638 B.R. 482
1st Cir. BAP2022Background
- Debtor Vaqueria Las Martas, a Puerto Rico dairy farm, had a prepetition loan originally from BPPR assigned to Condado 5, LLC; security included a milk-production quota and real estate.
- Debtor filed chapter 12 in December 2018 (second chapter 12 case); Condado asserted a secured claim and moved to prohibit use of cash collateral and to collect milk proceeds.
- In April 2020 the bankruptcy court ruled Condado’s lien did not extend to milk produced or proceeds; Condado appealed that ruling.
- Debtor filed a chapter 12 plan in June 2020 that depended on recovering intercepted milk proceeds; the court denied confirmation in January 2021 for lack of feasibility.
- Condado moved to dismiss in February 2021 for cause under 11 U.S.C. § 1208(c); the bankruptcy court granted dismissal in April 2021 for unreasonable delay prejudicial to creditors and failure to file a timely confirmable plan.
- The BAP affirmed, rejecting equitable-mootness dismissal and holding the dismissal was not an abuse of discretion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the bankruptcy court had to apply the two-step "unusual circumstances" test (Efron) before dismissing under § 1208 | Debtor: Efron (§1112) two-step test applies to chapter 12 and court should consider Debtor's explanations | Condado: Debtor waived this argument below; §1112(b)(2) standard not grafted onto §1208(c) | Waived / not applied: Debtor failed to raise it below; court properly proceeded to §1208 analysis and affirmation does not apply Efron here |
| Whether dismissal for "unreasonable delay prejudicial to creditors" under §1208(c)(1) was justified | Debtor: delay caused by Condado’s interception of milk proceeds and court scheduling delays (Hurricane Maria and COVID-19 also cited) | Condado: delay caused by Debtor (late plan, late/erratic MORs, no amended plan after denial, asset depletion) | Affirmed: Debtor filed plan >14 months late, missed/late MORs, conceded inability to propose feasible plan, and assets/livestock declined — delay prejudicial to creditors |
| Whether Debtor could rely on Fulton to excuse failure to bring adversary turnover or lien-contest proceeding | Debtor: unclear until City of Chicago v. Fulton that adversary was needed; thus turnover suit not required earlier | Condado: Debtor should have filed adversary proceedings under Rules 7001/3007 and failed to challenge liens timely | Held for Condado: adversary required for turnover/lien questions; Fulton did not eliminate need for adversary proceedings |
| Whether appeal is equitably moot due to Condado’s post-dismissal UCC-1 filings | Condado: new UCC-1s make reversal impracticable — appeal equitably moot | Debtor: reversal could reinstate stay and permit recovery; relief still practicable | Not equitably moot: reversal could result in remand/reopening and effective relief; equitable-mootness inapplicable here |
Key Cases Cited
- In re Efron, 529 B.R. 396 (B.A.P. 1st Cir. 2015) (two-step "unusual circumstances" test for dismissal under §1112(b))
- Ames v. Sundance State Bank (In re Ames), 973 F.2d 849 (10th Cir. 1992) (failure to propose a confirmable plan can warrant dismissal)
- In re Pertuset, 492 B.R. 232 (Bankr. S.D. Ohio 2012) (chapter 12 expedited timing protects creditors and collateral)
- Keith's Tree Farms v. Grayson Nat'l Bank (In re Keith's Tree Farms), 535 B.R. 647 (W.D. Va. 2015) (affirming dismissal for unreasonable delay and inability to propose confirmable plan)
- Ritzen Grp., Inc. v. Jackson Masonry, LLC, 140 S. Ct. 582 (2020) (finality requirement for appeals from bankruptcy courts)
- In re López-Muñoz, 983 F.3d 69 (1st Cir. 2020) (equitable mootness principles in bankruptcy appeals)
- City of Chicago v. Fulton, 141 S. Ct. 585 (2021) (mere retention of estate property not necessarily an automatic-stay violation; Court did not resolve §542 turnover scope)