Tamecki v. Frank

• Decision Date: 25 May 2000
• Docket Number: No. 99-4061,99-4061
• Citation: 229 F.3d 205
• Parties: (3rd Cir. 2000) IN RE: RONALD M. TAMECKI, SR., DEBTOR RONALD M. TAMECKI, SR., APPELLANT V. LAWRENCE G. FRANK Argued:
• Court: U.S. Court of Appeals — Third Circuit

Page 205

229 F.3d 205 (3rd Cir. 2000)

IN RE: RONALD M. TAMECKI, SR., DEBTOR

RONALD M. TAMECKI, SR., APPELLANT

V.

LAWRENCE G. FRANK

No. 99-4061

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Argued: May 25, 2000

Filed September 27, 2000

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA, Dist. Court No. 99-cv-01240, District Court Judge: James F. McClure, Jr.

Attorney for Appellant: Frank E. Garrigan (Argued) Garrigan & Rosini 112 East Independence Street Shamokin, Pennsylvania 17872

Attorney for Appellee: Lawrence G. Frank (Argued) Law Office of Lawrence G. Frank 2023 North Second Street Harrisburg, Pennsylvania 17102

Before: Alito, Rendell and Duhe,^* Circuit Judges.

OPINION FOR THE COURT

Duhe, Circuit Judge

We AFFIRM the decision of the district court affirming the bankruptcy court's dismissal of Ronald M. Tamecki's ("Debtor") Chapter 7 petition.

BACKGROUND

Debtor filed for Chapter 7 protection seeking discharge of an approximately $35,000 credit card debt owed to MBNA America. He possesses only one substantial asset, his share of a tenancy by the entirety in his home, which he holds with his estranged wife. Debtor and his wife have accrued over $100,000 of equity in the home.

The Tameckis had been separated for approximately five years at the time Debtor filed for bankruptcy, and they have now been separated for more than seven years. Debtor and his wife live in different towns, and each lives with a significant other. Mrs. Tamecki filed for divorce in July 1993 but, for unknown reasons, the action is still pending. The most recent trial date was continued either on joint motion of the parties or without objection by the Debtor.

In his petition Debtor claimed an exemption under Section 522(b)(2)(B) of the Bankruptcy Code on his share of the home equity. See 11 U.S.C. S 522(b)(2)(B). The trustee in bankruptcy ("Trustee") challenged this election and sought dismissal of Debtor's petition for "lack of good faith" under Section 707(a) of the Code. See 11 U.S.C. S 707(a). According to Trustee, Debtor's divorce is "right around the corner"; and, thus, Debtor will soon be entitled to his unencumbered share of the dissolved tenancy by the entirety. The Trustee estimates that this would be approximately $50,000, an amount sufficient to cover Debtor's obligations and still leave him with enough money for a "fresh start." Accordingly, the Trustee reasoned that Debtor acted in bad faith in filing his petition knowing that he would soon be in a position to repay his debts. The bankruptcy court found that Debtor had failed to prove his good faith in filing for bankruptcy and dismissed the Debtor's petition under Section 707(a). The district court affirmed.

DISCUSSION

Section 707(a) allows a bankruptcy court to dismiss a petition for cause if the petitioner fails to demonstrate his good faith in filing. See In re Zick, 931 F.2d 1124, 1126-27 (6th Cir. 1991), In re Marks, 174 B.R. 37, 40 (E.D. Pa. 1994). Although the Code does not define "good faith," courts in this circuit have uniformly held that"[a]t the very least, good faith requires a showing of honest intention." See Marks, 174 B.R. at 40. Courts have cautioned, however, that:

Dismissal based on lack of good faith... should be confined carefully and is generally utilized only in those egregious cases that entail concealed or misrepresented assets and/or sources of income, lavish lifestyles, and intention to avoid a large single debt based upon conduct akin to fraud, misconduct or gross negligence.

Zick, 931 F.2d at 1129. Courts can determine good faith only on an ad hoc basis and must decide whether the petitioner has abused the provisions, purpose, or spirit of bankruptcy law. See Marks, 174 B.R. at 40. The parties agree that the decision to dismiss a petition for lack of good faith rests within the sound discretion of the bankruptcy court. See Zick, 931 F.2d at 1126, In re Atlas Supply Corp., 857 F.2d 1061, 1063 (5th Cir. 1988).

Once a party calls into question a petitioner's good faith, the burden shifts to the petitioner to prove his good faith. See Marks, 174 B.R. at 40 citing In re Sky Group Int'l, Inc., 108 B.R. 86, 90 (Bankr. W.D. Pa. 1989) ("Once the good faith issue is placed in question, the party bringing the petition has the burden of proving that the petition was brought in good faith."). The bankruptcy court found that Debtor failed to meet this burden. We agree.

Debtor testified that he accrued over $35,000 in debt at a time when he was earning less than one-tenth this amount. Debtor could point to no marked calamity or sudden loss of income that precipitated his need to accrue such a comparatively large consumer debt. Moreover, Debtor's testimony concerning the state of his marriage confirmed the Trustee's assertion that divorce and dissolution of the tenancy by the entirety were "right around the corner.¹" The district court did not abuse its discretion in determining that together these facts are sufficient to shift the burden to Debtor to prove his good faith.²

Debtor's response was three-fold: first, that the Trustee must prove "extreme misconduct"; second, that ability to repay is not, in and of itself, evidence of bad faith, see Marks, 174 B.R. at 41 and third; that he did no more than avail himself of a proper exception under the Code. While we agree with Debtor and the court in Zick that we should not lightly infer bad faith, Debtor's response is insufficient to carry his burden of proving good faith. Debtor proffered no evidence of good faith other than his testimony that he accrued his debt for subsistence purposes, intended to repay the debt, and that he loved his wife and would take her back "in a heartbeat." The bankruptcy court chose to discount this self-serving testimony and instead relied upon evidence that Debtor acquired a comparatively large consumer debt just prior to filing for bankruptcy and during the pendency of his divorce. While Debtor is correct that ability to repay is not in and of itself sufficient proof of bad faith, both the reasonableness of his accrual of the debt and the timing of his filing, particularly in relation to the curious and unexplained circumstances relating to the divorce proceeding, were sufficiently questionable to warrant good faith scrutiny. Debtor's assertion that the Code permits him to take the entireties exemption simply begs the question and does not address whether he availed himself of that provision in good faith. Ultimately, we find no error in the bankruptcy court's ruling that Debtor failed to prove his good faith.

AFFIRMED.

ALITO, Circuit Judge, concurring:

I join the opinion of the Court, but I add a few words to clarify the narrow point of disagreement between the majority and the dissent. As I understand the position of our dissenting colleague, she agrees (a) that a Chapter 7 consumer case may be dismissed for "bad faith" and (b) that, once a debtor's good faith is appropriately put at issue, it is the burden of the debtor to produce evidence of good faith. I do not understand the dissent to argue that in this case the debtor produced evidence of good faith, and thus the only apparent point of disagreement concerns the question whether, on the particular facts of this case, the debtor's good faith was sufficiently put at issue to require him to demonstrate good faith.

The dissent apparently believes that, in order to put Tamecki's good faith at issue, it was incumbent upon the trustee to produce evidence that, among other things, there is no good reason for the unusual delay in the completion of the Tameckis' divorce proceeding. See Dissenting Opinion at 210 ("[T]he trustee offered no evidence that put Tamecki's good faith at issue. He only made bald allegations, without proffering any evidence about the timing of Tamecki's still unconsummated divorce...."). But the trustee, who is obviously not a party to the divorce proceeding, is in a comparatively poor position to show the reason for the delay. The known facts about the divorce proceeding are sufficient to place upon the debtor the burden of explaining the reason for the delay, which has now reached seven years. It may be that there are entirely legitimate reasons for the delay. If so, it should have been easy for Tamecki to show what they were. But he made no effort to do so.

Under the particular circumstances of this case-- which, contrary to the implication of the dissent, is not the average consumer bankruptcy case -- the bankruptcy judge did not commit an abuse of discretion is dismissing the petition.

RENDELL, Circuit Judge, dissenting:

Some background is necessary to understand the framework in which we analyze this dispute and why I strenuously disagree with the outcome in this case, the reasoning, and the rule implicitly set forth by the majority. The Bankruptcy Code contains no explicit good faith filing requirement.¹ It does, however, permit the court to dismiss cases, including chapter 7 consumer cases, "for cause." See 11 U.S.C. SS 707(a), 930(a), 1112(b), 1208(c), 1307(c). We have not previously addressed the question of whether lack of good faith is grounds for dismissal of chapter 7 consumer bankruptcy cases under section 707(a), nor have we established how to go about determining bad faith in such a context.² Only two other courts of appeals have squarely confronted the question of bad faith dismissal of a consumer bankruptcy case under section 707(a). Both have held that bad faith may be grounds for dismissal under that provision, but have narrowly construed bad faith, finding that cases should be dismissed under only very limited circumstances in which the bankruptcy court has made specific findings of egregious behavior or misconduct. See Huckfeldt v. Huckfeldt (In re Huckfeldt), 39 F.3d 829, 832 (8th Cir. 1994); Industrial Ins. Servs., Inc. v. Zick (In re Zick), 931 F.2d 1124, 1129 (6th Cir. 1991). Both in and outside of these two...