935 F.2d 918 | 1st Cir. | 1991
Lead Opinion
Delbert and Patsy Sadler run a family farm. Chapter 12 of the Bankruptcy Code offers benefits for family farmers. The Sadlers filed a petition under Chapter 13 of the 1978 Code in September 1986, two months before Chapter 12 took effect.
In February 1987 the bankruptcy judge approved the Sadlers’ plan of payments under Chapter 13. Two months later the Sadlers decided they would be better off under Chapter 12. They did not try to
A case converted from one chapter of the 1978 Code to another retains all of the original filing dates. 11 U.S.C. § 348(a). When a proceeding is dismissed, however, transfers avoided under § 547 are reinstated. 11 U.S.C. § 349(b)(1)(B). Any new filing takes its own date — which here was substantially more than 90 days after the Bank’s lien attached. Not surprisingly, the Bank believes that it is entitled to the money from the sale of the corn and soybeans in 1986. The Sadlers commenced an adversary proceeding against the Bank in the Chapter 12 case, contending that the filing of the Chapter 13 case “tolled” the time for avoiding preferences. The bankruptcy judge ruled in the Sadlers’ favor, explaining that relation back “effectuates spirit and purposes of the Bankruptcy Code. Although unable to convert, the debtors’ dismissal and immediate refiling on the next day should still have the same relation back as if this case had been converted, especially since the debtors utilized this method at this Court’s suggestion."
The district court affirmed on a different theory. The district judge believed that conversion from Chapter 13 to Chapter 12 was desirable. Only the Bank’s objection led the bankruptcy judge to deny the Sad-lers’ motion. Section 349(b) offered the bankruptcy judge a way to give the Sadlers the benefit of the earlier filing date despite the denial of conversion: the dismissal of a case reinstates avoided preferences “[ujnless the court, for cause, orders otherwise”. The district judge concluded that the benefits of conversion to Chapter 12, coupled with the desire to avoid a windfall for the Bank, were “cause” to specify that the dismissal did not reinstate the Bank’s lien.
The difficulty with the district court’s approach is that § 302(c)(1) bans the conversion of pending Chapter 13 cases to Chapter 12. Sinclair. More: both the bankruptcy judge and the district judge viewed any inability to convert as something to be overcome rather than respected. Sinclair addressed this possibility, too:
The debtors made an alternative request. They asked the bankruptcy judge to allow them to dismiss their Chapter 11 case and start a new one under Chapter 12. This would avoid the ban in § 302(c)(1).... The [debtors] do not want to dismiss the case with prejudice, pay all of their accrued debts, and then file a fresh bankruptcy action that could go forward from the date of refiling. They want, instead, to file a Chapter 12 case that would be administered as if it had been commenced [when the Chapter 11 case was filed]. This is conversion by another name. Statutes control more than nomenclature; they are addressed to conduct. Proposals for conversion by another name are proposals for conversion. This one was properly rejected on the authority of § 302(c)(1).
870 F.2d at 1345. The bankruptcy and district judges gave the Sadlers exactly the relief Sinclair says courts may not provide.
Does § 349(b) afford passage around Sinclair1 We think not. The bankruptcy court did not find “cause” under § 349(b) and was never asked to.
“Cause” under § 349(b) means an acceptable reason. Desire to make an end run around a statute is not an adequate reason. Congress specified that Chapter 13 cases pending on the effective date of Chapter 12 may not be converted. It would defeat this express decision to treat as “cause” the debtors’ wish to file a new Chapter 12 case with all dates relating back to the original Chapter 13 proceeding. That would be, as we remarked in Sinclair, conversion by another name. It is not part of the judicial office to seek out creative ways to defeat statutes.
Although the Sadlers contend that equities cut in their favor, there is no equitable claim to achieve what Congress forbade. The Sadlers just might have an equitable argument if they wanted to return to Chapter 13 and carry out the plan confirmed in February 1987. They do not ask for this, however — they want to keep the benefits of Chapter 12 and to retain the funds from the corn and soybean crops too. It is too late to unscramble these eggs; the Sadlers have gone four years without making the payments called for in their Chapter 13 plan. They do not want an equitable restoration of the position they would have occupied but for the dismissal; they seek the full benefits of conversion, the very thing Sinclair holds they may not have.
Other creditors would have better equitable claims than do the Sadlers. Preference actions are designed to achieve ratable distributions among creditors. Several lenders in addition to the Bank filed claims in the Chapter 13 proceeding. These creditors might be entitled to protest the dismissal and refiling that denied them access to any share of the cash realized from the 1986 corn and soybean crops. Most if not all of the cases dealing with “cause” under § 349(b) arose from efforts by creditors to retain the benefits of recoveries by the estate. E.g., In re Gonic Realty Trust, 909 F.2d 624, 627-28 (1st Cir.1990); United States v. Standard State Bank, 905 F.2d 185 (8th Cir.1990); In re Professional Success Seminars International, Inc., 22 B.R. 554 (Bkrtcy.S.D.Fla.1982). None of the Sadlers’ other creditors has sought relief. As things stand, the only claimants to the funds are the Sadlers and the Bank. Between the two, the Bank has the better claim: the Sadlers borrowed money that they have yet to repay. See In re Case, 27 B.R. 844 (Bkrtcy.D.S.D.1983). The Sadlers used the dismissal-refiling maneuver not to protect the rights of their other creditors but to divert more money to themselves. Nothing in the 1978 Code allows them to succeed.
Reversed.
The Sadlers filed their petition on September 24, 1986. Chapter 12 was created by legislation signed by the President on October 27, 1986, and going into force 30 days later. Section 302(a) of the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986, Pub.L. 99-554, 100 Stat. 3088.
Concurrence Opinion
concurring.
I agree that under the particular circumstances of this case (pending when Chapter 12 was enacted) there cannot be “cause” in accordance with section 349(b) for refusing to reinstate avoided preferences. Some language in the majority opinion might lead