508 B.R. 187
Bankr. D. Colo.2014Background
- Debtors David and Julie McDonald filed Chapter 7 in Oct. 2011; David owned a book of insurance business and 50% of The Colorado Agency, which became estate property. Trustee Weinman (with counsel Allen & Vellone, P.C. (A & V)) pursued Rule 2004 discovery and a motion to compel turnover of commissions and business interests.
- Debtors converted the case to Chapter 13 in July 2012 shortly after the trustee’s motion to compel; the court initially found § 109(e) eligibility and declined to reconvert based on the record then.
- Post-conversion the Debtors filed multiple, inconsistent Chapter 13 plans and amended schedules with varying valuations/ownership of the book of business and inconsistent income/expense statements.
- The court repeatedly ordered production of detailed post-petition bank statements and an accounting of funds held by The Hartford; the Debtors repeatedly failed to comply, made false statements, and changed counsel multiple times.
- A & V was allowed an administrative priority claim; A & V and the Chapter 13 Trustee sought reconversion alleging violation of court orders and bad faith. The court reconsidered under Fed. R. Civ. P. 60(b) and reconverted the case to Chapter 7.
Issues
| Issue | Plaintiff's Argument (A & V/Trustee) | Defendant's Argument (McDonald) | Held |
|---|---|---|---|
| 1. Standing of A & V to object to plan confirmation | A & V is an allowed administrative priority claimant with a pecuniary interest and may object under § 1324(a) | Debtors challenged A & V’s standing | Held: A & V has standing as a party in interest to object and participate |
| 2. Reconversion for violation of court orders | Debtors repeatedly disobeyed multiple orders to produce bank statements/accounting; failure to file a confirmable plan; this establishes cause to reconvert under § 1307(c) | Debtors offered no adequate excuse for noncompliance; argued procedural defenses at times | Held: Violations constitute cause; reconversion warranted |
| 3. Whether the Conversion Motion was filed in bad faith under § 1307(c) (Marrama analysis) | Conversion was timed to avoid discovery/turnover; Debtors misled court, concealed assets, and delayed creditors — totality shows bad faith | Debtors previously argued errors were counsel’s fault and were eligible for conversion | Held: On reconsideration under Rule 60(b), court finds conversion filed in bad faith and reconversion proper |
| 4. Whether the Second Amended Plan was filed in good faith under § 1325(a)(3) | Plan contains inaccurate valuations, misstates discharge eligibility, miscoded administrative claims, fails best-interest test and is not administrable — filed in bad faith | Debtors produced successive amended plans attempting to cure defects | Held: Plan not filed in good faith (Cranmer/Flygare factors); confirmation denied; supports reconversion |
Key Cases Cited
- Marrama v. Citizens Bank of Mass., 549 U.S. 365 (Sup. Ct.) (authorizes courts to deny conversion for bad faith and directs a totality-of-circumstances inquiry)
- In re Gier, 986 F.2d 1326 (10th Cir.) (applies totality-of-circumstances test to bad-faith conversion under § 1307(c))
- Flygare v. Boulden, 709 F.2d 1344 (10th Cir.) (enumerates factors for plan good-faith inquiry)
- In re Cranmer, 697 F.3d 1314 (10th Cir.) (narrows good-faith inquiry, subsuming many Flygare factors into § 1325(b)-driven analysis)
- Klapprott v. United States, 335 U.S. 601 (U.S. Sup. Ct.) (Rule 60(b)(6) equitable power to vacate judgments to accomplish justice)
- Fleming v. Gulf Oil Corp., 547 F.2d 908 (10th Cir.) (Rule 60(b)(6) should be liberally applied in exceptional circumstances)
- Van Skiver v. United States, 952 F.2d 1241 (10th Cir.) (procedural treatment of motions characterized as Rule 59(e) or Rule 60(b))