McCormick, In re

• Decision Date: 19 April 1995
• Docket Number: No. 94-2381,94-2381
• Citation: 49 F.3d 1524
• Parties: , 33 Collier Bankr.Cas.2d 588, 27 Bankr.Ct.Dec. 121, Bankr. L. Rep. P 76,483 In re Timothy W. McCORMICK, Debtor. Timothy W. McCORMICK, Plaintiff-Appellant, v. BANC ONE LEASING CORPORATION, U.S. TRUSTEE, Defendant-Appellee. Non-Argument Calendar.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1524

49 F.3d 1524

63 USLW 2703, 33 Collier Bankr.Cas.2d 588,

27 Bankr.Ct.Dec. 121,

Bankr. L. Rep. P 76,483

In re Timothy W. McCORMICK, Debtor Timothy W. McCORMICK, Plaintiff-Appellant, v. BANC ONE LEASING CORPORATION, U.S. TRUSTEE, Defendant-Appellee.

No. 94-2381

Non-Argument Calendar.

United States Court of Appeals Eleventh Circuit.

April 19, 1995.

David T. Weisbrod, Tampa, FL, for appellant.

Appeal from the United States District Court for the Middle District of Florida.

Before ANDERSON and CARNES, Circuit Judges, and RONEY, Senior Circuit Judge.

PER CURIAM:

The debtor appeals the denial of his Chapter 11 reorganization plan for lack of good faith in an order which simply stated that "The Debtor's invocation of his Fifth Amendment privilege in connection with this case demonstrates that the Plan of Reorganization was not filed in good faith." The debtor had invoked the Fifth Amendment and refused to testify in a related adversary proceeding. The district court affirmed without opinion. This appeal comes without the benefit of a brief from the appellee.

On the simple issue presented by this appeal, we hold that the debtor's assertion of the Fifth Amendment in a related adversary proceeding, standing alone, when all other aspects of his Chapter 11 Plan of Reorganization are consistent with the goals of the Bankruptcy Code, is not sufficient evidence of bad faith to merit the denial of his plan.

In order to be confirmed, a Chapter 11 reorganization plan must be submitted in good faith and not by any means forbidden by law. 11 U.S.C. Sec. 1129(a)(3). While the Bankruptcy Code does not define the term, courts have interpreted "good faith" as requiring that there is a reasonable likelihood that the plan will achieve a result consistent with the objectives and purposes of the Code. In re Block Shim Development Company-Irving, 939 F.2d 289, 292 (5th Cir.1991); In re Madison Hotel Associates, 749 F.2d 410, 425 (7th Cir.1984); In re Coastal Cable T.V., Inc., 709 F.2d 762, 764-65 (1st Cir.1983) (in corporate reorganization, plan must bear some relation to statutory objective of resuscitating a financially troubled company).

Where the plan is proposed with the legitimate and honest purpose to reorganize and has a reasonable hope of success, the good faith requirements of section 1129(a)(3) are satisfied. Kane v. Johns-Manville Corp., 843 F.2d 636, 649 (2nd Cir.1988); In re Sun Country Development, Inc., 764 F.2d 406, 408 (5th Cir.1985); In re Mulberry Phosphates, Inc., 149 B.R. 702, 707 (Bankr.M.D.Fla.1993).

The focus of a court's inquiry is the plan itself, and courts must look to the totality of the circumstances surrounding the plan, Block Shim, 939 F.2d at 292; Madison Hotel, 749 F.2d at 425, keeping in mind the purpose of the Bankruptcy Code is to give debtors a reasonable opportunity to make a fresh start. Sun Country, 764 F.2d at 408.

Other than the debtor's refusal to testify in a related adversary proceeding, the totality of the circumstances surrounding Timothy McCormick's proposed reorganization plan would seem to negate any specific showing of bad faith. McCormick, who filed an individual, voluntary petition for relief under Chapter 11 of the Bankruptcy Code, complied with all necessary financial and other disclosure requirements. McCormick timely filed the required schedules and statement of financial affairs, and he testified at the meeting of creditors. The bankruptcy court approved the disclosure statement. The debtor secured the necessary number of the ballots by creditors in favor of the plan.

McCormick proposed to distribute approximately $23,000 to his creditors along with another $200 per month for 36 months. Apparently, McCormick could have filed a Chapter 7 petition, liquidating all his assets and obtaining a discharge, leaving his creditors in worse condition than under the Chapter 11 plan.

There is no doubt that the Fifth Amendment privilege extends to bankruptcy proceedings. McCarthy v. Arndstein, 266 U.S. 34, 45 S.Ct. 16, 69 L.Ed. 158 (1924). In Chapter 7 liquidation cases, the Bankruptcy Code provides that absent a grant of immunity, the debtor is free to invoke his Fifth Amendment privilege and still receive a discharge from his debts. 11 U.S.C. Sec. 727(a)(6)(B); In re Martin-Trigona, 732 F.2d 170 (2nd Cir.), cert. denied, 469 U.S. 859, 105 S.Ct. 191, 83 L.Ed.2d 124 (1984).

The Bankruptcy Code does not dictate nor have we found any other court to have held that a bankruptcy court may deny confirmation of a reorganization plan solely because the debtor refused to testify on the basis of the privilege against self-incrimination in a related proceeding during the pendency of a Chapter 11 case.

While his case was proceeding, one of McCormick's creditors, First Interstate Credit Alliance, Inc., filed a separate adversary proceeding against McCormick seeking to declare a debt non-dischargeable under section 523 of the Code. During a related deposition, McCormick asserted his Fifth Amendment privilege...