In re Francis

• Decision Date: 27 April 2021
• Docket Number: No. 19-9011,19-9011
• Citation: 996 F.3d 10
• Parties: IN RE Paul FRANCIS, Debtor. Paul Francis, Appellant, v. John O. Desmond, United States Trustee, Appellee.
• Court: U.S. Court of Appeals — First Circuit

996 F.3d 10

IN RE Paul FRANCIS, Debtor.

Paul Francis, Appellant,

v.John O. Desmond, United States Trustee, Appellee.

No. 19-9011

United States Court of Appeals, First Circuit.

April 27, 2021

Carmenelisa Perez-Kudzma, Weston, MA, and Perez-Kudzma Law Office, P.C. on brief for appellant.

Anthony R. Leone, Thomas S. Vangel, Boston, MA, and Murtha Cullina LLP on brief for appellee.

Before Thompson, Selya, and Kayatta, Circuit Judges.

SELYA, Circuit Judge.

Discharges in bankruptcy are meant to give deserving debtors a fresh start. In that spirit, the statutes and rules that govern the granting of such discharges are tailored to make discharges readily available. But the road to a bankruptcy discharge is a two-way street, and a debtor must comply (or at least make good-faith efforts to comply) with lawful orders of the bankruptcy court.

In the case at hand, the bankruptcy court found that the debtor, Paul Francis, defaulted on this obligation. It therefore refused to grant him a discharge and dismissed his bankruptcy petition. The Bankruptcy Appellate Panel for the First Circuit (the BAP) affirmed, and so do we.

I

We begin by rehearsing the relevant facts and the travel of the case. The debtor, together with his wife, owns a total of five real-estate properties, several of which are held for rent. These properties are burdened by more than $2,000,000 in liabilities, consisting primarily of mortgage loans and accrued taxes. Hoping to reorganize his affairs, the debtor — on April 3, 2017 — filed a petition for Chapter 13 bankruptcy in the District of Massachusetts. See 11 U.S.C. § 301. This initiative soon stalled: the following month, the Chapter 13 proceeding was dismissed by the bankruptcy court for failure to file required documents.

Undeterred, the debtor filed another Chapter 13 bankruptcy petition on July 21, 2017. In short order, the bankruptcy court notified the debtor that his Chapter 13 case was subject to dismissal because his liabilities exceeded the then-current secured debt limit ($1,184,200). See id. § 109(e) (2016). The debtor responded by moving to convert his case to a Chapter 11 reorganization proceeding. See id. § 1307(d). The bankruptcy court granted the requested conversion on September 26, 2017.

On October 5, the debtor consented to a court order obligating him to file a disclosure statement and a Chapter 11 plan by January 26, 2018. He never complied with this order and, on January 30, the United States Trustee moved to convert the debtor's Chapter 11 case to a straight bankruptcy under Chapter 7 "for cause."¹ See id. § 1112(b)(4). The motion charged the debtor with failing to comply with the court order, failing to furnish information reasonably requested by the Trustee, failing to file a timely disclosure statement and plan, and failing to pay reasonable fees. See id. § 1112(b)(4)(E), (H), (J), (K). The Trustee also sought to convert the case for delay and, in a separate motion, for failure to provide current insurance information. See id. § 1112(b)(4)(C).

At a hearing held on March 20, 2018, the bankruptcy court granted the Trustee's motion to convert the debtor's case to a Chapter 7 case.² The court also entered an order to update, directing the debtor to file, by April 3, either a list of post-petition creditors or a verification that he had none. Finally, the court ordered the debtor to file a statement of intention, see Fed. R. Bankr. P. 1007(b)(2), no later than thirty days after the conversion date. The court specifically admonished the debtor that "the case MUST be automatically dismissed under 11 U.S.C. § 521(i) if certain documents are not [timely] filed" (emphasis in original).

On March 28, the court notified the debtor of a scheduled meeting of creditors, to be held on April 26, which he was required to attend. See 11 U.S.C. § 341. The debtor neglected to appear for this meeting. Nor did he file any of the documents mandated by court orders.

On July 5, the court entered a further order requiring the debtor to file the overdue documents no later than July 19. This further order specifically warned that "refusal to obey a lawful order of the court is grounds for denial of discharge." A copy of this further order — like copies of the other orders subsequently described — was sent to the debtor by first-class mail at his usual place of residence in Milton, Massachusetts.

The court's further order went unheeded and, on August 13, the court ordered the debtor to show cause, "with supporting affidavit(s), why he should not be denied a discharge for refusal to obey a lawful order of the court." The debtor's counsel responded on August 27, noting that she had not received either the statement of intention or the schedule of post-petition creditors from the debtor, but nonetheless expressing her belief that she would be able to file the required documents on or about August 30.

When nothing was filed by August 30, the bankruptcy court ordered the debtor to appear for a show-cause hearing. That hearing was later rescheduled for September 25 at the debtor's request. Notice of both hearing dates was duly transmitted to the debtor and the debtor's counsel.

On September 21, the debtor made a filing indicating that he had no post-petition creditors. Two days later, he filed the long-overdue statement of intention. He then appeared, with counsel, for the show-cause hearing on September 25 and confirmed that he had received the various orders and notices that had been mailed to him. Questioned about his disregard of those orders, he explained that he had delegated responsibility to his wife to collect the mail and handle financial matters. He then added that she had been away for a time and — after she returned — had suffered a second-degree burn that "set back things." He told the court that he had not opened the mail in his wife's absence; that he had not intentionally disobeyed any court order; and that he intended to comply with court orders in the future.

The bankruptcy court was not moved by the debtor's excuses, stating that:

My problem is that it's like pulling teeth with Mr. Francis and this has been going on since March 2017, not this March. ... This is the poster child for someone who has ignored what the court has required from him. ... A big part of the problem in this case that caused its conversion was that we ordered him to file a plan and disclosure statement and that was ignored. Ignored. It was never filed. It was just a way to hold up the system. That would be my conclusion with respect to the way he's chosen to handle this bankruptcy case.

Consistent with this statement, the bankruptcy court, ruling from the bench, denied the debtor a discharge and dismissed his petition. See id. § 727(a)(6)(A). The court found that he had "repeatedly ignored lawful orders of the Court" and had exhibited a "conscious practice of ignoring mail, addressed to [him] and marked with the seal of this Court."

The debtor appealed to the BAP, which affirmed the bankruptcy court's rulings. See In re Francis, 604 B.R. 101, 108 (B.A.P. 1st Cir. 2019). This timely second-tier appeal ensued.

II

Although we are the second appellate tribunal to pass upon the bankruptcy court's decision, we nonetheless review that decision directly. See Charbono v. Sumski (In re Charbono ), 790 F.3d 80, 84-85 (1st Cir. 2015) ; Shamus Holdings, LLC v. LBM Fin., LLC (In re Shamus Holdings, LLC ), 642 F.3d 263, 265 (1st Cir. 2011). We cede no special deference to the BAP's judgment. See Stornawaye Fin. Corp. v. Hill (In re Hill ), 562 F.3d 29, 32 (1st Cir. 2009). Our review of the bankruptcy court's findings of fact is for clear error, whereas our review of its legal conclusions is de novo. See id.; Brandt v. Repco Printers & Lithographics, Inc. (In re Healthco Int'l, Inc. ), 132 F.3d 104, 107 (1st Cir. 1997). Judgment calls are, of course, reviewed for abuse of discretion.³ See United Sur. & Indem. Co. v. López-Muñoz (In re López-Muñoz ), 866 F.3d 487, 496-97 (1st Cir. 2017).

Before us, the debtor advances four assignments of error. First, he argues that 11 U.S.C. § 521(i)(1), the so-called "automatic dismissal" provision of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), demands mechanical application and, thus, his case should have been dismissed without prejudice when he failed to file the required documents on time. Second, he argues that the bankruptcy court lacked authority to order a denial of discharge sua sponte. Third, he argues that the record does not support a finding that he willfully failed to obey the bankruptcy court's orders. Fourth, he argues that the bankruptcy court's denial of a discharge contravened his due process rights. We examine these arguments sequentially.

A

Section 521(i)(1) provides (with exceptions not relevant here) that:

[I]f an individual debtor in a voluntary case under chapter 7 or 13 fails to file all of the information required under subsection (a)(1) within 45 days after the date of the filing of the petition, the case shall be automatically dismissed effective on the 46th day after the date of the filing of the petition.

11 U.S.C. § 521(i)(1). Some bankruptcy courts have interpreted this provision as demanding mechanical application. See Segarra-Miranda v. Acosta-Rivera (In re Acosta-Rivera ), 557 F.3d 8, 12 (1st Cir. 2009) (collecting cases). Other courts, though, have held that bankruptcy courts may excuse the belated filing of documents, even after the deadline prescribed by section 521(i)(1) has expired. See id. (collecting cases).

Although the authorities are divided, this question need not detain us. We already have staked out a position in this debate, holding that "[c]ommon sense," the legislative history of the Bankruptcy Code, and the language of 11 U.S.C. § 521 combine to counsel in favor of finding that a mechanical application of the automatic dismissal provision is contrary to congressional intent. Id. at 12-14. Such an interpretation was virtually compelled:...