560 B.R. 732
Bankr. E.D. Tenn.2016Background
- Debtor filed a Chapter 12 case; debtor moved to voluntarily dismiss the unconverted Chapter 12 case under 11 U.S.C. § 1208(b).
- U.S. Trustee moved to dismiss under § 1208(c) and sought a four‑year bar to refiling under § 349(a); debtor consented to a four‑year bar.
- Debtor’s former spouse, Jill St. John, moved to convert the case to Chapter 7 under § 1208(d), alleging fraud (prepetition transfers, nondisclosure, concealment, dissipation).
- Chapter 12 trustee and Ms. St. John opposed dismissal, arguing § 1208(d) allows conversion despite a debtor’s dismissal motion.
- Court held an evidentiary hearing unnecessary because debtor consented to dismissal with a four‑year refiling bar and reserved sanctions issues.
Issues
| Issue | Plaintiff's Argument (Debtor) | Defendant's Argument (St. John / Trustee) | Held |
|---|---|---|---|
| Whether a Chapter 12 debtor has an absolute right to dismiss an unconverted case while a § 1208(d) conversion motion alleging fraud is pending | § 1208(b) uses mandatory language (“shall”) and grants an unqualified right to dismiss if the case has not been converted | § 1208(d) permits the court to convert for fraud; allowing dismissal would nullify § 1208(d) and enable fraudsters to evade conversion | Held for the debtor: § 1208(b) gives an absolute right to dismiss an unconverted Chapter 12 case; dismissal granted (with 4‑year bar) |
| Whether the court may use § 105(a) or inherent/equitable powers to deny dismissal for bad faith/fraud | Debtor: § 105(a) and inherent powers cannot override express statutory mandates of § 1208(b) | St. John/Trustee: § 105(a) and inherent powers allow courts to police abuse and qualify dismissal rights | Held for the debtor: equitable powers cannot contravene clear statutory language; other remedies (sanctions, dismissal with prejudice, criminal prosecution, refiling bar) address abuse |
| Whether Marrama supports denying a dismissal right for bad‑faith Chapter 12/13 debtors | Debtor: Marrama is limited to conversion eligibility under § 706(d) and does not negate § 1208(b) | St. John/Trustee: Marrama permits courts to deny dismissal/convert to prevent abuse | Held for the debtor: Marrama is inapplicable here; it addressed conversion eligibility, not a statutory right to dismiss |
| Whether legislative history or rulemaking supports qualifying § 1208(b) | Debtor: legislative history for § 1307(b)/§ 1208(b) supports an absolute dismissal right; Rule 1017(a) excepts § 1208(b) from hearing/notice requirements | St. John/Trustee: sparse legislative history and statements about conversion/dismissal for fraud support qualification | Held for the debtor: scant history cannot override plain statutory text; Rule 1017(a) supports absolute dismissal right |
Key Cases Cited
- Graven v. Fink (In re Graven), 936 F.2d 378 (8th Cir. 1991) (held court may convert Chapter 12 to Chapter 7 for fraud despite debtor’s pending dismissal motion)
- Jacobsen v. Moser (In re Jacobsen), 609 F.3d 647 (5th Cir. 2010) (Chapter 13 dismissal right qualified by good‑faith requirement)
- Rosson v. Fitzgerald (In re Rosson), 545 F.3d 764 (9th Cir. 2008) (Chapter 13 dismissal limited by bad‑faith exception)
- Molitor v. Eidson (In re Molitor), 76 F.3d 218 (8th Cir. 1996) (court may police abuse by limiting dismissal rights)
- Barbieri v. RAJ Acquisition Corp. (In re Barbieri), 199 F.3d 616 (2d Cir. 1999) (statutory text requires absolute dismissal right under § 1307(b))
- Marrama v. Citizens Bank, 549 U.S. 365 (2007) (conversion denial upheld when debtor is ineligible for target chapter; limited to § 706(d) eligibility context)
- Law v. Siegel, 134 S. Ct. 1188 (2014) (§ 105(a) and inherent powers cannot override explicit statutory provisions)