# Manolo Blahnik USA, Ltd.

> United States Bankruptcy Court, S.D. New York · August 18, 2020

URL: https://www.frixlaw.com/law-library/cases/10460424

## Case

- **Court:** United States Bankruptcy Court, S.D. New York
- **Decided:** August 18, 2020
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10460424. Public record. Not legal advice.