Court Opinion

ID: 2682407
Source: CourtListenerOpinion
Date Created: 2014-07-09 21:00:33.80879+00
Date Added: 2024-06-11T09:42:04.799667
License: Public Domain

FILED
                           NOT FOR PUBLICATION                                   JUL 09 2014

                                                                          MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                          U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

AUGUSTINE PENA, III, Debtor,                     No. 13-16986

              Appellant,                         D.C. No. 1:12-cv-01233-AWI

  v.
                                                 MEMORANDUM*
TRUDI MANFREDO, Chapter 7 Trustee,

              Appellee.

                    Appeal from the United States District Court
                       for the Eastern District of California
                    Anthony W. Ishii, District Judge, Presiding

                       Argued and Submitted June 12, 2014
                            San Francisco, California

Before: O’SCANNLAIN, SACK,** and BEA, Circuit Judges.

       After filing a voluntary petition for Chapter 11 bankruptcy protection,

Augustine Pena spent about $16,000 of cash collateral due, he claims, to his

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.

        **
            The Honorable Robert D. Sack, Senior Circuit Judge for the U.S.
Court of Appeals for the Second Circuit, sitting by designation.
attorney's ineffective assistance. Given an opportunity to account for the monies

spent and to submit amended budgets, Pena missed court deadlines and failed to

consult with his creditors to resolve the problem. As a result, the bankruptcy court

converted his case to one under Chapter 7, finding that Pena had given it cause

under 11 U.S.C. § 1112(b), and appointed interim Chapter 7 Trustee Trudi

Manfredo. The bankruptcy court also denied Pena's subsequent motion for

reconsideration, and the district court affirmed the conversion order. On appeal,

Pena argues that (1) there was no cause to convert his case, either because he did

not use cash collateral or because any such use was not substantially harmful to

any creditor; (2) unusual circumstances existed preventing the bankruptcy court

from converting the case; and (3) the bankruptcy court failed to follow the public

policy favoring reorganization over liquidation.

      Pena admitted at oral argument that the $16,000 he spent constituted cash

collateral. In light of this acknowledged unauthorized use of cash collateral, as

well as Pena's failure timely to produce appropriate budgets, we cannot find clearly

erroneous the bankruptcy court's determination that at least one creditor was

substantially harmed. Marshall v. Marshall (In re Marshall), 721 F.3d 1032, 1039

(9th Cir. 2013); 11 U.S.C. § 1112(b)(4)(D).

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      We also decline Pena's invitation to rule that an attorney's ineffective legal

advice constitutes the kind of "unusual circumstance" forbidding a bankruptcy

court from converting a case under Chapter 11 to one under Chapter 7. See 11

U.S.C. § 1112(b)(2).

      Finally, we reject Pena's argument that, in converting his case, the

bankruptcy court flouted the public policy favoring reorganization over liquidation.

Instead, the bankruptcy court simply followed Congress's explicit instruction to

convert a Chapter 11 case for cause where the unauthorized use of cash collateral

substantially harms one or more creditors. 11 U.S.C. § 1112(b)(4)(D).

      For all of these reasons, we cannot conclude that the bankruptcy court

abused its discretion by converting Pena's Chapter 11 case to one under Chapter 7.

      AFFIRMED.

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