Opinion ID: 445127
Heading Depth: 1
Heading Rank: 3

Heading: Dismissal for Lack of Good Faith

Text: The bankruptcy court also found that Albany Partners did not file this Chapter 11 petition in good faith, and concluded that the case therefore should be dismissed. In connection with its finding of lack of good faith, the court noted that Albany Partners chose not to intervene in appellees' possessory action in state court, and had given no indication to appellees prior to those proceedings that it acquired the Ramada Inn from Ocean View. Furthermore, the debtor waited until the eve of the foreclosure sale to file this Chapter 11 petition, and did not present the unrecorded deed which purportedly conveyed the property from Ocean View to Albany Partners until the hearing on May 25, 1983, twenty-three days after the Chapter 11 petition was filed. [8] In addition, the court observed that the testimony at trial of Mr. Frank Baldwin, one of the general partners in both Ocean View and Albany Partners, was indecisive and evasive, and that Baldwin had estimated the Ramada Inn to be worth $5,400,000 even though his own expert testified that the property was worth $2,800,000. Although good faith is required for confirmation of a reorganization plan, 11 U.S.C. § 1129(a)(3), Chapter 11 does not expressly condition the right to file or maintain a proceeding on the good faith of the debtor at the time the proceeding is initiated. However, § 1112(b) of the Code permits a bankruptcy court to convert or dismiss a case for cause. The provision lists nine examples of cause, but the list is not exhaustive. The pertinent legislative history states, The court will be able to consider other factors as they arise, and use its equitable powers to reach an appropriate result in individual cases. H.R.Rep. No. 595, 95 Cong., 1st Sess. 406 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6362. Accordingly, the determination of cause under § 1112(b) is subject to judicial discretion under the circumstances of each case. In the Matter of Nancant, 8 B.R. 1005, 1006 (Bankr.D.Mass.1981). The equitable nature of this determination supports the construction that a debtor's lack of good faith may constitute cause for dismissal of a petition. In finding a lack of good faith, courts have emphasized an intent to abuse the judicial process and the purposes of the reorganization provisions. Particularly when there is no realistic possibility of an effective reorganization and it is evident that the debtor seeks merely to delay or frustrate the legitimate efforts of secured creditors to enforce their rights, dismissal of the petition for lack of good faith is appropriate. See In re Eden Associates, 13 B.R. 578, 583-85 (Bankr.S.D.N.Y.1981); In re Victory Construction Co., Inc., 9 B.R. 549, 555-56, 558, 564-65 (Bankr.C.D.Cal.1981); In re G-2 Realty Trust, 6 B.R. 549, 552-54 (Bankr.D.Mass.1980); In re Dutch Flat Investment Co., 6 B.R. 470, 471-72 (Bankr.N.D.Cal.1980); See also In the Matter of Levinsky, 23 B.R. 210, 219-220 (Bankr.E.D.N.Y.1982); In the Matter of Northwest Recreational Activities, Inc., 4 B.R. 36, 38-40 (Bankr.N.D.Ga.1980). The record in this case supports the finding that Albany Partners did not file this petition in good faith. Even though the transfer of the Ramada Inn from Ocean View to Albany Partners appears to have occurred over a year prior to the filing of the petition, the record reveals the acts of Ocean View necessarily concealed the fact of Albany Partners' ownership from the appellees and, as previously noted, the two general partners in Albany Partners constituted the majority of the general partners in Ocean View. Furthermore, consideration of the economic reality confronting Albany Partners supports the conclusion that the debtor had no realistic chance of successfully reorganizing. Under such circumstances, the petition was properly dismissed pursuant to § 1112.