Appeals from the United States District Court for the Eastern District of Louisiana. D.C. DOCKET NUMBER CA91 2150 A. JUDGE Charles Schwartz, Jr.
Before Duhe and Barksdale, Circuit Judges, and Hunter, District Judge.*fn1
BARKSDALE, Circuit Judge:
Principally at issue is whether, and when, a creditor corporation filing an involuntary bankruptcy petition under 11 U.S.C. § 303 may be held to be the alter ego of another, and thus not considered a requisite separate entity for filing purposes. The district court held, inter alia, that the three petitioning corporations -- Subway Equipment Leasing Corporation (SEL), Subway Restaurants, Inc. (SRI), and Subway Sandwich Shops, Inc. (SSS) -- are alter egos of another corporation, and therefore count as only one corporation. SEL, SRI, and SSS (the creditors) appeal from that court's reversal of the bankruptcy court's entry of orders for relief in their separate involuntary bankruptcy proceedings against Earl Sims, Jr. and his wife, Dorothy Sims (the debtors). We REVERSE the judgments of the district court, and REMAND for further proceedings in the bankruptcy court.
The creditors are affiliated with the Subway sandwich shop organization. Doctor's Associates, Inc. (DAI), is the franchisor. SSS, incorporated in Connecticut in 1983, and SRI, incorporated in Delaware in 1986, acquire leases and sublease property to Subway franchisees. SSS operated in the Baton Rouge area; SRI, the New Orleans area. SEL, incorporated in Connecticut in 1985, leases restaurant equipment to Subway franchisees and other unrelated parties.
It is undisputed that the petitioning creditor corporations are in good standing in their States of incorporation. Minutes reflecting annual meetings held by each corporation were introduced into evidence. Each maintained a separate bank account during the time it dealt with the debtors. With the exception of additional vice presidents for SRI and SSS, all three of the creditor corporations have the same officers. Although SEL has employees, SRI and SSS operate through their officers. DAI does not own stock in them. For economic reasons, DAI's legal staff and contract leasing staff provided services to all of the corporations that dealt with Subway franchisees; similar services were provided to franchisees upon request.
Between 1981 and 1987, the debtors entered into four franchise agreements with DAI. Two were in Baton Rouge, on property subleased from SSS; two, in New Orleans, with subleases from SRI. SEL entered into equipment leases for the four franchises. In June 1988, the debtors defaulted on the sublease and equipment lease at one of the New Orleans shops; that September and October, at the other three.*fn2
In January 1987, Earl Sims became a development agent for DAI*fn3 ; but in 1988, they became involved in several disputes regarding that work. As noted, the debtors defaulted that June on the leases with SRI and SEL at one of the franchises. Earl Sims testified that DAI began withholding payment in August 1988 for his development agent work. The debtors allege that DAI applied the withheld funds to past-due rent on the equipment leases and attorney's fees. As also noted, that September and October, the debtors defaulted at the other three locations.
In bankruptcy court, after several false starts commencing in November 1988, the creditors filed separate amended involuntary petitions against the debtors in June 1990.*fn4 The debtors moved to dismiss for bad faith filing. After a hearing in December 1990, the bankruptcy court denied the motions to dismiss and entered orders for relief, granting the involuntary petition in each proceeding. The debtors appealed to the district court.
In February 1992, the district court reversed the bankruptcy court. The creditors appealed, and the debtors cross-appealed.
At issue is whether the creditors satisfied the requirements of 11 U.S.C. § 303, which governs the filing of involuntary bankruptcy petitions. That section provides, in pertinent part, that, if the debtor has 12 or more creditors, an involuntary petition may be filed by three or more "entities" holding claims against the debtor that are not contingent and not subject to a "bona fide dispute", in the aggregate amount of at least $5,000 more than the value of liens on property of the debtor. 11 U.S.C. § 303(b)(1). Relief is appropriate if "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." 11 U.S.C. § 303(h)(1). A debtor may recover costs, attorney's fees, and damages against petitioning creditors if the case is dismissed and the petition was filed in bad faith. 11 U.S.C. § 303(i).
The bankruptcy court found that the creditors were separate entities for § 303(b)(1) purposes, that the debtors were generally not paying their debts, that the claims of the creditors were not contingent or subject to bona fide disputes, and that the petitions were not filed in bad faith. The district court disagreed, holding that the creditors are alter egos of DAI, and thus could be counted as only one of the three requisite § 303(b)(1) creditors. It also concluded that, because of the development agent disputes between DAI and Earl Sims, the creditors' claims were contingent and subject to bona fide disputes. Finally, it concluded that the bankruptcy court erred in denying the motions to dismiss for bad faith filing.
We first address the three issues raised by the debtors' cross-appeals. It is more than well-settled that a party cannot appeal from a judgment unless "aggrieved" by it. E.g., Deposit Guaranty Nat'l Bank v. Roper , 445 U.S. 326, 333-34, 63 L. Ed. 2d 427, 100 S. Ct. 1166 (1980). Simply stated, a party who has obtained a judgment in his favor, granting the relief sought, is not aggrieved by it. A cross-appeal filed for the sole purpose of advancing additional arguments in support of a judgment is "worse than unnecessary", because it disrupts the briefing schedule, increases the number (and usually the length) of briefs, and tends to confuse the issues. Jordan v. Duff & Phelps, Inc. , 815 F.2d 429, 439 (7th Cir. 1987), cert. dismissed, 485 U.S. 901 (1988). Such arguments should, instead, be included in the appellee's answering brief.
The debtors contend first that the district court erred by not finding that the bankruptcy court "committed patent error upon the face of the record when the Bankruptcy Court intentionally refused to disqualify the [creditors] as a matter of law for bad faith filing". They rely on three grounds: (1) the creditors had filed suit against the debtors prior to filing the involuntary petitions, and the debtors had asserted counterclaims; (2) DAI began withholding Earl Sims' development agent payments in August 1988; and (3) the creditors failed to mitigate their damages after the debtors abandoned one of the New Orleans stores in June 1988.
The district court reversed the denial of the motions to dismiss for bad faith filing; therefore, the debtors are not aggrieved by the judgments. Accordingly, this contention is not the proper subject of a cross-appeal.
Similarly, the second issue is not proper for a cross-appeal. The debtors assert that the district court erred by not finding that the creditors and their counsel "intentionally committed outright fraud and deceptions upon the Court". But, they do not seek to alter the judgments, which, as noted, granted the relief sought. In any event, their unnecessarily verbose, rambling allegations of fraud upon the court, and their repetitious attacks on the veracity and integrity of the creditors (including witnesses and counsel), are wholly unwarranted on the record before us.*fn5
Finally, the debtors maintain that they are entitled to sanctions, because the creditors' appeals are frivolous. A cross-appeal, however, is an improper vehicle for such a request. Obviously, the district court did not -- and could not -- consider a request for sanctions for a frivolous appeal to this court. See Fed. R. App. P. 38. Accordingly, there is no decision on this ...