580 B.R. 1
Bankr. D.R.I.2017Background
- Debtor Keven A. McKenna (pro se), a formerly licensed Rhode Island attorney, converted his case from Chapter 13 to Chapter 11 on August 1, 2017.
- The U.S. Trustee (UST) moved to dismiss under 11 U.S.C. § 1112(b)(1), alleging multiple grounds of cause under § 1112(b)(4) and the Court issued an Order to Show Cause under § 1112(b)(1) and (b)(4)(E).
- The UST alleged McKenna failed to attend a continued § 341 meeting, delayed or failed to produce requested financial documents (including bank statements and entity records), and failed to timely file required monthly operating/cash-flow reports.
- The Court found McKenna repeatedly missed or delayed compliance: he missed the continued 341 meeting, produced documents piecemeal (often only after motions), backdated a Guidelines Receipt, late-filed the Largest Creditors List, and never filed the ordered Income Statement.
- The Court concluded the UST established cause under § 1112(b)(4)(E), (F), (G), and (H); McKenna failed to show reasonable justification or unusual circumstances under § 1112(b)(2); appointment of a trustee or conversion to Chapter 7 was not in creditors’ best interests.
Issues
| Issue | Plaintiff's Argument (UST) | Defendant's Argument (McKenna) | Held |
|---|---|---|---|
| Whether failure to attend the continued § 341 meeting constitutes cause under § 1112(b)(4)(G) | McKenna failed to appear at the continued meeting despite notice; this and his inadequate preparation impeded examination | McKenna said he met with UST multiple times and had provided documents; he claimed forgetfulness and caregiving responsibilities | Court held failure to attend (and inadequate preparation) established cause; excuses not reasonable or justified |
| Whether failure to timely provide information/documents constitutes cause under § 1112(b)(4)(H) | UST argued McKenna produced documents piecemeal and late, hindering UST supervision under 28 U.S.C. § 586(a)(3) | McKenna asserted he cooperated and substantially complied; blamed software/provider for filing delays | Court held untimely, incomplete production constituted cause; McKenna offered no reasonable excuse |
| Whether failure to file required monthly operating / cash-flow reports constitutes cause under § 1112(b)(4)(F) | UST argued reports were overdue (August, September) and small-business designation did not excuse filing; reports are mandatory and critical | McKenna claimed small business status limited reporting obligations and that some reports were not yet due | Court held reports were required and overdue; failure to file was cause for dismissal |
| Whether failure to comply with court orders (August 22 order, pretrial order) constitutes cause under § 1112(b)(4)(E) | UST noted McKenna missed court deadlines (Largest Creditors List, Income Statement) and disobeyed pretrial orders | McKenna blamed software and asserted eventual compliance | Court held noncompliance (including late Largest Creditors List and never-filed Income Statement) established independent cause |
Key Cases Cited
- Gonic Realty Trust v. Nat’l Am. Ins. Co., 909 F.2d 624 (1st Cir. 1990) (court may consider non‑enumerated factors when determining "cause" under § 1112(b))
- Andover Covered Bridge, LLC v. U.S. Trustee, 553 B.R. 162 (B.A.P. 1st Cir. 2016) (establishes three‑step § 1112(b) analysis and standards for "unusual circumstances")
- Efron v. Candelario (In re Efron), 529 B.R. 396 (B.A.P. 1st Cir. 2015) (burden shifting and requirement that debtor prove § 1112(b)(2) elements)
- Vanilla Woodward, LLC (In re Vanilla Woodward, LLC), 501 B.R. 322 (Bankr. E.D. Mich. 2012) (failure to appear or be prepared at § 341 meeting can warrant dismissal)