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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 

J. enrh Cirruh 1\,...::pc:fl/s FOR THE TENTH CIRCUIT 

ocr 1 G 1989 

R.OBERTL 

· liOEclc""~ JEFFREY RALEIGH HALL and 

SUZANNE C. HALL, 

Plaintiffs-Appellants, 

v. 

KATHERYN VANCE, Assistant 

United States Trustee, 

Defendant-Appellee. 

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No . 89-5079 

Appeal from the United States Di strict Court 

For the Northern District of Oklahoma 

D.C. No. 88-C-623-B 

Submitted on the Briefs: 

Jeffrey Raleigh Hall and Suzanne c. Hall, Pro se. 

Clerk ~'-li.R 

Stuart E. Schiffer, William Kanter, Carol Park Wood, and Richard 

A. Wieland of the u.s. Department of Justice, Wichita, Kansas, and 

John E. Logan of the U.S. Department of Justice, Washington, D.C., 

for Defendant-Appellee. 

Before LOGAN, MOORE, and ANDERSON, Circuit Judges. 

MOORE, Circuit Judge. 

Appellate Case: 89-5079 Document: 01019404670 Date Filed: 10/16/1989 Page: 1 
After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); lOth Cir. R. 34.1.9. The cause is therefore ordered 

submitted without oral argument. 

Jeffrey and Suzanne Hall appeal a decision of the United 

States District Court for the Northern District of Oklahoma 

affirming the bankruptcy court's dismissal of their Chapter 11 

petition. The Halls, appearing ~ ~, pose numerous challenges 

to the decisions of the bankruptcy and district courts. Upon 

review, we find that only one of these assignments of error has 

merit. We hereby affirm the district court's holding that the 

bankruptcy court properly dismissed the case but reverse the 

district court's affirmance that the dismissal be with prejudice. 

I. BACKGROUND 

The Halls filed a petition for Chapter 11 reorganization in 

the bankruptcy court for the Northern District of Oklahoma on 

October 21, 1987. Shortly after the exclusive 120-day period for 

filing a debtor's reorganization plan had expired, the United 

States Trustee (the Trustee) filed a motion to dismiss. Among the 

a lleged grounds for dismissal was the Halls' failure to file a 

plan or disclosure statement within the 120-day period. 

Approximately one month later, AACO Automotive, a creditor of 

debtor Jeffrey Hall, also filed a motion to dismiss based on, 

among other grounds, the debtors' failure both to supply 

sufficient information with which a creditor could draw up a 

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Appellate Case: 89-5079 Document: 01019404670 Date Filed: 10/16/1989 Page: 2 
reasonable plan and to propose a plan or file a disclosure 

statement. 

At a status conference held on March 31, 1988, the bankruptcy 

judge set deadlines for filing proof of claims, for the debtors' 

filing of objections, and for the debtors' submission of a 

disclosure statement and plan of reorganization. He also set a 

hearing for June 24, 1988, to consider approval of the disclosure 

statement and the two motions to dismiss. 

The Halls failed to meet their deadlines, filing their 

objections three days late and their reorganization plan {the 

Plan) and disclosure statement (the Statement) one day late. They 

also filed their required monthly reports after the deadlines set 

by the Trustee. Both the Trustee and Sooner Federal, the Halls' 

largest secured creditor, filed objections to the Halls' 

Statement, claiming that it lacked adequate financial information, 

such as rental income flow, a description of assets and 

liabilities, and accrued administrative expenses. 

At the hearing, the bankruptcy judge suggested to the Halls 

that he appoint a trustee to value the assets and income of their 

estate and manage the income generated. When Jeffrey Hall 

objected to the appointment of a trustee, the judge dismissed the 

case with prejudice. 

In its order of dismissal, the bankruptcy court relied on 11 

U.S.C. §§ lll2(b)(2), (3) and (4), holding that the Halls' failure 

to meet the court's deadlines for filing objections to proofs of 

claim and for filing the Plan and Statement as well as their 

failure to meet the Trustee's deadlines for filing monthly reports 

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Appellate Case: 89-5079 Document: 01019404670 Date Filed: 10/16/1989 Page: 3 
supported dismissal under ~ lll2(b)(4). Dismissal under 

§ lll2(b)(2) was justified because of the inadequacies of the 

Statement, including failure to provide a description of the 

debtors• business with an enumeration of assets and liabilities, 

accounts receivable, the condition of the property, the 

maintenance required and the values associated with each parcel of 

real property; failure to provide to creditors a reason for the 

debtors' financial difficulty; failure to provide the creditors 

with debtors' cash requirements for operating the properties; and 

failure to denominate the claimants into classes and identify 

their treatment under the Plan. The court concluded that these 

omissions in the Statement constituted unreasonable delay which 

was prejudicial to the creditors and warranted dismissal under 

§ lll2(b) (3). 

The Halls appealed the dismissal to the district court which 

referred the case to a magistrate for an advisory hearing. The 

Halls objected to the referral and .did not appear at the hearing. 

The district court affirmed the magistrate's recommended 

dismissal, holding that the bankruptcy court's findings of fact 

were not clearly erroneous. The district court failed to address 

the Halls' other assignments of error. The Halls here seek review 

of that decision. 

I I • STANDARD OF REVIEW 

It is well established that neither this court nor the 

district court can disturb a bankruptcy court's findings of fact 

unless they are clearly erroneous. In re Branding Iron Motel, 798 

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Appellate Case: 89-5079 Document: 01019404670 Date Filed: 10/16/1989 Page: 4 
F.2d 396, 399 (lOth Cir. 1987); Fed. R. Bankr. P. 8013 . A factual 

finding is clearly erroneous "'when although there is evidence to 

support it, the reviewing court on the entire evidence is left 

with the definite and firm conviction that a mistake has been 

committed."' Anderson v. City of Bessemer, 470 u.s. 5641 573 

(1985) (quoting United States v. United States Gypsum Co. 1 333 

u.s. 364, 395 (1948)). This court, however, may exercise de novo 

review over the bankruptcy court's conclusions of law. In re 

Branding Iron Motel, 798 F.2d at 399-400. 

III. THE BANKRUPTCY COURT'S FINDINGS OF FACT 

The Halls claim that the bankruptcy court's findings of fact 

were clearly erroneous. They focus in particular on the court's 

enumeration of the omissions in their Statement. While the 

Statement does address some of the areas which the bankruptcy 

court found the debtors had omitted, the information which was 

disclosed simply does not meet the standard of adequacy which ll 

u.s.c. § ll25(a)(l) requires. That section states: 

11 [A)dequate information" means information of a kind, 

and in sufficient detail, as far as is reasonably 

practicable in light of the nature and history of the 

debtor and the condition of the debtor's books and 

records, that would enable a hypothetical reasonable 

investor typical of holders of claims or interests of 

the relevant class to make an informed judgment about 

the plan . . • . 

The bankruptcy court properly concluded that this information had 

not been provided. 

The bankruptcy court found that the Statement failed: (l) to 

enumerate the assets and liabilities, accounts receivable, 

physical condition and maintenance required for each parcel of 

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Appellate Case: 89-5079 Document: 01019404670 Date Filed: 10/16/1989 Page: 5 
real property; (2) to provide the reason for debtors' financial 

difficulty; (3) to provide the creditors with the cash 

requirements needed by the debtors to operate the properties; (4) 

to identify any escrowed funds held on behalf of the debtors' 

tenants; (5} to reveal the status of any pending litigation 

against the debtors and their assets; and (6) to identify the tax 

consequences which may arise as a result of the debtors' 

reorganization. These failures are clearly contrary to 

§ 1125(a)(l); therefore, we must reject the Halls' contention that 

the bankruptcy court's findings of fact were clearly erroneous. 

IV. DISMISSAL UNDER§ 1112{b)(2} 

The bankruptcy code (the Code) 1 enumerates ten grounds upon 

which a bankruptcy court may dismiss a Chapter 11 case or convert 

it into a case under Chapter 7. 11 u.s.c. § 1112(b)(l)-(10). 

This list is not exhaustive. H.R. Rep. No. 595, 95th Cong., 1st 

Sess. 405-06, reprinted in 1978 Code Cong. & Admin. News 5963, 

6361-62; In re Larmar Estates, Inc., 6 Bankr. 933, 936 (Bankr. 

E.D.N.Y. 1980). Dismissal or conversion must be at the request of 

a party, after notice and a hearing, and for cause. 11 u.s.c. 

§ lll2{b}; 5 Collier on Bankruptcy 1! 1112.03, at 1112-14 (15th ed. 

1979). The bankruptcy court has broad discretion under§ lll2(b). 

S. Rep. No. 989, 95th Cong., 2d Sess. 117, reprinted in 1978 U.S. 

1The Code to which this 

Reform Act of 1978, 

Bankruptcy Amendments 

Pub. L. No. 98-353, 98 

opinion refers includes the Bankruptcy 

Pub. L. No. 95-598, 92 Stat. 2549, and the 

and Federal Judgeship Act of 1984, 

Stat. 333. 

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Appellate Case: 89-5079 Document: 01019404670 Date Filed: 10/16/1989 Page: 6 
Code Cong. & Admin. News 5787, 5903; In re Koerner, 800 F.2d 1358, 

1367 (5th Cir. 1986). 

Under§ 1112(b)(2), the bankruptcy court may dismiss or 

convert a Chapter 11 case if the debtor is unable to effectuate a 

plan, which means that the debtor lacks the ability to formulate a 

plan or to carry one out. Moody v. Security Pacific Business 

Credit, Inc., 85 Bankr. 319, 345 (W.D. Pa. 1988), vacated on other 

grounds sub nom. Moody v. Simmons, 858 F.2d 137 (3d Cir. 1988), 

cert. denied, 109 S. Ct. 1529 (1989); In re Economy Cab & Tool 

Co., 44 Bankr. 721, 725 (Bankr. D. Minn. 1984). While the courts 

have generally applied this ground where the debtor is a corporate 

shell, In re Economy Cab, 44 Bankr. at 725, they have also granted 

dismissals or conversions under§ 1112(b)(2) where the debtor is 

an individual and the estate creditors continue to suffer losses 

as a result of the delay. See In re Koerner, 800 F.2d at 1368; 

Fossum v. Federal Land Bank, 764 F.2d 520, 521-22 (8th Cir. 1985); 

In re McDermott, 77 Bankr. 384, 386 (Bankr. N.D.N.Y. 1987). I n 

Koerner, for example, the Fifth Circuit held that conversion under 

§ 1112(b)(2) was appropriate where the individual debtor had 

submitted only a "nebulous plan" over a sixteen-month period. 800 

F.2d at 1368. Similarly, in In re Cassavaugh, 44 Bankr. 726 

(Bankr. W.D. Mo. 1 984), the bankruptcy court dismissed a Chapter 

11 petiti on under § 1112(b)(2) because the farm debtors had fail ed 

to present an acceptable plan within eight months of the petition. 

The Halls contend that the bankruptcy court's findings of 

fact do not support dismissal under§ 1112(b)(2} because the court 

made no determination with respect to the debtors' financial 

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Appellate Case: 89-5079 Document: 01019404670 Date Filed: 10/16/1989 Page: 7 
condition. According to the Hall s, such a determination is 

necessary because the ''inability to effectuate a plan" means that 

"reorganization would be futile." As the cases cited above make 

clear, this interpretation is only partially correct. Dismissal 

under § 1112(b)(2) is appropriate where the debtor's failure to 

file an acceptable plan after a reasonable time indicates its 

inability to do so whether the reason for the debtor's inability 

to file is its poor financial condition, the structure of the 

claims against it, or some other reason. 

In this case, as in Cassavaugh, the debtors failed to file an 

acceptable plan within eight months of their Chapter 11 petition. 

The bankruptcy court's findings support the conclusion that the 

Plan was unacceptable. The Halls' failure to file an acceptable 

plan over eight months indicates that without the appointment of a 

trustee, to which the Halls objected, the debtors would be unable 

to formulate an acceptable plan in the future. Because we 

conclude that dismissal under§ lll2(b)(2) was justified, we need 

not address the Halls' assignments of error with respect to 

dismissal under sections lll2(b)( 3) and (4). 

The Halls also claim that the bankruptcy court abused its 

discretion by failing to consider alternative remedies. The only 

alternative remedy which § 1112(b) requires the court to consider, 

if it is in the best interest of the creditors, is conversion to 

Chapter 7. As the Trustee indicated, all creditors had notice of 

the motions to dismiss, yet during the three months between the 

filing of those motions and the hearing on them, none filed 

objections or moved to convert. If conversion were in the best 

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Appellate Case: 89-5079 Document: 01019404670 Date Filed: 10/16/1989 Page: 8 
interest of the creditors, they would have so moved prior to the 

June 24th hearing. The court did recommend that it appoint a 

trustee pursuant to 11 U.S.C. § 1104 to assist the Halls in filing 

a plan. Jeffrey Hall objected, foreclosing this alternative 

remedy. The record, therefore, shows that the bankruptcy court 

did not abuse its discretion as the Halls allege. 

The Halls further protest that the bankruptcy court did not 

explain why dismissal was the best remedy. We agree with the 

Fifth Circuit's conclusion in response to a similar contention: 

[This] argument is not well taken. The bankruptcy judge 

is not required to give exhaustive reasons for his 

decision. He is only required to comply with 11 u.s.c. 

§ 1112(b)(2) which provides that the court may convert a 

reorganization proceeding to a straight bankruptcy for 

cause including "(2) inability to effectuate a plan" .• 

Koerner, 800 F.2d at 1368. We, therefore, reject the Halls' claim 

that the bankruptcy court abused its discretion by failing to 

consider remedies other than dismissal. 

V. DISMISSAL WITH PREJUDICE 

Ordinarily, a bankruptcy dismissal is without prejudice 

unless the court enters a specific order for good cause shown. 11 

u.s.c. § 349(a). When the petitioner in bankruptcy is an 

individual or farmer, a dismissal is for cause if it results from 

"the willful failure of the debtor to abide by orders of the 

court, or to appear before the court in proper prosecution of the 

case." 11 U.S.C. § 109(g)(l). 

Dismissal with prejudice is a severe sanction to which the 

courts should resort only infrequently. Roland v. Salem Contract 

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Appellate Case: 89-5079 Document: 01019404670 Date Filed: 10/16/1989 Page: 9 
Carriers, Inc., 811 F.2d 1175, 1177 (7th Cir. 1987}. In In re 

McDermott, 77 Bankr. 384 (Bankr. N.D.N.Y. 1987), for example, a 

case with ~acts far more egregious than this, the bankruptcy court 

refused to grant the creditor's motion for a dismissal with 

prejudice although the court ultimately did dismiss under ll 

u.s.c. § lll2(b)(2). In that case, nearly two years and three 

proposed plans of reorganization elapsed between the Chapter 11 

filing and the creditor's motion to dismiss with prejudice. The 

debtors had also missed one of the court's deadlines for filing a 

plan by over two months. Nevertheless, the court refused to 

dismiss with prejudice because the creditor had failed to make a 

showing of bad faith. 

The Halls contend that the bankruptcy court abused its 

discretion when it dismissed their Chapter 11 petition with 

prejudice because there was no showing of cause. In fact, the 

court found that the Halls had filed their objections to proofs of 

claim and their Plan past the deadlines set by the court and that 

they had consistently filed their monthly reports late. The 

Halls' tardiness, however, does not support a finding of bad 

faith. The objections were filed only three days late and the 

Plan, only one day late. While the monthly reports were 

s ubstantially more tardy, a fact which we do not condone, neither 

party moving for dismissal made a showing, beyond conclusory 

allegations, how the late filing of the monthly reports prejudiced 

them. 

We note , moreover, that the Halls are appearing pro se. 

While that status does not entitle them to special treatment under 

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the Code, it does lead us to the conclusion that their failure to 

file an acceptable disclosure statement and plan was more the 

result of their unfamiliarity with the intricacies of the Code 

than a willful attempt to defy a court order or delay the 

prosecution of this case. 

VI. THE DISTRICT COURT'S REFERRAL TO A MAGISTRATE 

Only one of the Halls' several challenges to the way in which 

the district court exercised its appellate function merits 

attention. The Halls contend that the district court's referral 

of this case to a magistrate for an advisory hearing circumvented 

their right to appeal the bankruptcy court's decision to an 

Article III court. We disagree. 

Congress has empowered the district courts to refer cases to 

a magistrate with some exceptions. 28 U.S.C. §§ 631-639. Where 

the district court is not specifically empowered to refer a case, 

it may do so under the general provision of 28 u.s.c. § 636(b)(3) 

which allows the district court to assign to a magistrate "such 

additional duties as are not inconsistent with the Constitution 

and laws of the United States." The purpose of the magistrate 

system is to ease the burden on federal judges. 

In In re Elcona Homes Corp., 810 F.2d 136 (7th Cir. 1987), 

the Seventh Circuit held that the district court, even with the 

consent of the parties, did not have the authority to refer an 

appeal from a bankruptcy court decision to a magistrate. The 

court reasoned that if Congress had intended to grant the district 

courts this power, it would have specifically provided for it, 

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considering the elaborate system for bankruptcy appeals which it 

established in the Bankruptcty Amendments and Federal Judgeship 

Act (the Act). The court also noted that one of the purposes of 

the Act was to strengthen the control of Article I I I courts over 

the bankruptcy courts. Allowing district c o urts to refer 

bankruptcy appeals for final decision to magistrates, who are 

Article I judges, would run counter to this purpose. Id. at 139-

40. 

In this case, the district court's order specifically states 

t hat the hearing before the magist rate would be advi s o ry and t ha t 

its purpose was "to further define and focus t h e issues on 

appeal." The district court explicitly reserved for itself the 

final decision on appeal. The district court, therefore, properly 

availed itself of the magistrate's assistance to hasten its 

handling of this case. By reserving for itself the final decision 

o f the appeal, it avoided the error of the district court in 

Elcona Homes. We, therefore, must reject the Halls' contention 

that the district court's referral was improper. 

VII. CONCLUSION 

The bankrupt cy court properly dismissed this case under 

§ lll2(b)(2). Both it and the district court erred, however, when 

they held that the dismissal should be with prejudice. We AFFIRM 

the dismissal of the Halls' Chapter ll petition, but REMAND for 

the entry of an order vacating the dismissal with prejudice. 

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