## Facts

- Preference, Ltd., a Virginia corporation operating a retail store, was owned 50/50 by Harry G. Hager and Donald Roop; both served as directors, with Roop as president.
- The corporation had a revolving credit line with a bank, personally guaranteed by Roop and later by Hager.
- As the business deteriorated and the owners’ relationship broke down, the bank demanded immediate payment; Hager purchased the note and received an assignment of the bank’s rights in his own name (Dec. 30, 1992).
- Hager then closed the store and arranged liquidation of inventory.
- In March 1993, Roop caused Preference to file a voluntary Chapter 7 petition.
- Hager asserted Roop lacked proper corporate authority under Virginia law to file without valid shareholder approval and that local procedural requirements relating to corporate authorization were not met.
- More than twenty months after the bankruptcy case began, Hager moved to dismiss the bankruptcy case and related proceedings for lack of subject-matter jurisdiction based on the alleged lack of corporate authority.
- The bankruptcy court denied the motion on laches; the district court affirmed on the ground that Hager’s conduct after filing ratified the petition; Hager appealed.

## Issues

1. Whether the corporate Chapter 7 petition was unauthorized under Virginia corporate law due to lack of proper approval.
2. If unauthorized when filed, whether subsequent ratification by a shareholder/director/creditor can validate the petition for jurisdictional purposes.
3. Whether treating ratification as curing the defect improperly creates subject-matter jurisdiction by consent.

## Decision

- The Fourth Circuit affirmed the district court’s denial of the motion to dismiss.
- The court assumed, without definitively resolving, that the filing may have been unauthorized at inception.
- The court held that Hager’s post-filing conduct constituted ratification of the bankruptcy filing, validating it for jurisdictional purposes.
- The court rejected the argument that ratification impermissibly creates subject-matter jurisdiction by consent, reasoning that jurisdiction comes from statute and ratification cures a corporate-authorization defect in invoking that jurisdiction.

## Legal Principles

- A corporation may ratify a previously unauthorized corporate act; ratification can apply to the filing of a voluntary bankruptcy petition.
- Post-filing conduct by an insider with corporate power (e.g., shareholder/director), including prolonged acquiescence and participation consistent with acceptance of the case, can support a finding of ratification.
- Ratification relates to the validity of the debtor’s authorization to file; it does not confer bankruptcy subject-matter jurisdiction by agreement, because the court’s jurisdiction is statutorily granted.

## Conclusion

The court held that, even if the corporate Chapter 7 petition was unauthorized when filed, later ratification by an insider cured the corporate authority defect, so the bankruptcy case could proceed without a jurisdictional dismissal.


Hager v. Gibson, 108 F.3d 35 (4th Cir. 1997)