United States Bankruptcy Appellate Panel
For the Eighth Circuit
___________________________
No. 15-6035
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In re: Paul Hansmeier
lllllllllllllllllllllDebtor
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Paul Hansmeier
lllllllllllllllllllllDebtor - Appellant
v.
Daniel McDermott
lllllllllllllllllllllU.S. Trustee - Appellee
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Appeal from United States Bankruptcy Court
for the District of Minnesota - Minneapolis
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Submitted: August 12, 2016
Filed: September 29, 2016
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Before SCHERMER, NAIL, and SHODEEN, Bankruptcy Judges.
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NAIL, Bankruptcy Judge.
Debtor Paul Hansmeier appeals the December 3, 2015 order of the bankruptcy
1
court converting Debtor's chapter 13 case to chapter 7. We affirm.
BACKGROUND
Debtor filed a petition for relief under chapter 13 of the bankruptcy code. The
United States Trustee filed a motion under 11 U.S.C. § 1307(c) to convert Debtor's
case to chapter 7.2 The United States Trustee's motion was verified.3
Debtor objected to the United States Trustee's motion. Debtor's objection was
unverified and was not supported by an affidavit.4
The matter came before the bankruptcy court in due course. Following a
hearing, at which no additional evidence was offered or received, the bankruptcy
court ruled from the bench and memorialized its decision in an order granting the
United States Trustee's motion and converting Debtor's chapter 13 case to chapter 7.
Debtor timely appealed.
1
The Honorable Kathleen H. Sanberg, Chief Judge, United States Bankruptcy
Court for the District of Minnesota.
2
Pursuant to § 1307(c), "on request of . . . the United States trustee and after
notice and a hearing, the court may convert a case under [chapter 13] to a case under
chapter 7 . . . for cause," including, but not limited to, eleven enumerated grounds.
3
Pursuant to local rule, if facts are at issue, the party making a motion must
serve and file an affidavit or verification of the motion. Loc.R.Bankr.P. (D. Minn.)
9013-2(a). A verification is an "affidavit or unsworn declaration, affixed to or
endorsed on a document, which states in substance that the factual allegations made
in the document are true and correct according to the best of the verifier's knowledge,
information and belief." Loc.R.Bankr.P. (D. Minn.) 9001-1(13).
4
Pursuant to local rule, if facts are at issue, a party opposing a motion must
include an opposing affidavit in its response. Loc.R.Bankr.P. (D. Minn.) 9013-2(b).
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STANDARD OF REVIEW
We review the bankruptcy court's decision to convert a chapter 13 case to
chapter 7 for cause within the meaning of § 1307(c) for an abuse of discretion. See
Paulson v. Wein (In re Paulson), 477 B.R. 740, 744 (B.A.P. 8th Cir. 2012) (applying
abuse of discretion standard to our review of a bankruptcy court's decision to dismiss
a debtor's chapter 13 case for cause within the meaning of § 1307(c)).
A court abuses its discretion when a relevant factor that
should have been given significant weight is not
considered; when an irrelevant or improper factor is
considered and given significant weight; or when all proper
factors and no improper ones are considered, but the court
commits a clear error of judgment in weighing those
factors.
City of Duluth v. Fond du Lac Band of Lake Superior Chippewa, 702 F.3d 1147, 1152
(8th Cir. 2013).
DISCUSSION
On appeal, Debtor's principal argument is the bankruptcy court erred in
"refusing" to hold an evidentiary hearing on the United States Trustee's motion.5 In
support of his argument, Debtor directs our attention to Fed.R.Bankr.P. 9014(d),
which provides: "Testimony of witnesses with respect to disputed material factual
issues shall be taken in the same manner as testimony in an adversary proceeding."
5
This is a gross mischaracterization of the record. As discussed below, the
bankruptcy court did not refuse to hold an evidentiary hearing on the United States
Trustee's motion.
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Debtor did not raise this issue before the bankruptcy court, either in his
objection to the United States Trustee's motion6 or at the hearing on the United States
Trustee's motion. "[I]ssues raised for the first time on appeal are ordinarily not
considered by an appellate court as a basis for reversal." Wendover Fin. Servs. v.
Hervey (In re Hervey), 252 B.R. 763, 767 (B.A.P. 8th Cir. 2000) (citing Von
Kerssenbrock Praschma v. Saunders, 121 F.3d 373, 375-76 (8th Cir. 1997). An
exception may be made in "exceptional cases where the obvious result would be a
plain miscarriage of justice or inconsistent with substantial justice." Kelley v. Crunk,
713 F.2d 426, 427 (8th Cir. 1983) (per curiam) (emphasis added).
We do not believe this to be such an exceptional case. Debtor did not request
and was thus not denied an evidentiary hearing: He did not give the bankruptcy court
any reason to even suspect he wanted an evidentiary hearing. He did not support his
objection to the United States Trustee's motion with an affidavit, as he was required
by local rule to do if he believed facts were at issue. He did not identify any proposed
witnesses in his objection, as he was required by local rule to do if he anticipated
offering oral testimony. He did not offer, or request an opportunity to offer, anything
other than the argument of his attorney at the hearing on the United States Trustee's
motion. And he remained silent when the bankruptcy court proceeded to issue its
bench ruling. Under the circumstances, "[t]he only injustice that would occur here
is if we were to consider [his] argument[ ]." Hervey, 252 B.R. at 768.
Moreover, Debtor's reliance on Rule 9014(d) is misplaced. Rule 9014(d) does
not require an evidentiary hearing on every motion. Rather,
6
Pursuant to local rule, "If a party . . . responding to a motion anticipates
offering oral testimony, the . . . responsive documents shall state the name, address
and substance of the testimony of the proposed witness." Loc.R.Bankr.P. (D. Minn.)
9013-2(c)(1). Debtor's objection to the United States Trustee's motion did not
identify any proposed witnesses.
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[s]ubdivision (d) [was] added to clarify that if [a] motion
cannot be decided without resolving a disputed material
issue of fact, an evidentiary hearing must be held at which
testimony of witnesses is taken in the same manner as
testimony is taken in an adversary proceeding or at a trial
in a district court civil case.
Fed.R.Bankr.P. 9014, advisory committee's note to 2002 amendment (emphasis
added).
In this case, the bankruptcy court was not called upon, much less required, to
resolve any disputed material issues of fact. Debtor's objection to the United States
Trustee's motion purported to dispute some–but not all–of the facts proffered by the
United States Trustee. However, as previously noted, Debtor's objection was not
supported by an affidavit. This left the bankruptcy court with only those facts
proffered by the United States Trustee: "[T]he [bankruptcy court] cannot take
cognizance of fact assertions that are not under oath." In re Johnson, 207 B.R. 878,
879 n.1 (Bankr. D. Minn. 1997). And this left the bankruptcy court with no disputed
material issues of fact to resolve. Rule 9014(d) is therefore inapposite.7
7
The situation presented is analogous to that encountered by bankruptcy and
other trial courts in considering motions for summary judgment. In that context, if
the moving party meets its burden, the party opposing the motion must establish a
genuine factual issue. Residential Funding Co. v. Terrace Mortg. Co., 725 F.3d 910,
915 (8th Cir. 2013). The party opposing the motion may not rest on mere allegations
or pleading denials, Conseco Life Ins. Co. v. Williams, 620 F.3d 902, 910 (8th Cir.
2010), or "merely point to unsupported self-serving allegations." Anda v. Wickes
Furniture Co., 517 F.3d 526, 531 (8th Cir. 2008) (quoted in Residential Funding, 725
F.3d at 915). Instead, the party opposing the motion must substantiate its allegations
with admissible, probative evidence that would permit a finding in its favor on more
than speculation or conjecture. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)
(quoted in Spaulding v. Conopco, Inc., 740 F.3d 1187, 1190-91 (8th Cir. 2014));
F.D.I.C. v. Bell, 106 F.3d 258, 263 (8th Cir. 1997) (citing Kiemele v. Soo Line R.R.
Co., 93 F.3d 472, 474 (8th Cir. 1996), and JRT, Inc. v. TCBY Systems, Inc., 52 F.3d
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Debtor's remaining argument focuses on his belief that his proposed "100%
8
plan" demonstrates his good faith. This argument is without merit, for at least two
reasons.
First, while we agree a confirmable "100% plan" would be evidence of a
debtor's good faith, we do not agree such evidence would necessarily "trump" other
evidence of cause and leave the bankruptcy court with no choice but to deny a motion
to convert a debtor's chapter 13 case to chapter 7. In any event, Debtor offered no
evidence to demonstrate his plan was in fact confirmable. Debtor's attorney argued
(and continues to argue) Debtor would prevail on his objections to three large
unsecured claims and his proposed plan would then be confirmable. However, as
discussed above, argument is not evidence. And we agree with the bankruptcy court:
The evidence presented by the United States Trustee called into serious doubt
Debtor's ability to confirm a plan.
Second, the bankruptcy court did not premise its decision to convert Debtor's
chapter 13 case to chapter 7 solely on its concerns regarding Debtor's proposed plan.9
The bankruptcy court found, inter alia, Debtor had been found by a federal district
court judge in the Southern District of Illinois to have exhibited a serious and studied
disregard for the orderly process of justice and a relentless willingness to lie to the
court on paper and in person; he had been found by a state court judge in Minnesota
to have intentionally given inconsistent testimony and to have failed to provide
responsive information throughout the proceedings; he had filed his bankruptcy
734, 737 (8th Cir. 1995)).
8
By this, Debtor means if confirmed, his proposed plan would have paid
allowed unsecured claims in full, with interest.
9
The bankruptcy court's findings regarding Debtor's proposed plan were clearly
cumulative: "The Court also finds that cause exists to convert the case . . . because
the Debtor has failed to timely file a [confirmable] plan." (Emphasis added.)
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petition in an attempt to avoid having to disclose financial information pursuant to
the state court judge's order to show cause; he had failed to disclose assets on his
bankruptcy schedules; he had failed to disclose numerous transfers totaling over
$500,000.00 on his statement of financial affairs; he had failed to honestly disclose
his household expenses on schedules I and J; he had failed to notify the chapter 13
trustee and the bankruptcy court he had moved to a rental property and failed to
amend his schedules to reflect the resulting reduction in his monthly living expenses;
he had failed to notify the chapter 13 trustee and the bankruptcy court he intended to
sell his condominium; he had failed to disclose significant general unsecured claims;
numerous courts had entered findings and conclusions that he had engaged in fraud
and misrepresentations to the courts regarding his assets and his use of various
entities to hide his assets and misrepresent his financial condition; and he was the
subject of a disciplinary action that could result in the revocation of his license to
practice law.10
While Debtor challenged certain of these findings in his reply brief, he did not
do so in his opening brief. "[We] do[ ] not consider issues raised for the first time on
appeal in a reply brief unless the appellant gives some reason for failing to raise and
brief the issue in his opening brief." Jenkins v. Winter, 540 F.3d 742, 751 (8th Cir.
2008) (internal quotation marks omitted). Debtor offers no reason why he failed to
raise and brief any challenges to these findings in his opening brief. Consequently,
he has waived the right to challenge them. Id.
Even if that were not so, however, the bankruptcy court's findings are not
clearly erroneous: Its findings are amply supported by the facts set forth in the United
States Trustee's verified motion. And, as discussed above, while Debtor disagrees
with the bankruptcy court's findings, the record contains no evidence to the contrary.
10
The current status of the disciplinary action is unknown.
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Based on its findings, the bankruptcy court concluded there was sufficient
cause to convert Debtor's chapter 13 case to chapter 7. We agree.
[A] Chapter 13 petition filed in bad faith may be dismissed
or converted "for cause" under 11 U.S.C. § 1307(c). Such
cause includes filing a bankruptcy petition in bad faith.
The bad faith determination focuses on the totality of the
circumstances, specifically: (1) whether the debtor has
stated his debts and expenses accurately; (2) whether he
has made any fraudulent representation to mislead the
bankruptcy court; or (3) whether he has unfairly
manipulated the bankruptcy code.
Molitor v. Eidson (In re Molitor), 76 F.3d 218, 220 (8th Cir. 1996) (internal citations
omitted). Each of these factors was present in this case.
CONCLUSION
Finding no abuse of discretion in its decision, we affirm the bankruptcy court's
December 3, 2015 order granting the United States Trustee's motion to convert
Debtor's chapter 13 case to chapter 7.
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