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FILED

MAY 28 2015

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. EC-14-1390-PaJuKu

)

BRIAN COLIN WARREN and ) Bankr. No. 08-31697

PATRICIA WARREN, )

)

Debtors. )

___________________________________)

)

BRIAN COLIN WARREN; )

PATRICIA WARREN, )

)

Appllants, )

)

v. ) M E M O R A N D U M1

)

JIM YOUNG; CAROL YOUNG, )

)

Appellees. ) 

___________________________________)

Argued and Submitted on May 14, 2015

at Sacramento, California

Filed - May 28, 2015

Appeal from the United States Bankruptcy Court

for the Eastern District of California

Honorable Robert S. Bardwil, Bankruptcy Judge, Presiding

 

Appearances: William Steven Shumway of Law Office of W. Steven

Shumway, argued for appellants Brian and Patricia

Warren; Walter R. Dahl of Dahl Law, argued for

appellees Jim and Carol Young.

 

Before: PAPPAS, JURY, and KURTZ, Bankruptcy Judges.

FILED

MAY 28 2015

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

1 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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Chapter 112 debtors Brian and Patricia Warren (“Debtors”)

appeal the order of the bankruptcy court dismissing their

bankruptcy case pursuant to § 1112(b). We AFFIRM.

I. FACTS

On August 21, 2008, Debtors filed a chapter 11 petition. In

their schedule D, Debtors listed appellees Jim and Carol Young

(the “Youngs”) as creditors holding a fully secured claim in the

amount of $40,000. Debtors did not indicate what collateral

secured the Youngs’ claim. 

On October 8, 2008, Debtors filed an amended schedule D that

listed the Youngs’ claim in the same amount, but Debtors now

indicated that the claim was unsecured. Debtors also stated in

the amended schedule that the Youngs’ claim was secured by a

“third deed of trust” on seventy-one acres of “raw land” in

Auburn, California (the “Real Property”). Neither the original

nor amended schedule D Debtors filed listed the claim as

contingent, unliquidated, or disputed. 

On August 20, 2009, Debtors filed their proposed disclosure

statement. In it, Debtors explained that they were sole

proprietors who intended to develop the Real Property, but due to

the downturn of the real estate market, as well as cost overruns

and delays, the development failed. In addition, as is relevant

in this appeal, Debtors’ disclosure statement indicated that, in

their proposed chapter 11 plan (the “Plan”), the Youngs and other

creditors claiming a secured interest in the Real Property would

2 Unless otherwise indicated, all chapter, section and rule

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

to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.

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be deemed to be unsecured creditors and would be paid along with

the other general unsecured creditors. The disclosure statement

explained that plan payments to unsecured creditors would begin

“one month after [the Plan] is confirmed and will end when the

creditor has received 9.0% of its allowed claim.” A copy of the

Plan was attached to the disclosure statement. It provided that

Debtors “will make a $1,000 payment per month to [unsecured]

creditors . . . until the creditor has received 9% of its allowed

claim. Debtor[s] will distribute pro-rata payments to these

creditors from [their] operations on a monthly basis beginning one

month after the [P]lan is confirmed.” 

The bankruptcy court approved Debtors’ disclosure statement

on December 5, 2009, and it confirmed the Plan on February 6,

2010. The bankruptcy court closed the bankruptcy case on

October 5, 2012. 

On May 23, 2014, the bankruptcy court granted a motion by

Highland Crofters, LLC, another creditor of Debtors, to reopen the

bankruptcy case.3 Then, on June 10, 2014, the Youngs filed a

motion to convert Debtors’ case to chapter 7. To support the

motion, the Youngs’ declaration represented that they had received

no payments from Debtors after confirmation even though the Plan

3 The parties did not provide the Panel with a copy of the

motion to reopen the bankruptcy case. We have reviewed it in the

bankruptcy court’s docket, and it explains that Highland Crofters,

LLC, is the “current holder of the promissory note, previously

held by Samuel R. Spencer, secured by a first deed of trust on

[the Real Property.]” Bankr. Dkt. No. 386. The creditor asked

the bankruptcy court to reopen the bankruptcy case for a

“clarification of [the] terms of [the] order confirming the plan.” 

Id. We exercise our discretion to consider pleadings appearing on

the docket in the underlying bankruptcy case. Fed. R. Evid. 201;

O’Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d

955, 957-58 (9th Cir. 1989).

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provided that monthly payments would be made to them beginning in

March 2010. Other declarations accompanying the motion, authored

by creditors Marilyn Peters of Peter’s Drilling, Paul Ferreira of

Don Robinson Sand and Gravel, and Howard Anderson of Anderson

Sierra Pipe Company; each averred that the creditors held allowed

general unsecured claims under the Plan, but had received no

payments after confirmation of the Plan. 

On June 17, 2014, Debtors filed an objection to the Youngs’

proof of claim. Debtors asked the bankruptcy court to disallow

Youngs’ claim because the proof of claim was filed one day after

the claims bar date. On July 8, 2014, Debtors filed an amended

schedule F that now listed the Youngs’ claim, as well as the

claims of every other creditor on the amended schedule (except for

Jack and Laura Warren), as unsecured, nonpriority claims that

Debtors disputed. 

On July 8, 2014, Debtors filed an opposition to the Youngs’

motion to convert. In the opposition, Debtors now conceded that,

even though the Youngs’ proof of claim had been filed after the

deadline, the claim was “deemed filed” under § 1111(a)4 because

they had listed it in their original and amended schedules and had

not alleged the claim was disputed, contingent, or unliquidated. 

Because of this, Debtors offered to pay the Youngs the full amount

they were owed under the Plan provided the bankruptcy court denied

the Youngs’ motion to convert. Debtors further argued that they

4 Section 1111(a) provides: “A proof of claim or interest is

deemed filed under section 501 of this title for any claim or

interest that appears in the schedules filed under section

521(a)(1) or 1106(a)(2) of this title, except a claim or interest

that is scheduled as disputed, contingent, or unliquidated.”

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had paid a total of $52,000 to various other unsecured creditors

under the Plan and, therefore, they had substantially complied

with the payment terms of the Plan. Debtors did not dispute that

they had not paid the Youngs, Don Robinson Sand and Gravel, and

several other general unsecured creditors as required by the Plan.

Before the July 23, 2014 hearing on the Youngs’ motion to

convert, the bankruptcy court issued a tentative decision. In it,

the bankruptcy court found that the Youngs had shown cause existed

under § 1112(b)(1) to dismiss or convert Debtors’ case because

Debtors were “in material default of the terms of the confirmed

plan” with respect to their obligation to pay unsecured creditors. 

Specifically, the bankruptcy court found and concluded: 

[Debtors] have failed to make any payments to

the Youngs or Don Robinson Sand & Gravel, a

fact the Youngs have demonstrated by way of

admissible evidence and which [Debtors] do not

dispute. Further, [Debtors] do not dispute

that they have made no payments on any claims

of creditors who did not file timely proofs of

claim . . . . The fact that [Debtors] have

opposed [the Youngs’ motion] without proposing

to pay any of the 15 creditors who did not

file claims or who filed late claims except

the Youngs, despite [Debtors’] asserted

newfound awareness of § 1111(a), leads the

court to conclude that [Debtors] do not intend

to comply with the terms of the [P]lan.

(emphasis in original) (footnote omitted). 

In the tentative decision, the bankruptcy court next

addressed whether conversion or dismissal was in the best interest

of creditors and the estate under § 1112(b)(1). The court noted

that the Youngs’ motion had requested conversion of the case to

chapter 7, rather than dismissal, because Debtors’ interest in the

Real Property should be revested in the bankruptcy estate and

administered for the benefit of Debtors’ creditors. Concerning

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this argument, the court observed that it “ha[d] no evidence of

the current value of the [Real Property] or the amount of the

senior lien against it, or of other assets that might be available

to provide [a] distribution to creditors.” The court further

stated that, assuming the case was converted, it was “not

convinced the language of the [P]lan and disclosure statement was

sufficient to allow the [Real Property] to be revested in the

estate under applicable law. See Pioneer Liquidating Corp. v.

United States Trustee (In re Consolidated Pioneer Mortgage

Entities), 264 F.3d 803, 807-08 (9th Cir. 2001).” The court

advised the parties that it would consider whether conversion or

dismissal would be in the best interest of creditors and the

estate at the hearing. 

Finally, the bankruptcy court stated it intended to strike,

as being filed in bad faith, Debtors’ amended schedule F wherein

Debtors claimed, more than six years after their case was filed

and four years after the Plan was confirmed, that most of their

general unsecured creditors’ claims were disputed.

At the hearing, after argument by the parties, the bankruptcy

court announced it would adopt its tentative decision that

adequate cause existed to dismiss or convert Debtors’ case under

§ 1112(b)(1). The court then addressed whether the case should be

converted or dismissed. Despite the relief sought in their

motion, the Youngs now requested dismissal as opposed to

conversion of the case to chapter 7. Debtors also requested that

the case be dismissed. The bankruptcy court concluded it would

dismiss the case for the reasons stated in its tentative

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decision.5

An order dismissing the chapter 11 case was entered on

July 25, 2014. Debtors filed a timely appeal on August 6, 2014.

II. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334

and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158. 

III. ISSUE

Whether the bankruptcy court erred in dismissing the

bankruptcy case.

IV. STANDARD OF REVIEW

“We review de novo whether the cause for dismissal of a

Chapter 11 case under [] § 1112(b) is within the contemplation of

that section of the Code.” Marsch v. Marsch (In re Marsch),

36 F.3d 825, 828 (9th Cir. 1994). 

Upon a finding of “cause” under § 1112(b)(1), “[w]e review

the bankruptcy court’s decision to dismiss a case under an abuse

of discretion standard.” Sullivan v. Harnisch (In re Sullivan),

522 B.R. 604, 611 (9th Cir. BAP 2014) (citing Leavitt v. Soto

(In re Leavitt), 171 F.3d 1219, 1223 (9th Cir. 1999)). A two-step

analysis is used to determine whether the bankruptcy court abused

its discretion: (1) we review de novo whether the bankruptcy court

applied the correct legal standard to the relief requested; and

(2) we review the bankruptcy court’s findings of fact for clear

error. In re Sullivan, 522 B.R. at 611-12 (citing United States

v. Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009) (en banc)). 

“We must affirm the bankruptcy court’s fact findings unless we

5 The bankruptcy court also dismissed, as moot, Debtors’

objection to the Youngs’ proof of claim.

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conclude that they are illogical, implausible, or without support

in the record.” In re Sullivan, 522 B.R. at 612 (citing Hinkson,

585 F.3d at 1262).

V. DISCUSSION

A. Debtors’ arguments on appeal.

Debtors argue that the bankruptcy court erred when it found

that cause existed to dismiss their case under § 1112(b)(1). 

Debtors allege that they had made fifty-two, $1,000 monthly

payments under the Plan, but paid only those creditors who had

filed “timely” proofs of claim. Debtors assert that they intended

to pay the other creditors who were listed in their schedules who

had not filed a proof of claim, or had filed tardy claims, at some

later time, and would have done so had the bankruptcy court not

dismissed the bankruptcy case. Because of this, Debtors argue

that they had substantially complied with the terms of the Plan,

and that dismissal of the case under these circumstances was

inappropriate.

In addition, Debtors argue that, as provided in § 1112(b)(2),

unusual circumstances existed allowing them to avoid dismissal of

their case, even if they were in default under the Plan. Debtors

point out that they were making payments under the Plan to most

creditors, and that they could have cured any default in payments

to the other creditors. Debtors insist that “[i]n liquidation, []

creditors would have received nothing. The continuation of the

[P]lan was in the best interest of creditors.” Appellants’ Op.

Br. at 7.

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B. The bankruptcy court did not err in finding cause to

dismiss Debtors’ case pursuant to § 1112(b)(1).

Section 1112(b)(1) provides:

Except as provided in paragraph (2) and

subsection (c), on request of a party in

interest, and after notice and a hearing, the

court shall convert a case under this chapter

to a case under chapter 7 or dismiss a case

under this chapter, whichever is in the best

interests of creditors and the estate, for

cause unless the court determines that the

appointment under section 1104(a) of a trustee

or an examiner is in the best interests of

creditors and the estate.

Section 1112(b)(4) sets forth a nonexhaustive list of what

constitutes “cause” to convert or dismiss a case under

§ 1112(b)(1). In re Consol. Pioneer Mortg. Entities, 248 B.R. at

375. Included in the list of items constituting “cause” to

convert or dismiss is a “material default by the debtor with

respect to a confirmed plan.” § 1112(b)(4)(N). “The movant bears

the burden of establishing by preponderance of the evidence that

cause exists.” In re Sullivan, 522 B.R. at 614 (citing StellarOne

Bank v. Lakewatch, LLC (In re Park), 436 B.R. 811, 815 (Bankr.

W.D. Va. 2010)).

 If the bankruptcy court finds that cause exists to grant

relief under § 1112(b)(1), it must then: “(1) decide whether

dismissal, conversion, or the appointment of a trustee or examiner

is in the best interest of creditors and the estate; and

(2) identify whether there are unusual circumstances that

establish that dismissal or conversion is not in the best interest

of creditors and the estate.” In re Sullivan, 522 B.R. at 612

(citing § 1112(b)(1), (b)(2), and Shulkin Hutton, Inc., P.S. v.

Treiger (In re Owens), 552 F.3d 958, 961 (9th Cir. 2009)). In

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choosing between dismissal or conversion, a bankruptcy court must

consider the interests of all creditors. Id. (citing In re Owens,

552 F.3d at 961). “If cause is established, the decision whether

to convert or dismiss the case falls within the sound discretion

of the court.” Id. (citing Mitan v. Duval (In re Mitan), 573 F.3d

237, 247 (6th Cir. 2009) and Nelson v. Meyer (In re Nelson),

343 B.R. 671, 675 (9th Cir. BAP 2006)).

Even if cause exists, § 1112(b)(2) provides an exception to

the requirement that a chapter 11 case be converted or dismissed. 

For the exception to apply: (1) the debtor must prove and the

bankruptcy court must “find and specifically identify” that

“unusual circumstances” exist to show that conversion or dismissal

is not in the best interest of creditors and the estate; and (2)

the debtor must prove that the cause for conversion or dismissal

was reasonably justified, and that basis for dismissal or

conversion can be “cured” within a reasonable time.6 As noted,

6 More precisely, § 1112(b)(2) provides: 

The court may not convert a case under this

chapter to a case under chapter 7 or dismiss a

case under this chapter if the court finds and

specifically identifies unusual circumstances

establishing that converting or dismissing the

case is not in the best interests of creditors

and the estate, and the debtor or any other

party in interest establishes that — 

(A) there is a reasonable likelihood that a

plan will be confirmed within the time frames

established in sections 1121(e) and 1129(e) of

this title, or if such sections do not apply,

within a reasonable period of time; and

(B) the grounds for converting or dismissing

the case include an act or omission of the

debtor other than under paragraph (4)(A)— 

(continued...)

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the debtor bears the burden of proving the unusual circumstances

are present in the case that render dismissal or conversion not in

the best interest of creditors or the estate. Sanders v. United

States Tr. (In re Sanders), No. CC-12-1398, 2013 WL 1490971, at *7

(9th Cir. BAP Apr. 11, 2013) (citing In re Orbit Petroleum, Inc.,

395 B.R. 145, 148 (Bankr. D.N.M 2008)); see also 7 COLLIER ON

BANKRUPTCY ¶ 1112.05[2] (Alan N. Resnick & Henry J. Sommers eds.,

16th ed.) (“Once the movant has established cause, the burden

shifts to the respondent to demonstrate by evidence the unusual

circumstances that establish that dismissal or conversion is not

in the best interests of creditors and the estate.”). 

In this case, we conclude that the bankruptcy court did not

err in finding “cause” under § 1112(b)(4)(N), nor did it abuse its

discretion in dismissing Debtors’ case. First, the bankruptcy

court found that, as provided in § 1112(b)(4)(N), cause existed

because Debtors were in material default under the Plan. Debtors

had failed to make the required payments to the Youngs and several

other unsecured creditors for over four years. The Plan clearly

required that Debtors begin making payments to all of their

unsecured creditors in March 2010. The Youngs offered undisputed

evidence to show that they, along with several other unsecured

creditors that held allowed unsecured claims, had received no

payments after confirmation of the Plan. As the bankruptcy court

6(...continued)

(i) for which there exists a reasonable

justification for the act or omission; and

(ii) that will be cured within a reasonable

period of time fixed by the court.

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observed:

[Debtors] do not dispute that they have made

no payments on any claims of creditors who did

not file timely proofs of claim . . . . The

fact that [Debtors] have opposed [the Youngs’

motion] without proposing to pay any of the

15 creditors who did not file claims or who

filed late claims except the Youngs, despite

[Debtors’] asserted newfound awareness of

§ 1111(a), leads the court to conclude that

[Debtors] do not intend to comply with the

terms of the [P]lan.

The bankruptcy court’s factual findings are clearly supported

by the record. And it correctly concluded that Debtors’ failure

to make any payments to several unsecured creditors for more than

four years in contravention of the Plan amounted to a material

default and constituted cause to convert or dismiss the bankruptcy

case under § 1112(b)(1) and (b)(4)(N). See Kenny G. Enters., LLC

v. Casy (In re Kenny G. Enters.), No. BAP CC-13-1527, 2014 WL

4100429, at *14 (9th BAP Cir. Aug. 20, 2014) (noting that failure

to pay creditors as required by a confirmed plan is a material

default and cause for conversion or dismissal of a debtor’s case)

(citing AMC Mortg. Co. v. Tenn. Dep't of Revenue (In re AMC Mortg.

Co.), 213 F.3d 917, 921 (6th Cir.2000)); see also State of Ohio,

Dept. of Taxation v. H.R.P. Auto Center, Inc (In re H.R.P. Auto

Center, Inc.), 130 B.R. 247, 256 (Bankr. N.D. Ohio 1991) (holding

three missed payments to a single creditor over the course of a

year was a material default of a confirmed chapter 11 plan);

7 COLLIER ON BANKRUPTCY ¶ 1112.04[6][n] (“Although the Code does not

define the term material, certainly the failure to make payments

when due under the plan would constitute a material default.”).

In arguing that cause did not exist to convert or dismiss

their case, Debtors remind us that they paid fifty-two $1,000

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payments to “other” unsecured creditors under the Plan, and thus

they had “substantially complied” with the terms of the Plan. 

While there is no evidence in the record to show that Debtors

actually made these payments, even if they did, Debtors were not

absolved from the material default they committed under the terms

of the Plan obligating them to pay all allowed unsecured claims,

including those that the bankruptcy court determined had not been

paid since March 2010. In this context, whether Debtors had

“substantially complied” in paying other creditors under the Plan

is of no moment because that is not the applicable standard under

§ 1112(b)(1). Cf. Greenfield Drive Storage Park v. Cal.

Para-Prof’l Servs., Inc. (In re Greenfield Drive Storage Park),

207 B.R. 913, 917 (9th Cir. BAP 1997) (“Whether the plan has been

‘substantially consummated’ is not determinative as to whether

there has been a material default in the performance of the

plan.”). Simply put, the bankruptcy court did not err in finding

that adequate cause existed under § 1112(b)(4)(N) to require

either conversion or dismissal of Debtors’ case.

Next, the bankruptcy court did not abuse its discretion when

it decided to dismiss Debtors’ case, as opposed to converting the

case to chapter 7, after considering which option was in the best

interest of creditors and the estate. The court addressed this

issue in its tentative decision and expressed doubt, based upon

the language of the Plan, and other reasons,7 whether under these

7 The bankruptcy court stated it was “not convinced the

language of the [P]lan and disclosure statement was sufficient to

allow the [Real Property] to be revested in the estate under

applicable law. See Pioneer Liquidating Corp. v. United States

(continued...)

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facts the Real Property, Debtors’ primary asset, would “revest” in

the bankruptcy estate if the court converted the case to

chapter 7. After hearing from Debtors and the Youngs, who each

requested dismissal rather than conversion,8 and neither of whom

disputed the court’s concern about the status of Real Property

upon conversion, the court determined the interests of the

creditors were best served by dismissal. We find no abuse of

discretion in this determination.

C. Debtors’ alternative argument under § 1112(b)(2) fails.

Debtors note that they had paid their unsecured creditors

$52,000, and that they would cure the balance owed to the other,

unpaid creditors, if given an opportunity. They assert that these

facts should allow them to avoid the harsh consequence of

dismissal of their chapter 11 case. However, Debtors never argued

7(...continued)

Trustee (In re Consolidated Pioneer Mortgage Entities), 264 F.3d

803, 807-08 (9th Cir. 2001).” In re Consol. Pioneer Mortg.

Entities notes that based upon § 1141(b) property of the estate

vests in the debtor upon plan confirmation unless the plan

provides otherwise. Id.

8 The Youngs, who had previously requested conversion of

Debtors’ case in their motion, were clearly persuaded by the

bankruptcy court’s concerns regarding the status of the Real

Property in the event of a conversion. At the hearing, counsel

for the Youngs stated: 

Your Honor, first, I would like to thank the

court for its lengthy tentative ruling. We

would not oppose dismissal at this time, aside

from conversion. I know, in our moving

papers, we ask for conversion, but with the

court’s concern and notation in its tentative

ruling about the real property not revesting

in the Chapter 7 bankruptcy estate, we would

not oppose dismissal of the case.

Hr’g Tr. at 4:23-5:4, July 23, 2014.

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in the bankruptcy court that these facts constituted the sort of

“unusual circumstances” that justify application of the exception

to dismissal codified in § 1112(b)(2). We do not consider

arguments of this type made for the first time on appeal. See

Mano-Y&M, Ltd. v. Field (In re Mortg. Store, Inc.), 773 F.3d 990,

998-99 (9th Cir. 2014) (stating issues not raised in the

bankruptcy court are waived); Barnes v. Belice (In re Belice),

461 B.R. 564, 569 n.4 (9th Cir. BAP 2011) (stating the BAP did not

need to decide arguments not raised in the bankruptcy court).

Even if Debtors had timely raised their argument, and even

were the bankruptcy court inclined to agree that unusual

circumstances were present, to satisfy § 1112(b)(2), Debtors would

have also had to show that there was a “reasonable justification”

for their failure to pay the Youngs and other unsecured creditors

for over four years, and that their failure to do so would be

cured within a reasonable amount of time fixed by the court. YBA

Nineteen, LLC v. IndyMac Venture, LLC (In re YBA Nineteen, LLC),

505 B.R. 289, 303 (S.D. Cal. 2014). The bankruptcy court found no

reasonable justification existed for their failure to make the

required Plan payments, however, and, in fact, stated Debtors’

conduct “leads the court to conclude that [Debtors] do not intend

to comply with the terms of the [P]lan.” Given these findings,

all adequately supported by the record, Debtors can not rely upon

§ 1112(b)(2).

VI. CONCLUSION

The bankruptcy court did not err when it concluded that

Debtors’ failure to pay several creditors for four years amounted

to a material default under the confirmed plan, and that cause

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existed under § 1112(b)(1) to grant Youngs’ motion. It also did

not abuse its discretion when it ordered that Debtors’ case be

dismissed as opposed to converted. We AFFIRM the order of the

bankruptcy court.

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