## Facts

- Georges Marciano sued former employees in California state court; three employees (Steven Chapnick, Joseph Fahs, and Elizabeth Tagle) filed cross-claims for defamation and intentional infliction of emotional distress.
- Due to discovery abuses, the trial court struck Marciano’s answers to the cross-claims and tried damages to a jury.
- The court entered large money judgments against Marciano: $55 million (Fahs), $35 million (Chapnick), and $15.3 million (Tagle).
- Marciano appealed but did not obtain a stay because he did not post the bond required to stay enforcement of money judgments under California law; the judgments remained enforceable during appeal.
- While appeals were pending, the three judgment creditors filed an involuntary Chapter 11 petition against Marciano under 11 U.S.C. § 303(b)(1).
- Marciano moved to dismiss, arguing defective service, that the creditors’ claims were subject to a “bona fide dispute” because the judgments were on appeal, and that the petition was filed in bad faith; he sought additional discovery on bad faith.

## Issues

1. Whether unstayed state-court money judgments that are on appeal are, per se, claims “not contingent as to liability” and not “the subject of a bona fide dispute as to liability or amount” under 11 U.S.C. § 303(b)(1).
2. Whether service of the involuntary petition and summons by mail to a Beverly Hills address satisfied Bankruptcy Rule 7004.
3. Whether the bankruptcy court abused its discretion by limiting discovery into alleged bad faith by the petitioning creditors.

## Decision

- The Ninth Circuit affirmed the order for relief in the involuntary Chapter 11 case.
- An unstayed state-court money judgment on appeal is, per se, not contingent as to liability and not subject to a bona fide dispute under § 303(b)(1).
- Service was adequate under Bankruptcy Rule 7004 because the petition and summons were mailed to an address Marciano had designated for service and where he represented he resided or regularly conducted business.
- The bankruptcy court did not abuse its discretion in denying further bad-faith discovery; summary judgment for the petitioning creditors was proper.
- A dissent would have required a case-specific inquiry into whether legitimate disputes existed despite the unstayed judgments.

## Legal Principles

- For § 303(b)(1), the relevant “claim” may be the right to payment embodied in a judgment; an unstayed judgment supplies an objective basis to treat the claim as not in bona fide dispute.
- In the Ninth Circuit, an unstayed state-court money judgment remains sufficient for involuntary petition eligibility even if the debtor has a pending appeal and asserts appellate error.
- Bankruptcy Rule 7004(b)(1) permits service by first-class mail to an individual’s dwelling, usual place of abode, or place where the individual regularly conducts business.
- Limits on discovery in involuntary cases are reviewed for abuse of discretion; additional discovery may be denied absent a sufficient factual basis to expand the record.

## Conclusion

The Ninth Circuit held that creditors holding unstayed state-court money judgments may initiate an involuntary Chapter 11 case under § 303(b)(1) without litigating the merits of the debtor’s pending state appeal, and it upheld service by mail and the bankruptcy court’s refusal to permit further bad-faith discovery.


Marciano v. Chapnick (In re Marciano), 708 F.3d 1123 (9th Cir. 2013)