Court Opinion

ID: 8943
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:41:12+00
Date Added: 2024-06-11T15:03:30.503229
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS

                          FOR THE FIFTH CIRCUIT

                          _____________________

                               No. 95-31029
                             Summary Calendar
                          _____________________

     In the Matter of: GEORGE J BEARD, JR; MELANIE WALKER BEARD

                Debtors

                          _____________________

     GEORGE J BEARD, JR; MELANIE WALKER BEARD

                Appellants

          v.

     UNITED STATES TRUSTEE; PAUL H DAVIDSON; OUACHITA VALLEY
     FEDERAL CREDIT UNION

                Appellees

_________________________________________________________________

           Appeal from the United States District Court
               for the Western District of Louisiana
                            (94-CV-2181)
_________________________________________________________________
                           April 3, 1996
Before KING, SMITH, and BENAVIDES, Circuit Judges.

PER CURIAM:*

     Debtors George J. Beard, Jr. and his wife, Melanie Walker

Beard (collectively, the “Beards") appeal the district court's

affirmance of the bankruptcy court's denial of confirmation of

their Chapter 13 plan and sua sponte dismissal of their case.     We

affirm.

     *
          Pursuant to Local Rule 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in Local Rule
47.5.4.
                            I.   BACKGROUND

     In 1992 and 1993, the Beards borrowed substantial sums from

the Ouachita Valley Federal Credit Union ("Ouachita Valley")

through five loans that were variously and partially secured by a

mobile home, a 1986 Oldsmobile, a 1992 Ford pick-up truck, and a

boat, motor, and trailer.    When the Beards defaulted on their

loans, Ouachita Valley instituted legal proceedings.     On March

10, 1994, Ouachita Valley obtained a judgment on the unsecured

loans and an order for executory process to foreclose on certain

of the remaining secured loans.

     On June 14, 1994, the Beards filed a petition for relief in

the United States Bankruptcy Court for the Western District of

Louisiana under Chapter 13 of the United States Bankruptcy Code,

11 U.S.C §§ 101-1330.   After filing schedules and an original

plan, the Beards filed an objection to the claim of Ouachita

Valley, questioning the size of the allowable claims and the

valuation of the collateral securing them.     The Beards' objection

was noticed for hearing on September 8, 1994--the same date fixed

for the confirmation hearing on their proposed Chapter 13 plan.

     One week before the scheduled hearing, Ouachita Valley filed

an objection to the Beards' proposed Chapter 13 plan.     Ouachita

Valley's objection to confirmation concerned the same issues

presented by the Beards' objection to Ouachita Valley's claims--

the amount of the outstanding debt and the value of the

collateral securing that debt.2     On the same day Ouachita Valley

     2
          Ouachita Valley claimed that the Beards undervalued the

                                   2
filed its objection to the plan, it served notice of the

objection on the Beards' counsel.     Ouachita Valley served notice

on the Chapter 13 trustee one week later but did not serve the

Beards personally.    On September 6, 1994, the Beards' attorney

filed an Answer and Opposition to Ouachita Valley's objection to

confirmation, containing a request for dismissal based on

improper and untimely service.

     At the hearing held on September 8, 1994, the Beards argued

that the bankruptcy court should sustain their objection to

Ouachita Valley's claim because Ouachita Valley had not filed a

written response in opposition to the Beards' objection.    The

Beards also objected to the bankruptcy court's refusal to

disregard Ouachita Valley's objection to confirmation because of

improper service.    The bankruptcy court ruled that Ouachita

Valley was not required to file a written response to the Beards'

objection and that Ouachita Valley's failure to serve the Beards

personally was inconsequential.    Over the objection of the

Beards, the bankruptcy court consolidated for hearing the Beards'

objection to Ouachita Valley's claim, Ouachita Valley's objection

to confirmation, and confirmation of the Chapter 13 plan.      Upon

conclusion of the evidentiary hearing, the bankruptcy court

denied confirmation and sua sponte dismissed the Beards' case on

collateral which they wished to retain, overstated the value of
the collateral which they proposed to return, and violated the
loan agreement by failing to provide insurance on the collateral.
Ouachita Valley claimed that the amount of the Beards'
indebtedness was $54,984.50. The plan that the Beards originally
proposed admitted a debt of $39,238.29.

                                  3
the grounds that their bankruptcy plan had not been proposed in

good faith as required by 11 U.S.C. § 1325(a)(3).

     The bankruptcy court's determination that the Beards lacked

the requisite good faith was predicated on several factors.    (1)

The Beards filed their petition on the day preceding a scheduled

sheriff's sale in Ouachita Valley's foreclosure proceeding.    (2)

George Beard's candor was called into question when the judge

found several contradictions in his testimony concerning the

circumstances under which he left one job for a lower paying one.

(3) George Beard cashed an insurance proceeds check without

authority of Ouachita Valley; the check was made out jointly to

him and Ouachita Valley because it had been issued on a claim for

damage to a portion of Ouachita Valley's collateral--a mobile

home.    (4) The Beards pawned other collateral--a boat, motor, and

trailer that were subject to Ouachita Valley's security interest-

-and failed to report the transfer in their original filings.

(5) Certain parts of various items of collateral were damaged or

lost just prior to filing or during the pendency of the

bankruptcy petition; the mobile home was damaged and a radio was

inexplicably missing from their pick-up truck.   (6) In

contravention of the loan agreement, the Beards did not maintain

insurance on the collateral.3

     3
          Characterizing it as proof of a "binder" and evidence
of their compliance with the agreement, the Beards offered an
insurance application and a payment receipt. However, the
application expressly stated, "this is not a binder." Moreover,
the Beards represented on the application that their insurance
coverage had not been cancelled previously, despite George
Beard's own testimony that coverage on the mobile home had been

                                  4
     The Beards filed a motion for a new trial which was denied.

The U.S. District Court for the Western District of Louisiana

affirmed the judgment of the bankruptcy court in all respects.

This appeal followed.

                            II. ANALYSIS

     We review findings of fact by the bankruptcy court under the

clearly erroneous standard and we decide issues of law de novo.

In re Eagle Bus Mfg., Inc., 62 F.3d 730, 735 (5th Cir. 1995); In

re Christopher, 28 F.3d 512, 514 (5th Cir. 1994).     A finding of

fact is clearly erroneous when, although there is enough evidence

to support it, we are left with a firm and definite conviction

that a mistake has been committed.    Christopher, 28 F.3d at 514.

"When the district court has affirmed the bankruptcy court's

findings, our review for clear error is strict."     Eagle, 62 F.3d

at 735.

     The arguments advanced by the Beards on appeal may be

consolidated into three determinative issues.     Two issues are

procedural:    whether the bankruptcy court erred by conducting the

consolidated evidentiary hearing although Ouachita Valley had not

served the Beards personally; and whether the evidentiary hearing

was improper because Ouachita Valley had not filed a written

response to the Beards' objection to Ouachita Valley's proof of

claim.    The third issue is a substantive one:   whether it was

error for the district court sua sponte to dismiss the Beards'

cancelled at least three times.

                                  5
case for lack of good faith.   We address the substantive issue

first.

     A.   Good Faith

     The Beards argue that the bankruptcy court erred as a matter

of law and fact in dismissing their case on a finding that they

had submitted their Chapter 13 plan in bad faith.   They contend

that the bankruptcy court erroneously weighed the evidence

presented at the hearing on September 8, 1994.   The Beards

maintain that the court failed to apply the proper standard--the

totality of the circumstances--in arriving at its determination

of bad faith.   Additionally, because no one raised the issues of

good faith and dismissal prior to the bankruptcy court addressing

them at the hearing, the Beards contend that they were not given

a reasonable opportunity to prepare for trial on these issues.

They conclude that the bankruptcy court's sua sponte dismissal

order was a denial of due process.

     We find the Beards' arguments unconvincing.    Contrary to the

assertions of the Beards, we conclude that the lower courts'

conclusions of law and findings of fact were not in error.     The

bankruptcy court applied the appropriate standard in arriving at

its factual determination and its findings are not clearly

erroneous.   It was not improper for the bankruptcy court to

dismiss sua sponte the Beards' case for lack of good faith.     The

Beards were not denied due process.

     A Chapter 13 reorganization plan must satisfy a number of

requirements in order to qualify for confirmation by the

                                 6
bankruptcy court.   11 U.S.C. § 1325.   One of these requirements

is that the plan must have "been proposed in good faith and not

by any means forbidden by law."   11 U.S.C. § 1325(a)(3).

Although the Bankruptcy Code does not define "good faith," this

court has determined that a good-faith analysis must involve the

consideration of factors such as "the reasonableness of the

proposed repayment plan and whether the plan shows an attempt to

abuse the spirit of the Bankruptcy Code."     In re Chaffin, 816
F.2d 1070, 1073 (5th Cir. 1987), modified on reconsideration on

other grounds, 836 F.2d 215 (5th Cir. 1988); Public Fin. Corp. v.

Freeman, 712 F.2d 219, 221 (5th Cir. 1983).    Other factors have

been cited as relevant to such an analysis, including the

fairness of the plan to the creditor, the timing of the

bankruptcy filings, the debtor's motive in seeking Chapter 13

relief, whether the plan states the debtor's debts accurately,

and the circumstances under which the debts were incurred.       In re

Smith, 848 F.2d 813, 817-18 (7th Cir. 1988).    We have noted that

bad faith is typically accompanied by indicia such as the

unsuccessful defense of a foreclosure action in state court and

allegations of wrongdoing on the part of the debtor.     In re

Little Creek Dev. Co., 779 F.2d 1068, 1072-73 (5th Cir. 1986)

(holding that evidence was insufficient to establish lack of good

faith in Chapter 11 filing to warrant lifting automatic stay).

     "The party who seeks a discharge under Chapter 13 bears the

burden of proving good faith."    In re Caldwell, 895 F.2d 1123,

1126 (6th Cir. 1990); see also In re Love, 957 F.2d 1350, 1355

                                  7
(7th Cir. 1992); In re Warren, 89 B.R. 87, 93 (Bankr. 9th Cir.

1988); In re Carver, 110 B.R. 305, 311 (Bankr. S.D. Ohio 1990).

Bankruptcy Rule 3020(b)(2) provides that if "no objection is

timely filed, the Court may determine the plan has been proposed

in good faith and not by any means forbidden by law without

receiving evidence on such issues."4   Fed. R. Bankr. P.

3020(b)(2).    Where there is an objection, however, "more than

bare presentation of the plan and provision for payment

thereunder is requisite."    Warren, 89 B.R. at 91.   Although the

party objecting to confirmation "must meet the initial burden of

producing evidence in support of his objection, the debtor bears

the ultimate burden of persuasion on the issue of compliance with

the confirmation criteria contained in § 1325(a)."     Carver, 110
B.R. at 311.

     Because the requisite good-faith analysis of a proposed

Chapter 13 plan is a fact-intensive inquiry, appellate courts

have recognized that this determination is best left for

bankruptcy courts to resolve on a case-by-case basis.      Love, 957
F.2d at 1355.    This court has established that the good-faith

requirement "must be viewed in light of the totality of the

circumstances surrounding the confection of a given Chapter 13

plan."   Public Fin. Corp., 712 F.2d at 221.   This test entails

     4
          Use of the permissive "may" has been interpreted to
allow the bankruptcy court, even without objection, to require
that evidence be presented as to good faith. Warren, 89 B.R. at
91 (citing In re Cash, 51 B.R. 927, 930-31 (Bankr. N.D. Ala.
1985) and In re Hale, 65 B.R. 893, 893 & n.1, 897 (Bankr. S.D.
Ga. 1986)).

                                  8
"an examination of all of the facts in order to determine the

bona fides of the debtor."     Chaffin, 816 F.2d at 1074.   The

Beards argue that the bankruptcy court did not apply the totality

of circumstances standard.   We disagree.

     In this case, the bankruptcy court arrived at its finding

that the Beards filed their reorganization plan in bad faith by

carefully weighing the evidence presented at the September 8,

1994 hearing.   Determination of a debtor's good faith in

proposing a reorganization plan "depends largely upon the

bankruptcy court's on-the-spot evaluation."     Little Creek, 779
F.2d at 1072.   At the hearing the bankruptcy court examined the

facts surrounding the filing of the Beards' plan.    The court

heard testimony from a loan manager employed by Ouachita Valley

and from both of the Beards.    The bankruptcy court received into

evidence exhibits presented by Ouachita Valley and exhibits

presented by the Beards.   Prefacing its decision by noting the

presence of two of the indicia of bad faith identified in Little

Creek--allegations of wrongdoing and an imminent sheriff's sale,

the court recited a litany of circumstances that pointed to a

lack of good faith on the part of the Beards.

     The bankruptcy court found that George Beard exhibited "a

disregard of certain obligations incumbent upon him under his

loan obligations . . . .[, that his] testimony as a whole was

conflicting, [and] his attitude belligerent."    The court was

troubled by contradictions in George Beard's testimony concerning

his job change, the necessity of caring for relatives, and damage

                                  9
to the collateral.   The fact that the boat, motor, and trailer

had been pawned, and that the radio was missing from the pick-up

were cited by the court as suggestive of bad faith.    The

bankruptcy court pointed to the allegations of wrongdoing in

connection with the insurance proceeds check.    Particularly noted

by the court was the Beards' failure to maintain insurance on the

collateral and George Beard's false representation on an

application for insurance that his coverage had not been

cancelled previously.    We find that the bankruptcy court

considered the totality of the circumstances surrounding the

Beards' proposed plan.    Looking at the above evidence we cannot

say that the bankruptcy court's finding that the Beards lacked

good faith in filing their proposed Chapter 13 plan was clearly

erroneous.

     Two separate good faith determinations are at issue in a

Chapter 13 proceeding:    whether the debtor filed the petition in

good faith and whether the plan is proposed in good faith.         Love,
957 F.2d at 1354.    "The finding of a lack of good faith in filing

the petition under Section 1307(c) can lead to the dismissal and

termination of the bankruptcy proceedings. . . ."     Id.    The

bankruptcy court may dismiss a case for cause at the request of a

party in interest or the United States trustee, 11 U.S.C. §

1307(c), or the bankruptcy court may dismiss a case on its own

initiative.   In re Hammers, 988 F.2d 32, 34-35 (5th Cir. 1993);

Pleasant Pointe Apartments, Ltd. v. Kentucky Hous. Corp., 139
B.R. 828, 832 (W.D. Ky. 1992) ("[B]ankruptcy court did not err in

                                 10
concluding that it had the authority to dismiss [debtors']

Chapter 11 petitions for cause on its own initiative, without a

specific request to do so by [creditors].").

     The bankruptcy court also may address sua sponte the

question of a plan's eligibility.       Hammers, 988 F.2d at 35.

1993).    Although the Bankruptcy Code does not expressly authorize

sua sponte dismissal, such a result is consistent with the 1986

amendment to § 105(a).    Id. at 34-35.    That section provides:

     The court may issue any order, process, or judgment
     that is necessary or appropriate to carry out the
     provisions of this title. 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.

11 U.S.C. § 105(a).   It follows that, where the bankruptcy court

finds bad faith with regard to both the petition and the plan,

dismissal of the case is not error.      In Love, the Seventh Circuit

cautioned that "the bankruptcy court should be more reluctant to

dismiss a petition under Section 1307(c) for lack of good faith

than to reject a plan for good faith under Section 1325(a)."

Love, 957 F.2d at 1356.   Nevertheless, because the bankruptcy

court had "conducted an evidentiary hearing and carefully weighed

the evidence before dismissing the petition under Section

1307(c)," the Seventh Circuit affirmed the bankruptcy court's

dismissal of Love's case.    Id.   Similarly, we find that the

bankruptcy court did not err in dismissing the Beards' case sua

sponte.

                                   11
     Moreover, in the instant case, sua sponte dismissal of the

case on the basis of a lack of good faith did not constitute a

denial of due process.    "Due process requires only notice that is

both adequate to apprise a party of the pendency of an action

affecting its rights and timely enough to allow the party to

present its objections."    Christopher, 28 F.3d at 519.   The

Beards' contention that they were not given a reasonable

opportunity to prepare for trial on the issues of good faith and

dismissal is untenable.    The Beards had notice of the September

8, 1994 confirmation hearing.    Both of the Beards testified at

that hearing.   An implicit prerequisite to the Beards' right to

file was good faith on their part.     In re Winshall Settlor's

Trust, 758 F.2d 1136, 1137 (6th Cir. 1985).    On a finding of bad

faith, the bankruptcy court was empowered to dismiss their case

on its own initiative.     See Hammers, 988 F.2d at 35; Warren, 89
B.R. at 87.   Their proposed Chapter 13 plan also was subject to

the good-faith requirement.    11 U.S.C. § 1325(a)(3).   The Beards

had a full opportunity to articulate how they had complied with

the Code's good faith requirement and the bankruptcy court

accorded their arguments full consideration.     Cf. In re Omni

Video, Inc., 60 F.3d 230, 263 (5th Cir. 1995) (finding that

defendants' due process rights were not violated notwithstanding

defendants' argument that their counsel had been surprised by

bankruptcy trustee's oral motion at hearing).    We find that,

                                  12
under the circumstances of this case, the Beards did not suffer a

denial of due process.5

     B.   Personal Notice and Written Response

     In addition to their good-faith argument, the Beards raise

two procedural issues.    They contend that, because Ouachita

Valley did not serve the Beards personally with its objection to

confirmation and because it did not file a written response to

the Beards' objection to Ouachita Valley's proof of claim, the

consolidated hearing was improper.    In light of our discussion

above, we find that these two issues are moot.

     The bankruptcy court's finding of bad faith and its

dismissal of the Beards' case were not based on any issue raised

by Ouachita Valley--either in its objection to the Beards'

proposed plan or in the response offered at the hearing to the

Beards' objection to Ouachita Valley's proof of claim.    Ouachita

     5
          We also find that the following arguments advanced by
the Beards are without merit:
     They contend that the bankruptcy court's denial of their
request for a continuance was an abuse of discretion. Unless
good cause is shown, motions for continuance are not granted
without agreement of all parties. Bankr. W.D. La. Local Rule
2.1(J). Ouachita Valley did not agree to a continuance; the
court did not abuse its discretion.
     The Beards argue that the bankruptcy court committed
reversible error by denying them the opportunity to conduct
discovery. The outcome of the case turned on the issue of the
Beards' good faith. The Beards necessarily were aware of, and
had access to, any information relevant to this issue.
Therefore, they had no need of discovery.
     The Beards complain that the bankruptcy court denied them
the opportunity to modify their proposed plan. Such a denial is
not an abuse of discretion where the court finds that a lack of
good faith cannot be cured by modification. In re Beauty, 42
B.R. 655, 657 (E.D. La. 1984), appeal dismissed, 745 F.2d 53 (5th
Cir. 1984).

                                 13
Valley's objection to the Beards' plan concerned the amount of

the outstanding debt and the value of the collateral securing the

debt.   At the hearing, the court addressed the issue of bad faith

without prompting, and it dismissed the case sua sponte.      The

procedural issues raised by the Beards were irrelevant to the

outcome of the case.   Therefore, we need not address them.

                          III. CONCLUSION

     For the foregoing reasons, we AFFIRM the judgment of the

district court.

                                14