06-4450-bk, 06-5323-bk

In re: Sueann M. Smith UNIT ED S TAT ES COU RT OF A PP EALS 1 F OR THE S ECOND C IRCU IT 2

_______________ 3 4 August Term, 2007 5 6 (Argued: September 10, 2007 Decided: November 5, 2007) 7 8 Docket Nos. 06-4450-bk, 06-5323-bk 9 (consolidated for disposition) 10

_______________ 11 12 I N RE : S UEANN M. S MITH 13

_______________ 14 15 16 J EFF REY H. S CHWARTZ , 17 18 Appellant , 19 20 —v.— 21 22 R OBER T L. G ELTZER , C HAPTER 7 T RUSTEE , 23 24 Appellee. 25

_______________ 26 27 consolida ted for disp osition with 28

_______________ 29 30 31 S UEANN M. S MITH , 32 33 Appellant , 34 35 — v. — 36 37 R OBER T L. G ELTZER , 38 39 Appellee. 40 41

_______________ 422

B e f o r e : 1 2 S TRAUB , K ATZMANN , and B.D. P ARKER , Circuit Judges

. 3 4

_______________ 5 6 Appeals from orders of the United States District Court for the Eastern D istrict of New 7 York (Allyne R. Ross, Judge ) affirming orders of the United States B ankruptcy Court for the 8 Eastern District of New York (Carla E. Craig , Chief Judge ) granting Chapter 7 trustee’s motion 9 to remove special personal injury counsel and deny

ing debtor’s motion to dismiss her 10 bankruptcy a

ction. No. 06-4450-bk is AFFI RMED; No. 06-5323 is VACATED. 11 Judge Parker concurs in the judgment of the Court and files a separate concurring 12 opinion. 13

_______________ 14 15 D AVID J. M ARK , Feder, Kaszovitz, Isaacson, Weber, Skala, Bass & Rhine LL P, New York, 16 NY, for Appellant Sueann M. Smith. 17 18 R OBER T M. G INSBERG , Ginsberg & Broome, P.C., New Yor k, NY, for Appellant Jeffrey H. 19 Schwartz. 20 21 R OBER T A. W OLF , Bryan Cav e LLP (Christopher R. Strianese, on the brief ), New York, NY, 22 for Appellee. 23 24

_______________ 25 26 STRAUB, Circuit Judge : 27 28 These appeals require us to consider the extent to which a debtor w ho files for Chapter 7 29 bankruptcy pr

otection has the ability to control the personal injury action that is the principal 30 asset of her estate. I n the proceedings below, the Bankr uptcy Court – at the reque st of the trustee 31 – ordered the removal of the debtor’s pre ferred choice of special per sonal injury counsel and 32 then denied the debtor’s motion to dismiss her bankruptcy petition, even though she had 33
arranged to pay

all of he r debts in full in an a

ttempt to ha

ve her pr eferr ed couns el contin

ue to 34 prosecute the personal injury action. Under the circumstances present he re, including several 35 instances of apparent misconduct by the special personal injury counsel, we hold that the 363

Bankruptcy

Court did not err in approving the trustee’s request to remove that counsel. 1
Howeve

r, we als o hold on the

present record that the Co

urt excee ded the bo

unds of its

allowabl e 2 discretion in denying the debtor’s motion to dismiss. Accordingly, the District Court’s order at 3 issue in a

ppeal No . 06-4450 -bk is af firmed, t he order at issue in

appeal No. 06-532 3-bk is 4 vacated, and the case is remanded f or further proceedings. 5 I. Backgro und 6 In April 2004, appellant Sueann M. Smith filed a voluntary petition for bankruptcy 7 pursuant to Chapter 7 of the U.S. Bankruptcy Code. She had debts of approximately $14,000, 8 and a single potential asset: a personal injury claim based on a prior sledding accident in which 9 she was b linded in one ey e. All par ties ag ree tha t if the pe rsonal in jury claim is su

ccessf ully 10 prosecuted, recovery would likely far e

xceed creditors’ claims against Smith. 11 Appellee Robert L. Geltzer wa s chosen to be the permanent Chapter 7 trustee 12 representing Smith’s estate, and in October 2004, the United States B ankruptcy Court for the 13 Eastern District of New York (Carla E. Craig , Chief Judge ) approv ed Geltze r’s req uest to re tain 14 appellant Jeffrey

H. Schwartz as his special counsel to prosecute Smith’s personal injury action. 15 The Bankruptcy

Court ordered that the personal injury action was to be pursued on behalf of “the 16 Trustee, Robert L. Geltzer,” a s opposed to the debtor directly , as is customary in bankruptc y 17 cases. However, in January 2005, Schwartz filed a complaint in New York state court that listed 18 Smith, not Geltzer, as the plaintiff. This was the first of a litany of errors that, when viewed 19 together, reflect at best a lac k of understanding of the bankruptcy process and at worst an effort 20 to circumvent its requirements. 21 It took nine months and five separate e ntreaties by Ge ltzer before Schwartz, in October 224

2005, amended the caption to list Geltzer as the plaintiff. In the meantime, Schwartz brought on 1 another attorney , Robert M. Ginsberg, to prosecute the personal injury action – without getting 2 the approval of either the trustee or the Ba nkruptcy Court. After

Geltzer informed Schwartz that 3 such approvals were required under the Bankruptcy

Code before Ginsberg could beg in serving 4 as trial counsel, Schwartz and Ginsberg tried to ge t around this requirement informally

. 5 Ginsberg sent Schwartz a letter, with a copy to Geltzer, suggesting that “y ou [Schwartz] can 6 continue

to remain

the attor ney of record – hire

me as tria

l counsel – recei ve all of the mail in 7 your office

and then bring it upstairs – and simply a nnounce that I am aff

iliated with your office 8 on this case. Naturally our arrangements would remain the sa me.” A subsequent letter from 9 Ginsberg revealed that he had a lready be en working on the personal injury action, including 10 retaining an expert and preparing a bill of particulars, without the trustee’s or the Bankruptcy 11 Court’s knowledge or authorization. 12 Geltzer then moved the Bankruptcy Court for an order removing Schwartz as spec ial 13 personal injury counse l and requiring Schwartz to turn over the personal injury file to a new 14 special counsel. Smith (the debtor) filed an affidavit in opposition to the trustee’s motion. She 15 stated that she “ha[s] a substantial interest in the outcome of this case” and that she wanted 16 Ginsberg, “one of the most highly regarded trial attorney

s in the plaintiff’s personal injury f ield,” 17 to represent the estate. While Geltzer’s motion was pending, Ginsberg continued, still without 18 authority, to prosecute the personal injury ac

tion and went so far as to file court papers 19 representing that he was counsel to Geltzer. 20 On December 7, 2006, Chief Bankruptcy Judge Carla Craig held a hearing on the motion 21 to remove Schwartz. At one point Chief Judge Craig asked the attorney s to meet in the hallway 225

to try to “work it out.” When they returned, an associate of Geltzer’s told the Court that 1 Ginsberg “came up to [him] and goes, ‘I s there any thing I can do to swee

ten the pot?’”; Ginsberg 2 denied making such an offer. Thre e weeks later, Chief Judge Craig issued a w ritten decision 3 granting the trustee’s motion to remove Schwar tz as personal injury counsel and dir ecting 4 Schwartz to turn over to Geltzer “all files relating to the personal injury action.” The 5 Bankruptcy

Court entered a formal order to this effect on January 17, 2006. 6 In her opinion, Chief Judge Craig explained that the trustee’s motion was 7
“overw

helming ly s

upported by t h[e] recor d,” inclu ding tha t (a) Sch wartz “de layed at lea st six 8 months . . . before acting on the trustee’s reque st that he amend the caption in state court”; (b) 9 Schwartz transferred the case to Ginsberg without approval of the trustee or the Bankruptcy 10 Court; and (c) Ginsberg worked on the ca se and attempted to remain as trial counsel despite the 11 lack of trustee or court approval, thus “cre at[ing] a legitimate and substantial concern in the 12 mind of a reasonable person that this personal injury action, which was being handled by an 13 attorney who ha

d no authority to do so, might be settled in a similarly unauthorized fashion, 14 possibly

even with

out pay ment of the

procee ds to the tr

ustee.” Chief Judg e Craig

was espe cially 15 concerned with the letter sent by Ginsberg suggesting

that Schwartz remain as “attorney of 16 record” while Ginsberg would ac t as trial counsel because such fee-splitting a rrangements are 17 prohibited under section 504(a) of the Bankruptc y Code and, without proper a uthorization, can 18 constitute

a violation of the N ew York L awy er’s Code of Profe ssional Re sponsibilit y. “ It is 19 appallin

g, and i ncompre hensible ,” wrote

Chief Judg e Craig , “that Mr . Ginsber g could think it 20 was permissible, in the absence of consent by the trustee and court approval, for him to act as 21 counsel on [this] case and receive a fee for doing so, funneled through Mr. Schwartz as ‘attorney 226

of record.’” Chief Judge Craig a lso credited Geltzer’s associate’s account of the e xchange in the 1 hallway and note d that Ginsberg’s attempt to “sweeten the pot” “is an a dditional reason why the 2 trustee is amply justified in refusing to retain him, particularly in lig ht of Mr. Ginsberg’s 3 persiste

nt and fla grant d isrega rd of his o

bligations as an a

ttorney .” Fina

lly, Chief Judg e Craig 4 found that whatever weight should be acc orded the debtor’s preference to retain Ginsberg was 5 outweig

hed by the “cle ar evide

nce that Messrs. Sc

hwartz an d Ginsber g should not be re tained to 6 represent the estate.” 7 Schwartz appealed to the District Court, which affirmed the Ba nkruptcy Court’s dec ision 8 in an opini on and or der issue d on Aug

ust 24, 200 6. Schwar

tz filed a t

imely appeal t o this Court , 9 docketed as No. 06-4450-bk, which is the first appeal we a ddress, infra

. 10 Almost immediately after the B ankruptcy Court issued its removal de cision, Smith, on 11 Februa

ry 8, 2006, moved to dism

iss her ba nkruptcy case. I n support o f her moti on, Smith sa id 12 that she still had “confidence” in Schwartz and Ginsberg and wanted to “obtain control of the 13 prosecution of the Personal Injury Claim.” “To that end,” Smith “obtained a commitment from 14 Setareh Holding Corp.” whereby Setareh would provide Smith with “up to $17,500” to pay the 15 claims of the estate in return for a lien ag ainst any rec overy in the per sonal injury action in the 16 amount of

$17,500 pl

us 8.3% int

erest pe r month. Gi

nsberg ’s law fi

rm agr eed to “a dvance all 17 payments for the T rustee’s commission UNTIL NOW, court fees; or expenses which have been 18 incurred,” with this advance to be treated a s a disbursement to be deducted from the total 19 settleme

nt or judg ment of the

persona l injury litigati on without i

nterest. Smith arg

ued that w

ith 20 these ar

range ments, dism

issal of he

r Chapter 7 petition w

ould be in her best in

terest, would 21 satisfy her c

reditors, and “no one will suffer any prejudice.” 221 After learning that Schwartz and Ginsberg had not complied with its turnover order, the Bankruptcy

Court held the attorneys in conte mpt of court and ordered them to pay a fine and a portion of the trustee’s attorneys’ fees. 7 While Smith’s motion was pending, Schwartz and Ginsberg refused to turn over the 1 personal injury file to Ge ltzer – in defiance of the Bankruptcy Court’s January 17, 2006 order – 2 and Ginsb erg continued to prosecu te the pe rsonal in jury action, i ncluding filing r esponses to 3 discover

y r equests. 1 4 Geltzer, as trustee, opposed Smith’s dismissal motion on multiple grounds, including that 5 (1) the creditors were provided with “no ce rtainty, at all, that they

will be paid by the Debtor” ; 6 (2) dismissal would be against Smith’s best interests due to Ginsberg’s rec ord of 7 “incompeten[ce]” and “dishonest[y]” and be cause Setareh’s interest rate “is sig nificantly g

reater 8 than the Federal interest rate of 1.5% [per annum]”; and (3) he, as trustee, would be 9 disadvantaged by

dismissal because there was no agre ement as to what fees he would be entitled 10 to receive, and the proposed deal provided a commission for his work only “UNTI L NOW,” 11 which at t

hat time a mounted to

zero dolla

rs. Geltze

r argu ed that “ [i]t appears that Gins berg is 12 effectively

trying to buy

a dismissal of the Debtor’s bankruptcy case, and eliminating the role of 13 the federal bankruptcy trustee, trusting to the Debtor to pay her creditors, all so Ginsberg can 14 line his own pockets with the proceeds of the Debtor’s persona l injury action at the Trustee ’s 15 expense.” 16 At the end of a hearing held on Marc h 15, 2006, the Bankruptcy Court denied the motion 17 to dismiss. Chief Judge Craig explained that she would “ordinarily give . . . a lot of weight or at 18 least some substantial weight” to Smith’s desire to be represented by Schwartz and Ginsberg, but 19 ultimately concluded that, given the attorneys’ “extraordinary r ecord of . . . incompetence,” 208

“absolut e refus al to obey

Court orde

rs,” and “failur e to rec ognize [th eir] ethic al requi rements, ” it 1 was not in Smith’s best interest to be represented by them. Chief Judge Craig cited the attempt 2 by Sc

hwartz an d Ginsber g to ente r into a fe e-shar

ing arr angeme nt without a

uthorizati on, their 3 refusa

l to comply

with the Co

urt’s tur nover or der, and the fact that they

continue d to “hold 4 themselves out as . . . functioning . . . attorneys in this case after they had been discharged.” 5 During the course of the hearing , Chief Judge Craig rejected the trustee’ s argument that 6 lack of c ertainty

that the d

ebts would

be paid me ant that d

ismissal wo

uld not be i

n the best 7 interest

of Smith’s c

reditors , given

that the B ankruptc

y Co urt could “work ou t a mecha nism 8 where the monies [advanced by Setareh] are distributed under [the Court’s] supervision.” But 9 Chief Judge Craig provided two additional reasons for her decision. First, she found it “hard . . . 10 to see why someone would” agree to Setareh’s ter ms, which provided for an interest rate far 11 greater than what Smith would be subject to in bankruptcy , thus giving rise to a “concern” that 12 Smith “has been imposed upon by [Schwartz and Geltzer].” (However, even though Smith was 13 present in the courtroom during the hearing , she was not asked to testify.) Second, the parties 14 continue d to dispute the amoun

t that woul d be owed

to Geltzer

as truste e if the d

ismissal we

re to 15 be granted, thus “fostering a dditional litigation over Mr. Geltzer’s fees and over the commission 16
amounts.” 17 Smith appealed to the District Court, which affirmed the Bankruptcy Court’s decision. 18 The Distr

ict Court r

easoned that “a d ebtor’s ability to repay creditors” is not, by i

tself, “a dequate 19 cause justifying

dismissal,” but rather is “part of the required inquiry into ‘whether dismissal 20 would be in the best interest of all parties in interest.’” The District Court concluded tha t the 21 Bankruptcy

Court had acted within its allowable discretion because its decision was “base d on a 229

proper assessment of the vagarie s of the case and not on any clearly e rroneous facts or errors of 1 law.” 2 Smith filed a timely appeal to this Court, docketed as No. 06- 5323-bk, which is the 3 second appeal we address here in. 4
II. Discussion 5 Where, as here, a district court acts in its capacity as an appellate court in a bankruptcy 6 case, the district court’s decisions are subject to plenary review. Dairy Mart Convenience 7 Stores, Inc. v. Nickel (In re Dairy Mart Conve nience Stores, Inc.) , 411 F.3d 367, 371 (2d Cir. 8 2005); Gulf State

s Explorat

ion Co. v. M

anville F orest Prod

s. Corp. ( In re Man ville For

est 9 Prods. Corp.) , 896 F.2d 1384, 1388 (2d Cir. 1990). We thus review independently the factual 10 findings and legal conclusions of the bankruptc y court, ac cepting its findings of fact unless they 11 are clearly

erroneous and reviewing its conclusions of law de novo. Babitt v. V

ebeliuna s (In re 12 Vebeliun as) , 332 F.3d 85, 90 (2d

Cir. 2003) ; Resolutio n Trust Corp. v. Best P rods. Co. (

In re 13 Best Prods. Co.) , 68 F.3d 26, 29 (2d Cir. 1995). 14 A. The Removal of Schwartz as Special Counsel 15 We first consider the Bankruptcy Court’s decision granting Geltzer’s motion to remove 16 Schwart

z as speci al personal injury counsel. A bankru

ptcy trustee’ s ability

to hire pr ofessionals 17 is governed by

section 327(a) of the Bankruptcy Code, which permits the trustee to employ a n 18 attorney to assist in his duties “with the court’s appr oval,” so long as the attorney to be hired 19 “do[es] not hold or represent an interest adverse to the estate, and [is a] disinterested person[].” 20 11 U.S.C. § 327(a). Under this provision, a trustee’s choice of special c ounsel is subject to the 21 evaluation and approval of the bankruptcy court. See Pry

or v. Rea dy &

Pontisako

s (In re 2210

Vouzianas ) , 259 F.3d 103, 107-08 (2d Cir. 2001). In exercising its approval function, however, 1 the bankr

uptcy court sho uld interf ere with the truste e’s choi ce of co unsel “‘ [o]nly

in the ra rest 2 cases,’” such as when the proposed attorne y has a conf

lict of interest, or when it is clear that 3 “‘the best interest of the estate’” would not be serve d by the trustee’s c hoice. Id. at 108 (quoting 4
In re Man dell , 69 F.2d 8 30, 831 (2 d Cir. 1934 )). Court s give the trustee such def erence in 5 choosing special counsel because of the “‘highly confidential’ relationship between the special 6 counsel-attorney

and the trustee-client.” Id. (quot ing Mandell, 69 F.2d at 831). 7 Importantly , the special counsel represents the trustee, not the debtor. See id. Thus, 8 section 327(a) does not give a bankruptcy court authority to reje ct a trustee’s choice of counsel 9 solely because

of an objection by the de btor. Rather, the debtor’s objection is relevant only to a 10 bankruptcy c ourt’s consideration of the best interest of the estate, or of whe ther the chosen 11 special counsel is conflicted. 12 Applying these principles here, we find no error in the B ankruptcy Court’s de termination 13 that there were “no circumstance s” that would give it reason to interfere with Geltzer’s de cision 14 to remove Schwartz as special personal injury counsel. There was no indication or allega tion 15 that the a

ttorney with whom G eltzer chose to re place Sc hwartz wa s conflicted or unq ualified to 16 litigate the personal injury action, and ample evidence supported the Ba nkruptcy Court’s 17 conclusi on that the best inter est of the estate would not be

served by r

equiring Geltzer to 18 continue to be represented by Schwartz, including, inter alia , Schwartz’s delay in ame nding the 19 state court caption and his transferring the pe rsonal injury file to Ginsberg without court or 20 trustee approval. Inde ed, the only fac tor weighing in favor of reje cting Geltzer’s motion was 21 Smith’s preference to have Schwartz and Ginsberg prosecute the personal injury action. But that 222 Schwartz argues that the Bankruptcy Court improperly relied on the “ unsubstantiated” allegation that Ginsberg offer ed to “sweeten the pot.” As the Bankruptcy Court’s opinion makes plain, however, this incident was not the basis for its decision, but was only an “additional reason” supporting the trustee’s desire to re move Schwartz; we have no doubt the Bankruptcy Court would have granted Geltzer’s motion even had it disreg arded Ginsberg’s alleg ed remark. 11 preference alone is insufficient to turn this into one of the “r arest cases” in which interferenc e 1 with the trustee’s choice could be justified. Pryor , 259 F.3d at 108. 2 2
B. The Denial of Smith’s Dismissal Motion 3 Motions to dismiss a bankruptcy petition are g overned by se ction 707 of the Bankruptcy 4 Code, whic

h provide s: 5 The [bank

ruptcy ] court may

dismiss a c ase . . . only

after notice an

d a hear ing and only 6 for cause, including-- 7 (1) unre asonable delay by t he debtor that is pre

judicial t o credit ors; 8 (2) nonpayme nt of any fe es and charges require d under chapter 123 of title 28; 9 and 10 (3) failure of the debtor in a voluntary case to file, within fifteen days . . . the 11 information required by paragraph (1) of sec

tion 521, but only on a motion by the 12 United States trustee. 13 11 U.S.C. § 707(a). Although this provision does not specifically provide for a debtor’s motion 14 to dismiss a

voluntar ily- filed petition, cou

rts have routinely held that section 7 07(a) a

pplies to 15 such cases. See, e.g. , Turpen v. Eide (In re Turpen) , 244 B.R. 431, 434 (B.A.P. 8th Cir. 2000); 16 In re Sch wartz , 58 B.R. 9 23, 925 (B ankr. S.D .N.Y. 198 6); In re Klei n , 39 B.R. 530, 532 (Bankr. 17 E.D.N.Y. 1984). Under section 707(a), “the de btor has no absolute right to dismissal of a 18 Chapter 7 case.” Turpen , 244 B.R. at 434; see also I n re Klein , 39 B.R. at 532. Rather, a debtor 19 seeking

dismissal mu st show “c ause.” 1 1 U.S.C. § 70 7(a); see Dinova v. Harris (In re Dinova) , 20 212 B.R. 437, 442 (B.A.P. 2d Cir. 1997). However, the Bankr uptcy Code does not define 21 “cause,” and the three examples give n in section 707(a) are illustrative, not exclusive. See Near y 22 v. Padilla (In re Padilla) , 222 F.3d 1184, 1191 (9th Cir. 2 000); Dionne v . Simmons (

In re 2312

Simmons) , 200 F.3d 738, 743 (11th Cir. 2000). 1 Where, as here, a debtor moves for dismissal, courts in this Circuit have determined 2 whether cause exists by looking at “whether dismissal would be in the best interest of all parties 3 in interest.” Dinova , 212 B.R. at 442; see also I n re Schwa rtz , 58 B.R. a

t 925; In re Hull

, 339 4 B.R. 304, 307 (Ba nkr. E.D. N.Y. 2006 ). We ag ree tha t this is the

appropr iate ana lys is. The be st 5 interest of the debtor “lies genera lly in securing

an effective fresh start upon discharge and in the 6 reduction of administrative expenses leaving him with resources to work out his debts.” Dinova , 7 212 B.R. at 441 (quotation marks omitted). With regard to creditors, the issue is ty pically one of 8 prejudice: “[C]reditors can be prejudiced if the motion to dismiss is brought after the passag e of 9 a considerable amount of time and they have been forestalled from collecting the amounts owed 10 to them. A prejudic ial delay also cre ates the

appear ance tha t such an a

busive pr actice is 11 implicitly condoned by the Code.” Id. (quotation marks omitted). 12 Because the weighing of these factors “is guided by equitable considerations,” the 13 determination of whether cause exists is “committed to the sound discretion of the bankruptcy 14
court.” In re Hull , 339 B.R. at 308; see also 6 Collier on Bankruptcy § 707.03 (15th ed. rev. 15 2006) (“The court has substantial discretion in ruling on a motion to dismiss under section 16 707(a), and in exercising that discretion must consider any extenuating circumstances, as well as 17 the interests of the various parties.”). According ly, we will disturb a decision to deny dismissal 18 under section 707(a) only if the bankruptcy

court has exceeded the bounds of the discretion 19 afforded by

the statute. See State

Bank of In dia v. Chal

asani (I n re Chalas ani) , 92 F.3d 1300, 20 1307 (2d Cir. 1996) (noting that “decisions [that] invoke the exercise of a bankruptcy court’s 21 equitable powers,” and are thus “depe ndent upon the facts and circumstances of ea ch case,” are 2213

reviewe d for an e

xcess of a llowable discreti on). A ba

nkruptcy court exc eeds its a

llowable 1 discretion where its decision (1) “rest[s] on an error of law (suc h as application of the wrong 2 legal p rinci ple) o r a clea rly errone ous fa ctual findi ng,” or (2) “ca nnot be loc ated w ithi n the r ange 3 of permis sible dec isions,” e ven if it is

“not nec essarily

the produ

ct of a le gal er

ror or a clearly 4 erroneous factual finding.” Schwartz v. Aquatic Dev. Group, Inc. (In re Aquatic D ev. Group, 5 Inc.) , 352 F.3d 671, 678 (2d Cir. 2003) (internal quotation marks omitted). 6 We begin our analysis of the Bankruptcy Court’s decision with a threshold question: can 7 a debtor ’s ability

to repay her cre ditors constitute a dequate cause f or dismissa

l? A freque

ntly 8 cited passage of the legislative history of section 707(a) appears to answer this question in the 9 negati

ve: “[This ] section do es not con template . . . that the ability

of the de btor to re pay his debts 10 in whole or in part constitutes adequate cause for dismissal. To permit dismissal on that ground 11 would be t

o enact a non-unif orm manda

tory chapter 13, in lieu

of the re medy of bankr uptcy .” S. 12 Rep. No. 95-989, at 94 (1978), as reprinted in 1978 U.S.C.C.A.N. 5787, 5880; H.R. Rep. No. 13 95-595, at 380 (1977), as reprinted in 1978 U.S.C.C.A.N. 5963, 6336. Several courts have 14 relied on this pass age to c onclude t hat a debtor’s ab ility

to repay her debt s cannot c onstitute 15 cause for dismissal. See , e.g. , Turpen , 244 B.R. at 434-35; In re Stephenson , 262 B.R. 871, 875 16 (Bankr . W.D. Okla . 2001); Kirby v. S patz (I n re Spatz) , 221 B.R. 992, 994 (Bankr. M.D. Fla. 17 1998); In re Williams , 15 B.R. 655, 657-58 (E.D. Mo. 1981). Other courts have held that section 18 707(a)’s legislative history indicates that the provision was not intended to apply when it is the 19 debtor – as opposed to a creditor or another par ty – who seeks dismissal. See In re Aupperle , 20
352 B.R. 4 3, 47 (Ba nkr. D.N .J. 2005) (“ [T]he entir e excerpt [of the le gislative history ] refers to 21 circumstances justifying cause for involuntary

dismissal sought by a party other than the 223 When section 707(a) was enacted as part of the Bankruptcy

Reform Act of 1978 (the “1978 Act”), an individual debtor with primarily consumer debts could generally choose whether to seek a complete discharge of his debts unde r Chapter 7 or to reorganize those debts under Chapter 13. See Pub. L. No. 95-598, § 706 (1978) (curre nt version at 11 U.S.C. § 706) (“The debtor may conve

rt a case under [Chapter 7] to a case under cha pter 11 or 13 of this title at any time . . . . T

he court may not conve

rt a cas e under [Chapter 7] to a case u nder cha pter 13 of this title unless the debtor requests such conversion.”). This freedom to choose between Chapter 7 and Chapter 13 was somewhat curtailed by the 1984 amendments to the 1978 Act, see Pu b. L. No. 98-35 3, § 312(2 ) (1984)(curre nt version at 11 U.S. C. § 707(b) ), which permitte d courts t

o dismiss a Chapter 7 petition upon a finding of “substantial abuse” by the debtor, and was substantially curtailed by

the “Bankruptcy

Abuse Prevention and Consumer Protection Act of 2005,” which amended section 707(b) of the Ba nkruptcy Code to, inter alia , preven t individua

ls whose income is above a certain threshold from dischar ging their debts through Chapter 7. See Pub. L. No. 109-8, § 102(a) (2005) (a mending 11 U.S.C. § 707(b)). These revisions do not affect our inter

pretation of the le gislativ e history of section 707(a)of the 197 8 Act. We a lso note that the 2005 amendments do not apply to Smith’s case be cause her bankruptcy petition was filed prior to October 17, 2005. See Pub. L. No. 109-8, § 1501 (2005). 14 debtor.”). 1 We agree with the latter view. Congr ess’s fear of enacting “ a non-uniform mandatory 2 chapter

13” make s sense on

ly in the conte xt of an invo luntary

dismissal. If a

creditor is 3 permitted to base a motion for Chapter 7 dismissal on the debtor’s ability to repay he

r debts, the 4 debtor may have

no other choice but to file a Chapter 13 petition (under which debtors a re 5 required to pay

off their debts over a set period of time, see 11 U.S.C. §§ 1301 et se q.) or to 6 avoid bankruptcy a ltogether, thus potentially c reating a “non-uniform mandatory Chapter 13.” 7 Th er e i s n o s uc h r is k w he n i t i s t he de bt or wh o s ee ks di sm is sa l v ol un ta ri ly. 3 8 We therefore hold that the legislative history of section 707(a) does not preclude a 9 debtor’s ability to repa y her debts fr

om constituting cause for dismissal. This does not mean, 10 however, that a de btor’s a bility to repay her debt s is per se grounds for dismissal. Rather, we 11
agree

with the D istrict Cou

rt that “t he signi ficanc e of [a de

btor’s] ab ility

to repay her cre ditors is 12 merely

a[] part of

the requ ired inqu iry into ‘whe

ther dismi ssal would

be in the b est inter

est of all 1315

parties in interest.’” Smith v. Geltzer (In re Sueann M. Smith) , No. 06 CV 2 994, slip. o p. at 9 1 (E.D. N.Y. O ct. 18 , 2006 ) (quo ting Dinova , 212 B.R. at 442). 2 Here, the Bankruptcy Court provided three reasons for its conclusion that Smith’s 3 proposal to repay

her creditors in full did not constitute adequate cause for dismissal: first, it was 4 not in Smith’ s best inte rest to be repres ented by

Schwart z and Ginsb erg; se cond, the parties’ 5 failure to agree on Geltzer’s a ppropriate fees and commission would needlessly create additional 6 litigation; and third, there was a “concern” that Smith had been “imposed upon” by Schwa rtz and 7 Ginsberg. While we are sy mpathetic to the Bankruptcy Court’s desire to protect Smith from the 8 consequences of her own choices, its reasons are insufficient to justify de nial of Smith’s 9 dismissal motion, at le ast on the record that was b efore t

he Court. 10 First, di smissal wo uld clea rly have be nefitted Smith’s cr

editors. In re sponding

to this 11 appeal, the trustee reiterates the ar gument – rejected by

the Bankruptcy

Court – that dismissal 12 would result in “substantial prejudice” to Smith’s creditors because “nea rly two y ears have 13 passed since the commencement of the Bankr uptcy Case.” This a

rgument is wholly without 14 merit. Under Smith’s proposed arrangement, all of he r creditors would be paid in full, including 15 interest, immediately, wher eas without dismissal, the creditors will have to wait for the 16 completion of the personal injury action before being paid, and if that ac tion proves 17 unsuccessful, they will receive nothing. We believe it to be indisputable that dismissal under 18 Smith’s proposal – assuming that the Bankruptcy Court supervises the disbursement of the 19 monies ad

vanced by Se tareh – would be in t

he best in terest of Smith’s cr

editors. 20 Second, in determining that dismissal was not in Smith’s best interest, the Bankruptcy 21 Court foc

used on the

misconduct of Schwa

rtz and Gin sberg a

nd gave almost no c onsidera

tion to 2216

the most imp ortant fa

ctor in the

analy sis: whether the de

btor is ab le to sec

ure “an effective fre sh 1 start,” Dinova , 212 B.R. at 441 (quotation marks omitted). While the Bankruptcy Court may be 2 correct that the trustee’s choice of c ounsel would do a better job of prosecuting the personal 3 injury action than would Schwar tz and Ginsberg, under Smith’s proposed arrange ment, her 4 ability to secure a

n effective fresh start – with all of her debts pa id – would be unaffected by 5 whether the personal injury action proves successful. Thus, the Bankruptcy Court’s concerns 6 about Sch

wartz and Ginsberg are unr elated to that aspe ct of the

debtor’ s interest that is mos t 7 relevant to the dismissal inquiry. 8 We do not intend to imply that it was inappropriate for the B ankruptcy Court to have 9 considered Smith’s long-term financial interests, including whe ther remaining in bankruptcy 10 would af

ford her more com

petent c ounsel to prosecut e the personal inju

ry action a nd possibly 11 allow her to retain a greater interest in the eventual proceeds from that action. These factors are 12 certain

ly r elevant to an ana lys is of the d

ebtor’s interest s. But ev en if the se fact ors tilt against 13 dismissal, they

must be we ighed a

gainst t he ability of the de btor to se cure an

effective fre sh 14 start, which is of paramount importance to the dismissal inquiry

. See id. 15 On remand, the Bankruptcy Court should consider both the benefits of Smith’s proposed 16
arrangement – including that it wou

ld allow he

r to pay off her creditors immedia

tely , and also 17 allow her to avoid the harms of discharging her debts through bankruptcy, such as the potential 18 difficulty of sec

uring future credit and the inability to receive Chapter 7 relief ag ain for eight 19
years, see 11 U.S .C. § 727(a )(8) – a nd th e arran gement ’s pot entia l cost s – in cludi ng that the hi gh 20 rate of interest charged by Setareh could reduce significantly any judg ment or settlement amount 21 eventually sec

ured by Smith. 2217

The debtor’s best interest also lies in “the reduction of administrative expenses,” Dinova , 1 212 B.R. at 441 (quotation marks omitted), but there is no evidence in the recor d establishing 2 what Smith’s administrative costs would be under her dismissal proposal. As a result, the 3 Bankruptcy

Court had no basis on which to determine how such costs compare to those that 4 Smith would i

ncur if she rema

ined in ba nkruptcy procee dings. On remand , the Cour t should 5 make such a determination based on evidence submitted by the parties. We note that potential 6 litigation over the trustee’s fees should not, by itself, constitute a basis for deny ing a dismissal 7 motion that would otherwise benefit both the debtor and her creditors. The B ankruptcy Court 8 could hold an expedited hearing to determine what is owed to the trustee a nd could make 9 dismissal contingent on Smith’s willingness and ability to pay that amount. 10 The Bankruptcy Court’s final reason for its decision was its concern that Smith had been 11 “imposed

upon” by Schwart z and Ginsb erg. If it were true tha t Smith moved

for dismis sal only 12 under du

ress or o ut of a la ck of und erstand ing as to what she was prop osing, that would su rely 13 be grounds for deny ing the motion. Smith, however, was represented by independent counsel 14 when s he bro ught t he mot ion, and sh e was pr esent in th e court room d uring t he dis miss al hear ing, 15 when the

proposed arrang ement wa s discusse d in detai l. Moreov er, while Setareh ’s intere st rate 16 was far

higher than the f

ederal interest rate, it was not nec essarily unreasonable for Smith to 17 accept Setareh’s terms given that Setar eh would receive nothing if the personal injury action 18 were unsuccessful. Accordingly, we ca nnot on this record credit the Bankruptcy Court’s 19
sugge stion that Sm ith, in cho osing to m

ove for d ismissal, ma

y not have be en actin

g volunta rily 20 or in what she believed were her best intere sts. 21 We therefore conclude that, on the recor d that was before it, the Bankruptcy Court’s 2218

denial of Smith’s dism

issal motion “cannot be loca ted within

the range of per

missible 1 decisions,” Schwartz , 352 F.3d at 678, and its order should have been vaca ted by the District 2
Court. However, be cause the Bankr uptcy Court’s c oncern t

hat Smith ma

y not have be en fully 3 informed or acting freely is not unfounded, and because the issue of the trustee’s fe es and 4 commissions is still unsettled, the proper course is to remand the case to the Bankruptcy Court 5 for it to reconsider its dismissal decision and determine, in conjunction with any notice and 6 hearing that may

be appropriate, (1) whether Smith fully understands the terms and 7 consequences of her dismissal proposal, including the sig nificant difference between the federal 8 interest rate and that charge d by Setareh; (2) the proper amount owed to the trustee, and whether 9 Smith is willin

g and a ble to pay that amou

nt; and (3 ) the appropriate mechani sm by

which to 10

ensure t

hat the tr ustee’s fees an d commission are pa

id and tha t all of Smith ’s cred

itors are repaid 11 in full plus

interest . If a

ll of these condition s are sa

tisfied, t he fact that Smith will be able

to 12 immediately pay

all debts and fees – and thus “secur[e] an effective fresh start,” In re Dinova , 13 212 B.R. at 441 – should weigh heavily in favor of granting the dismissal motion. 14
III. Conclusion 15 For the foregoing r easons, we affirm the District Court’s order upholding the B ankruptcy 16 Court’s decision to remove Schwartz as special personal injury counsel, and vacate the District 17 Court’s order affirming the Bankr uptcy Court’s denial of Smith’s dismissal motion. We remand 18 the case to the District Court with instructions to (a) vacate the Bankr uptcy Court’s order 19 denying di smis sal, a nd (b) retur n the c ase to the Ban krupt cy Court f or furt her pro ceedin gs 20 consistent with this opinion. 21
2219

BARRINGTON D. PARKER, Circuit Judge , conc urrin g: 1 I concur in the judg ment and in the majority’s opinion, except that I do not agree that the 2 Bankruptcy

Court’s denial of Appellant Smith’s motion to dismiss constituted an abuse of 3 discretion. Where, as here, the standard of re view is abuse of discretion, the lower court’s 4 “findings and conclusions must . . . at least be sufficient to permit meaning ful appellate review; 5 and where such findings and conclusions are lacking, we may

vacate and remand.” In re 6
Mazzeo , 167 F.3d 139, 142 (2d Cir. 1999). That is exactly the situation pre sented to us. I 7 believe that the current record is insufficiently developed for us to determine whether the 8 Bankruptcy

Court’s conclusion was within the scope of its broad discretion, and that vacatur f or 9 further consideration is warranted. This disposition leaves the door open on r emand for the 10 Bankruptcy

Court to reach a different, or the same, c onclusion, with either result having the 11 benefit

of a more

fully develope d recor

d. In view of these possi

bilities, I believe that it is bo th 12 inappropriate and inaccurate to char acterize the earlier actions of the court be low as an abuse of 13 discretion. 14 15