ORDER GRANTING CREDITORS’ MOTION TO DISMISS CHAPTER 7 CASE
THIS MATTER came before the Court for hearing on November 17, 2009 (“Hearing”) upon Roofing Services, Inc. d/b/a Best Roofing’s (“Best Roofing”) Motion to Dismiss Chapter 7 Case (“Motion”)(D.E.# 13), and Rainbow Colors, Inc. d/b/a RCI Painting & Waterproofing (“RCI,” collectively with Best Roofing, the “Creditors”) Motion for Joinder in Best Roofing’s Motion (D.E.# 18). The Creditors seek dismissal of the above-referenced Chapter 7 case, filed by Boca Village Association, Inc. (the “Debtor” or “Boca Village”), on September 16, 2009 (the “Petition Date”).
BACKGROUND
At the Hearing, the Debtor and Best Roofing agreed on the record that the determination of this matter presented a purely lеgal issue based upon the facts contained in the parties’ stipulations and proffer. See Stipulation of Uncontested Facts (D.E.# 23) and Supplemental Stipulation of Uncontested Facts (D.E.#41). Thus, it is undisputed that the Debtor is a nonprofit condominium association with sixty-six units (the “Condominium”). Grant Management, Inc. was hired to handle the day-to-day affairs of the Condominium. Upon the Debtor’s formation in 1975, the Debtor’s Declaration of Condominium of Boca Village Phase I (the “Declaration”), Articles of Incorporation (the “Articles”), and By-Laws (collectively, the “Condominium Documents”) were recorded in the Public Records of Palm Beach County, Florida (ORB 2437 at Page 868). Motion Exs. “A” & “B”.
Pursuаnt to the terms of the Condominium Documents and the Condominium Act of the State of Florida, Fla. Stat. §§ 718.101-.622 (“Condominium Act”), the Debtor was organized to administer and manage the operations of the Condominium, to enforce the provisions of the Declaration, to levy and collect assessments, and to adopt, promulgate and enforce rules and regulations.
In October 2005, Hurricane Wilma caused substantial damage to the roofs of the Condominium. On or about April 4, 2006, the board of directors of the Condominium voted to specially assess each unit owners $3,000.00 for necessary expenses caused by Hurricane Wilma, including roof repair, pool repair, and tree and stump removal, and ultimately collected $191,803.00 (the “Special Assessment”). The Debtor immediately spent $48,500.00 from the Special Assessment for emergency repairs including tree and stump re *320 moval, pool repair, emergency roof repair, electrical and fixtures, and miscellaneous repairs. After soliciting three competing bids, the Debtor hired Best Roofing to replace the damaged roofs for $211,000.00. Soon thereafter, thе Debtor paid Best Roofing $73,885.00 from the Special Assessment with the balance being due upon completion. A dispute subsequently arose resulting in Best Roofing suing the Debtor in State Court for payment of roofing services (the “State Court Action”). Paul Greco, the Debtor’s corporate representative, testified at a pre-trial deposition for the State Court Action that the Debtor was holding $148,000.00 of contract funds obtained from the unit owners.
On March 4, 2009, Best Roofing obtained a Final Judgment against the Debt- or in the amount of $123,084.50, plus interest, which was recorded in the Public Rеcords of Palm Beach County, Florida on March 5, 2009. Motion Ex. “C”. The State Court reserved jurisdiction to award costs and to consider motions for attorney fees. Best Roofing’s pending claim for attorneys’ fees in the State Court Action has been stayed by the Debtor’s bankruptcy filing. Following the entry and recording of the Final Judgment, Best Roofing filed garnishment actions to collect the Final Judgment.
Best Roofing later learned that the Debtor and Grant Management had set up a new bank account for the Debtor in the name of Grant Management (the “New Account”). Best Roofing then filed a garnishment action against Grant Management. Debtor’s counsel entered an appearance in State Court for Grant Management and responded to the writ of garnishment claiming that Grant Management was not in possession of any of the Debtor’s money or property, despite the fact that Debtor’s money was specifically placed into the New Account in the name of Grant Management to avoid Best Roofing’s collection efforts.
After Best roofing obtained its Final Judgment, the Debtor hired another roofing company (“Campany Roofing”) to perform additional roof repairs. On April 20, 2009, after Best Roofing had filed and served its garnishment action, the Debtor paid Campany Roofing $35,363.50 from the Special Assessment.
By the time Best Roofing learned about the transfer of the Debtor’s funds into the New Account, the account balance had been reduced to $46,768.52. Best Roofing was able to garnish the New Account balance of $46,768.52 which consisted of the remaining balance of the Special Assessment along with additional monies from the Debtor’s operating account. Best Roofing obtained an additional judgment against Grant Management for the remaining balance which remains due and owing by the Debtor.
The Debtor’s bankruptcy schedules listed accounts receivable in the total amount of $71,616.81 for varying amounts of assessments due from unit owners. However, in its initial filing, the Debtor failed to disclose that it filed and recorded liens, in the Public Records of Palm Beach County, for unpaid assessments against five Condominium unit owners. As of the Petition Date, no releases of these liens had been recorded.
Although Bankruptcy Schedule “B”, item 21 requires а debtor to list other contingent and unliquidated claims owing to the debtor, the Debtor’s initial schedules did not list any contingent or unliqui-dated claims. However, pursuant to the Declaration, the Debtor was granted a lien on all dwelling units and their appurtenant interests in the common elements, “which lien shall secure and does secure the monies due for all assessments now or hereafter levied against the owner of each *321 DWELLING UNIT.” Motion Ex. “A”: Declaration at § XXX, ¶ J. On December 2, 2009, two weeks after the Hearing, the Debtor filed an Amended Schedule “B” stating that the “Debtor has а lien on all dwelling units and appurtenant interests in the common elements, which lien secured monies due for all assessments now or hereafter levied against the owner of each dwelling unit”. Debtor’s Amended Schedule “B” also disclosed that the Debtor had filed and recorded liens against certain Condominium units.
On September 15, 2009, one day prior to the Petition Date, an entity known as Village at Boca Condominium Association, Inc. (“VBCA”) filed Articles of Incorporation listing the identical officers that the Debtor had listed in its Statement of Financial Affairs. Motion Ex. “D”: Articles of Incorporation for VBCA. According to the parties’ stipulation, VBCA was formed for the purpose of collecting future assessments against the owners of the dwelling units for the- future operations of the Condominium property.
The Creditors’ Dismissal Motion alleges that the Debtor’s bankruptcy should be dismissed for cause pursuant to 11 U.S.C. § 707(a) as a bad faith filing. The Creditors maintain that the Debtor’s bad faith is evidenced by its actions in response to Best Roofing’s attempted garnishment and collection of its Final Judgment. These acts include the officers’ direct involvement in the fоrmation of VBCA on the eve of the filing of this case, the hiding of Debtor’s funds that were subject to garnishment in the New Account, the failure to disclose the ownership of certain lien rights and contingent claims due and owing to the Debtor, and the attempt to liquidate the Debtor condominium association without statutory or contractual authority. The Creditors also argued that the Debtor improperly attempted to transfer or assign its assessment and lien rights to VBCA.
The Debtor argued in response that the Creditors do not have standing to assert that the Debtor lacks authority to file a Chapter 7 liquidation, that “bad faith” does not provide cause for dismissal under § 707(a), and that even if it did, the Debtor did not act in bad faith.
As discussed below, based upon the specific facts presented in this matter, the Court finds that cause exists to dismiss this case pursuant to § 707(a).
CONCLUSIONS OF LAW
A. Corporate Debtor’s Bad Faith Can Provide § 707(a) Cause For Dismissal
Section 707(a) of the Bankruptcy Code, provides that:
(a) The court may dismiss a case under this chapter only after notice and a hearing and only for cause, including—
(1) unreasonable delay by the debtor that is prejudicial to creditors;
(2) nonpayment of any fees and charges required under chapter 123 of title 28 [28 U.S.C. §§ 1911 et seq.]; and
(3) failure of the debtor in a voluntary case to file, within fifteen days or such additional time as the court may allow after the filing of the petition commencing such case, the information required by paragraph (1) of section 521, but only on a motion by the United States trustee.
11 U.S.C. § 707(a).
The Eleventh Circuit has not addressed the issue of whether bad faith can constitute cause for dismissal under § 707(a). However, courts that have considered the issue generally begin their analyses by noting that the statute’s three listed cause for dismissal grоunds are illustrative and
*322
not exhaustive.
See e.g. In re Padilla,
The minority position, and the one urged by the Debtor, is that bad faith does not provide cause for dismissal under § 707(a).
See e.g. Padilla,
There is substantial case law on both sides of this issue; the majority position is that a debtor’s lack of good faith in commencing a Chapter 7 case can constitute cause for dismissal under § 707(a).
In re Kane & Kane,
The Eight Circuit adopted a narrower more cautious approach to bad faith in
In re Huckfeldt,
Having reviewed the law, this Court agrees with
Huckfeldt
and the well reasoned opinion of
Kane & Kane,
wherein Southern District of Florida Bankruptcy Judge Erik P. Kimball adopted the majority position that lack of good faith in commencing a Chapter 7 case can constitute cause for dismissal under § 707(a).
B. Cause Exists to Dismiss this Case
It is generally understood that Chapter 7 serves the twin purposes of providing the honest but unfortunate debt- or with a fresh start while providing for the orderly liquidation of the debtor’s nonexempt assets for the benefit of all creditors. However, the objective of providing the honest but unfortunate debtor with a fresh start is not served in a corporate Chapter 7 case because corporate debtors are ineligible for discharge.
See
11 U.S.C. § 727(a)(1). Thus, although § 707(a) apрlies equally in individual and corporate Chapter 7 cases, corporate Chapter 7 cases present unique considerations. Among these considerations is the fact that many Bankruptcy Code provisions designed to protect creditors from Chapter 7 debtor misconduct are irrelevant in corporate Chapter 7 cases.
2
For example, because a corporate Chapter 7 debtor is ineligible for discharge, § 727(a)(2) — which could deny a debtor’s discharge for concealing property with intent to defraud a сreditor — has no effect. Similarly, in the context of a corporate Chapter 7 case, various subsections of § 523 — which exempt specific debts from discharge under certain circumstances — also have no effect. Notwithstanding, a corporate Chapter 7 debtor does not have carte blanche to manipulate the provisions of the Bankruptcy Code to pursue goals contrary to the purpose and spirit of Chapter 7. When it appears under the totality of the circumstances that a “debtor has taken advаntage of the court’s jurisdiction in a manner abhorrent to the purposes of Chapter 7”,
Kane,
The Debtor argues that because a corporate debtor is ineligible for discharge, the only purpose served in a corporate Chapter 7 case is the fair and orderly liquidation of corporate assets to creditors. The Court agrees. However, instead of providing for the fair distribution of assets *325 to creditors, it appears to the Court that the Debtor’s Chаpter 7 filing is part of an orchestrated scheme whose real purpose is to avoid assessing unit owners for legitimate amounts due and owing for the repair and maintenance of the Condominium property. The actions taken by the officers and directors on behalf of the Debtor convince the Court that dismissal for cause is warranted in this matter.
In this case, the Debtor made a Special Assessment to collect funds to pay for roof and other repairs. A dispute arose among the parties. In his State Court Action pretrial deposition testimony, the Debtor’s corporate representative stated that the Debtor was holding $148,000.00 of contract funds which would have been sufficient to pay the Final Judgment of $123,084.50 in full. The Debtor disagreed with the Final Judgment and deliberately and improperly hid the Special Assessment and other funds in the New Account under the name of Grant Management. The Debtor does not dispute that it took this action for the purpose of avoiding Best Roofing’s collection efforts. The Debtor used the Special Assessment funds for other purposes such that the balance in the New Account was reduced to $46,768.52 by the time Best Roofing learned of the New Account’s existence. On the eve of the Debtor’s bankruptcy filing, articles of incorporation were filed for VBCA, an entity formed to collect future assessments from unit owners for the future operations of the Condominium. Thus, VBCA has not assumed the Debtor’s obligations under the Final Judgment. It appears the only reason for filing the Debtor’s bankruptcy case was the belief that a Chapter 7 trustee could not assess the unit owners for amounts due to the Debtor’s Creditors. 3 The totality of the cirсumstances leading up to the filing of this case, including the Debtor’s motive in filing, evidences the Debtor’s lack of good faith. Therefore, the Court concludes that the Debtor is attempting to use the Bankruptcy Code improperly and unfairly, and that Debtor’s lack of good faith constitutes cause to dismiss this case under § 707(a).
In urging the Court to deny the Creditors’ Motion, the Debtor argues that it filed for bankruptcy relief because it had insufficient funds to maintain and operate the Condominium. The Debtor further argues that the alleged acts complained of by the Creditors arе fraudulent transfers for which the Bankruptcy Code provides remedies. However, to allow this case to go forward would be to condone the Debtor’s improper acts. Although filing bankruptcy to thwart a judgment creditor’s collection efforts by itself may not be indicative of bad faith, dishonesty is. See 406 B.R. at *326 170. The Debtor’s concealment of Special Assessment funds under the name of its management company was dishonest. In addition, the Debtor’s initial schedules failed to disclose that the Debtor had perfected liens on individual units or that it had a lien on all dwelling units. The Debt- or’s tаrdy disclosure was not made until two weeks after the Hearing at which the Creditor made arguments based upon the Debtor’s failure to disclose its ownership of lien rights and the existence of unliqui-dated contingent claims owing to the Debt- or.
The Court is also unpersuaded by Debt- or’s argument that it filed because it had insufficient funds to maintain and operate the Condominium. Instead, the Debtor filed its bankruptcy petition because it sought to avoid assessing the unit owners for an amount that was rightfully due and owing. Given that there are sixty-six units, the amount of an assessment necessary to satisfy thе claims owed by the Debtor is not onerous. Debtor’s maneuvers to avoid such an assessment substantiate the Debtor’s lack of good faith.
The Debtor cites
In re Zick,
for its directive that dismissal of a Chapter 7 case for lack of good faith should be utilized only in egregious cases.
The Debtor further argues that the vast majority of Chapter 7 filings are closed as “no asset” cases in which creditors receive no distribution. The Debtor maintains that Congress did not intend to preclude individuals and corporations from filing for bankruptcy because their creditors won’t receive a distribution, and the fact that creditors won’t receive a distribution, standing alone, does not constitute a bad faith filing. The Debtor further argues that it is a creditor’s resрonsibility to determine the creditworthiness of a borrower before issuing credit. The Court agrees. However, as discussed above, the Court’s finding of bad faith in this case does not rest on the fact that the Creditor may not receive a distribution in this case. Furthermore, the Creditor cannot be faulted for failing to evaluate the creditworthiness of the Debtor before extending credit. Best Roofing relied upon the Debtor’s ability to levy a Special Assessment to pay for its services. Indeed, the Debtor levied and collected a Special Assessment for this рurpose but later decided not to pay the proceeds to the Creditor.
At the Hearing, the Creditor also argued that there is no statutory or contractual authority that permits a condominium association to liquidate through Chapter 7. In support of this argument, Creditor cited Fla. Stat. § 718.117 which provides for termination of the form of condominium *327 ownership not the association, and the Debtor’s Articles which state that the Debtor shall have perpetual existence. Motion Ex. “B”: Articles § V. In response, the Debtor attacked the Creditor’s standing to assert that the Debtor did not have authority to file for bankruptcy. The Court does not find it necessary to reach this issue, because the Court’s determination does not rest on whether the Debtor had authority to file its petition.
CONCLUSION
For the reasons stated above, the Court finds that the bad faith of a corporate Chapter 7 debtor can constitute cause for dismissal under § 707(a). In this case, the Debtor’s officers and directors orchestrated a scheme in which the Debtor concealed assets, hid funds in an account under another name, spent Speciаl Assessment funds that should have been disbursed to Best Roofing, and formed a new entity one day before the Petition Date for the purpose of collecting future assessments against the owners of the dwelling units for the future operations of the Condominium property. This scheme was carried out for the purpose of shielding the unit owners from an assessment, not to foster a fair and orderly liquidation of the Debtor’s assets. The Court’s finds that these acts, which are evidence of the Debtor’s bad faith, provide cause for dismissal of this case. The Court’s ruling is limited to the pаrticular facts and circumstances presented in this matter.
ORDER
The Court, having considered the Creditors’ Motion, having heard the arguments and representation of counsel, and being otherwise fully advised in the premises, hereby:
ORDERS AND ADJUDGES that the Creditors’ Motion is GRANTED. The above-referenced case is DISMISSED with prejudice for a period of one year.
Notes
.
Padilla
is one of many cases on the issue that predates the enactment of BAPCPA. Since BAPCPA, § 707(b)(3)(A)expressly incorporates the concept of bad faith as grounds to dismiss the case of an individual debtor with mostly consumer debts for whom the presumption of abuse does not arise or is successfully rebutted.
See
11 U.S.C. § 707(b)(3)(A).
See also, Perlin v. Hitachi Capital America, Corp., Inc.,
. The Court does not agree with the minority position espoused in
Etcheverry,
a case Debtor relied on heavily to argue that bad faith cannot constitute cause for dismissal under § 707(a).
See Etcheverry,
. The Creditors cited
Dzikowski & Walsh v. Barbee (In re Westwood Cmty. Two Assoc., Inc.),