In re Woodruff

• Decision Date: 19 January 2018
• Docket Number: Case Number: 17–70070–JTL
• Citation: 580 B.R. 291
• Parties: IN RE: John Michael Christian WOODRUFF, Debtor
• Court: U.S. Bankruptcy Court — Middle District of Georgia

580 B.R. 291

IN RE: John Michael Christian WOODRUFF, Debtor,

Case Number: 17–70070–JTL

United States Bankruptcy Court, M.D. Georgia, Valdosta Division.

Signed January 19, 2018

John M. Woodruff, Birmingham, AL, pro se.

MEMORANDUM OPINION

John T. Laney, III, United States Bankruptcy Judge

This matter is before the Court on a Motion to Convert (the "Motion") filed pro se by the Debtor, John Michael Christian Woodruff. Walter W. Kelley, the Chapter 7 Trustee, opposed the Motion. After the parties filed briefs and presented arguments at the December 29, 2017 hearing (the "Hearing"), the Court carefully considered the applicable statutes and case law. The Court announced its decision DENYING the Motion from the bench at the conclusion of the Hearing. The Court writes this memorandum opinion to further explain its reasoning for denying the Motion.

Factual Background

On January 23, 2017, the Debtor filed for Chapter 7 bankruptcy relief. (Pet., ECF No. 1). Walter W. Kelley was appointed Chapter 7 trustee. Initially, the Trustee reported no estate property had value above the exemptions available by law and, accordingly, the Trustee would not make a distribution of estate assets. (Trustee's Report of No Distribution, ECF No. 47). After the Trustee made this report, the Debtor discovered he was a beneficiary under his grandfather's will. The Debtor promptly and voluntarily disclosed this inheritance to the Trustee. Consequently, the Trustee withdrew his Report of No Distribution, (Notice of Withdrawal, ECF No. 52), and filed a report indicating the estate may contain possible assets. (Trustee's Report of Possible Assets, ECF No. 53).

The property to be distributed under the will is not contested. The grandfather's will devised $2,500, furniture, nineteenth-century novels, a stamp collection, and 2,575 shares of Southern Company stock to the Debtor. (Debtor's Amended Schedule A/B, ECF No. 63). The most valuable of these assets—and, in fact, the only asset the Trustee seeks to liquidate—is the Debtor's unexempt Southern Company stock, which the Trustee valued over $120,000 during the Hearing. (Trustee's Ex. 1).

Since discovering the Debtor's inheritance, the parties sought various forms of relief to control the inherited assets. The Trustee initiated an adversary proceeding against the Debtor and the decedent estate's personal representative. In the proceeding, the Trustee sought an order prohibiting the personal representative from making certain interpretations under the will and directing all property bequeathed to the Debtor distributed directly to the Trustee. (Compl., Adversary Proceeding ECF No. 1) Believing the probate exception prohibited the Court from ordering a personal representative to distribute probate assets in a particular matter, the Court dismissed the adversary proceeding. (Order Granting Motion to Dismiss, Adversary Proceeding ECF No. 30). The Court did, however, issue an order directing the personal representative to distribute all property devised to the Debtor, as determined by the Probate Court, to the Trustee. (Order Granting Trustee's Mot. to Preserve, Adversary Proceeding ECF No. 29). The Debtor too has attempted to control the probate assets through proceedings in this Court. In the underlying bankruptcy case, the Debtor sought a temporary restraining order, restraining the Trustee from "interfering with the administration of the decedent estate, or demanding transfer of property bequeathed, bestowed, or devised to [the] Debtor by the Debtor's grandfather." (Debtor's Mot. for TRO, ECF No. 67). The Court denied this motion. (Order Den. TRO, ECF No. 82).

On October 29, 2017, the Debtor filed the Motion, seeking to convert the Chapter 7 proceeding to one under Chapter 11 of the Code. (Mot. to Convert, ECF No. 106). The Debtor subsequently amended the Motion. (Am. Mot. to Convert, ECF No. 115). In moving to convert, the Debtor is attempting to gain control of estate assets from the Trustee. See , 11 U.S.C. § 1107(a) (giving a Chapter 11 debtor-in-possession the powers of a trustee). With this control, the Debtor would present a Chapter 11 plan that would liquidate estate assets and disburse proceeds to creditors. (Trustee's Ex. 4, Debtor's Resp. to Interrog. No. 3). The Debtor's putative Chapter 11 plan is nebulous at best; the Debtor admits he "does not have a crystal ball to foreknow the final particulars of a confirmed plan." (Trustee's Ex. 4, Debtor's Resp. to Interrog. No. 2). In support of the Motion, the Debtor argues that, in the absence of bad faith, he has an absolute right to convert his case from a Chapter 7. The Trustee opposed the Debtor's conversion.

(Resp. with Opp'n, ECF No. 120; Am. Resp. with Opp'n, ECF No. 124).¹ Primarily, the Trustee argues the Debtor's actions do constitute bad faith and that a Chapter 11 proceeding is inappropriate given the circumstances of this case.

As the parties litigated these proceedings, the Debtor's communication with the Trustee devolved to being inappropriate, threatening, and evasive. The Trustee argues the Debtor's conduct was an attempt to threaten and dissuade the Trustee from pursuing assets of the estate. For example, after the Trustee requested financial documents pertaining to the Debtor's ability to fund a Chapter 11 plan, the Debtor threatened to file bar complaints, complaints to the U.S. Trustee and Department of Justice, and further litigation if the Trustee proceeded with his request.² (Trustee's Ex. 3, pgs. 14–16). Additionally, in a December 12, 2017 email, the Debtor insinuated he would email his complaint to the U.S. Trustee to all attorneys practicing in the Middle District of Georgia Bankruptcy Court if the Trustee did not withdraw his opposition to the Motion.³ (Respondent's Ex. 3, pg. 23). Moreover, after a hearing in the probate court, the Debtor made a threatening comment that caused the Trustee fear for his safety.⁴ (Trustee's December 29, 2017 Test.).

The Trustee also argues the Debtor has evaded and obstructed the Trustee's lawful attempts to gather information. When the Trustee asked the Debtor why he wished to convert the case to a Chapter 11, the Debtor made inappropriate and vulgar insults.⁵ (Trustee's Ex. 3, pg. 18). Following up on this inquiry through formal discovery requests, the Trustee served interrogatories and requests for admission on the Debtor. (Trustee's Ex. 4, pgs. 1–5). These discovery requests sought reasonable and innocuous information concerning the Motion. The Debtor, however, again responded with inappropriate insults that evaded the Trustee's requests.⁶ (Id., pgs. 10–27). The Debtor's inappropriate behavior continued in his own discovery requests from the Trustee.⁷ (Trustee's Ex. 5, pgs. 4–5).

At the Hearing, the Debtor did not physically appear, instead attending the hearing by telephone.⁸ As the Court made clear to the Debtor on this and previous occasions, the Debtor's telephonic attendance prevented him from submitting any evidence or cross-examining any witness. Accordingly, the Court only admitted the Trustee's evidence. The Court did allow the Debtor to make legal arguments.

Legal Analysis

Pursuant to 11 U.S.C. § 706(a) a Chapter 7 debtor "may convert a case under [Chapter 7] to a case under chapter 11, 12, or 13 of this title at any time[.]" Notably, this subsection does not explicitly require notice and hearing for a Chapter 7 debtor to convert, indicating the Debtor's authority to convert is broad. Compare , 11 U.S.C. § 706(a) (not requiring notice and hearing) with , Id. § 706(b) ("On request of a party in interest and after notice and a hearing ...") (emphasis added). Clearly, however, the Code does not grant a Chapter 7 debtor absolute authority to convert. In particular, § 706(d) provides a debtor may not convert a case "unless the debtor may be a debtor under such chapter." While § 109's limitations would certainly preclude a debtor's ability to convert, the Supreme Court's decision in Marrama v. Citizens Bank explains § 706(d)'s limitations also extend where conversion would create immediate grounds for dismissal or re-conversion. 549 U.S. 365, 127 S.Ct. 1105, 166 L.Ed.2d 956 (2007)

Marrama addressed a Chapter 7 debtor's authority to convert to a Chapter 13. There, the debtor made misleading representations regarding the value of certain property and failed to disclose pre-petition transfers of the property to a family trust. After the Chapter 7 trustee indicated an interest in recovering that property for the estate, the debtor moved to convert the case to a Chapter 13. Id. at 368–69, 127 S.Ct. 1105. The trustee and the debtor's creditors opposed the conversion, arguing the debtor's attempts to conceal the property indicated the conversion was in bad faith and was an abuse of the bankruptcy process. Id. at 369, 127 S.Ct. 1105. The bankruptcy court denied the debtor's motion to convert and the debtor appealed.⁹

The Supreme Court upheld the bankruptcy court's order. It held a bankruptcy court may deny a debtor's conversion where, upon converting the case, the court would have grounds to subsequently dismiss or re-convert the case to a Chapter 7. This is, in part, a practical result required by the Code. 11 U.S.C. § 1307(c) authorizes a bankruptcy court to dismiss a Chapter 13 case or convert it a Chapter 7, "whichever is in the best interests of creditors and the estate, for cause[.]" Though the subsection does not define "cause," it lists circumstances that indicate cause for dismissal or conversion. See , 11 U.S.C. § 1307(c)(1)–(11). Furthermore, the Marrama Court, citing numerous circuit court decisions on the issue, noted a debtor's bad-faith conduct may also constitute cause for dismissal or conversion. 549 U.S. at 368, 370–71, 127 S.Ct. 1105 (citing, In re Alt , 305 F.3d 413, 418–19 (6th Cir. 2002) ; In re Kestell , 99 F.3d 146, 148 (4th Cir. 1996) ). If a bankruptcy court finds cause to dismiss or to convert a Chapter 13 case, this finding—in the words of the Marrama Court—is ...