National Medical Imaging, LLC, et al. v. U.S. Bank, N.A., et al.

Section 303 of the Bankruptcy Code governs involuntary bankruptcy cases. In an involuntary bankruptcy case it is the creditors, not the debtors, who start the proceedings by filing an involuntary petition under either Chapter 7 or 11 of the Code and must adhere to strict statutory requirements. 11 U.S.C. §303(b). Section 303(i) provides that if an involuntary bankruptcy petition is dismissed, the debtor may recover attorney’s fees, costs, and damages, including punitive damages, from the creditors. In this case, an involuntary bankruptcy proceeding was brought against National Medical Imaging. Although the involuntary bankruptcy petition was dismissed, the district court in a summary judgment order denied National Medical Imaging both compensatory and punitive damages. This case presents important issues concerning damages that frequently arise when there is the dismissal of an involuntary bankruptcy proceeding.

1. Whether punitive damages are to be awarded once it is shown that an involuntary bankruptcy petition was filed in “bad faith,” as the plain language of the statute requires and as several Circuits and lower courts have held, or whether more than bad faith is required as the Third Circuit held in this case.

2. Whether the Seventh Amendment requires a jury trial to determine the availability of compensatory and punitive damages when there is a dispute as to the facts concerning the bad faith of an involuntary bankruptcy filing and the harms that it has caused.