In re Hall
| Decision Date | 04 December 1981 |
| Docket Number | BAP No. CC-81-1004-KHG. |
| Citation | 15 BR 913 |
| Parties | In re Larry James HALL and Carolyn Hall, Debtors. David A. GILL, Appellant, v. Larry James HALL and Carolyn Hall, Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Jeanene Moenckmeier, St. Louis, Mo., for appellant.
George Deukemejian, Atty. Gen., Barry D. Ladendorf, Deputy Atty. Gen., San Diego, Cal., for appellees.
Before KATZ, HUGHES and GEORGE, Bankruptcy Judges.
David A. Gill, trustee, appeals the December 19, 1980 order granting the debtors' motion to dismiss their bankruptcy. The trustee claims that the court abused its discretion in dismissing the petition on the grounds that there was no finding of "cause" as required under 11 U.S.C. § 707 and that the notice of motion did not state sufficient facts to constitute proper notice.
The appeal herein was unopposed by the debtors. The debtors did not file a brief nor did they appear and argue at the hearing set for this matter. The Bankruptcy Appellate Panel, however, has weighed all possible arguments which could have been made by the debtors in rendering this opinion.
The law and facts in this case compel the panel to reverse and remand with an order that the case be reinstated on the court's docket and the order dismissing the debtors' petition be vacated.
The facts in this case are fairly simple. On October 8, 1980 Larry and Carolyn Hall filed a Chapter 7 bankruptcy petition. Apparently the debtors paid $250 to Glymph and Glymph Professional Services for assistance in preparing their petition. Glymph and Glymph also helped the debtors prepare a declaration of homestead which was not recorded prior to the October 8, 1980 Chapter 7 petition. The trustee objected to the debtors' claim of exemptions on the grounds that a declaration of homestead had not been filed. The trustee claims there is some $18,000 in equity in the debtors' home.
On November 10, 1980 the debtors wrote the court a letter on Glymph and Glymph stationary. The letter simply stated:
In addition, also on November 10, 1980, the debtors filed a second Chapter 7 proceeding with the clerk of court.
The trial judge deemed the aforementioned letter to be a motion to dismiss and, on November 18, 1980, noticed a hearing for December 17, 1980. The notice to creditors stated the date, time and place of the hearing to act upon the "DEBTORS' MOTION TO DISMISS THEIR BANKRUPTCY PROCEEDINGS FILED UNDER CHAPTER 7." The trustee opposed the motion. No objections to the motion were filed by creditors.
An initial issue is whether the trustee has standing to object to the debtors' motion to dismiss. A line of cases both under the Act and the Code have sought to limit the ability of the trustee to object to the debtors' motion to dismiss a voluntary bankruptcy only for the purpose of securing his costs and expenses. See In re Jackson, 7 B.R. 616 CCH Bankruptcy Law Reporter ¶ 67,765 (Bkrtcy.E.D.Tenn.1980); In re Wirick, 3 B.R. 539, 6 B.C.D. 354 (Bkrtcy.E.D.Va.1980); In re Underwood, 7 B.R. 936, 7 B.C.D. 130 (Bkrtcy.S.D.W.V.1981) (); See also In re Riordan, 95 F.2d 454 (7th Cir. 1938); In re Lavine, 20 F.Supp. 362 (D.C.N.Y.1937); In re Salaberry, 107 F. 95 (D.C.Cal.1901).
Judge Shelley in In re Wirick, supra, held that the trustee has standing to object only for the purpose of insuring that his fees, costs and expenses are paid prior to the dismissal. The court stated that "a reading of the Bankruptcy Reform Act sections cited does not reflect a substantive change in the trustee's rights, duties and powers as they existed under the Bankruptcy Act..." In re Wirick, supra, 3 B.R. at 542, 6 B.C.D. at 355. This panel, however, is hard pressed to accept the limitations upon the trustee's power as would be mandated by both In re Wirick, supra and In re Jackson, supra.
The court in both cases relied heavily on the law stated in In re Lavine, supra, In re Riordan, supra, and In re Salaberry, supra. In both In re Riordan, supra, and In re Lavine, supra, all creditors of the debtor had submitted their written consent to the dismissal motion. In In re Salaberry, supra, the trustee only objected for the purpose of securing his fees and costs. Where all creditors affirmatively consent to the debtors' motion to dismiss it clearly follows that the trustee only has standing to object on the grounds that his fees, costs or expenses must be paid before the case may be dismissed. However, to the extent the above cases would further limit the trustee's standing to object in all other cases, this panel holds that the intent of the Bankruptcy Reform Act is better served by granting the trustee a more expanded role in the dismissal process.
Section 707 merely provides that:
Section 704 provides a list of essential duties which the trustee is to perform. Section 704(1) states that the trustee shall "collect and reduce to money the property of the estate for which such trustee serves and close up such estate as expeditiously as is compatible with the best interests of parties in interest." This section does not provide the trustee with the duty to object to the debtors' motion to dismiss. However, that may be inferred from his duty to collect and reduce to money property of the estate.
The legislative history of §§ 707 and 704 does not provide us with any specific guidance on this issue. Section 704 as first presented in H.R. 8200 and S. 2266 was virtually identical to its wording as enacted except that the provision for notice and hearing was added by amendment just prior to its enactment. See 124 Cong.Rec.H. 11089 (September 28, 1978). Section 704 as enacted is identical to its wording in H.R. 8200. The additional requirement of S. 2266 which provided that the trustee must give constructive notice of the commencement of a case was deleted prior to the Code's enactment. See 124 Cong.Rec. 11098 (September 28, 1978).
A review of the Code and Rules is also inconclusive. Although the Code is replete with numerous powers of the trustee to bring suit on behalf of the debtor, recover, sell or use estate property, object to claims and file claims on behalf of unsecured creditors it fails to address the trustee's standing to object to a debtor's motion to dismiss.
A key to this panel's holding can be found in some of the fundamental purposes behind the Bankruptcy Reform Act of 1978. Pursuant to Public Law 91-354, effective July 24, 1970, the Commission On The Bankruptcy Laws of the United States was established. The result of the Commission's work was the filing of an indepth two part report. See H.R. Doc. No. 93-137, 93d Cong., 1st Sess., Pt. I and II (1973) Commission Report. In addressing the issue of bankruptcy administration the Commission concluded that many abuses had occurred under the Act because the theory underlying the administrative structure of the Act, that of creditor control, had broken down. Several reasons for this breakdown were stated, including that, in small and no-asset cases, creditors were not interested in policing the Act; and where creditors had not supervised and directed administration this had been shifted to the courts. Commission report at 104-106. Ultimately the Commission recommended that many of the administrative problems could be remedied by turning over the administration of the bankruptcy system to an independent governmental agency. Commission Report at 123.
The spirit of the Commission's report is reflected in both the provisions relative to the U.S. Trustee system and § 102(1) relative to notice and hearing procedures. The U.S. Trustee system was originally presented in H.R. 8200. It was felt by the House that under the Act judges were overly involved in both the judicial and administrative aspects of bankruptcy and therefore the judge must be separated from the administrative functions. The administration of the cases was then to be turned over to an independent agency which came in the form of the U.S. Trustee. The Senate, however, disagreed with the House approach. The result was an amendment to H.R. 8200 to include a 5 year U.S. Trustee system in eighteen pilot districts. See generally 124 Cong.Rec.H. 11088-89 (September 28, 1978). The Central District of California is a pilot district. 11 U.S.C. § 1501.
The flexible notice and hearing rules under § 102(1) were also intended to pull the judge out of the administrative process. House Report No. 95-595, 95th Cong., 1st Sess. (1977) 315, U.S.Code Cong. & Admin. News 1978, p. 5787. This rule was also intended to restrict the court from acting sua sponte. 124 Cong.Rec.H. 11,090 (September 28, 1978).
The so-called myth of creditor control is apparent in the case of In re Sig. H. Rosenblatt & Co., 193 F. 638, 641 (2d Cir. 1912), which states that where practically all creditors assent to dismissal, either affirmatively or by failure to oppose, it should be dismissed. Thus, a creditor was deemed to assent to the dismissal when he failed to object.
Given that the Bankruptcy Reform Act was in part promulgated to remedy the breakdown in creditor control this panel is of the opinion that it is the trustee who must bring to the court any possible arguments on behalf of unsecured creditors. After all it is the trustee who represents the estate and its creditors in determining what lawsuits, if any, should be...
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