In re Haffey, 15-8027

Background

Shane Haffey (d/b/a Sandlin Farms) filed a Chapter 12 petition in April 2014 and amended to proceed individually; he and his wife had long litigated to avoid Deutsche Bank’s mortgage without success.
Haffey filed a plan that refused to recognize or provide for the mortgage liens; creditors objected and Haffey filed adversary proceedings to avoid the liens, which were dismissed in part and appealed.
The Chapter 12 Trustee moved to dismiss for cause under 11 U.S.C. § 1208 based on inaccurate reports, inability to fund a plan if liens were valid, discovery non‑cooperation, prolonged delay, and continuing losses to the estate.
After counsel sought to withdraw, the court moved up a June 25, 2015 hearing to June 2, 2015; Haffey did not appear at the June 2 hearing and later claimed he lacked adequate notice and was denied due process.
The bankruptcy court dismissed the case under § 1208(c) for (1) inability to present a timely confirmable plan, (2) unreasonable and prejudicial delay (including discovery noncooperation), and (3) continuing loss/diminution of the estate.
On appeal the BAP held that the shortened notice violated Haffey’s due process rights but that the violation was harmless because the bankruptcy court had independent, sufficient grounds to dismiss under § 1208.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Debtor was denied due process by advancing the §1208 dismissal hearing to June 2 without adequate notice	Haffey: June 2 hearing and mailed/email notice were not reasonably calculated to inform him of §1208 dismissal consideration; he had inadequate time/opportunity to be heard	Trustee/Deutsche Bank: Haffey had actual notice of motions and depositions; service by USPS and email was reasonable under circumstances	BAP: Procedural notice was inadequate — court violated due process because notice did not clearly convey issues and timing was insufficient
Whether dismissal under 11 U.S.C. § 1208 was improper	Haffey: Dismissal was prejudicial; blamed counsel’s withdrawal for failure to file a confirmable plan and for discovery issues	Trustee/Deutsche Bank: Case was pending >1 year, plan unconfirmable, debtor delayed and refused discovery, estate suffered ongoing losses — grounds for dismissal	BAP: Even assuming notice error, dismissal was harmless — independent, sufficient grounds under §1208(c) justified dismissal
Whether the debtor’s failure to cooperate in discovery warranted dismissal as sanction	Haffey: Former counsel’s actions caused failures; he could not be held responsible	Trustee: Debtor personally failed to attend depositions and refused reasonable alternatives (video), meriting sanction/dismissal	BAP: Debtor is bound by counsel and by his own post‑withdrawal noncooperation; dismissal for delay/noncooperation was proper
Whether continuing losses and lack of viable plan require dismissal	Haffey: (On appeal) offered no developed argument or confirmable plan; suggested possible third‑party funding hypothetically	Trustee: Monthly reports showed estate losses and no realistic ability to service valid liens; no likelihood of rehabilitation	BAP: Court correctly found continuing loss/diminution and absence of likelihood of rehabilitation — independent basis for dismissal

Key Cases Cited

Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (due process requires notice reasonably calculated to apprise interested parties)
Link v. Wabash R.R. Co., 370 U.S. 626 (party bound by acts/omissions of chosen counsel)
Bass v. Jostens, Inc., 71 F.3d 237 (6th Cir.) (dismissal may be an appropriate sanction for discovery obstruction)
Graham v. Mukasey, 519 F.3d 546 (6th Cir.) (procedural‑due‑process claims require showing of prejudice/harm)
Zirnhelt v. Madaj (In re Madaj), 149 F.3d 467 (6th Cir.) (harmless‑error analysis in bankruptcy notice contexts)
Fuentes v. Shevin, 407 U.S. 67 (due process hearing right not contingent on advance showing of likely success)