Bona fide dispute voids involuntary bankruptcy petition

In Credit Union Liqudity Services, LLC v. Green Hills Devel. Co. LLC, the Fifth Circuit found that a creditor lacked standing under section 303(b) of the Bankruptcy Code to file an involuntary bankruptcy proceeding, because the creditor’s debt was subject to a ‘bona fide dispute.’  No. 12-60784 (Feb. 3, 2014).  The Court first held that the debtor had not waived arguments about 303(b) by failing to file a conditional cross-appeal from the district court’s dismissal order, finding that the arguments fell under the rule allowing affirmance on any argument supported by the record.  In reaching its conclusion, the Court noted that the claim had been subject to “unresolved, multiyear litigation.”  The Court also observed that 2005 amendments to the Code defined a bona fide dispute as one “to liability or amount,” a change which drew into question earlier authority that focused only on liability.  That change can allow consideration of counterclaims related to the creditor’s claim.