Court Opinion

ID: 9843037
Source: CourtListenerOpinion
Date Created: 2023-09-24 02:24:52.834475+00
Date Added: 2024-06-11T09:14:26.329463
License: Public Domain

*707WIDENER, Circuit Judge,
dissenting:
I respectfully dissent.
II U.S.C. § 1112(b) allows the bankruptcy court to dismiss a bankruptcy petition “... for cause, including—
(1) continuing loss to or diminution of the estate and absence of a reasonable likelihood of rehabilitation;
(2) inability to effectuate a plan;
(3) unreasonable delay by the debtor that is prejudicial to creditors;
(4) failure to propose a plan under section 1121 of this title within any time fixed by the court;
(5) denial of confirmation of every proposed plan and denial of a request made of additional time for filing another plan or a modification of a plan;
(6) revocation of an order of confirmation under section 1144 of this title, and denial of confirmation of another plan or a modified plan under section 1129 of this title;
(7) inability to effectuate substantial consummation of a confirmed plan;
(8) material default by the debtor with respect to a confirmed plan;
(9) termination of a plan by reason of the occurrence of a condition specified in the plan; or
(10) nonpayment of any fees or charges required under chapter 123 of title 28.”
Without considering any of the Congres-sionally mandated reasons for dismissal, the bankruptcy court relied on a judicially created requirement called “lack of good faith in filing” to dismiss. This action was affirmed by the district court and is now affirmed by this court. I would, however, remand to the district court for further remand to the bankruptcy court at the least to consider the grounds for dismissal as set forth in § 1112(b).
The Bankruptcy Act which was replaced by the Code in 1978, contained two sections bearing immediately on this appeal. They are not discussed either by the bankruptcy court, the district court or the majority. They are 11 U.S.C. § 541 and 11 U.S.C. § 546. Both dealt with the petition of a debtor in a corporate reorganization, the same type of proceeding with which we are concerned. § 541 had the explicit provision that the judge’s approval upon filing was conditioned upon his being “satisfied” that the petition had been “filed in good faith,” the very wording upon which the majority opinion relies here. The catch line of § 546 was the “good faith filing of petition”. That section “without limiting the generality of the meaning of the term ‘good faith’ ” gave instances of lack of good faith as including creditors acquiring claims for the purpose of filing the petition; adequate relief being available under Chapter 11; the existence of a prior proceeding giving adequate relief; and being “unreasonable to expect that a plan of reorganization can be effected.” Both § 541 and § 546 were repealed and the good faith provision of § 541 does not appear in the Bankruptcy Code. Those provisions of § 546 which do appear do. not relate to good faith.
Since the good faith filing provision was repealed and not reenacted, it seems at least worthy of exploration, especially since the same subject matter discussed here is treated in § 1112(b) of the Code, as to whether Congress meant anything by its repeal of §§ 541 and 546, the good faith filing provisions. See Sutherland on Statutory Construction, Sands 4th Ed., (1985) §§ 22.30 and 23.28. It is certain that the result of this case will be that the repeal of those provisions has no effect.
Without suggesting that the repeal of those statutory provisions was without meaning, I believe that even if it was, we have approached this matter with the wrong slant. We seem to take it as a given that “good faith in filing” is something that may be added as a matter of judicial convenience to Congressional requirements of the Bankruptcy Code. This is akin to a violation of the prohibition of Erie Railroad, that there is no federal general common law. And while the interstices may be filled in, see United States v. Little Lake Misere Land Co., 412 U.S. 580, 593, 93 S.Ct. 2389, 2397, 37 L.Ed.2d 187 (1973), I suggest that it is appropriate in each case to identify the interstice with the *708accompanying need to fill in before undertaking the project, as has been done here.
The case at hand is an illustration of why it is necessary to demonstrate that interstices exist before filling them in. Our opinion, Slip, p. 701, sets out that we require “both objective futility and substantive bad faith” in order to warrant dismissal. (Italics in original). We then define objective futility as “whether a reorganization is realistically possible”. In any case, I suggest that the words of the panel as to “whether a reorganization is realistically possible” are not so different from the words of Congress in § 1112(b)(2), that a petition may be dismissed for a debtor’s “inability to effectuate a plan”, to create an interstice. And the same words “whether a reorganization is realistically possible” are also not so different from the words of Congress in § 1112(b)(1) requiring the “absence of a reasonable likelihood of rehabilitation”, if there has been a “continuing loss to or diminution of the estate” as the record suggests was present here.
In short, the dismissal of a petition for reorganization is a serious matter, especially under the circumstances present here where the court acts on motion and for a reason not even included in the Bankruptcy Code. To dismiss this case without any consideration by any court in which the matter has been heard as to whether or not the provisions of 11 U.S.C. § 1112(b) have been met, I think, is a mistake of no little magnitude. When Congress has provided specific requirements for dismissal of a case, I do not think it is appropriate for the courts to impose an additional requirement, which certainly is not specifically authorized by Congress, without at least first considering the statutory grounds. It might well be that after a full development, none of the statutory grounds were met, or it could be demonstrated that an interstice existed. At that time, consideration of whether there is a good faith filing requirement might be appropriate. That time, I suggest, is not now, and may not be ever if a thorough consideration of the process of repeal of the Act and re-enactment of the Code should reveal in fact that Congress meant to repeal the statute as it did.
I, therefore, respectfully dissent.