Procel v. United States Trustee (In Re Procel)
467 B.R. 297
S.D.N.Y.2012Background
- Debtor Francisco Procel filed a pro se Chapter 13 petition on Jan 7, 2010; he disclosed only one prior bankruptcy filing and failed to provide case numbers and schedules, asset disclosures, or financial affairs as required.
- Procel had three prior voluntary dismissals (2008) that were not disclosed; a Chapter 13 trustee was appointed.
- A §341 meeting was scheduled; Procel did not attend and filed a handwritten letter indicating intent to withdraw under §1307(b); the court treated it as a motion to dismiss.
- The U.S. Trustee urged conversion to Chapter 7 under §1307(c) for investigation of undisclosed assets and potential connections to a related case (Halal 4 U LLC, 08-15216 SDNY).
- At a June 23, 2010 hearing, the Bankruptcy Court granted in rem relief from stay to secured creditors (Bayview/Aurora and Litton) under §362(d)(4) and converted the case to Chapter 7 despite Procel’s §1307(b) dismissal motion, with the order signed on June 30, 2010; in rem relief orders followed on July 12, 2010.
- The district court remands the case to the Bankruptcy Court for proceedings consistent with its opinion, vacating the judgment in part and affirming in part.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §1307(b) dismissal is absolute or can be overridden by §1307(c) conversion. | Barbieri holds §1307(b) is absolute when conditions are met. | Marrama allows court to use §105(a) to prevent abuse and to choose conversion for cause. | Remand to reconsider §1307(b)/(c) interplay; Barbieri remains controlling on absolute right. |
| Whether Marrama abrogates Barbieri or limits the absolute right to dismiss under §1307(b). | Marrama forecloses an absolute right to convert and reinforces dismissal rights. | Barbieri remains valid; Marrama does not overrule Barbieri’s absolute right under §1307(b). | Barbieri remains binding; no abrogation by Marrama on §1307(b) absolute right. |
| Whether the in rem relief from automatic stay was properly granted absent an evidentiary hearing. | The court acted without an evidentiary hearing; there is a potential due-process concern. | Bankruptcy courts may infer intent to hinder/defraud from serial filings; no hearing needed. | Not clearly erroneous; affirmed in rem relief but remanded to consider sanctions. |
| Whether retroactive relief to third parties caused harm given good-faith acts. | In rem relief had detrimental retroactive effects on third parties acting in good faith. | Relief was appropriate to deter abuse; longstanding authority supports relief. | Affirmed as to in rem relief; remand to address sanctions/conditions if any. |
| Whether pro se status warranted greater leeway from the Bankruptcy Court. | Pro se status warrants more leniency and consideration of filings. | Court rightly applied standards; there is no prejudice shown from lack of counsel. | No reversible error found on leeway; no cure needed beyond remand. |
Key Cases Cited
- Barbieri v. RAJ Acquisition Corp. (In re Barbieri), 199 F.3d 616 (2d Cir.1999) (absolute right to dismissal under §1307(b) when conditions satisfied; §1307(c) for cause)
- Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 (Supreme Court 2007) (forfeiture/forfeiture by bad-faith conduct; limits on conversion rights under §706(a) and §1307(c))
- In re Rosson, 545 F.3d 764 (9th Cir.2008) (no absolute right to dismiss; §105(a) powers to prevent abuse apply)
- In re Croston, 313 B.R. 447 (9th Cir. BAP 2004) (analytically indistinguishable issue to Beatty; pre-Marrama authority criticized)
- In re Armstrong, 408 B.R. 559 (Bankr. E.D.N.Y.2009) (argues Marrama abrogated Barbieri; district court rejects that view; discusses §1307(b)/(e) interplay)
- Solow v. Kalikow (In re Kalikow), 602 F.3d 82 (2d Cir.2010) (limits of §105(a) to implement, not override, statute)