In re Mitan

• Decision Date: 17 July 2009
• Docket Number: No. 07-1915.,07-1915.
• Citation: 573 F.3d 237
• Parties: In re Kenneth M. MITAN, Debtor. Frank J. Mitan, Plaintiff-Appellant, v. Leonard Duval, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

573 F.3d 237

In re Kenneth M. MITAN, Debtor Frank J. Mitan, Plaintiff-Appellant, v. Leonard Duval, et al., Defendants-Appellees.

No. 07-1915.

United States Court of Appeals, Sixth Circuit.

Submitted: December 4, 2008.

Decided and Filed: July 17, 2009.

ON BRIEF:

Keith J. Mitan, Mitan & Associates, West Bloomfield, Michigan, for Appellant. Mark R. Fox, Fraser Trebilcock Davis & Dunlap, P.C., Lansing, Michigan, Erika D. Hart, Dean R. Nelson, Jr., Charles J. Taunt & Associates, PLLC, Birmingham, Michigan, for Appellees.

Before CLAY and GIBBONS, Circuit Judges; STAMP, District Judge.^*

GIBBONS, J., delivered the opinion of the court, in which STAMP, D. J., joined. CLAY, J. (pp. 248-51), delivered a separate dissenting opinion.

OPINION

JULIA SMITH GIBBONS, Circuit Judge.

Creditor Frank J. Mitan ("Frank"), the father of debtor Kenneth J. Mitan ("Kenneth"), appeals from the order of the district court converting Kenneth Mitan's bankruptcy case from Chapter 11 to Chapter 7 nunc pro tunc to February 9, 2004. Frank argues that the bankruptcy court was without power to issue a retroactive order converting the bankruptcy estate. In this issue of first impression, we hold that under the circumstances of this case the bankruptcy court did have the power to issue the retroactive conversion order. Consequently, we affirm the judgment of the bankruptcy court and remand this case to that court for further proceedings.

I.

This appeal arises out of a voluntary bankruptcy petition originally filed in the Central District of California. On May 20, 2003, debtor Kenneth Mitan filed his bankruptcy petition listing assets from $100,001 to $500,000 and debts from $1 million to $10 million. Kenneth later amended his complaint to reflect that his total estimated debts exceeded $30 million. The plurality of the 131 creditors listed represent unsecured claims arising from lawsuits against Kenneth. The creditors allege, and state court judgments reflect, that Kenneth engaged in a scheme under which he purchased extant businesses, stripped the businesses of their assets through quick sales, and then refused to pay the original owners of the businesses the agreed upon sales price. Thus, the former owners were left with neither the purchase price to which they were entitled nor any recoverable assets from the businesses that they had sold. Upon learning of Kenneth's California filing, the creditors moved for the bankruptcy court to transfer the petition to the Eastern District of Michigan, where Kenneth actually resides and a number of the creditors had their places of business. Kenneth moved to dismiss the case instead. The California bankruptcy court sided with the creditors and transferred the case to Michigan by an order dated October 7, 2003. The Ninth Circuit's Bankruptcy Appellate Panel affirmed the decision to transfer on December 22, 2003, and invited the creditors to file a motion for sanctions against Kenneth.

Upon transfer, the Michigan bankruptcy court scheduled a hearing at which neither Kenneth nor the creditors appeared. The bankruptcy court consequently dismissed the case on January 12, 2004. The very next day, the creditors filed a motion for reconsideration in which they explained their absence as an inadvertent mistake and Kenneth's absence as calculated. The creditors noted that through his absence, Kenneth had gained exactly the result the bankruptcy court in California had denied him — dismissal of the case. On February 9, 2004, the bankruptcy court held a hearing and agreed to reopen the case. The court held that "a single unified intensive investigation into Mr. Mitan's affairs is appropriate" to prevent Kenneth from continuing what the creditors characterized as his game of "catch me if you can." At the same hearing, the bankruptcy court sua sponte converted Kenneth's case from Chapter 11 to Chapter 7. Frank appealed to this court; and we reversed the bankruptcy court, finding that it had failed to give the required notice prior to its hearing on the conversion issue. Mitan v. Duval (In re Mitan), 178 Fed.Appx. 503, 504 (6th Cir.2006).

On remand, the bankruptcy court issued an order to show cause why it should not convert the case to Chapter 7 nunc pro tunc to the date of the original order that we had reversed. The bankruptcy court scheduled the hearing for twenty-five days after the issuance of the notice. All parties appeared at the October 23, 2006 hearing; and all parties expressing an opinion, except for Frank, supported the nunc pro tunc conversion to Chapter 7. The Trustee stated that Kenneth had refused to cooperate in any fashion with the Trustee's efforts and had refused to turn over all of the requested documents. The Trustee admitted that as a result of this stonewalling only $1,007.36 was in the bankruptcy estate. Creditors other than Frank noted that during the period between the prior conversion of this case to Chapter 7 and the issuance of our mandate reversing that order, the bankruptcy court had held that several of the claims against Kenneth were not subject to discharge.

In his arguments before the bankruptcy court, Frank admitted that he had failed to give notice to the Trustee of his appeal to the Sixth Circuit. Frank also admitted that he had failed to seek a stay of the bankruptcy court's conversion order, which would have prevented the Trustee from compromising any claims or seeking judgments as to the dischargeability of claims. Frank excused this oversight by saying that he had his "hands full."¹ Frank also did not contest that it was inappropriate for the case to remain in Chapter 11. Instead, Frank wanted the bankruptcy case dismissed. However, because the show cause order did not mention dismissal, the bankruptcy court could not grant dismissal at the hearing because of a lack of proper notice. See Fed. R. Bankr.P. 2002(a)(4) (requiring at least twenty days notice prior to a hearing on dismissal). Frank argued that because the bankruptcy estate had almost no assets, dismissal would not adversely affect the creditors; and the parties could file a new petition when circumstances changed. Frank declined to offer an opinion as to what effect dismissal would have on the one already compromised claim and the other prior rulings of the bankruptcy court.

After hearing oral arguments, the bankruptcy court granted the creditors' request to convert the case to Chapter 7 nunc pro tunc to February 9, 2004. The bankruptcy court found that its order did not violate our mandate and held that it had the authority to enter a nunc pro tunc conversion order, citing 11 U.S.C. § 105, Bankruptcy Procedure Rule 1001, and the bankruptcy court's "inherent authority." The bankruptcy court concluded by balancing the interests of the various parties. The court found that dismissal of the case would undo the significant work of the Trustee and the court, including compromising a claim, holding that several claims were not subject to discharge, and investigating where Kenneth's assets were located. The court pointedly found that all of these circumstances could have been avoided had Frank sought a stay of the conversion order pending appeal. Finally, the bankruptcy court held that rather than suffering harm, all of the creditors, including Frank, would benefit by a conversion of the case to Chapter 7 rather than an outright dismissal.

On June 4, 2007, the district court confirmed the order of the bankruptcy court. Frank timely appealed this confirmation.

II.

On appeal, Frank raises three primary arguments as to why the bankruptcy court lacked the power to enter its order retroactively converting the case to Chapter 7 following our remand order. Frank first asserts that the bankruptcy court's order violated our mandate from the prior appeal. Next, he questions the power of the bankruptcy court to enter such a nunc pro tunc order under any circumstances. Finally, Frank asserts that the bankruptcy court's conversion order was an abuse of discretion. We consider each argument in turn.

We "review[] a bankruptcy court's decision directly, not the district court's review of the bankruptcy decision." AMC Mortg. Co. v. Tenn. Dep't of Revenue (In re AMC Mortg. Co.), 213 F.3d 917, 920 (6th Cir.2000) (citation omitted). "The bankruptcy court's findings of fact are reviewed for clear error, while its conclusions of law are reviewed de novo." Id. (citation omitted); see also Fed. R. Bankr.P. 8013; Hardin v. Caldwell (In re Caldwell), 851 F.2d 852, 857 (6th Cir.1988). "Clear error occurs only when [we are] left with the definite and firm conviction that a mistake has been committed. If there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous." Caver v. Straub, 349 F.3d 340, 351 (6th Cir.2003) (internal quotation marks and citation omitted).

A.

Frank contends that the bankruptcy court violated our mandate by retroactively converting the case to Chapter 7 on remand. Correctly noting that trial courts "must adhere to the commands of a superior court," Frank argues that the bankruptcy court violated both the letter and spirit of the mandate rule by its actions. United States v. Twp. of Brighton, 282 F.3d 915, 919 (6th Cir.2002) (per curiam). Both the Trustee and the creditor appellees respond that the bankruptcy court did not violate our mandate. Instead, they argue that our mandate only addressed the propriety of the notice provided and did not restrain the bankruptcy court from entering a retroactive conversion order on remand after holding a properly-noticed hearing.

To determine whether the bankruptcy court violated our mandate, we must examine our April 2006 holding. We framed the issue presented as whether Frank "had not received notice of the hearing" in compliance with the Bankruptcy Rules prior to the bankruptcy court's original conversion of the case. In re Mitan, 178 Fed.Appx. at 504. After finding that Frank had standing to appeal as a creditor, we...