Matter of Mogul, Bankruptcy No. 81-2173.

• Decision Date: 12 February 1982
• Docket Number: Bankruptcy No. 81-2173.
• Citation: Matter of Mogul, 17 B.R. 680 (Bankr. M.D. Fla. 1982)
• Parties: In the Matter of Max A. MOGUL, Debtor.
• Court: U.S. Bankruptcy Court — Middle District of Florida

17 B.R. 680 (1982)

In the Matter of Max A. MOGUL, Debtor.

Bankruptcy No. 81-2173.

United States Bankruptcy Court, M.D. Florida, Tampa Division.

February 12, 1982.

Irving Gussow, Longwood, Fla., for debtor.

Davisson F. Dunlap, Orlando, Fla., for Trust Co. of N.J.

John Rodgers Camp, Miami, Fla., for FDIC.

ORDER ON MOTION TO DISMISS OR CONVERT CHAPTER 11 TO CHAPTER 7; ORDER ON MOTION TO TRANSFER TO ORLANDO DIVISION; and ORDER ON MOTION TO REQUIRE WITNESS TO ANSWER AND RESPOND TO QUESTIONS PROPOSED AT 205(a) EXAMINATION

ALEXANDER PASKAY, Chief Judge.

THIS IS a business reorganization case filed by Max A. Mogul who seeks relief under Chapter 11 of the Bankruptcy Code. The petition for relief was filed on December 17, 1981 and the Statement of Affairs accompanying the petition indicate that the Debtor is a real estate broker and developer.

The Schedule of Liabilities reveal that he is indebted to Lomas & Nettleton in the amount of $19,000, which obligation is secured by a mortgage on his residence, located at 861 Morse Blvd., Winter Park, Florida. Winter Park is in the Orlando Division of the Middle District of Florida, but in spite of this fact, the petition was filed in the Tampa Division. It further appears that the homestead encumbered by this mortgage is claimed by this Debtor as exempt, although not on the Schedules filed with the Petition. The file does not contain Schedule B-4. It further appears that the Debtor was previously involved in a bankruptcy proceeding as a voluntary debtor having filed in Jacksonville Division of Middle District of Florida, a case under Chapter XII of the Bankruptcy Act of 1898, and styled as In re Max Mogul, as Trustee.

The schedule of unsecured liabilities lists two creditors holding a judgment: the Trust Company of New Jersey in the amount of $500,000 and the Federal Deposit Insurance Corporation (FDIC) in the amount of $300,000. The Trust Company of New Jersey promptly moved after the commencement of the case for leave to conduct an examination of the Debtor, pursuant to Bankruptcy Rule 205(a). The application was granted by an order entered on December 21, 1981. FDIC also moved for leave to conduct an examination and said application was also granted by an order entered January 7, 1982.

The matters under consideration are a Motion to Dismiss or Convert the Chapter 11 proceeding into a Chapter 7 case; a Motion to Transfer the Proceeding to the Orlando Division; and a Motion to Require Witness to Answer and Respond to Questions Proposed at 205(a) Examination, all filed by Trust Company of New Jersey.

The Court heard argument of counsel on the Motion to Dismiss or Convert, considered the record and is of the opinion that this proceeding was not instituted by the Debtor in good faith, but solely for the purpose of gaining additional time and to forestall these two creditors from pursuing assets which are allegedly concealed or have been transferred by the Debtor in order to thwart and frustrate these creditors from collecting the debts owed to them by the Debtor. This conclusion is based on the following uncontested facts as they appear from the record.

The Debtor is not engaged in any business of any sort of any kind. It appears from the uncontradicted testimony given by the Debtor at the § 341 meeting, which testimony is offered and admitted in evidence, that the Debtor has no employees, he is not gainfully employed and has no independent income and allegedly lives on the income of his spouse and an income derived from a certain, yet to be identified, trust of his children. As noted earlier, the Debtor has no debts of any consequence or complexity which need reorganization. It is without dispute that the mortgage on the home of the Debtor is not intended to be dealt with by the Debtor and whatever plan he might propose would be solely directed to the two unsecured judgment creditors. This is the basic undisputed factual backdrop which furnishes the platform on which this Court is called upon to build a legally sound, fair and equitable resolution of the matters under consideration.

Concededly, unlike the pre-Code Chapter X, the Code does not expressly require that the petition be filed in good faith. Neither does the Code require an approval of a petition after showing by the petitioner that the petition has been filed in good faith. One of the requirements of good faith under the pre-Code laws was a showing that the plan is reasonably possible or there is a prima facie possibility that a successful reorganization can be effected. In re Plaza Towers, Inc., 294 F.Supp. 714 (E.D.La.1967); In re Carousel Ltd. Partnership, 3 BCD 737 (N.D.Ga.1977).

Moreover, the likelihood that these two unsecured judgment creditors would accept any plan proposed by this Debtor is very unlikely if not nonexistent. While this fact alone at this stage of the proceeding would not necessarily compel a dismissal, 6 Collier on Bankruptcy, ¶ 6.09 at 1066 (14th ed. 1980) (opposition by creditor does not warrant a dismissal or conversion of a Chapter X case), and prevent the retention of an otherwise viable business reorganization case, it is clear from the totality of the circumstances of this case that this clearly is not the type of case for which Congress meant to enact a scheme of rehabilitation set forth in Chapter 11 of the Code.

It has been long recognized that one who invokes the protective provision of the bankruptcy laws must do so in order to accomplish and further the expressed legislative aim of the particular Chapter and not for any other purpose. This Petition was filed under Chapter 11 entitled "Business Reorganization." It is without dispute that this Debtor does not have any "business" which could be reorganized. It is equally apparent that in this instance, the purpose of this Debtor to file this Petition under Chapter 11 is inconsistent with the underlying purpose of the Chapter and the rehabilitative process envisioned by Congress. To condone and to permit this Petition to be processed would be a clear perversion of the well articulated legislative intent. There is nothing in the legislative history which would indicate that Congress, by omitting the express requirement of "good faith" intended to do away with the safeguard against abuse and misuse of the process, a safeguard which has been long established...