Court Opinion

ID: 808862
Source: CourtListenerOpinion
Date Created: 2012-09-20 14:58:08+00
Date Added: 2024-06-11T15:34:48.347772
License: Public Domain

United States Bankruptcy Appellate Panel
                           FOR THE EIGHTH CIRCUIT
                                 ____________

                                       No. 12-6029
                                      ____________

In re:                                      *
                                            *
Herman Eugene Paulson,                      *
d/b/a Heartland Organic Foods,              *
                                            *
         Debtor.                            *
                                            *
                                            *
Herman Eugene Paulson,                      *
                                            *
         Debtor - Appellant.                * Appeal from the United States
                                            * Bankruptcy Court for the
               v.                           * District of South Dakota
                                            *
Dale A. Wein,                               *
                                            *
         Trustee - Appellee,                *
                                            *
People’s State Bank;                        *
Sunflour Railroad, Inc.,                    *
                                            *
         Creditors - Appellees.             *
                                            *
                                         ______

                               Submitted: September 7, 2012
                                Filed: September 20, 2012
                                          ______

Before SCHERMER, FEDERMAN, and SALADINO, Bankruptcy Judges.
                            ______

SALADINO, Bankruptcy Judge.
      The debtor, Herman Eugene Paulson, appeals from a March 16, 2012, order of
the bankruptcy court1 dismissing his Chapter 13 case and an April 24, 2012, order
denying his motion for new trial. We have jurisdiction over this appeal from the final
orders of the bankruptcy court. See 28 U.S.C. § 158(b). For the reasons set forth
below, we affirm.

                                   I. Background

      The debtor filed a voluntary petition for relief under Chapter 13 on August 22,
2011, apparently in furtherance of his efforts to defeat the claims of two creditors –
People’s State Bank and Sunflour Railroad. People’s made certain loans to the debtor
secured by various items of personal property. The debtor failed to pay the loans as
agreed and People’s commenced litigation against him, resulting in a judgment of
foreclosure from the Circuit Court in Roberts County, South Dakota, dated December
10, 2009. The court specifically awarded a money judgment against the debtor and
granted People’s the right to possession of its collateral. The debtor did not appeal,
although he did at some point seek a “writ of prohibition” from the South Dakota
Supreme Court, which was denied. This bankruptcy filing came while People’s was
engaging in efforts to collect its judgment and obtain possession of its collateral.

      Sunflour Railroad filed a proof of claim in the bankruptcy case for $24,623.36
plus post-judgment interest based on a state court judgment. Attached to Sunflour’s
proof of claim is a copy of the state court’s Supplemental Judgment and Order in
Sunflour Railroad, Inc. v. Gene Paulson and Heartland Organic Foods, Inc., Civ.
01-138, Fifth Judicial Circuit for the State of South Dakota, Roberts County, for
$19,280.00. The original judgment was entered in 2002 and the supplemental

      1
       The Honorable Charles L. Nail, Jr., United States Bankruptcy Judge for the
District of South Dakota.

                                          2
judgment is dated November 12, 2008. The debtor did not appeal the original or
supplemental judgment. The claim is secured as a judgment lien on debtor’s property.

       Not to be deterred by his lack of success in the judicial system, and in an effort
to continue his challenge to the claims held by the bank and the railroad, the debtor
convened a group of individuals to hear his cases against those creditors as an
extrajudicial jury. He refers to this group as “the Peoples Seventh Amendment Jury.”2
The debtor appears to believe that his self-appointed jury convened outside of any
state or federal judicial system somehow had the authority to void the final state court
judgments held by the creditors because those judgments had purportedly been
procured fraudulently. The “jury” also assessed punitive damages against the parties
involved in the fraud.

      Shortly after filing bankruptcy, the debtor filed a motion for declaratory
judgment, apparently in an effort to declare the validity of the extrajudicial judgments
issued by his self-appointed jury. The bankruptcy court promptly denied the motion
and the debtor did not appeal. Instead, he commenced a series of adversary
proceedings, including proceedings against People’s and Sunflour. The bankruptcy
court granted motions to dismiss both of those proceedings as attempted collateral
attacks on final state court judgments.3 Debtor sought reconsideration in each case,

      2
       He relied on United States v. Williams, 504 U.S. 36 (1992), for authority to do
so. The Williams case, however, deals only with grand juries and their power to
investigate alleged criminal wrongdoing. The case does not stand for the proposition
that people who believe they have been wronged can exercise self-help by trying their
cases outside of the judicial system.
      3
       The bankruptcy court explained that under the United States Supreme Court’s
Rooker/Feldman doctrine, it lacked subject matter jurisdiction over challenges to
decisions made by state courts. The doctrine “precludes a federal action if the relief
requested in the federal action would effectively reverse the state court decision or
                                                                       (continued...)

                                           3
but those were held in abeyance pending the bankruptcy court’s decision on the
motion to dismiss the bankruptcy case.4

       During the course of the bankruptcy case, the debtor filed five proposed plans
of reorganization. Some of the modified plans were filed before the objection
deadline on the prior plan had run, in an apparent attempt to address concerns
expressed in objections filed by the Chapter 13 trustee, the bank, and the railroad.
Each time, the plans contained vague language about selling collateral to pay
People’s and language indicating Sunflour’s claim was invalid and would not be paid.
Those parties objected to the terms of the plans, arguing that the plans lacked detailed
provisions concerning proposed payments, failed to account for certain secured
creditors, were not feasible, and did not appear to be proposed in good faith. The
Chapter 13 trustee also filed a motion to dismiss the case on the grounds that the
debtor was unable to propose a confirmable plan, had not been making timely plan
payments as required by the Bankruptcy Code, and was causing unreasonable delay.
The court scheduled an evidentiary hearing on March 7, 2012, on the motion to
dismiss and on the fourth plan filed by the debtor. The debtor filed his fifth plan the
day before the hearing, rendering the confirmation hearing on the fourth plan moot.

       None of the parties offered evidence or testimony at the hearing. After listening
to oral arguments, the bankruptcy judge ruled from the bench, giving the debtor an
opportunity to convert the case to a Chapter 7 or it would be dismissed. When the
deadline passed with no conversion having been filed, the court dismissed the case

      3
       (...continued)
void its holding.” Order of Mar. 5, 2012 (Fil. No. 48 in Adv. Proc. No. 11-1023)
(quoting Bunch v. Hoffinger Indus., Inc. (In re Hoffinger Indus., Inc.), 329 F.3d 948,
950 (8th Cir. 2003) and Snider v. City of Excelsior Springs, 154 F.3d 809, 811 (8th
Cir. 1998)).
      4
          The bankruptcy court has not yet ruled on the motions to reconsider.

                                           4
under 11 U.S.C. § 1307. In his oral ruling, the bankruptcy judge expressed concerns
about the debtor’s (1) failure or refusal to properly provide for the secured claims of
Sunflour and People’s; (2) inability to make the proposed payments; (3) lack of detail
as to the proposed liquidation of assets from which to make payments; (4) failure to
devote disposable income to unsecured creditors; and (5) mythical disposable income,
given that the debtor and his wife had been using an inheritance to cover their living
expenses due to a shortfall in income.

       The court found cause for dismissal under § 1307 due to unreasonable delay
stemming from the debtor’s inability to get a plan confirmed. The court placed the
unreasonable delay element in context by noting that while the case had been on file
only six months or so, five separate plans had been filed and the case was making no
progress toward confirmation. Since no evidence was offered, the court declined to
address the issue of good faith. However, the court explained that it found cause to
grant the motion to dismiss for the reasons of “the inability to confirm a plan; the four
attempts to confirm a plan; the delay; the absence of feasibility for a plan; [and] the
need to recognize the secured claims that you have, which would only make a plan
more complicated.”5

       In response to the judge’s ruling, the debtor filed a motion for new trial or
amendment of judgment, to which the Chapter 13 trustee, People’s, and Sunflour
objected. The court denied the motion via a detailed order methodically addressing
the issues raised by the debtor’s motion. The debtor subsequently appealed the
dismissal of his case and the denial of the motion for new trial.

      5
       Prior to dismissing the case, the court gave the debtor the opportunity to
consider the benefits of a Chapter 7 proceeding and voluntarily convert the case.
Debtor failed (or refused) to do so.

                                           5
                               II. Standard of Review

        A bankruptcy court’s decision to dismiss a bankruptcy case for cause is
reviewed for an abuse of discretion. Villarreal v. Laughlin (In re Villarreal), 304 B.R.
882, 885 (B.A.P. 8th Cir. 2004). A bankruptcy court’s denial of a motion for new
trial, or to alter or amend a judgment, is reviewed with deference and will not be
reversed absent a clear abuse of discretion. Suggs v. Regency Fin’l Corp. (In re
Suggs), 377 B.R. 198, 203 (B.A.P. 8th Cir. 2007); Guy v. Danzig ( In re Danzig), 233
B.R. 85, 93 (B.A.P. 8th Cir. 1999). “An abuse of discretion occurs if the court bases
its ruling on an erroneous view of the law or on a clearly erroneous assessment of the
evidence.” Suggs, 377 B.R. at 203 (quoting PW Enter., Inc. v. Kaler (In re Racing
Servs., Inc.), 332 B.R. 581, 584 (B.A.P. 8th Cir. 2005)).

                                   III. Discussion

      Prior to discussing the merits of the appeal, two preliminary matters must be
addressed. The debtor has filed an objection to the trustee’s brief as being untimely
and has filed a request to have an amicus brief filed by the Peoples Seventh
Amendment Jury.

      A.     Objection to Untimely Filing of the Appellee-Trustee’s Brief.

       The debtor wants the court to disregard the trustee’s brief on the merits of the
appeal because it allegedly was filed late. It wasn’t. By court order, the debtor was
given until July 18, 2012, to submit his brief. That order also set the due date for the
appellee’s brief 14 days from service of the debtor’s brief. The debtor’s brief was
filed on July 18th, and it was served on July 20th, with the trustee’s brief due on
August 3rd. The trustee’s brief was filed on the date it was due, so it was not
untimely. The debtor’s objection, construed as a motion to strike, is denied.

                                           6
      B.     Motion to File Amicus Brief.

       A motion to file an amicus curiae brief on the appeal was filed by “the Peoples
Seventh Amendment Jury.” The entire focus of that “jury” is to collaterally attack the
validity of the final state court judgments. When the debtor attempted to obtain a
declaratory judgment from the bankruptcy court as to the validity of the judgments
rendered by “the Peoples Seventh Amendment Jury,” the court denied the motion,
ruling that the debtor could seek a determination of the status of each of the contested
debts after he filed his bankruptcy schedules. See Order of Sept. 2, 2011 (Fil. No. 18
in the underlying bankruptcy case). The debtor subsequently filed adversary
proceedings concerning these debts, but the court dismissed them for lack of subject
matter jurisdiction because the debtor was attempting to relitigate his liability on the
debts. The bankruptcy court explained that it had no authority to set aside a state
court decision.

        The issues involved in those adversary proceedings (and in the proposed
amicus brief) are simply not part of this appeal, which concerns only the dismissal of
the Chapter 13 case and the denial of the motion for new trial. The proposed amicus
brief has no bearing on the matters currently on appeal, so the motion for leave to file
it is denied.

      C.     Appeal.

       The most contentious issues in this bankruptcy case involve two secured
creditors under 11 U.S.C. § 506. Those creditors – the bank and the railroad – each
hold pre-petition state court judgments against the debtor. The railroad filed a claim
for $24,623.36 based on the judgment plus post-judgment interest. The claim is
secured by a lien on the debtor’s real estate. The bank filed a claim for $61,804.56
plus post-judgment interest. That claim is secured by a lien on a variety of personal
property belonging to the debtor or his corporation, including vehicles, farm

                                           7
equipment, accounts, inventory, and government payments. These two claims account
for more than half of the total claims in the case. As the bankruptcy court noted, the
debtor filed five plans in which he refused to acknowledge the secured claim of the
railroad and disputed the bank’s claim but offered to make a lump-sum payment
directly to the bank if the bank was able to prove its claim. This payment would occur
“as disposal of the assets of the estate allows.” The provisions for liquidating assets
and making payments were ambiguous and indefinite. Debtor was given the
opportunity to correct these deficiencies, but failed or refused to do so in his amended
plans.

       Section 1307(c)6 of the Bankruptcy Code permits the court, upon request by a
party in interest or the United States trustee and after notice and a hearing, to dismiss

      6
          That section provides in relevant part:

      Sec. 1307. Conversion or dismissal
      ...
      (c) [O]n request of a party in interest or the United States trustee and
      after notice and a hearing, the court may convert a case under this
      chapter to a case under chapter 7 of this title, or may dismiss a case
      under this chapter, whichever is in the best interests of creditors and the
      estate, for cause, including –
             (1) unreasonable delay by the debtor that is prejudicial to
      creditors;
             (2) nonpayment of any fees and charges required under chapter
      123 of title 28;
             (3) failure to file a plan timely under section 1321 of this title;
             (4) failure to commence making timely payments under section
      1326 of this title;
             (5) denial of confirmation of a plan under section 1325 of this title
      and denial of a request made for additional time for filing another plan
      or a modification of a plan[.]

11 U.S.C. § 1307(c).

                                            8
a case for cause. While “the filing of one unconfirmable plan, in and of itself, is [not]
sufficient cause” to dismiss a case, Minkes v. LaBarge (In re Minkes), 237 B.R. 476,
478 (B.A.P. 8th Cir. 1999), the bankruptcy court here made findings of cause under
several of the categories of § 1307(c).

       The court expressed great concern about the debtor’s inability or refusal to
propose a confirmable plan after several attempts and guidance from the court, which
created delay and additional expense for other parties in the case. The issue
underlying the court’s findings of cause for dismissal due to unreasonable delay and
denial of confirmation is the debtor’s unwillingness to accept that the bank and the
railroad are secured creditors. Until he could demonstrate that understanding by
proposing to treat their secured claims as required by the Bankruptcy Code, the debtor
could not obtain confirmation of a plan. Even if the debtor were to put together a plan
that properly provided for these two secured claims, the bankruptcy court considered
the debtor’s ability to make payments, both to secured and unsecured creditors, and
found it wanting. While the debtor proposed selling property to fund the plan, the
court noted, first, that most of the property to be sold was the collateral of the secured
creditors and, second, that much of the personal property to be sold had not been
listed in the bankruptcy schedules and was not clearly identified in the plan. The
debtor’s continued failure to propose a plan that properly treated these two secured
creditors resulted in unreasonable delay to the prejudice of all creditors. The court
also took note of the debtor’s lack of disposable income, which was part of the
feasibility consideration. A plan must be feasible to be confirmed. § 1325(a)(6). Plans
that propose payments using funds from unidentified and uncertain sources are
scrutinized very carefully, and plans that are vague about the timing and means of
payment are not confirmable. In re Moffet, 455 B.R. 718, 723 (Bankr. N.D. Iowa
2011); Chelsea State Bank v. Wagner (In re Wagner), 259 B.R. 695, 700-01 (B.A.P.
8th Cir. 2001).

                                            9
       After weighing all of those factors, the court in its discretion determined that
dismissal of the case was in the best interests of the creditors and the estate. Our
review of the matter satisfies us that the bankruptcy court’s findings were supported
by the facts of the case. “If the bankruptcy court’s conclusions supporting dismissal
are supported by the facts, there is no abuse of discretion.” Tolbert v. Fink (In re
Tolbert), 255 B.R. 214, 216 (B.A.P. 8th Cir. 2000).

       The bankruptcy court’s denial of the debtor’s motion for new trial or
amendment of judgment is also reviewed for an abuse of discretion. The motion was
brought under Federal Rule of Civil Procedure 59, as incorporated into the
bankruptcy realm by Federal Rule of Bankruptcy Procedure 9023. Such motions
“serve a limited function” of “correct[ing] manifest errors of law or fact or . . .
present[ing] newly discovered evidence.” Hagerman v. Yukon Energy Corp., 839
F.2d 407, 414 (8th Cir. 1988) (quoting Rothwell Cotton Co. v. Rosenthal & Co., 827
F.2d 246, 251 (7th Cir.), as amended, 835 F.2d 710 (7th Cir. 1987)). They are “not
intended to allow parties to introduce new evidence that was subject to discovery
prior to trial, tender new theories, or raise arguments which could have been offered
or raised prior to judgment[,]” but rather they afford relief “only in extraordinary
circumstances.” Crystalin, L.L.C. v. Selma Prop., Inc. (In re Crystalin, L.L.C.), 293
B.R. 455, 465 (B.A.P. 8th Cir. 2003).

        The debtor presented no newly discovered evidence, nor did he establish that
the court had made a manifest error of law or fact. He simply reiterates his previous
arguments and mischaracterizes the arguments made and discussions that occurred
at the hearing. The bankruptcy court addressed each paragraph of the debtor’s motion
in detail and concluded there was no basis for granting it. That conclusion was not an
abuse of discretion.

                                          10
                                   IV. Conclusion

        For the reasons set forth above, (i) the debtor’s motion to strike the appellee’s
brief as untimely filed is denied; (ii) the motion to file an amicus curiae brief is
denied; and (iii) the bankruptcy court’s March 16, 2012, order dismissing the debtor’s
Chapter 13 case and the April 24, 2012, order denying the debtor’s motion for new
trial are both affirmed.
                         ______________________________

                                           11