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NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

FOR THE NINTH CIRCUIT

In re: ) BAP No. CC-15-1426-LKiTa

)

MARLOW CURTIS LAFOUNTAINE, ) Bk. No. 6:14-bk-22000-SY

)

Debtor. )

 )

)

MARLOW CURTIS LAFOUNTAINE, )

)

Appellant, )

)

v. ) MEMORANDUM*

)

HOWARD B. GROBSTEIN, )

Chapter 7 Trustee, )

)

Appellee. )

 )

Argued and Submitted On May 19, 2016

at Pasadena, California

Filed - June 7, 2016

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Scott H. Yun, Bankruptcy Judge, Presiding

 

Appearances: Krystina T. Tran of Law Offices of Tran &

Iserhien, PC argued for Appellant Marlow Curtis

LaFountaine; Michael R. Adele argued for Appellee

Howard B. Grobstein, Chapter 7 Trustee.

 

FILED

JUN 07 2016

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

* This disposition is not appropriate for publication. 

Although it may be cited for whatever persuasive value it may

have (see Fed. R. App. P. 32.1), it has no precedential value. 

See 9th Cir. BAP Rule 8024-1.

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Before: LANDIS,1 KIRSCHER, and TAYLOR Bankruptcy Judges. 

INTRODUCTION2

This appeal arises from debtor/appellant Marlow Curtis

LaFountaine’s unsuccessful attempts to convert his chapter 7

bankruptcy case to a chapter 11 proceeding. The bankruptcy court

denied the Debtor’s conversion motion. We AFFIRM.

STATEMENT OF FACTS

On September 25, 2014, Debtor/Appellant Marlow Curtis

LaFountaine (“Debtor”) filed a voluntary petition under

chapter 13 of the Bankruptcy Code for the purpose of protecting

his family home, located in Banning, California (the

“Property”).3 Thirty-nine (39) days later, on November 3, 2014,

Debtor consented to conversion of his case to chapter 7. 

Ninety-one days after agreeing to convert from chapter 13 to

chapter 7, Debtor cited changed circumstances and sought

conversion once again, this time to chapter 11. After a hearing

on Debtor’s motion to convert to chapter 11, the bankruptcy court

entered an order denying Debtor’s motion. Denial was due to a

1 Hon. August B. Landis, Bankruptcy Judge for the District

of Nevada, sitting by designation.

2 Unless specified otherwise, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532. 

All Rule references are to the Federal Rules of Bankruptcy

Procedure, Rules 1001-9037. All Local Rule references are to the

Local Rules of the United States Bankruptcy Court for the Central

District of California.

3 This case commenced with the filing of Debtor’s second

chapter 13 bankruptcy petition in the Central District of

California. Debtor’s first chapter 13 case was filed in 2011,

and was dismissed on July 29, 2014, for failure to make plan

payments. Neither Debtor nor the Trustee has provided the case

number of Debtor’s first chapter 13 bankruptcy.

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lack of supporting evidence regarding Debtor’s changed financial

circumstances, in particular, the bankruptcy court noted that

Debtor had not even filed an amended Schedule I or J to support

his allegations.

Eight months later, Debtor filed another motion to convert

his chapter 7 case to a chapter 11 proceeding (the “Motion”). 

The Motion again cited changed financial circumstances as the

predicate for conversion to chapter 11. That same day, Debtor

filed Amended Schedules I and J. 

The Trustee filed a timely Opposition to Debtor’s Motion,

asserting that Debtor provided absolutely no evidence in support

of the Motion. The Trustee specifically argued that neither the

Motion nor Debtor’s Amended Schedules provided any explanation of

how Debtor would be able to cure the current deficiency on the

loan payments regarding the Property or to make the monthly

payments on the Property during the term of the proposed plan of

reorganization. 

The day before the hearing on the Motion, Debtor belatedly

filed a Reply Brief to the Trustee’s Opposition (the “Reply”). 

Attached to the Reply was Debtor’s Declaration, a letter

regarding Debtor’s employment, a lease agreement regarding the

Property, and an appraisal of the Property.4 

At the commencement of the December 3, 2015 hearing on the

Motion, the bankruptcy court noted that Debtor had filed his

Reply late, that the court had therefore not read the Reply, and

4 Counsel for the Trustee argued at the December 3 hearing

on the Motion that the copy of the Reply served upon their office

did not include all of the exhibits referenced in the Reply.

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that the court was going to disregard the Reply and the attached

declaration and exhibits in rendering its decision on the

Motion.5 

The bankruptcy court referenced Debtor’s earlier motion to

convert to chapter 11, which it denied for lack of evidence of

changed circumstances.6 During the course of the hearing, the

court engaged Debtor’s counsel in a dialog regarding Debtor’s

bankruptcy history, including his prior and unsuccessful

chapter 13 bankruptcy case, Debtor’s choice to convert his second

chapter 13 case to chapter 7, Debtor’s failure to support his

previous motion to convert to chapter 11 with any evidence of

changed circumstances, Debtor’s delay in filing the pending and

second Motion to convert to chapter 11, as well as the secured

creditor’s desire to move forward with a negotiated sale on the

Property. 

At the end of the hearing, the court sua sponte struck the

Debtor’s late-filed Reply. The court denied Debtor's motion to

convert his case from chapter 7 to chapter 11; Debtor timely

appealed.

JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C.

§§ 1334 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C.

§ 158.

5 Pursuant to Local Rule 9013-1(g)(3): “Unless the court

finds good cause, a reply document not filed or served [at least

7 days prior to the hearing] . . . will not be considered.”

6 During the earlier hearing, the court specifically looked

for and noted the lack of an amended Schedule I and Schedule J to

support Debtor’s purported changed financial circumstances.

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ISSUE

Did the bankruptcy court commit reversible error when it

denied the Debtor’s Motion to convert this case from chapter 7 to

chapter 11?

STANDARDS OF REVIEW

We review a bankruptcy court’s order denying conversion to

chapter 11 under Section 706(b) for abuse of discretion. 

In re Parvin, 2016 W.L. 1584068, *1 (W.D. Wash. 2016). A

bankruptcy court abuses its discretion if it applies the wrong

legal standard, misapplies the correct legal standard, or if its

factual findings are illogical, implausible, or without support

in inferences that may be drawn from the facts in the record. 

See TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832

(9th Cir. 2011) (citing United States v. Hinkson, 585 F.3d 1247,

1262 (9th Cir. 2009) (en banc)); Willis v. Rice (In re Willis),

345 B.R. 647, 654 (8th Cir. BAP 2006) (quoting H.R.Rep. No. 595,

95th Cong., 1st Sess. at 380 (1977), as reprinted in

1978 U.S.C.C.A.N. 5963; S.Rep. No. 989, 95th Cong.2d Sess. at 94

(1978), as reprinted in 1978 U.S.C.C.A.N. 5787). 

DISCUSSION

Debtor raises a single argument in assigning error to the

bankruptcy court’s denial of his Motion. Specifically, Debtor

argues that the Motion should have been granted because he was

acting in good faith when it was filed. That argument lacks

merit. The bankruptcy court should be affirmed. 

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A. Conversion pursuant to Section 706(b) is within the

discretion of the bankruptcy court, based upon what will

inure to the benefit of all interested parties, including

the Debtor.

A motion to convert a chapter 7 case to a case under

chapter 11 is governed by Section 706 of the Code. Under

Section 706(a), a debtor may voluntarily convert a chapter 7 case

to one under chapter 11 if the case has not previously been

converted under Section 1307. Debtor originally filed this case

under chapter 13 and then consented to having his case converted

to chapter 7. Since Debtor could not convert his case to

chapter 11 under Section 706(a), Debtor necessarily looked to

Section 706(b) in seeking conversion to chapter 11. 

Section 706(b) provides that “[o]n request of a party in

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

case under this chapter to a case under chapter 11 of this title

at any time.” Under Section 706(b) then, any party in interest,

including a debtor, may request conversion of the case to

chapter 11 at any time. 

“The decision whether to convert [a case under

Section 706(b)] is left in the sound discretion of the court,

based on what will most inure to the benefit of all parties in

interest.” H.R.Rep. No. 595, 95th Cong., 1st Sess. at 380

(1977), as reprinted in 1978 U.S.C.C.A.N. 5963; S.Rep. No. 989,

95th Cong.2d Sess. at 94 (1978), as reprinted in

1978 U.S.C.C.A.N. 5787. In the course of the hearing on the

Motion, the bankruptcy court determined that conversion of the

Debtor’s case to chapter 11 would not benefit all parties in

interest.

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Section 706(b) does not provide guidance regarding the

factors a court should consider in resolving a conversion motion. 

Schlehuber v. Fremont Nat'l Bank & Trust Co. (In re Schlehuber),

489 B.R. 570, 573 (8th Cir. BAP 2013), aff'd, 558 Fed. App’x 715

(8th Cir. 2014) (footnote omitted). “Since there are no specific

grounds for conversion, a court ‘should consider anything

relevant that would further the goals of the Bankruptcy Code.’” 

Proudfoot Consulting Co. v. Gordon (In re Gordon), 465 B.R. 683,

692 (Bankr. N.D. Ga. 2012) (quoting In re Lobera, 454 B.R. 824,

854 (Bankr. D. N.M. 2011)).

While Section 706(b) does not mandate a balancing of

parties’ interests as a predicate to conversion of a chapter 7

case to chapter 11, courts consistently consider several factors,

including a debtor’s ability to fund a chapter 11 plan, in

exercising their discretion under Section 706(b). See

In re Parvin, 538 B.R. 96, 102 (Bankr. W.D. Wash. 2015), aff’d,

--- B.R. ---, 2016 W.L. 1584068 (W.D. Wash. March 22, 2016);

In re Decker, 535 B.R. at 838 (citing In re Baker, 503 B.R. 751,

755 (Bankr. M.D. Fla. 2013)); In re Gordon, 465 B.R. at 692;

In re Graham, 21 B.R. 235, 238 (Bankr. N.D. Iowa 1982). 

A debtor's ability to pay typically is a starting point

in the [§ 706(b)] analysis, however, since the whole

reason for asking [for] a case to be converted is the

assumption that creditors would receive more in a

chapter 11 than in a chapter 7. 

In re Parvin, 538 B.R. at 102 (quoting In re Peterson, 524 B.R.

at 815); see also In re Karlinger-Smith, 544 B.R. 126, 134

(Bankr. W.D. Tex. 2016) (quoting In re Decker, 535 B.R. 828, 839

(Bankr. D. Alaska 2015) (“[T]he U.S. Trustee’s focus on the

Debtors' ability to pay makes sense as ‘an exceedingly relevant,

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if not necessary, factor and the obvious starting point for any

analysis under section 706(b).’”)); In re Gordon, 465 B.R. at

692–93 (“The cases considering conversion to Chapter 11 begin the

analysis with the acknowledgment that the debtor can pay more in

a Chapter 11 case than in a Chapter 7 case, which is a benefit to

creditors.”); In re Schlehuber, 489 B.R. at 574 (“The Debtor's

ability to fund a Chapter 11 plan if he chooses to do so was

certainly an important and relevant consideration.”).

B. Debtor failed to carry his burden of proving that conversion

would inure to the benefit of all parties.

The burden is on the moving party to establish that the case

should be converted under Section 706(b). In re Parvin, 538 B.R.

at 101. Debtor made no such showing in support of the Motion. 

Debtor based his Motion to convert from chapter 7 to

chapter 11 upon an assertion that his financial circumstances had

changed. Debtor did file amendments to Schedule I, Debtor’s

Income, and Schedule J, Debtor’s Expenses. These amended

schedules were presumably filed to document changes in his

financial circumstances. In addition to his amendments to

Schedules I and J, Debtor belatedly filed a Reply with an

attached Declaration, an employment letter, lease agreement on

the Property, and an appraisal of the Property as additional

evidence of his changed financial circumstances. Because the

Reply and related attachments were not timely filed, they were

disregarded by the bankruptcy court in its consideration of

Debtor’s claim of changed circumstances in accordance with Local

Rule 9013-1(g)(3). Ultimately, the Reply and attachments were

stricken from the record by the bankruptcy court. 

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Although the bankruptcy court chose to disregard the Reply,

together with its attachments and exhibits, Debtor’s Amended

Schedules I and J were filed well before the hearing and are part

of the bankruptcy court’s docket. They were not stricken and

could, depending upon their contents, independently support

Debtor’s claim of changed financial circumstances. 

On close examination, however, Debtor’s Amended Schedules I

and J undermine Debtor’s claim that he can successfully

reorganize in a chapter 11.7 Amended Schedule I reflects monthly

rental income of $3,605.92 on line 8a. When combined with $5,000

Independent Contractor Income reflected on line 8h, Debtor’s

Amended Schedule I reflects monthly income of $8,605.92.

Debtor’s Amended Schedule J shows monthly expenses of

$6,017.00, yielding monthly net income of only $2,588.92. 

Debtor’s Amended Schedule I fails to address how Debtor would

cure the existing arrearage of over $318,000 on the mortgage

encumbering the Property if his case were converted to

chapter 11. Even if Debtor applied the entirety of his monthly

net income to paying the arrearage, simultaneously paying no

other creditors, it would take Debtor roughly eleven years to

cure the arrearage. Further clouding the arrearage repayment

issue, the current lease on the Property is for only three years,

not eleven, leaving a significant plan funding gap. Ultimately,

Amended Schedules I and J provide little independent support for

7 Debtor failed to include his original Schedules I and J in

the appellate record, so there is no baseline for comparison to

determine whether and to what extent Debtor’s financial

circumstances had changed.

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Debtor’s claim of changed financial circumstances, and they

undercut his claim that he is able to reorganize under

chapter 11.

More importantly, Debtor’s purported actions in renting out

the Property after the case was converted to chapter 7 create a

potentially significant problem for both the estate and the

Chapter 7 Trustee. As the bankruptcy court noted, Debtor is not

the real party in interest in his chapter 7 bankruptcy8 and had

no legal authority or right to lease estate property

postpetition. Accordingly, the purported lease of the Property

cannot support Debtor’s claim of changed financial circumstances.

C. The bankruptcy court properly applied a multi-factor test in

evaluating Debtor’s Motion.

Debtor firmly believes that:

[t]here is a realistic possibility of an effective

reorganization, because Debtor has sufficient income

and resources to obtain confirmation of a plan.

8 When Debtor declared bankruptcy, all the "legal or

equitable interests" he had in the Property became the property

of the bankruptcy estate. See 11 U.S.C. § 541(a); Suncrest

Healthcare Center LLC v. Omedga Healthcare Investors

(In re Raintree Healthcare Corp.), 431 F.3d 685, 688 (9th Cir.

2005). When Debtor's case converted to chapter 7, Debtor

relinquished possession of the estate to the trustee for

liquidation and distribution to his creditors. See 11 U.S.C.

§ 704. To effectuate this purpose, the trustee's management of

the estate — including renting or selling outright the Debtor's

real property — must necessarily be free from interference by the

Debtor. Thus, the chapter 7 trustee, not the Debtor, became the

real party in interest with authority to control the Debtor's

estate property upon conversion of the case. Therefore, Debtor

had no standing or authority to rent the property to anyone. 

Accordingly, the lease signed by Debtor is voidable, since he had

no right or authority to affect the future use of the Property

following conversion.

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Consistent with this premise, Debtor’s counsel argued before the

bankruptcy court that Debtor could provide proof that, upon

conversion to chapter 11, he could propose and confirm a 100%

plan. The evidentiary record before the bankruptcy court at the

conversion hearing failed to support that contention.

On appeal, Debtor also argues that:

[t]he issue of good faith was the deciding factor that

the bankruptcy judge considered most in making his

decision on the Motion to Convert filed on October 22,

2015.

(Emphasis added). Debtor is incorrect. 

A careful search of the hearing transcript establishes that

the bankruptcy court never used the phrase “good faith” nor the

phrase “bad faith” during the course of the hearing on Debtor’s

Motion. The bankruptcy court did, however, engage in a fairly

substantial discussion with Debtor’s counsel regarding Debtor’s

history in bankruptcy, including Debtor’s prior unsuccessful

chapter 13 bankruptcy case, Debtor’s failure to support his first

motion to convert to chapter 11 with any evidence, Debtor’s delay

in filing the second Motion to convert, and the secured

creditor’s desire to move forward with a negotiated sale on the

Property.9

The record evidences that the bankruptcy court based its

decision upon consideration of three factors, none of which

involved a determination of bad faith. These factors were: 

9 The Trustee negotiated with the secured creditor to obtain

a carve-out that would pay both the Trustee’s professionals as

well as general unsecured creditors from a sale of the Property,

even though the creditor will receive far less than the full

amount of its debt.

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whether the debtor can propose and confirm a plan; the

primary purpose of converting the case to a different

chapter; and whether the conversion benefits all

parties in the case.10 

The bankruptcy court specifically found that Debtor was not

likely to be able to propose and confirm a chapter 11 plan. 

Debtor failed to present any evidence, other than Amended

Schedules I and J, to establish that his financial circumstances

had changed. As noted previously, those Amended Schedules do not

substantiate Debtor’s changed circumstances claim, and, absent

evidence of changed circumstances, Debtor was not capable of

confirming a chapter 11 plan. 

The bankruptcy court also found that while Debtor’s stated

purpose for converting to a chapter 11 was to save his house, a

chapter 11 plan simply was not feasible. The bankruptcy court

noted that:

I just don’t believe this debtor has shown the

ability to propose and confirm a plan. I’m very

skeptical that the debtor will be able to keep this

house, even if I allow the debtor to propose a plan in

Chapter 11. I mean, this is a big loan. Whether the

property is worth one point -- a million dollars or

1.3, I think the amount owed is 1.3 million. That’s a

big loan for a home in the Inland Empire in Riverside

Division. Maybe the debtor really likes the home but,

you know what, sometimes house is just a thing. Don’t

let the things that you own, own you. At this point,

Mr. LaFountaine doesn’t own this home; that home owns

him.

He clearly cannot afford this house. If he hasn’t

paid a mortgage payment in two years, come on. How is

10 Consistent with the bankruptcy court’s ruling, courts

have held that “[a]mong the factors considered are whether the

debtor can propose a confirmable plan, whether the primary

purpose of the chapter 11 is to liquidate or reorganize, and

whether conversion benefits all parties in the case.” 

In re Peterson, 524 B.R. 808, 815 (Bankr. S.D. Ind. 2015) (citing

In re Gordon, 465 B.R. at 691–92); In re Parvin, 538 B.R. at 101.

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he going to -- to try to propose and confirm this

Chapter 11 plan? And it’s very clear U.S. Bank would

rather get paid less with the Trustee now through a

short sale than count on the debtor over time to cure

that arrearage.

Finally, the bankruptcy court found that Debtor failed to

present evidence establishing that an effort to keep his house

and reorganize his debts would inure to the benefit of any

parties in interest other than the Debtor and his family. The

bankruptcy court found that secured creditor U.S. Bank, in

particular, and the Debtor’s unsecured creditors, in general, had

been waiting four years to be paid by the Debtor and should not

have to wait an additional five years to get their money,

assuming that Debtor made his plan payments. 

Put simply, Debtor failed to establish that he had the

ability to propose and confirm a chapter 11 plan that would inure

to the benefit of all parties in interest. Thus, Debtor failed

to carry his burden of proving that his case should be converted

to chapter 11 under Section 706(b). The bankruptcy court did not

abuse its discretion, or otherwise commit reversible error, in

denying Debtor’s Motion.

CONCLUSION

For all of the reasons set forth above, the bankruptcy

court’s order denying Debtor’s Motion to convert this case to

chapter 11 under Section 706(b) is AFFIRMED.

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