610 B.R. 87
E.D. Pa.2019Background
- In 2004 Murphy obtained a state-court default judgment against Marinari.
- Marinari filed Chapter 13 in 2014; Murphy (a creditor and an attorney) filed an adversary complaint to preserve his judgment and moved to dismiss or convert the case to Chapter 7.
- Marinari filed an "Application" to voluntarily dismiss under 11 U.S.C. § 1307(b); the Bankruptcy Court treated the application as a formal motion, held a hearing, and dismissed the Chapter 13 case.
- The Bankruptcy Court concluded § 1307(b) compels dismissal of an unconverted Chapter 13 on the debtor's request, but it imposed a condition that Murphy’s adversary would resume at its pretrial posture if Marinari refiled within two years.
- Murphy moved for reconsideration (arguing bad faith, procedural defects, need for an evidentiary hearing, and pending conversion/sanctions); the Bankruptcy Court denied relief and the District Court affirmed, holding § 1307(b) provides an absolute right to dismissal and that Murphy forfeited or failed to prove bad faith.
Issues
| Issue | Murphy's Argument | Marinari's Argument | Held |
|---|---|---|---|
| Whether § 1307(b) permits a bad-faith exception to dismissal | §1307(b) is not absolute; court should delay dismissal or deny it for debtor bad faith or where conversion is pending | §1307(b) uses mandatory language ("shall dismiss") and gives an absolute right to dismiss an unconverted Chapter 13 | §1307(b) grants an absolute right to dismiss unconverted Chapter 13 cases; courts may still impose sanctions or filing restrictions but cannot read a bad-faith exception into §1307(b) |
| Whether Marinari’s filing was a formal motion/service under Rule 1017 | Marinari filed an "Application," not a motion, so required motion/service procedures were not followed | Bankruptcy Court treated the Application as a motion; Murphy received notice, briefing opportunity, and a hearing | Any procedural error was harmless; Murphy had notice and opportunity to be heard and forfeited objection to the court treating the Application as a motion |
| Whether dismissal without an evidentiary hearing while conversion/sanctions motions were pending was improper | Court should have held an evidentiary hearing and resolve Murphy’s pending motions before dismissal | Murphy had multiple opportunities to present evidence; he caused delays and forfeited an evidentiary hearing | Murphy forfeited his right to an evidentiary hearing; record lacked evidence of bad faith; pending conversion was irrelevant under §1307(b) |
| Whether conditions placed on dismissal were an abuse of discretion | Conditions were inadequate and prejudiced Murphy’s ability to collect / preserve his rights | Condition (adversary resumes if she refiles within two years) preserves Murphy’s position and was agreed/argued below | Review under plain-error; conditions did not affect Murphy’s substantial rights and were not an abuse of discretion |
Key Cases Cited
- Stern v. Marshall, 564 U.S. 462 (appellate review standards in bankruptcy)
- Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26 ("shall" creates a mandatory command)
- Marrama v. Citizens Bank of Mass., 549 U.S. 365 (bad-faith conduct can preclude conversion rights)
- Law v. Siegel, 571 U.S. 415 (equitable powers cannot override explicit statutory provisions)
- Harris v. Viegelahn, 135 S. Ct. 1829 (Chapter 13 is a voluntary alternative to Chapter 7)
- In re Ross, 858 F.3d 779 (3d Cir. 2017) (discussing §1307(b) and permissible filing restrictions)
- In re Forever Green Athletic Fields, 804 F.3d 328 (3d Cir. 2015) (bankruptcy courts may police bad-faith filings within statutory limits)
- In re Schaefer Salt Recovery, Inc., 542 F.3d 90 (3d Cir. 2008) (sanctions and §105 authority)