In re Leavitt
| Citation | 209 BR 935 |
| Decision Date | 04 June 1997 |
| Docket Number | Bankruptcy No. 95-47690 TG.,BAP No. NC-96-1433-OHRy |
| Parties | In re Jonathan Barnes LEAVITT, Debtor. Jonathan Barnes LEAVITT, Appellant, v. Carlos SOTO, Appellee. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit |
David A. Smyth, Walnut Creek, CA, for Appellant.
Susan H. Handelman, Denise A. Cole, Redwood City, CA, for appellee.
Before: OLLASON, HAGAN and RYAN, Bankruptcy Judges.
Jonathan Barnes Leavitt ("Debtor") has appealed an order dismissing his Chapter 13 case1 with prejudice. We Affirm.
Debtor filed a Chapter 13 petition on November 6, 1995. Approximately two weeks before, a Judgment on Jury Verdict had been entered against him in San Mateo County Superior Court for fraud, conversion of partnership assets, breach of fiduciary duty and breach of contract, in the amount of $230,000.2 The judgment was in favor of Carlos Soto ("Soto"), Debtor's partner in a business known as Great America Waterproofing.3
At the time of his bankruptcy, Debtor's major creditors were the IRS, to whom he owed $53,123.23 for 1994 taxes, and Soto. Soto, an unsecured creditor, filed a proof of claim in the amount of $227,898.83.4 Debtor was earning $72,000 per year, plus business profit of several thousands of dollars. Debtor's first plan proposed to pay $100 per month for the first year, then $1,520 per month for 48 months to the administrative, secured and priority claimants. He proposed zero payment to the unsecured creditors.
According to the plan, Debtor would also make outside monthly car payments of $392.81 for a 1993 Ford Aerostar Van and $322.63 for a 1993 Chrysler LeBaron. In addition to these vehicles, Debtor listed two pick-up trucks as exempt assets. Transportation costs, not including car payments, were listed as $300 per month. Also listed as expenses were $220 per month for piano lessons and school supplies, and $850 per month for food.
Debtor failed to list on his Chapter 13 schedules his interest in a business known as L-2 Enterprises. He also failed to list an account receivable from his and Soto's company. He understated his assets. For example, he listed $10,000 as the value of his business, Great American Waterproofing, even though the business had been appraised by an expert in the state court trial at a value of over $150,000.
In January of 1996, Soto filed an objection to the plan and a motion to dismiss the Chapter 13 case.5 Soto contended the plan was filed in bad faith for the improper purpose of avoiding Debtor's debt to Soto. He cited as indicia of bad faith the timing of Debtor's petition so soon after the state court judgment, Debtor's failure to list assets and alleged misrepresentations on his schedules, and the plan's provision for zero cents on the dollar for unsecured creditors including Soto while Debtor's taxes were paid, as were allegedly unnecessary expenses.
At the March 15, 1996 hearing, the bankruptcy court stated that a plan paying less than 30 percent on the dollar to the unsecured creditors would be unacceptable. On March 25, 1996, Debtor filed his first amended Chapter 13 plan. In this plan, Debtor proposed to pay unsecured creditors three percent on the dollar. The monthly payment would be $500 for the first year, and then $1,000 for the next 48 months.
In April, 1996, Soto conducted an examination of Debtor, and learned previously undisclosed facts. A continued evidentiary hearing on Soto's motion to dismiss was held on April 12, 1996. Debtor testified at the hearing, and, according to the transcript, admitted to the following facts:
(1) While he was in bankruptcy, Debtor had been paid the account receivable owed to Great America Waterproofing in the amount of $36,000. Debtor used that money plus an additional $10,000 he obtained from his mother-in-law to purchase a home, and put title in his wife's name. He had not disclosed this income, nor the fact that he bought a home until after he was examined by Soto.
(2) Debtor did not list his business interest in L-2 Enterprises or the income from that business on his schedules. (Debtor testified in his defense that "everyone" including Soto knew about this business.)
(3) Debtor borrowed $12,000 from his mother-in-law but did not list her as an unsecured creditor on his schedules.
(4) Debtor made cash payments of $16,000 to his relatives but did not list these payments in his schedules.
(5) Debtor did not list all payments made to trade creditors within the 90 days prior to filing bankruptcy.
(6) Debtor wrote $10,000 in checks to himself for cash around the time of the state court judgment.
(7) Debtor overstated food and transportation expenses.
(8) Debtor listed his business as being worth $10,000, even though he knew that it had been appraised at over $150,000.
The court dismissed the case and retained jurisdiction to consider dismissal with prejudice, in its order of April 26, 1996. The following ruling and findings were made orally at the April 12th hearing, according to the transcript:
(Emphasis added.)
The evidentiary hearing on cause for dismissal with prejudice took place on April 26, 1996. Debtor made an offer to sell or refinance the house to apply the $36,000 plus all of his disposable income to the Chapter 13 plan. The bankruptcy court considered that offer and other alternatives to dismissal. Debtor agreed to place $36,000 in an escrow account. However, Soto's attorney pointed out that such an option was unnecessary if the case were dismissed, for Soto could execute upon the Debtor's nonexempt business assets for the total amount of the judgment.
The court expressed its concern about the "overkill" effect of precluding discharge in subsequent bankruptcies that Debtor might legally file due to the res judicata effect of a dismissal with prejudice. The court stated, at first, that the only act justifying such an order was Debtor's purchase of the house with nonexempt estate assets during bankruptcy. The court then made the following oral finding:
On further reflection, having had recalled to my mind the testimony presented at the prior hearing, I am thinking further about what would face this court in the event of a future case. I believe that there would be no point in having a hearing — an evidentiary hearing in a new case, repeating the evidence presented in the prior case, and I do think the evidence is sufficient to support, and I do think it\'s appropriate, to grant dismissal with prejudice at this time.
(Emphasis added.)
The court's ruling was to dismiss the Chapter 13 case with prejudice effective retroactive to the date of the previous oral ruling, or April 12, 1996. The order stated that the court in making its ruling had reviewed the papers, evidence and argument and found good cause. The court did not issue written findings. Debtor timely appealed the order dated April 26, 1996.
1. Whether cause existed to dismiss Debtor's Chapter 13 bankruptcy case with prejudice.
2. Whether the bankruptcy court abused its discretion by dismissing Debtor's Chapter 13 bankruptcy case with prejudice as a permanent bar to the discharge of existing debt.
The Panel reviews orders of dismissal of a bankruptcy case for an abuse of discretion. In re Marsch, 36 F.3d 825, 828 (9th Cir.1994); In re Morimoto, 171 B.R. 85, 86 (9th Cir. BAP 1994). However, a finding of bad faith is reviewed for clear error. Marsch, 36 F.3d at 828; In re Eisen, 14 F.3d 469, 470 (9th Cir.1994). "A finding is `clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948). If the trial court's account of the evidence is plausible in light of the record viewed in its entirety, a reviewing court may not reverse even if convinced that it would have weighed the evidence differently as a trier of fact. Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 574, 105 S.Ct. 1504, 1511-12, 84 L.Ed.2d 518 (1985).
Statutory construction involves an issue of law which we review de novo. In re Warren, 89 B.R. 87, 90 (9th Cir. BAP 1988).
The dismissal of a bankruptcy petition upon the request of a party in interest is governed by § 1307(c), which provides that the court may dismiss a case "for cause." While lack of good faith is not one of the enumerated causes, it is well established that lack of good faith in commencing a case is "cause" for dismissal of a Chapter 13 case. Eisen, 14 F.3d at 470; In re Hopkins, 201 B.R. 993, 995 (D.Nev.1996).
Section 349(a) governs a dismissal of a case "with prejudice." It provides:
(a) Unless the court, for cause, orders otherwise, the dismissal of a case under this title does not bar the discharge, in a later case...
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