In re Cooper

• Decision Date: 18 October 2005
• Docket Number: No. 04-6279.,04-6279.
• Parties: In re: John Franklin COPPER, Debtor. Athena Chen Copper; Estate of Sumiko Yamaoka, Plaintiffs-Appellees, v. John Franklin Copper, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 810

426 F.3d 810

In re: John Franklin COPPER, Debtor Athena Chen Copper; Estate of Sumiko Yamaoka, Plaintiffs-Appellees, v. John Franklin Copper, Defendant-Appellant.

No. 04-6279.

United States Court of Appeals, Sixth Circuit.

Submitted: September 14, 2005.

Decided and Filed: October 18, 2005.

ON BRIEF:

Ted I. Jones, Vaughn, Hall, Jones & Vandeveer, Memphis, Tennessee, for Appellant. R.H. Chockley, Mimi Phillips, Memphis, Tennessee, for Appellees.

Before: BOGGS, Chief Judge; NORRIS and COOK, Circuit Judges.

OPINION

ALAN E. NORRIS, Circuit Judge.

Debtor, John Franklin Copper, appeals from a decision of the Bankruptcy Appellate Panel ("BAP"), In re Copper, 314 B.R. 628 (6th Cir. BAP 2004), affirming a bankruptcy court order denying debtor's motion to convert his Chapter 7 proceeding to Chapter 13 pursuant to 11 U.S.C. § 706(a). On appeal, the debtor takes the position that he had an absolute right to convert and that the BAP erred when it held, "[i]f, upon its review of the facts, the bankruptcy court finds that the debtor's request for conversion was made in bad faith or represents an attempt to abuse the bankruptcy process, the court may deny the requested conversion." Id. at 636 (quoting In re Brown, 293 B.R. 865, 870 (Bankr.W.D.Mich.2003)).

This appeal requires us to define this circuit's position on an issue that has generated two lines of cases from the bankruptcy courts, including those within our own circuit. On the one hand, a number of bankruptcy courts have held that the right to convert from Chapter 7 to Chapter 13 contains an exception for motions filed in bad faith. See, e.g., Copper, supra; Brown, supra; In re Dews, 243 B.R. 337, 340 (Bankr.S.D.Ohio 1999) (recognizing no absolute right to conversion); In re Thornton, 203 B.R. 648, 652 (Bankr.S.D.Ohio 1996). On the other hand, a number of bankruptcy courts have held that the right is absolute. See, e.g., In re Gibbons, 280 B.R. 833, 835 (Bankr.N.D.Ohio 2002) ("The terms of § 706(a) are not ambiguous and the plain meaning of the section is that a debtor has the automatic right to convert to Chapter 13 so long as the case has not previously been converted to a Chapter 7 and the debtor is eligible for relief under Chapter 13."); In re Miller, 303 B.R. 471, 476-77 (10th Cir. BAP 2003).

Although there are persuasive arguments on both sides of the issue, we adopt the BAP's opinion for the reasons outlined below.

I.

The bankruptcy court based its denial of debtor's motion to convert on its finding that he had acted in bad faith. While the debtor does not seriously contest this conclusion, we believe it necessary to provide some factual context to illustrate the type of behavior that triggered the bad faith exception. In its opinion, the BAP drew on the factual findings of the bankruptcy judge to paint the following picture:

Over the past nine years, the Debtor has taken evasive action to avoid paying his ex-wife, Athena Chen Copper, amounts she was awarded under the parties' divorce decree. . . .

The Debtor is a Stanley J. Buckman Distinguished Professor of International Studies at Rhodes College in Memphis, Tennessee, a post he has held since 1984. He is a world-renowned expert on China and Taiwan, has authored some 25 books on Asian affairs, and travels to Taipei frequently as the guest of various educational and governmental agencies. The Debtor's income from Rhodes College for 2003 was $89,000. In addition, the Debtor received income from various activities such as teaching, lecturing and writing.

The Debtor and Ms. Copper were married in 1967 and divorced on October 15, 1993. In the divorce proceeding, Ms. Copper was awarded $2,000 per month in alimony in futuro and interests in several annuity contracts. In addition, the Debtor was ordered to pay Ms. Copper's parents the sum of $70,657.60, representing sums found to be taken from Ms. Copper's parents, and interest accrued on those amounts.

In February 1997, Ms. Copper learned that the Debtor had converted the value of some of the annuity contracts awarded to her, some $152,211.65, to his own use. . . .

. . . .

In the Memorandum Order the bankruptcy court states that "[i]n the course of trial, the Court discovered a number of serious false statements in the schedules and statement of financial affairs filed by the Debtor in this case." Copper v. Copper (In re Copper), Ch. 7 Case No. 02-23450-L, Adv. No. 02-0610, slip op. at 5 (Bankr.W.D.Tenn. Oct. 31, 2003). The next four pages of the bankruptcy court's Memorandum Order highlight the false statements and inconsistencies made by the Debtor in this case both in his schedules and during his trial testimony. Even though the Debtor gave several explanations for the multitude of false statements and inconsistencies, the bankruptcy court determined that none of the explanations was credible. The bankruptcy court stated:

The Court found the Debtor to be a very difficult witness. He refused, for example, to acknowledge the authenticity of his signature on his bankruptcy petition or on a Consent Order entered in the state court dealing with the payment of [two creditors], claiming that the signatures could have been stamped. He claimed that he does not know what Chapter 7 is, even though he has filed five Chapter 7 petitions. At times, the Debtor seemed to be calculating the likelihood that his statements could be verified. At other times he seemed to be inventing excuses and explanations on the spot. The Debtor seemed to have virtually no appreciation or respect for the gravity of the proceedings initiated by him in the Bankruptcy Court. Given the very high level of the Debtor's education and stature within the educational and international communities, the Court found the Debtor's cavalier attitude and lack of candor to be surprising and offensive.

Id. at 10. Apparently, the Debtor's bad conduct also had as negative an impact on the divorce proceedings as it has had on the proceedings in the bankruptcy court. During the two-week trial involving the divorce, the trial judge made the following observations:

Extensive proof was taken over a two week trial, most of which had to do with the property owned by the parties and the extent to which the defendant [the Debtor] had infringed upon the marital property by secreting accounts in banks and other places and not disclosing the amount of marital assets to the plaintiff. The testimony offered by the defendant was riddled by inconsistencies to the extent that the Court is unable to believe any of the testimony offered by the defendant in his own behalf.

Id. at 3 (quoting Memorandum Opinion of the trial judge in the divorce proceedings between Debtor and Ms. Copper).

The Panel also notes that at oral argument, the Debtor's counsel advised the Panel that his client was the most sanctioned debtor in the district and that counsel himself is probably the most sanctioned attorney in the district. Counsel did not attempt to persuade the Panel that any sanctions received by either himself or his client were unjustified but presented the statement as if it were a badge of honor. Counsel further conceded that during the Debtor's testimony given at the trial of this matter his client was "swimming around the truth." Then, as if to clarify, counsel advised this Panel that his client had in fact told some "egregious lies" during the trial of the adversary proceeding. Counsel's admissions leave this Panel wondering whether the Debtor was even swimming in the same pool as the truth. Obviously, the bankruptcy court's findings regarding the Debtor's complete lack of credibility are well founded.

In re Copper, 314 B.R. at 630-33 (footnote omitted).

II.

"We focus our review of cases appealed from the BAP on the bankruptcy court's decision, examining findings of fact for clear error, and conclusions of law de novo." In re Tirch, 409 F.3d 677, 680 (6th Cir.2005) (citing In re Palmer, 219 F.3d 580, 583 (6th Cir.2000)). The instant appeal presents an issue of statutory construction, a legal conclusion that we review de novo. In re Hardenberg, 42 F.3d 986, 988 (6th Cir.1994).

The statute at issue reads as follows:

§ 706 Conversion

(a) The debtor may convert a case under this chapter to a case under chapter 11, 12, or 13 of this title at any time, if the case has not been converted under section 1112, 1208, or 1307 of this title. Any waiver of the right to convert a case under this subsection is unenforceable.

11 U.S.C. § 706(a) (emphasis added).

Because this court focuses primarily at the bankruptcy court's decision on appeal, we turn first to its reasoning. The bankruptcy court established the debtor's bad faith based upon more than nine years of evasive and vexatious litigation. It then concluded that, because of his bad faith behavior, the debtor was not entitled to discharge pursuant to 11 U.S.C. § 727(a)(4)(A). That ruling has not been appealed. Of interest to us is the bankruptcy court's reasoning with respect to the motion to convert:

The Court thus turns to consideration of the Debtor's motion to convert this case to Chapter 13. The motion was filed the Friday before trial commenced on Monday, some seventeen months after the filing of the Chapter 7 petition. The Court does not believe that the Debtor has had a sudden change of heart and now wants to repay Mrs. Copper. To the contrary, his testimony at trial indicates that he never intends to repay her unless forced to do so. The Court believes that the Debtor and his counsel wanted to avoid the determination of the dischargeability of these debts and the entitlement of the Debtor to a discharge. . . .

In order for a Chapter 13 plan to be confirmed, a bankruptcy court must find that the plan has been proposed in good faith. 11 U.S.C. § 1325(a)(3). Generally, good faith is measured in terms of whether the plan proposes to devote all of a debtor's disposable income to repayments under the plan for a period of 36 months. 11 U.S.C. § 1322(b)(1)...