Leavitt, In re

• Citation: 171 F.3d 1219
• Decision Date: 26 March 1999
• Docket Number: No. 97-16525,97-16525
• Parties: , Bankr. L. Rep. P 77,916, 99 Cal. Daily Op. Serv. 2196, 1999 Daily Journal D.A.R. 2903 In re Jonathan Barnes LEAVITT, Debtor. Jonathan Barnes Leavitt, Appellant, v. Carlos Soto, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1219

171 F.3d 1219

34 Bankr.Ct.Dec. 111, Bankr. L. Rep. P 77,916,

99 Cal. Daily Op. Serv. 2196,

1999 Daily Journal D.A.R. 2903

In re Jonathan Barnes LEAVITT, Debtor.

Jonathan Barnes Leavitt, Appellant, v. Carlos Soto, Appellee.

No. 97-16525.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Nov. 5, 1998.

Decided March 26, 1999.

David Ashley Smyth, Law Offices of David A. Smyth, Walnut Creek, California, for the appellant.

Susan H. Handelman (argued), Ellen R. Krakow (on briefs), Ropers, Majeski, Kohn & Bentley, Redwood City, California, for the appellee.

Appeal from the United States Bankruptcy Appellate Panel; Ollason, Hagan and Ryan, Judges, Presiding. (BAP No. NC-96-1433-OHRy; BK No. 95-47690-TG).

Before: FLETCHER and TASHIMA, Circuit Judges, and BRYAN, ¹ District Judge.

BRYAN, District Judge:

This appeal requires us to establish the appropriate standard of bad faith as "cause" to dismiss a Chapter 13 ² bankruptcy petition with prejudice. The Chapter 13 petition of debtor/appellant Jonathan Barnes Leavitt ("Leavitt") was dismissed with prejudice by the Bankruptcy Court based on its findings that Leavitt's concealment of assets and inflation of expenses amounted to bad faith. The Bankruptcy Appellate Panel ("BAP") affirmed the dismissal in In re Leavitt, 209 B.R. 935 (9th Cir.BAP1997). We have jurisdiction pursuant to 28 U.S.C. § 158(d), and we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

Appellee Carlos Soto ("Soto") was Leavitt's business partner in a business known as Great America Waterproofing. During their partnership, Leavitt secretly set up a new entity that he named Great American Waterproofing, ³ and in which he claimed Soto sued Leavitt in the California Superior Court in San Mateo County for fraud, conversion of partnership assets, breach of fiduciary duty and breach of contract. Following a jury verdict in Soto's favor, the parties stipulated to entry of judgment for $227,893.83 on November 15, 1995. On November 6, 1995, after the jury's verdict but before formal entry of the judgment, Leavitt filed a Chapter 13 petition and plan. In his petition he listed several creditors, among them were the Internal Revenue Service ("IRS") for $53,123.23 for 1994 income taxes, and the judgment in favor of Soto. ⁴

sole ownership. Unbeknownst to Soto, Leavitt set up new bank accounts, filed fictitious business name statements, secured a separate business license, canceled the Leavitt-Soto partnership license and insurance, rented a secret post office box, and diverted partnership funds and accounts. After completion of these tasks, Leavitt informed Soto that he wished to dissolve their partnership. Soto suddenly found himself without a business or a license while Leavitt continued without interruption to do business through his new business entity.

Leavitt's Chapter 13 petition indicated that he was earning $72,000 per year, plus several thousand dollars of business profits. In his first plan, he proposed to pay to his administrative, secured and priority creditors $100 per month for the first twelve months and $1,520 per month for the next forty-eight months. He proposed no payments to his unsecured creditors, including Soto. The plan allowed payment of other monthly expenses such as car payments on two newer vehicles totaling $715.44, transportation costs of $300, piano lessons and school supplies of $220 and food expenses of $850.

On January 11, 1996, Soto moved to dismiss the Chapter 13 petition in the bankruptcy court on the ground that Leavitt filed it in bad faith for the improper purpose of avoiding the judgment debt. The motion cited the timing of the petition and the judgment, Leavitt's failure to file the Chapter 13 schedules or plan timely, the proposed plan's zero allocation to the judgment debt, and misrepresentations and excessive expenses in the schedules. The bankruptcy court held a hearing on the motion on March 16, 1996. At the hearing, the court told Leavitt that his plan would not be confirmed unless it allocated at least thirty percent of his income to Soto's judgment debt, and gave Leavitt ten days to file an amended plan. The evidentiary portion of the hearing on Soto's motion was rescheduled for April 12, 1996. On March 26, 1996, Leavitt filed an amended plan, allocating only three percent to the unsecured creditors, including Soto's judgment debt.

During the evidentiary hearing on April 12, 1996, Leavitt testified that he omitted certain assets from his schedules, and that his listed expenses included several inaccuracies. Specifically, Leavitt admitted that:

1) He was the sole owner of a health care merchandise business, known as L-2 Enterprises.

2) He estimated the value of his waterproofing business at $10,000 even though an expert at the state court trial had valued it at $150,000.

3) He had made cash payments to relatives totaling $16,000.

4) After filing his Chapter 13 petition, he took $36,000 from his waterproofing business's receivables and borrowed $10,000 from relatives, which he used to purchase a home in his wife's name. Neither the monies received nor the home mortgage were disclosed in his bankruptcy petition or to the bankruptcy trustee.

5) He borrowed $12,000 from his mother-in-law to pay business expenses.

6) He overstated his transportation, food and living expenses.

7) He wrote himself two checks totaling $10,000, the first on the day before the evidentiary hearing, and the second four days after the first check.

8) He failed to disclose payments to trade creditors made within 90 days before filing the Chapter 13 petition.

After hearing the evidence, the bankruptcy court granted Soto's motion and dismissed Leavitt's petition. The court retained jurisdiction to determine whether the dismissal should be with or without prejudice. The court noted that if the petition was dismissed without prejudice, Leavitt could refile, but if the petition was dismissed with prejudice, Leavitt would be barred from discharging the debt under any chapter. The court commented:

My sense is that this Chapter 13 is not going to work. The kinds of non disclosure and concealment that went on here seem to me to make this Debtor not a good candidate for any kind of a Chapter 13, where there's an operating business where expenses can be inflated to reduce net income.

Leavitt filed further briefing, arguing that he did not omit the information deliberately, and that he provided the missing information at the debtor's examination before the hearing. He also offered to sell or refinance his home and submit the $36,000 from business receivables to the bankruptcy estate.

On April 19, 1997, the court heard further arguments from counsel regarding various options in lieu of dismissal with prejudice. On submission of the issue, the court ruled as follows:

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.

The court entered a written order on April 26, 1997, dismissing Leavitt's Chapter 13 petition with prejudice.

Leavitt appealed to the BAP, arguing that the bankruptcy court failed to make specific findings of bad faith or "cause," that the court's finding of bad faith was erroneous because Leavitt had presented evidence that his omissions were inadvertent and not made with a dishonest motive, and that the omissions did not prejudice Soto because Soto was aware of the omitted items. Leavitt also argued that the bankruptcy court abused its discretion by permanently barring him from discharge rather than establishing a time limit before refiling.

In its decision affirming the bankruptcy court, the BAP held that the evidence supported the court's findings that Leavitt concealed assets and inflated expenses, that the findings were not clearly erroneous, and that the evidence supported the court's conclusion that the Chapter 13 petition was filed in bad faith. In re Leavitt, 209 B.R. at 940. The BAP further held that the bankruptcy court's oral findings were sufficiently specific because of the "reference to the facts established by the unrefuted evidence" and, along with the record, "clearly indicated that Soto's motion to dismiss was granted on the basis of Debtor's bad faith." Id.

STANDARD OF REVIEW

We review de novo the legal conclusions of the BAP. In re Pace, 56 F.3d 1170, 1173 (9th Cir.1995). Since the BAP's decision is based on the bankruptcy court's order, we review the conclusions of law of the bankruptcy court de novo and its factual findings for clear error. In re Parker, 139 F.3d 668, 670 (9th Cir.1998), cert. denied, McClellan Federal Credit Union v. Parker, --- U.S. ----, 119 S.Ct. 592, 142 L.Ed.2d 535 (1998); In re Kim, 130 F.3d 863, 865 (9th Cir.1997). We also review the bankruptcy court's finding of bad faith Leavitt contends that we must remand the case to the bankruptcy court for written findings of fact. We decline to do so. The standard for adequacy of factual findings in the Ninth Circuit is "whether they are explicit enough on the ultimate issues to give the appellate court a clear understanding of the basis of the decision and to enable it to determine the grounds on which the trial court reached its decision." In re Bradford, 112 B.R. 347, 353 (9th Cir. BAP 1990) (citing Louie v. United States, 776 F.2d 819, 822-23 (9th Cir.1985)). The appellate court may affirm the lower court on any ground fairly supported by the record. United States v. Hemmen, 51 F.3d 883, 891 (9th Cir.1995). Remand is not required when express findings are not made, if "a complete understanding of the issues may be had [from the record]...