Marilynn Lynn Thomason
MEMORANDUM OF DECISION
Appearances:
Janine Reynard, JOHNSON MAY, Boise, Idaho, Attorney for WaFd Bank.
Jeffery P. Kaufman, Meridian, Idaho, attorney for chapter 13 Trustee.
Introduction
Before the Court is a motion to dismiss filed by the chapter 131 trustee. Doc. No. 194. The debtor, Marilynn Thomason (“Debtor“) objected to the motion. Doc. No. 201. On April 19, 2022, the motion came before the Court for oral argument, at the conclusion of which the Court ordered the parties to file briefs on the issue of the Court‘s jurisdiction after which the motion would be deemed under advisement. Doc. No. 205. The parties filed the briefs, and the matter is now ripe for consideration. Doc. Nos. 207-09.
MEMORANDUM OF DECISION-1 Upon considering the arguments and submissions of the parties, as well as the applicable law, this decision resolves the motion.
Background Facts
On July 16, 2021, Debtor filed a barebones chapter 13 petition. Doc. No. 1. On July 29, she filed schedules, in which she listed $7,861,101 in assets including $1,282,000 in real property, and $176 in liabilities consisting of a monthly electric bill. Doc. Nos. 16 & 33. She also listed WaFd Bank (“WaFd“) as holding a priority unsecured claim in an unknown amount, but noted the claim was contingent, unliquidated, and disputed. Doc. No. 16. Additionally, Debtor listed attorney John Patrick Grayken as a priority unsecured creditor in an unknown amount. Id. Finally, Debtor listed $166 in monthly net income. Id.
On July 30, 2021, Debtor filed a chapter 13 plan. Doc. No. 22. In it, she proposed to pay $4.81 per month for 36 months, resulting in $173.40 being paid to a single creditor, Fall River Electric. Id. Trustee objected to confirmation of the plan, on the grounds that 1) the plan is not feasible as Debtor lacks sufficient regular income, 2) the plan is not filed in good faith, based on the fact that Debtor is not insolvent and listed only $176 in total debt, and 3) the plan fails to comply with
MEMORANDUM OF DECISION-2 Debtor subsequently filed a first amended plan which left much of the prior plan intact, including the payments of $4.81 per month. Doc. No. 47. She then made “technical” corrections to the first amended plan, and Trustee objected to confirmation on the same grounds as before, as well as one additional basis: that Debtor‘s plan
On September 8, 2021, the LSF10 Master Participation Trust (“Trust“) moved for relief from the automatic stay. Doc. No. 41. Following briefing and several hearings, the Court granted the motion and denied a subsequent motion to reconsider, which decision Debtor appealed. Doc. Nos. 50, 62, 70, 73, 101, 103-104, 107, 119, 122-23, 138.
On September 24, 2021, WaFd filed a proof of claim in the case to which Debtor objected. Claims Reg. No. 1-1; Doc. No. 67. The Court overruled Debtor‘s objection to WaFd‘s proof of claim, and Debtor appealed that decision. Doc. Nos. 67, 158, 162-63, 178, 191.
Debtor filed a second amended chapter 13 plan on January 13, 2022. Doc. No. 150. Trustee objected to confirmation of the plan, arguing the same points as previously raised. Doc. No. 161. Following the Court‘s resolution of Debtor‘s objection to WaFd‘s proof of claim, WaFd filed an objection to confirmation, arguing that it has not accepted Debtor‘s plan, that the plan must provide for payment of WaFd‘s allowed claim, and that the plan does not provide for surrender of WaFd‘s collateral. Doc. No. 166. The Court conducted a confirmation hearing on February 15, 2022, at which confirmation was denied. Doc. No. 173.
MEMORANDUM OF DECISION-3 Debtor thereafter filed a third amended chapter 13 plan. Doc. No. 185. WaFd again objected to confirmation, Doc. No. 204, and Trustee filed a motion to dismiss, Doc. No. 194. The Court conducted a hearing on confirmation of the third amended plan as well as Trustee‘s motion to dismiss, at the conclusion of which it denied confirmation and requested briefing on the jurisdiction question connected with the motion to dismiss. Doc. No. 205. The parties filed their briefs, Doc. Nos. 207-09, after which the motion to dismiss was deemed under advisement.
At no point has Debtor sought a stay pending appeal under
Preliminary Issue
At the hearing on the motion to dismiss, the Court initially raised an issue and asked the parties to brief it. Specifically, the Court inquired whether it had jurisdiction to dismiss this case due to the two pending appeals Debtor has filed. While the Debtor has not sought a stay pending appeal, that does not necessarily answer the question.
A. Jurisdiction Following Notice of Appeal, Generally
The filing of an appeal does not bring the bankruptcy case to a halt.
MEMORANDUM OF DECISION-4 case; or (2) issue any other appropriate orders during the pendency of an appeal to protect the rights of all parties in interest.”
With those precepts in mind, the Court will examine the parameters of its jurisdiction while an appeal is pending. First, while perhaps fairly obvious, it is clear this Court may not modify the order that is the subject of an appeal. Pace v. Hurt, 1992 WL 320844, 1 (9th Cir. November 2, 1992) (“The general rule is that once a notice of appeal has been filed, the lower court loses jurisdiction over the subject
Moreover, as noted above, the filing of an appeal does not prevent the Court from moving forward with the remainder of the case. Although
MEMORANDUM OF DECISION-5 2014, the case law prior to the amendment remains viable.2 Those cases provide that the bankruptcy court retains jurisdiction over all other matters in the case. The basic rule is that “an appeal from an order does not deprive jurisdiction of matters not resolved in that order.” In re Rudnick, 62 F.3d 1425 (9th Cir. 1995) (citing In re Wade, 115 B.R. 222, 230 (9th Cir. BAP 1990)). For example, the Ninth Circuit observed, “[t]he [lower] court retains jurisdiction over all other matters that it must undertake to implement or enforce the judgment or order [that is on appeal].” Sherman v. SEC (In re Sherman), 491 F.3d 948, 967 (9th Cir. 2007); Neary v. Padilla (In re Padilla), 222 F.3d 1184, 1190 (9th Cir. 2000) (“Absent a stay or supersedeas, the trial court [] retains jurisdiction to implement or enforce the judgment or order but may not alter or expand upon the judgment.“); In re Hagel, 184 B.R. 793, 795 (9th Cir. BAP 1995) (superseded in part by statute on other grounds) (the bankruptcy court did not lack jurisdiction to dismiss the case, based upon debtors’ failure to amend their schedules and plan, due to a pending appeal of whether the amendment should have been ordered); In re Ahmed, 420 B.R. 518, 523 (Bankr. C.D. Cal. 2009) (“The most important aspect of a bankruptcy appeal is what issues the appeal leaves behind for the lower court to resolve. The lower court retains full jurisdiction over any matter unrelated to the appeal.“).
An instructive case on this issue is In re Hagel, wherein the bankruptcy court entered an order denying confirmation of a chapter 13 plan. 184 B.R. at 795. No new
MEMORANDUM OF DECISION-6 plan was submitted. Id. The trustee moved to dismiss the case and the court granted that motion. Id. The debtors filed a motion for reconsideration which the bankruptcy court denied. The debtors appealed, arguing “the bankruptcy court lacked jurisdiction to dismiss their Chapter 13 case, as the dismissal was based on the ruling concerning the alleged plan deficiencies which was on appeal.” Id. at 798.
Trustee‘s brief cites to, and attaches, an order from a case out of the bankruptcy court of Montana captioned In re Rickert. Case No. 18-6037-BPH (D. Mont. June 20, 2020). In that case, the debtor had objected to a proof of claim filed by a creditor. The bankruptcy court overruled the objection which order the debtor appealed. The Ninth Circuit Bankruptcy Appellate Panel affirmed the bankruptcy court. Just prior to the issuance of the BAP‘s decision, the debtor filed an adversary proceeding challenging the validity, priority, and extent of the secured creditor‘s lien. The bankruptcy court held that it had explicitly and implicitly decided the issues raised in the adversary proceeding in its prior decision, and dismissed the adversary proceeding. Debtor appealed that decision.
MEMORANDUM OF DECISION-7 While that appeal was pending, the bankruptcy court denied confirmation of the debtor‘s plan after which the trustee moved for dismissal of the bankruptcy case. The Debtor argued that the bankruptcy court had no jurisdiction to rule on the trustee‘s motion to dismiss the bankruptcy case while the appeal was pending.
The Rickert court sought a test for determining whether it was divested of jurisdiction due to the pending appeal and, finding no such test articulated in the Ninth Circuit, applied one from the First Circuit Bankruptcy Appellate Panel:
[T]he test for determining if a pending appeal divests a lower court of jurisdiction is whether the subject matter presented in the appeal is so “closely related” to the issues raised in the motion that the entry of the order “impermissibly interfere[s]” with the appellant‘s rights in its appeal.
Id. at pp. 4-5 (quoting Mission Prod. Holdings, Inc. v. Schleicher & Stebbins Hotels, L.L.C. (In re Old Cold, LLC), 602 B.R. 798, 823 (1st Cir. BAP 2019)). Applying the test, the Rickert court held that the issues raised in debtor‘s appeal were narrow and involved a limited dispute between the debtor and a creditor and did not divest the court of jurisdiction to deny confirmation or to determine the trustee‘s motion to dismiss.
The Court will likewise employ this test in its consideration of whether it retains jurisdiction to adjudicate Trustee‘s motion to dismiss the bankruptcy case in light of each of the pending appeals.
B. Appeal of Order Granting Stay Relief
With this guidance in mind, the Court will consider whether Debtor‘s first appeal, in which she appeals the Court‘s order granting stay relief to Trust, places any bar upon
MEMORANDUM OF DECISION-8 the Court‘s consideration of Trustee‘s motion to dismiss. The Court concludes it does not.
In its prior decision and order, the Court determined that Trust was entitled to relief from the automatic stay to pursue its action against Debtor in state court. Trustee‘s motion to dismiss, on the other hand, is rooted in the continuing deficiencies of Debtor‘s proposed chapter 13 plans. The Court finds this is not so closely related to the issues raised in Debtor‘s appeal of the Court‘s stay relief order such that the entry of an order dismissing the bankruptcy
C. Appeal of Order Overruling Objection to Proof of Claim
This presents a relatively closer question. In the bankruptcy case, WaFd filed a proof of claim to which Debtor objected. Following an evidentiary hearing, the Court overruled Debtor‘s objection and allowed WaFd‘s secured claim in the amount of $139,565.81. Doc. Nos. 162-63. Debtor appealed the Court‘s ruling. Doc. No. 178.3
MEMORANDUM OF DECISION-9 Again, the test for determining if Debtor‘s pending appeal divests this Court of jurisdiction is whether the subject matter presented in the appeal is so closely related to the issues raised in Trustee‘s motion that the entry of an order of dismissal would “impermissibly interfere” with the Debtor‘s rights in her appeal. Applying that test, the Court concludes that it retains jurisdiction to consider Trustee‘s motion in this case.
The reasons outlined in Trustee‘s motion to dismiss are essentially twofold, alleging that Debtor‘s proposed plan does not: 1) provide payments that include at least $5 per month in compensation to Trustee as required by
Consideration of these alleged shortcomings are not affected by Debtor‘s appeal of the Court‘s order overruling her objection to WaFd‘s proof of claim. While that may seem obvious as regards the
MEMORANDUM OF DECISION-10 The same is of course true if the district court reversed this Court as to the amount of WaFd‘s allowed claim-Debtor would still have to pay WaFd through her plan in order to remain in chapter 13. And if the district court affirms this Court‘s decision, then Debtor must include the WaFd claim and payment thereof in the plan.4
Analysis of Motion to Dismiss
A motion to dismiss or convert a chapter 13 case is governed by
Sections
MEMORANDUM OF DECISION-11 Nelson v. Meyer (In re Nelson), 343 B.R. 671, 675 (9th Cir. BAP 2006) (citations omitted).
First, cause must be demonstrated. Section
As noted above, Trustee asserts that Debtor‘s proposed plan does not: 1) provide payments that include at least $5 per month in compensation to Trustee as required by
The Court concludes that adequate cause for dismissal has been shown.
A. Compliance with § 330(c)
First, Trustee contends that none of Debtor‘s proposed plans comply with
MEMORANDUM OF DECISION-12 at *7 (Bankr. D. N.M. May 23, 2019); In re Adams, 94 B.R. 838, 841 (Bankr. E.D. Pa. 1989) (“This Plan would not appear to contemplate sufficient payments to pay even the minimum compensation of $5.00 monthly to which the Chapter 13 Trustee is entitled pursuant to
While section 326 sets maximum compensation levels for trustees, section 330(c) generally assures trustees serving in chapter 12 or 13 cases a minimum level of compensation of not less than five dollars ($5.00) per month, to be paid from any distributions under the plan during the administration of the plan. This provision merely sets a floor on the chapter 12 or 13 trustee‘s compensation.
3 COLLIER ON BANKRUPTCY, ¶ 330.02[1][b] (Richard Levin & Henry J. Sommer, eds. 16th ed. rev. 2021).
In each of Debtor‘s plans including the most recent, she proposes to make payments in the amount of $4.81 per month for 36 months. Pursuant to
B. Compliance with Other Provisions in § 1325
The second basis for dismissal raised by the Trustee is that Debtor does not
MEMORANDUM OF DECISION-13 include payments for WaFd‘s allowed secured claim or otherwise comply with
1. Section 1325(a)(1)
2. Section 1325(a)(3)
This statute requires that Debtor must have proposed her plan in good faith and not by any means forbidden by law. The Bankruptcy Code does not define “good faith.” Over time, however, courts have held that “[t]he ‘good faith’ inquiry” was dependent on “whether the debtors [had] ‘acted equitably in proposing their Chapter 13 plan,‘” which, in turn, depended on “‘whether the debtor has misrepresented facts in his plan, unfairly manipulated the Bankruptcy Code, or otherwise proposed his Chapter 13 plan in an inequitable manner.‘” In re Welsh, 711 F.3d 1120, 1124 (9th Cir. 2013) (quoting Goeb v. Heid (In re Goeb), 675 F.2d 1386, 1390 (9th Cir. 1982)). The “good faith determination must take into account ‘all militating factors.‘” Id. at 1124.
Trustee contends that because Debtor has not yet proposed a plan that complies with
MEMORANDUM OF DECISION-14 conform her plan accordingly. Moreover, on February 2, 2022, the Court overruled Debtor‘s objection to WaFd‘s proof of claim and allowed its claim in the amount of $139,565.81. Doc. No. 162. Approximately six weeks later, on March 17, 2022, Debtor proposed her third amended plan, in which she again made no provision for WaFd‘s claim. Doc. No. 185. Even though she appealed this Court‘s decision in the interim, no motion for a stay pending appeal had been filed. Thus, any plan Debtor proposed must comply with the Court‘s order allowing WaFd‘s claim, regardless of the pending appeal. As it failed to do so, the Court cannot find that Debtor‘s plan was filed in good faith, as she
3. Section 1325(a)(5)
This portion of
(a)(5) with respect to each allowed secured claim provided for by the plan-
(A) the holder of such claim has accepted the plan;
(B)(i) the plan provides that-
(I) the holder of such claim retain the lien securing such claim until the earlier of-
(aa) the payment of the underlying debt determined under nonbankruptcy law; or
(bb) discharge under section 1328; and
(II) if the case under this chapter is dismissed or converted without completion of the plan, such lien shall also be retained by such holder to the extent recognized by applicable nonbankruptcy law;
(ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim; and
MEMORANDUM OF DECISION-15
(iii) if-
(I) property to be distributed pursuant to this subsection is in the form of periodic payments, such payments shall be in equal monthly amounts; and
(II) the holder of the claim is secured by personal property, the amount of such payments shall not be less than an amount sufficient to provide to the holder of such claim adequate protection during the period of the plan; or
(C) the debtor surrenders the property securing such claim to such holder[.]
It is clear Debtor‘s plan falls short in several respects. First, WaFd has not accepted Debtor‘s proposed plan. In fact, it specifically objected to confirmation of the plan. Doc. No. 204. Moreover, Debtor‘s plan does not even acknowledge WaFd‘s allowed secured claim. In Part 3, which covers the treatment of secured claims, Debtor checked the box indicating there are none. Doc. No. 185, at Part 3.1. The same is true for the portion of the plan entitled “Request for valuation of security, payment of fully secured claims, and modification of undersecured claims,” for which Debtor also checked the box indicating there were none. Id. at Part 3.2.
Moreover, under the portion of the plan wherein the Debtor lists secured claims excluded from
MEMORANDUM OF DECISION-16 propose and confirm a feasible plan to pay the County‘s allowed secured claim in full over the term of the plan. . . . At bottom, [the debtors‘] failure adequately to provide for the County‘s allowed secured claim rendered his plan unconfirmable.“); Barnes v. Barnes (In re Barnes), 32 F.3d 405, 407 (9th Cir. 1994) (“For a court to confirm a plan, each of the requirements of section 1325 must be present and the debtor has the burden of proving that each element has been met.“) (citing Chinichian v. Campolongo, 784 F.2d 1440 (9th Cir. 1986)).
Finally, Debtor has not provided for WaFd‘s retention of its lien securing its claim or, alternatively, for surrender of the property securing the claim, nor does the plan propose to distribute property sufficient to pay the allowed amount of the claim. In short, Debtor‘s proposed plan wholly fails to meet the requirements of
4. Section 1325(a)(7)
Next, the Court will address Trustee‘s contention that Debtor‘s proposed plan does not meet the requirements of
A bankruptcy court must determine a debtor‘s good faith on a case-by-case basis, taking into account the particular features of each Chapter 13 plan. In re Hieter, 414 B.R. 665, 670 (Bankr. D. Idaho 2009) (quoting In re Yochum, 96.2 I.B.C.R. 77, 78 (Bankr. D. Idaho 1996) (citing In re Porter, 102 B.R. 773, 775 (9th Cir. BAP 1989))); In re Wood, 543 B.R. 915, 922 (Bankr. D. Idaho 2016). In addition, “[t]he bankruptcy court must consider the totality of the circumstances, including prepetition conduct, in deciding
MEMORANDUM OF DECISION-17 whether the debtor has ‘acted equitably.‘” In re Hieter, 414 B.R. at 670 (quoting In re Tucker, 989 F.2d 328, 330 (9th Cir. 1993)). More particularly, to determine a chapter 13 debtor‘s good faith (or lack thereof), courts should consider:
(1) whether the debtor has misrepresented facts in his or her petition or plan, unfairly manipulated the Bankruptcy Code, or otherwise filed the Chapter 13 petition or plan in an inequitable manner;
(2) the debtor‘s history of filings and dismissals;
(3) whether the debtor‘s only purpose in filing for Chapter 13 protection is to defeat state court litigation; and
(4) whether egregious behavior is present.
In re Wood, 543 B.R. at 922 (quoting In re Hieter, 414 B.R. at 670-71 (citing Ho v. Dowell (In re Ho), 274 B.R. 867, 876 (9th Cir. BAP 2002))). Debtor bears the burden of establishing her plan is filed in good faith. Id.; Smyrnos v. Padilla (In re Padilla), 213 B.R. 349, 352 (9th Cir. BAP 1997).
Debtor has never personally filed bankruptcy before, nor does the Court find her behavior has been egregious. Turning to the other factors, the issues of unfair manipulation of the Bankruptcy Code and filing the petition and/or plan in an inequitable manner are much closer questions. As evidence of her lack of good faith, Trustee points to the fact that Debtor has never once filed a confirmable plan over the course of the bankruptcy proceeding, which spanned 256 days from the date of filing until Trustee filed the Motion to Dismiss. Indeed, the Court notes that Trustee objected to some of the very shortcomings discussed in this decision beginning with the first proposed plan. Doc. Nos. 22 & 38. These facts tend to show that Debtor has no intention of complying with
MEMORANDUM OF DECISION-18 Her unwillingness to pay an allowed secured debt through her plan while at the same time listing as her only creditor the power company, to whom she is current with her payments, further supports a
The next factor requires the Court to consider whether Debtor‘s only purpose in filing her petition was to defeat state court litigation. There is certainly a suggestion of that as Debtor has stated numerous times on the record that Trust was attempting to evict her when she filed the bankruptcy petition. This fact, especially when coupled with Debtor‘s unwillingness to engage in any meaningful reorganization of debt, demonstrates an overall lack of good faith and provides an additional barrier to confirmation of Debtor‘s third amended plan, and cause for dismissal of her bankruptcy case.
Leave to File an Amended Plan
The Court is mindful of the case law indicating that the second element of
MEMORANDUM OF DECISION-19 (Richard Levin & Henry J. Sommer, eds. 16th ed. rev. 2021) (debtor should normally be given at least one opportunity to submit modified plan).
In this case, beginning with the first plan Debtor submitted nearly one year ago, Trustee has contended that Debtor must meet all the requirements of
Right to Convert
Having denied confirmation and held that Debtor may not file an additional plan, the Court will briefly consider whether conversion to chapter 7 is appropriate. Section
Moreover, under
MEMORANDUM OF DECISION-20 CC-17-1364-LSTAL, 2018 WL 3468832, at *7 (9th Cir. BAP July 18, 2018) the panel considered a situation not unlike this one in which the schedules showed essentially no unsecured creditors, and the only other creditor was secured. The BAP observed that “[a]ppointment of a chapter 7 trustee to administer a chapter 7 estate
The Court concludes that conversion to chapter 7 is not appropriate.
Conclusion
This Court has jurisdiction to consider Trustee‘s motion to dismiss during the pendency of Debtor‘s appeals. Moreover, the Court concludes that Debtor‘s third amended plan does not comply with §§ 1325(a)(1), (a)(3), (a)(5) and (a)(7) and therefore may not be confirmed. As such, this case will be dismissed pursuant to
A separate order will be entered.
DATED: June 13, 2022
JOSEPH M. MEIER
CHIEF U. S. BANKRUPTCY JUDGE
MEMORANDUM OF DECISION-21