Court Opinion

ID: 9649147
Source: CourtListenerOpinion
Date Created: 2023-08-23 14:43:21.271681+00
Date Added: 2024-06-11T18:12:08.228882
License: Public Domain

RHODES, Bankruptcy Judge,
dissenting.
I agree with the majority that in coming to a conclusion on the good faith issue, the bankruptcy court performed a thorough review of the totality of the circumstances, as required by applicable Sixth Circuit precedent.1 I also agree that there was no clear error in the bankruptcy court’s findings regarding either the best efforts requirement of 11 U.S.C. § 1325(b)(1)(B) or the liquidation test of 11 U.S.C. § 1325(a)(4). Finally, although the debt- or’s explanations of the discrepancies in his bankruptcy papers strain credibility, I cannot conclude that the bankruptcy court’s acceptance of those explanations was clearly erroneous.
I must dissent from the panel’s decision, however, because the bankruptcy court’s finding that this plan was proposed in good faith is inconsistent with Hardin v. Caldwell (In re Caldwell), 895 F.2d 1123 (6th Cir.1990), and is clearly erroneous.
In Caldwell, the court of appeals stated, “Courts should not approve Chapter 13 plans which are nothing more than ‘veiled’ Chapter 7 plans.” Id. at 1126. In Francis’s first bankruptcy case, filed under chapter 7, he proposed to discharge 100% of Schory’s theft claim. That was denied. In this bankruptcy case, filed under chapter 13, Francis proposes to discharge 97-98% of the same claim. This, too, should be denied. It is precisely such a chapter 13 plan that the Caldwell court instructs should not be approved because it is a veiled chapter 7 plan. Caldwell implicitly recognizes that there is simply no rational basis, even in the context of the “totality of the circumstances” test, to conclude that Congress intended bankruptcy courts to deny a discharge to 100% of a theft claim in a chapter 7 case but to grant a discharge to 97-98% of the same claim in a chapter 13 case.
The debt is not dischargeable in chapter 7 because Francis stole $370,000 from Schory, his business partner. Ed Schory & Sons, Inc. v. Francis (In re Francis), 226 B.R. 385 (6th Cir. BAP 1998). Of *97course, this factor, by itself, is not sufficient to find bad faith in a chapter 13 case. As the Calckvell court stated, “Although we consider as a factor what [the debtor] did to incur the judgment, it is what he has done since the judgment to avoid paying it that is most important.” Id. at 1127.
What Francis has done to avoid repaying Schory is well documented in the records of Francis’s two bankruptcy cases. These records establish that Francis has successfully delayed Schory for over ten years by litigating his claims and defenses in seven courts. It was only when he ran out of litigation options that he finally paid a small portion of the debt and then filed this chapter 13 case. This history firmly establishes Francis’s bad faith in dealing with Schory over the years and now.
The history begins with Francis’s immediate default on the $130,000 settlement reached after Schory sued. When Schory commenced foreclosure on the property securing the settlement, the parties settled again and attached to their settlement papers a letter of admission and apology that Schory had obtained from Francis. In that letter, Francis apologized for stealing the money, for filing counterclaims and for calling the police. Francis almost immediately defaulted again, so Schory commenced foreclosure again. Francis responded with a counterclaim alleging both coercion in signing the letter of apology and defamation because Schory had shown the letter to others. The state court trial judge dismissed the counterclaims, but Francis appealed to • the Ohio Court of Appeals, which affirmed. Francis then appealed to the Ohio Supreme Court, which likewise affirmed. Ed Schory & Sons, Inc. v. Society Nat'l Bank, 75 Ohio St.3d 433, 662 N.E.2d 1074 (1996). By then, five years had elapsed since the initial settlement and Francis had repaid little, if any, of the money that he stole.
After this unsuccessful litigation, in 1997, Francis’s next tactic was to seek a discharge of the debt in a chapter 7 bankruptcy case. That was equally unsuccessful, as the bankruptcy court concluded that the debt was nondischargeable and that judgment was affirmed by the bankruptcy appellate panel on November 10,1998. Ed Schory & Sons, Inc. v. Francis (In re Francis), 226 B.R. 385 (6th Cir. BAP 1998).
At that point, Francis was left with few options. During the next two year period, through sales of real property assets and a levy on personal property, Francis paid Schory about $43,000. These were the first substantial payments on this nearly ten year old debt. Finally, Francis filed this chapter 13 case.
With this history, our evaluation of Francis’s sincerity in this chapter 13 case is a straightforward matter. Clearly, Francis did not demonstrate a sincere desire to repay the money he stole from Schory by litigating with him for ten years in seven courts. Likewise, Francis did not demonstrate a sincere desire to repay Schory when he filed a chapter 7 bankruptcy case seeking to discharge the debt. It is equally clear that Francis does not now demonstrate any greater sincerity in offering to pay Schory a 2-3% dividend over five years.
Comparing specific factors in prior cases addressing the good faith issue is difficult because so many factors must be considered. Nevertheless, it is important to note that the Caldwell court disapproved of a plan whose dividend (36.6%) was more than twelve times the dividend of Francis’s plan. The panel majority’s approval of this plan simply cannot be reconciled with Caldwell.
Both the bankruptcy court and the majority rely heavily on the fact that the plan *98meets the best efforts test. But Caldwell instructs that in this context, “[b]est efforts ..., without more, are not enough.” Id. Indeed this instruction is clear from the statute itself, which distinctly requires both good faith and best efforts.
Some courts do not distinguish between good faith and best efforts. For example, the decision that the majority quotes and heavily relies upon, Mason v. Young (In re Young), 237 F.3d 1168 (10th Cir.2001), plainly reaches the conclusion that the debtor’s best effort is sufficient to establish good faith regardless of how egregious the debtor’s initial conduct was. We, however, are bound by Caldwell.
Finally, the majority also relies heavily on the fresh start policies of the bankruptcy law, from which Francis certainly could benefit. But these well intentioned policies say little about whether any particular debtor is entitled to relief. Indeed, the Supreme Court has stated, “[A] debtor has no constitutional or ‘fundamental’ right to a discharge in bankruptcy.” Grogan v. Garner, 498 U.S. 279, 286, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991) (citing United States v. Kras, 409 U.S. 434, 445-446, 93 S.Ct. 631, 34 L.Ed.2d 626 (1973)). Moreover, our bankruptcy law “limits the opportunity for a completely unencumbered new beginning to the ‘honest but unfortunate debtor.’ ” Id. at 286-87, 111 S.Ct. 654 (citing Local Loan Co. v. Hunt, 292 U.S. 234, 244, 54 S.Ct. 695, 78 L.Ed. 1230 (1934)).
As the majority notes, Francis bears the burden of proving that this plan was proposed in good faith and we have an obligation to carefully scrutinize the circumstances bearing on the debtor’s good faith. He has not met that burden and his claim of good faith cannot withstand that scrutiny. The adjectives “honest” and “unfortunate” simply do not apply to Francis.
Because I am left with the definite and firm conviction that the bankruptcy court’s finding of good faith was a mistake, I respectfully dissent. I would reverse the confirmation order and remand with instructions to dismiss the bankruptcy case.

. The record in the court below does not reflect that the bankruptcy court was aware of the precise percentage dividend that the debt- or's plan proposes to pay to Schory. This important information is not in the plan and there was no testimony on the point. At the oral argument on this appeal, the panel asked counsel to stipulate to the dividend and they agreed that it is about 2-3%. Nevertheless, the record reflects clearly enough that the bankruptcy court was aware that the plan proposed a very minimal dividend to Schory.