Source: http://operatingthetan.com/bankord.htm
Timestamp: 2019-04-19 18:31:47+00:00

Document:
IT IS HEREBY ORDERED that the above-numbered case be converted from Chapter 13 to Chapter 7, for cause as provided by 11 U.S.C.§1307(c).
1 Unless otherwise noted, all statutory references are to the Bankruptcy Code, Title 11 United, States Codes, as it provided with respect to cases commenced on February 23, 1998, when Debtor filed the Chapter 13 petition in this case.
2 Creditor's motion originally sought alternative relief in the form of either dismissal with prejudice or conversion to Chapter 7, but the request for conversion was withdrawn on August 14, 2002.
2/ An objection to confirmation of Debtor's Chapter 13 Plan, alleging that the Plan has been proposed in bad faith, is not feasible, fails to treat unsecured creditors as well as they would be treated under Chapter 7, and does not include all disposable income.
Creditor is represented by Elaine M. Seid, Esq. of McPharlin, Sprinkles & Thomas LLP; Thomas R. Hogan, Esq. and Leslie Holmes, Esq. of the Law Offices of Thomas R. Hogan; Samuel D. Rosen, Esq. of Paul, Hastings, Janofsky & Walker LLP; and Helena K. Kobrin, Esq. of Moxon & Kobrin. Debtor is represented by Stanley A. Zlotoff, Esq. ("Zlotoff"). Debtor's wife, Victoria Aral Lucas ("Lucas"), was represented during the latter part of the trial by Howard Hibbard, Esq.
Creditor's motion and objection were consolidated for trial; trial has been concluded and the matters have been submitted for decision. This Memorandum Decision constitutes the Court's findings of fact and conclusions of law, pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure ("FRBP").
It is undisputed that Debtor left California to live in Canada at some point during 2001, shortly prior to being sentenced on criminal charges in Riverside County. Debtor stated in a pretrial declaration that he had filed. a petition for Canadian refugee status and could not leave that country while it was pending, and he filed a motion for leave to appear at trial by "contemporaneous video transmission" because he had moved to Canada and would "likely still be there" at time of trial. Debtor's motion was denied for lack of the "good cause" and "compelling circumstances" that are required by Rule 43(a) of the Federal. Rules of Civil Procedure (incorporated by FRBP 9017).
The only witness at trial was Lucas, called by Debtor (Lucas is not a joint debtor in this bankruptcy case). Both parties introduced documents into evidence, including copies of messages posted on the Internet by Debtor, excerpts from transcripts of examinations taken of Debtor and Lucas under FRBP ?,004, copies of documents filed in the bankruptcy case, and copies of documents filed in other courts -- Creditor also introduced excerpts of Debtor's videotaped deposition taken-by Creditor in 1996 during other litigation. Most of the salient facts are undisputed, although the parties disagree as to how they should be interpreted.
Debtor stated in a declaration filed August 31, 2000 that he was then 58 years old.
' The Court does not suggest that any particular act of Debtor falls within, or exceeds, lawful political conduct. However, at least one of Debtor's Internet postings has been held to constitute a willful copyright infringement, as noted herein.
reactions they evoke from Church officials and lawyers.
Creditor and its lawyers strike at Debtor with a force and with resources that far exceed those available to Debtor (e.g., the four different law firms who represent and appear for Creditor in this Chapter 13 bankruptcy), appearing to expend funds that significantly exceed those expended on a.ny C=hapter 13 case of which this Court is aware, and far beyond the financial issues at stake. Moreover, the character of the litigation has been highly contentious and personal, unlike most Chapter 13 practice.
Debtor testified in a 1996 videotaped deposition, before commencement of this bankruptcy case, that he had never been a member of the Church, but had participated since at least 1995 in a group known as °alt.religion.scientology°, or "a.r.s.", which was critical of the Church. The group awarded its members different levels of "status" depending on what kind of response was evoked by their acts toward the Church -- P.Cf., greater status was achieved by being sued for copyright infringement than by being sent "cease and desist" letters. Debtor said in the 1996 deposition that he had made many' postings on the Internet that were "critical or taunting" toward the Church, and considered eliciting responses to be "a major increment in status" within a.r.s., as well as "a great game", "extremely amusing", "screamingly funny", "a lot of fun", among his "hobbies", and an activity that "comes off the recreation budget".
Debtor testified that he did not know how many such postings he had made on the Internet. When asked a second time by counsel for Creditor to make an estimate, Debtor replied in a facetious tone that the number was 1,228.
Two days after filing bankruptcy, Debtor posted a message on the Internet saying that he was prepared to violate the permanent injunction issued by the District Coart. Creditor sought and received relief from the automatic stay of s362(a) in this Court, for the limited purposes of seeking further. injunctive relief in the District Court to prevent Debtor from carrying out his stated. intention, and also to liquidate Creditor's claim by proceeding to trial in the District Court. Creditor set a FRBP 2004 examination of Debtor for March 24, 1998, but Debtor filed a "withdrawal" of his Chapter 13 petition on the morning of that day.
On May 12, 1998, the District Court jury found that Debtor's infringement was willful and awarded Creditor damages of $75,000.
Debtor's Chapter 13 petition names no attorney of record in the bankruptcy case. Graham Berry ("Berry") substituted in as attorney of record on March 23, 1998; and was replaced by Zlotoff on August 5, 1998.
infringe Creditor's copyright again, he replied "At least i wouldn't do it openly".
Debtor's "withdrawal" of his bankruptcy petition was not treated by the Clerk of this Court as a dismissal of the case under §1307, so the case remained pending. On April 24, 1998, the Chapter 13 Trustee sought dismissal for Debtor's failure to appear at the creditors' meeting required by §341 and/or to make the first payment due under his proposed Chapter 13 Plan; an order of dismissal was filed on April 28, 1998 and the case was closed by the Clerk on May 19, 1998. On June 9, 1998, Creditor recorded an abstract of its District Court judgment. on July 13, 1998, Debtor moved to have the dismissal order vacated and the case "reinstated", saying that he had retained bankruptcy counsel and needed bankruptcy relief because of Creditor's judgment against him -- on July 20, 1998, an order was issued, providing that the case was "reinstated prospectively".
Schedule A states that Debtor's interest in real property consist of a residence worth $322,500 that he owns "jointly" with Lucas.
Lucas testified at trial that there were fifteen or twenty or more instances of picketing at her home and place of employment in 2000, "every day for a few weeks" or "all summer". Although she was convinced that the picketers were Scientologists (and no other reason for her to be picketed was mentioned by either side), it was not established that the picketing was done by members of the Church of Scientology or by Creditor. She also testified that she had picketed Churdh facilities including a southern California "paramilitary compound" with armed guards, and Debtor testified in a FRBP 2004 examination that he spent part of some 200 days post-petition picketing Church locations across the country.
10/ A "DIS" personal computer worth "$9100.00" or "$9,00.00", depending on whether the mark after the "$9" is a number one or a comma (a value of $900.00 would be consistent with the total stated).
claims, equitable or future interests, decedents' estates, contingent or unliquidated claims of any kind, general intangibles including licenses or franchises, boats and accessories, aircraft and accessories, machinery or equipment, business supplies, inventory, animals, crops, farm equipment and supplies, or any other personal property not listed.
Schedule C claims exemptions for the real property, bank accounts, household goods, books, firearm, IRA account, automobile, and computer.
Schedule D states that the only secured creditor is the holder of a $256,200 deed of trust on the residence.
Schedule F states that Debtor may owe priority tax claims of unknown amounts to the California State Franchise Tax Board and the Internal Revenue Service.
Schedule F states that Debtor has no creditors holding unsecured nonpriority claims.
Schedules G and H state, respectively, that Debtor has no executory contracts or leases, and no co-debtors.
Schedule I contains no answers to the questions about Debtor's spouse or dependents, and states that he has been a self-employed "computer consultant" since 198, with estimated monthly income of $5,000 gross and $3,500 net.
Schedule J lists monthly expenses totalling $5,832, states that the monthly difference between income and expenses is a negative $832, and calls for $75 per month to be paid to the Chapter 13 Trustee.
the Central District of California. It contains two handwritten entries saying that Debtor will pay the Chapter 13 Trustee $75 per month for 48 months, and none of the other information requested has been provided.
1/ Gross income of $130,000 in 1997 and $75,000 in 1996, from "Self Employment".
2/ Pending copyright infringement lawsuit by Creditor against Debtor with potential liability of $1,000,000.
a/ Location of Debtor's business.
said that the forms were completed in Debtor's handwriting, though she thought the writing looked "strange" -- upon hearing Debtor's deposition testimony that the forms were filled out by Berry's employee, Lucas said that she must have been mistaken.
purported to have, some personal knowledge, her testimony was sometimes clear and straightforward, but was also sometimes inconsistent. For example, Creditor had learned in discovery that the couple possessed and insured some art work that is not disclosed in the Schedules -- at different points during the trial and in FRBP, 2004 examinations, Lucas claimed that her former husband had given the art work to her for use in a business, that he had given it to her ,for her daughter before Lucas was pregnant, that he had given it to her for the child while Lucas was pregnant, and that he had given it to her for the child after the birth. Creditor had also learned in discovery that Debtor was insured by a life insurance policy with cash surrender value, which is not listed in the Schedules -- Lucas testified at trial that it was a joint policy covering both spouses "to insure our cryonic suspension at our deaths", which they both "gifted to" the Alcor Life Extension Foundation; however, the decrement in evidence showed that the policy insures only Debtor, and Lucas testified in a FRBP 2004 examination that each spouse had a separate policy and she knew nothing about Debtor's. Lucas testified that she dial have personal knowledge about bank accounts and credit cards and said that there were more of those than disclosed by the Schedules.
shown to be $4_,200 gross and net, and Lucas' monthly income as an "information specialist" employed by EBSCO is shown to be $2,513 gross and $1,855 net, for total net monthly income of $6,055.
Schedule J was amended to list expenses totaling $5,904, with monthly disposable income of $151 available for payments into the Chapter 13 Plan.
The Chapter 13 Plan was amended to provide for monthly payments to the Trustee of $150 for 42 months, with a 0% dividend paid to unsecured nonpriority creditors after full payment of all administrative and priority claims; it refers to no secured creditors.
On December 24, 1998, it was amended to provide for monthly payments to the Trustee of $50 for eight months, followed by $150 per month "until. all allowed claims are paid", with a dividend paid to unsecured nonpriority creditors after full payment of all administrative and priority claims; it refers to no secured creditors.
On August, 27, 2002, it was amended to provide for monthly payments to the Trustee of $150 for an unstated period of time, with a 0% dividend paid to unsecured nonpriority creditors after full payment of all administrative and priority claims; it refers to no secured creditors.
interest worth $205,000 -- the value of Creditor's lien is stated as $2,000, and the Plan provides for the lien to be avoided under §522 (f) as an impairment of Debtor's homestead exemption.
Creditor has filed three proofs of claim: the first is in the amount of $1,060,636.86 filed on September 9, 1998, described as an unsecured nonpriority claim based on "Judg, Costs, Fees, Sanctions"; the second is in the amount of $222,651.83 filed on September 9, 2002, stating that it amends the first, and described as an unsecured nonpriority claim based on "Judg, Costs, Fees, Sanctions"; the third is in the amount of $222,651.83 filed on October 3, 2002, stating that it amends the first and second, described as a secured claim "at least to the extent of" $75,000 based on Creditor's recorded abstract of judgment and Debtor's residence, and turther described as being based on "Judg, Costs, Fees, Sanctions".
position at trial was that, if the bankruptcy case is not dismissed or converted, Debtor will attempt to amend his Plan as necessary to be confirmable in light of how the issues concerning Creditor's claim are later determined.
Zlotoff argued at trial that those particular omissions were harmless because the Debtor's interest in the subject properties lacked value and/or was exempt. It is true that these are not large dollar items and there has been no proof of nonreporting of assets of major value. As is clear from Lucas' testimony, as inconsistent as it was, Debtor and Lucas have maintained a modest, frugal life style. But the point is that there should be no omissions in the first place, so that creditors, the Chapter 13 Trustee, and the Court can make their own decisions about the extent of a scheduled interest, its value, and whether it qualifies for exemption. Instead, Debtor's original and amended Schedules show only that, through carelessness, and possibly worse, Debtor did not carefully disclose all property interests as is required by the Code.
signature under oath does not necessarily assure his careful attention to the detail required. Equally important, Debtor is unavailable now and is likely to remain so for the foreseeable future, so he is not available for cross-examination in any event. Therefore, he is simply not in a position to propose a confirmable Chapter 13 plan at this time.9 That is delay prejudicial to creditors at the very least.
A Chapter 13 petition filed in bad faith may be dismissed "for cause" pursuant to 11 U.S.C. s 1307(c) [citations omitted] . ... To determine bad faith a bankruptcy judge must review the "totality of the circumstances." In re Goeb, 67S F.2d 1386, 1391 (9th Cir.1982). A judge should ask whether the debtor "misrepresented facts in his [petition or] plan, unfairly manipulated the Bankruptcy Code, or otherwise [filed] his Chapter 13 [petition or] plan in an inequitable manner." Id. at 1390. "A debtor's history of filings and dismissals is relevant." in re Nash, 76S F.2d 1410, 1415 (9th Cir.1985). Bad faith exists where the debtor only intended to defeat state court litigation. In re Chinichian, 784 F.2d 1440, 1445-46 --(9th Cir.1986).
Creditor had moved for summary judgment on the ground that Debtor's absence precluded him from proving good faith as a matter of law, but Zlotoff argued that he could prove good faith through Lucas and other witnesses. Summary judgment was denied because the Court could not rule as a matter of law that good faith could not be shown by evidence other than a debtor's testimony.
Creditor also argues that Debtor had no legitimate reason to think that he must resort to bankruptcy, because the Schedules show that he was solvent on the petition date, with equity in his home, annual income of $130,000, and no other creditors; according to Creditor, the maximum available penalty for willful copyright infringement is $100,000 (and only $10,000 for non-willful infringement) plus attorney's fees. Debtor argues that the residence is held in joint tenancy and is subject to Debtor's homestead exemption so there was no non-exempt equity, and Debtor's ability to earn was hampered by Creditor's intimidation of his clients. Regardless of what Debtor's assets and potential exposure to Creditor were on the petition date, insolvency is not a condition of eligibility for bankruptcy. As discussed above, the Code's reorganization provisions, such as Chapter 13, permit retention of property while paying its non-exempt value over time, so as to avoid the sudden loss of assets that could befall a judgment debtor outside of bankruptcy. It is not bad faith to seek the relief that the Code makes available even to those who might be able to pay a judgment through immediate liquidation.
Creditor has drawn distinctions between those two entities in the past, but Debtor does not appear to recognize one.
cannot be ignored. The fact is that a mutually combative atmosphere has persisted throughout this case, just as it did for years prepetition, which has contributed to and influenced the manner in which Debtor has proceeded. Under such circumstances, the issue of whether Debtor filed bankruptcy in a good faith attempt to deal with his debts or .in a bad faith attempt to hinder and impose upon Creditor is not a clearcut one. However, it is not necessary to find that Debtor filed bankruptcy in bad faith in order to conclude that cause exists to remove this case from Chapter 1.3, because Debtor has shown that he is not capable of performing as a Chapter 13 Debtor. Debtor has not provided reliable information about his financial condition, he will not make himself available to do so in (future, and Lucas has been unable to do so in Debtor's absence. Cause therefore exists for concluding that this bankruptcy case cannot remain in Chapter 13.
The dismissal "with prejudice" is described by Creditor as Debtor being "barred from filing successive bankruptcy petitions in an attempt to discharge the debts that currently are pending in this case", including Creditor's judgment for willful infringement.
A motion made under section 1112 (b) gives the court the option of dismissing or converting, regardless of whether the motion itself seeks only dismissal or only conversion. Upon the requisite showing of cause under section 1112(b), it is up to the court to choose between dismissal or conversion, "whichever is in the best interest of creditors and the estate.°.
(C) entity that has a community claim . . . .
Zlotoff’s claim for payment of his compensation as counsel for Debtor arose post-petition and is an administrative expense of the estate under §503(b)(2), rather than the claim of one who is a "creditor" as defined by the Code; see, P.a., In a Polysat Inc., 52 B.R. 886, 895 (Bkrtcy.f;.D.Pa. 1993), citing §101(10) and. holding that an "administrative claimant technically is not a 'creditor' as defined by the bankruptcy code, and, therefore, is not required to file a proof of claim by virtue of Rules 3002 or 3003".
of the debtor are not among those to be considered under §1112 (b) or §1307(c), which sections expressly address only the interests of creditors and the estate. In this case, such interests encompass those of Creditor, 7lotoff as the holder of a claim for administrative expenses of the estate, and any other creditors or administrative claimants. Despite the parties' stipulation (which was not approved by the Court) the Court's file shows that unsecured claims have been filed by Wells Fargo Bank ($2,051.32) and the Internal Revenue Service ($6,841..47, of which $6,225.72 is stated to be a priority tax claim); given the: general, unreliability of the Schedules, it may well be that other pre-petition creditors also exist, who were not scheduled and therefore have not filed claims. Moreover, Creditor has argued that Debtor may have been using credit cards post-petition rather than earning income and, if that is true, it is entirely possible that post-petition claims have been incurred by such use. Other creditors were not parties to the stipulation between Creditor and Debtor and are not bound by it, and the Court must consider their interests along with the interests of Creditor and Zlotoff.
to the priorities fixed by the Code. With respect to Creditor's judgment for willful infringement, Creditor has argued that such a claim would be non-dischargeable in Chapter 7 under s523(a)(6) -that may or may not be so pursuant to recent caselaw such as In re Jercich, 233 F.3d 1202 (9th Cir. 2001) and In re Su, 290 F.3d 1140 (9th Cir. 2002), but Creditor would have a chance to test its theory in Chapter 7 and, if successful, could pursue Debtor outside of bankruptcy just as if the case had been dismissed- Issues raised by Creditor about whether Debtor holds the residence in joint tenancy with Lucas and whether Debtor is entitled to a homestead exemption remain to be determined regardless of whether, the case is dismissed or converted. Finally, a Chapter 7 Trustee could apply 5547 and 5549 to avoid, respectively, any pre-petition preferential transfers and unauthorized post--petition transfers, which remedies are provided by the Code but not available to creditors outside of bankruptcy.
The standard for choosing conversion or dismissal based on "the best interest of creditors and the estate" implies a balancing test -to be applied through case-by-case analysis. In the end, the determination is a matter for sound judicial discretion.
Creditor to seek exception, of its claim from discharge to pursue Debtor outside of bankruptcy if it wishes to do so. On balance, that result is preferable to dismissal, which would leave all creditors and claimants to fend for themselves in State Court, with an absent Debtor and none of the avoiding powers provided by the Code- The reasons supporting conversion over dismissal are equally applicable regardless of whether the cause to remove the case from Chapter 13 is a bad faith filing, unreasonable and prejudicial delay, or any other form of cause.
For the reasons set forth above, Creditor's motion to dismiss this Chapter 13 case with prejudice is denied, but the case shall be converted to Chapter 7 as provided by 51307(c), for cause. Creditor's objection to confirmation of Debtor's proposed Chapter 13 Plan is therefore moot.

References: §1307
 §341
 §522
 §503
 §101
 §1112
 §1307