In The Matter Of: Robert Edwin Jacobsen v. Moser

• Citation: 609 F.3d 647
• Decision Date: 16 June 2010
• Docket Number: No. 09-40023.,09-40023.
• Parties: In the Matter of: Robert Edwin JACOBSEN, Debtor.Robert Edwin Jacobsen, Appellant,v.Christopher Moser, Chapter 7 Trustee; John Sramek; Bernadette Sramek; Timothy E. Carlson, CPA, a professional corporation, Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

609 F.3d 647

In the Matter of: Robert Edwin JACOBSEN, Debtor.Robert Edwin Jacobsen, Appellant,v.Christopher Moser, Chapter 7 Trustee; John Sramek; Bernadette Sramek; Timothy E. Carlson, CPA, a professional corporation, Appellees.

No. 09-40023.

United States Court of Appeals Fifth Circuit.

June 16, 2010.

COPYRIGHT MATERIAL OMITTED

Robert Edwin Jacobsen, Lafayette, LA, pro se.

Jill Gay VanderPloeg, Singer & Levick, P.C., Addison, TX, for Moser.

John Paul Lewis, Jr., Dallas, TX, for John Sramek, Bernadette Sramek.

John Erich Johnson, Jameson & Dunagan, P.S., Dallas, TX, for Carlson.

Appeal from the United States District Court for the Eastern District of Texas.

Before KING, BARKSDALE and ELROD, Circuit Judges.

KING, Circuit Judge:

Robert Edwin Jacobsen filed a petition for relief under Chapter 13 of the Bankruptcy Code. During Jacobsen's bankruptcy case, the Chapter 13 Trustee moved to convert the case to Chapter 7 for cause under 11 U.S.C. § 1307(c). In response, Jacobsen moved to dismiss his case under 11 U.S.C. § 1307(b). Following a hearing, the bankruptcy court found that Jacobsen had acted in bad faith and abused the bankruptcy process, denied his motion to dismiss, and converted the case to Chapter 7. Jacobsen appeals, asserting that he has an absolute right to dismiss under § 1307(b) and, alternatively, that the finding of bad faith was clearly erroneous. Although the plain language of 11 U.S.C. § 1307(b) can be read to confer an absolute right to dismiss, the Supreme Court's decision in Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365, 127 S.Ct. 1105, 166 L.Ed.2d 956 (2007), compels us to hold that the right to dismiss under 11 U.S.C. § 1307(b) is subject to a limited exception for bad-faith conduct or abuse of the bankruptcy process, and we therefore affirm.

I. BACKGROUND

Robert Edwin Jacobsen is a licensed real estate broker in the State of California. He married his wife, Alise Malikyar, in 1999. At the time this appeal was filed, Malikyar worked as a hair stylist in California. Jacobsen filed a petition for relief under Chapter 13 of the Bankruptcy Code, 11 U.S.C. §§ 101 et seq., on May 25, 2007, in the Bankruptcy Court for the Eastern District of Texas. Although a pending lawsuit had been filed in California state court against both Jacobsen and Malikyar by John and Bernadette Sramek (collectively, the “Srameks”), Malikyar did not file a petition for bankruptcy relief as a co-debtor.¹

After obtaining an extension of time, Jacobsen filed his required bankruptcy schedules and Statement of Financial Affairs on June 25, 2007. In his schedules, Jacobsen disclosed his ownership of three mortgaged properties: a residence in Frisco, Texas, in which he claimed a homestead exemption, and two leased residential properties in Plano, Texas.² Jacobsen also claimed ownership of various other items of personal property, including all the stock of Humbolt Equities LLC, valued at $1,000, and a promissory note owed by REJ Properties, Inc., with a face value of $1,000,000. Jacobsen listed eight secured claims totaling $613,717.54, including two judgment liens: a $35,000 claim by Cory Nichols and a $47,530 claim by Timothy E. Carlson, CPA, PC (“Carlson”). Jacobsen did not identify any property to which the judgment liens attached. Jacobsen also listed unsecured claims totaling $224,711.80 that were noncontingent, liquidated, and undisputed. He listed the Srameks individually as pursuing a civil lawsuit against him for $1,627,536.38; Jacobsen marked this claim as contingent, unliquidated, and disputed.³

In his Statement of Financial Affairs, Jacobsen listed under the category “Other transfers” the sale, on September 15, 2006, of the outstanding shares of the British American Yacht Corporation (“British American”). He claimed that the sale was for a total consideration of $5,000, of which his share was $2,500. No other transactions were listed. Under “Prior address of debtor,” Jacobsen listed the address 2324 Tice Valley Blvd., Walnut Creek, CA 94595 (the “Tice Valley Property”). Jacobsen reported that he lived at the Tice Valley Property from 1999 until the end of 2005, at which time he lived on a sailboat in the Caribbean for approximately six months. In describing his business activities, Jacobsen reported four business interests: (1) his self-employment as a real estate investor and broker; (2) Humble [sic] Equities II, LLC, a real estate business of which Jacobsen was the sole member; (3) REJ Properties, Inc., a real estate business of which Jacobsen was the president and sole shareholder until the corporation's sale in May 2005; and (4) British American, a yacht charter business he ran with his wife. In the section for listing spouses and former spouses, Jacobsen misspelled Malikyar's name as “Malekyar”; this was the first time her name appeared on any filings in the Chapter 13 case.

On July 20, 2007, Jacobsen, the Srameks, Carlson, and the Chapter 13 Trustee attended the meeting of creditors prescribed by 11 U.S.C. § 341. At this meeting, it was revealed that there were numerous real properties in both Texas and California titled in Malikyar's name and that the Tice Valley Property was proceeding to sale. The Chapter 13 Trustee responded by filing an adversary proceeding to enjoin the sale (the “Adversary Proceeding”). At a hearing in the Adversary Proceeding, Jacobsen disclosed that he had a nonexempt property interest in the Tice Valley Property. The bankruptcy court subsequently entered an order restraining the sale of the Tice Valley Property.

While the Adversary Proceeding was progressing, the Chapter 13 case continued. On August 2, 2007, the Chapter 13 Trustee filed a motion to convert the case from Chapter 13 to Chapter 7 for cause under § 1307(c); the Srameks and Carlson joined in that motion. Later that day, Jacobsen responded by filing a motion to dismiss the Chapter 13 case under § 1307(b). The bankruptcy court held a hearing on the motions at which Jacobsen was the sole witness testifying.

During Jacobsen's examination at the hearing, it became clear that Jacobsen's schedules and his Statement of Financial Affairs contained inaccuracies and deficiencies. Regarding real property, Jacobsen testified that in the weeks leading up to his petition, a home in Lafayette, California (the “Bella Vista Property”) had been purchased and titled in Malikyar's name. He further testified that about two weeks before filing his petition, he had executed a quitclaim deed, conveying any interest he had in the Bella Vista Property to Malikyar. Neither the Bella Vista Property nor the quitclaim deed was identified in Jacobsen's schedules or his Statement of Financial Affairs. At the time of the hearing, Jacobsen was living with Malikyar at the Bella Vista Property. In addition, the Tice Valley Property, although listed as a prior address on the Statement of Financial Affairs, was not listed in Jacobsen's schedules. While Jacobsen included three Texas properties in his schedules, he omitted six rental properties in Allen and Plano, Texas, that were titled in Malikyar's name.

Jacobsen explained in testimony that he neglected to include property held in Malikyar's name because he believed that, under a prenuptial agreement and a postnuptial agreement the two had executed, those properties were separately owned by Malikyar. These agreements, dated July 17, 1999, and September 11, 2001, respectively, purport to leave all property acquired before marriage as separate property and to render property acquired during marriage the separate property of the spouse in whose name it was acquired. Jacobsen acknowledged in his testimony that these agreements were not recorded in the relevant counties in California or Texas.⁴ He was also unable to explain why, at the earlier hearing in the Adversary Proceeding regarding the sale of the Tice Valley Property, neither he nor his attorney mentioned or produced either the prenuptial or postnuptial agreement.

Jacobsen suggested that Malikyar was able to purchase the Bella Vista Property using income derived from her hair styling business, but he then testified that she had not been engaged in that business until after the date his petition was filed. Jacobsen also testified that Malikyar, who is from Afghanistan, speaks little English, and that he manages the properties titled in her name. Jacobsen's testimony also revealed that he was the beneficiary and trustee of a trust called the Jacobsen Trust, but he did not believe that the trust held any assets. Jacobsen testified that he had invested $75,000 in a business venture with his cousin who lived in Oslo, Norway, to produce shea butter; his investment money was derived from the proceeds from the sale of a condominium he owned in Acapulco, Mexico. Neither of those interests was listed on Jacobsen's schedules. Jacobsen insisted that the misspelling of his wife's name was unintentional, as was the misspelling of Humbolt Equities on his Statement of Financial Affairs.⁵ Despite the errors and omissions, Jacobsen did not amend his schedules or his Statement of Financial Affairs.

Following the hearing, the bankruptcy court denied Jacobsen's motion to dismiss and granted the Chapter 13 Trustee's motion to convert. In re Jacobsen, 378 B.R. 805, 811 (Bankr.E.D.Tex.2007). The court found that Jacobsen's right to dismiss the Chapter 13 case was qualified by an exception for bad faith id. at 810-11, that Jacobsen's conduct established bad faith id. at 811, and that Jacobsen's bad faith constituted cause for converting the case to Chapter 7 id. While the case was on appeal to the district court, the bankruptcy court entered a judgment in the Adversary Proceeding, agreed to by Jacobsen and Malikyar, declaring that the three properties listed in Jacobsen's schedules and seven properties held in Malikyar's name were equal or joint management community property and therefore property of Jacobsen's bankruptcy estate. The district court affirmed the...