In re Kane & Kane
| Citation | 406 B.R. 163 |
| Decision Date | 02 June 2009 |
| Docket Number | No. 09-15557-EPK.,No. 09-15556-EPK.,No. 09-15558-EPK.,09-15556-EPK.,09-15557-EPK.,09-15558-EPK. |
| Parties | In re: Kane & KANE, a partnership, Debtor. In re: Charles J. Kane, Debtor. In re: Harley N. Kane, Debtor. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Florida |
THIS MATTER came before the court for hearing on May 12, 2009 upon the Motion to Dismiss Case or, in the Alternative, for Stay Relief (the "Motion to Dismiss")1 filed by Stewart Tilghman Fox & Bianchi, P.A., William C... Hearon, P.A., and Todd S. Stewart, P.A. (collectively, the "Judgment Creditors"). The court considered the Motion to Dismiss, the Debtor's Memorandum in Opposition to Judgment Creditors' Motion to Dismiss Case or, in the Alternative, for Stay Relief on the Issue of Whether There is a Bad Faith Standard in a Chapter 7 Bankruptcy, the Memorandum of Law in Support of Motion to Dismiss filed by the Judgment Creditors, the Judgment Creditors' Memorandum and Evidentiary Proffer in Support of Motion to Dismiss Case, the presentations of counsel, and the transcript of the court's oral ruling on March 20, 2009 dismissing the prior Chapter 11 cases of Kane & Kane, a partnership, Charles J. Kane, and Harley N. Kane (together, the "Debtors") [DE 125, 08-27452-EPK]. The court is fully advised in the premises. This order constitutes the court's findings of fact and conclusions of law consistent with Rule 7052, Fed. R. Bankr.P.
The court has jurisdiction over the Motion to Dismiss under 28 U.S.C. § 1334(b). The court has the power to enter this Order pursuant to 28 U.S.C. § 157 and the standing order of reference in this District. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A).
On November 17, 2008, Kane & Kane, a partnership, filed a Chapter 11 petition with this court. Kane & Kane, a partnership, is a Florida general partnership that conducted business as a law firm. Its only two partners, Harley N. Kane and Charles J. Kane, filed Chapter 11 petitions with this court that same day. On November 18, 2008, this court entered an order providing for the joint administration of the three Chapter 11 cases under case number 08-27452-EPK. [DE 7, 08-27452-EPK]
On December 18, 2008, in the Debtors' Chapter 11 cases, the Judgment Creditors filed a Motion to Dismiss Cases for Bad Faith, or in the Alternative, for Abstention or Relief from the Automatic Stay, or, in the Alternative, for Appointment of Chapter 11 Trustee (the "Chapter 11 Motion to Dismiss") [DE 35, 08-27452-EPK]. The court held a preliminary hearing on the Chapter 11 Motion to Dismiss on January 22, 2009 and a final, evidentiary hearing on March 16, 2009. At the March 16, 2009 hearing, the Judgment Creditors withdrew their alternative request for the court to abstain from hearing the Chapter 11 cases under Section 305(a).2 The court scheduled a continued hearing for March 20, 2009 for the sole purpose of delivering its oral ruling on the remaining relief requested in the Chapter 11 Motion to Dismiss.
On March 20, 2009, this court found the Debtors filed their Chapter 11 cases in bad faith, dismissed the Debtors' Chapter 11 cases, and denied as moot the remaining requests for relief in the Chapter 11 Motion to Dismiss. The transcript of the court's oral ruling on March 20, 2009 is filed in the Debtors' jointly administered Chapter 11 cases. [DE 125, 08-27452-EPK] The court entered a written order memorializing the ruling that same day. [DE 106, 08-27452-EPK] Consistent with the court's oral ruling, the written order provided that dismissal of the Debtors' Chapter 11 cases would be effective on March 30, 2009.
On March 30, 2009, each of the Debtors filed a Chapter 7 petition with this court. On April 2, 2009, the Judgment Creditors filed the Motion to Dismiss.
The court held a preliminary hearing on the Motion to Dismiss on April 16, 2009. At that hearing, the parties agreed to bifurcate the Motion to Dismiss and this court subsequently entered its Agreed Order Setting Preliminary Hearing and Evidentiary Hearing, and Establishing Prehearing Procedures, on Judgment Creditors' Motion to Dismiss Case (the "Scheduling Order"). The Scheduling Order set a non-evidentiary hearing on May 12, 2009 to address the threshold issue of whether bad faith may constitute cause for dismissal under Section 707(a). At the conclusion of the May 12, 2009 hearing, the court requested the Judgment Creditors to submit an evidentiary proffer in support of their position.
Pursuant to the court's request, on May 19, 2009 the Judgment Creditors filed their Judgment Creditors' Memorandum and Evidentiary Proffer in Support of Motion to Dismiss Case. The Judgment Creditors ask this court to dismiss the present Chapter 7 cases based on the evidence presented in support of the Chapter 11 Motion to Dismiss.
The initial question presented to the court is whether the bad faith of a debtor in filing a Chapter 7 petition may constitute cause for dismissal of the case under Section 707(a).3 There is substantial case law on both sides of this question. A majority of courts considering the issue has determined that a debtor's bad faith may present cause within the meaning of Section 707(a). See In re Tallman, 397 B.R. 451, 454 (Bankr.N.D.Ind.2008) (). This court sides with the majority and rules that a debtor's lack of good faith in commencing a Chapter 7 case may constitute cause for dismissal under Section 707(a). Specifically, this court adopts the reasoned analysis of the court in Tallman on the application of the bad faith filing doctrine in the Chapter 7 context. In re Tallman, 397 B.R. 451.
To say that the lack of good faith of a debtor may be cause for dismissal of a Chapter 7 case, alone, provides no guidance on what the court should consider to determine whether a debtor has in fact acted in bad faith. The court is charged to consider the totality of the circumstances. Perlin v. Hitachi Capital Am. Corp. (In re Perlin), 497 F.3d 364, 372 (3d Cir.2007) () This far reaching mission suggests a largely subjective analysis. Even so, the decision as to whether a debtor acted in bad faith is one entrusted to the court's discretion and may only be overturned for an abuse of that discretion. In re Zick, 931 F.2d 1124, 1126 (6th Cir.1991) (citing In re Atlas Supply Corp., 857 F.2d 1061, 1063 (5th Cir. 1988)). For this reason, the court should step cautiously when asked to exercise the power to deny a debtor access to its jurisdiction. See In re Zick, 931 F.2d at 1129 ().
In an effort to focus the bad faith analysis, reported decisions point to various factors that tend to support or negate a debtor's alleged bad faith. These factors are helpful only to a point. In re Tallman, 397 B.R. at 454. The circumstances of each debtor are unique, and the proper weight given to each fact necessarily depends on all of the other facts presented. A list of factors provides only the appearance of a reliable test. It implies a scientific or mathematical certainty in the analysis, which it most certainly lacks.
Many of the factors relied on by the courts in determining whether a debtor acted in bad faith in filing a petition find their genesis in decisions considering dismissal in the context of Chapter 11 and Chapter 13 cases. These factors have less and perhaps no weight in the Chapter 7 context. A Chapter 7 debtor's powers and duties under the Bankruptcy Code, its relationship with its creditors, and the overall nature of a Chapter 7 liquidation case, materially differ`from a Chapter 11 or Chapter 13 case.
In Chapters 11, 12 and 13, the debtor is allowed to remain in possession of its assets, and in control of its business, while it has the opportunity to formulate and confirm a proposed plan. Particularly in Chapter 11, this may take a substantial amount of time. So, to offer a very simple example, a debtor who files Chapter 11 solely to take advantage of the automatic stay, without the intent, desire or the ability to propose a plan, might be able to remain under the protection of the bankruptcy court for some time unless there is a way, such as the bad faith inquiry, to quickly test the propriety of the debtor's motivation and goals. In Chapter 7, however, the debtor surrenders possession and control of its property to a trustee, whose control over it and whose prosecutorial powers are much greater than those of a Chapter 12 or 13 trustee; there is also a broader array of weapons immediately available by which creditors and the trustee can quickly combat misconduct that threatens the integrity of the bankruptcy process, see e.g., 11 U.S.C. §§ 523, 547, 548, 727, and proceedings usually move much more quickly; so there is less danger that a Chapter 7 debtor's abusive plans will long succeed.
In re Tallman, 397 B.R. at 456-57. In light of the substantial differences between Chapter 7, on the one hand, and Chapters 11, 12, and 13, on the other, facts that indicate bad faith in a Chapter 11, 12, or 13 case do not necessarily support a finding of bad faith in a Chapter 7 case of the same debtor.
In a Chapter 7 case, such as the cases before this court, the potential bases for dismissal on grounds of bad faith are narrow. "The ultimate question [is] whether the petition was filed with the intent and desire to obtain the relief that is available under a particular chapter of the Bankruptcy Code, through the means that Congress has specified, or whether the...
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