Mitrano v. United States (In re Mitrano)

• Decision Date: 16 April 2012
• Docket Number: No. 1:12cv32 (LMB/IDD).,1:12cv32 (LMB/IDD).
• Court: U.S. District Court — Eastern District of Virginia
• Parties: In re Peter Paul MITRANO, Debtor. Peter Paul Mitrano, Appellant, v. United States of America, Appellee.

472 B.R. 706

In re Peter Paul MITRANO, Debtor.

Peter Paul Mitrano, Appellant,

v.United States of America, Appellee.

No. 1:12cv32 (LMB/IDD).

United States District Court,

E.D. Virginia,

Alexandria Division.

April 16, 2012.

Peter Paul Mitrano, Fairfax, VA, pro se.

Robert K. Coulter, United States Attorney's Office, Alexandria, VA, for Appellee.

MEMORANDUM OPINION

LEONIE M. BRINKEMA, District Judge.

Appellant Peter Paul Mitrano appeals the decision of the bankruptcy court granting the United States' Motion to Convert or Dismiss which resulted in the conversion of Mitrano's bankruptcy case from a Chapter 13 to a Chapter 7 proceeding.¹ For the reasons discussed below, the bankruptcy court's decision will be affirmed.

I. BACKGROUND

In May 2010, Mitrano filed a Chapter 13 petition for bankruptcy protection in the Southern District of West Virginia, where he was then incarcerated. ² On June 13, 2011, the bankruptcy court in West Virginia transferred the entire case to the United States Bankruptcy Court for the Eastern District of Virginia where Mitrano, who has completed serving his term of imprisonment, is now a resident and owns property. Mitrano opposed the transfer and has appealed the transfer order to the district court in West Virginia, where it is pending.³

Mitrano has filed three proposed Chapter 13 plans in this bankruptcy proceeding. The last proposal was filed on May 18, 2011 and lists “at least $10” monthly payments to the Trustee until Mitrano's release from prison and then payment of “available funds,” for 60 months. See Bankruptcy Appellate Record (“R.”) at 1–8, p. 2 (May 18, 2011 plan); see also id. at 1–5, p. 2 (June 15, 2010 plan, omitting duration of post-release repayment schedule); id. at 1–6, p. 2 (Dec. 6, 2010 plan, omitting duration of post-release repayment schedule). The claims register certified by the bankruptcy court in West Virginia reflects unsecured claims in the amount of $136,750.33, secured claims in the amount of $190,071.67, and priority claims in the amount of $65,684.02. R. at 1–2, p. 5. The claims register did not include the $517,406.32 restitution judgment entered against Mitrano in 2009 as part of his sentence for willful failure to pay child support.⁴

On July 29, 2011, the United States filed a Motion to Convert or Dismiss the Chapter 13 proceeding. Among the several grounds cited for the relief sought were: Mitrano's failure to file tax returns and properly report the full amount of his liabilities, thereby impeding the court's ability to determine whether he exceeded the debt limits of the statute; Mitrano's failure to pursue the Chapter 13 proceeding in good faith and prejudicing his creditors by unreasonably delaying their efforts to recover from him; and, lastly, Mitrano's inadequate income, rendering repayment of his debts unfeasible. The bankruptcy court found that Mitrano had acted in bad faith in the Chapter 13 proceeding and accordingly granted the Government's motion to convert to a Chapter 7 case. It is from the order of conversion that Mitrano appeals (Issues 3, 4, and 6 in Mitrano's brief). See R. at 1–1, p. 52 (Notice of Appeal).⁵

II. DISCUSSION

A. Standard of Review

On appeal, a district court reverses a bankruptcy court's factual findings only where they are “clearly erroneous.” See, e.g.,Fed. R. Bankr.P. 8013; In re Tudor Assocs., Ltd. (II), 20 F.3d 115, 119 (4th Cir.1994). Questions of law are reviewed de novo. See, e.g., In re Tudor, 20 F.3d at 119. The Court “review[s] for abuse of discretion the bankruptcy court's ultimate decisions to deny a request for dismissal of a Chapter 13 case under § 1307(b) and to convert a case from Chapter 13 to Chapter 7.” Rosson v. Fitzgerald (In re Rosson), 545 F.3d 764, 771 (9th Cir.2008).

B. Conversion to a Chapter 7 Proceeding

Mitrano argues that the bankruptcy court lacked a sufficient basis to convert his case to a Chapter 7 proceeding and that it should have dismissed rather than converted the case upon Mitrano's request. Title 11 U.S.C. § 1307(b) provides that “[o]n request of the debtor at any time, if the case has not been converted under section 706, 1112, or 1208 of this title, the court shall dismiss a case under this chapter [Chapter 13]. Any waiver of the right to dismiss under this subsection is unenforceable.” Mitrano maintains that he informed the bankruptcy court of his preference to dismiss rather than to have the proceeding converted during the October 26, 2011 hearing and again in writing on October 31, 2011, before the bankruptcy court issued its written order granting the conversion. According to Mitrano, his oral and written requests mandated dismissal because he had an absolute right under § 1307(b) to dismiss the case before it was converted.

The transcript of the October 26 hearing reflects that, in the midst of a somewhat lengthy commentary on other issues, Mitrano stated “[a]nd rather than the case be, I don't know if Your Honor is thinking of dismissing the case or converting it but I would request that it be dismissed rather than it be converted.” See Oct. 26, 2011 Tr. at 23:12–16. The court did not acknowledge Mitrano's request, but in response asked a follow-up question regarding Mitrano's real estate. At no time during the hearing, including when the judge orally granted the Government's motion and ordered the Chapter 13 proceeding converted to a Chapter 7, did Mitrano clearly move to dismiss the case in lieu of it being converted. See id. at 28.

Several days after the court orally announced its ruling from the bench, but before the written order issued, Mitrano filed his written request to dismiss. Mitrano had been on notice of the possibility of a conversion as of July 29, 2011, when the Government filed its motion entitled “Motion to Convert or Dismiss.” Despite the caption of the motion, Mitrano did not raise the issue of dismissal in lieu of conversion in his opposition. To the contrary, Mitrano asked the court to deny the Government's motion to dismiss. R. at 1–1, p. 47. Despite this very weak record of Mitrano requesting a dismissal, because he is a pro se litigant, the Court will assume that he made a sufficient request for dismissal under § 1307(b).

Assuming that Mitrano made a timely and adequate request for dismissal, conversion was nevertheless appropriate. Title 11 U.S.C. § 1307(c) allows the court to convert a Chapter 13 case to a Chapter 7 case “for cause.” ⁶ Bad faith in filing a Chapter 13 petition qualifies as “cause” under the statute. See Kestell v. Kestell (In re Kestell), 99 F.3d 146, 148 (4th Cir.1996); In re Love, 957 F.2d 1350, 1354 (7th Cir.1992); In re Uzaldin, 418 B.R. 166, 173 (Bankr.E.D.Va.2009). The court must look to the totality of the circumstances to determine whether a Chapter 13 debtor has acted in bad faith.

The underlying [bad faith] inquiry is based on fundamental fairness. The non-exhaustive list of the factors includes: the nature of the debt; whether the debt would be non-dischargeable in a chapter 7 proceeding; the timing of the petition; how the debt arose; the debtor's motive in filing the petition; how the debtor's actions affected creditors; the debtor's treatment of creditors before and after the petition was filed; and whether the debtor has been forthcoming with the bankruptcy court and the creditors.

In re Uzaldin, 418 B.R. at 173–74.

Mitrano contends that he had an absolute right to dismiss the Chapter 13 case under 11 U.S.C. § 1307(b) regardless of whether or not he acted in good faith, essentially arguing that § 1307(b) trumps subsection (c). Recent case law, however, indicates that a finding of bad faith can negate the debtor's right to choose dismissal in lieu of conversion. In Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365, 127 S.Ct. 1105, 166 L.Ed.2d 956 (2007), the Supreme Court addressed 11 U.S.C. § 706(a), which provides that a Chapter 7 debtor “may convert a case under this chapter to a case under chapter 11, 12, or 13 of this title at any time, if the case has not been converted ... Any waiver of the right to convert a case under this subsection is unenforceable.” Section 706(a) uses language parallel to that in § 1307(b). The Court emphasized that because the bankruptcy system is meant to protect the “honest but unfortunate debtor [ ],” a bad-faith debtor does not have an absolute right to convert his case under § 706(a). Id. at 374, 127 S.Ct. 1105. The Court further held that

Nothing in the text of either § 706 or § 1307(c) (or the legislative history of either provision) limits the authority of the court to take appropriate action in response to fraudulent conduct by the atypical litigant who has demonstrated that he is not entitled to the relief available to the typical debtor. On the contrary, the broad authority granted to bankruptcy judges to take any action that is necessary or appropriate ‘to prevent an abuse of process' described in § 105(a) of the Code, is surely adequate to authorize an immediate denial of a motion to convert filed under § 706 in lieu of a conversion order that merely postpones the allowance of equivalent relief and may provide a debtor with an opportunity to take action prejudicial to creditors.

Id. at 374–75, 127 S.Ct. 1105. In the wake of Marrama, courts are divided as to whether a bad-faith debtor has an absolute right to dismiss a Chapter 13 case under § 1307(b). Compare In re Williams, 435 B.R. 552 (Bankr.N.D.Ill.2010) (finding that “the language of § 1307(b) accords debtors an unlimited right to dismissal of unconverted Chapter 13 cases” unaffected by a finding of bad faith), with In re Rosson, 545 F.3d at 774 (holding that “the debtor's right of voluntary dismissal under § 1307(b) is not absolute, but is qualified by the authority of a bankruptcy court to deny dismissal on grounds of bad-faith conduct or ‘to prevent an abuse of process' ”) (quoting 11 U.S.C. § 105(a)), and In re Kotche, 457 B.R. 434 (Bankr.D.Md.2011) (applying Marrama to Chapter 13 debtor's motion...