Creditor moved to dismiss individual Subchapter V debtor’s Chapter 11 case for cause under 11 U.S.C. § 1112(b) on the basis that the case was not filed in good faith. The same creditor also objected to the debtor’s designation as a small business debtor and election to proceed under Subchapter V, arguing the debtor failed to qualify as a “small business debtor” as defined in 11 11 U.S.C. § 101(51D). After an evidentiary hearing on these matters, the Court denied the motion to dismiss and sustained the objection to the debtor’s designation as a small business debtor.

As to the motion to dismiss, the creditor advanced four arguments as to why the case was not filed in good faith: (1) the case was filed to evade an imminent adverse decision in the creditor’s prepetition lawsuit; (2) the debtor’s prepetition and postpetition conduct exhibited lack of good faith; (3) the case was essentially a two-party dispute; and (4) the debtor maintains a lavish lifestyle and is not the “honest but unfortunate” debtor.

The debtor testified at length in opposition to the creditor’s motion to dismiss and objection. After considering this testimony, as well as debtor’s apparent efforts to restructure debts in good faith, the Court concluded the creditor failed to meet its burden that the bankruptcy case was not filed in good faith.

As to the objection, the creditor advanced three arguments for why the debtor failed to qualify as a small business debtor: (1) the debtor was not engaged in commercial or business activities on the petition date; (2) the debtor had not shown that not less than 50% of his of his noncontingent, liquidated aggregate secured and unsecured debts arose from commercial or business activities; and (3) the debtor’s debts did not arise from his commercial or business activities.

The Court rejected the creditor’s first argument and concluded “commercial or business activities” should be broadly construed. Although the debtor’s income came from being a W-2 employee, the debtor’s managerial role with and equity ownership in his employer showed that the debtor was engaged in commercial or business activities on the petition date.

The creditor’s second argument, however, was meritorious. Of the debtor’s non-insider debts, the debt to this particular creditor was the only debt that could have arisen from commercial or business activities. But this debt, as the Court concluded, was not liquidated. The debt was for damages arising out of the debtor’s alleged solicitation of his former employer’s customers and employees. The debt was not liquidated because parties’ contract did not provide for liquidated damages, the debt had not yet been reduced to judgment, and the debt was not otherwise capable of being readily determined and precisely calculated. The debtor therefore failed to meet his burden of proving that not less than 50% of his noncontingent, liquidated aggregate secured and unsecured debts arose from commercial or business activities.

Because the Court found that the creditor’s debt was not liquidated, there was no need to rule on whether the debt arose from commercial or business activities of the debtor.