In re: Enrique v. Greenberg, SC-16-1350-BJuF

Enrique V. Greenberg (Debtor) owned a Temecula property that was subject to a reverse mortgage; the trust deeds contained a defective legal description. After his mother’s death Debtor inherited the property but never lived there. Foreclosure and state-court litigation followed.
Debtor filed four bankruptcies in two years (chapters 13, 7, 11, then the instant chapter 11). In the chapter 7 case the trustee settled with U.S. Bank (successor to Countrywide/Bank of America/Champion) to reform the deeds and abandoned the property to Debtor; Debtor opposed that settlement but did not appeal the approval.
In the instant chapter 11 Debtor listed the property as his sole significant asset, asserted U.S. Bank’s claim was unsecured (later amended to a $1 secured claim), filed and then objected to a proof of claim on behalf of U.S. Bank, and proposed a plan that would pay U.S. Bank $1.00 on a claimed secured debt of ~ $235,829.87.
U.S. Bank won relief from the automatic stay to litigate lien reformation in state court; the bankruptcy court noted exclusivity had long expired and that no meaningful creditors’ claims existed in the case.
The bankruptcy court disapproved Debtor’s plan as not providing for creditor payments and found the case filed in bad faith as a litigation tactic (forum shopping) rather than to effectuate reorganization; the U.S. Trustee moved to dismiss under 11 U.S.C. § 1112(b)(1), and the court dismissed. This appeal challenges that dismissal.

Issue	Greenberg's Argument	U.S. Trustee / Bank's Argument	Held
Whether the bankruptcy court abused its discretion by dismissing Debtor's chapter 11 under § 1112(b)(1) for bad faith	The filing and $1.00 plan were made in good faith to force creditors to prove lien validity; dismissal while his stay-relief appeal was pending was premature	The petition and plan were litigation-driven (forum shopping) to eliminate a creditor’s lien; no reorganizational purpose and no unsecured creditors — dismissal for cause is warranted	Affirmed: no abuse of discretion; totality of circumstances show bad-faith filing and dismissal was proper

Marsch v. Marsch, 36 F.3d 825 (9th Cir. 1994) (good-faith inquiry focuses on petition's manifest purpose and objectives outside legitimate bankruptcy scope)
Idaho Dep’t of Lands v. Arnold, 806 F.2d 937 (9th Cir. 1986) (good-faith determination depends on multiple factors; subjective intent not dispositive)
Marshall v. Marshall, 721 F.3d 1032 (9th Cir. 2013) (debtor bears burden to prove chapter 11 petition filed in good faith)
Chinichian v. Campolongo, 784 F.2d 1440 (9th Cir. 1986) (a plan filed to retain property or avoid paying creditors for litigation purposes lacks good faith)
St. Paul Self Storage Ltd. P’ship v. Port Authority of St. Paul (In re St. Paul Self Storage Ltd. P’ship), 185 B.R. 580 (9th Cir. BAP 1995) (lists circumstantial factors relevant to bad-faith filings)
Silberkraus v. San Pedro Peninsula Hosp. (In re Silberkraus), 253 B.R. 890 (Bankr. C.D. Cal. 2000) (bad faith may be found where bankruptcy is used as litigation tactic)