Court Opinion

ID: 9686253
Source: CourtListenerOpinion
Date Created: 2023-08-24 15:36:07.239276+00
Date Added: 2024-06-11T18:18:16.748308
License: Public Domain

GEORGE, Bankruptcy Judge,
dissenting.
I respectfully dissent from the decision of the majority.
For the most part, I do not disagree with the statements of law contained in the majority’s opinion. At the heart of this statement of law, however, are two doctrines which require our support of the lower court’s determination. First, each decision of good or bad faith in the filing of a bankruptcy petition must be determined upon the facts and merits of that case. Matter of Levinsky, 23 B.R. 210, 218 (E.D.N.Y.Bkrtcy.1982). Second, the trial court should be given due deference in arriving at findings of fact concerning issues of good or bad faith. Fed.R.Bankr.P. 752(a) & 810. In the ease at bar, I believe that the trial court made findings sufficient to support a secondary finding of good faith and that these findings are supportable from the record.
At the heart of my difference with my colleagues, is the question of whether, when Mr. Abert and Mr. Conquest transferred the Phoenix real property to the debtor and then filed a Chapter 11 petition on behalf of Thirtieth Place, Inc., they intended to use that chapter of the bankruptcy code for a purpose for which it was never intended. In this regard, we are, I believe, in agreement that Chapter 11 was not intended to *507be a temporary refuge for debtors who do not ultimately seek the rehabilitation of their financial situation or the reorganization of their legal structure. Where rehabilitation or reorganization is intended, however, I believe that a great many of the factors raised by the appellants and by the majority become irrelevant.
For example, I fail to see why the mere fact that a corporation was created in anticipation of the filing of a petition under Chapter 11 should necessarily impute bad faith to that corporation’s principals. The Chapter 11 process is, by its very nature, a rigorous exercise, which subjects a business to legal strictures and scrutiny not necessarily advantageous to healthy business enterprises. Therefore, when creditors or equity security holders would not be harmed by such a procedure, reason does not readily indicate why a person or entity should be forbidden from taking an ailing business venture, placing it within a newly-formed corporate shell, and seeking to rehabilitate it under Chapter 11. While this procedure may not work, as a matter of economic practicality, that is a matter of feasibility, not necessarily bad faith. And, while a lack of feasibility may, in some instances, be raised as a “cause” for dismissal, see 11 U.S.C. § 1112(b)(1), such was not the case in the proceeding now before us. The appellants simply say that debtor’s petition was filed in bad faith.
Looking at the case at bar, there do exist some procedural irregularities, which might lead a court to question the motives of Mr. Abert and Mr. Conquest. Nevertheless, these same irregularities — the last-minute filing of a petition on the eve of foreclosure and the improper use of a corporate name— can be ascribed as well to the same sort of haste which many debtors find themselves under in attempting to resolve their debt problems. Other factors convinced the court below that the debtor and its principals actually intended to use their Chapter 11 case to repay all of their creditors and that their petition could be used to accomplish that result.
First, and most important in my mind, the appellants have cited no significant evidence to contradict the trial court’s finding that the debtor had the intent to pursue its development of the Phoenix project. To the contrary, although the testimony of Mr. Abert was that he and Mr. Conquest had formed Thirtieth Place, Inc., in anticipation of filing a Chapter 11 petition, Mr. Abert also stated that they “were on a very definite game plan to develop the property and, in order to protect our position, [the declaration of bankruptcy] was one of our alternatives.” (R.T., January 11 & 12, 1982, at 26) (emphasis supplied). Moreover, this finding is also supported by the bankruptcy court’s additional uncontested finding that the debtor had proposed a plan of reorganization and had filed a disclosure statement.
These findings do not indicate the sort of delay which typifies a filing solely for purposes of invoking the automatic stay. (With this plan before the bankruptcy court and the Thirtieth Place creditors, it is difficult for me to see why the appellants didn’t simply seek to contest confirmation of that plan and then seek dismissal under 11 U.S.C. § 1112(b)(2).)
Of secondary importance are the findings of the trial court that 1) a sizeable equity existed in the Phoenix real property, and 2) third-party secured and certain other unsecured creditors were also being affected by the debtor’s plan. (I must disagree with the statement of the majority that there is no evidence to support the trial court’s finding that the debtor had unsecured creditors. Despite the appellants’ apparent confusion of unsecured debts for secured debts in their closing brief, they do not seem to contest the fact that there were unsecured creditors of Thirtieth Place, Inc. Therefore, without the full reporter’s transcript before the panel, it would be unwise to set aside the trial court’s finding in this regard for lack of evidence.) These findings clearly indicate that there existed a justifiable purpose, beyond the immediate need to prevent foreclosure, for which the filing of a Chapter 11 petition was crucial.
Although I agree with the majority that the filing of a Chapter 11 petition for a purpose other than rehabilitation or reorganization represents “cause” sufficient to dismiss that case, such a decision requires an investigation into matters of intent. *508Such an investigation is accomplished both by an examination of circumstances and of the credibility of witnesses. The determinations of the trial court, following such an examination, should not be set aside unless so clearly in error as to be unsupportable by the record.
In the present case, an able and experienced trial judge found that the debtor’s principals intended to use Chapter 11 for the purpose of rehabilitating their Phoenix townhouse project. Both the statement by Mr. Abert of his intent and the actions taken by the debtor following the filing of its petition, provide evidence sufficient to support this finding. I would affirm that determination.