In re Harper-Elder, Bankruptcy No. 94-01280.

• Decision Date: 27 July 1995
• Docket Number: Bankruptcy No. 94-01280.
• Citation: 184 BR 403
• Parties: In re Rose HARPER-ELDER, Debtor.
• Court: United States Bankruptcy Courts – District of Columbia Circuit

184 B.R. 403 (1995)

In re Rose HARPER-ELDER, Debtor.

Bankruptcy No. 94-01280.

United States Bankruptcy Court, District of Columbia.

July 27, 1995.

Reed P. Sexter, Barry Levine, Dickstein, Shapiro & Morin, Washington, DC, E. Macey Russell, Riemer & Braunstein, Boston, MA, for Creditor.

Wendell W. Webster, Washington, DC, for debtor.

DECISION ON DEBTOR'S MOTION TO DISMISS

S. MARTIN TEEL, Jr., Bankruptcy Judge.

This matter comes before the court on a motion by the debtor, Rose Harper-Elder, to dismiss her chapter 13 case in the face of a motion to convert filed by a creditor, Robert Lee Elder ("Elder"). Also filing separate motions to dismiss the debtor's case are a creditor, Mershon, Sawyer, Johnston, Dunwody & Cole ("Mershon Sawyer"), and the Chapter 13 Trustee ("Trustee").

The relevant facts of this case are as follows:

The debtor filed her voluntary chapter 13 petition under the Bankruptcy Code (11 U.S.C.) on December 7, 1994. The debtor filed an amended plan of reorganization on April 28, 1995. On May 19, 1995, the court denied confirmation of the debtor's amended plan because the court found it failed to satisfy the requirement under 11 U.S.C. § 1325(a)(4) that creditors receive under the plan more than they would under a chapter 7 liquidation. At the hearing Elder moved to convert the debtor's case for cause under 11 U.S.C. § 1307(c), a motion which the court deferred ruling on until after the confirmation hearing. Following the denial of confirmation, the debtor moved to dismiss her case under 11 U.S.C. § 1307(b). The Trustee and Mershon Sawyer also moved to dismiss the case under 11 U.S.C. § 1307(c) based on the denial of confirmation.

Elder renewed his prior oral motion to convert this case under 11 U.S.C. § 1307(c) based on allegations of bad faith by the debtor. Specifically, Elder's allegations of fraud and bad faith arise out of alleged misstatements of known facts and material omissions in the debtor's bankruptcy schedules listing her assets filed in her bankruptcy case.

DISCUSSION

The debtor moves to dismiss her case under 11 U.S.C. § 1307(b), which provides that:

On request of the debtor at any time, if the case has not been converted under section 706, 1112, or 1208 of this title, the court shall dismiss a case under this chapter. Any waiver of the right to dismiss under this subsection is unenforceable.

Elder, along with Mershon Sawyer and the Trustee, relies on 11 U.S.C. § 1307(c), which provides in relevant part that:

Except as provided under subsection (e) of this section, on request of a party in interest or the United States trustee and after notice and a hearing, the court may convert a case under this chapter to a case under chapter 7 of this title, or may dismiss a case under this chapter, whichever is in the best interest of creditors and the estate, for cause, including . . .

(5) denial of confirmation of a plan under section 1325 of this title and denial of a request made for additional time for filing another plan or a modification of a plan. . . .

The parties have argued over whether the court has the discretion to consider a pending motion to convert the debtor's chapter 13 case for cause when the debtor has filed a request for voluntary dismissal under § 1307(b). This is an issue about which the courts are clearly divided. Some courts have held that the debtor's right to dismiss is an absolute right and that the court has no discretion to consider the creditor's pending motion to convert under § 1307(c) when faced with the debtor's motion to dismiss under § 1307(b). See In re Beatty, 162 B.R. 853, 856-57 (9th Cir. BAP 1994); In re Gillion, 36 B.R. 901, 904-906 (E.D.Ark.1983); In re Sanders, 100 B.R. 338 (Bankr.S.D.Ohio 1989); In re Looney, 90 B.R. 217 (Bankr. W.D.Va.1988); In re Rebeor, 89 B.R. 314, 322 (Bankr.N.D.N.Y.1988); In re Turiace, 41 B.R. 466 (Bankr.D.Or.1984); In re Merritt, 39 B.R. 462, 465 (Bankr.E.D.Pa.1984); In re Benediktsson, 34 B.R. 349 (Bankr.W.D.Wash. 1983); In re Hearn, 18 B.R. 605 (Bankr. D.Neb.1982); see also In re Nash, 765 F.2d 1410, 1413 (9th Cir.1985) (dicta). The courts reason that "this view comports with the plain language of section 1307(b) which states that the court `shall' dismiss the case upon the debtor's request as well as the purposes of Chapter 13 and the voluntary nature of the relief under that Chapter." See In re Beatty, 162 B.R. at 857 (citations omitted).

In contrast, other courts have held that they do have the discretionary authority to grant a pending motion to convert a chapter 13 case in the face of a debtor's competing request for dismissal, particularly where there is evidence of improper conduct by the debtor. See In re Gaudet, 132 B.R. 670, 673-76 (D.R.I.1991); In re Vieweg, 80 B.R. 838, 840-41 (Bankr.E.D.Mich.1987) (bad faith); In re Powers, 48 B.R. 120 (Bankr.M.D.La. 1985); In re Jacobs, 43 B.R. 971 (Bankr. E.D.N.Y.1984) (bad faith); In re Whitten, 11 B.R. 333, 340 (Bankr.D.D.C.1981) (dicta; bad faith); see also In re Tatsis, 72 B.R. 908, 910 (Bankr.W.D.N.C.1987) (dicta, motion to dismiss withdrawn); In re Zarowitz, 36 B.R. 906 (Bankr.S.D.N.Y.1984) (holding absolute right to dismiss but noting in dicta possible exception if bad faith found). The courts reason that harmonizing § 1307(b) and (c) leads to the conclusion that Congress could not have intended to "give the debtor unfettered power to prevent conversion under § 1307(c) by simply filing a motion to dismiss whenever conversion was requested." See In re Gaudet, 132 B.R. at 676; In re Vieweg, 80 B.R. at 841. Thus, these courts hold that a hearing should be held to consider the merits of both motions, and the court should act in accordance with the best interest of creditors and the estate. See In re Vieweg, 80 B.R. at 841.

This more liberal interpretation has also been followed by the Courts of Appeals for the Fifth and the Eighth Circuits considering the identical language in § 1208(b)¹ under chapter 12, the family farmer provisions of the Code. See In re Graven, 936 F.2d 378, 384-87 (8th Cir.1991); In re Foster, 121 B.R. 961 (N.D.Tex.1990), aff'd without op., 945 F.2d 400 (5th Cir.1991), cert. denied, 502 U.S. 1074, 112 S.Ct. 972, 117 L.Ed.2d 136 (1992); see also In re Tyndall, 97 B.R. 266 (Bankr. E.D.N.C.1989). Faced with the creditor's motion to convert for fraud under § 1208(d),² these courts of appeals concluded that the bankruptcy court has the authority to convert a case to chapter 7 upon a showing of fraud even though the debtor has moved for dismissal under subsection (b). See In re Graven, 936 F.2d at 385. Citing cases analyzing § 1307(b), the Graven court specifically rejected the contention that the identical "shall" language in § 1208(b) mandated immediate dismissal, stating

Our holding on the interaction of subsections (b) and (d) does not conflict with the express language of subsection (b). Nothing in subsection (b) requires that a court act immediately upon a debtor\'s request for a voluntary dismissal. Once fraud is found, the provisions of section 1208(d) are triggered and the court has the authority, under subsection (d), to dismiss the case or convert it to Chapter 7.

Id. at 385-86 (citation omitted).

The court concludes that the debtor's right to a dismissal under § 1307(b) is absolute. At the outset, the court wants to make clear that the courts of appeals decisions interpreting § 1208(b) are not distinguishable from this chapter 13 proceeding. The heart of this dispute is whether the language under § 1307(b) is mandatory — in essence, whether "shall" really means "shall." If shall does mean shall, then the case must be dismissed before the court even considers any alternative motions. Interpreting identical language in § 1208(b), the courts of appeals ruled that shall does not mean shall, granting the bankruptcy court the discretion to consider other currently pending motions. That the other pending motion to convert was based on the narrower chapter 12 standard of fraud does not change the significance of the courts' ruling. The bottom line is that the courts ruled that dismissal is not mandatory and the debtor's right to such was not absolute. Accordingly, the court will not attempt to distinguish these decisions. If they were correctly decided, then the debtor's right to dismissal under § 1307(b) is not absolute.³

However, this court disagrees with these rulings. Although not lightly disagreed with, the court concludes that the courts of appeals have ignored the clear language of the statute. See United States v. Ron Pair Ent., 489 U.S. 235, 242, 109 S.Ct. 1026, 1031, 103 L.Ed.2d 290 (1989) (language of the Code is to be applied literally except where "demonstrably at odds with the intentions of its drafters"). The clear language of § 1307(b) provides that the court "shall" dismiss the debtor's chapter 13 case upon the debtor's request, a request which the debtor may make "at any time"⁴ by motion under F.R.Bankr.P. 1017(d) and 9013. Furthermore, no waiver of the dismissal right under subsection (b) is enforceable. The only limitation on the debtor's right of dismissal, clearly spelled out in subsection (b), provides that the debtor's request will not be granted "if the case has been converted under section 706, 1112, or 1208 of this title," which prevents the debtor from returning to a chapter she has already been in. Based on the foregoing the court joins other courts in concluding that "from the plain and ordinary meaning of the language contained in § 1307(b) . . . a Chapter 13 debtor has an absolute right to dismiss his action prior to the conversion of such proceeding to a Chapter 7 liquidation proceeding." See In re Gillion, 36 B.R. at 905; In re Beatty, 162 B.R. at 857.

Such a conclusion is in harmony with the "design of the statute as a whole and . . . its object and policy." See Crandon v. United States, 494 U.S. 152, 158, 110 S.Ct. 997, 1001, 108 L.Ed.2d 132 (1990). The most compelling reason for the court's...