Court Opinion

ID: 9516128
Source: CourtListenerOpinion
Date Created: 2023-08-06 23:35:30.28437+00
Date Added: 2024-06-11T09:14:37.038710
License: Public Domain

SCOTT, J.,
dissenting.
I would affirm the judgment of the bankruptcy court on all issues and therefore dissent.
I
As noted by the Panel opinion, in order for a Chapter 13 plan to be confirmed, the bankruptcy court must find that the plan has been proposed in good faith. 11 U.S.C. § 1325(a)(3). In Handeen v. LeMaire (In re LeMaire), 898 F.2d 1346 (8th Cir.l990)(en banc), the Eighth Circuit Court of Appeals reaffirmed the “totality of the circumstances” test enunciated in In re Estus, 695 F.2d 311, 316 (8th Cir.1982), and set forth “particularly relevant” factors to be applied in light of the purposes of Chapter 13, including “the type of debt sought to be discharged and whether the debt is nondischargeable in Chapter 7, and the debtor’s motivation and sincerity in seeking Chapter 13 relief.” LeMaire at 1349.
In LeMaire, the Court found that the bankruptcy court’s finding of good faith was clearly erroneous, 11 U.S.C. § 1325(a)(3), because the bankruptcy court afforded insufficient weight to (1) the fact that the debt was nondischargeable in Chapter 7 and (2) the debtor’s improper motivation and lack of sincerity in filing Chapter 13. Pre-filing conduct, including the maliciousness of injury, is also relevant. Id. at 1352. The weight of each factor varies with the circumstances. Id. at 1353. An attempt to discharge an otherwise nondischargeable debt is only one of many factors which may be analyzed in determining whether a Chapter 13 ease or plan is filed in bad faith. See generally, Handeen v. LeMaire (In re LeMaire), 898 F.2d 1346 (8th Cir.l990)(en banc); In re Schaitz, 913 F.2d 452 (7th Cir.1990).
I believe that the bankruptcy court did not err in determining that bad faith existed due *797to the debtor’s unfair manipulation of the Bankruptcy Code. In this instance, the debt- or, not truly in need of reorganizing his debts, filed bankruptcy solely to avoid the consequences of merely being accused of certain horrendous activities. Rather than awaiting the outcome of his litigation with Ms. Hill, in the midst of the state-court litigation he filed bankruptcy proposing to pay less than $10,000 over a five year period for all of his debts. Indeed, at oral argument, it was revealed that the Debtor did not even file an answer in state court. Instead, the Debtor instituted his bankruptcy proceeding to halt, or at least stall, state court litigation. Since he was in no need of reorganization, that is a strong indication of bad faith.
A closer analysis, however, demonstrates egregious conduct. In the instant case, the state court litigation was not halted, for the bankruptcy court lifted the stay in order that the state court matter could proceed to judgment.2 However, in the interim, the Debtor has the protection of the automatic stay and, although he may be making monthly plan payments, creditors are not being paid because the plan has not been confirmed. The only alternative as noted by the majority in this Panel opinion, under these circumstances is for the bankruptcy or district court to make a determination as to the unliquidated claim being asserted. This constitutes an unreasonable and unnecessary burden upon the federal court, where as here, the matter has long been pending and, in fact, is continuing in state court, a forum better suited to such issues and trials. Indeed, the bankruptcy court is not permitted to try this personal injury matter, 28 U.S.C. § 157(b)(5), and is limited to estimation of the claim which, for all practical purposes, would amount to a duplication of a trial on the merits. Court resources would be needlessly wasted and attorney fees compounded.
The debtor argues that the bankruptcy court based its decision upon unproven allegations of a sexual relationship between himself and a student. That is, the debtor asserts that the allegations of sexual misconduct should not alone be sufficient to deny confirmation. I agree that the conduct, or particularly, the allegations that such conduct occurred, are not grounds to deny confirmation. The debtor misconstrues the bankruptcy court’s statements and ruling, however. It was not solely the alleged prepetition conduct of the debtor which led the bankruptcy court to the conclusion of bad faith. Rather, it was the Debtor’s actions in unfairly and unnecessarily utilizing the Bankruptcy Code to further harm this creditor which led to the result. As noted by the bankruptcy court, the Debtor,
Essentially by going into Chapter 13 before there had been those adjudications or determinations made by a nonbankruptcy tribunal [cut] that whole process short. You are cutting short the legal vindication that is being sought ...
In addition to the debtor’s improper motivation and unfair manipulation of the Bankruptcy Code, the record reveals that there are no special circumstances, such as inordinate medical expenses, that warrant this filing. Indeed, there are no other creditors of any import to protect.3 The debtor has no secured debt, an unusual circumstance for a Chapter 13 debtor. He has substantial equity in his assets, including, $74,500 equity in his home. The debtor lists $226,400 in assets, but only $27,600 in liabilities. Of the liabilities, $22,500 are for attorneys fees. Thus, outside of matters relating to litigation, this Debtor owes only unsecured creditors, in a total amount of $5,100.4 In contrast, the *798plan proposes to pay less than $10,000 over a five year period for all of his debts, not merely Ms. Hill’s debt. Under the plan, Ms. Hill, should there be no timely objection her $100,000 claim, will obtain only approximately seven cents on each dollar.
The filing of this bankruptcy case thwarted an attempt to liquidate an otherwise potentially nondisehargeable debt in an orderly fashion. The record further reveals that, for a chapter 13 case, the debts unrelated to the state court litigation are minute. Accordingly, the bankruptcy court properly drew the conclusion that this was solely a litigation tactic.
It is axiomatic that the remedy of bankruptcy relief is available to all eligible debtors and the “fresh start” is reserved for the honest but unfortunate debtor. Chapter 13 relief is not available to those who file in bad faith. Bankruptcy relief is not available to those whose sole purpose is to thwart a particular claimant where no other relief is even needed. As the bankruptcy court stated:
The legal system is there for the redress of those kinds of terrible intentional wrongdoings and that it serves that function and that [the] bankruptcy system shouldn’t stand in and cut that process short.
Thus, the bankruptcy court not only properly considered Debtor’s alleged pre-petition conduct in the good faith analysis, LeMaire, 898 F.2d at 1352, but the evidence in the record also supports a finding that the plan was not proposed in good faith. The bankruptcy court concluded that the filing of the bankruptcy case constituted an unfair manipulation of the Bankruptcy Code not that the debtor was attempting to discharge an otherwise nondisehargeable debt. The bankruptcy court was well aware that there had been no adjudication on the merits of the state court allegations against the debtor. Rather, it was the debtor’s attempt to subvert the orderly adjudication of the state court complaint, when no other debt relief was really needed, that resulted in dismissal for unfair manipulation and bad faith.
II
The bankruptcy court made its findings upon the briefs of the parties and the Court file, which was before him pursuant to the bankruptcy court’s independent duty to determine good faith during the confirmation process. 11 U.S.C. § 1325(a)(3). Of course, a determination of good faith is reviewed under the clearly erroneous standard. Noreen v. Slattengren, 974 F.2d 75, 77 (8th Cir.1992). Further, in Noreen, the Eighth Circuit expressly stated that neither the statutes nor the ease law “requires a hearing every time the issue of good faith is raised in a Chapter 13 proceeding. The bankruptcy court, exercising its sound discretion, is in the best position to determine when an evidentiary hearing on the issue of good faith is necessary.” Id at 76. While the factual nature of the good faith determination may in many instances indicate the necessity for a hearing, the bankruptcy court did not abuse its discretion in not holding an evidentiary hearing in this particular case. The record is clear, and, indeed, undisputed, that the debt- or does not seek the protection of the bankruptcy court to reorganize his debts. Rather, he seeks to thwart particular state court litigation, a manifestly bad faith purpose constituting unfair manipulation of the Bankruptcy Code.
III
Despite the fact that Hill’s objection to confirmation did not contain a request for dismissal of the case, the bankruptcy court, at the conclusion of the properly noticed confirmation hearing, dismissed the case sua sponte. Although there is no Eighth Circuit authority on this issue, it was not only appropriate, it was within the bankruptcy court’s authority, to dismiss the case.
Section 1307(c) provides for dismissal of a case upon the a request of a party in interest or the United States trustee and after notice and hearing. Although section 1307 does not provide for dismissal absent a request by either a party in interest or the United States trustee, the 1986 amendments to the Bankruptcy Code were “adopted to make crystal clear the court’s power to act sua sponte in matters of this sort.” In re *799Greene, 127 B.R. 805, 807 (Bankr.N.D.Ohio 1991). Section 105(a) provides that,
No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.
Indeed, this language was specifically enacted to overrule the result in a similar situation, In re Gusam Restaurant Corporation, 737 F.2d 274 (2d Cir.1984), in which the Second Circuit held that the bankruptcy court did not have the right to convert a case, sua sponte. Greene, 127 B.R. at 808. Based upon the express and specific language of section, 105(a), it is well settled that the bankruptcy court has the authority to dismiss a case sua sponte. Id. at 808 (“So far as we can discover the courts which have considered the matter after the 1986 amendment to section 105 are unanimous in holding that the court has the power sua sponte to dismiss a case for violations of Rule 3015 or Rule 1007(c).”); see Matter of Hammers, 988 F.2d 32, 34-35 & n. 7 (5th Cir.l993)(suasponte dismissal of Chapter 13 ease was not a violation of due process where notice of the issues provided to debtor); In re Gore, 60 B.R. 869 (E.D.Mo.1986); In re Bourque, 153 B.R. 87 (Bankr.D.Mass.1993); In re Welling, 102 B.R. 720, 722 (Bankr.S.D.Iowa 1989); In re Ward, 78 B.R. 914, 916 (Bankr.E.D.Ark. 1987); see also In re Hahn, 200 B.R. 249 (Bankr.M.D.Fla.1996); In re Tobias, 200 B.R. 412 (Bankr.M.D.Fla.1996). Accordingly, there was no error in dismissing this Chapter 13 case sua sponte.
Accordingly, I would affirm the judgment of the bankruptcy court.

. The bankruptcy court subsequently stayed its order of dismissal of the bankruptcy case pending this appeal. However, the stay order expressly permitted Ms. Hill to continue prosecuting her state court action.

. Indeed, the effect of this case upon the other unsecured creditors exemplifies the unfair manipulation of the Bankruptcy Code. Not only did the Debtor attempt to stall the state court litigation, but the continuation of these proceedings, with the stay pending appeal in effect, serves to delay payment to all other creditors listed on the petition. This is so because, although he is making monthly plan payments, no distribution can be made while there is no confirmed plan.

.Although the state court litigation is listed in the schedules, the Debtor does not schedule any amount for Ms. Hill's unliquidated claim. Ms. Hill filed a proof of claim in the amount of $100,000.