MEMORANDUM OPINION
On the 17th day of December, 1984, came on for consideration in the above styled and numbered cause the Application of First State Bank of Uvalde (hereinafter “Bank”) for Appointment of a Trustee. The movant
In that connection all Findings of Fact, made herein, may be considered Conclusions of Law, if appropriate. All Conclusions of Law, made herein, may be considered Findings of Fact, if appropriate. All Findings of Fact and Conclusions of Law not expressly made herein are deemed made in support of this Memorandum Opinion.
The facts relevant as revealed by the pleadings and the evidence may be summarized as follows:
On Octоber 28, 1983, Robert C. Evans, Jr. filed a petition in bankruptcy under Chapter 11, Title 11, United States Code. The Debtor’s principal business is ranching which he conducts on approximately 2,357 acres located in Zavala County, Texas. The Debtor received additional income as beneficiary of two spendthrift trusts, as well as income from oil and gas royalties and other partnership and realty interests. At the time of thе filing of his petition the Debtor listed amounts owing to the mov-ant, a secured creditor of the Debtor, as disputed. The Debtor also listed the unsecured claims of Central National Bank of San Angelo and Federal Land Bank of Wichita as disputed. These disputed claims arise out of the corporate indebtedness of Dockery & Collins, Inc., and are the subject of an adversary proceeding pending in this Court.
The Bank, movant herein, has requested the appointment of trustee under Section 1104(a)(1) of the Bankruptcy Code. As grounds for the placement of the Trustee in the stead of the Debtor-In-Possession, the Bank asserts incompetence and gross mismanagement on the part of the Debtor. In support of its allegations the Bank cites the Debtor’s failure to file income tax returns for the past thrеe (3) years, his failure to pursue several potentially preferential transfers and his failure to collect a substantial debt owed to the estate.
Section 1104 of the Bankruptcy Code provides for the appointment of a trustee in a Chapter 11 case at any time after the commencement of the case but before confirmation of the plan for cause, including fraud, dishonеsty, incompetence, or gross mismanagement of the debtor’s affairs, or if the appointment of a trustee is in the best interest of creditors, equity security holders, and other interests of the estate. 11 U.S.C. Sеc. 1104. The appointment of a trustee in a Chapter 11 case is an extraordinary remedy available to creditors of the debtor. See,
In re Hotel Associates, Inc.,
In the case at bar the movant alleges incompetence and gross mismanagement of the bankruptcy estate as grounds for the appointment of a trustee. In every bankruptcy thеre exists a certain level of incompetence or mismanagement. As a result, the courts have required a finding of more than simple mismanagement or incompetence.
See, Matter of Anchorage Boat Sales, Inc.,
The Bank, the movant herein, alleges the debtor’s failure to file federal income tax
While it is clear that the Debtor has failed and refused to file tax returns for the estate for the past three yeаrs the question this Court must decide is whether such a chronic failure to file federal income tax returns constitutes gross mismanagement of the bankruptcy estate under Section 1104(a)(1).
This is a case of first impression in this Court. Other jurisdictions have dealt with the failure to file tax returns as grounds for the appointment of a trustee but only in the limited context of state sales tax returns. In that connection
In re Great Northeastern Lumber & Mill Work Corp.,
The Debtor argues that he is relieved of his duty to file his income tax returns because the amount of his tax liability is uncertain due to several disputed claims between the debtor and creditors of the estate. A dispute as to claims in a bankruptcy estate does not relieve the debtor of his duty to file returns and pay taxes.
See, In re Ristagno,
The Debtor in this case at bar has a duty to file federal income tax returns. The Debtor has continuously failed and refused to fulfill this duty. The potential impact on the estate as a result of the Debtor’s continued failure to perform his duties under the code is sufficient cause for the appointment of a trustee under Sec. 1104(a)(1).
Section 1104(a)(2) provides this Court with the statutory authоrity to employ its equitable powers in determining whether a trustee should be appointed. Section 1104(a)(2) allows the Court to look to what is in the best interest of the creditors, equity security holders and othеrs with an interest in the estate. The factors to be considered when using this section are:
(1) The trustworthiness of the debtor;
(2) The reasons the debtor acted as he did;
(3) Reliance and harm to another party;
(4) Conclusive evidence of detriment to the estate;
(5) Possibilities of future rehabilitation.
See, In re Tyler, supra.
Applying these factors to the case at bar, it is evident that the appointment of a trustee is in the best interest of the estate. The trustworthiness of the Debtor to protect the interests of the estate is in doubt due to the Debtor’s failure to perform his duty of filing federal income tax returns for the estate and his failure to investigate possible preferential transfers in the approximate amount of $346,562.32 made within the year preceeding the filing of the petition. The debtor has provided no legitimate reasons for his failure to perform his duties as provided under the Bankruptcy
The final hurdle this Court must cross in determining whether the appоintment of a trustee under Section 1104(a)(2) is in the best interest of the estate is whether the cost of the trustee would outweigh the protection provided to the estate. The legislative history of this sectiоn states that “the court may order appointment only if the protection afforded by a trustee would not be disproportionately higher than the value of the protection afforded.” H.Rep. No. 95-595, 95 Cong. 1st Sess. (1977), U.S. Code Cong. & Admin.News. p. 5787;
In re P.A. Potts 7 Co., Inc.,
For these reasons an order shall be entered appointing a trustee under 11 U.S.C. Section 1104 for the estate of Robert C. Evans, Jr.
ORDER APPOINTING TRUSTEE
In accordance with the Findings of Fact and Conclusions of Law contained in the Court’s Memorandum Opinion, it is
ORDERED, that Martin Seidler, a disinterested person, be and he hereby is appointеd trustee of the property of the Debt- or, and it is further
ORDERED, that said trustee qualify before five (5) days after the date hereof and before beginning official duties by filing with this Court a bond in the sum of $1,000.00 in favor of the United States сonditioned on the faithful performance of such official duties, and it is further
ORDERED, that upon qualifying "as aforesaid, the trustee shall operate and supervise the financial affairs of the Debtor, including the operation of the Debtor’s business, for the duration of the time period in which the estate is under the jurisdiction of this Court unless otherwise ordered by this Court.