Ellsworth v. Lifescape Medical Associates, P.C. (In Re Ellsworth)
455 B.R. 904
| 9th Cir. BAP | 2011Background
- Lifescape obtained a state-court injunction against Dr. Ellsworth in 2005, later obtaining a judgment for fees and costs (state court judgment).
- Ellsworths filed Chapter 13 bankruptcy in March 2007, listing five debts (two secured, three unsecured including Lifescape's $58,000).
- Initial Chapter 13 plan (Mar 2007) proposed $200 monthly payments plus a $20,000 balloon in month 48; amended plan later deleted the balloon, reducing payments by over 60%.
- January 2009 Order denied confirmation, citing disorganized finances, improper Form B22C disposable income calculations, and conflicting Medical Practice revenue/expense statements.
- February 2009 Form B22C reflected no deduction for Medical Practice business expenses; September 2009 filings (plan and Form B22C) materially altered expenses and showed positive disposable income.
- April 2009 Lifescape moved to dismiss for cause; September 2010 order dismissed the case with prejudice; appellate panel affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §1307(c)(1) grounds support dismissal for delay | Ellsworths delay in fixing reporting harmed Lifescape | Delay lacked a proper causal link or prejudice | Yes; delay found unjustified and prejudicial |
| Whether §1307(c)(3) supports dismissal for untimely plan | Delay justified by case posture and Ransom/Armstrong debates | No timely plan filed by January 2009 deadline; untimely | Yes; plan filed seven months late after ordered deadline |
| Whether §1307(c)(5) supports dismissal for denial of plan/extension | Ellsworths implicitly sought more time by later plans | Explicit denial of extension; dismissal appropriate | Yes; dismissal justified regardless of §1307(c)(5) merits |
| Whether bad faith supports dismissal | No bad faith; bookkeeping issues are inadvertent | Totality of circumstances show purposeful misreporting and evasions | Yes; bad faith found based on Leavitt I criteria |
| Whether dismissal with prejudice was proper | Dismissal should be without prejudice or less severe sanction | Dismissal with prejudice warranted by egregious conduct | Yes; order affirmed as proper under Leavitt I/II framework |
Key Cases Cited
- In re Leavitt, 171 F.3d 1219 (9th Cir. 1999) (bad faith as cause for dismissal; factors for totality of circumstances)
- In re Leavitt, 209 B.R. 935 (9th Cir. BAP 1997) (burden of proof and the harsh remedy of dismissal with prejudice)
- In re Eisen, 14 F.3d 469 (9th Cir. 1994) (bad faith standards guide dismissal and confirmation analyses)
- In re Goeb, 675 F.2d 1386 (9th Cir. 1982) (totality of circumstances in bad-faith analysis)
- In re Nelson, 343 B.R. 671 (9th Cir. BAP 2006) (two-step framework for dismissal versus conversion)
- In re Tomlin, 105 F.3d 933 (4th Cir. 1997) (dismissal with prejudice as drastic remedy; need alternatives)
- Ransom v. MBNA American Bank, 577 F.3d 1026 (9th Cir. 2009) (cited regarding timing of plan and Form B22C; later affirmed by Supreme Court)
- In re Armstrong, 395 B.R. 127 (E.D. Wash. 2008) (contrast to BAP/Ransom approach; not binding on the court)