In re: Michael Stinchfield, CC-17-1209-STaF

Background

Debtor Michael Stinchfield (incarcerated) filed a Chapter 11 after two prior Chapter 13 dismissals; no automatic stay existed under § 362(c)(4).
Michael acted through his son/attorney-in-fact, Dana; counsel of record was Bryan Diaz.
Michael proposed to sell one of two high-value residential properties to fund a feasible Chapter 11 plan; secured creditors opposed stay motions.
Multiple stay motions were denied (one for untimeliness); counsel filed a reconsideration and appended Dana’s declaration.
On the day of the continued status conference Dana declared he could not sell assets to fund a plan, had instructed counsel to seek dismissal, and neither debtor, Dana, nor counsel appeared at the hearing; the U.S. Trustee did not object to dismissal.
The bankruptcy court dismissed the Chapter 11 case under § 1112(b) for cause; Michael appealed.

Issues

Issue	Stinchfield's Argument	Specialized Loan Service / UST Argument	Held
Did the court abuse its discretion in dismissing the Chapter 11 case under § 1112(b)?	Dismissal was improper because dismissal resulted from counsel’s ineffective/untimely actions and unusual circumstances; debtor shouldn’t bear counsel’s errors.	Dana’s declaration conceded inability to fund a plan and requested dismissal; UST consented; dismissal was within bankruptcy court discretion for cause.	No abuse of discretion; dismissal affirmed because admission that a feasible plan could not be proposed supported cause.
Should the court have converted the case to Chapter 7 instead of dismissing?	Court should have considered conversion before dismissal.	No party advocated conversion; debtor sought dismissal; conversion would not achieve debtor’s objectives.	No remand; conversion not required where dismissal was requested and conversion not sought.
Did debtor have a right to effective assistance of counsel requiring the court to warn or appoint new counsel?	Debtor argued he was deprived of effective counsel and should not suffer consequences.	There is no right to appointed or effective counsel in bankruptcy; clients are responsible for attorneys’ acts/omissions.	Rejected; no constitutional or statutory right to counsel in bankruptcy; client remains accountable for counsel’s actions.
Do "unusual circumstances" under § 1112(b)(2) bar dismissal?	Family misfortunes, prospective sale prospects, and counsel problems were unusual and counsel could cure issues.	Dana’s sworn declaration contradicts likelihood of confirmable plan or cure within a reasonable time.	Rejected; debtor/admitted evidence defeated the § 1112(b)(2) showing of likelihood to confirm or to cure omissions.

Key Cases Cited

Owens v. Treiger (In re Owens), 552 F.3d 958 (9th Cir.) (standard of appellate review—abuse of discretion—for § 1112(b) dismissals)
Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380 (Supreme Court 1993) (clients are accountable for counsel’s acts and omissions)
First Yorkshire Holdings v. Pacifica L 22, LLC (In re First Yorkshire Holdings), 470 B.R. 864 (9th Cir. BAP) (no remand required when record affords full understanding despite lack of detailed findings)
Jess v. Carey (In re Jess), 169 F.3d 1204 (9th Cir.) (trial court’s failure to make specific findings does not require reversal if record is sufficient)
TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820 (9th Cir.) (abuse of discretion occurs when court applies wrong legal standard or findings are unsupported)