FILED
JUL 18 2018
NOT FOR PUBLICATION
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. CC-17-1364-LsTaL
CHARLES W. BARTLETT, Bk. No. 9:17-bk-11606-DS
Debtor.
SARIS REALTY, INC., a CALIFORNIA
CORPORATION, dba LAWYERS
REALTY GROUP,
Appellant,
v. MEMORANDUM*
CHARLES W. BARTLETT; ELIZABETH
F. ROJAS, Chapter 13 Trustee,
Appellees.
Submitted Without Argument on June 21, 2018
Filed - July 18, 2018
*
This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
Appeal from the United States Bankruptcy Court
for the Central District of California
Honorable Deborah J. Saltzman, Bankruptcy Judge, Presiding
Appearances: Derik N. Lewis of Vantis Law Firm, APC, on brief for
Appellant
Before: Lastreto,** Taylor, and Lafferty, Bankruptcy Judges.
INTRODUCTION
We encounter in this case the discord between a debtor’s right to dismiss
an unconverted chapter 13 case under 11 U.S.C. § 1307(b)1 and our circuit’s
condition on that right: the absence of a debtor’s bad faith or abuse of process.
Here, a creditor appeals the bankruptcy court’s order dismissing a chapter 13
case without prejudice over that creditor’s objection and before hearing that
creditor’s motion to convert the case to chapter 7. After examining the present
viability of our circuit’s condition on the debtor’s dismissal right under
§ 1307(b) and based on the record, we find neither an abuse of discretion nor
**
Honorable René Lastreto II, Bankruptcy Judge for the Eastern District of
California, sitting by designation.
1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532. All “Rule” references are to the Federal Rules
of Bankruptcy Procedure.
2
error. We therefore AFFIRM.
FACTS
Prepetition Events
Charles W. Bartlett and his wife, Sandra, as trustees of the Bartlett
Family Trust, owned a residence in Westlake Village in Ventura County,
California.2 After buying it in 2000, they refinanced four times between 2003
and 2006. The Bartletts received substantial cash from these efforts, as did
many homeowners with appreciating properties during the “real estate
boom.”
The Bartletts’ fortunes changed between 2012 and 2015; they frequently
approached Wells Fargo about mortgage relief. The Bartletts were repeatedly
told they would not qualify for a loan modification. In July 2013, the Bartletts
filed a lawsuit against Wells Fargo. The lawsuit was dismissed by the Bartletts
in June 2014 after Wells Fargo filed a Motion for Summary Judgment.
The Bartletts turned to the bankruptcy court for relief five times between
1996 and 2017. Their first case, a chapter 7, resulted in a discharge; in 2008,
they filed their second chapter 7 case also resulting in a discharge. In July
2011, Sandra filed a chapter 13 case which was dismissed two months later.
The Bartletts filed a joint chapter 13 case later that year, but that case was
dismissed in February 2012. In 2013, they filed another chapter 13 case which
2
For ease of reference, we will refer to Charles W. Bartlett as “Charles” and
Sandra Bartlett as “Sandra.” No disrespect is intended.
3
was dismissed a few months later.
On January 29, 2016, the Bartletts signed a Residential Listing
Agreement with Saris Realty, Inc., dba Lawyers Realty Group (“Saris”).3
Unsuccessful in negotiating a loan modification with Wells Fargo, the Bartletts
hired Saris to assist them in a “short sale.”4 Saris found a buyer but the
Bartletts did not complete the sale. Saris filed a lawsuit in the Ventura County
Superior Court against the Bartletts and their trust, alleging breach of the
listing agreement. In October 2016, the Bartletts filed a cross-complaint against
Saris, and others, alleging that beginning in May of 2015 they received
solicitations from Saris, the “Vantis Law Firm” and attorney Derik Lewis
advertising pro bono loan modification services. The Bartletts alleged that
Cross-Defendants took advantage of Charles’ failing health, did not work to
achieve a loan modification with Wells Fargo, and had always intended to
profit by achieving a short sale of the Bartletts’ residence (“Saris litigation”).
Meanwhile, Wells Fargo was marching on to foreclosure. It recorded a
notice of default on November 9, 2016 and a notice of sale in May 2017. A
3
We exercise discretion to review the bankruptcy court docket when faced with a
limited record. Woods & Erickson, LLP v. Leonard (In re AVI, Inc.), 389 B.R. 721, 725 n.2
(9th Cir. BAP 2008). We also review the images of the documents attached to the docket.
O’Rourke v. Seaboard Surety Co. (In re Fegert, Inc.), 887 F.2d 955, 957-58 (9th Cir. 1989);
Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP
2003).
4
A “short sale” is a sale of an encumbered property for less than the balance
owed on the loan secured by the property.
4
Trustee’s Sale was scheduled for June 6, 2017. For reasons that are unclear
from the record, the sale date was postponed to November 9, 2017.
Charles’ deposition was set in the progressing Saris litigation. Charles
abruptly aborted that deposition and “stormed out.” That deposition was
rescheduled for September 5, 2017. But, that deposition did not resume as
Charles filed this bankruptcy case on that same date.
Post Petition Events
Charles’ schedules identified the previous bankruptcies in which he was
a joint debtor.5 He scheduled the Westlake Village residence as having a
$750,000.00 value encumbered by two deeds of trust: one in favor of Wells
Fargo securing $706,000.00 and a second deed of trust securing $5,500.00; his
ownership in two vehicles, and miscellaneous items. He also scheduled
Sandra’s IRA and a claim against his former counsel, presumably in the Wells
Fargo litigation, as having zero value.
Charles further disclosed the Saris litigation and listed Saris and the
Vantis Law Firm as having disputed claims for real estate commissions.
Curiously, he also listed the Saris claim as undisputed. No other creditors
with unsecured claims were listed on the schedules.
As to income, Charles claimed that he only received disability income
and SSA benefits since 2015 and disclosed that Sandra received “1099
5
Charles’ schedules did not list the chapter 13 case Sandra filed in July 2011.
5
employee income” of $600.00 per month.
Charles filed a chapter 13 plan with the petition. This plan proposed that
as to Wells Fargo’s secured claim, Charles would submit a loan modification
and/or file a lawsuit against Wells Fargo. Wells Fargo filed an objection to
confirmation of the plan. In its objection, Wells Fargo alleged its loan was
delinquent for 109 months (January 2009 - August 2017) and that the plan was
not feasible or in compliance with § 1322 because the plan neither cured the
outstanding arrearage owed Wells Fargo nor were there sufficient funds in
Charles’ budget to cure the arrearage as required by law.
On October 19, 2017, Wells Fargo filed a Motion for Relief from the
automatic stay. In the motion, Wells Fargo alleged that Charles’ bankruptcy
case was a bad faith filing, that there were multiple filings affecting its
collateral, and that Charles had made no post-petition mortgage payments.
Wells Fargo asked for “in rem relief” under § 362(d)(4).6 On November 9,
2017, Saris filed an objection to Charles’ claim of exemptions. In its objection,
Saris raised Charles’ numerous bankruptcy filings and described the Saris
litigation. Saris also alleged the Wells Fargo loan was in substantial default
and that Charles had purposely understated the debt owed Wells Fargo to
deceive the court into believing that there was existing equity in the Bartlett
6
The hearing on this motion was originally scheduled for November 9, 2017 but
was continued to December 20, 2017, and then continued again to January 4, 2018.
Seven days later, the bankruptcy court entered an order granting the motion and giving
Wells Fargo relief under § 362(d)(4).
6
residence. Plus, Saris mentioned its intention to file a motion to compel
conversion of the chapter 13 case to chapter 7 for Charles’ alleged bad faith
“pre and post petition.”
Two days later, Charles filed an amended chapter 13 plan modifying
Wells Fargo’s treatment. Now, Charles proposed to surrender the residence
since, after deductions for cost of sale and real estate commission, there was
no equity in the residence. Two days later, the chapter 13 trustee filed an
objection to confirmation of the plan. The trustee (referencing Charles’ initial
chapter 13 plan), raised several issues including that plan’s failure to cure the
substantial Wells Fargo arrearage. The hearings on confirmation of the plan,
the trustee’s objection and Saris’ exemption objection were scheduled for
November 30, 2017 (“confirmation hearing”).
Seven days before the confirmation hearing, Saris filed a motion to
compel conversion of the chapter 13 case to chapter 7 and for sanctions. The
hearing was scheduled for December 21, 2017 (“Conversion Motion”). The
Conversion Motion raised bad faith as cause for conversion under § 1307(c).
Saris supported the bad faith allegation with five facts: (1) the numerous cases
Charles filed before this case; (2) the failure of Charles to list as assets
businesses identified by the California Department of Real Estate as operated
under his real estate broker’s license; (3) Charles’ alleged failure to list values
for various assets (i.e., electronics; monies on deposit; claims against third
parties and income from alleged unlisted businesses); (4) understating
7
liabilities in the schedules (i.e., the amount of Wells Fargo’s secured claim and
Saris’ unsecured claim of $35,700.00 which was alleged in the complaint in the
Saris litigation); and (5) that Charles filed the chapter 13 case to avoid the Saris
litigation. The Conversion Motion was supported by attorney Derik Lewis’
declaration in which he described (and attached) various documents
including a property detail showing the numerous mortgages the Bartletts
had negotiated, their attempts to refinance or obtain mortgage relief, and a
listing from the Department of Real Estate’s website showing various “dba’s”
connected with Charles’ real estate brokers license.7
The confirmation hearing was held November 30, 2017. At the hearing,
Charles’ counsel asked for a “straight dismissal” because Charles just had a
surgical procedure and he had no plan payment. Saris’ counsel objected
telling the court that the Conversion Motion was pending, and that Saris
believed there were significant assets that would “assist the creditors.” After
both counsel briefly argued, the court acknowledged Saris’s pending objection
to exemption and the many cases previously filed in the history of the debtor,
and that this case was not a “typical serial filer situation.” The court also
stated: “I don’t see that conversion, even though that’s not before the court
today, would be in the interests of creditors based on the record that I have in
7
Ex. 5 to the Conversion Motion is a list purportedly from the Department of
Real Estate that Saris retrieved from the department’s website showing four active dba’s
connected with Charles’ license. It also showed that Sandra was a real estate sales
person with an active license.
8
front of me.” Saris’ counsel again raised the “hidden multiple real estate
businesses” which Charles did not disclose on his bankruptcy schedules. The
bankruptcy court again acknowledged its awareness of the fraud allegations
made in the objection to the exemptions, but that the court “just didn’t see
much evidence in support of that.” The court then announced that the case
would be dismissed without prejudice but that “[if] creditor [Saris] wants to
seek some sort of relief from that order he (sic) can look into what’s available.”
The court then announced that the case would be dismissed without
prejudice.
On December 1, 2017, the court issued a written order dismissing the
bankruptcy case and ordering that “the court retain jurisdiction on all issues
involving sanctions, any bar against being a debtor in bankruptcy, all issues
arising under bankruptcy code §§ 105, 109(g), 110, 329, 349, and 362, and to
any additional extent provided by law.” This timely appeal followed.8
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(A) and (O). We have jurisdiction under 28 U.S.C. § 158.
ISSUES
Whether the bankruptcy court abused its discretion in dismissing the
bankruptcy case without prejudice.
8
Neither Charles nor the chapter 13 trustee have participated in this appeal.
9
Whether the bankruptcy court erred in not holding a hearing on Saris’
Conversion Motion.
STANDARD OF REVIEW
We review the bankruptcy court’s decision to dismiss a case or an order
regarding conversion of a case for abuse of discretion. Leavitt v. Soto (In re
Leavitt), 171 F.3d 1219, 1223 (9th Cir. 1999); Ellsworth v. Lifescape Med. Assocs.,
P.C. (In re Ellsworth), 455 B.R. 904, 914 (9th Cir. BAP 2011) (dismissal); Rosson
v. Fitzgerald (In re Rosson), 545 F.3d 764, 771 (9th Cir. 2008); Levesque v. Shapiro
(In re Levesque), 473 B.R. 331, 335 (9th Cir. BAP 2012) (conversion).
We review a bankruptcy court’s decision whether to hold a hearing “for
an abuse of discretion.” Zurich America Ins. Co. v. Int’l Fibercom Inc. (In re Int’l
Fibercom Inc.), 503 F.3d 933, 939-40 (9th Cir. 2007). But whether or not the
bankruptcy court should have exercised its discretion presents a legal
question which is subject to de novo review. Nady v. DeFrantz (In re DeFrantz),
454 B.R. 108, 112 (9th Cir. BAP 2011).
We apply a two part test to determine whether the bankruptcy court
abused its discretion. United States v. Hinkson, 585 F.3d 1247, 1261-62 (9th Cir.
2009) (en banc). First, we “determine de novo whether the [bankruptcy] court
identified the correct legal rule to apply to the relief requested.” Id. Second, we
examine the bankruptcy court’s factual findings for clear error. Id. at 1262 and
n. 20. We must affirm the bankruptcy court’s factual findings unless we
determine those findings “(1) ‘illogical,’ (2) ‘implausible,’ or (3) ‘without
10
support in inferences that may be drawn from the facts in the record.’” Id.
De novo review requires that the matter be considered anew, as if it had
not been heard before, and as if no decision had yet been rendered. United
States v. Silverman, 861 F.2d 571, 576 (9th Cir. 1988). When this Panel
undertakes de novo review, the case is viewed from the same position as it
was in the bankruptcy court. See Ka Makani ‘O Kohala Ohana Inc. v. Dept. of
Water Supply, 295 F.3d 955, 959 (9th Cir. 2002).
Bad faith is a factual finding reviewed for clear error. In re Leavitt, 171
F. 3d at 1222-23.
We may affirm on any grounds supported by the record. ASARCO, LLC
v. Union Pac. R.R. Co., 765 F.3d 999, 1004 (9th Cir. 2014); Caviata Attached
Homes, LLC v. U.S. Bank, N.A. (In re Caviata Attached Homes, LLC), 481 B.R. 34,
44 (9th Cir. BAP 2012).
DISCUSSION
1. The bankruptcy court applied the correct legal standard in dismissing the
case without prejudice.
Section 1307(b) provides as follows:
(b) On request of the debtor at any time, if the case
has not been converted under section 706, 1102, 1208
of [Title 11], the court shall dismiss a case under this
chapter. Any waiver of the right to dismiss under this
subsection is unenforceable (emphasis added).
In the Ninth Circuit, a debtor’s right of voluntary dismissal under
11
§ 1307(b) is not absolute. Rosson, 545 F.3d at 773-74. In Rosson, the Ninth
Circuit reasoned that in light of Marrama v. Citizens Bank of Massachusetts, 549
U.S. 365 (2007), and the authority of the court under § 105(a), the right of the
debtor to voluntarily dismiss a chapter 13 case is qualified by the authority of
the bankruptcy court to deny dismissal on grounds of bad faith conduct or “to
prevent an abuse of process.” Rosson, 545 F.3d at 773-74. In Marrama, a
majority of the Supreme Court limited a chapter 7 debtor’s right to convert to
chapter 13 after engaging in bad faith conduct. See Marrama, 549 U.S. at 373-74.
But, seven years later in Law v. Siegel, 134 S. Ct. 1188, 1196 (2014), a unanimous
Supreme Court reversed the Ninth Circuit and held that § 105 and other
provisions of the Bankruptcy Code did not expressly permit a debtor’s exempt
property to be used to pay debts and expenses even when the debtor engaged
in bad faith conduct. In Law, the Supreme Court distinguished Marrama
because in Marrama, the court reasoned that § 706(d) expressly conditioned
conversion on a debtor’s qualifications for relief under chapter 13. The
disqualifying conduct of a debtor in the chapter 7 case could prevent him from
qualifying as a debtor under chapter 13. See Law, 134 S. Ct. at 1197; Marrama,
549 U.S. at 372-75.
Since Law v. Siegel, the continued vitality of Rosson has its allies and
opponents. The Ninth Circuit has not directly reaffirmed Rosson post-Law;
though one Ninth Circuit bankruptcy court has. See In re Brown, 547 B.R. 846
(Bankr. S.D. Cal. 2016). In Brown, the bankruptcy court held that the debtor
12
did not have an absolute right of dismissal under § 1307(b). Id. at 851. That
court reasoned that “[r]ather than undercutting Rosson’s analysis, Law actually
confirms it.” Id. The court found that Marrama’s rejection of a debtor’s right to
convert was based on a “holistic” interpretation of §§ 706(a), 706(d), and
1307(c) (citing to a selection of text from Law summarizing the holding and
reasoning of Marrama). Id. at 851-52. The bankruptcy court in Brown explained:
Law clarified the reasoning of Manama [sic] was that “if the case
had been converted to Chapter 13, § 1307(c) would have required
it to be either dismissed or reconverted to Chapter 7 in light of the
debtor’s bad faith. Law, 134 S. Ct. at 1197.The limited utility of §
105 was to authorize a bankruptcy court to deny debtors their
right to convert a Chapter 7 case to Chapter 13, where the debtors
would not be qualified debtors under § 706(d). Law, 134 S. Ct. at
1197. Hence, § 105 could be used to avoid the “futile procedural
niceties in order to reach more expeditiously an end result
required by the Code.”
Id. at 852, citing Law v. Siegel, 134 S. Ct. 1188, 1197 (2014).
The “procedural nicety” in Brown was that though the court ruled that
the case should be converted, the court had not yet entered the final order.
Before the final order was entered, Mr. Brown’s counsel requested that the
case be dismissed under § 1307(b) instead of converted under § 1307(c). Brown,
547 B.R. at 852.
The Bankruptcy Court for the Western District of Texas sided with
Brown for nearly identical reasons, holding that there is a bad faith exception
13
to a debtor’s right to dismiss a chapter 13 case. In re Pustejovsky, 577 B.R. 671
(Bankr. W.D. Tex. 2017). The court stated that “[i]nterpreting the word shall
as mandatory in § 1307(b), without a bad faith exception, would create absurd
results because sections of the Code must be read together and harmonized.”
Id. at 674. An absolute right to dismiss in § 1307(b) would render § 1307 (c)
meaningless. Id. at 674-75 (citing Foster v. N. Tex. Prod. Credit Ass’n (In re
Foster), 121 B.R. 961, 961 (N.D. Tex. 1990)(chapter 12 case)).
Other courts differ. The Bankruptcy Court for the District of Colorado
contradicts Brown, “concluding the debtor could voluntarily dismiss her case
after a motion to convert was filed.” In re Sinischo, 561 B.R. 176, 186 (Bankr. D.
Colo. 2016), citing In re Mills, 539 B.R. 879, 884 (Bankr. D. Kan. 2015). The
Bankruptcy Court for the District of Colorado also held that a chapter 13
debtor, post Law v. Siegel, has an absolute right to dismiss his or her
bankruptcy case. In re Sinischo, 561 B.R. at 191. In reaching this decision, that
court examined a pre-BAPCPA and pre-Marrama case (Zeman v. Dulaney (In
re Dulaney), 285 B.R. 10 (D. Colo. 2002)), a post-Marrama/pre-Law case, (In re
Williams, 435 B.R. 552 (Bankr. N.D. Ill. 2010)), and a post-Law case (Ross v.
AmeriChoice Fed. Credit Union), 530 B.R. 277 (E.D. Penn. 2015)). These cases all
relied on the differences between the permissiveness of the word “may” and
the strictness of “shall” in §§ 706(a), 1307(b) and 1307(c). See In re Dulaney, 285
B.R. at 14; In re Williams, 435 B.R. at 555-59; AmeriChoice, 530 B.R. at 283-86.
These courts reasoned that the “plain language” of § 1307(b) required them
14
to dismiss the case “at any time,” before conversion, on the request of the
debtor. See Dulaney, 285 B.R. at 15; Williams, 435 B.R. at 560; AmeriChoice, 530
B.R. at 287. In contrast, these courts concluded that § 706(a) states that the
debtor “may” convert at any time (unless the case has previously been
converted) and § 1307(c) states that the court “may” convert or dismiss under
§ 1307(c), whichever is in the best interests of creditors and the estate, after
notice and a hearing. See §§ 706(a), 1307(b), 1307(c); Dulaney, 285 B.R. at 14;
Williams, 435 B.R. at 560; AmeriChoice, 530 B.R. at 287.
We need not consider the continued sturdiness of Rosson. The record
does not support Saris’ argument that the bankruptcy court ignored Rosson
and dismissed the case without prejudice solely on the debtor’s oral motion
at the confirmation hearing.9 Here, the bankruptcy court had a substantial
record. The court also analyzed that record at the confirmation hearing where
9
Rule 1017(f)(2) provides that “[c]onversion or dismissal under . . . 1307(b) shall
be on motion filed and served as required by Rule 9013.” Rule 9013 provides in part:
“[a] request for an order . . . shall be by written motion, unless made during a hearing”
(emphasis added). The debtor’s request for dismissal here was made during a
confirmation hearing so, technically, the motion was in conformance with both Rules
1017 and 9013. Yet in a curious twist, the local rules of the Bankruptcy Court for the
Central District of California (“LBR”) provide that the debtor may seek dismissal by
filing a request for voluntary dismissal which may be ruled on without hearing. LBR
3015-1(q)(1)(A) (emphasis added). Arguably, the only reason for a motion requirement
for dismissal on a debtor’s request under § 1307(b) is for the court to determine whether
the chapter 13 case was converted from another chapter. That argument was not raised
in this appeal and we do not reach that issue.
15
Saris was represented and participated.10 In addition to reviewing the record,
the court applied the analysis of whether conversion or dismissal was in the
best interest of creditors. We are convinced the court did not ignore Rosson
and considered the evidence before it. The court identified the correct legal
rule and applied it to the issues raised.
2. The court made the necessary factual findings.
Bad faith is a “cause” for dismissal under § 1307(c). Eisen v. Curry (In re
Eisen), 14 F.3d 469, 470 (9th Cir. 1994). In this circuit, bankruptcy courts make
good faith determinations on a case-by-case basis, after considering the
totality of the circumstances. Leavitt, 171 F.3d at 1224. The “Leavitt factors” that
inform a decision whether to dismiss or convert a case for bad faith are: (1)
whether the debtor misrepresented facts in his petition or plan, unfairly
manipulated the bankruptcy code, or otherwise filed his chapter 13 petition
in an inequitable manner; (2) the debtor’s history of filings and dismissals; (3)
whether the debtor only intended to defeat state court litigation; and (4)
whether egregious behavior is present. Id (citations omitted). In addition, a
“court must make its good-faith determination in the light of all militating
factors.” Ho v. Dowell (In re Ho), 274 B.R. 867, 877 (9th Cir. BAP 2002) (citing
Goeb v. Heid (In re Goeb), 675 F.2d 1386, 1390 (9th Cir. 1982)). “The bankruptcy
court is not required to find that each [Leavitt] factor is satisfied or even to
10
Some grounds for conversion asserted by Saris in the bankruptcy court were
not mentioned at the confirmation hearing. We will discuss those below.
16
weigh each factor equally.” Khan v. Barton (In re Khan), 523 B.R. 175, 185 (9th
Cir. BAP 2014). Rather, “[t]he Leavitt factors are simply tools that the
bankruptcy court employs in considering the totality of the circumstances.”
Id.
Saris vigorously argues that it had established bad faith to the
bankruptcy court in support of its Conversion Motion. Saris argues that
Charles’ numerous bankruptcy cases; failure to list businesses in his schedules
that he had registered with the California Department of Real Estate; alleged
undervaluation of assets and understatement of liabilities, plus the timing of
the petition filing supported a finding of “bad faith” warranting conversion
of the case to chapter 7. Saris contends that the bankruptcy court failed to
make findings on bad faith because the bankruptcy court did not hold a
hearing on Saris’ Conversion Motion.
Saris’ premise is flawed. When the court held the confirmation hearing,
the court acknowledged the record before it containing the facts which Saris
claims support a finding of bad faith. Wells Fargo had filed an objection to
confirmation of the plan, stating, in part that its loan was in default for 109
months. Over one month before the confirmation hearing, Wells Fargo filed
a motion for relief from the automatic stay, in which it raised the debtor’s bad
faith and the multiple filings affecting its collateral. The chapter 13 trustee had
objected to confirmation, raising several issues, including Wells Fargo’s
17
treatment under the proposed plan.11 The court also had the debtor’s
schedules which showed the existing litigation and claims Saris asserted.
Saris’ own objection to exemptions mentioned Saris’ intention to file the
Conversion Motion. The objection itself raised the numerous filings and
described the Saris v. Bartlett litigation. The objection also alleged substantial
defaults and that Charles allegedly purposely understated debt to deceive the
court into believing there was existing equity.
At the confirmation hearing, the bankruptcy court noted on the record
that it had considered the number of cases Charles filed and found that
Charles’ situation did not “seem to be the typical serial filers situation.” The
court also acknowledged the allegations of Charles’ fraud in the objections to
exemptions. In light of the record before the bankruptcy court, it noted that
the court “didn’t see much evidence in support of that.”
Saris’ argument that the bankruptcy court erred by not making findings
of fact and conclusions of law regarding bad faith and specifically concerning
Charles’ failure to list various “dba’s” found in the California Department of
Real Estate website does not persuade us that the court abused its discretion.
Although Rule 7052 requires the bankruptcy court to make findings and
conclusions in contested matters, the failure to do so does not necessarily
require remand if the record supports the bankruptcy court’s ruling. We may
11
As stated earlier it appears the original plan was amended.
18
consider any issues supported by the record and may affirm on any basis
supported by the record, even where the issue was not expressly considered
by the bankruptcy court. Fernandez v. GE Capital Mortgage Services Inc. (In re
Fernandez), 227 B.R. 174, 177 (9th Cir. BAP 1998), aff’d, 208 F.3d 220 (9th Cir.
2000) (citing In re E.R. Fegert, Inc., 887 F.2d 955, 957 (9th Cir. 1989) and In re
Pizza of Hawaii, Inc., 761 F.2d 1374, 1379 (9th Cir. 1985)). The bankruptcy court
has the discretion to weigh the various “Leavitt factors” when determining
bad faith. Saris’ disagreement with the bankruptcy court’s consideration of
those factors does not mean the court abused its discretion. We do not find the
bankruptcy court’s findings to be illogical, implausible, or without support in
the record.
The “two step analysis” the court engaged in before ruling that the case
should be dismissed without prejudice further supports our conclusion. “First,
it must be determined that there is ‘cause’ to act. Second, once a determination
of ‘cause’ has been made, a choice must be made between conversion and
dismissal based on the ‘best interests of the creditors and the estate.’” De la
Salle v. U.S. Bank, N.A. (In re De la Salle), 461 B.R. 593, 605 (9th Cir. BAP 2011)
quoting Nelson v. Meyer (In re Nelson), 343 B.R. 671, 675 (9th Cir. BAP 2006). If
we assume Saris and the record before the court had established bad faith, the
court went through the proper two step analysis. The schedules here show no
unsecured creditors, except Saris and its counsel listed as having disputed
claims. The other creditors were secured by Charles’ real estate. Saris claims
19
there may have been other creditors but provided the bankruptcy court with
no supporting evidence. Saris did not provide any evidence of how the
creditor’s best interests would be served with the appointment of a trustee in
a chapter 7 case. Appointment of a chapter 7 trustee to administer a chapter
7 estate for the benefit of essentially one creditor is inconsistent with the
purpose of chapter 7.
We recognize that another interpretation of the evidence Saris provided
may lead to a conclusion that conversion was in the best interest of the estate.
On this record, we do not find the court abused its discretion. Under the “clear
error” standard “[w]here there are two permissible views of the evidence, the
fact finder’s choice between them cannot be clearly erroneous.” Anderson v.
Bessemer City, 470 U.S. 564, 574 (1985). We discern no clear error.
3. The bankruptcy court did not err in not hearing the Conversion Motion.
Even if we apply a de novo standard because the bankruptcy court did
not exercise its discretion and hold a hearing on Saris’ Conversion Motion
under DeFrantz, 454 B.R. at 112, the bankruptcy court’s decision is supported
by the record.
First, the only evidence which the court did not state on the record it had
considered at the confirmation hearing, was the alleged “dba’s” which were
not listed on Charles’ bankruptcy schedules. The source of that evidence was
license information Saris had taken from the California Bureau of Real Estate’s
website. Assuming the evidence was properly authenticated (Federal Rule of
20
Evidence 901(b)(7)) and not excluded hearsay (Fed. R. Evid. 803(8)), it does
not establish that any creditors would benefit by conversion of the case. The
evidence shows that there are four “active” dba’s under Charles’ real estate
brokers license. The fact the “dba’s” are “active” does not mean there are any
assets in those businesses or that they were even operating at the time of the
filing of the petition. Even with a lack of explicit findings, we have discretion
to review the record when the record is sufficient for us to determine the
relevant facts. Moen v. Hull (In re Hull), 251 B.R. 726, 731 (9th Cir. BAP 2000)
(citing Gardenhire v. IRS (In re Gardenhire), 220 B.R. 376, 380 (9th Cir. BAP 1998)
reversed on other grounds, 209 F.3d 1145 (9th Cir. 2000)). Assuming we are
required to look at the court’s decision anew, the evidence does not support
the conclusion that the bankruptcy court erred.
Second, even if we agreed with Saris that a hearing on Saris’ Conversion
Motion was preferable, we fail to see how Saris was prejudiced. Saris stresses
that under Rosson where the decision to convert the case happened at a
hearing on debtor’s counsel’s motion to withdraw, the debtor there claimed
no “meaningful opportunity” to be heard. Rosson, 545 F.3d at 775. In Rosson,
the Ninth Circuit states: “[b]ecause there is no reason to think that, given
appropriate notice and a hearing, Rosson would have said anything that could
have made a difference, Rosson was not prejudiced by any procedural
deficiency.” Id. at 777. We do not see how Saris was prejudiced when the
bankruptcy court had the record before it when it determined that the best
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interests of the creditors was served by dismissal.
Saris argues that dismissal was “what the debtor want[ed]” and that
dismissal would further debtor’s “scheme to abuse the bankruptcy system”
and the debtor would be “free of the consequences” of filing his petition
“while he reaped the benefits of the automatic stay . . . .” We disagree.
First, the bankruptcy court had all of the evidence before it at the
confirmation hearing. The bankruptcy court was persuaded there was “cause”
for dismissal. As we stated, the germane inquiry is whether dismissal or
conversion benefits the creditors and the bankruptcy court found dismissal
was of more benefit. We do not believe that finding is illogical, implausible,
or unsupported.
Second, Saris’ premise that the debtor was free of consequences by the
dismissal is mistaken. Wells Fargo filed a Motion for Relief from the automatic
stay which was pending when the bankruptcy court dismissed the case after
Charles’ counsel’s request. Section 109(g)(2) barred the debtor from refiling for
180 days. Also, under § 362(c)(3), another filing by the debtor within one year
results in termination of the automatic stay by operation of law thirty days
after the subsequent filing unless a party in interest can establish by “clear and
convincing evidence” the subsequent filing is in good faith. See § 362(c)(3)(B).
Saris also has other remedies including a Rule 9011 motion, if there is a
subsequent filing.
Third, the dismissal order appealed from specifically reserves
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jurisdiction in the bankruptcy court to hear further matters under § 105 or “all
issues involving. . .any bar against being a debtor in bankruptcy.”
Finally, we are not convinced the court erred in not imposing the severe
dismissal with prejudice sanction. Dismissal with prejudice bars further
bankruptcy proceedings between the parties and is a complete adjudication
of the issues. Leavitt, 171 F.3d at 1223-24 citing Colonial Auto Ctr. v. Tomlin (In
re Tomlin), 105 F.3d 933, 936-37 (4th Cir. 1997). It should rarely be applied
since its effect is preventing a discharge of debts. This usually requires proof
of a debtor’s commission of one or more offenses listed in § 727(a). But the
debtor has the procedural protections of an adversary proceeding in that case.
See Rules 4004 and 7001. So, this “severe sanction” is limited to “extreme
situations.” Tomlin, 105 F.3d at 937. The court in Leavitt rejected a creditor’s
contention that a debtor’s use “of the bankruptcy system to ‘stubbornly,
persistently, and wrongfully thwart creditors’“ was “without foundation in
law.” Leavitt, 171 F.3d at 1224. Saris’ contentions here are similarly
unsupported.
In short, we discern no error.
CONCLUSION
For the foregoing reasons, we AFFIRM.
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In re: Charles W. Bartlett
Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
Date filed: 2018-07-18
Citations:
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