The Consequences of a Relic's Codification: The Dubious Case for Bad Faith Dismissals of Involuntary Bankruptcy Petitions

Abstract

Since 1978, dismissals of involuntary bankruptcy petitions due to petitioning creditors’ bad faith have proliferated. In the process, a textual oddity has not gone unnoticed: even as “bad faith” is denominated as the basis for an award of punitive damages, nowhere in the Bankruptcy Code’s relevant section—§ 303—is “bad faith” or its converse, lack of good faith, classified as a basis for an involuntary bankruptcy petition’s dismissal. To many, such an omission bears no dispositive relevance; a slightly smaller number question these arguments’ cogency. In three substantive parts, this article clarifies those oft-ignored yet regnant interpretive principles, resolves this dispute by reference to every source (and logic too), and offers a solution limned in neither opinion nor treatise. By such means, this piece provides the first rigorous analysis of a section whose precise meaning most recently stumped a Ninth Circuit panel—and has spawned an ever-growing string of conflicting opinions.