Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-90-04094/USCOURTS-ca10-90-04094-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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UNITED STATES COURT OF APPEALS F I L ~ D 

United States~~ App:;.ab TENTH CIRCUIT Ter,t.li C•rcu1 • 

In re: JOHN A. DAHLSTROM ) 

and MARYLIN H. DAHLSTROM, ) 

) 

Debtors, ) 

) . 

DAVID D. BIRD, United States ) 

Trustee, FIRST SECURITY ) 

MORTGAGE COMPANY, FIRST ) 

SECURITY BANK OF UTAH, N .A., ) 

FIRST INTERSTATE BANK OF ) 

UTAH, N.A., ZIONS FIRST ) 

NATIONAL BANK, and DESERET ) 

FEDERAL SAVINGS & LOAN ) 

ASSOCIATION, ) 

) 

Appellees, ) 

) 

v. ) 

) 

JOHN A. DAHLSTROM and ) 

MARYLIN H. DAHLSTROM, ) 

) 

Appellants. ) 

MAY 2 21992 

ROBERT L. HOECKER 

Clerk 

No. 90-4094 

(D.C. Nos. 89-C-866-S 

and 89-C-868-G) 

(Consolidated as No. 89-C-866-S) 

(D. Utah) 

__ . _ORDER AND JUDGMENT* 

Before SEYMOUR and SETH, Circuit Judges, and DUMBAULD, District 

Judge** · 

Debtors in Bankruptcy, John and Marylin Dahlstrom, appeal the 

decision of the District Court for the District of Utah to 

*This order and judgment has no precedential value and shall not 

be cited, or used by any court within the Tenth Circuit, except 

for purposes of establishing the doctrines of the law of the case, 

res judicata, or collateral estoppel. 10th Cir. R. 36.3. 

**Honorable Edward Dumbauld, United States District Judge for the 

Wester~ District of Pennsylvania, sitting by designation. 

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Appellate Case: 90-4094 Document: 010110249192 Date Filed: 05/22/1992 Page: 1
overturn the bankruptcy court's decision not to convert their case 

from Chapter 11 to Chapter 7 . 

The Chapter 11 case was commenced on April 18, 1986. 

Debtors-in-possession, John A. and Marylin H. Dahlstrom, filed 

their First Amended Plan and their Third Amended Disclosure 

Statement on June 26, 1987. The Dahlstroms' Plan was confirmed by 

the bankruptcy court. 

The Plan, as approved, divided the Dahlstroms ' unencumbered 

property into two cla~ses and listed those classes as Exhibits "A" 

and "B" to the Plan. The property on Exhibit "A" was to be sold 

within six months of the date the Plan went into effect while the 

property listed on Exhibit "B" was to be sold by the Debtors' best 

efforts. The Plan did place a deadl ine for sale of all the listed 

property, however . The Plan stated, "if all the property listed 

on Exhibits A and B have not been sold within twelve months of the 

effectiv e date, debtors will choose an auctioneer of their choice 

to auction the property, said auction to be held on all property 

to be sold no later than fifteen months after the effective date." 

Fifteen months after the Plan was confirmed, the property 

listed on Exhibit "B" was still unsold. Almost nineteen months 

after the Plan was confirmed, the United States Trustee filed a 

motion to convert the Chapter 11 case to a case under Chapter 7 

pursuant to 11 U.S.C. S 1112(b). The bankruptcy court scheduled a 

hearing on the motion to convert. On the day prior to the hearing 

Debtors held an auction and sold all of the remaining property 

listed on Exhibit "B" of the Plan. 

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At the hearing on the motion to convert, the Assistant 

United States Trustee questioned Mr. Dahlstrom about the 

whereabouts of several items which were listed on a homeowner's 

insurance policy dated April 11, 1987 but which were not listed in 

either Exhibit "A" or "B" of the Plan. Mr . Dahlstrom admitted 

that he still was in possession of nine oil paintings, insured for 

$54,000, and a duck stamp collection, insured for $1,800. 

Mr. Dahlstrom also conceded that Mrs. Dahlstrom owned a one-third 

interest in a set of silverware which had not been listed in the 

disclosure statement and which had not been sold. 

The bankruptcy court denied the motion to convert without any 

explanation and without findings or conclusions. Appellees 

appealed to the District Court for the District of Utah. The 

district court reversed the bankruptcy c ourt and the Debtors then 

filed this appeal. 

Appellees argued in the district court that the bankruptcy 

court erred in not granting their motion to convert under 11 

U.S . C. S 1112(b) . In reviewing the decision of the bankruptcy 

court not to convert the case from Chapter 11 to Chapter 7 we 

accord the bankruptcy court wide discretion. The language of 

§ 1112(b) is discretionary. Section lll2(b) states in pertinent 

part, "on request of a party in interest or the United States 

trustee, and after notice and a hearing, the court may convert a 

case under this chapter to a case under chapter 7 of this 

title ... • " 11 u.s.c. § 1112(b) (emphasis added). Moreover, a 

look at the legislative history of§ 1112(b) shows that Congress 

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Appellate Case: 90-4094 Document: 010110249192 Date Filed: 05/22/1992 Page: 3
intended the bankruptcy court to have wide discretion to grant or 

deny a motion under S 1112(b). S. Rep. No. 989, 95th Cong ., 2d 

Sess. 117, reprinted in 1978 U. S . Code Cong. & Admin . News 5787, 

5903. See also In Re Koerner, 800 F.2d 1358, 1367 (5th Cir. ) . 

"Under the abuse of discretion standard, a 

trial court's decision will not be disturbed 

unless the appellate court has a definite and 

firm conviction that the lower court made a 

clear error of judgment or exceeded the bounds 

of permissible choice in the circumstances. " 

United States v. Ortiz, 804 F.2d 1161, 1164 n.2 (10th Cir.) . 

Our task, and that of the district court, is to review the 

decision of the bankruptcy court for abuse of discretion . As 

mentioned, the bankruptcy court did not make findin gs of f act or 

conclusions of law, and without these findings, it is not possible 

for us to determine the basis for its decision . After r eviewing 

the record and placing reliance on the district court ' s 

proceedings, we must agree with the district cour t t hat the 

bankruptcy court's conclusion not to convert must be s e t aside . 

As grounds for the motion to convert the United States 

Trustee asserted that the Debtors' failure to comply with t he 

terms of the confirmed Plan constituted "cause" under S 1112(b) . 

The trustee also argued that t he a lleged bad faith of the Debtors 

was sufficient "cause" for conversion under§ 1112(b) . 

Additionally, he alleged that cause was shown under subsection 

(7), inability to effectuate substantial consummation of a 

confirmed plan, and subsection (8), material default by the debtor 

with respect to a confirmed plan. On the record before us, we 

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cannot hold that the bankruptcy court abused its discretion in 

denying the motion to convert. 

Appellees argue that the existence of bad faith is a reason 

to convert under§ 1112(b). The district court apparently agreed. 

The list of factors that may establish cause under§ 1112(b) is 

not exhaustive. See Hall v. Vance, 887 F.2d 1041, 1044 (10th 

Cir. ). We also recognize that lack of good faith may constitute 

"cause" under§ 1112(b). See In re Jartran, Inc., 886 F.2d 859, 

867 (7th Cir.). We ~cknowledge the permissive wording of the 

statute and the statute's legislative history leading to the 

conclusion that the decision to convert a case to Chapter 7 lies 

within the sound discretion of the bankruptcy court. But again 

with no findings or conclusions we cannot determine the basis for 

the bankruptcy court's conclusion. 

The Appellees urge that a cause for conversion also exists 

under S 1112(b)(8) . Section 1112(b)(8) states that a case may be 

converted if there is a "material default by the debtor with 

respect to a confirmed plan. " Appellee s argue that the Debtors' 

late sale of the assets listed on Exhibits "A" and "B" constitutes 

a material default under the Plan and was a last-minute attempt to 

conform the day before the conversion hearing. 

At the hearing on the motion to convert, there were 

allegations that the Debtors failed to list certain items of 

personal property in the Plan as described above. At the time of 

the hearing, the status of some of these items was still in 

dispute but many were acknowledged by the Debtors. Appellees 

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claimed that the items were required to be listed in the Debtors' 

Statement of Affairs and Schedules and in the Disclosure 

Statement. This was the basis for the assertion of bad faith and 

was apparently relied on by the district court. The Debtors 

claimed that many of these items had been given to their children 

as gifts years before the bankruptcy suit. No clear determination 

had been made as to some of the property in question, but it was 

clear as to several substantial items. 

In our view the _hearings demonstrated a substantial basis for 

conversion. 

Accordingly, the judgment of the District Court for the 

District of Utah is AFFIRMED . 

Judge Dumbauld heard the oral argumen t in this appeal but 

became ill after the hearing . We appreciated his help a nd had 

hoped that he could participate in this opinion. Filing was 

withheld with that expectation. However, he has been unable to do 

so . He may wish to file a separate opinion . 

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Entered for the Court 

Oliver Seth 

Circuit Judge 

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