In re Marrama, BAP No. MB 04-001.

• Decision Date: 09 September 2004
• Docket Number: BAP No. MB 04-001.,Bankruptcy No. 03-11987-WCH.
• Citation: 313 B.R. 525
• Parties: In re Robert Louis MARRAMA, Debtor. Robert Louis Marrama, Appellant, v. Citizens Bank of Massachusetts, and Mark DeGiacomo, Chapter 7 Trustee, Appellees.
• Court: U.S. Bankruptcy Appellate Panel, First Circuit

Page 525

313 B.R. 525

In re Robert Louis MARRAMA, Debtor.

Robert Louis Marrama, Appellant, v. Citizens Bank of Massachusetts, and Mark DeGiacomo, Chapter 7 Trustee, Appellees.

BAP No. MB 04-001.

Bankruptcy No. 03-11987-WCH.

United States Bankruptcy Appellate Panel of the First Circuit.

September 9, 2004.

David G. Baker, Charlestown, MA, on brief, for Appellant.

Jack J. Mikels, Quincy, MA, Michael A. Wirtz, Boston, MA, Janell E. DeGennaro, on brief, for Appellee Citizens Bank of Massachusetts.

Mark G. DeGiacomo, Boston, MA, Olga L. Bogdanov, Worcester, MA, on brief, for Appellee Mark G. DeGiacomo as Chapter 7 Trustee.

Before LAMOUTTE, VAUGHN, and CARLO, United States Bankruptcy Appellate Panel Judges.

LAMOUTTE, Bankruptcy Judge.

Robert Louis Marrama (the "Debtor" or the "Appellant") appeals the August 27, 2003 order (the "Order") entered by the United States Bankruptcy Court for the District of Massachusetts (the "bankruptcy court") denying his Verified Notice of Conversion to Chapter 13 (the "Notice"). The issue before the Panel is two-fold; that is, whether the bankruptcy court may deny a Chapter 7 debtor the right to convert a Chapter 7 case to Chapter 13, and if so whether the bankruptcy court was correct in doing so under the particular facts of this case. We affirm.

BACKGROUND

On March 11, 2003, the Debtor filed a voluntary Chapter 7 petition and schedules. App. at 17.¹ Schedule A listed a "Residence in Gloucester, MA" (the "Massachusetts Property") as the Debtor's only real property. On Schedule B, the Debtor answered Question 18 by stating: "Debtor is 100% beneficiary of Bo-Mar Realty Trust [(the `Trust')] the res of which is real property in Maine in which the debtor intends to live. Trust is a spendthrift trust." The current market value of the Debtor's interest in the Trust was listed as zero. On Schedule C, the Debtor claimed a homestead exemption in the Massachusetts Property, listing $300,000 as the maximum value of the claimed exemption, and $200,000 as the current market value of the property without deducting the exemption. Schedule C also provided: "The beneficial interest in the Bo-Mar Realty Trust is not property of the estate pursuant to 11 U.S.C. § 541(c)." Schedule I stated no income generated by real property, and listed a total combined monthly income of $5,762. Schedule J included total monthly expenses of $4,925.95. On March 24, 2003, the Debtor filed a motion to avoid the liens on the Massachusetts Property, arguing that the same impaired his homestead exemption.

The § 341 meeting of creditors commenced on April 24, 2003, was continued over the course of several months, and concluded in November, 2003. Id. At the April 24, 2003 creditors' meeting,² the Debtor testified that he was currently residing at 47 Norton Avenue in York, Maine (the "Maine Property"), and that he had been doing so for a couple of months. Appellee's App. at 33. The Debtor further testified that his Massachusetts Property serves as rental property, generating a total of $2,150.00 a month beginning on May 1, 2003. ³ Id. at 34.

The Debtor testified that he had purchased the Maine Property several years ago, and had later conveyed it to the Trust for no consideration. Id. at 18, 37. The Debtor referred to the property as belonging to him, saying "I have a piece of property in Maine." Id. at 6. His attorney corrected him, explaining, "[t]hat's actually owned by the trust, right?" Id. When asked why he transferred the Maine Property into the Trust, the Debtor testified that he was trying to protect it. Id. at 37. The Debtor is the sole beneficiary of the Trust, and his girlfriend is the trustee. Id. at 16. The Trust contains a spendthrift clause and is revocable. See id. at 47. The transfer of the Maine Property to the Trust was not disclosed in the Statement of Financial Affairs.

On June 23, 2003, the Debtor filed a Verified Notice of Conversion to Chapter 13 (the "Notice of Conversion"). App. at 17. In response to the Notice of Conversion, the Appellees each filed opposition pleadings. Id. Pointing out that the Debtor had claimed a homestead exemption in property where he did not reside, and that the Debtor had transferred the Maine Property into a trust for his own benefit which he failed to disclose on his bankruptcy schedules, the Trustee's opposition argued that the Debtor's request for conversion was made in bad faith with an intent to prevent the Trustee's recovery of assets on behalf of the estate. Id. at 2. The Trustee's opposition stated that the Debtor did not disclose the transfer of the Maine Property in response to Question 10 of the Statement of Financial Affairs or anywhere else in his bankruptcy petition. Id. The Debtor responded to the Trustee's opposition, denying the allegations of bad faith and asserting that the Maine Property had been properly disclosed on Schedule B. Id. at 6.

Citizens Bank, like the Trustee, argued that the Debtor's request for conversion lacked good faith, and added that such a conversion would result in abuse of the bankruptcy process. Id. at 9. In addition to the Trustee's arguments regarding the Maine Property, Citizens Bank's opposition asserted that the Debtor's Schedule I failed to disclose income generated by rental of the Massachusetts Property. Id. Citizens Bank's opposition further alleged that the Debtor had participated in improper, and possibly illegal, activity in connection with his company's assets, and that the Debtor had been uncooperative with regard to a civil action Citizens Bank had commenced to enforce collection of its loans and obtain equitable relief to seize the business records and manage the collection of the company's receivables. Id.

On August 11, 2003, the Debtor filed amended Schedules I and J. Amended Schedule I listed income from rental property of $1,500, bringing the Debtor's total combined monthly income up to $7,184.77. Amended Schedule J reflected an increase in monthly expenses, with a new total of $5,828.00.

On August 27, 2003, the bankruptcy court held a hearing on the Notice of Conversion (the "Hearing"). At the Hearing, the Appellees reiterated the arguments presented in their oppositions. Id. at 33. Specifically, the Trustee alleged that the Debtor failed to disclose on his Statement of Financial Affairs the transfer of his Maine Property into the Trust within a year of filing bankruptcy for the purpose of protecting it. The Trustee alleged that the transfer was a fraudulent transfer. The Trustee further argued that the Debtor failed to disclose in his schedules receipt of rental income from the Massachusetts Property or entitlement to a tax refund of $8,700 that the Trustee had recently learned about. The Trustee asserted that the Debtor decided to convert to Chapter 13 only after the Trustee informed him at the § 341 meeting that the Trustee would seek to recover the $85,000 of equity in the Maine Property.

Citizens Bank summarized the contentious state court litigation between itself and the Debtor, which was stayed at the discovery stage by the Debtor's bankruptcy filing. Citizens Bank explained that the Debtor had filed criminal complaints against two bank vice-presidents and the bank's attorney because they went to shut down the Debtor's company under court order. The bank further explained that the Debtor had avoided giving interrogatory or deposition testimony in the state court action as well as during his 2004 examination in the bankruptcy proceeding by asserting his Fifth Amendment privilege.

The Debtor denied the allegations of bad faith, and argued that any omissions were inadvertent or of no harm to the estate. Id. Specifically, the Debtor explained that he had not started receiving rental income from the Massachusetts Property until after he filed his petition. The Debtor's attorney attributed the Debtor's failure to disclose the transfer of the Maine Property to his own scrivener's error, explaining that he had known about the transfer, but had inadvertently omitted it from the Statement of Financial Affairs. Regarding the tax refund, the Debtor asserted that he learned about it the same time the Trustee did. The Debtor also explained that he had not sought conversion to Chapter 13 because the Trustee was going to pursue recovery of assets; rather, he had sought conversion because he became employed subsequent to the filing of his Chapter 7 petition.

The bankruptcy court reasoned that there is no "oops" defense to concealment, and that filers have an obligation to provide accurate information. Id. The bankruptcy court further found that there is "a major presumption of bad faith when you have a grantor trust within a year of the bankruptcy and the property is not disclosed." Id. Comparing the present case to the recent Fleury ⁴ decision, the bankruptcy court concluded that "[t]his is a bad faith case," and denied the conversion. Id. This appeal followed.

JURISDICTION

A bankruptcy appellate panel may hear appeals from "final judgments, orders and decrees pursuant to 28 U.S.C. § 158(a)(1), or with leave of the court, from interlocutory orders and decrees pursuant to 28 U.S.C. § 158(a)(3)." Fleet Data Processing Corp. v. Branch (In re Bank of New England Corp.), 218 B.R. 643, 645 (1st Cir. BAP 1998). "A decision is final if it `ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.'" Id. at 646 (citations omitted). An interlocutory order "only decides some intervening matter pertaining to the cause, and requires further steps to be taken in order to enable the court to adjudicate the cause on the merits." Id. (quoting In re American Colonial Broad. Corp., 758 F.2d 794, 801 (1st Cir.1985)). A bankruptcy appellate panel is duty-bound to determine its jurisdiction before proceeding to the merits even if not raised by the litigants. See In re George E. Bumpus, Jr. Constr. Co., 226 B.R. 724 (1st Cir. BAP 1998).

The Panel finds that it has jurisdiction...