In re Chase, Bankruptcy No. 92-10260-JNG.
| Decision Date | 01 December 1992 |
| Docket Number | Bankruptcy No. 92-10260-JNG. |
| Citation | 147 BR 630 |
| Parties | In re Richard M. CHASE and Paula A. Chase, Debtors. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
Michael Palmer, Middlebury, Vt., for debtors.
Grace Gonzalez Connolly, Newburyport, Mass., for movant, Newburyport Five Cents Sav. Bank.
The matter before the Court is the "Motion for Sanctions Pursuant to Rule 9011 of the Bankruptcy Rules" filed by the Newburyport Five Cents Savings Bank (the "Bank") against Richard and Paula Chase (the "Debtors") and their counsel, Michael Palmer, Esq. ("Palmer"). The Bank filed its motion in response to a "Withdrawal of Request to Dismiss and Motion to Convert to Chapter 11" filed by the Debtors on September 3, 1992.
The Debtors commenced the above-captioned Chapter 12 proceeding on January 13, 1992. Pursuant to Section 1221 of the Bankruptcy Code, they were required to "file a plan not later than 90 days after the order for relief. . . ." 11 U.S.C. § 1221. Although the Debtors failed to timely file a plan, they filed a motion to extend the time for filing a plan on April 14, 1992. The case docket reflects that the Court did not act on this motion. On April 28, 1992, the Debtors filed their first Chapter 12 plan. Four creditors, including Donahue Electric, Sanford Construction Company, the City of Newburyport and the Bank, filed objections to confirmation.
The Court scheduled a confirmation hearing for June 17, 1992. At the Debtors' request, the Court continued the hearing until July 17, 1992. At the July 17, 1992 hearing, the Court ordered the Debtors to file an amended plan. The Bank indicated that it would be filing a motion to dismiss. The Court stated that it would hear the Bank's motion at the same time as the continued confirmation hearing — August 27, 1992. The parties were informed that the August 27th hearing would be an evidentiary one.
On July 28, 1992, the Bank filed two motions to dismiss, one for cause, notably unreasonable delay that was prejudicial to creditors, and the other on grounds that the Debtors were ineligible for Chapter 12 relief.1 The Bank alleged that the Debtors failed to demonstrate in their schedules and plan that they qualified for Chapter 12 relief. Specifically, the Bank stated that the Debtors failed to show that more than 50% of their income in 1991 was from farming operations, that 80% of their debt arose from farming operations, and that their income was sufficiently stable to make plan payments. The Bank noted that the Debtors' $600 per month income after expenses, without considering debt service, was insufficient to fund a feasible plan.
The Debtors filed detailed objections to both motions. They indicated that their plan was predicated upon the sale of certain real estate to the City of Newburyport.
On July 22, 1992, the Debtors filed their First Amended Chapter 12 Plan. Like their first plan, their amended plan was not received enthusiastically by creditors. The same four creditors filed objections and were joined by the United States of America/Farmers Home Administration. The Debtors then filed a Second Amended Plan on August 26, 1992, one day before the evidentiary hearing, and then a Third Amended Plan on the day of the evidentiary hearing. In the meantime, on August 3, 1992, the Bank filed two motions for relief from the automatic stay.
At the August 27, 1992 hearing, the Court initially considered the Bank's motion to dismiss based upon the Debtors ineligibility for Chapter 12 relief. The Court focused on the requirement that "not less than 80 percent of the Debtors' aggregate noncontingent, liquidated debts (excluding a debt for the principal residence of . . . such individual and spouse unless such debt arises out of a farming operation), on the date the case is filed, arise out of a farming operation owned or operated by . . . such individual and spouse. . . ." 11 U.S.C. § 101(18)(A). The Court heard oral argument for several minutes and then took a five minute recess. Immediately upon resumption of the hearing, the following colloquy took place:
Debtors' counsel failed to submit a form of order. Instead, on September 3, 1992, the Debtors filed the "Withdrawal of Request to Dismiss and Motion to Convert to Chapter 11." As grounds for the pleading, the Debtors and their counsel cited their understanding that they had an agreement with the Bank for the payment of its debt, as well as their conviction that they would be able to obtain the consent of the other objecting creditors to their proposals. Thus, they determined on August 27, 1992 that "it would save all parties and the Court additional time and expense if they simply requested that the Chapter 12 be dismissed so that they could implement an agreement with the Bank and the other creditors outside of bankruptcy." In the motion and the affidavit of their counsel, they expressed surprise that in fact there was no agreement with the Bank. However, Debtors' counsel did concede in his affidavit that "counsel for the Bank stated that it was important to the Bank not to have any further continuances in the case and that it would proceed with its motion to dismiss for lack of eligibility in the event that the Court was not prepared to confirm a plan of reorganization on August 26, 1992 sic." Nevertheless, counsel stated that he was not informed of the rejection of "the agreement to liquidate the property and pay the Bank as provided in the Third Amended Plan of Reorganization."
In response, the Bank filed both an objection to the Debtor's September 3, 1992 pleading and the motion for sanctions. In its motion, the Bank emphatically rejected any notion that an agreement existed and submitted affidavits in support of this assertion. Moreover, the Bank pointed out that even if Debtors' counsel thought there was an agreement, such an understanding was contraindicated by counsel's concomitant recognition that the Third Amended Plan could not be confirmed on the day it was filed and the Bank was steadfastly refusing to assent to any further continuances. Thus, the Bank concluded that the Debtors' Withdrawal of Request to Dismiss and to Convert to Chapter 11 was not well grounded in fact or in law and was interposed for the purpose of delaying the foreclosure process.
On September 25, 1992, the Court conducted a hearing on the Debtors' Withdrawal of Request to Dismiss and the Bank's motion for sanctions. The Court refused the Debtors' request to withdraw the voluntary dismissal and took the Bank's motion for sanctions under advisement. The Court directed the parties to file briefs on the sanctions issue. Both parties filed briefs, and Bank counsel also filed an affidavit coupled with an itemized bill detailing the charges incurred by the Bank between September 17 and October 2, 1992. The bill indicates that counsel spent 47.8 hours at the rate of $125 per hour responding to the Debtors' motion and incurred expenses in the amount of $141.79 for a total of $6,164.59 in fees and expenses.
Section 1208(b) of the Bankruptcy Code permits Chapter 12 debtors to dismiss their cases at any time, if their cases have not been converted under sections 706 or 1112. See 11 U.S.C. § 1208(b). Since the Bank had filed motions for relief from stay on August 3, 1992 and the Debtors' dismissal was voluntary, section 109(g) of the Bankruptcy Code barred the Debtors from filing another petition for 180 days from August 27, 1992. 11 U.S.C. § 109(g).2 Accordingly, absent the Court's permission to vacate its allowance of the dismissal — relief requested by the Debtors by way of their "Withdrawal of Request to Dismiss," the Debtors were prohibited from filing another petition for 180 days.
With this as a backdrop, the Court must determine whether the filing of the Withdrawal of Request to Dismiss and to Convert to Chapter 11, was well-grounded in fact or was interposed to hinder and delay the Bank. Federal Rule...
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