Fustolo v. 50 Thomas Patton Dr., LLC

Steven Fustolo’s affiliate companies issued four promissory notes to Patton Drive, LLC. Fustolo personally guaranteed two of the notes. When the principal debtors defaulted on all four notes, Patton drive sued Fustolo. The Massachusetts state court found Fustolo liable for breach of contract and entered judgment against Fustolo. Fustolo appealed, challenging the interest due. Meanwhile, Patton Drive joined with two of Fustolo’s other creditors to file a petition seeking to place Fustolo into involuntary Chapter 7 bankruptcy. Fustolo, in turn, asserted that Patton Drive was not qualified it to serve as a petitioning creditor because his pending state court appeal subjected Patton Drive’s judgment to “bona fide dispute as to liability or amount.” The bankruptcy court allowed Patton Drive to join in initiating involuntary bankruptcy proceedings against Fustolo. The district court affirmed, finding that Fustolo’s state court appeal could not raise a bona fide dispute as to Patton Drive’s claim. The First Circuit affirmed, holding that because the amount of Fustolo’s liability on the guaranteed notes was not subject to bona fide dispute, and because Patton Drive’s claim on the guaranteed notes could be considered separately from Patton Drive’s claim on the judgment within which its underlying contract claims were submerged, Patton Drive qualified as a petitioning creditor. View "Fustolo v. 50 Thomas Patton Dr., LLC" on Justia Law