Left to right: Andrew Kassner and Joseph Argentina of Drinker Biddle & Reath.

Most bankruptcy cases are commenced by the filing of a “voluntary” bankruptcy petition by the debtor. In fact, as we have reported previously, today the bankruptcy process is dominated by prearranged restructurings involving advance planning and negotiations with potential purchasers and stakeholders that result in the business aspects of the bankruptcy process being substantially finalized at the time of the filing. That being said, the bankruptcy code provides that, under certain circumstances, a creditor can commence an involuntary bankruptcy case against a debtor, and if the debtor consents or the Bankruptcy Court determines the requirements have been satisfied, an order for relief is entered and the bankruptcy case proceeds with administration.

In a recent decision issued by the U.S. Bankruptcy Court by the District of Nevada in In re EB Holdings II, Case No. 17-12642-MKN (Bankr. D. NV., Dec. 15, 2017), the court reviewed the debtor's request to dismiss an involuntary petition filed against it, or in the alternative, to suspend the matter until pending state court actions were adjudicated.

The State Court Litigation Between Debtor and Lenders

The opinion describes in detail two Nevada state court actions filed in 2016 (the Nevada actions) between EB Holdings II (the debtor) and certain of its lenders (the lenders) under a 2007 loan agreement. In the first Nevada action, the debtor asserted four causes of action, including that improper acceleration of the loan should result in cancellation of the indebtedness. The lender defendants filed a motion to dismiss, asserting that improper acceleration of the loan had not occurred, and even if it had, it would not result in cancellation of the debt.

In the second Nevada action, the lenders sued the debtor and certain third parties asserting, among other things, various fraudulent transfer, racketeering, and breach of contract claims. The debtor filed an answer and counterclaims, which again asserted that the loan obligations should be cancelled as a result of improper acceleration. The lenders filed a motion to dismiss the counterclaims, again asserting proper acceleration and opposing cancellation of the debt.