Bassak, Matter of

Decision Date13 April 1983
Docket NumberNo. 82-2443,82-2443
Citation705 F.2d 234
Parties8 Collier Bankr.Cas.2d 535, 10 Bankr.Ct.Dec. 1192, Bankr. L. Rep. P 69,280 In the Matter of Anthony J. BASSAK, Debtor. YORKVILLE NATIONAL BANK, Appellant, v. Anthony J. BASSAK, Appellee.
CourtU.S. Court of Appeals — Seventh Circuit

James M. Wilson, Yorkville, Ill., for petitioner.

Anthony J. Bassak, pro se.

Before PELL, CUDAHY and POSNER, Circuit Judges.

PELL, Circuit Judge.

The appellant, Yorkville National Bank (Yorkville or Bank), appeals from the district court's affirmance of the bankruptcy judge's conclusion that a debt procured by fraud, and therefore nondischargeable in a Chapter 7 proceeding, is nonetheless dischargeable under Chapter 13.

Our disposition of this appeal rests on whether the district court entered a final judgment within the meaning of 28 U.S.C. Sec. 1291.

The appeal also underscores a problem besetting the federal appellate courts with a discernible, and disturbing, frequency, that of resolving whether an appeal, apparently interlocutory, is properly before this

court. Some judges have observed that the consideration of this threshold question is becoming unduly wasteful of judicial time. We are aware that the Department of Justice as well as the Congress have given attention to making explicit those situations in which interlocutory appeals should be entertained. Also, more recently under the leadership of Dean Paul D. Carrington, the Law and Contemporary Problems program of the Duke University School of Law has produced a definitive draft entitled Federal Civil Appellate Jurisdiction, an Interlocutory Restatement. The study thus far completed approaches the question with an analysis of each of the areas in which the question of the propriety of an interlocutory appeal might arise with references to existing law. Such an effort is to be commended.

I. FACTS

A detailed examination of the facts is necessary to clarify the posture of the present case before this court.

The debtor, Anthony J. Bassak, is an attorney licensed to practice law in Illinois. In August, 1977, Bassak and Gary Bugbee, on behalf of Bugbee Drywall, Inc., applied for a loan from the Bank in the amount of $40,000.00. As part of the loan transaction, Bassak presented the following documents to Yorkville:

(1) A Collateral Promissory Note which assigned all accounts receivable of Bugbee Drywall, Inc., as security for the loan and represented and warranted that the loan proceeds would be used for business purposes;

(2) an actual list of accounts receivable;

(3) a personal guarantee of the debtor;

(4) a personal financial statement of the debtor;

(5) a security agreement; and

(6) a financing statement.

The Bank subsequently perfected its security interest.

When the loan came due, Bassak advised the Bank that he would not repay it. The Bank then learned that the list of accounts receivable provided by Bassak was totally fabricated, that the actual accounts of Bugbee Drywall, Inc., had previously been assigned to another creditor, that the debtor's financial statement was false, and that Bassak had used at least fifty percent of the loan proceeds to purchase a condominium. Yorkville obtained a judgment against Bassak based on his fraudulent actions in obtaining the loan.

Shortly thereafter, Bassak filed his Chapter 13 plan, see 11 U.S.C. Secs. 1321-1322, listing the bank as an unsecured creditor. Bassak owed the Bank $53,635.21. His plan proposed to pay ten percent of the allowed unsecured claims. Under the plan, Yorkville was therefore to receive $5,363.52.

Yorkville objected to the plan. See id. Sec. 1324. On December 12, 1980, Judge Merrick, the bankruptcy judge, confirmed Bassak's plan. Id. Sec. 1325. Yorkville filed various motions seeking modification, id. Sec. 1329, and reconsideration. Among other things, Yorkville urged that it should be classified separately from other nonsecured creditors. On March 10, 1981, following a hearing, Judge Merrick entered a brief order that stated: "Motion denied on ground that debt which would be nondischargeable on ground of fraud under Chapter 7 is dischargeable under Chapter 13."

Yorkville appealed the confirmation of Bassak's plan to the district court. The district court opinion noted that the appeal had been fully briefed before the decision of this court in In re Rimgale, 669 F.2d 426 (7th Cir.1982). Judge Kocoras then stated:

Clearly, the Rimgale decision suggests that a nondischargeable debt in a Chapter 7 proceeding under Sec. 523(a)(2), (4) or (6) is dischargeable under the more liberal provisions of Chapter 13. The Bankruptcy court's finding in that regard is therefore affirmed.

In the next paragraph of his opinion, the district judge noted that the Seventh Circuit remanded Rimgale to the Bankruptcy Court for consideration of the debtor's good Pursuant to the remand order, the Bankruptcy Court set a hearing date for September 21, 1982. On September 2, Yorkville filed a Notice of Appeal. Apparently, the Bankruptcy Court has not acted on the case during the pendency of the appeal before this court.

                faith under Section 1325(a)(3). 1   Judge Kocoras concluded that a remand of the present case to the Bankruptcy Court for reconsideration of Bassak's plan in light of the factors enumerated in Rimgale was desirable
                
II. DISCUSSION

Both parties to this appeal addressed the substantive questions whether Bassak's debt to Yorkville should be dischargeable under Chapter 13 and whether the Bank should be classified separately from other unsecured creditors. Neither party discussed the jurisdiction of this court except for the succinct statement in Yorkville's brief that this court has jurisdiction pursuant to 28 U.S.C. Sec. 1291 2 because the Bank is appealing a final decision of the district court. The question with which we must begin is whether the judgment below is indeed "final." 3

The Section 1291 requirement of a "final decision" by the district court is jurisdictional in nature. See, e.g., Levin v. Baum, 513 F.2d 92, 94 (7th Cir.1975). Even though neither party has challenged the jurisdiction of this court on appeal, the court must raise the question sua sponte. E.g., Liberty Mutual Insurance Co. v. Wetzel, 424 U.S. 737, 740, 96 S.Ct. 1202, 1204, 47 L.Ed.2d 435 (1976); Levin v. Baum, 513 F.2d 92, 93-94 (7th Cir.1975). Absent a finding that the judgment below was final, this court must dismiss the appeal. See, e.g., Liberty Mutual Insurance Co. v. Wetzel, 424 U.S. 737, 740, 96 S.Ct. 1202, 1204, 47 L.Ed.2d 435 (1976).

In view of Judge Kocoras' explicit remand to the Bankruptcy Court for reconsideration in light of Rimgale, which had not been decided at the time Judge Merrick first considered the present case, it is somewhat difficult to understand why both parties so readily assume that the Section 1291 finality requirement was satisfied. One theory does suggest itself.

In ordering the remand, Judge Kocoras specifically referred to the five factors enunciated by this court in Rimgale as relevant to the debtor's good faith under 11 U.S.C. Sec. 1325(a)(3). 669 F.2d at 423-33. Of those five factors, four deal with the accuracy of the Chapter 13 plan submitted by the debtor and the possibility that an inaccurate statement of debts might represent a deliberate attempt to mislead the Bankruptcy Court. These considerations were extremely relevant to Rimgale because the debtor had submitted to the Bankruptcy Court both an original and an amended plan that arguably misrepresented the amount of the tort judgment against Rimgale in favor of Mary Ravenot. The original and first amended plan also failed to provide for any payments to Ravenot. Rimgale's "good faith" was questionable, in the court's view, because of these omissions.

In the present case, however, there are no allegations of inaccuracy in Bassak's plan. Only the fifth factor enumerated in Rimgale appears to have any relevance to the instant case. That factor requires the bankruptcy court to inquire as follows (5) Do the proposed payments indicate "a fundamental fairness in dealing with one's creditors." In re Beaver, 2 B.R. 337, 340 (Bkrtcy.S.C.Cal.1980)? 22

669 F.2d at 432-33. In footnote 22, the court elaborates on the focus of this consideration:

In this connection, the bankruptcy court may wish to examine the timing of the bankruptcy filings, the proportion of the total unsecured debt that is represented by the [tort] judgment, and the equities of classifying together ordinary consumer debt and a judgment debt arising out of intentionally tortious conduct. See In re Sanders, 13 B.R. 320, 322-323 (Bkrtcy.D.Kan.1981) (classification of claims governed by Section 1122, which provides that "a plan may place a claim or an interest in a particular class only if such claim or interest is substantially similar to the other claims or interests of such class"; claims subject to discharge only under Chapter 13 are not "substantially similar" to fully dischargeable claims).

669 F.2d at 433 n. 22. This fifth Rimgale factor is quite relevant to one of the theories upon which Yorkville has relied throughout this litigation: that it is entitled to be classified separately from other "unsecured" creditors and should be treated as a secured creditor or placed in a class by itself so as to reflect that the debt to the Bank would be secured but for Bassak's fraudulent behavior.

Because Judge Kocoras referred specifically to the Rimgale factors and because the only one of those factors relevant to the present case focuses on how the creditor should be categorized under the debtor's Chapter 13 plan, it is possible that Yorkville and Bassak read the district court opinion as foreclosing further inquiry into whether Bassak's debt to Yorkville is dischargeable. If one reads the district judge's opinion as ordering only a limited remand on the categorization question, it is possible to conclude that, in a very broad sense, the...

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