In re Czykoski

• Decision Date: 03 January 2005
• Docket Number: No. 04-12292.,04-12292.
• Citation: 320 B.R. 385
• Parties: In the Matter of John W. CZYKOSKI, Dana Leann Czykoski, Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Indiana

320 B.R. 385

In the Matter of John W. CZYKOSKI, Dana Leann Czykoski, Debtors.

No. 04-12292.

United States Bankruptcy Court, N.D. Indiana, Fort Wayne Division.

January 3, 2005.

COPYRIGHT MATERIAL OMITTED

Duane Donahue, LaGrange, IN, for Debtors.

Yvette Gaff Kleven, Fort Wayne, IN, Chapter 7 Trustee.

Ellen Triebold, South Bend, IN, U.S. Trustee.

DECISION

ROBERT E. GRANT, Bankruptcy Judge.

Debtors filed a petition for relief under Chapter 7 of the United States Bankruptcy Code on May 17, 2004. At the same time, they also filed an application to pay the required filing fee in installments, which was granted. When they failed to make the first installment payment, the court issued an order to show cause, requiring them, upon pain of dismissal, to either make the delinquent payment or show cause why they should not be required to do so by July 6, 2004. The United States Trustee filed a response to this order informing the court that it had filed a complaint objecting to the debtors' discharge. Paying filing fees when due was not the only difficulty debtors encountered in this case. Neither they nor their counsel appeared for the meeting of creditors which had been scheduled for June 22, 2004. This prompted the Chapter 7 trustee to file a motion to dismiss which, by a notice issued on July 6, the court scheduled for a hearing on August 2, 2004. A separate notice scheduled the issues raised by the court's order to show cause and the U.S. Trustee's response thereto for a hearing at the same date and time.

On July 7, 2002, the debtors filed a motion to convert their case from Chapter 7 to Chapter 13. They also tendered the delinquent filing fee installment which, pursuant to the court's order to show cause, was due the previous day. On July 20, 2004 the court granted the debtors' motion and issued an order converting this case to Chapter 13.¹ It did not, however, do anything to remove the hearing scheduled on the Chapter 7 Trustee's motion to dismiss or the U.S. Trustee's response to the order to show cause and those hearings remained on the court's calendar. Neither the debtors nor their counsel appeared for the August 2 hearings; at them the court granted the motion to dismiss and ruled that the debtors would not be eligible for further relief under any Chapter of Title 11 for 180 days. The order doing so was entered on August 5, 2004.

This matter is before the court on the debtors' motion to vacate the order of August 5, 2004. The motion has been filed pursuant to Rule 60(b) of the Federal Rules of Civil Procedure, which is made applicable to bankruptcy proceedings by Rule 9024 of the Federal Rules of Bankruptcy Procedure. Debtors contend that the conversion of their case from Chapter 7 to Chapter 13 mooted the issues raised by the Chapter 7 trustee's motion to dismiss and neither that trustee nor the U.S. Trustee had standing to proceed at the August 2 hearing on the motion, which they say the court should have stricken when it converted the case.² Thus, they argue that the order granting the trustee's motion is void, is the result of mistake, surprise or excusable neglect, and should be set aside pursuant to Rule 60(b)(1), (4) and (6).

If, as the debtors contend, the court's order dismissing this case is void, it has no discretion and the order must be vacated. Textile Banking Co. v. Rentschler, 657 F.2d 844, 850 (7th Cir.1981). An order is void for the purposes of Rule 60(b)(4) only if the court lacks personal or subject matter jurisdiction, acts in a manner inconsistent with due process of law, or if the order was not within the powers granted to the court. In re Crivello, 134 F.3d 831, 838 (7th Cir.1998); Matter of Whitney-Forbes, Inc., 770 F.2d 692, 696-97 (7th Cir.1985). Under this standard, the order of August 5 is not void. The court had jurisdiction over the debtors and their bankruptcy case. 28 U.S.C. §§ 1334, 157(a),(b); N.D. Ind. L.R. 200.1(a). The order was entered after a hearing, held on at least twenty days notice to the debtors, their counsel, all creditors and parties in interest, thus satisfying the requirements of due process and the rules of procedure. See, Grun v. Pneumo Abex Corp., 163 F.3d 411, 423 (7th Cir.1998) (due process requires notice and an opportunity to be heard); Fed. R. Bankr.P. Rule 2002(a). Finally, the court clearly had the authority to dismiss the case. 11 U.S.C. §§ 707(a), 1307(c). Rule 60(b)(4) does not require the court to vacate the order of August 5.

The other elements of the debtors' request—that the order should be vacated pursuant to Rule 60(b)(1), as the product of mistake, surprise or excusable neglect, or Rule 60(b)(6), for other reasons —are matters addressed to the court's discretion. Helm v. Resolution Trust Corp., 84 F.3d 874, 877 (7th Cir.1996). Relief under these provisions is an extraordinary remedy, which is available only in exceptional circumstances, and the burden to prove those circumstances is on the party seeking relief. Helm, 84 F.3d at 877; Nelson v. City Colleges of Chicago, 962 F.2d 754, 755-56 (7th Cir.1992). See also, Provident Sav. Bank v. Popovich, 71 F.3d 696, 698-99 (7th Cir.1995).

It is difficult to understand how the conscious failure to attend a hearing, of which one was fully aware, could constitute mistake, surprise, excusable neglect, or some other reason justifying relief from the order that resulted. While debtors' counsel may have been of the opinion that the conversion of the case from Chapter 7 to Chapter 13 mooted the issues raised by the trustee's motion to dismiss, and thought the motion should have been withdrawn or stricken when the court converted the case, counsel apparently did nothing to determine whether the court had a similar opinion. Had counsel done so, he would have quickly learned that the court never issued any order disposing of the motion or canceling the hearing which had previously been scheduled. A simple review of the docket would have shown that the motion had not been stricken or withdrawn and that the hearing to consider it had not been removed from the court's calendar. A review of the court's calendar for August 2 would have shown that the matter was still scheduled to be called.³ Under these circumstances, counsel could not just assume that the issue had gone away, choose not to attend the scheduled hearing, and, upon learning that the assumption was in error, obtain relief under Rule 60(b). See, Helm, 84 F.3d at 877; Nelson, 962 F.2d at 755-56; Provident Sav. Bank, 71 F.3d at 698-99.

The court does not share counsel's views concerning the effect of conversion upon the Chapter 7 trustee's pending motion to dismiss. The court was aware of the conversion, yet it did nothing to put a halt to what had previously been set in motion, called the case as scheduled, and proceeded to determine the matter on its merits— albeit in counsel's absence. Conversion to Chapter 13 did not moot the issues raised by the Chapter 7 trustee's motion to dismiss and both the U.S. Trustee and the Chapter 7 trustee had the standing necessary to prosecute that motion.

The debtors offer no support for their argument that the act of conversion, by itself, automatically mooted the issues raised by the Chapter 7 trustee's motion to dismiss. The argument seems to be based upon the perception that the act of conversion was somehow the equivalent of starting over, thereby rendering everything that had taken place prior to that time irrelevant. This simply is not so. Conversion from one chapter to another does not end the case and begin a new one. After conversion, it continues to be the same bankruptcy case, and the date of the petition, the commencement of the case, and the original order for relief all remain the same. 11 U.S.C § 348(a); Cf, Cable v. Ivy Tech State College, 200 F.3d 467, 475 (7th Cir.1999)(the Bankruptcy Code favors a seamless transition from one chapter to another). Conversion simply changes the type of relief the debtor will receive and the means by which distribution will be made to creditors. More importantly, conversion did not erase the significance of the debtors' prior conduct. Their actions prior to conversion remained relevant to the continued progress of their case. In re Finney, 992 F.2d 43, 45 (4th Cir.1993); In re Young, 237 F.3d 1168, 1173-74 (10th Cir.2001); In re Spencer, 137 B.R. 506, 514 (Bankr.N.D.Okla.1992). Consequently, the issues raised by the Chapter 7 trustee's motion to dismiss because of the debtors' failure to appear for the meeting of creditors did not become moot when the debtors converted to Chapter 13, and the court could continue to consider whether that failure constituted sufficient cause to dismiss the now converted case. The fact that the case had since been converted to Chapter 13 became just another factor for the court to evaluate in considering how best to exercise its discretion in ruling on the motion.

Debtors' second challenge to the court's order focuses not on the motion to dismiss but upon who had a right to prosecute that motion. They argue that neither the U.S. Trustee nor the Chapter 7 trustee had any standing to prosecute the motion at the hearing of August 2. As for the U.S. Trustee, the argument quickly goes nowhere. "The United States trustee may raise and may appear and be heard on any issue in any case ...." 11 U.S.C. § 307. "It is difficult to conceive of a statute that more clearly signifies the Congress's intent to confer standing." In re Columbia Gas Systems, Inc., 33 F.3d 294, 296 (3rd Cir.1994).

One of the effects of conversion is to "terminatef the services of any trustee that is serving in the ease before such conversion." 11 U.S.C. § 348(e). This forms the basis for the debtors' argument that the Chapter 7 trustee had no authority to proceed at the hearing on the motion to dismiss. Admittedly, conversion ended the trustee's authority to act as a fiduciary, but it did not necessarily end the trustee's involvement in the case. In re...