Manolo Blahnik USA, Ltd.

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

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In re: FOR PUBLICATION

MANOLO BLAHNIK USA, LTD., Chapter 7

Case No. 20-11102 (MG)

Alleged Debtor.

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MEMORANDUM OPINION AND ORDER DENYING ALLEGED DEBTOR’S MOTION TO

DISMISS THE INVOLUNTARY PETITION

A P P E A R A N C E S:

POLSINELLI PC

Attorneys for Alleged Debtor

600 Third Avenue, 42nd Floor

New York, New York, 10016

By: Jason A. Nagi, Esq.

Morgan C. Fiander, Esq.

DENTONS US LLP

Attorneys for Petitioning Creditor

1221 Avenue of the Americas

New York, New York 10020

By: Robert A. Hammeke, Esq.

Lauren Macksoud, Esq.

MARTIN GLENN

UNITED STATES BANKRUPTCY JUDGE

This case involves a dispute arising from the distribution within the United States of very

expensive shoes—branded as Manolo Blahnik—manufactured in Italy and distributed to luxury

stores in many places across the globe. Pending before the Court is Manolo Blahnik USA, Ltd.’s

(“Alleged Debtor”) Motion to Dismiss the Involuntary Petition filed by Calzaturificio Re

Marcello S.R.L. (“Petitioning Creditor”) pursuant to sections 303(b)(1) and 303(h) of the

Bankruptcy Code. (“Motion,” ECF Doc. # 14.) The Alleged Debtor was the exclusive

distributor of Manolo Blahnik shoes in the United States before its license was not renewed in

2019. The Motion is supported by a memorandum of law (“MOL,” ECF Doc. # 11) and the

declaration of Denny Rodriguez (“Rodriguez Declaration,” ECF Doc. # 12), the Alleged

Debtor’s Comptroller. On July 17, 2020, Petitioning Creditor filed a memorandum of law in

opposition to the Motion. (“Response,” ECF Doc. # 17.) The Response is supported by the

declarations of: (1) Georgina McManus, the Global General Counsel of Petitioning Creditor’s

parent company (“McManus Declaration,” ECF Doc. # 18); (2) Andrew Wright, the Chief

Commercial Officer of Petitioning Creditor’s parent company (“Wright Declaration,” ECF Doc.

# 19); and (3) Cardile Antonia, the Petitioning Creditor’s Chief Administrative Officer (“Antonia

Declaration,” ECF Doc. # 20). On July 21, 2020, the Alleged Debtor filed a reply. (“Reply,”

ECF Doc. # 21.) On July 23, 2020, the Petitioning Creditor filed a sur-reply. (“Sur-Reply,” ECF

Doc. # 22.) The Sur-Reply is supported by a second declaration of Georgia McManus (“Second

McManus Declaration,” ECF Doc. # 23) and a second declaration of Andrew Wright (“Second

Wright Declaration,” ECF Doc. # 24). On July 24, 2020 the Alleged Debtor filed a supplemental

declaration of Denny Rodriguez. (“Second Rodriguez Declaration,” ECF Doc. # 25.) On July

24, 2020, the Court held a hearing (the “Hearing”) on the Alleged Debtor’s Motion and took the

Motion under submission.

An involuntary petition filed by a single creditor must be dismissed if there is a bona fide

dispute of 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. The Petitioning

Creditor’s claims in this case arise from two unpaid invoices totaling €949,567.00, arising from

two separate transactions in 2019, each billed separately to the Alleged Debtor for the purchase

of Manolo Blahnik branded shoes. The Motion and declarations underscore that, objectively

viewed, there are disputed issues of material fact relating only to the second unpaid invoice in

the amount of €403,181.10. There are no disputed issues of fact or law arising from the first

unpaid invoice.

The Court holds below that the portion of the Petitioning Creditor’s claim in the amount

of “at least” $601,447.60 or €546,386.001 arising from the first unpaid invoice was a separate

transaction and is not “contingent as to liability or the subject of a bona fide dispute as to liability

or amount.” 11 U.S.C. § 303(b)(1). The Petitioning Creditor’s undisputed claim as to liability

and amount for the first transaction makes it eligible to file the Involuntary Petition, even if the

claim from the separate, second transaction is disputed as to liability or amount.

Therefore, the Alleged Debtor’s Motion to Dismiss is DENIED. The Alleged Debtor is

ordered to answer the Involuntary Petition within 21 days from the entry of this Opinion and

Order. The answer must comply with Bankruptcy Rule 1003(b).2 Once the Alleged Debtor files

its answer, the Court will hold a case management conference to determine whether a trial is

necessary before entering an order for relief. At the case management conference, the parties

shall address whether they intend to take any discovery.

I. BACKGROUND

On May 4, 2020 (the “Petition Date”), the Petitioning Creditor filed an involuntary

chapter 7 petition against the Alleged Debtor. (“Involuntary Petition,” ECF Doc. #1.) The

1 The Involuntary Petition identifies the Petitioning Creditor’s claim in both Dollars and Euros, but the

Response only identifies the Petitioning Creditor’s claim in Euros “since the parties discussed amounts owed in

Euros.” (Response at 5 n.1.) Accordingly, this Opinion will refer to the Petitioning Creditor’s claim in Euros.

2 An issue remains about whether the Petitioning Creditor has met the statutory requirements of section

303(b) by bringing the Involuntary Petition alone. Section 303(b)(1) requires that an involuntary filing be

commenced by “three or more entities” who are undersecured in the amount of $16,750. 11 U.S.C. § 303(b)(1).

Under section 303(b)(2), however, if the debtor has fewer than 12 eligible holders (not counting certain interested

parties), an involuntary filing can be made by one or two qualifying creditors. See id. § 303(b)(2). If the Alleged

Debtor’s answer avers the existence of 12 or more creditors, the answer must list the information required by FED.

R. BANKR. P. 1003(b) with respect to each claim.

Involuntary Petition alleges that the Alleged Debtor was generally not paying its debts as they

became due. (See id.) The Involuntary Petition states the amount of the Petitioning Creditor’s

claim to be “at least” €546,386.00. (Id.) The facts, as set forth in the Motion and declarations

submitted to this Court, are detailed below.

A. Manolo Blahnik Entities

The Petitioning Creditor is an Italian private limited company that is 100% owned by

Manolo Blahnik International, Lmtd. (“Parent”). (Id. at 5; MOL at 6.) The Petitioning Creditor

is a manufacturer of luxury products and manufactures Manolo Blahnik branded products.

(McManus Declaration ¶ 4.) In July 2019, Parent acquired the entire issued share capital of the

Petitioning Creditor. (Id.) Parent designs, markets and sells luxury apparel, including luxury

shoes and accessories under the Manolo Blahnik brand. (Response at 7.)

The Alleged Debtor was previously the exclusive licensee to sell both women’s and

men’s Manolo Blahnik shoes in the United States; in 2019, its license was not renewed.

(Rodriguez Declaration ¶ 2.) Parent then created a new entity, Manolo Blahnik Americas, LLC

(“Affiliate”), to take over the Alleged Debtor’s licensee rights and responsibilities on January 1,

2020. (Id. ; Response at 10.) On November 25, 2019, Parent and the Alleged Debtor entered

into a “transition deed” (the “Transition Deed”), detailing the transition of licensing and

responsibilities from Parent to Affiliate. (MOL at 9; Response at 10.) The Transition Deed

provided that the Alleged Debtor would send a daily tally of inventory, and return all samples,

drawings, and other Manolo Blahnik materials to Parent. (MOL at 9.) The Transition Deed also

provided that calls and emails relating to new business in North America that had been

previously directed to the Alleged Debtor should be directed to Andrew Wright (“Wright”), the

Commercial Officer of Parent and President of Affiliate. (MOL at 9; Response at 10.) At the

Hearing, the two parties clarified that the Transition Deed provided that Affiliate would begin its

licensing responsibilities on January 1, 2020, but that Affiliate’s business relationship with

Neiman Marcus could begin on the date of the Transition Deed. The Alleged Debtor stated that

its business continues to operate for the purpose of collecting debts owed to it by other parties,

specifically including Neiman Marcus. However, the Alleged Debtor is no longer distributing

any products.

The Petitioning Creditor argues that it conducts its business independently of Parent and

Affiliate through separate corporate structures and corporate financial records. (McManus

Declaration ¶¶ 6, 8, 9.) The Petitioning Creditor’s board of directors is different from Parent’s

and Affiliate’s boards of directors, aside from one member, Ms. Eva Kristina Hulsebus, who sits

on both boards. (Id. ¶¶ 4, 7.) The Second McManus Declaration provides that each entity is

separately formed and maintained and separately capitalized. (Second McManus Declaration ¶

6.) The Petitioning Creditor’s funds and property are used solely for the benefit of Petitioning

Creditor, and not for the benefit of Parent or Affiliate. (McManus Declaration ¶ 11.) Except for

certain officer-level employees, the companies have separate employees. (Second McManus

Declaration ¶ 6.) The companies do not share a website, and emails are sent from separate

domains. (Id.) McManus represents that Parent purchases products from the Petitioning

Creditor at arm’s length terms that are profitable to both. (McManus Declaration ¶ 12.) The

Petitioning Creditor and the Alleged Debtor conducted business directly when the Alleged

Debtor wished to place an order. (Response at 7.)

By contrast, the Alleged Debtor maintains that the Petitioning Creditor and the Manolo

Blahnik corporate family are jointly owned and controlled, supporting an agency relationship

and alter ego liability. (Reply at 6–7.) The Alleged Debtor highlights that Parent is the parent

company of both Affiliate and the Petitioning Creditor. (Id. at 6.) McManus, Global General

Counsel to Parent, also provides legal support to Affiliate and the Petitioning Creditor and is a

member of the Board of Directors that manages the Petitioning Creditor. (Id. at 6–7.)

McManus’s email communications with Denny Rodriguez show that she acted on behalf of the

Petitioning Creditor by pressuring Alleged Debtor to pay the Petitioning Creditor. (Rodriguez

Declaration ¶ 19, Ex. H; MOL at 21.) The Alleged Debtor also points out that the various

companies in the Manolo Blahnik corporate family are all presented to the public as one unit and

use the same email domain and website. (See Rodriguez Declaration, Exs. C–F; Reply at 6–7.)

B. Petitioning Creditor’s Unpaid Invoices and Two Neiman Marcus Purchase

Orders

1. The First Neiman Marcus Purchase Order

In June 2019, Neiman Marcus placed an order with the Alleged Debtor for a collection of

shoes. (MOL at 7; Rodriguez Declaration ¶ 4.) The Alleged Debtor subsequently placed the

order with the Petitioning Creditor, who shipped the collection to the Alleged Debtor between

October 15, 2019 and December 15, 2019. (MOL at 7; Rodriguez Declaration ¶ 4.) The Alleged

Debtor then shipped the collection to Neiman Marcus. (MOL at 7; Rodriguez Declaration ¶ 4.)

On or about November 3, 2019, the Alleged Debtor issued Neiman Marcus a purchase order in

the amount of $721,893.00 for shoes to be shipped to Neiman Marcus around November through

December 2019 (the “First Neiman Marcus Purchase Order”). (MOL at 7; Rodriguez

Declaration ¶ 5.) On January 9, 2020, after approved deductions, Neiman Marcus paid the

Alleged Debtor $601,741.90 for the First Neiman Marcus Purchase Order. (MOL at 7;

Rodriguez Declaration ¶ 5.)

The Petitioning Creditor sent the Alleged Debtor invoices in November 2019 relating to

its manufacture of Manolo Blahnik branded shoes to fulfil the First Neiman Marcus Purchase

Order. (Response at 7.) The Alleged Debtor owes the Petitioning Creditor a total of

€546,282.00 for the November 2019 invoices. (Id.; Antonia Declaration, Ex. A.) The

Petitioning Creditor states that the November 2019 invoices have not been paid and are past-due

since February 29, 2020. (Response at 7; Antonia Declaration ¶ 13.) The Petitioning Creditor

also claims that the Alleged Debtor owes them €104.00 relating to a credit that the Alleged

Debtor improperly applied to a September 2019 invoice. (Response at 7; Antonia Declaration ¶

14.) The Antonia Declaration states that prior to this case being commenced, the Alleged Debtor

did not dispute that €546,386.00 is validly due and owing by the Alleged Debtor from the

September and November 2019 invoices. (Antonia Declaration ¶ 21.)

2. The Second Neiman Marcus Purchase Order

On or about December 19, 2019, the Alleged Debtor issued Neiman Marcus a purchase

order in the amount of $790,740.75 for shoes shipped to Neiman Marcus during the months of

October through December 2019 (the “Second Neiman Marcus Purchase Order”). (MOL at 7;

Rodriguez Declaration ¶ 6.) At the Hearing, the Alleged Debtor indicated that Neiman Marcus

still has not paid Alleged Debtor for the Second Neiman Marcus Purchase Order.

The Petitioning Creditor sent the Alleged Debtor invoices in December 2019 relating to

its manufacture of Manolo Blahnik shoes to fulfil the Second Neiman Marcus Purchase Order.

(Response at 9.) The Alleged Debtor owes Petitioning Creditor a total of €403,181.10 for the

December 2019 invoices. (Response at 9; Antonia Declaration, Ex. B.) The December 2019

invoices are past-due since March 31, 2020. (Response at 9; Antonia Declaration, Exs. A–B.)

3. The Past Due Invoices

The Petitioning Creditor asserts that the Alleged Debtor owes Petitioning Creditor a total

of €949,567.00. (Id. at 7.) That amount is larger than the amount of the Petitioning Creditor’s

claim included in the Involuntary Petition, which lists the amount of the claim as €546,386.00.

(Involuntary Petition at 3.) At the Hearing, counsel for the Petitioning Creditor said that the

Involuntary Petition only listed the amount due on the September and November 2019 invoices

because there was direct acknowledgement and communication regarding that amount in an

email between McManus and Denny Rodriguez.

According to the Petitioning Creditor, multiple attempts to secure payment from the

Alleged Debtor were unsuccessful. (Response at 8.) The Alleged Debtor argues that payment

on the past due amounts was not made because the amount in question is subject to a bona fide

dispute with the Petitioning Creditor. (MOL at 6.)

C. Neiman Marcus’ Non-Payment to the Alleged Debtor for the Second Neiman

Marcus Purchase Order

On January 14, 2020, Neiman Marcus asked Affiliate to accept a return of 117 items of

men’s stock for exchange. (Response at 11.) On January 15, 2020, Herin Rodriguez, an

Affiliate employee, authorized the requested exchange and provided a shipping address for the

return. (Id.) Despite Affiliate’s instruction to ship the stock to that address, the Petitioning

Creditor states that Neiman Marcus mistakenly shipped this stock to the Alleged Debtor. (Id.)

On January 28, 2020, the Alleged Debtor contacted Affiliate by email and advised that Neiman

Marcus mistakenly mailed this stock to the Alleged Debtor and that the Alleged Debtor had not

authorized the return of stock. (Id.) Denny Rodriguez was copied on this email. (Id.) On

January 28, 2020, Denny Rodriguez advised Neiman Marcus that they incorrectly shipped the

stock to the Alleged Debtor. (Id.) Affiliate made arrangements—in coordination with Alleged

Debtor—for this stock to be picked up from Alleged Debtor. (Id.) Affiliate received and

processed the exchanged stock. On February 13, 2020, Affiliate internally credited $34,154.40

in favor of Neiman Marcus relating the exchanged items. (Id.)

On February 14, 2020, Denny Rodriguez, the Alleged Debtor’s Comptroller, sent an

email to Neiman Marcus requesting payment of the Second Neiman Marcus Purchase Order that

was more than thirty (30) days past due. (Rodriguez Declaration, Ex. A at 8.) On February 24,

2020, Neiman Marcus informed the Alleged Debtor that the payment was on hold due to a

dispute over a $38,000.00 credit for men’s shoes (the “Unknown Dispute”) that were returned to

the Alleged Debtor with Wright’s approval. (Id. at 6–7.) The Alleged Debtor states that Wright

has never been affiliated with the Alleged Debtor and had no authority to act on the Alleged

Debtor’s behalf. (Rodriguez Declaration ¶ 8.) According to the Alleged Debtor, it was common

practice for Neiman Marcus to withhold full payment on a purchase order if there were any

irregularities, issues or disputed credits of any amount owed with respect to a purchase order.

(MOL at 8.) Denny Rodriguez informed Neiman Marcus that Neiman Marcus credited the

amount to Affiliate, rather than the Alleged Debtor. (Rodriguez Declaration, Ex. A at 6.) On

March 6, 2020, Neiman Marcus responded to Denny Rodriguez, authorizing payment to the

Alleged Debtor. (Id. at 3.) At the Hearing, counsel to the Alleged Debtor confirmed that

payment was not subsequently made. Neiman Marcus is now a debtor in its own chapter 11

case.

The Alleged Debtor argues that it first learned of the disputed credit on February 24,

2020. (Second Rodriguez Declaration ¶ 7.) Prior to that date, Neiman Marcus never contacted

the Alleged Debtor about the return of shoes relating to the Second Neiman Marcus Purchase

Order and the Alleged Debtor never authorized the return of those shoes. (MOL at 8; Rodriguez

Declaration ¶ 9.) The Alleged Debtor maintains that Wright and Affiliate never contacted the

Alleged Debtor about the Unknown Dispute and that Wright and Affiliate did not have the

authority to act on the Alleged Debtor’s behalf or to authorize a return of the Alleged Debtor’s

merchandise. (MOL at 8; Reply at 8.) The Alleged Debtor claims that since Affiliate did not yet

have a license to sell shoes to Neiman Marcus until January 1, 2020, it should have been obvious

to Affiliate that the order related to the Alleged Debtor’s order. (MOL at 9; Rodriguez

Declaration ¶ 10.) Since the Alleged Debtor was not informed of any negotiations between

Neiman Marcus and Affiliate, the Alleged Debtor did not know that Affiliate had directed the

return of the Alleged Debtor’s own stock or merchandise. (Reply at 5, 9.) Further, the Alleged

Debtor believes that Affiliate authorized the return to incur favor with Neiman Marcus. (MOL at

9; Rodriguez Declaration ¶ 11.) Had Affiliate not interfered, the Alleged Debtor believes that

Neiman Marcus would have paid the Second Neiman Marcus Purchase Order in full on or

around January 2020. (MOL at 9; Rodriguez Declaration ¶ 12.) The Alleged Debtor asserts that

it would then have had the funds to pay any valid debt to the Petitioning Creditor.

The Petitioning Creditor characterizes these events differently. The Petitioning Creditor

argues that the facts establish that Wright only authorized a stock exchange between Neiman

Marcus and Affiliate, not a return of the Alleged Debtor’s stock. (Response at 10–11; Second

Wright Declaration ¶ 10.) Wright states that on or after the transition date—January 1, 2020—

Affiliate contacted Neiman Marcus regarding prospective sales in preparation for transitioning

its business from the Alleged Debtor. (Wright Declaration ¶ 11.) As part of those discussions,

Wright and others representing Affiliate made clear that they represented Affiliate and no other

party, including the Alleged Debtor. (Id. ¶ 12.) Neiman Marcus requested that Affiliate agree to

a stock exchange whereby Neiman Marcus could exchange certain Spring 2019 Manolo Blahnik

branded shoes originally sold by Alleged Debtor for a credit against Spring 2020 Manolo

Blahnik branded shoes to be purchased by Neiman Marcus from Affiliate. (Id. ¶ 13.)3 Wright

3 In the Second Wright Declaration, Wright clarifies this statement by saying that “Neiman Marcus requested

that MB Americas agree to a stock exchange whereby Neiman Marcus could exchange certain Spring 2019 Manolo

states that at the time of the negotiated exchange, which led to the Second Neiman Marcus

Purchase Order, the Spring 2019 Manolo Blahnik branded stock was paid for and owned by

Neiman Marcus. (Second Wright Declaration ¶ 10.) Wright asserts that it was clear from his

conversations with Neiman Marcus that Neiman Marcus understood that Affiliate was separate

from Alleged Debtor and that a credit would be applied to future purchases by Neiman Marcus

from Affiliate, not past purchases from the Alleged Debtor. (Id. ¶ 6.) This transaction was not a

return of Alleged Debtor’s stock. (Id. ¶ 7.) It was an exchange of stock solely by and between

Affiliate and Neiman Marcus. (Id.) Wright did not negotiate the exchange on behalf of the

Alleged Debtor. (Id.)

The Petitioning Creditor also argues that Neiman Marcus’ non-payment to the Alleged

Debtor for the Second Neiman Marcus Purchase Order was due solely to mistakes made by

Neiman Marcus and/or the Alleged Debtor or confusion between Neiman Marcus and the

Alleged Debtor, and was not related to the representations or actions of Affiliate. (Response at

12; McManus Declaration ¶ 24.) The Petitioning Creditor emphasizes that any such confusion

was easily resolved. (Response at 12.) In fact, the March 6, 2020 email communication between

Neiman Marcus and Denny Rodriguez shows that Affiliate was clear in its representations with

Neiman Marcus that the exchange was not a return to the Alleged Debtor, but an exchange with

Affiliate in exchange for a credit against future purchases. (Id.; Wright Declaration ¶¶ 21–23.)

Petitioning Creditor argues that it is clear that the Alleged Debtor knew of the stock exchange

because the Alleged Debtor mistakenly received the exchanged stock, advised Affiliate that it

mistakenly received the exchanged stock, and made arrangements for Affiliate to pick up the

exchanged stock from the Alleged Debtor. (McManus Declaration ¶ 25.)

Blahnik branded shoes for a credit against Spring 2020 Manolo Blahnik branded shoes to be purchased by Neiman

Marcus from MB Americas.” (Second Wright Declaration ¶ 5.)

In the Second Rodriguez Declaration, Denny Rodriguez rejects Wright’s assertion that he

knew Wright had negotiated the return of Affiliate’s inventory. Denny Rodriguez states that he

never opened the shipment of merchandise delivered to the Alleged Debtor’s office, as he

believed it was Affiliate’s product. (Second Rodriguez Declaration ¶ 3.) Instead, he advised

Affiliate that the Alleged Debtor had the shipment and would hold it in their basement for

Affiliate to pick up. (Id.) Denny Rodriguez asserts that there was no way for him to know that

Affiliate had negotiated a credit for itself with Alleged Debtor’s merchandise. (Id. ¶ 5.)

D. The Petitioning Creditor’s Attempts to Secure Payment from the Alleged

Debtor

While the events between Affiliate, Neiman Marcus and the Alleged Debtor were

unfolding, the Petitioning Creditor asked McManus, the Parent’s General Counsel, to intervene

in obtaining the outstanding payment from the Alleged Debtor. (Response at 8.) McManus’s

responsibilities include providing support to the Petitioning Creditor as general counsel and

attorney. (Id.) The Involuntary Petition lists McManus as “Petitioner’s Representative.” (MOL

at 13; Involuntary Petition at 3.)

On March 10, 2020, McManus contacted Denny Rodriguez regarding the Petitioning

Creditor’s outstanding invoices. (MOL at 11; Rodriguez Declaration, Ex. H; McManus

Declaration ¶ 20.) McManus wrote: “Please can you explain the nature of the delay in this

payment. If it has already been paid, please can you send confirmation of the date of payment

and account details to which the transfer was made.” (Rodriguez Declaration, Ex. H.) The

Alleged Debtor advised McManus that it would not make the payment until they were paid by

Neiman Marcus, who was still in negotiations with Affiliate. (MOL at 11.)

Denny Rodriguez responded, explaining that “[c]urrently we have close to $800K being

held by [Neiman Marcus] due to Men’s RTV negotiations between [Neiman Marcus] and

[Affiliate]. As soon as the funds get released by NM we will release payment to Remacello.”

(Rodriguez Declaration, Ex. H; McManus Declaration ¶ 21.) On March 11, 2020, McManus

replied to Denny Rodriguez, stating:

As you know, Calzaturificio Re Marcello is a business of its own

and the supply of goods made by it to MBUSA is unrelated to any

dealings MBUSA has with Neiman Marcus or Manolo Blahnik

Americas LLC. MBUSA does not have a right of set-off or

withholding. MBUSA’s dealings with Calzaturificio Re Marcello

are not interlinked or dependent upon any other relationship.

MBUSA ordered goods from Calzaturificio Re Marcello, those

goods were produced and delivered and as a result the invoice is

payable under both Italian law and US law. The invoice is now

overdue. Please ensure payment is processed today.

(Rodriguez Declaration, Ex. H; McManus Declaration ¶ 22.) Denny Rodriguez did not respond

to McManus’s email and did not provide the Petitioning Creditor with any additional details

regarding the ongoing dispute with Neiman Marcus or Affiliate. (Response at 17–18; McManus

Declaration ¶ 23.) On March 25, 2020, McManus sent Denny Rodriguez another email

informing him that she had been instructed to obtain payment through all legal channels and that

if payment was not received by March 27, 2020, then she would commence legal proceedings.

(Rodriguez Declaration ¶ 19.) No one from Petitioning Creditor was engaged in these email

discussions. (See id.)

The Alleged Debtor argues that Affiliate, Parent and Petitioning Creditor tortiously

interfered with the Alleged Debtor’s contractual and business relationship with Neiman Marcus

because Parent was not a party to the Unknown Dispute and McManus was acting on behalf of

the Petitioning Creditor. (MOL at 13.) At the Hearing, the Alleged Debtor indicated that they

had not raised this tortious interference counterclaim with the Petitioning Creditor before the

Petition Date in an effort to maintain a positive business relationship. However, the Alleged

Debtor’s counsel stated that his firm had been retained before the Petition Date to deal with the

tortious interference claim.

The Petitioning Creditor argues that the Alleged Debtor’s relationship with the

Petitioning Creditor was not dependent upon any relationship with Neiman Marcus or Affiliate.

Rather, Petitioning Creditor is independent from Neiman Marcus and Affiliate, so the payment it

is owed should not be impacted by Neiman Marcus’ non-payment to the Alleged Debtor.

(Response at 8.) Additionally, the Petitioning Creditor argues that McManus’ actions were taken

purely on behalf of the Petitioning Creditor, since she provides legal support to Parent’s

subsidiaries and affiliates in her capacity as general counsel. (Id. at 24.)

E. The Neiman Marcus Bankruptcy

On May 7, 2020, Neiman Marcus filed for chapter 11 bankruptcy protection. (Response

at 13–14.) Even though the Alleged Debtor believes Neiman Marcus owes them $790,740.75,

the Alleged Debtor is not listed as a creditor in the Neiman Marcus bankruptcy filings. (MOL at

13.) Affiliate is listed as a creditor in the amount of $1,041,835.75. (Response at 14.)

F. Alleged Debtor’s Nonpayment of Debts as They Become Due

The Petitioning Creditor filed the Involuntary Petition because, it contends, the Alleged

Debtor is not paying its debts as they come due. (See generally Involuntary Petition.)

Petitioning Creditor asserts that two other factories which sold goods to the Alleged Debtor have

not been regularly and timely paid. (Response at 14; McManus Declaration ¶ 31.) On March 27,

2020, Parent inadvertently received a past-due collection demand meant solely for the Alleged

Debtor from Computer Generated Solutions, Inc. (Response at 14; McManus Declaration ¶ 31.)

Parent communicated this information to the Petitioning Creditor, but the Petitioning Creditor

does not have any additional information about past due amounts. (Response at 14; McManus

Declaration ¶ 32.) The Petitioning Creditor argues that, regardless of the Alleged Debtor’s other

creditors, the bankruptcy court is the appropriate forum for settling the Alleged Debtor’s

financial affairs. (Response at 14; McManus Declaration ¶ 33.) Accordingly, the Petitioning

Creditor believes the Alleged Debtor’s assets and liabilities should be administered in a chapter 7

case before this Court. (Response at 5.)

II. LEGAL STANDARD

Section 303(b)(1) of the Bankruptcy Code provides, in pertinent part:

An involuntary case . . . is commenced . . . . (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 . . .

11 U.S.C. § 303(b)(1) (emphasis added). “A creditor must satisfy both prongs of this test; the

claim must not be subject to a bona fide dispute as to either liability or a dispute as to amount.”

In re Aminian, No. 07-12957 (AJG), 2008 Bankr. LEXIS 903, at *5 (Bankr. S.D.N.Y. Mar. 25,

2008).

The Second Circuit in Crest One SpA v. TPG Troy, LLC (In re TPG Troy, LLC), 793 F.3d

228 (2d Cir. 2015), held that courts must apply an objective standard to determine whether a

bona fide dispute exists. The court stated:

A court must determine whether there is an objective basis for either

a factual or a legal dispute as to the validity of the debt. There is 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. . . . The petitioning

creditor bears the initial burden of coming forward with evidence to

establish a prima facie case that no bona fide dispute exists. Once a

prima facie case has been established, the burden shifts to the debtor

to demonstrate the existence of a bona fide dispute.

Id. at 234 (internal quotation marks and citations omitted). And once the bankruptcy court

determines that there is a bona fide dispute, it is not the proper forum to resolve it. Id. (“An

involuntary bankruptcy case cannot be the means of pressuring a debtor to pay a legitimately

disputed debt. . . . Critically, while a court is called upon to determine the presence of a bona

fide dispute, it is not called on to resolve such dispute.”)

The Petitioning Creditor’s Involuntary Petition raises two legal issues. The first is

whether a dispute as to a portion of a petitioning creditor’s claim strips the creditor of its

standing to file the involuntary petition. The second is whether an alleged debtor’s

counterclaims are sufficient to render the petitioning creditor’s claim the subject of a bona fide

dispute.

Whether a Dispute as to a Portion of the Petitioning Creditor’s Claims Strips

the Petitioning Creditor of Standing

Judge Bernstein noted in In re Euro-Am. Lodging Corp., that:

The phrase “as to liability or amount” was added to § 303(b)(1) and

(h)(1) following the phrase “bona fide dispute” by the Bankruptcy

Abuse Prevention and Consumer Protection Act of 2005 [the

“BAPTCA”]. Bankruptcy Abuse Prevention and Consumer

Protection Act of 2005, Pub.L. No. 109–8, §§ 1234(a)(1)(A) and

(a)(12), 119 Stat. 23 (April 20, 2005). Prior to the amendment, a

dispute limited to the amount was not a “bona fide dispute” as to the

entire claim, at least under § 303(b)(1). . . .

357 B.R. 700, 712 n.8 (Bankr. S.D.N.Y. 2007). Following BAPCPA, “courts have been evenly

split whether ‘a dispute as to any portion of a claim, even if some dollar amount would be left

undisputed, means there is a bona fide dispute as to the amount of the claim.’” Dep’t of Revenue

v. Blixseth, 942 F.3d 1179, 1185 (9th Cir. 2019) (quoting Fustolo v. 50 Thomas Patton Drive,

LLC, 816 F.3d 1, 9 (1st Cir. 2016)).

On the one hand, some courts—including the First, Fifth and Ninth Circuits—hold that “a

bona fide dispute as to any amount of a petitioning creditor’s claim strips the creditor of standing

under § 303(b)(1).” Id.; see also Fustolo, 816 F.3d at 10; Credit Union Liquidity Servs., LLC v.

Green Hills Dev. Co., LLC (In re Green Hills Dev. Co., LLC), 741 F.3d 651, 657, 660 (5th Cir.

2014). The basis for that conclusion is the plain meaning of section 303(b)(1), which

“encompasses disputes as to ‘liability or amount’ and requires that ‘such noncontingent,

undisputed claims aggregate’ the threshold amount.” Blixseth, 942 F.3d at 1185 (quoting 11

U.S.C. § 303(b)(1)). “Because a dispute as to liability in a sense renders the entire amount of the

claim disputed, the statute’s reference to ‘amount’ encompasses a dispute as to less than the

entire amount.” Id. Notwithstanding these holdings, if the petitioning creditor and the alleged

debtor have engaged in multiple transactions, a petitioning creditor may be permitted to rely on

an undisputed claim where it arises from a separate transaction between the same parties. See

Fustolo, 816 F.3d at 11.

Other bankruptcy courts hold that the BAPCPA merely confirmed that only a material

dispute as to amount will strip a creditor of standing. Blixseth, 942 F.3d at 1185; see also In re

Gen. Aeronautics Corp., 594 B.R. 442, 655 (Bankr. D. Utah 2018); In re DemirCo Holdings

Inc., Case No. 06-70122, 2006 Bankr. LEXIS 1131 (Bankr. C.D. Ill. June 9, 2006); In re ELRS

Loss Mitigation, LLC, 325 B.R. 604, 626–27 (Bankr. N.D. Okla. 2005). These cases conclude

that a bona fide dispute as to amount is not relevant unless it could reduce the petitioning

creditor’s total claim below the statutory threshold. See In re EM Equip., LLC, 504 B.R. 8, 16

(Bankr. D. Conn. 2013) (citing In re DemirCo Holdings Inc., 2006 Bankr. LEXIS 1131, at *3).

The Second Circuit has not resolved that issue, but because the Alleged Debtor’s liability

here arises from two separate transactions—one disputed and one not disputed—it is unnecessary

to the outcome here to resolve the issue whether any dispute as to the amount of a single claim

disqualifies the creditor from being a petitioning creditor.

B. Whether Counterclaims Can Render a Petitioning Creditor’s Claim the

Subject of a Bona Fide Dispute

In this case, the Alleged Debtor contends it has a counterclaim against the Petitioning

Creditor, its Parent and Affiliate, for interference with contract and business relations between

the Alleged Debtor and Neiman Marcus arising from the second 2019 transaction for which the

Alleged Debtor has not been paid by Neiman Marcus. But “a dispute as to the amount of a claim

is not a bona fide dispute if it is based on a counterclaim arising from a wholly separate

transaction.” In re Hentges, 350 B.R. 586, 601 (Bankr. N.D. Okla. 2006); see also In re Mylotte,

et al., No. 07–11861bif, 2007 WL 2033812, at *7 (Bankr. E.D. Pa. July 12, 2007) (finding that

alleged debtor’s pending counterclaim based on a transaction unrelated to the petitioning

creditor’s claim did not render the petitioning creditor’s claim the subject of a bona fide dispute).

For example, “a defense to a claim in the form of recoupment goes to the heart of the claim and

results in a bona fide dispute of the claim. But a defense to a claim in the form of an independent

counterclaim does not in any manner challenge the original claim and so does not place the

original claim in bona fide dispute.” In re Int’l Oil Trading Co., LLC, 545 B.R. 336, 349–50

(Bankr. S.D. Fla. 2016) (internal quotation marks and citations omitted).

However, “where a claim for offset arises out of the same transaction and is directly

related to the creditor’s underlying claim, and, if valid, could serve as a complete defense to that

claim, a bona fide dispute exists.” Key Mechanical Inc. v. BDC 56 LLC (In re BDC 56 LLC),

330 F.3d 111, 120 (2d Cir.2003), abrogated on other grounds by Adams v. Zarnel (In re Zarnel),

619 F.3d 156 (2d Cir. 2010).4 Thus, “[a] counterclaim related to the subject matter of the

4 Zarnel overruled BDC 56 LLC to the extent that it construed the requirement that a petitioning creditor’s

claim not be subject to a bona fide dispute as a prerequisite to subject matter jurisdiction. BDC 56 LLC otherwise

remains good authority. See In re Taub, 439 B.R. 261, 273 n.2 (Bankr. E.D.N.Y. 2010).

petitioning creditors’ claims may be considered by the bankruptcy court in determining whether

there is a bona fide dispute as to the petitioning creditors’ claims.” In re Quinto & Wilks, P.C.,

531 B.R. 594, 605 (Bankr. E.D. Va. 2015). In In re Honolulu Affordable Hous. Partners, LLC,

the court held that “if the facts that give rise to a counterclaim also create an affirmative defense

(i.e., impossibility of performance, offset/setoff, recoupment, etc.), the claim is subject to a bona

fide dispute.” Case No. 15-00146, 2015 WL 2203473, at *5 (D. Haw. May 7, 2015); see also In

re Green Hills Dev. Co., LLC, 741 F.3d at 657–59 (overturning the bankruptcy court and finding

that a counterclaim was sufficient to render a claim subject to a bona fide dispute since the

counterclaims directly affected the amount owed to the creditor).

III. DISCUSSION

The Petitioning Creditor’s claim in the total amount of €949,567.00 stems from two

unpaid invoices in 2019 related to its manufacture of Manolo Blahnik branded shoes. Petitioning

Creditor manufactured the requested Manolo Blahnik shoes and shipped them to the Alleged

Debtor to fulfill two separate Neiman Marcus purchase orders. The Court finds that there are no

disputed issues of material fact regarding liability or amount for the Petitioning Creditor’s claim

in the amount of €546,386.00 relating to the First Neiman Marcus Purchase Order. The Alleged

Debtor’s tortious interference counterclaim relates to the Second Neiman Marcus Purchase

Order; it raises material issues of disputed fact that make the Petitioning Creditor’s claim for the

unpaid second transaction, in the amount of €403,181.00, the subject of a bona fide dispute. The

Court concludes that the Petitioning Creditor’s undisputed claim in the amount of €546,386.00

for the first transaction makes the Petitioning Creditor eligible to file the Involuntary Petition.

Any counterclaims or disputed issues of material fact relate only to the Second Neiman Marcus

Purchase Order that arose from a separate transaction.

A. A Portion of the Petitioning Creditor’s Claim in the Amount of €546,386.00

Is Not the Subject of a Bona Fide Dispute

The Petitioning Creditor has established a prima facie case with respect to the Alleged

Debtor’s liability in the amount of €546,386.00 for an order of shoes that was billed to the

Alleged Debtor in September and November 2019. See In re TPG Troy, LLC, 793 F.3d at 234

(“The petitioning creditor bears the initial burden of coming forward with evidence to establish a

prima facie case that no bona fide dispute exists.”). In that regard, Petitioning Creditor attached

the unpaid invoices from September and November 2019, in the amount of €104.00 and

€546,282.00, respectively, evidencing the Alleged Debtor’s liability and non-payment. (Antonia

Declaration, Ex. A.) This amount has been past-due and owing since February 29, 2020.

(Response at 7.)

The Alleged Debtor did not dispute the liability or amount of the Petitioning Creditor’s

claim for €546,386.00. Those invoices relate to shoes that Alleged Debtor ordered from

Petitioning Creditor to fulfil the First Neiman Marcus Purchase Order in the amount of

$721,893.00. (MOL at 7; Rodriguez Declaration ¶ 5.) The shoes were shipped to Neiman

Marcus around November through December 2019. (Rodriguez Declaration ¶ 5.) The

Rodriguez Declaration explains that on January 9, 2020, after approved deductions, Neiman

Marcus paid the Alleged Debtor $601,741.905 for the First Neiman Marcus Purchase Order.

(MOL at 7; Rodriguez Declaration ¶ 5.) The Alleged Debtor’s counterclaims for tortious

interference—which form the basis for its argument that the Petitioning Creditor’s claim is the

subject of a bona fide dispute—do not relate to any action taken by the Petitioning Creditor with

respect to the First Neiman Marcus Purchase Order. Thus, the Alleged Debtor withheld payment

5 This is $294.30 more than the Petitioning Creditor’s claim, as listed on the Involuntary Petition.

to the Petitioning Creditor in the amount of €546,386.00, even though Alleged Debtor confirmed

Neiman Marcus paid them for First Neiman Marcus Purchase Order.

B. The Petitioning Creditor’s Claim in the Amount of €403,181.00 Is the Subject

of a Bona Fide Dispute6

The Court finds that the Petitioning Creditor has established a prima facie case with

respect to the Alleged Debtor’s liability in the amount of €403,181.00 for an order of shoes that

was billed to the Alleged Debtor in December 2019. In that regard, Petitioning Creditor attached

the unpaid invoices from December 2019, in the amount of €403,181.00, evidencing the Alleged

Debtor’s liability and non-payment. (Antonia Declaration, Ex. B.) This amount has been past-

due and owing since March 31, 2020. (Response at 9.) The Alleged Debtor ordered those shoes

to fulfil the Second Neiman Marcus Purchase Order in the amount of $790,740.75. (Id.)

“Once a prima facie case has been established, the burden shifts to the debtor to

demonstrate the existence of a bona fide dispute.” In re TPG Troy, LLC, 793 F.3d at 234. The

Alleged Debtor has met its burden to show that a bona fide dispute exists with respect to a

portion of the Petitioning Creditor’s claim in the amount of €403,181.00. The Alleged Debtor

argues that the Petitioning Creditor’s claim is the subject of a bona fide dispute because the

Alleged Debtor has meritorious counterclaims against the Petitioning Creditor for tortious

interference with contract and business relationship on the Second Neiman Marcus Purchase

Order, preventing the Alleged Debtor from paying the Petitioning Creditor’s debt.7 (MOL at 18–

6 While the Court concludes that the claim arising from the second unpaid invoice raises disputed issues of

fact because of the alleged counterclaim, and therefore may not be asserted as the basis for an involuntary petition,

in the event that an order for relief is entered, the Petitioning Creditor may file a claim based on the disputed

transaction and the debtor may assert its counterclaim. The Court may, if necessary, resolve issues about the claim

and counterclaim. See Katchen v. Landy, 382 U.S. 323 (1966).

7 The Alleged Debtor also argues that it has affirmative defenses for culpable conduct which render the

Petitioning Creditor’s claim the subject of a bona fide dispute. (Reply 9–11.) In response, the Petitioning Creditor

argues that the culpable conduct affirmative defense does not apply and is not valid. (Sur-Reply at 2.) The Court

declines to rule on whether the Alleged Debtor’s affirmative defense for culpable conduct can apply here because

19.) The Alleged Debtor’s counterclaim for tortious interference raises genuine issues of

material fact regarding the Alleged Debtor’s liability on Petitioning Creditor’s claim relating to

the Second Neiman Marcus Purchase Order. The tortious interference counterclaim is

sufficiently related to the Petitioning Creditor’s debt, making that portion of the Petitioning

Creditor’s total claim the subject of a bona fide dispute.

1. Alleged Debtor’s Tortious Interference Counterclaim Raises Genuine

Issues of Material Fact About the Alleged Debtor’s Liability for the

Second Unpaid Invoice

The Alleged Debtor has demonstrated that, objectively viewed, there are sufficient

disputed issues of material fact with respect to its counterclaim that Petitioning Creditor

tortiously interfered with the Second Neiman Marcus Purchase Order. To prevail on a claim for

tortious interference with contract, a plaintiff must show: (1) the existence of a valid contract

between it and a third party; (2) the defendant’s knowledge of that contract; (3) the defendant’s

intentional procurement of the third-party’s breach of contract without justification; (4) actual

breach; and (5) damages resulting therefrom. See In re Bernard L. Madoff Inv. Secs., LLC, 440

B.R. 282, 294 (Bankr. S.D.N.Y. 2010) (citing Kirch v. Liberty Media Corp., 449 F.3d 388, 401

(2d Cir. 2006)); see also Conte v. Emmons, 895 F.3d 168, 171 (2d Cir. 2018). Where there is an

existing, enforceable contract and a party’s deliberate interference results in breach of that

contract, then the non-breaching party may recover damages for tortious interference with

contractual relations even if the third party was engaged in lawful behavior. NBT Bancorp Inc.

v. Fleet/Norstar Fin. Grp., Inc., 87 N.Y.2d 614, 621 (1996).

Here, the issue is whether Affiliate unjustifiably and intentionally procured Neiman

Marcus’s breach of the contract with Alleged Debtor relating to the Second Neiman Marcus

the Alleged Debtor’s counterclaim for tortious interference is sufficient in and of itself to make a portion of the

Petitioning Creditor’s claim the subject of a bona fide dispute.

Purchase Order and whether those actions are attributable to the Petitioning Creditor. (Response

at 19.) While the Court will not rule on the merits of the tortious interference counterclaim, the

Alleged Debtor’s Motion to Dismiss and the Rodriguez Declaration demonstrate that a material

factual dispute exists on this point. (Rodriguez Declaration ¶¶ 7–12.) There are sufficient facts

in the record to support the conclusion that Wright, an employee of Affiliate and/or Parent,

caused Neiman Marcus to breach the Second Neiman Marcus Purchase Order by returning the

Alleged Debtor’s merchandise in exchange for a credit without the Alleged Debtor’s approval.

(Id.) In Rodriguez’s view, the Petitioning Creditor did not have a right to negotiate any

agreement that pertained to merchandise that the Alleged Debtor sent to Neiman Marcus; only

the Alleged Debtor could do so. (Second Rodriguez Declaration ¶ 6.) Rodriguez states that

Wright took such actions because Affiliate did not have a license to sell shoes with Neiman

Marcus at the time and wanted to incur favor with Neiman Marcus to establish a positive

relationship with Neiman Marcus as they began to work together. (Rodriguez Declaration ¶¶

11–12.)

The Petitioning Creditor vigorously disputes these factual assertions. The Wright

Declaration explains that Neiman Marcus requested that Affiliate agree to a stock exchange

whereby Neiman Marcus could exchange certain Spring 2019 Manolo Blahnik branded shoes

originally sold by Alleged Debtor in exchange for a credit against Spring 2020 Manolo Blahnik

branded shoes to be purchased by Neiman Marcus from Affiliate. (Wright Declaration ¶ 13;

Second Wright Declaration ¶ 5.) Wright states that it was not a return of stock to Alleged

Debtor, but an exchange of stock solely by and between Affiliate and Neiman Marcus because

the Spring 2019 Manolo branded stock was paid for and owned by Neiman Marcus. (Second

Wright Declaration ¶¶ 7, 10.) Affiliate received and processed the exchanged stock and

internally accounted a credit of $34,154.40 in favor of Neiman Marcus relating to the exchanged

items. (Wright Declaration ¶¶ 14–20.) Wright states that Neiman Marcus understood that

Affiliate was separate from the Alleged Debtor and that the credit would only be applied to

future purchases by Neiman Marcus from Affiliate, not past purchases from Alleged Debtor.8

(Id. ¶ 14; Second Wright Declaration ¶ 6.) The Petitioning Creditor even claims that the Alleged

Debtor had knowledge of the stock exchange because they accepted the merchandise from

Neiman Marcus. (McManus Declaration ¶ 25.) The Court finds that the Alleged Debtor’s and

Petitioning Creditor’s competing narratives create a material factual dispute concerning whether

Wright negotiated a stock exchange of the Alleged Debtor’s merchandise, whether he had the

authority to do so, and whether Wright took these actions knowing that a breach of the Alleged

Debtor’s contract would result.

The Alleged Debtor’s Motion to Dismiss and the Rodriguez Declaration also raise factual

questions regarding whether Affiliate’s and Parent’s conduct to interfere with the Neiman

Marcus contract can be imputed to the Petitioning Creditor under either agency principles or on

an alter ego theory of liability. The Alleged Debtor provides evidentiary support for its claim

that Affiliate, Parent, and the Petitioning Creditor operate as interrelated companies. (Rodriguez

Declaration ¶ 22, Exs. A–F.) The Alleged Debtor cites to McManus’s role as Global General

Counsel for Parent and its subsidiaries and affiliates, including the Petitioning Creditor.

(McManus Declaration ¶ 17; MOL at 24.) Alleged Debtor relies on McManus’s email

communications with Denny Rodriguez to show that she acted on behalf of Petitioning Creditor

by pressuring Alleged Debtor to pay Petitioning Creditor. (Rodriguez Declaration ¶ 19, Ex. H;

8 Wright is not competent to testify about what Neiman Marcus “understood.”

MOL at 21.) Alleged Debtor also highlights that McManus signed the Involuntary Petition as

“Petitioner’s Representative.” (Involuntary Petition at 3.)

In response, the McManus Declaration provides that Parent, Affiliate, and the Petitioning

Creditor transact business separately, maintain separate financial records and that the Petitioning

Creditor and Parent deal at arm’s-length. (McManus Declaration ¶¶ 6–9; Second McManus

Declaration ¶ 6.)

The Court concludes that the Alleged Debtor has established that disputed issues of

material facts exist regarding whether Wright’s and McManus’ actions, as employees of Parent

and Affiliate, implicate the Petitioning Creditor due to the intertwined nature of the companies.

The foregoing demonstrates that there are issues of material fact with respect to the Alleged

Debtor’s counterclaim for tortious interference on the transaction relating to the Second Neiman

Marcus Purchase Order.

2. The Tortious Interference Counterclaim Is Related to Petitioning

Creditor’s Claim

The Petitioning Creditor’s claim and the Alleged Debtor’s counterclaim for tortious

interference on the Second Neiman Marcus Purchase Order are interrelated because they arise

from the same underlying transaction. Due to the Alleged Debtor’s inability to get paid by

Neiman Marcus for the Second Neiman Marcus Purchase Order, the Alleged Debtor asserts that

it could not pay one of the Petitioning Creditor’s outstanding invoices in the amount of

€403,181.00. The Alleged Debtor even informed the Petitioning Creditor by email that “as soon

as the funds get released by NM we will release payment to Remarcello.” (Rodriguez

Declaration, Ex. H.) The Court concludes that the Alleged Debtor’s counterclaim based on

Petitioning Creditor’s alleged actions to interfere with the Second Neiman Marcus Purchase

Order arises from the same transaction as the Petitioning Creditor’s claim for €403,181.00 based

on the Second Neiman Marcus Purchase Order; and it is related to the subject matter of the

Petitioning Creditor’s claim. Accordingly, the Petitioning Creditors’ claim in the amount of

€403,181.00 is the subject of a bona fide dispute. See In re Quinto & Wilks, P.C., 531 B.R. at

605.

The Petitioning Creditor relies on In re Elsa Design, Ltd., 155 B.R. 859, 868–69 (Bankr.

S.D.N.Y 1993), and In re Drexler, 56 B.R. 960, 969 (Bankr. S.D.N.Y. 1986), to argue that the

existence of a counterclaim—even if it has merit—does not render a petitioning creditor’s claim

the subject of a bona fide dispute. (Response at 16.) This reliance is misplaced. The Petitioning

Creditor rests its argument on holdings in those cases providing that “debtor’s assertion of

counterclaims, even if of substance, does not render a petitioner’s claim subject to a bona fide

dispute.” (Response at 19 (quoting In re Drexler, 56 B.R. at 969).) However, Drexler found that

an offsetting counterclaim could be used to extinguish or set off a petitioning creditor’s claim.

See Drexler, 56 B.R. at 969. Several courts since Drexler have held that a counterclaim related

to the creditor’s underlying claim can create a bona fide dispute as to the amount of the claim.

See, e.g., In re Green Hills Dev. Co., LLC, 741 F.3d at 656–57; In re BDC 56 LLC, 330 F.3d at

658. As discussed above, the Court finds that the tortious interference counterclaim arises from

the same underlying transaction as the Petitioning Creditor’s claim and raises material issues of

fact, rendering it the subject of a bona fide dispute. Drexler does not change that result.

In re Elsa Design, Ltd., 155 B.R. at 868–69, is also unpersuasive. There, the alleged

debtor’s landlord brought an involuntary petition against the alleged debtor for failure to pay

rent. The alleged debtor did not deny non-payment but raised a counterclaim that payment was

not due because of an oral agreement which allowed the alleged debtor to withhold rent. The

court found that the alleged debtor’s counterclaim did not give rise to a bona fide dispute. An

oral agreement is not effective as a basis for a counterclaim. The agreement must be in writing

and signed by both parties. Here, unlike in Elsa Design, the Alleged Debtor’s tortious

interference counterclaim arises from written email communications. As discussed above, in this

case the Alleged Debtor’s counterclaim, objectively viewed, is sufficiently related to a portion of

the Petitioning Creditor’s claim and raises disputed issues of material fact.

C. The Disputed Issues of Fact With Respect to the Second Neiman Marcus

Purchase Order Do Not Render the Petitioning Creditor Ineligible To File

The Involuntary Petition

The disputed portion of the Petitioning Creditor’s claim in the amount of €403,181.00

does not strip the Petitioning Creditor of its standing to file the Involuntary Petition. This is

because its claim in the amount of €546,386.00—arising from a separate transaction—is not in

dispute. The First Circuit’s decision in Fustolo, 816 F.3d 1, held that a creditor is eligible to be a

petitioning creditor if it has an undisputed claim for one transaction even though the creditor has

another claim that is subject to dispute as to liability or amount.

In Fustolo, the court considered a petitioning creditor’s claims against the alleged debtor

arising out of four separate promissory notes. The obligor was a non-debtor entity; the alleged

debtor personally guaranteed two of the notes but did not guarantee the other two notes. The

creditor obtained a state court judgment against Fustolo for the amount of all four notes, even

though the alleged debtor only guaranteed two of the notes. Fustolo appealed the state court

judgment, particularly with respect to the judgment finding him personally liable for the two

notes he did not guarantee. The court of appeals concluded that the alleged debtor’s liability for

the two notes he did not guarantee was the subject of a bona fide dispute because of a pending

state court appeal. 816 F.3d at 3.

The petitioning creditor argued that it was an eligible creditor under section 303(b)(1)

because the dispute over the state court judgment “concerns only a portion of the judgment.

[Alleged Debtor] makes no real effort to deny that he owes, at least, the principal due under the

Guaranteed Notes, which totals $1.25 million.” Id. at 9. The First Circuit rejected the

petitioning creditor’s argument that a materiality requirement should be read into section

303(b)(1). See id. at 10 (“Limiting petitioning creditors to only those claims that are of

undisputed value is in line with those aims.”). But the court held that the petitioning creditor

could rely on an undisputed component of its claim that underlies a disputed multi-part judgment

because “the amount of that undisputed claim is clearly severable from the amount of the total

judgment.” Id. at 11. This is the case, according to the First Circuit, even where the involuntary

petition asserted a claim for the entirety of the state court judgment.

Just as the First Circuit severed the disputed and undisputed portions of petitioning

creditor’s claim to determine the petitioning creditor’s standing under section 303(b)(1), the

Petitioning Creditor’s claim in the amount of €949,547.00 is also severable because it arises from

two separate transactions. The undisputed portion of the Petitioning Creditor’s claim in the

amount of €546,386.00 on the First Neiman Marcus Purchase Order gives the Petitioning

Creditor standing to file the Involuntary Petition. The disputed issues relating to the tortious

interference counterclaims on the Second Neiman Marcus Purchase Order arise from a separate

transaction and do not render the Petitioning Creditor ineligible to file the Involuntary Petition.

The Court’s decision is not in conflict with other bankruptcy courts that have taken the

position that any bona fide dispute as to a portion of the alleged debt creates a bona fide dispute.

See In re Euro-American Lodging Corp., 357 B.R. at 712 n. 8; In re Mountain Dairies, 372 B.R.

623, 631 (Bankr. S.D.N.Y. 2007). Those cases did not involve a claim that could be severed

because the disputed and undisputed portions of the claim arose from separate transactions. But

dicta in Euro-American Lodging Corp., 357 B.R. at 712 n. 8, and Mountain Dairies, 372 B.R. at

634, both decided before the First Circuit decision in Fustolo, support the conclusion that

undisputed liability from separate transactions makes a petitioning creditor eligible to file or join

an involuntary petition.9

D. Other Grounds for Dismissal

The Alleged Debtor argues that dismissal is appropriate under section 303(h) of the

Bankruptcy Code because the Petitioning Creditor has provided no information regarding the

number and amount of other creditors’ claims, and the Alleged Debtor’s overall financial affairs.

(MOL at 26.) By contrast, the Petitioning Creditor argues that its claim for €949,567.10 is

sufficient in and of itself to find that the Alleged Debtor is not paying its debts as they become

due. (Response at 26.)

An order for relief against the Alleged Debtor will be entered unless the petition is timely

controverted. 11 U.S.C. § 303(h). If the petition is controverted, relief can be granted only if,

after trial, “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.” 11 U.S.C. §

303(h)(1). “The petitioning creditors have the burden of proving . . . that the debtor is generally

not paying its bills on time.” In re A&J Quality Diamonds, Inc., 377 B.R. 460, 463 (Bankr.

S.D.N.Y. 2007) (emphasis in original). Once this burden is met, the burden shifts to the debtor

9 See In re Euro-Am. Lodging Corp., 357 B.R. at 700 n.8 (quoting In re Focus Media, Inc., 378 F.3d 916,

926 (9th Cir.2004), which explained that “a dispute as to the amount of the claim gives rise to a bona fide dispute

only when (1) it does not arise from a wholly separate transaction and (2) netting out the claims of the debtors could

take the petitioning creditors below the amount threshold of § 303”) (emphasis added; internal quotation marks

omitted); Mountain Dairies, 372 B.R. at 634 (discussing and quoting Euro-Am. Lodging Corp., 357 B.R. at 700 n.8,

as “stating in dicta that the result of the BAPCPA amendment is that ‘any dispute regarding the amount that arises

from the same transaction and is directly related to the underlying claim should render the claim subject to a bona

fide dispute’”).

to show that there is a dispute as to a material fact, such as the existence of the liability or its

amount. See id. Courts consider several factors in determining whether an alleged debtor is not

paying its debts: the number of debts, the amount of the delinquency, the materiality of

nonpayment, and the nature and conduct of the debtor’s business. See COLLIER ON BANKRUPTCY

¶ 303.31 (16th ed. 2020). “The failure to pay just one significant creditor can support a finding

that the debtor is generally not paying its debts.” In re Euro-American Lodging Corp., 357 B.R.

at 713. If the Alleged Debtor disputes whether it is paying its debts as they become due, or with

respect to the number of its creditors, the Petitioning Creditor will be permitted to take expedited

discovery in advance of trial of the disputed factual issues.

IV. CONCLUSION

For the reasons explained above, the Motion to Dismiss is DENIED. The Alleged

Debtor is ordered to answer the Involuntary Petition within 21 days from the entry of this

Opinion and Order. The Alleged Debtor’s answer must comply with Bankruptcy Rule 1003(b).

Once the Alleged Debtor’s answer has been filed, the Court will hold a case management

conference to schedule discovery and trial as may be necessary.

IT IS SO ORDERED.

Dated: August 18, 2020

New York, New York

_____Martin Glenn____________

MARTIN GLENN

United States Bankruptcy Judge