Cross-Examine Declarant Matthew Coon [Dk. 373]. On July 20, 2023, the Court held its hearing on the OSC, giving the parties the requested opportunity to cross-examine the parties. Notably, despite the Court's order [Dk. 361] requiring that "any such noticed declarant be present in person for the hearing on July 20, 2023," Mr. Coon and Mr. Weise were not present to take the stand for a cross-examination; however, Mr. Gillam appeared and was cross-examined, during which time the Court engaged in a credibility analysis. In reaching such a credibility determination, the Court considered his demeanor as he testified, whether he made or did not make inconsistent statements, and his directness or evasiveness to the questioning. Having done so, the Court found Mr. Gillam's testimony credible, and relevant to the abstention factors further analyzed herein.
Petitioning Creditors did not raise the issue of their evidentiary objections at the hearing. The Court sustains the Petitioning Creditors' objections in part, noting that the exhibits attached to the Declaration of Richard Gillam were not properly authenticated; however, the Court overrules Petitioning Creditors' objections as to relevance.
A credible witness is a witness who comes across as competent and worthy of belief. This Court determines witness credibility on many factors. The substance of the testimony is tantamount, as well as the amount of detail and the accuracy of recall of past events, which affect the Court's credibility determination. Witness contradiction plays a part in the credibility determination. How the testimony is delivered also has an impact. Factors which include body language, eye contact, and whether the responses are direct or appear to be evasive, unresponsive, or incomplete are considered by this Court. In addition, when deciding cases, the Court is permitted to take into consideration its knowledge and impressions founded upon experiences in everyday walks of life. In reaching a credibility determination as to Mr. Gillam, the Court considered his demeanor as he testified, whether he made or did not make inconsistent statements, and his directness or evasiveness to the questioning.
III. Discussion
a. The Legal Standard Governing Abstention pursuant to 11 U.S.C. Section 305
Section 305 of the Bankruptcy Code grants Bankruptcy Courts significant discretion to decline exercising jurisdiction over a bankruptcy case, providing that after notice and a hearing the bankruptcy court may dismiss or suspend a bankruptcy proceeding "at any time" if "the interests of creditors and the debtor would be better served by dismissal or suspension." 11 U.S.C. § 305(a).
As noted by the Ninth Circuit Bankruptcy Appellate Panel ("B.A.P."):
As the statutory language and legislative history demonstrate, the test under § 305(a) is not whether dismissal would give rise to a substantial prejudice to the debtor. Nor is the test whether a balancing process favors dismissal. Rather, the test is whether both the debtor and the creditors would be 'better served" by a dismissal.Eastman v. Eastman (In re Eastman), 188 B.R. 621, 625 (9th Cir. B.A.P. 1995). See also Wechsler v. Macke Int'l Trade, Inc. (In re Macke Int'l Trade, Inc.), 370 B.R. 236, 246 (9th Cir. B.A.P. 2007) (where the B.A.P. affirmed the dismissal of an involuntary petition pursuant to § 305(a), noting that such dismissal may be appropriate even when the involuntary petition may otherwise satisfy the requirements of Section 303).
§ 303 states in pertinent part: (b) 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 as to liability or amount, the undisputed claims aggregate at least $18,600 more than the value of any lien on property of the debtor securing such claims held by the holders of such claims; (2) if there are fewer than 12 such holders, by one or more of such holders that hold in the aggregate at least $18,600. 11 U.S.C. § 303 (emphasis added).
Whether "the interests of creditors and the debtor would be better served by such dismissal" requires a court to analyze the "totality of the circumstances." In re Macke, 370 B.R. at 247 (citing Eastman, 188 B.R. at 624). "Before a court may refrain from exercising jurisdiction over an otherwise proper case, it must make specific and substantiated findings that the interests of the creditors and the debtor will be better served by dismissal or suspension." Id.
There exists no specific statutory reference to guide a Bankruptcy Court in its analysis; however, the Ninth Circuit has applied the following seven factors used by the B.A.P. in Marciano to determine whether abstention is appropriate under § 305 (a) for an involuntary petition:
The B.A.P. has also cited the District of Colorado's analysis of abstention under the four-factor test used in In re Spade. Macke Int'l Trade, Inc., 370 B.R. at 247. See also In re Spade, 258 B.R. 221, 227-229 (Bankr. D. Colo. 2001) (finding the following four criteria relevant into the court's determination on abstention: "(1) the motivation of the parties seeking bankruptcy jurisdiction, (2) the availability of another forum, (3) the economy and efficiency of administration, and (4) prejudice to the parties."). The Court observes that the four foregoing factors are relevant to this Court's inquiry and are addressed herein.
(1) the economy and efficiency of administration; (2) whether another forum is available to protect the interests of both parties or there is already a pending proceeding in state court; (3) whether federal proceedings are necessary to reach a just and equitable solution; (4) whether there is an alternative means of achieving an equitable distribution of assets;
(5) whether the debtor and the creditors are able to work out a less expensive out-of-court arrangement which better serves all interests in the case; (6) whether a non-federal insolvency has proceeded so far in those proceedings that it would be costly and time consuming to start afresh with the federal bankruptcy process; and (7) the purpose for which bankruptcy jurisdiction has been sought.
In re Marciano, 459 B.R. 27, 46-47 (B.A.P. 9th Cir. 2011) (first citing In re Monitor Single Lift I, Ltd., 381 B.R. 455, 464-65 (Bankr.S.D.N.Y.2008), then citing In re Paper I Partners, L.P., 283 B.R. at 678 ("§ 305(a) Factors")). Dismissal is an 'extraordinary remedy' of 'narrow breadth,' which may be utilized 'to prevent the commencement and continuation of disruptive involuntary cases.' " In re Macke, 370 B.R. at 247.
See also In re Paper I Partners, L.P., 283 B.R. 661, 679 (Bankr. S.D.N.Y. 2002) (applying the broader seven factors in making their determination that there was no basis for abstention when most factors weighed in favor of a bankruptcy proceeding); In re Selectron Mgmt. Corp., No. 10-75320-dte, 2010 WL 3811863, at *4, *7, 2010 Bankr. LEXIS 3361, at *11, *19 (E.D.N.Y. Sept. 27, 2010) (concluding that the court may dismiss a bankruptcy case sua sponte and applied the seven factors when making their determination that abstention was proper); In re Korean Radio Broad. Inc., No. 19-46322-ess, 2020 WL 2047990, at *10-11, 2020 Bankr. LEXIS 1170, at *30 (Bankr. E.D.N.Y. Mar. 31, 2020) (holding dismissal under § 305(a) was proper when six of the seven factors weighed in favor of abstention); In re P&G Realty Corp., 157 B.R. 239, 242 (Bankr. W.D. Pa. Aug. 11, 1993) (holding abstention was warranted because the sole issue before the court was whether an issue of state law was correctly applied in previous litigation); In re Compania de Alimentos Fargo, S.A., 376 B.R. 427, 434 (Bankr. S.D. N.Y. 2007) (holding abstention proper and underscoring the importance of judicial deference to pending foreign bankruptcy proceedings); In re Short Hills Caterers, Inc., No. 08-18604, 2008 WL 2357860, at *5-6, 2008 Bankr. LEXIS 1726, at *16-17 (Bankr. D.N.J. June 4, 2008) (finding abstention proper and emphasizing the importance that both the creditors and debtors must benefit from the dismissal under § 305(a) for abstention to be proper); In re R&S St. Rose, No. 10-18827-MKN, 2010 Bankr. LEXIS 6574, at *23 (Bankr. D. Nev. Oct. 29, 2010) (holding abstention proper where there is a two-party dispute and no benefit to liquidating the asset in Chapter 7).
A decision to abstain under § 305 is subject to limited review under an abuse of discretion standard. See Eastman, 188 B.R. at 624; see also In re Gabriel Techs. Corp., No. 13-30341, 2013 WL 5550391, at *3 (Bankr. N.D. Cal. Oct. 7, 2013). The reviewing court must affirm the bankruptcy court's fact findings on any grounds fairly supported by the record unless they are illogical, implausible, or without support in the record. See United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009).
Courts in the Ninth Circuit apply a two-part test to determine whether an abuse of discretion occurred. In re Roger, No. 6:13-BK-27611-MH, 2015 WL 7566647, at *6 (C.D. Cal. Nov. 24, 2015). In In re Roger, where the District Court reversed a bankruptcy court's order denying appellant's motion to abstain, the court applied a two-factor test to determine whether an abuse of discretion occurred: (1) The court considered de-novo whether the bankruptcy court applied the correct legal standard, and (2) If the bankruptcy court identified the correct legal standard, the reviewing court must determine if the bankruptcy court's application of the law was "illogical, implausible, or without support in inferences that may be drawn from the facts in the record." In re Roger, 2015 WL 7566647, at *6 (citing United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009)).
A reviewing court will defer to the lower court's decision under the abuse of discretion standard unless there was: "(1) reliance on an improper factor, (2) omission of a substantial factor, or (3) a clear error of judgment in weighing the correct mix of factors." See In re Wells Fargo Home Mortg. Overtime Pay Litig., 571 F.3d 953, 957 (9th Cir. 2009). A factual determination is clearly erroneous when it is without adequate evidentiary support or was induced by an erroneous view of law. Wall St. Plaza, LLC v. JSJF Corp. (In re JSJF Corp.), 344 B.R. 94, 99 (9th Cir. B.A.P. 2006); Sullivan v. Harnisch (In re Sullivan), 522 B.R. 604, 612 (9th Cir. B.A.P. 2014).
b. Analysis
i. The Marciano Factors support Abstention
Alleged Debtor has argued that an analysis of the Marciano factors demonstrate that the interest of all creditors, including the Petitioning Creditors, and the interests of Alleged Debtor would be better served by dismissal. Having considered and examined the totality of the circumstances against the relevant factors, this Court agrees.
Alleged Debtor asserts that judicial economy and efficiency would be better served by resolution of the issues underlying the alleged debts in the pending state court action, rather than in this bankruptcy proceeding. Petitioning Creditors assert that many of key issues regarding this proceeding have been resolved, and that abstention would only waste the judicial resources that have already been expended by the Bankruptcy Court, B.A.P. and District Court for the last five years.
As a threshold matter, it appears that the Petitioning Creditors have conflated the standard. The Court must decide as to the efficiency and economy of the proceeding going forward, not look solely to the history of the case. That this case is five years old is not reason enough to continue pursuing it in this venue. Even Petitioning Creditors admit that fundamental issues remain to be resolved. Two of the Petitioning Creditors have been deemed "qualified creditors" for the purposes of filing an involuntary proceeding, but two of the Petitioning Creditors have not. This is hardly a reflection of "significant progress" in the case, particularly after being in litigation for 5 years. Moreover, the "progress" achieved to this point, while painstaking as it may have been, does not require this Court to continue in the same vein.
There is no question that the issues underlying the alleged debts in this proceeding are based predominantly on state law issues and can be easily decided in the State or federal District Court. "There is no need for the federal court to resolve a matter which is grounded in state law issues currently pending in state court." In re Spade, 258 B.R. at 229. Moreover, as noted by Alleged Debtor, there is even a pending State Court action -which action would be revived by the dismissal of this involuntary petition.
In this Court's experienced view, this case has been stalled at least in part because of the requirements of the Bankruptcy Code, and would not be served well by a continuation of the bankruptcy proceeding. As discussed on the record, the Court simply sees no benefit in prolonging litigation on the issues of the validity of Petitioning Creditors' qualifying status, which issue would be inevitably appealed, and which issue is fundamental to the proceeding. Instead, the Court finds it more effective and economical for the parties to resolve the state law "disputes" underlying their debts before any bankruptcy proceedings take place. In this Court's experienced view, an alternative proceeding beginning at the District Court or State Court level rather than the Bankruptcy Court, would lead to a faster and more cost-effective resolution for all involved.
Only one of the Petitioning Creditors in this case currently holds a judgment against Debtor.
Moreover, after reviewing the declaration of Mr. Gillam, and having observed his testimony during the hearing, the Court found Mr. Gillam's statements regarding his sole ability to operate the technology assets of Alleged Debtor to be credible. It seems clear to this Court that absent Mr. Gillam's knowledge and cooperation, efforts made by any bankruptcy appointed trustee to operate or manage the Alleged Debtor in order to maintain value for the benefit of creditors will be costly and difficult, at best, and will likely not prevail. Further, if such is the case, the technology assets may be abandoned by the trustee, in which case, they will go directly back to Debtor and its principal - not the creditors. "Abandonment has jurisdictional implications. When property is abandoned, it reverts to the debtor as if no bankruptcy petition had been filed. Hopkins v. Idaho State Univ. Credit Union (In re Herter), 456 B.R. 455, 467 (Bankr. D. Idaho 2011) (citing Dewsnup v. Timm, 908 F.2d 588, 590 (10th Cir. 1990)). In re Slates, 2012 WL 5359489, at *9-10, 2012 Bankr. LEXIS 5159, *26-27 (9th Cir. B.A.P., 2012).
In this Court's measured and experienced view, businesses reliant on the expertise and technical prowess of a single person, forced into the bankruptcy process involuntarily, are rarely successful, ultimately leading to wasted resources.
Petitioning Creditors' assert that abstention is not appropriate because "the instant involuntary petition is by no stretch of the imagination a mere 'two party' dispute." Creditors' Brief, Dk. 364, Pg. 12:4-6. Moreover, Petitioning Creditors assert that this is not a dispute involving a few "holdout" creditors - but rather that the creditor body most assuredly includes governmental entities, judgment creditors, noteholders, and security law claimants. While the Court acknowledges that Alleged Debtor may have a diverse creditor body, the fact of an undisputed creditor body has not been conclusively established, despite five years of protracted litigation. Moreover, the mere fact of a diverse creditor body, which may or may not consist of multiple creditors, does not disturb the Court's findings on the other factors.
Petitioning Creditors' argument that there is no other forum sufficient to protect the interest of the parties is not well-taken. Petitioning Creditors assert that "if the mere fact that a creditor could pursue judgment in state court were sufficient grounds for abstaining, there would be no involuntary cases - because the debtor would simply posit that its creditors could always obtain a state court judgment," followed by an explanation that debtor has not already submitted its assets to a state court process for equitable distribution to creditors. Creditors' brief, Dk. 364, Pg. 14:21-24. Petitioning Creditors further assert that the "legislative history of § 305 confirms that the notion of an alternative forum rests on the presumption that the debtor has in such an alternative forum surrendered its assets for equitable distribution to creditors," however provide no citation to the purported legislative history supporting their assertion. Id. Pg. 14:14-16.
As acknowledged by the Petitioning Creditors and noted above, there are a multitude of enforcement mechanisms out-side of the bankruptcy process available to Alleged Debtor's creditors. See Creditors' Brief, Dk. 364, Pg. 16-19 (listing various potential remedies including assignment and receivership). These mechanisms are routine and commonplace, particularly in comparison to involuntary bankruptcy proceedings, and are available to creditors even where the judgment debtor has an inability to pay or a history of non-payment to various creditors. In short, despite Petitioning Creditor's arguments otherwise, this Court has no evidence before it which indicates that another forum would be inadequate to protect the interest of the parties.
As Alleged Debtor argues, federal proceedings are unnecessary to reach a just and equitable solution here. Petitioning Creditors argue that the "Alleged Debtor's lack of corporate records make it impossible, absent a bankruptcy proceeding, to achieve a fair and equitable solution for its creditors" and that "the involuntary petition is the only path towards an equitable distribution to creditors." Creditors' brief, Dk. 364, Pg. 15:19-27 and 16:7-8 (emphasis in original). However, Petitioning Creditors fail to acknowledge that even a bankruptcy appointed trustee will require the cooperation of Alleged Debtor's principal, as previously noted above. The imposition of an involuntary proceeding is a heavy burden, and an admittedly prejudicial one. It is undeniable that the economic impact of an involuntary bankruptcy continues to compound until the resolution of the case. Impairing an alleged debtor's ability to run their business in a customary fashion, particularly where, as here, there are other avenues is a detriment to debtor and all its creditors. Resolution of these disputes would eliminate the prejudice associated with duplicitous involuntary proceedings, without prejudicing the rights of the creditor body, making it a more just and equitable process.
It is well recognized that involuntary bankruptcy proceedings may be "a disruptive and, in many cases, financially traumatic event for the alleged debtor." In re Macke, 370 B.R. at 247 (citing Eastman, 188 B.R. at 624).
ii. Petitioning Creditor's Equity Arguments are unpersuasive
Petitioning Creditors also argue that there exists "substantial indicia of corporate malfeasance, material security law violations, and repeated failure to make basic disclosures regarding creditors" and that on that basis, this Court should refrain from abstaining. Petitioning Creditors offer no statutory or legal authority for this proposition. Regardless, the evidence before the Court simply does not support such a finding.
iii. Petitioning Creditors' Law of the Case Argument is unpersuasive
Petitioning Creditors assert that abstention is barred by the "Law of the Case" Doctrine, arguing that "question of abstention has already extensively litigated and expressly and conclusively rejected by the BAP." Creditors' Brief, Dk. 364, Pg. 8:8-10. While Alleged Debtor requested abstention as an alternative to dismissal of the involuntary petition, the B.A.P. made no conclusive determination regarding the appropriateness of abstention by the Bankruptcy Court. Petitioning Creditors misunderstand the B.A.P.'s ruling.
In Hayden v. QDOS, Inc. (In re QDOS, Inc.), the B.A.P determined that the predecessor Bankruptcy Court erred when it imposed 11 U.S.C.S. § 303(b)(1)'s numerosity requirement, did not require an answer, failed to allow for appropriate discovery, and dismissed the case. The B.A.P. made no specific ruling regarding the appropriateness of abstention in this case. In fact, it does not appear that the issue of abstention was even properly before the B.A.P; the issue on appeal was not the Bankruptcy Court's decision to abstain, but rather, its decision to dismiss pursuant to § 303(b)(1).
The Court further notes that even if the law of the case argument was relevant to the B.A.P. decision, this Court has discretion in various circumstances, applicable here, to deviate from it. See United States v. Alexander, 106 F.3d 874 (9th Cir. 1997) ("Under the 'law of the case' doctrine, 'a court is generally precluded from reconsidering an issue that has already been decided by the same court, or a higher court in the identical case.' Thomas v. Bible, 983 F.2d 152, 154 (9th Cir.) (cert. denied 508 U.S. 951, 113 S. Ct. 2443, 124 L.Ed. 2d 661 (1993). The doctrine is not a limitation on a tribunal's power, but rather a guide to discretion. Arizona v. California, 460 U.S. 605, 618, 103 S. Ct. 1382, 75 L.Ed. 2d 318 (1983). A court may have discretion to depart from the law of the case where: 1) the first decision was clearly erroneous; 2) an intervening change in the law has occurred; 3) the evidence on remand is substantially different; 4) other changed circumstances exist; or 5) a manifest injustice would otherwise result. Failure to apply the doctrine of the law of the case absent one of the requisite conditions constitutes an abuse of discretion. Thomas v. Bible, 983 F.2d at 155.")
Petitioning Creditors cite to a footnote of the decision where the B.A.P. discredits a portion of Alleged Debtors' argument.
QDOS's request for abstention as an alternative to dismissal of the involuntary petition evidences its fundamental misunderstanding of the purpose of a proper involuntary petition. It [QDOS] argued that because state court litigation was pending in connection with the Initial Petitioning Creditors' claims, the involuntary bankruptcy was unnecessary and improper. But an involuntary filing does not necessarily remove the litigation from state court; the bankruptcy court may elect to allow the claim to be liquidated there. Instead, an involuntary case can help to achieve appropriate bankruptcy purposes. Reorganization or orderly liquidation may follow."Creditor Brief, Dk. 364, Pg. 8:17-28 (citing In re QDOS, Inc., 607 B.R. 338, 343 n.5 (9th Cir. BAP 2019)).
The foregoing clearly reflects criticism of a narrow aspect of Alleged Debtor's argument for abstention; however, as noted throughout this decision, the fact of a pending proceeding in state court is merely one of the multiple factors that the Court may consider in analyzing whether abstention is in the best interest of the debtor and its creditors.
IV. Conclusion
For the reasons so specified herein and discussed on the record, the Court finds that the relevant factors weigh in favor of this Court exercising its discretion to ABSTAIN from the proceeding, and so finds good cause to DISMISS the case.
IT IS SO ORDERED.