In re Bono

• Citation: 70 BR 339
• Decision Date: 10 February 1987
• Docket Number: Bankruptcy No. 086-60904-21.
• Parties: In re Frank BONO, Debtor.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York

70 B.R. 339 (1987)

In re Frank BONO, Debtor.

Bankruptcy No. 086-60904-21.

United States Bankruptcy Court, E.D. New York.

February 10, 1987.

Thomas C. Neal, Smithtown, N.Y., for debtor.

Stuart P. Gelberg, Garden City, N.Y., Trustee.

Howard H. Stein by Eleanor A. Hoffmann, Flushing, N.Y., for Federal Home Loan Mortg. Corp.

OPINION

CECELIA H. GOETZ, Bankruptcy Judge:

Before the Court in this Chapter 13 proceeding are motions to dismiss by both the Chapter 13 Trustee and the Federal Home Loan Mortgage Corporation ("Federal"), the holder of the mortgage on the residence of the debtor, Frank Bono. The movants invoke § 109(g) of the Code, which disqualifies an individual from being a debtor, if during the preceding 180 days, he was a debtor in a case which "was dismissed by the court for willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case." Both also request sanctions pursuant to Bankruptcy Rule 9011 against Bono and his attorney, Thomas C. Neal, Esq..

This case demonstrates the abuses to which the bankruptcy laws are susceptible. At little or no cost, Bono has managed, with the help of the bankruptcy laws, to occupy with his family a valuable house for the last three years, paying nothing for such occupancy, while clogging this Court with three separate Chapter 13 proceedings, each one requiring the mailing of notices, the scheduling of hearings, and the preparation of motions and orders, thereby burdening the Chapter 13 trustee, the clerical personnel of the court, and the calendar of the undersigned.

According to the records of this Court, of which the Court takes judicial notice, and undisputed affidavit proof, Bono has accomplished this free occupancy for himself and his family as follows:

On December 23, 1983, he (possibly with his sister) purchased the home in which he now resides at 16 Freshman Lane, Stony Brook, New York, financing the purchase with a purchase money mortgage in the amount of $93,000.00. That mortgage, assigned to Federal, went into default almost immediately in February, 1984.

Federal's resulting foreclosure proceeding was automatically stayed when Bono filed his first Chapter 13 petition on September 24, 1985, acknowledging unpaid mortgage arrears of $35,848.00. By Order of the Court, the first payment to the Chapter 13 trustee became due October 6, 1985. It was never paid, nor was any other payment made. When Bono failed to appear for a confirmation hearing on January 14, 1986, his proceeding was dismissed.

Federal then resumed its foreclosure proceeding and advertised the debtor's property for sale on May 2, 1986.

Bono now repeated the same ploy that had worked so well before. He filed a second Chapter 13 petition on April 29, 1986, just three months after he had failed to appear at the confirmation hearing on his first petition. By this time, his mortgage arrears had grown to $38,432.00. His first payment under the second petition became due May 24, 1986. It was never made, nor was any money ever paid the Chapter 13 trustee.

By motion, noticed for hearing on the same date as the confirmation hearing on Bono's second plan, the Chapter 13 trustee moved to dismiss or convert the case. One ground was that under § 109(g), the debtor was disqualified, by reason of his previous filing, from being a debtor; a second, was the debtor's willful failure to make payments. The trustee's motion read in part: "To date, two payments have become due and the debtor has failed and refused to make even the first payment."

At the hearing on the trustee's motion, at which the then-attorney for the debtor, Bernard Greco, Esq., appeared and was heard, the Court found a "wilfull (sic) failure to make payments." Its Order dismissing the proceeding, signed on August 6, 1986, recited that the case "is hereby dismissed upon the debtor's willful failure to make payments pursuant to 11 U.S.C. § 1326 and to appear on July 10, 1986." The proceeding was closed on December 24, 1986.

As soon as the proceeding was dismissed, Federal took steps to reschedule its foreclosure sale. But Bono was ahead of Federal. On October 17, 1986, even before Bono's second proceeding had been closed, he was consulting Thomas C. Neal, Esq. with respect to filing a third petition. By that time, he owed Federal $46,554.11 and was 31 months in arrears on a mortgage not yet three years old. Under the Chapter 13 plan prepared by Neal, Bono proposed to pay the Chapter 13 trustee $1,848.95 a month, plus making current monthly mortgage payments of $1,348.00 outside the plan.¹

Neal did not file the new petition immediately. While Bono consulted Neal on October 17, 1986, his petition was not filed until six weeks later, on December 2, 1986, that being the date on which the advertised sale of his property was to take place.²

Bono's first payment under his third petition was due on January 2, 1987. As before, nothing has been paid.

This time, Federal did not wait for Bono, by paying nothing to the Chapter 13 trustee, to expose the bad faith behind his filing, but brought on the present motion to dismiss pursuant to 11 U.S.C. § 109(g). Federal claims that the present petition was filed solely to obstruct its efforts to foreclose on its mortgage; it asks costs and sanctions against the debtor and his attorney in the amount of $450.00. The Chapter 13 trustee has also moved to dismiss, pointing out that § 109(g) barred the present filing. He, too, asks costs and sanctions against both the debtor and the attorney for their abuse of process and contends that they have "unreasonably multiplied the proceedings herein."

At the hearing on these motions, Bono did not appear, nor did he furnish any excuse for his nonappearance. Neither he nor his attorney, who did appear, offered any affidavit or suggested the existence of any evidence to controvert Federal's claim that this Chapter 13 proceeding was filed solely to block Federal's pending foreclosure proceeding.

Mr. Neal, who appeared to oppose the imposition of sanctions on himself, claimed that when Bono consulted him, he originally only disclosed one prior Chapter 13 proceeding and explained his inability to carry it out as due to the loss of his employment and the illness of his mother. Mr. Neal's research persuaded him that the recital in the Court's Order in the earlier case that it was being dismissed for willful failure was not conclusive with respect to the applicability of § 109(g); that there was authority that § 109(g) precluded refiling only where it was demonstrated that the earlier failure of the debtor to appear or to obey the orders of the court, had been willful in the sense of deliberate and intentional. Accordingly, Neal concluded that Bono was not necessarily barred from filing because his failure to make his payments under the earlier plan had not been deliberate, but due to events beyond his control. No evidence was offered by Neal that these events had, in fact, occurred or that he had any reason, apart from Bono's statements, to believe that they had.

According to the statement filed by Neal pursuant to Bankruptcy Rule 2016(b), he received a fee of $500.00 from Bono. But Neal says that that the check given him by Bono in payment of the fee was dishonored.

DISCUSSION

Two issues are presented for decision here.

The first is whether this proceeding must be dismissed because Bono is currently disqualified by Section 109(g) from being a debtor in a Title 11 proceeding.

The second is whether sanctions should be imposed on Bono, his attorney, or both, for filing this proceeding and for certifying that Bono's petition was warranted by existing law and that it was not interposed to cause delay.

I

With respect to the first issue, the answer is a matter of record. That Bono's earlier proceeding had been dismissed for his "willful failure . . . to abide by orders of the Court, or to appear before the court in proper prosecution of the case" was determined in that proceeding itself.

Before dismissing the earlier proceeding, the Court explicitly found a willful failure on the part of the debtor. Its Order tracked the language of § 109(g) and squarely predicated such dismissal "upon the debtor's willful failure to make payments pursuant to 11 U.S.C. 1326 and to appear on July 10, 1986."

It is true, as Mr. Neal's research disclosed, that there is virtual unanimity that "willful," as used in 11 U.S.C. § 109(f) now § 109(g), means deliberate and intentional. In re Ellis, 48 B.R. 178 (Bankr. E.D.N.Y.1985) ("Willful is generally used to describe conduct which is intentional, knowing and voluntary, as opposed to conduct which is accidental or beyond a person's control. A willful failure to do a required act necessitates a showing that the person, with notice of their responsibility, intentionally disregarded it or demonstrated a `plain indifference.'") (citations omitted). In re Nelkovski, 46 B.R. 542, 544-45 (Bankr.N.D.Ill.1985); In re Morris, 49 B.R. 123 (Bankr.W.D.Ky.1985); In re Chmura, 63 B.R. 12, 14 (Bankr.D.N.J. 1986); In re Fulton, 52 B.R. 627 (Bankr. D.Utah 1985); In re Correa, 58 B.R. 88, 90 (Bankr.N.D.Ill.1986).

But all this means is that whether the failure on the part of the debtor which led to dismissal of his earlier proceeding was deliberate and intentional, or not, is an issue of fact which, like all issues of fact, the debtor is entitled to have heard only once, not twice. Well established principles of repose block its re-litigation. The doctrines of collateral estoppel and res judicata apply with full force to proceedings in the bankruptcy courts. Katchen v. Landy, 382 U.S. 323, 334, 86 S.Ct. 467, 475, 15 L.Ed.2d 391 (1966); City Stores Co. v. Mall, Inc., 42 B.R. 685, 688 (S.D.N.Y.1984); In re Bystrek, 17 B.R. 894 (Bankr.E.D.Pa. 1982); In re Jefferson, 59 B.R. 707, 710 (Bankr.S.D.Miss.1986). If the bankruptcy court, in dismissing the case, has heard and resolved the issue of...