FILED
MAR 17 2017
1 NOT FOR PUBLICATION
2 SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. CC-16-1210-TaFC
)
6 IQBAL MAHMOOD, ) Bk. No. 2:15-bk-25281-DS
)
7 Debtor. )
______________________________)
8 )
IQBAL MAHMOOD, )
9 )
Appellant, )
10 )
v. ) MEMORANDUM*
11 )
ADNAN KHATIB, )
12 )
Appellee. )
13 ______________________________)
14 Argued and Submitted on February 23, 2017
at Pasadena, California
15
Filed – March 17, 2017
16
Appeal from the United States Bankruptcy Court
17 for the Central District of California
18 Honorable Deborah J. Saltzman, Bankruptcy Judge, Presiding
19
Appearances: Michael R. Totaro of Totaro & Shanahan argued for
20 appellant; Janelle M. Dease of Borchard &
Callahan, APC argued for appellee.
21
22 Before: TAYLOR, FARIS, and CLEMENT,** Bankruptcy Judges.
23
24 *
This disposition is not appropriate for publication.
25 Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
26 See 9th Cir. BAP Rule 8024-1(c)(2).
27 **
The Hon. Fredrick E. Clement, United States Bankruptcy
28 Judge for the Eastern District of California, sitting by
designation.
1 INTRODUCTION
2 Chapter 111 debtor Iqbal Mahmood appeals from the
3 bankruptcy court’s dismissal of his bankruptcy case as a bad
4 faith filing. We AFFIRM the bankruptcy court.
5 FACTS2
6 A California appellate court once remarked: “Understanding
7 the complex series of events that led to this litigation is
8 necessary to frame the current appeal, and to explain our
9 holdings.” Mahmood v. Sharif, No. B175483 (Cal. Ct. App.
10 July 20, 2005). That was in 2005. Twelve years — and at least
11 two more appellate decisions — later, we meet an enhanced
12 challenge in explaining the long history of the underlying
13 disputes. Thankfully, the parties agree on most basic facts.
14 Pre-bankruptcy events. Debtor Iqbal Mahmood immigrated to
15 the United States in 1970. In 1981, he and Fehmida, his wife at
16 the time, purchased a mixed-use property in Cerritos, California
17 (the “Property”). Debtor has apparently lived and worked there
18 ever since.
19 In 1988, Adnan Khatib commenced a state court lawsuit
20 against Debtor and others and sought recovery based on alleged
21 slander. In April 1991, Debtor quitclaimed the Property to
22 Fehmida. Shortly thereafter, Khatib obtained a $542,159
23
24
1
Unless otherwise indicated, all chapter and section
25 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
26 2
We exercise our discretion to take judicial notice of
27 documents electronically filed in the underlying bankruptcy
case. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood),
28 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
2
1 judgment. And only three months thereafter, Fehmida filed for
2 divorce. Khatib and Debtor then entered into a settlement
3 agreement to satisfy the judgment; but concord did not follow.
4 In September 1992, Khatib again sued Debtor, among others;
5 he alleged four causes of action: (1) fraudulent conveyance;
6 (2) breach of contract; (3) fraud; and (4) conspiracy. As a
7 result of discovery sanctions, Khatib eventually obtained a
8 default judgment on the fraudulent conveyance and breach of
9 contract causes. The judgment set aside all transfers of the
10 Property after January 27, 1988, deemed title held by Debtor and
11 Fehmida as community property, enjoined Debtor from transferring
12 the Property, and awarded Khatib money damages on the breach of
13 contract cause.
14 Khatib then recorded an abstract of judgment. Debtor
15 appealed. In 1996, the California Court of Appeal affirmed the
16 fraudulent conveyance aspect of the judgment but reversed and
17 remanded for the trial court to recalculate the damages on the
18 breach of contract claim. The trial court entered a new
19 judgment the next year but erroneously assessed damages on the
20 fraud cause of action. Debtor again appealed, and the
21 California Court of Appeal again affirmed, albeit while also
22 modifying the judgment to reflect that the damages award was
23 based on the contract, not the fraud, cause of action.
24 At appropriate intervals Khatib renewed his judgment: once
25 when he calculated the amount due as $1,256,537.37; and then
26 when he calculated the amount due as $2,029,423.50. Debtor
27 disputed this second renewal, but Khatib prevailed at both the
28 trial and appellate levels.
3
1 In January 2013, Khatib applied to have the Property sold
2 by writ of execution. In response, Debtor’s daughter, as
3 trustee for a trust, filed a lawsuit for quiet title,
4 declaratory relief, and equitable relief: she claimed that the
5 trust had title to the Property, based on a series of transfers
6 going back to the April 1991 transfer from Debtor to Fehmida.
7 The state court ruled in Khatib’s favor in her action, an appeal
8 followed, and the appellate court affirmed.
9 In July 2015, Khatib again sought to sell the Property by
10 writ of execution. Debtor was served with an “Application for
11 Issuance of an Order to Show Cause Why an Order for Sale of
12 Dwelling Should Not Issue”; it was set for hearing on October 6,
13 2015.
14 Debtor’s bankruptcy petition. But on October 4, 2015,
15 Debtor filed a voluntary chapter 11 petition. On Schedule A, he
16 listed two pieces of real property, the Property and vacant land
17 in Chico, CA. He valued his interest in them at $275,000 and
18 $44,000, respectively.
19 He listed four secured creditors on Schedule D, marking all
20 as “disputed”: Adhan Khatib [sic], 1994, $50,000; Butte County
21 Tax Collector, 2014, $2,000; James F. McGee, 1994, $50,000; and
22 Los Angeles County Tax Collector, 2015, $5,923.70. He then
23 listed six unsecured creditors on Schedule F, again marking all
24 as “disputed.” These included: Khatib, 1994, $1,422,034.20;
25 McGee, 1994, $1,422,034.20; Mohammad and Rukhsna Sharif, 1994,
26 $195,000; Mohammad S. Tremzai, 1992, $50,000; Rutan & Tucker,
27 2012, $10,000; and Shaheen Iqbal, 1992, $45,000.
28 Debtor also has a litigious history with Mohammad Sharif,
4
1 Rukhsana Sharif, and M. Sharif (the “Sharifs”). The Sharifs
2 obtained a money judgment against Debtor in 2001. Debtor
3 appealed, but the Sharifs prevailed.
4 Debtor almost immediately filed a post-petition motion to
5 value the Property, asserting it was worth $275,000. Khatib
6 opposed. The bankruptcy court eventually valued the Property at
7 $550,000.
8 Debtor also promptly commenced an adversary proceeding
9 against Khatib and the Sharifs to determine the existence,
10 validity, and priority of the various liens.
11 Debtor then submitted a “corrected” disclosure statement
12 and a proposed plan of reorganization. As described in the
13 disclosure statement, the plan proposes to take the Property’s
14 $550,000 value, subtract a $175,000 homestead exemption, and
15 treat the secured claims as secured up to $375,000. The plan
16 then pays secured claims over 7 years at 3% interest. The
17 deficiency claims are treated as unsecured claims to receive a
18 2% dividend, without interest, in equal monthly installments
19 over 84 months. The disclosure statement also represents that
20 Debtor had averaged net monthly income of $3,758.94 in the six
21 months since the petition was filed.
22 Khatib responded to Debtor's bankruptcy efforts with a
23 motion to dismiss the bankruptcy case as a bad faith filing.
24 After canvassing the parties’ history and discussing various
25 factors, Khatib argued that “totality of the circumstances
26 reveals that Debtor is fraudulently using bankruptcy as a way to
27 appeal and avoid the Judgment that allows Khatib to enforce
28 against the [Property].” He urged the bankruptcy court to find
5
1 “that Debtor acted in bad faith in filing his petition.” He
2 then argued that dismissal would serve the best interest of all
3 creditors and the estate.
4 Debtor opposed. Among other things, he argued that if the
5 court found cause to dismiss, there were unusual circumstances
6 that established that neither dismissal nor conversion was in
7 the best interests of creditors and the estate: he related his
8 discovery that the liens and their respective priority was
9 unclear and needed judicial determination. His adversary
10 proceeding, he suggested, was a quick way to resolve the
11 dispute. He added: “If Debtor had to choose he would argue
12 dismissal would provide a better option for the creditors and
13 the estate as their claims would not be reduced further by
14 trustee fees and their attorney’s fees.”
15 The bankruptcy court heard the matter, entertained oral
16 argument, and ruled from the bench. It clarified that bad faith
17 was grounds for dismissal under § 1112(b). And it identified
18 five relevant factors:
19 whether the debtor has only one asset; whether the
debtor has an ongoing business to reorganize; whether
20 . . . there [are] unsecured creditors; whether the
debtor has any cash flow or sufficient source of
21 income consisting a plan; and finally, whether this is
essentially a case that is a two-party dispute that is
22 capable of being adjudicated in state court as opposed
to a bankruptcy court.
23
24 It then discussed each of the factors. From them, it concluded
25 “that we have . . . a pretty clear case for dismissal based on
26 bad faith.” Finally, the bankruptcy court decided: “I don’t
27 believe that appointment of a trustee or an examiner in this
28 case would be an appropriate option either because there’s no
6
1 need for any sort of investigation, there’s no need for another
2 party to come in to operate a business or to oversee the conduct
3 of a case.” It then entered an order dismissing the case.
4 Debtor timely appealed.
5 JURISDICTION
6 The bankruptcy court had jurisdiction under 28 U.S.C.
7 §§ 1334 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C.
8 § 158.
9 ISSUE
10 Whether the bankruptcy court abused its discretion when it
11 dismissed Mahmood’s chapter 11 petition.
12 STANDARDS OF REVIEW
13 “We review de novo whether the cause for dismissal of a
14 Chapter 11 case under 11 U.S.C. § 1112(b) is within the
15 contemplation of that section of the Code.” Marsch v. Marsch
16 (In re Marsch), 36 F.3d 825, 828 (9th Cir. 1994). We review for
17 abuse of discretion the bankruptcy court’s decision to dismiss a
18 chapter 11 case as a “bad faith” filing. Hutton v. Treiger
19 (In re Owens), 552 F.3d 958, 960 (9th Cir. 2009); Sullivan v.
20 Harnisch (In re Sullivan), 522 B.R. 604, 611 (9th Cir. BAP
21 2014). We apply a two-step test to determine whether the
22 bankruptcy court abused its discretion. In re Sullivan,
23 522 B.R. at 611 (citing United States v. Hinkson, 585 F.3d 1247,
24 1261-62 (9th Cir. 2009) (en banc)). First, we consider de novo
25 whether the bankruptcy court applied the correct legal standard
26 to the relief requested. Id. Then we review for clear error
27 the bankruptcy court’s findings of fact. Id. (citing cases).
28 “We must affirm the bankruptcy court’s fact findings unless we
7
1 conclude that they are illogical, implausible, or without
2 support in the record.” Id. A factual determination is clearly
3 erroneous “if it was without adequate evidentiary support or was
4 induced by an erroneous view of the law.” Id.
5 DISCUSSION
6 Section 1112(b)(1) provides that “the court shall convert a
7 case under this chapter to a case under chapter 7 or dismiss a
8 case under this chapter, whichever is in the best interests of
9 creditors and the estate, for cause . . . .” 11 U.S.C.
10 § 1112(b)(1). If cause is established, the decision to convert
11 or dismiss the case falls within the bankruptcy court’s
12 discretion. In re Sullivan, 522 B.R. at 612. If a bankruptcy
13 court determines that there is cause to convert or dismiss, it
14 must also: (1) decide whether dismissal, conversion, or the
15 appointment of a trustee or examiner is in the best interests of
16 creditors and the estate; and (2) identify whether there are
17 unusual circumstances that establish that dismissal or
18 conversion is not in the best interests of creditors and the
19 estate. 11 U.S.C. § 1112(b)(1), (b)(2); In re Sullivan,
20 522 B.R. at 612.
21 Debtor concedes that a determination that a bankruptcy
22 petition was filed in bad faith constitutes cause under
23 § 1112(b). In re Marsch, 36 F.3d at 828. We now turn to
24 whether the bankruptcy court’s dismissal was an abuse of
25 discretion.
26 A. The bankruptcy court properly applied the correct
legal standard.
27
28 As discussed in more detail below, the bankruptcy court
8
1 weighed various factors before finding that Debtor filed his
2 chapter 11 petition in bad faith. On appeal, Debtor argues that
3 the bankruptcy court misapplied the correct legal standard
4 because it failed to consider the totality of the circumstances
5 when it considered only some, but not other, factors.
6 We disagree. This Panel (and others) have elucidated
7 helpful circumstantial factors that might indicate bad faith
8 when considering a totality of the circumstances. The
9 bankruptcy court did not have to consider all the factors; nor
10 did it have to weigh them equally. A bankruptcy court may find
11 one factor dispositive. Indeed, a bankruptcy court may find bad
12 faith even if none of the factors are present.
13 Here, the bankruptcy court recited and considered factors
14 this Panel has endorsed. See St. Paul Self Storage Ltd. P’ship
15 v. Port Auth. (In re St. Paul Self Storage Ltd. P’ship),
16 185 B.R. 580 (9th Cir. BAP 1995). In St. Paul, we remarked:
17 To determine whether a debtor has filed a petition in
bad faith, courts weigh a variety of circumstantial
18 factors such as whether:
19 (1) the debtor has only one asset;
(2) the debtor has an ongoing business to
20 reorganize;
(3) there are any unsecured creditors;
21 (4) the debtor has any cash flow or sources
of income to sustain a plan of
22 reorganization or to make adequate
protection payments; and
23 (5) the case is essentially a two party
dispute capable of prompt adjudication in
24 state court.
25 See In re Stolrow’s, Inc., 84 B.R. [167, 171 (9th Cir.
BAP 1988)]. Generally speaking, when factors such as
26 these indicate that a debtor is unreasonably deterring
or harassing creditors rather than attempting a speedy
27 and feasible reorganization, the court may conclude
that the petition has been filed in bad faith and
28 dismiss it.
9
1 Id. at 582–83 (some citations omitted). The list is admittedly
2 not exhaustive; an even earlier Panel decision set forth a more
3 expansive list of eight factors. See In re Stolrow’s, Inc.,
4 84 B.R. at 171. The bankruptcy court could have discussed all
5 eight circumstantial factors; but it was not obliged to.
6 Indeed, in St. Paul the Panel affirmed a bad faith finding based
7 on the more limited list of five factors — the precise factors
8 the bankruptcy court, here, considered.
9 Debtor also believes the bankruptcy court should have
10 evaluated factors that he raised (factors that do not appear on
11 even the longer list). But we are not persuaded that the
12 bankruptcy court ignored them.3 First, Debtor emphasizes that
13 his insolvency is relevant to the case and that the
14 “disinclination to examine debtor’s overall financial status was
15 a factor in an erroneous conclusion [that] the Sullivan case was
16 filed in bad faith.” Aplt’s Opening Br. 14. As this panel and
17 the Ninth Circuit have observed, a debtor’s financial status is
18 relevant. In re Sullivan, 522 B.R. at 615 (citing In re Arnold,
19 806 F.2d at 939). But Sullivan is distinguishable; there, the
20 bankruptcy court erroneously viewed the debtor’s alleged
21 insolvency as a “non-issue” and inappropriately limited its
22 examination of the debtor’s financial status. Id. Here, the
23 bankruptcy court did consider Debtor’s financial status (i.e.,
24 his assets, cash flow, liabilities, etc.), and it did not
25 erroneously determine that Debtor was solvent.
26
3
27 Debtor raised them in his papers. And the bankruptcy
court informed counsel, on the record, that “I have reviewed the
28 papers.”
10
1 Second, Debtor contends that “the very fact” that he has
2 been diligently “working toward reorganization is inconsistent
3 and incongruous with this being a ‘bad faith filing.’” Aplt’s
4 Opening Br. at 14. But Debtor is not the first to raise this
5 argument; in St. Paul, the debtor also argued that it did not
6 file its bankruptcy petition in bad faith, and to “support this
7 contention, [d]ebtor refers to the fact that it filed a proposed
8 disclosure statement and plan, filed all monthly operating
9 reports, and paid all quarterly fees to the United States
10 Trustee.” 185 B.R. at 583. The St. Paul Panel was not
11 convinced: “However, notwithstanding Debtor’s reverence for
12 form, the substance of this case indicates that the bankruptcy
13 court’s finding of bad faith was not clearly erroneous nor did
14 it abuse its discretion when dismissing the case.” Id. We are
15 similarly unimpressed with Debtor's form over substance
16 argument. Put bluntly: if a debtor’s timely filing all
17 operating reports, complying with various reporting
18 requirements, and “working toward reorganization” rebutted
19 indicia of bad faith, then every debtor who complied with the
20 bare minimum of procedural requirements would be immunized from
21 a bad faith finding.
22 Last, Debtor twice argues that filing bankruptcy to “save
23 equity in one’s home” is a legitimate reason for filing
24 bankruptcy and then suggests that his motivation for filing is
25 similar. See Aplt’s Opening Br. at 13, 15. It is a legitimate
26 reason, except Debtor has no equity to save. He wants to
27 preserve his homestead exemption. But he does not need
28 bankruptcy protection to do so.
11
1 In sum, we conclude that the bankruptcy court properly
2 considered the totality of the circumstances; it listed
3 appropriate factors and from those factors found bad faith.
4 B. The bankruptcy court’s “bad faith” finding was not
clearly erroneous.
5
6 “We must affirm the bankruptcy court’s fact findings unless
7 we conclude that they are illogical, implausible, or without
8 support in the record.” In re Sullivan, 522 B.R. at 612. “We
9 may view a factual determination as clearly erroneous if it was
10 without adequate evidentiary support or was induced by an
11 erroneous view of the law.” Id.
12 The bankruptcy court found that Debtor’s petition was filed
13 in bad faith. It based this, in part, on a finding that Debtor
14 “is using this bankruptcy as a litigation tactic in connection
15 with his disputes with Mr. Khatib and using bankruptcy as a
16 litigation tactic or as a grounds to delay creditor’s collection
17 . . . .” Debtor argues that the bankruptcy “court failed to
18 explain what that ‘litigation tactic’ was.” Aplt’s Opening Br.
19 at 25. He reasons: “This was just collection efforts to sell
20 Mahmood’s home and place of business so no actual ‘tactic’ just
21 following a viable procedure to seek to pay debts and retain his
22 property.” Aplt’s Opening Br. at 26. We disagree.
23 The evidence before the bankruptcy court reflected: in
24 1991, Khatib obtains judgment, Debtor and Khatib later settle,
25 but Debtor fraudulently conveys the Property; Khatib obtains a
26 second judgment, Debtor appeals, judgment affirmed in part
27 remanded in part, new judgment, Debtor appeals, judgment
28 affirmed; Khatib renews the judgment; Khatib renews the judgment
12
1 again, Debtor appeals, renewed judgment affirmed; Khatib begins
2 the sale process, Debtor’s daughter brings quiet title action,
3 Khatib prevails at trial, Debtor’s daughter appeals, judgment
4 affirmed; finally, Khatib renews the sale process, Debtor files
5 bankruptcy. We recognize Debtor’s belief that, along the way,
6 he scored minor victories. But the bankruptcy court’s finding
7 that Debtor was using the bankruptcy petition as the latest in a
8 decades-old campaign to delay Khatib’s collection efforts was
9 not clear error.
10 For the sake of completeness, we also address Khatib’s more
11 specific arguments. Debtor disputes the bankruptcy court’s
12 analysis on nearly every factor; he argues that the bankruptcy
13 court’s factual findings were clearly erroneous.4
14 Whether Debtor has only one asset. The bankruptcy court
15 concluded that the case was “essentially a one-asset case.” It
16 observed that Debtor “clearly filed this case to protect this
17 particular asset.” It acknowledged that there were other items
18 on the schedules, but noted that they were “of de minimis
19 value.” On appeal, Debtor argues that a case is either a single
20 asset case or not; accordingly, this case cannot be a “one-
21 asset” case because Debtor has other assets: he co-owns a parcel
22 of vacant land and has postpetition income. But as Debtor
23 concedes, the bankruptcy court did not find that Debtor only had
24
4
25 Debtor does not, however, dispute the bankruptcy court’s
conclusion that the “ongoing business to reorganize” factor was
26 not particularly useful: “[T]he debtor’s practice right out of
27 his home it’s -- it appears to be a relatively straightforward
one. It doesn’t appear the bankruptcy is to be used as a tool
28 to reorganize the business.”
13
1 one asset; it looked at the schedules, acknowledged that Debtor
2 had other assets, but concluded that they were negligible.
3 Although the bankruptcy court did not explicitly identify
4 Debtor’s postpetition income as an asset, we are not persuaded
5 this would have altered the calculus. Accordingly we conclude
6 that the bankruptcy court’s finding that this was “essentially”
7 a one-asset case was not clearly erroneous.
8 Whether there are any unsecured creditors. The bankruptcy
9 court found that there were few, if any, true unsecured
10 creditors in the case. On appeal, Debtor acknowledges that some
11 of the creditors listed on the schedules did not file proofs of
12 claims, but he argues that the court should look at the
13 schedules at the time of filing. Debtor also contends that the
14 bankruptcy court ignored the natural result of claim
15 bifurcation: all but $375,000 of the “secured” claims would be
16 treated as unsecured. In reaching its conclusion, the
17 bankruptcy court looked at Debtor’s initial schedules, Debtor’s
18 proposed amended schedules, and the claims register. There was
19 no clear error in its conclusion — even if Debtor’s bankruptcy
20 plan would treat some claims as undersecured.
21 Whether Debtor has any cash flow or sources of income to
22 sustain a plan of reorganization. The bankruptcy court found:
23 “it seems to me that the debtor is not likely to be able to fund
24 the proposed plan while also funding basic needs of his own
25 life.” The bankruptcy court looked at the proposed plan and
26 disclosure statement; based on the information in them, it
27 calculated that Debtor would have about $198 per month left over
28 after expenses and plan payments. Then it compared the income
14
1 reported in the disclosure statement (based on the six months
2 since the petition was filed) with Debtor’s initial Schedule I.
3 Based on Schedule I, Debtor could not cover the proposed plan
4 payments. Hr’g Tr. 15:24-16:3. Last, it acknowledged that
5 Debtor intended to rely on family members for emergencies but
6 concluded that there was no evidence “that’s been provided by
7 the debtor as to specifics regarding those contributions or
8 under what circumstances they would be made.”
9 On appeal, Debtor urges that the income disparity between
10 the disclosure statement and schedules was a positive
11 development because it showed that Debtor had increased his
12 income by nearly $500 per month since the petition was filed.
13 And he argues that the bankruptcy court misread the submitted
14 declaration because it indicated that Debtor’s son-in-law was
15 committed to providing at least $1,000 or more a month to
16 Debtor.
17 We hesitate to discuss this factor at length. This was not
18 a hearing to confirm the plan or approve the disclosure
19 statement. See In re Sullivan, 522 B.R. at 617-19 (concluding
20 that a bankruptcy court’s determination that debtor could not
21 file a confirmable plan may be premature at an early stage in
22 the case). But Debtor had submitted a proposed plan and
23 disclosure statement and the case was well developed, so the
24 bankruptcy court could consider them. In doing so, the
25 bankruptcy court looked at the plan’s feasibility, Debtor’s
26 admitted need for outside funding, and the declaration attesting
27 to outside funding. We recognize that, with some clarification
28 (and assuming his son-in-law’s cooperation), Debtor might have
15
1 corrected any deficiency in the offered declaration.
2 Nevertheless, we conclude that the bankruptcy court did not
3 clearly err in finding that Debtor did not have sufficient cash
4 flow to sustain a reorganization plan — any increase in the
5 interest rate paid to creditors, litigation costs, or other
6 changes to the plan would have made it difficult, if not
7 impossible, for Debtor to make plan payments.
8 Whether the case is essentially a two-party dispute capable
9 of prompt adjudication in state court. The bankruptcy court
10 found:
11 Finally, this is a two-party dispute and while there
are . . . maybe a couple of unsecured creditors,
12 obviously we have the Sharifs, ultimately it really
appears to me that this is a dispute between the
13 debtor and Mr. Khatib and this is a dispute that has
been going on since I believe about 1991. . . . And
14 . . . . there’s . . . a story to this case and it all
indicates that there is a history between these two
15 parties of litigation with a number of findings that
are certainly not favorable to the debtor. And we
16 have the debtor in this case now making arguments that
appear to be exactly the same as arguments that were
17 made unsuccessfully and decided against the debtor in
other forums.
18
19 It later added: “I think the record is clear that this is . . .
20 a two-party dispute that is better resolved and, in fact, is
21 likely already largely been resolved outside of this court.”
22 After the bankruptcy court’s ruling, Debtor’s counsel
23 interjected; the bankruptcy court then clarified: “[Mr. Sharif]
24 is one of the two parties in the other -- in the two-party
25 dispute and I did mention the Sharifs as well. But even if that
26 factor . . . did weigh in favor finding that this was a case
27 that was filed in good faith, I think that the other factors
28 very much outweigh that one factor.”
16
1 Debtor disagrees; but his position is not persuasive.
2 First, he rightly argues that the presence of a two-party
3 dispute does not per se constitute a bad faith filing. But here
4 the bankruptcy court also found that the dispute could be
5 resolved outside the bankruptcy court’s jurisdiction; Debtor
6 does not argue otherwise.
7 Second, Debtor emphasizes that he does not intend to
8 challenge the judgments — instead, the dispute is about the
9 judgment liens. He urges that his filing bankruptcy has leveled
10 the playing field because, after reviewing the proofs of claim,
11 he discovered “what appears to be a problem with Khatib’s
12 current claimed judgment lien which must be resolved before any
13 efforts to sell the Property as the Sharifs may have liens
14 senior to Khatib’s.” Aplt’s Opening Br. at 22. But he has not
15 “leveled” the playing field;5 he identifies no bankruptcy tool
16 that would be uniquely helpful. At best, he has identified that
17 the Sharifs, and not Khatib, may have a senior interest. This
18 does not require the bankruptcy court’s special expertise; the
19 state court is more than competent to resolve the dispute.
20 Third, Debtor’s hyper-technical assertion that there were
21 other parties and properties involved in his and Khatib’s
22 history, although true, misses the mark. Khatib’s bringing
23 actions against other parties does not transform his dispute
24 with Debtor into a multi-party action. That said, the
25 description of this as a two-party dispute is not technically
26
27 5
Nor is this postpetition discovery particularly relevant
28 to whether Debtor filed the petition in good faith.
17
1 apt. The bankruptcy court acknowledged this when Debtor’s
2 counsel pointed it out at the hearing; but it reasoned that,
3 even absent this being a two-party dispute, it would still find
4 that the petition was filed in bad faith. We agree.
5 In short, this was an at most three-party dispute involving
6 a single asset. Debtor’s interest is ostensibly to protect his
7 homestead exemption; but by filing bankruptcy, Debtor
8 coincidentally manages to retain possession and further
9 forestall the Property’s sale.
10 In sum, we conclude that the bankruptcy court’s finding
11 that Debtor filed the bankruptcy petition in bad faith was not
12 clearly erroneous.
13 C. Any error in failing to consider the interests of all
creditors when deciding to dismiss or convert the case was
14 harmless.
15 On appeal, Debtor argues that the bankruptcy court abused
16 its discretion by: (1) not considering the best interests of all
17 creditors when it concluded that appointment of a trustee or
18 examiner was not appropriate; (2) not weighing the best
19 interests of all creditors and the estate before dismissing the
20 case; and (3) not considering Debtor’s argument that unusual
21 circumstances existed establishing that dismissal and conversion
22 are not in the best interests of creditors or the estate.
23 Debtor chiefly points to the lien priority issue (i.e., his
24 allegation that Khatib may not have a first priority lien) and
25 consequently urges that the bankruptcy court failed to properly
26 consider the interest of all creditors (i.e., the Sharifs, who
27 may now be in a first position) and the estate.
28 But Debtor waived the first two arguments. At oral
18
1 argument, Debtor’s counsel conceded that, if Debtor stated below
2 that he preferred dismissal, Debtor waived these arguments.
3 Debtor did, in fact, concede that he would prefer dismissal if
4 put to the choice. What’s more, no party below argued against
5 dismissal in favor of another option.
6 That leaves the third point: Debtor’s contention that the
7 bankruptcy court did not even consider his argument that the
8 lien priority issue was an unusual circumstances. We disagree;
9 Debtor’s counsel apprised the court of the adversary
10 proceeding’s status and his interest in having Judge Ahart
11 mediate the matter. Despite this, the bankruptcy court found
12 that Debtor and Khatib’s dispute, including the potential senior
13 interests of the Sharifs, could be better resolved outside the
14 bankruptcy court. Further, disputes over liens and their
15 respective priority are not “unusual circumstances.” See
16 In re Prod. Int’l Co., 395 B.R. 101, 109 (Bankr. D. Ariz. 2008)
17 (“Section 1112(b) does not define ‘unusual circumstances.’
18 However, the phrase contemplates conditions that are not common
19 in chapter 11 cases.”). Although the bankruptcy court did not
20 specifically address this issue under the rubric of unusual
21 circumstances, we conclude that any error was harmless.
22 CONCLUSION
23 Based on the foregoing, we AFFIRM.
24
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27
28
19