611 B.R. 38 (M.D.Pa. 2020), 4:19-CV-00765, Campbell v. Conway

Docket Nº:4:19-CV-00765
Citation:611 B.R. 38
Opinion Judge:Matthew W. Brann, United States District Judge
Party Name:Christopher William CAMPBELL and Abbey Lee Campbell, Appellants/Debtors, v. Mark J. CONWAY, et al., Appellees.
Attorney:Charles S. Gurdin, Jr., C. Stephen Gurdin, Jr., Wilkes Barre, PA, for Appellants/Debtors. Mark J. Conway, Dunmore, PA, Debra Lee Allen, Spilman Thomas & Battle, PLLC, Morgantown, WV, for Appellees.
Case Date:January 23, 2020
Court:United States District Courts, 3th Circuit, Middle District of Pennsylvania

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611 B.R. 38 (M.D.Pa. 2020)

Christopher William CAMPBELL and Abbey Lee Campbell, Appellants/Debtors,

v.

Mark J. CONWAY, et al., Appellees.

No. 4:19-CV-00765

United States District Court, M.D. Pennsylvania

January 23, 2020

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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Charles S. Gurdin, Jr., C. Stephen Gurdin, Jr., Wilkes Barre, PA, for Appellants/Debtors.

Mark J. Conway, Dunmore, PA, Debra Lee Allen, Spilman Thomas & Battle, PLLC, Morgantown, WV, for Appellees.

MEMORANDUM OPINION

Matthew W. Brann, United States District Judge

I. BACKGROUND

Appellants/Debtors Christopher William Campbell and Abbey Lee Campbell (collectively "Appellants") appeal the United States Bankruptcy Court for the Middle District of Pennsylvania’s ("Bankruptcy Court") order denying Appellants’ motion to convert their Chapter 7 bankruptcy case to a Chapter 13 bankruptcy case.1

On November 20, 2017, two days prior to a scheduled Sheriff’s sale on Appellants’ property, Appellants filed a Chapter 13 bankruptcy petition before the Bankruptcy Court.2 That petition did not include schedules, statements, or other required documents and, after the Chapter 13 Trustee filed a motion to dismiss, was voluntarily dismissed by Appellants.3 The Sheriff’s sale was thereafter rescheduled for February 28, 2018 but, one day prior to the scheduled sale, Appellants filed the instant Chapter 7 petition.4

Appellants are dairy farmers who farm real property that they lease from Terry Campbell— Christopher Campbell’s father— and a third party.5 Profits from the farm stood at $105,910 in 2017 but declined to $45,411 in 2018.6 Christopher Campbell testified that the declining profits resulted from a sustained decrease in milk prices combined with an increase in the cost of farming equipment.7

Appellants also previously operated a quarry on Terry Campbell’s property, but the quarry was shut down in 2003 when Appellants were fined by the Pennsylvania Department of Environmental Protection ("DEP").[8] The quarry reopened in 2017 after Appellants agreed to pay DEP $1,000 per month toward the fine, but the quarry again shut down in September 2017— and Christopher Campbell’s operating license was suspended for ten years— after Appellants defaulted on their payments to the DEP.9 The quarry generated $74,783 in 2017 prior to shutting down.10 Appellants hope to reopen the quarry in the future.11

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In addition to income from dairy farming and the operation of a quarry, Appellants received a substantial portion of their income from an interest in the MJT Campbell Family LP Trust ("Trust"). In 2017, Appellants received $94,700 in royalties, while that income fell to $53,738 in 2018.12 Christopher Campbell testified that income from royalties fluctuates yearly because Trust royalties "go[ ] up and down with the stock market."13 Moreover, royalty payments were made at the sole discretion of the General Partner— Terry Campbell.14

Christopher Campbell testified that in 2018 he began collecting and selling field and creek stone from his father’s property, although in 2018 that business remained "more or less a start-up operation."15 There is also a nearly operational sawmill on Terry Campbell’s property, although Appellants in 2018 derived no income from the sawmill.16

Appellants’ initial Schedule I listed their total income from these activities as $3,211.17 per month.17 In an amended Schedule I filed several months later— just prior to a hearing on Appellants’ motion to convert their proceeding to Chapter 13— Appellants listed their monthly income as $11,422.25.18 Appellants’ original bankruptcy schedules show that Branch Banking and Trust Company ("BB & T") has $212,650.12 in secured loans against Appellants’ property, while John Deere Finance has a $56,40019 secured loan against certain of Appellants’ property.20 Appellants also have $529,732.15 in unsecured loans.21 Appellants defaulted on the loans to BB & T in 2016 and have made no payments on those loans since that date.22

The Bankruptcy Court held a hearing on Appellants’ motion to convert the bankruptcy case to Chapter 13 and, during that hearing, excluded Appellants’ proposed Exhibits 2, 3.1, 3.2, 4, and 11.23 The Bankruptcy Court determined that the exhibits must be excluded based upon a lack of foundation, as Appellants did not discuss "how those summaries and those exhibits were prepared."24

Upon conclusion of the hearing, the Bankruptcy Court issued an opinion and order denying Appellants’ motion to convert.25 The Bankruptcy Court determined that several factors militated in favor of denying the motion. First, it concluded that the motion was not filed in good faith because: (1) two bankruptcy petitions were filed only days prior to scheduled Sheriff’s sales, indicating bad faith in those filings; (2) Appellants made no payments on their BB & T loans since 2016; and (3) the significant increase in reported income in Appellants’ amended Schedule I raised questions about "whether [Appellants] have been forthcoming with the Court and

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their creditors."26 Second, the Bankruptcy Court determined that conversion would prejudice Appellants’ creditors— who had not received any payments in years— but would not significantly prejudice Appellants, as they likely qualify for Chapter 7 bankruptcy.27

Third, the Bankruptcy Court concluded that Appellants likely could not propose a confirmable Chapter 13 plan.[28] Specifically, income from Appellants’ dairy farm fell "over 50% year over year" while income from the Trust declined steadily, from $177,208 in 2015 to $53,738 in 2018.29 The Bankruptcy Court also noted that "there is uncertainty as to the[ ] continuity" of Trust payments, since such payments were determined solely by Terry Campbell and, thus, did not constitute regular income within the meaning of the Bankruptcy Code.[30] Moreover, given that the quarry had been closed in 2017 and not reopened, the Bankruptcy Court concluded that any projected income from the quarry was too speculative to rely on, as was any income from the sawmill and stone harvesting operations.31 Finally, despite having made no payments to BB & T since 2016, Appellants had only $900 in cash reserves; the Bankruptcy Court observed that Appellants’ "inability to accrue any cash reserves, while not paying their primary secured creditor, does not bode well for a successful Chapter 13."32

Appellants filed a timely notice of appeal33 raising two issues: (1) whether the Bankruptcy Court erred in excluding certain exhibits during the evidentiary hearing, and (2) whether the Bankruptcy Court clearly erred in denying the motion to convert.34 BB & T and the Chapter 7 Trustee have filed their briefs in opposition, and Appellants have filed a reply brief, rendering this appeal ripe for disposition.35 For the following reasons, the Bankruptcy Court’s order will be affirmed.

II. DISCUSSION

District courts sit as appellate tribunals when presented with an appeal from a final order of a United States Bankruptcy Court.36 On such an appeal, courts will "review basic and inferred facts under the clearly erroneous standard ... and exercise plenary review over legal issues."37 "In reviewing ultimate facts, which are a mixture of fact and legal precept, [this Court] must break down the questions of law and fact and apply the appropriate standard to each component."[38] Importantly, in reviewing for clear error, it does not matter that this Court "would have reached a different conclusion" if presented with the matter in the first instance.39 Rather, the Court must accept the Bankruptcy Court’s factual findings unless it is "is left with the definite

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and firm conviction that a mistake has been committed."40

A. Whether the Bankruptcy Court Erred in Excluding Exhibits

First, Appellants contend that the Bankruptcy Court erred in excluding Exhibits 2, 3.1, 3.2, 4, and 11 during the hearing on Appellants’ motion to convert.41 Specifically, Appellants contend that exhibits 2, 3.1, and 3.2 were admissible as summaries under Fed.R.Civ.P. 1006, while exhibits 4 and 11 were admissible as ordinary documents not subject to any exclusionary rule.42 This Court reviews the Bankruptcy Court’s "evidentiary rulings for abuse of discretion, but ... exercise[s] plenary review to the extent the rulings are based on a legal interpretation of the Federal Rules of Evidence."43

Federal Rule of Evidence 1006 provides that: The proponent may use a summary, chart, or calculation to prove the content of voluminous writings, recordings, or photographs that cannot be conveniently examined in court. The proponent must make the originals or duplicates available for examination or copying, or both, by other parties at a...

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