Case 15-32294-thf Doc 3 Filed 07/17/15 Entered 07/17/15 07:00:15 Page 1 of 12 UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF KENTUCKY LOUISVILLE DIVISION ------------------------------------------------------x In re: : Chapter 11 : Nelson E. Clemmens, : Case No. 15-32294 : Alleged Debtor. : ------------------------------------------------------x STATEMENT OF PETITIONING CREDITORS IN SUPPORT OF INVOLUNTARY CHAPTER 11 BANKRUPTCY PETITION AGAINST NELSON E. CLEMMENS John W. Ames James R. Irving Bingham Greenebaum Doll LLP 3500 National City Tower 101 South Fifth Street Louisville, KY 40202 Telephone: (502) 587-3606 Facsimile: (502) 540-2215 E-mail: james@bgdlegal.com jirving@bgdlegal.com Counsel for the Petitioning Creditors, Boston Finance Group, LLC, Bradley Racing Stables, LLC, Bemak N.V. Ltd. Co. d/b/a Ashford Stud and Creekview Farm, and Russell Equine Sports Medicine, LLC 1
Case 15-32294-thf Doc 3 Filed 07/17/15 Entered 07/17/15 07:00:15 Page 2 of 12 TABLE OF CONTENTS: I. INTRODUCTION.. 1 Page II. III. JURISDICTION AND VENUE..2 BACKGROUND.2 A. The Petitioning Creditors Claims Against the Alleged Debtor 2 B. The Alleged Debtor s Failure to Pay Other Claims...4 IV. ARGUMENT...5 A. The Alleged Debtor is Eligible to be a Bankrupt Debtor Under Section 303(a) of the Bankruptcy Code..5 B. The Petitioning Creditors are Authorized to File the Involuntary Petition Under Section 303(b) of the Bankruptcy Code.6 C. The Alleged Debtor is Not Generally Paying His Debts as they Come Due Under Section 303(h) of the Bankruptcy Code.8 V. CONCLUSION 10 i
Case 15-32294-thf Doc 3 Filed 07/17/15 Entered 07/17/15 07:00:15 Page 3 of 12 I. INTRODUCTION Pursuant to section 303 of title 11 of the United States Code (the Bankruptcy Code ) Boston Finance Group, LLC ( BFG ), Bradley Racing Stables, LLC ( BRS ), Bemak N.V. Ltd. Co. d/b/a Ashford Stud and Creekview Farm ( Ashford Stud ), and Russell Equine Sports Medicine, LLC ( RESM, and together with BFG, BRS and Ashford Stud the Petitioning Creditors ) have filed an involuntary petition (the Petition ) under chapter 11 of the Bankruptcy Code against Nelson E. Clemmens (the Alleged Debtor ). By filing the Petition the Petitioning Creditors have initiated the case proceeding as In re Clemmens, Chapter 11 Case No. 15-32294 (the Bankruptcy Case ) before the United States Bankruptcy Court for the Western District of Kentucky (the Bankruptcy Court ). As described below: the Alleged Debtor is eligible to be a debtor in an involuntary bankruptcy case; each of the four Petitioning Creditors holds a valid liquidated claim against the Alleged Debtor and the aggregate amount of those claims is not less than $443,758.71; and the Alleged Debtor is not paying his debts as they come due. Accordingly, the Petitioning Creditors request that the Bankruptcy Court enter an order for relief against the Alleged Debtor under section 303 of the Bankruptcy Code and rule 1013 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ). Given the Alleged Debtor s ongoing refusal to pay his creditors, even after those creditors have obtained judgments against the Alleged Debtor and pursued collection remedies available under state law, the Petitioning Creditors believe that the Bankruptcy Case provides them and the Alleged Debtor s other creditors with the best chance of recovering a distribution on account of their claims. The Bankruptcy Case will empower the Bankruptcy Court to oversee the management and use of the Alleged Debtor s assets so that the value of those assets are 1
Case 15-32294-thf Doc 3 Filed 07/17/15 Entered 07/17/15 07:00:15 Page 4 of 12 maximized for the benefit of the Debtor s creditors. The Bankruptcy Case will also provide a single, efficient forum for the Alleged Debtor s creditors to assert their claims against the Debtor. II. JURISDICTION AND VENUE The Bankruptcy Court has jurisdiction over the Petition and the Bankruptcy Case under 28 U.S.C. 157 and 1334. This is a core proceeding under 28 U.S.C. 157(b). Venue is proper in this district under 28 U.S.C. 1408 and 1409. As set forth below, the Alleged Debtor resides at 2003 Goshen Lane, Goshen, Kentucky 40026, which is within this district. III. BACKGROUND A. The Petitioning Creditors Claims Against the Alleged Debtor Each of the Petitioning Creditors holds a liquidated, unsecured claim against the Alleged Debtor. As set forth in the Declaration of Leo J. Govoni In Support of Statement of Petitioning Creditors In Support of Involuntary Chapter 11 Bankruptcy Petition Against Nelson E. Clemmens (the Govoni Declaration ), BFG holds a liquidated claim against the Alleged Debtor in the amount of $391,966.61. A copy of the Govoni Declaration is attached hereto as Exhibit A and the statements set forth therein are hereby incorporated into this statement. BFG s claim is based upon loans that BFG made to the Alleged Debtor and which the Alleged Debtor has failed to repay. On account of the Alleged Debtor s failure to repay the loans, despite the repeated extension of the maturity date of those loans, BFG filed a complaint with Oldham Circuit Court in the Commonwealth of Kentucky (the State Court ) and initiated the proceeding before the State Court pending as Boston Finance Group, LLC v. Nelson E. Clemmens, Case No. 13-CI- 2
Case 15-32294-thf Doc 3 Filed 07/17/15 Entered 07/17/15 07:00:15 Page 5 of 12 00216 (the State Court Case ). On November 26, 2013, the State Court entered an order (the Summary Judgment Order ) granting summary judgment against the Alleged Debtor and in favor of BFG in the amount of $295,862.19 plus post-judgment interest. Following the entry of the Summary Judgment Order BFG has begun garnishing the Alleged Debtor s wages and the State Court has entered an order charging certain of the Alleged Debtor s assets. In addition to its efforts to collect on amounts owed to it by the Alleged Debtor, BFG and its affiliate Gravitas Equity Partners, LLC ( Gravitas ) are also involved in litigation pending before the State Court related to the Debtor. Specifically, BFG is seeking to collect on amounts owed to them by AmWest Entertainment, LLC ( AmWest ), a limited liability company that the Alleged Debtor owns the majority interest in, on account of past due, outstanding loans. Gravitas has asserted claims against AmWest, the Alleged Debtor and another director of AmWest for breach of AmWest s operating agreement, breach of fiduciary duties, and other violations of Kentucky state law. In addition to their pending claims before the State Court, Gravitas and BFG were also parties to cases pending before the United States District Court for the Middle District of Florida and the United States District Court for the Northern District of Illinois involving AmWest, although those cases have been dismissed. As set forth in the Declaration of William B. Bradley In Support of Statement of Petitioning Creditors In Support of Involuntary Chapter 11 Bankruptcy Petition Against Nelson E. Clemmens (the Bradley Declaration ), BRS holds a liquidated claim against the Alleged Debtor in the amount of $2,563.00. A copy of the Bradley Declaration is attached hereto as Exhibit B and the statements set forth therein are hereby incorporated into this statement. BRS s claim is based upon past due and unpaid fees related to horse training services that BRS provided to the Alleged Debtor. 3
Case 15-32294-thf Doc 3 Filed 07/17/15 Entered 07/17/15 07:00:15 Page 6 of 12 As set forth in the Declaration of Annabel O Callaghan In Support of Statement of Petitioning Creditors In Support of Involuntary Chapter 11 Bankruptcy Petition Against Nelson E. Clemmens (the O Callaghan Declaration ), Ashford Studs holds a liquidated claim against the Alleged Debtor in the amount of $42,679.27. A copy of the O Callaghan Declaration is attached hereto as Exhibit C and the statements set forth therein are hereby incorporated into this statement. Ashford Studs claim is based upon past due and unpaid stud fees and related charges. As set forth in the Declaration of Ross Russell In Support of Statement of Petitioning Creditors In Support of Involuntary Chapter 11 Bankruptcy Petition Against Nelson E. Clemmens (the Russell Declaration ), RESM holds a liquidated claim against the Alleged Debtor in the amount of $6,549.83. A copy of the Russell Declaration is attached hereto as Exhibit D and the statements set forth therein are hereby incorporated into this statement. RESM s claim is based upon past due and unpaid fees related to veterinary services that Dr. Russell provided to the Alleged Debtor s horses. B. The Alleged Debtor s Failure to Pay Other Claims In addition to the claims held by the Petitioning Creditors, upon information and belief, the Alleged Debtor has also failed to pay other debts he owes. For example, as set forth in the Govoni Declaration, the Alleged Debtor is a defendant in a lawsuit pending before the United States Bankruptcy Court for the District of Delaware where the plaintiff, Revstone, LLC, is seeking entry of a judgment in the amount of $540,000 plus interest on account of allegedly fraudulent transfers. Further, on June 3, 2014, the State Court entered a judgment against the Alleged Defendant and in favor of Sallee Horse Vans, Inc. in the amount of $2,854.79 plus interest. Sallee Horse Vans, Inc. has garnished the Alleged Debtor s wages. 4
Case 15-32294-thf Doc 3 Filed 07/17/15 Entered 07/17/15 07:00:15 Page 7 of 12 Upon information and belief, Hagyard-Davidson-McGee Associates, PLLC ( Hagyard ) has also sued the Alleged Debtor on account of an unpaid debt and has obtained a judgment against the Alleged Debtor. Upon further information and belief, Hagyard has also garnished the Alleged Debtor s wages in an attempt to collect on the judgment in its favor. Upon further information and belief, the Alleged Debtor has not paid many outstanding and past-due debts that have not resulted in litigation. (Bradley Declaration, 6). IV. ARGUMENT Section 303 the Bankruptcy Code provides that an entity s creditors may file a petition to attempt to force that entity to become a debtor in an involuntary bankruptcy case and sets forth the standards for determining whether the resulting involuntary bankruptcy case may proceed. Here, all of the standards set forth in section 303 of the Bankruptcy Code are satisfied and the Bankruptcy Court should enter an order for relief allowing the Bankruptcy Case to proceed. A. The Alleged Debtor is Eligible to be a Bankrupt Debtor Under Section 303(a) of the Bankruptcy Code. Section 303(a) of the Bankruptcy Code provides that [a]n involuntary case may be commenced only under chapter 7 or 11 of [the Bankruptcy Code], and only against a person, except a farmer, family farmer, or a corporation that is not a moneyed business, or commercial corporation, that may be a debtor under the chapter under which such case is commenced. 11 U.S.C. 303(a). An individual is eligible to be a debtor in an involuntary bankruptcy case. See e.g., In re Allen, 378 B.R. 151, 153 (Bankr. N.D. Tex. 2007). Here, the Alleged Debtor is eligible to become a debtor in an involuntary bankruptcy case. 5
Case 15-32294-thf Doc 3 Filed 07/17/15 Entered 07/17/15 07:00:15 Page 8 of 12 B. The Petitioning Creditors are Authorized to File the Involuntary Petition Under Section 303(b) of the Bankruptcy Code. Section 303(b) of the Bankruptcy Code provides that [a]n 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, or an indenture trustee representing such a holder, if such noncontingent, undisputed claims aggregate at least $15,325 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, excluding any employee or insider of such person and any transferee of a transfer that is voidable under section 544, 545, 547, 548, 549, or 724 (a) of [the Bankruptcy Code], by one or more of such holders that hold in the aggregate at least $15,325 of such claims. 11 U.S.C. 303(b). The burden rests on the petitioning creditors to establish that they are qualified under 303(b)(1). Riverview Trenton R.R. v. DSC, Ltd. (In re DSC, Ltd.), 486 F.3d 940, 945 (6th Cir. 2007) (internal citations omitted) i. There are Four Petitioning Creditors. Bankruptcy courts count an alleged debtor s creditors as of the day that the involuntary bankruptcy petition was filed to determine how many creditors the alleged debtor has for purposes of section 303(b) of the Bankruptcy Code. See e.g., In re Atwood, 124 B.R. 402, 406 (S.D. Ga. 1991). The bankruptcy code does not exclude small and recurring claims from consideration in determining the number of creditors. In re Eastown Auto Co., 215 B.R. 960, 967-68 (6th Cir. B.A.P. 1998) (internal citations omitted), superseded by statute on other grounds as stated in In re Soderberg and Schafer CPAS, LLC, 441 B.R. 262, 264 (Bankr. N.D. Ohio 2010). Neither an employee, insider nor transferee of a voidable transfer under the 6
Case 15-32294-thf Doc 3 Filed 07/17/15 Entered 07/17/15 07:00:15 Page 9 of 12 Bankruptcy Code should be counted for purposes of determining the number of creditors an alleged debtor has under section 303(b) of the Bankruptcy Code. 11 U.S.C. 303(b)(2). Here, it is likely that the Alleged Debtor has more than twelve creditors, however, there are more than three Petitioning Creditors. Accordingly, more than enough creditors signed the Petition. What is more, considering the Alleged Debtor s many unpaid creditors it is possible that additional creditors will support the Petition. ii. The Petitioning Creditors Claims Are Not Subject to Bona Fide Disputes. Section 303(b)(1) of the Bankruptcy Code is intended to disqualify a creditor [from commencing an involuntary bankruptcy case] whenever there is any legitimate basis for the debtor not paying the debt, whether that basis is factual or legal. In re Lough, 57 B.R. 993, 997 (Bankr. E.D. Mich. 1986). The Sixth Circuit Court of Appeals has adopted the following test to determine whether a claim is subject to a bona fide dispute: If there is either a genuine issue of material fact that bears upon the debtor s liability, or a meritorious contention as to the application of law to undisputed facts, then the petition must be dismissed..... In determining whether a claim is subject to a bona fide dispute, the bankruptcy court must not resolve any genuine issues of fact or law. In re DSC, Ltd., 486 F.3d at 945 (quoting In re Eastown, 215 B.R. at 965). The bankruptcy court need not resolve any genuine issues of fact or law; it only must determine that such issues exist. In re Lough, 57 B.R. at 997; In re Everett, 178 B.R. 132, 139 (Bankr. N.D. Ohio 1994). Here, BFG s claim against the Alleged Debtor has been recognized in a final, nonappealable judgment from the State Court. In re Everett, 178 B.R. at 140 ( unappealed, unstayed final judgments are not subject to a bona fide dispute. ). Therefore, BFG s claim is not contingent or subject to a bona fide dispute as to liability or amount. Although the claims of the other Petitioning Creditors have not yet been memorialized in judgments, their claims are not 7
Case 15-32294-thf Doc 3 Filed 07/17/15 Entered 07/17/15 07:00:15 Page 10 of 12 subject to a bona fide dispute either. The claims are clearly set forth in the Petitioning Creditors records and there are no known defenses to the claims. iii. The Amount of the Petitioning Creditors Claims Far Exceed the Statutory Minimum of $15,325. Here, the aggregate amount of the Petitioning Creditors claims is not less than $443,758.71. This far exceeds the statutory minimum amount of $15,325. What is more, upon information and belief, the amount of the Petitioning Creditors claims far exceeds the value of any collateral securing the claims. 1 C. The Alleged Debtor is Not Generally Paying His Debts as they Come Due Under Section 303(h) of the Bankruptcy Code. Section 303(h) of the Bankruptcy Code provides that the petition is not timely controverted, the court shall order relief against the debtor in an involuntary case under the chapter under which the petition was filed. Otherwise, after trial, the court shall order relief against the debtor in an involuntary case under the chapter under which the petition was filed, only if (1) the debtor is generally not paying such debtor s debts as such debts become due unless such debts are the subject of a bona fide dispute as to liability or amount; or (2) within 120 days before the date of the filing of the petition, a custodian, other than a trustee, receiver, or agent appointed or authorized to take charge of less than substantially all of the property of the debtor for the purpose of enforcing a lien against such property, was appointed or took possession. 11 U.S.C. 303(h). 1 The Petitioning Creditors have limited information about the value of the Alleged Debtor s assets, and the Petitioning Creditors explicitly reserve the right to later argue that the value of the Alleged Debtor s assets which may secure their claims has a higher value. 8
Case 15-32294-thf Doc 3 Filed 07/17/15 Entered 07/17/15 07:00:15 Page 11 of 12 The Sixth Circuit Court of Appeals has held that the concept of not paying debts as they general come due is comparative; it has to do not with the absolute number of some kind of event but rather with the number as a proportion of possible outcomes. Concrete Pumping Service, Inc. v. King Constr. Co., 943 F.2d 627, 630 (6th Cir. 1991). The mere failure of a creditor to demand payment does not excuse failure to pay it. Everett, 178 B.R. at 139 (internal citations omitted). One court within the Sixth Circuit Court of Appeals has looked to an alleged debtors total debts, which debts he has failed to pay and what those unpaid are in relation to the debtor s total debt. Id. Here, the Alleged Debtor is generally not paying his debts as they come due. The Alleged Debtor has not paid the claims of the Petitioning Creditors. In fact, BFG has sought a charging order and a wage garnishment in an attempt to collect on its judgment. Unfortunately, BFG s experience with the Alleged Debtor is not unique, and at least two other creditors have judgments against the Alleged Debtor and are attempting to garnish his wages. What is more, Mr. Bradley has declared that the Alleged Debtor likely has unpaid past-due debts owed to other entities in the horse industry. [remainder of page intentionally left blank] 9
Case 15-32294-thf Doc 3 Filed 07/17/15 Entered 07/17/15 07:00:15 Page 12 of 12 V. CONCLUSION Based on the above, and such other evidence as may be adduced at trial, the Petitioning Creditors respectfully request that the Bankruptcy Court enter an order for relief against the Alleged Debtor pursuant to section 303 of the Bankruptcy Code, and grant such other relief as may be appropriate under the circumstances. Dated: July 17, 2015 Respectfully submitted, /s/ James R. Irving John W. Ames James R. Irving Bingham Greenebaum Doll LLP 3500 National City Tower 101 South Fifth Street Louisville, Kentucky 40202 Telephone: (502) 587-3606 Facsimile: (502) 540-2215 E-mail: james@bgdlegal.com jirving@bgdlegal.com Counsel for the Petitioning Creditors, Boston Finance Group, LLC, Bradley Racing Stables, LLC, Bemak N.V. Ltd. Co. d/b/a Ashford Stud and Creekview Farm, and Russell Equine Sports Medicine, LLC 10