Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_06-cv-00020/USCOURTS-caed-2_06-cv-00020-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (BAP)

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1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

In re:

HAROLD V. SULLIVAN, II, Bk. Ct. No. 05-30713-A-13

Debtor.

 /

HAROLD V. SULLIVAN, II,

NO. CIV. S-06-20 LKK

Appellant,

v. O R D E R

JAVA OIL LIMITED; and

BRIGHTSIDE SERVICES LIMITED,

Appellees.

 /

 Pending before the court is Harold Sullivan II’s (“debtor”

or “Sullivan”) appeal of the bankruptcy court’s dismissal of his

Chapter 13 bankruptcy petition and its retroactive annulment of an

automatic stay sought by Java Oil Limited and Brightside Services

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1

 See 11 U.S.C. § 362(a). The automatic stay protects the

bankruptcy debtor from all collection efforts “while they attempt

to regain their financial footing.” In Re Schwartz, 954 F.2d 569,

571 (9th Cir. 1992).

2

 All facts are derived from the parties’ papers and from the

Excerpts of Record (“ER”).

3

 Gibraltar is an Overseas Territory of the United Kingdom.

It is located on the southern part of the Iberian Peninsula at the

Strait of Gibraltar that links the Atlantic Ocean and Mediterranean

Sea, placing it between Europe and Africa. 

4

 The details of the suit brought by Laycock are not directly

at issue in this appeal. Suffice it to say that Laycock alleged

that he suffered a blow to the head as a gate surrounding a

construction site was being opened. ER at 269. Laycock maintained

that the site was occupied by creditors and that he had suffered

severe injuries which rendered him unable to carry on his business

activities, including running a Mexican recycling plant. Id. at

270. His schedule of special damages came to just short of £ 2

million. Id.

2

Limited(“Java” or “creditors”).1 

I.

BACKGROUND2

A. THE GIBRALTAR PROCEEDINGS3

On October 22, 2003, Peter Laycock (“Laycock”) brought suit

against creditors for personal injuries in the Courts of Gibraltar.

That suit was dismissed because the Gibraltar court concluded that

Laycock’s complaint was fraudulent.4 ER at 277. Creditors then

brought suit in Gibraltar against Sullivan, who the court concluded

acted as Laycock’s attorney, to collect the costs of defending the

lawsuit because he “had a hand in the preparation of the witness

statements,” among other things. Id. Sullivan challenged the

court’s jurisdiction, but that challenge was dismissed on February

17, 2005. The court then scheduled a hearing relative to the suit

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5

 The Gibraltar Supreme Court noted that it became aware of

the bankruptcy filing “in the week proceeding the September 5, 2005

hearing.” It stated, however, that Sullivan had notified the court

that the filing “has the effect of operating as a stay of all

existing actions against Mr. Sullivan.” ER at 278. Nevertheless,

the court proceeded to hear the case because it was “probable that

Mr. Sullivan filed for bankruptcy given the effects of the

proceedings in this claim.” Id. The court also stated that it was

surprised Sullivan had filed for bankruptcy because at the June 16,

2005 case management conference Sullivan represented that “he had

had a good previous year in practice.” Id.

3

brought against Sullivan for September 5, 2005. Id. at 277.

On August 31, 2005, five days before the hearing was to

commence in Gibraltar, debtor filed for Chapter 13 bankruptcy in

the Eastern District of California. Debtor filed a “face-sheet”

petition in the Bankruptcy Court, the bare minimum necessary to

commence a bankruptcy case. ER 147-151. Because of debtor’s

bankruptcy petition, the automatic stay provision of 11 U.S.C. 

§ 362(a) was triggered and, as a result, any action on the pending

suit in Gibraltar would be void as a violation of the stay. 

The Gibraltar court conducted hearings on September 5 and 6,

2005. Sullivan did not attend the hearings.5 At the end of the

hearings, the Gibraltar court concluded that debtor had

participated in Laycock’s suit in bad faith, and had submitted

forged documents and false evidence to the court. ER at 278, 291-

292. Sullivan was found liable to creditors for the cost of

defending the fraudulent lawsuit, an amount valued at more than $1

million U.S. dollars. The Gibraltar court ordered Sullivan to pay

the costs on an indemnity basis. ER at 278. On September 7, 2005,

creditors filed an application requesting that Sullivan’s assets

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4

be frozen. The application was granted and the order was served

on Sullivan on October 6, 2005, along with an additional

application seeking sequestration of assets purportedly belonging

to Sullivan and located in the Cayman islands. ER at 320.

B. CHAPTER 13 PROCEEDINGS

On October 6, 2005, debtor completed his schedules and filed

them with the bankruptcy court. ER at 11-32. Creditors then filed

a motion to dismiss or convert the bankruptcy petition and to

retroactively annul the automatic stay. Judge McManus granted the

motions on November 28, 2005, dismissing the petition and annulling

the automatic stay.

II.

STANDARDS

This court has jurisdiction to review proceedings of the

bankruptcy court pursuant to 28 U.S.C. § 158. The district court

reviews de novo a bankruptcy court's conclusions of law. Matter

of Lockard, 884 F.2d 1171, 1174 (9th Cir. 1989). Findings of fact

by the bankruptcy judge should not be disturbed unless they are

clearly erroneous. Fed. R. Bank. P. 8013; see In re Perez, 30 F.3d

1209, 1212 (9th Cir. 1994). That court's determination of good

faith is a finding of fact reviewable for clear error. Smyrnos v.

Padilla (In re Padilla), 213 B.R. 349, 352 (9th Cir. BAP 1997). 

Matters addressed to the discretion of the bankruptcy judge

are reviewed for abuse of discretion. Universal Life Church, Inc.

v. United States, 191 B.R. 433 (E.D. Cal. 1999)(Wanger, J.)(citing

In re Wymer, 5 Bankr. 802, 807 (9th Cir. BAP 1980)). Among such

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6

 Creditors contend that the appeal is moot since Sullivan

filed no stay pending appeal, pursuant to Fed. R. Bankr. P. 8005.

The argument is unavailing. While filing a stay pending appeal is

good practice, it is not a requirement, and failure to do so merely

permits the prevailing party to treat the bankruptcy court’s

judgment as final. “[A]n appeal is not moot if the court can

fashion some form of meaningful relief.” In re Cascade Rds., Inc.,

34 F.3d 756, 759 (9th Cir. 1994)(quotations omitted). Here, the

court can grant meaningful relief if it reversed the bankruptcy

court’s decision and ruled the Gibraltar judgment void for

violating the stay. 

5

matters are review of orders of dismissal, Sievers v. Green (In re

Green), 64 B.R. 530 (9th Cir. BAP 1986), and to retroactively annul

an automatic stay. In re National Envtl. Waste Corp., 129 F.3d

1052, 1054 (9th Cir. 1997). 

A bankruptcy court abuses its discretion if it applies the law

incorrectly or if it rests its decision on a clearly erroneous

finding of a material fact. United States v. Peninsula

Communications, Inc., 287 F.3d 832, 839 (9th Cir. 2002); Gonzales

v. Gottlieb (In re Metro Fulfillment, Inc. U), 294 B.R. 306, 309

(9th Cir. BAP 2003). 

III.

ANALYSIS

In this appeal, I examine whether the bankruptcy court 

abused its discretion in granting creditor’s motions to dismiss

Sullivan’s Chapter 13 petition and to annul the retroactive stay.6

Below, I explain why the bankruptcy court did not abuse its

discretion and why I must affirm the bankruptcy court’s orders.

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7

 An individual with regular income is defined as “one whose

income is sufficiently stable to make payments under a Chapter 13

plan.” 11 U.S.C. § 101(24).

6

A. DISMISSAL OF THE BANKRUPTCY PETITION

Sullivan contends that he met the eligibility criteria and

thus the Bankruptcy Court erred in its dismissal. Creditors

respond that there were at least three bases upon which it was

proper to dismiss the case. Upon review of the record, I conclude

that Judge McManus carefully examined Sullivan’s petition and did

not err in dismissing it. 

It is well-established that a bankruptcy court has the

inherent power to dismiss a case if the debtor is not eligible for

relief. In re Guastella, ---- B.R. ----, 2006 WL 1072050 *4 (9th

Cir. BAP 2006)(citation omitted). Judge McManus found that

Sullivan lacked a regular income, exceeded Chapter 13 debt limits,

and filed his petition in bad faith. Where, as I explain below,

there is record evidence to support those findings, there is no

basis for concluding that the Bankruptcy Court abused its

discretion in dismissing Sullivan’s case.

1. Regular Income

First, Section 109(e) requires a Chapter 13 debtor to be an

“individual with regular income.”7 Judge McManus emphasized that

debtor failed to be candid concerning his income by not disclosing

his spouse’s income, not disclosing his 2004 and 2005 income, and

misstating the nature, sources and regularity of his alleged

income. ER at 324. The court explained that although Sullivan

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8

 During the hearing on November 28, 2005, Judge McManus also

noted that he was disturbed by Sullivan’s failure to list as income

“quite a few cases in process on contingency that are valued not

at all.” ER at 299.

7

listed in his schedules that he earns $7500 in monthly gross income

from his employer, he acknowledged at the first meeting that “this

income is only payable if the debtor brings in sufficient business

and only after overhead costs . . . are paid.” Id. Judge McManus

recalled that Sullivan previously conceded that “his real income

will come from contingency fee cases.” This court’s review of the

record supports the bankruptcy court’s conclusion that “[t]here

appears, then, nothing regular about [debtor’s] income.”8 Id. On

this basis alone, it was well within the bankruptcy court’s

discretion to dismiss Sullivan’s Chapter 13 case for his inability

to show that he is "one whose income is sufficiently stable to make

payments under a Chapter 13 plan." See 11 U.S.C. § 101(24).

2. Debts Allowed Under 11 U.S.C. § 109(e)

Judge McManus additionally held that Sullivan failed to

qualify for relief under Chapter 13 because his debts exceed the

amount allowed under 11 U.S.C. § 109(e), which requires that a

Chapter 13 debtor have less than $307,675.00 of noncontingent,

liquidated, unsecured debt. The bankruptcy court explained that

although Sullivan’s schedules claimed $185,000 in unsecured and

priority unsecured claims further examination reveals that the

statements are inaccurate. As Judge McManus noted, a court

typically looks to the face of the petition to determine the amount

of debt owed, In re Scovis, 249 F.3d 975, 982 (9th Cir. 2001), but

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8

the court is allowed to go beyond the schedules when faced with a

good faith objection from creditors. ER at 322-23. See In re

Guastella, ---- B.R. ----, 2006 WL 1072050 at *8. 

Judge McManus took issue with Sullivan’s failure to “list

[creditor’s] million dollar plus claim,” especially since debtor

knew that the “fees and costs are readily calculable by the court,”

and because “they were subject to ready determination.” ER at 323

(citation omitted). Judge McManus relied primarily on Sullivan’s

omission of Creditor’s Gibraltar claim to hold that Sullivan’s case

“exceed[s] the debt limits of section 109(e).” ER at 323. 

Sullivan maintains that the bankruptcy court erred because he

had a good faith basis for listing Java’s debt as disputed and of

zero value. Opening Br. at 7. He maintains that he was “within

the bounds of good faith to declare the debt disputed and of zero

value” because the claim is based on a “complex tort theory” that

is “at odds with the American system of justice.” Id. at 8-9. He

insists that his omission is justified because the Gibraltar

judgment, “which was awarded under the English rule of

redistribution of attorney’s fees as litigation costs in order to

chill access to courts, is antithetical to the American rule” of

awarding attorneys’ fees and costs. Id. at 10-11. In other words,

Sullivan argues that because he disputes liability as to Java’s

claim, he was not required to list such a claim in his schedules.

The argument is without merit.

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9

 The court also appears to have dismissed the petition, in

large part, because the record strongly suggested that Sullivan

filed the petition in bad faith. The order stated, as to debtor’s

eligibility for Chapter 13 relief and the court’s assessment of

Sullivan’s income, that “[i]f the court’s conclusions are

erroneous, it is because the debtor has chosen to conceal his true

finances.” ER at 324. I elaborate on Sullivan’s bad faith in the

discussion on the bankruptcy court’s annulment of the stay. See

infra. 

9

As Judge McManus noted, “[t]he fact that the debtor disputes

the amount of a debt does not make it unliquidated,” citing

Nicholes v. Johnny Appleseed of Washington, 184 B.R. 82, 90 (9th

Cir. BAP 1995). Indeed, “if the amount of the creditor's claim

at the time of the filing the petition is ascertainable with

certainty, a dispute regarding liability will not render a debt

unliquidated. Even if a debtor disputes the existence of

liability, if the amount of the debt is calculable with certainty,

then it is liquidated for the purposes of § 109(e).” In re Scovis,

249 F.3d 975, 983-984 (9th Cir. 2001)(citing In re Slack, 187 F.3d

1070, 1074-75 (9th Cir. 2001)). Thus, even if Sullivan disputed

liability on creditors’ claim, the amount demanded and awarded by

the Gibraltar court was known by Sullivan at the time of his

bankruptcy filing, and thus, he was obligated to list it on his

schedules. 

In sum, the bankruptcy court correctly applied the law and had

the discretion to dismiss the matter because Sullivan lacked a

regular income and because his debts exceed the allowable amount.9

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10

B. ANNULMENT OF THE AUTOMATIC STAY

Sullivan contends that Judge McManus “did something no other

Judge has ever done in any published decision within the Ninth

Circuit” by annulling the automatic stay and validating an

otherwise void judgment when debtor relied on the stay and did not

participate in the trial. Opening Br. at 2, Repl. Br. at 1-2.

Sullivan’s contention cannot lie. Again, based on the court’s

review of the record, Judge McManus did not abuse his discretion

in annulling the automatic stay.

An automatic stay comes into effect whenever a debtor files

for bankruptcy. See 11 U.S.C. § 362(a). It is designed to protect

debtors from creditors while the debtor places his financial

affairs in order. In re Schwartz, 954 F.2d 569, 571 (9th Cir.

1992). Actions taken in violation of the stay are void and

unenforceable against the debtor. Id. Section 362(d) of the

bankruptcy code establishes the grounds for relief from the stay.

The court may grant relief by, inter alia, terminating, annulling,

modifying, or conditioning the stay. Id. Provided there is a

showing of cause, a bankruptcy court is given “wide, latitude in

crafting relief” from the stay pursuant to 11 U.S.C. 

§ 362(d)(1),including the power to grant retroactive relief in the

form of an annulment. In re Schwartz, 954 F.2d at 572. In order

to enforce its judgment in Gibraltar, creditors moved to annul the

automatic stay. 

Sullivan asserts that retroactive annulment should only be

granted in “extreme circumstances,” quoting In re Shamblin, 890

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10 Sullivan cites a number of cases from the First Circuit

where the court concluded that retroactive annulment should only

be granted in “extreme circumstances.” While these cases are not

binding on this court, I note that they all hold that a debtor’s

bad faith constitutes a sufficient reason for granting retroactive

annulment. See In re Bright, 338 B.R. 530, 535 (1st Cir. BAP 2006)

(“In deciding whether to retroactively annul the automatic stay,

bankruptcy courts are especially concerned with allegations of bad

faith.”); In re Soares, 107 F.3d 969, 977 (1st Cir. 1997)(“debtors

who act in bad faith may create situations that are ripe for

retroactive relief”).

11 As the BAP recognized in In re Fjeldsted, 293 B.R. 12, 23

(9th Cir. BAP 2003), although the Ninth Circuit has utilized the

words “extreme circumstances,” “the circumstances described in both

cases were not “extraordinary,” and that to the contrary, the

courts “simply balanced the equities, including prejudice to both

sides, the inequitable conduct of [debtor], the lack of blame on

11

F.2d 123, 126 (9th Cir. 1989), and argues that Judge McManus failed

to apply a narrow test in determining whether annulment was

appropriate.10 Judge McManus correctly acknowledged that “the

standard for annulling the automatic stay has been phrased

differently by various courts,” ER at 321, and that each court

examines a number of factors which are “guided by the particular

circumstances of each case.” Id. While Sullivan is correct in

arguing that the Ninth Circuit has, in the past, utilized

restrictive language when deciding whether to annul a stay, see,

e.g., Aheong v. Mellon Mortg. Co., 276 B.R. 233, 250 (9th Cir. 

BAP 2002)(utilized “extreme circumstances language to affirm a 

stay of annulment); Phoenix Bond & Indemn. Co. v. Shamblin, 890 

F.2d 123, 126 (9th Cir. 1989)(same)), ultimately, the court applied

a balancing test to determine whether annulment is equitable and

concluded that no one fact or circumstance determines the result.

ER at 321. See Nat’l Envtl. Waste Corp., 129 F.3d at 1055.11 

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the part of the creditors, and the inconvenience to the courts and

parties by not granting such practical relief.” 

12 When a debtor files for bankruptcy in bad faith, a

modification of the stay - including annulment - may be

appropriate. See, e.g., In re Kissinger, 72 F.3d 107, 109 (9th

Cir. 1995)(affirming annulment when debtor filed for bankruptcy in

bad faith during two day recess in trial); In re Arnold, 806 F.2d

937, 939 (9th Cir. 1986)(“debtor's lack of good faith in filing a

bankruptcy petition has often been used as cause for removing the

automatic stay”).

13 Judicial economy has consistently been found to be

sufficient grounds for annulling a stay. See, e.g., In re

Beguelin, 220 B.R. 94, 98 (9th Cir. BAP 1998)(“stay may be lifted

as a matter of judicial economy”); In re Santa Clara County Fair

Ass’n Inc., 180 B.R. 564, (9th Cir. BAP 1995)(affirming

modification of stay to allow suit against debtor for

discrimination on grounds of judicial economy).

12

Judge McManus did not abuse his discretion in weighing the

equities in favor of creditors. The bankruptcy court evaluated the

particular facts of the case and balanced the equities in light of

such facts. See, e.g., In re National Environmental Waste, 129

F.3d 1052, 1055-56 (9th Cir. 1997). In annulling the automatic

stay, Judge McManus found that: (1) Sullivan engaged in bad faith

by submitting untimely, incomplete and inaccurate schedules,

masking his ineligibility for Chapter 13 relief, ER at 322-23;12

(2) that the proceedings against debtor had been scheduled for many

months prior to the bankruptcy proceeding and were to take place

in another jurisdiction and that judicial economy militated having

the Gibraltar court resolve the case as it would impact debtor’s

eligibility for Chapter 13 relief, ER at 321;13 and (3) that

creditors were aware of the pending bankruptcy case before

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14 While a creditor’s knowledge of a stay is a factor to be

considered, it is not dispositive and in balancing the equities,

other factors can warrant retroactive annulment. In re National

Envt’l Waste Corp., 129 F.3d at 1055 (affirming annulment despite

non-debtor’s knowledge of bankruptcy). Judge McManus acknowledged

that creditors were aware of the stay when they proceeded in the

trial against Sullivan in Gibraltar, and that this factor favored

Sullivan, but he correctly ruled that the equities favored

annulment because of debtor’s bad faith and judicial economy

concerns. Judge McManus explained that he did not characterize

creditors’ proceeding against Sullivan in Gibraltar despite

knowledge of the bankruptcy filing as “unclean hands.” He

explained that creditors were faced with what to do once Sullivan

filed for bankruptcy “in bad faith.” ER at 304. He stressed that

Sullivan is an attorney and “chose to litigate in a foreign forum”

and that numerous witnesses were “being flown from foreign

countries to testify” and that logistics did not appear to be “a

simple thing.” Id. at 306.

13

proceeding in bankruptcy court.14 Based on these factors, the

court determined that the equities weighed in favor of creditors.

Based on the bankruptcy court’s careful consideration of the facts

and its correct application of the law, I conclude that the

bankruptcy court did not abuse its discretion in granting

creditors’ motion for annulment of the automatic stay.

 IV.

CONCLUSION 

The bankruptcy court’s dismissal of debtor’s bankruptcy

petition and its annulment of the automatic stay are AFFIRMED.

IT IS SO ORDERED. 

DATED: June 20, 2006

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