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affirming bankruptcy court's finding of bad faith where the debtor did not accurately disclose expenses, did not provide notice of the bankruptcy to its two largest creditors, and submitted projections that were incomprehensible, inconsistent, and generally not proven by any credible supporting evidence
Summary of this case from In re Trinity Family Practice & Urgent CareOpinion
CAUSE NO. EP-21-CV-121-KC
2022-05-16
IN RE: DOUBLE H TRANSPORTATION LLC, Debtor, Double H Transportation LLC, Appellant, v. Brad W. Odell, MHC Financial Services, and Engs Commercial Finance Co., Appellees.
Michael R. Nevarez, The Nevarez Law Firm, PC, El Paso, TX, for Appellant. Brad W. Odell, Mullin Hoard and Brown, Lubbock, TX, for Appellee Brad W. Odell. James Wallace King, Offerman & King, LLP, Beaumont, TX, for Appellee MHC Financial Services. James Wesley Brewer, Kemp Smith LLP, El Paso, TX, for Appellee Engs Commercial Finance Co.
Michael R. Nevarez, The Nevarez Law Firm, PC, El Paso, TX, for Appellant.
Brad W. Odell, Mullin Hoard and Brown, Lubbock, TX, for Appellee Brad W. Odell.
James Wallace King, Offerman & King, LLP, Beaumont, TX, for Appellee MHC Financial Services.
James Wesley Brewer, Kemp Smith LLP, El Paso, TX, for Appellee Engs Commercial Finance Co.
ORDER
KATHLEEN CARDONE, UNITED STATES DISTRICT JUDGE
On this day, the Court considered Debtor-Appellant Double H Transportation LLC's appeal of the bankruptcy court's Order Denying Confirmation of First Amended Plan of Reorganization ("Order Denying Confirmation"), No. 20-31055, ECF No. 122, Order Converting Case to Chapter 7 ("Order Converting Case"), No. 20-31055, ECF No. 123, and Order Dismissing Debtor's Omnibus Objection to Class 4 Claims ("Order Dismissing Objection"), No. 20-31055, ECF No. 125. See ECF No. 1. For the reasons set forth below, the bankruptcy court is AFFIRMED . I. BACKGROUND
All references to this case number are to In re Double H Transportation LLC , No. 20-31055-hcm (Bankr. W.D. Tex. appeal docketed May 28, 2021).
Debtor-Appellant Double H Transportation LLC ("Debtor") appeals the outcome of its second Chapter 11 bankruptcy proceeding. Debtor filed its first Chapter 11 case on November 4, 2019. See No. 19-31830. The bankruptcy court dismissed this case on motion of the United States Trustee. See Order Dismissing Case, No. 19-31830, ECF No. 147.
All references to this case number are to In re Double H Transportation LLC , No. 19-31830-hcm (Bankr. W.D. Tex. Sept. 10, 2020). The dockets of Debtor's cases are included in the Record on Appeal, ECF No. 6.
Soon thereafter, Debtor filed the instant case under the newly-enacted Chapter 11, Subchapter V, 11 U.S.C. §§ 1181 et seq. The bankruptcy court denied confirmation of the first plan that Debtor proposed ("Original Plan") and ordered Debtor to submit an amended plan. Order Denying Conf. Plan, No. 20-31055, ECF No. 84. The court warned Debtor that, if it failed to obtain confirmation by May 14, 2021, the court would consider such failure cause to either immediately convert the case to Chapter 7 or dismiss it with prejudice. Order Denying Conf. Plan 3.
Debtor filed its First Amended Plan of Reorganization ("Amended Plan") on March 19, 2021. Am. Plan, No. 20-31055, ECF No. 97. Shortly before the confirmation hearing, Appellees MHC Financial Services ("MHC") and Engs Commercial Finance Co. ("Engs") both filed objections to the Amended Plan as unsecured creditors. No. 20-31055, ECF Nos. 110, 118, 121. MHC and Engs averred they had not received notice of the case—a fact that they found particularly concerning given that they had been properly notified of and participated in Debtor's first Chapter 11 case. Tr. Hr'g 21:25–23:2, 24:21–25:9, ECF No. 7-1.
At the confirmation hearing on May 13, 2021, the bankruptcy court heard arguments and testimony from Debtor, and arguments from MHC, Engs, and the Subchapter V Trustee. See Tr. Hr'g 4:9–5:16, 32:16–33:2. The bankruptcy court denied confirmation of the Amended Plan and converted the case to Chapter 7, then consequently dismissed Debtor's objection to Class 4 claims. Debtor now appeals all three orders, arguing that the court abused its discretion by considering the objections, denying confirmation, denying leave to modify, and converting the case to Chapter 7.
II. DISCUSSION
A. Jurisdiction and Standards of Review
This court has jurisdiction to review a bankruptcy court's final orders under 28 U.S.C. § 158(a)(1). The three orders on appeal in this case are all final orders for purposes of appellate review. See Bullard v. Blue Hills Bank , 575 U.S. 496, 502–03, 135 S.Ct. 1686, 191 L.Ed.2d 621 (2015) (finality of order denying confirmation without leave to amend); Halvajian v. Bank of N.Y. (In re Halvajian) , 216 B.R. 502, 510 (D.N.J.), aff'd , 168 F.3d 478 (3d Cir. 1998) (finality of order converting case to Chapter 7); Whitney Bank v. SCC Kyle Partners, Ltd. (In re SCC Kyle Partners, Ltd.) , 518 B.R. 393, 400 (W.D. Tex. 2014) (citing Moody v. Empire Life Ins. Co. (In re Moody) , 849 F.2d 902, 904 (5th Cir. 1988) ) (finality of order denying objection to claim).
A bankruptcy court's conclusions of law are reviewed de novo. Perry v. Dearing (In re Perry) , 345 F.3d 303, 309 (5th Cir. 2003). Its findings of fact are reviewed for clear error, meaning that its assessment of the evidence may only be set aside if the reviewing court has "the definite and firm conviction that a mistake has been committed." Id. (quoting Robertson v. Dennis (In re Dennis) , 330 F.3d 696, 701 (5th Cir. 2003) ). Its balancing of the equities is reviewed for abuse of discretion. See Browning Mfg. v. Mims (In re Coastal Plains, Inc.) , 179 F.3d 197, 204–05 (5th Cir. 1999). A court "abuses its discretion if it bases its decision on an erroneous view of the law or on a clearly erroneous assessment of the evidence." Esmark Apparel, Inc. v. James , 10 F.3d 1156, 1163 (5th Cir. 1994). The reviewing court may affirm on any grounds supported by the record. Plunk v. Yaquinto (In re Plunk) , 481 F.3d 302, 305 (5th Cir. 2007).
B. The Bankruptcy Court Properly Denied Confirmation of the Amended Plan
Debtor argues that it was error for the bankruptcy court to deny confirmation of the Amended Plan for two reasons. First, it argues that the court was required to confirm the plan because no objections were properly submitted. Opening Br. 14–20, ECF No. 11. Second, it argues that, even if it was proper for the judge to consider MHC and Engs's objections, the court should have approved the Amended Plan over those objections because the plan complied with the relevant provisions of the Bankruptcy Code. Opening Br. 21–22. Appellees argue that the objections were properly considered, and even if they should have been excluded, the court correctly denied confirmation under its independent duty to determine if the Amended Plan complied with the Bankruptcy Code. Resp. Br. 9–10, ECF No. 13 (citing United Student Aid Funds, Inc. v. Espinosa , 559 U.S. 260, 277, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010) ).
Debtor's Amended Plan was filed under Chapter 11, Subchapter V, and is therefore subject to the requirements of that subchapter. See In re Sullivan , 626 B.R. 326, 330 (Bankr. D. Colo. 2021). Additionally, the statutory sections that apply to standard Chapter 11 bankruptcies apply to Subchapter V unless otherwise specified. See 11 U.S.C. § 1181 (enumerating the provisions of Chapter 11 that do not apply to Subchapter V); In re Moore Props. of Person Cnty., LLC , No. 20-80081, 2020 WL 995544, at *4 (Bankr. M.D.N.C. Feb. 28, 2020) (indicating that a standard Chapter 11 provision "applies unaltered" to Subchapter V unless the subchapter provides for an exception).
1. The bankruptcy court did not abuse its discretion in denying the Amended Plan on the grounds that it was not fair and equitable
The bankruptcy court denied confirmation for "multiple independent reasons." Order Denying Mot. Stay ("Order Denying Stay") 7, No. 20-31055, ECF No. 137. First among these was that the court concluded the Amended Plan could neither be confirmed as consensual under 11 U.S.C. § 1191(a), nor as "fair and equitable" under § 1191(b). Tr. Hr'g 59:2–61:10; Order Denying Stay 7. Debtor argues that this decision constituted an abuse of discretion. Opening Br. 14–22.
Debtor appeals the Order Denying Confirmation, which states that confirmation is denied "for the reasons stated by the Court on the record at the hearing." Order Denying Conf. 2. The court summarized these reasons in its Order Denying Stay. The Court occasionally cites to this Order, as supported by the transcript of the hearing, because it contains a more formal, succinct expression of the bankruptcy court's reasoning.
a. The bankruptcy court could not approve the Amended Plan under § 1191(a)
Subchapter V confirmation is governed by 11 U.S.C. § 1191. In re Pearl Res. LLC , 622 B.R. 236, 251 (Bankr. S.D. Tex. 2020). Section 1191(a) states that a bankruptcy court shall approve a plan that complies with all the requirements of § 1129(a)—the section that governs standard Chapter 11 confirmation—other than the requirements set forth in paragraph (15). 11 U.S.C. § 1191(a). One of the requirements in § 1129(a) is that each impaired class has accepted the plan. Id. § 1129(a)(8). "A class is impaired if there is any alteration of a creditor's rights, no matter how minor." In re Sentinel Mgmt. Grp. , 398 B.R. 281, 317 (Bankr. N.D. Ill. 2008) (quoting In re Woodbrook Assocs. , 19 F.3d 312, 321 n.10 (7th Cir. 1994) ). Under § 1126(g), "a class is deemed not to have accepted a plan if such plan provides that the claims or interests of such class do not entitle the holders of such claims or interests to receive or retain any property under the plan on account of such claims or interests"—even if no objections are filed. 11 U.S.C. § 1126(g) ; In re SunEdison, Inc. , 575 B.R. 220, 226 (Bankr. S.D.N.Y. 2017). Section 1126(g) applies to the confirmation of a Subchapter V reorganization, since § 1126(g) is not listed among the sections of Chapter 11 that do not apply to Subchapter V. See 11 U.S.C. § 1181 ; Pearl Res. , 622 B.R. at 251 & n.72 (Bankr. S.D. Tex. 2020) (citing § 1181 for the proposition that a provision of Chapter 11 that is not listed in that section "remains applicable" to Subchapter V); In re Robinson , 628 B.R. 168, 174 n.31 (Bankr. D. Kan. 2021) (same).
Debtor argues at length that the bankruptcy court was required to approve the Amended Plan because, for various reasons, MHC and Engs did not properly file their objections. See Opening Br. 15–20. It reasons that, since no properly filed ballots rejected the Amended Plan, "the Plan should have been approved." Opening Br. 16. This argument is irrelevant. The Amended Plan proposed paying the unsecured creditors nothing, see Tr. Hr'g 9:1–10:6, thereby impairing those creditors’ rights. As the bankruptcy court observed, this means that those classes rejected the Amended Plan "by operation of the law" under § 1126(g), and so it could not confirm the plan under § 1191(a). Tr. Hr'g 59:4–6; see also Order Denying Stay 7.
Debtor argues, for the first time in its Reply Brief, that "unsecured creditors like Engs (and MHC) were entitled to receive no more than a 0% distribution under the Bankruptcy Code," and that "Appellees also offered no proof whatsoever that ... ENGS (or MHC) was entitled to more than a ‘Zero’ payment." Reply Br. 8, 10, ECF No. 15. This new argument suggests that the unsecured creditors were unimpaired by the Amended Plan. But that is not the standard for impairment. A creditor is not impaired if its claim is disallowed by the Bankruptcy Code, but impairment results if "the plan itself is a source of limitation on a creditor's legal, equitable, or contractual rights." Ultra Petroleum Corp. v. Ad Hoc Comm. of Unsecured Creditors (In re Ultra Petroleum Corp.) , 943 F.3d 758, 763 (5th Cir. 2019) (quoting Solow v. PPI Enters. (U.S.) (In re PPI Enters. (U.S.)) , 324 F.3d 197, 204 (3d Cir. 2003) ). The Amended Plan altered the unsecured creditors’ rights by proposing to pay them nothing, and so those claims were impaired.
b. The bankruptcy court's finding that the Amended Plan was not fair and equitable under § 1191(b) was not clearly erroneous
Debtor next argues that, even if MHC and Engs's objections were properly before the bankruptcy court, the court was required to confirm the Amended Plan because it complied with § 1191(b), including the requirement that it be "fair and equitable." Opening Br. 8, 21–22.
If a Subchapter V plan cannot be confirmed as consensual under § 1191(a), it can only be confirmed if it meets the requirements of § 1191(b). Pearl Res. , 622 B.R. at 251–52. Confirmation of a nonconsensual plan is known as a "cramdown." See, e.g., Bank of Am. Nat'l Tr. & Sav. Ass'n v. 203 N. LaSalle St. P'ship , 526 U.S. 434, 440, 119 S.Ct. 1411, 143 L.Ed.2d 607 (1999). Section 1191(b) instructs that a court shall approve a plan over an impaired class's objection if the plan "does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan." 11 U.S.C. § 1191(b).
In order for a plan to be "fair and equitable," it must meet a list of requirements set forth in § 1191(c). Among them, the plan must provide either that the debtor's projected disposable income for at least the next three years will be applied to make payments under the plan, or that the value of the property to be distributed during that period is not less than the debtor's projected disposable income. Id. § 1191(c)(2). Relatedly, there must be at least a "reasonable likelihood that the debtor will be able to make all payments under the plan." Id. § 1191(c)(3)(A). Courts often refer to this "reasonable likelihood" requirement as a requirement that a plan be "feasible," although § 1191(c)(2) imposes a more stringent test than the feasibility requirement that applies to a standard § 1129(a) cramdown. See In re U.S.A. Parts Supply , 630 B.R. 487, 492–93 (Bankr. N.D.W. Va. 2021) (discussing feasibility in the context of § 1191(c) ); Pearl Res. , 622 B.R. at 269 (stating that the "reasonable likelihood" requirement "fortifies the more relaxed feasibility test" that applies under § 1129(a)(11)). The debtor bears the burden of proving that the plan meets these requirements. In re Abri Health Servs., LLC , No. 21-30700 (SGJ), 2021 WL 5095489, at *2 (Bankr. N.D. Tex. Oct. 26, 2021). If the debtor fails to do so, then the plan cannot be approved under Subchapter V. See, e.g., In re Young , No. 20-11844-t11, 2021 WL 1191621, at *4–5 (Bankr. D.N.M. Mar. 26, 2021) (denying Subchapter V confirmation after debtor "ignore[d]" the requirement of proving feasibility).
The bankruptcy court found that the Amended Plan was not fair and equitable because Debtor did not meet its burden of proof with respect to its projected disposable income. Order Denying Stay 7. It found that Debtor's projections were "incomprehensible, inconsistent," and "just [not] credible," and that its only witness—its counsel's paralegal—had "no personal knowledge" of Debtor's finances. Tr. Hr'g 59:17–20, 61:3–10. It accordingly concluded that that Debtor put forth "no credible supporting evidence for most of the Revenue and Expenses projection numbers." Tr. Hr'g 61:9–10.
Debtor argues that this conclusion was an abuse of discretion because its evidence of its projected disposable income was "uncontroverted." Reply Br. 8, ECF No. 15. It contends that Appellees did not demonstrate why its witness's testimony was insufficient, especially given that Appellees did not proffer any evidence of their own and the court never found that the witness was "not credible." Reply Br. 7. This argument misapprehends the bankruptcy court's findings. The court found that Debtor did not introduce sufficient credible evidence to meet its burden of proof—either from the paralegal's testimony or through any other source. It makes no difference that the evidence was "uncontroverted" if it was inadequate.
The bankruptcy court's conclusion is amply supported by the transcript of the hearing and evidence on the record. The court and Appellees could not tell if Debtor was actually proposing to pay all of its projected disposable income, nor could they ascertain how much disposable income Debtor expected to have. See Tr. Hr'g 24:4–13, 25:13–26:7, 28:3–6, 60:24–61:2. Debtor's Memorandum of Legal Authorities ("Memorandum") filed before the hearing contained projections that were inconsistent with the projections in the Amended Plan. See Mem. 11, No. 20-31055, ECF No. 115 ; Am. Plan 5, 14; Tr. Hr'g 11:4–12:11. At the hearing, Debtor admitted that the projections in both its Plan and the Memorandum were no longer accurate, see Tr. Hr'g 17:9–18:14, and was unable to give a consistent figure for its projected disposable income, see Tr. Hr'g 59:21–60:23 (summarizing the different projections that were suggested to the court). When pressed on where he had gotten the figure for Debtor's projected disposable income written in the Proposed Confirmation Order, Debtor's counsel said it came from a portion of an Excel spreadsheet that was not displayed on an exhibit because it "couldn't fit into the one page." Tr. Hr'g 57:3–25. Thus, Debtor's documentary evidence did not establish its projected disposable income.
Debtor's testimonial evidence did nothing to cure these deficiencies. Competent testimony might have been able to establish that Debtor planned to pay its projected disposable income and that it was reasonably likely to be able to do so. See, e.g., In re Ellingsworth Residential Cmty. Ass'n , No. 6:20-bk-01346-KSJ, 2020 WL 6122645, at *4 (Bankr. M.D. Fla. Oct. 16, 2020) (finding debtor's "papers and the testimony of its President" sufficient to prove feasibility); Pearl Res. , 622 B.R. at 269 (giving "great weight" to uncontroverted expert testimony that debtors would be able to generate sufficient revenue). But see U.S.A. Parts Supply , 630 B.R. at 493 (finding debtor's "anecdotal" and "unreliable" testimony about expected growth insufficient to prove feasibility). However, Federal Rule of Evidence 602 requires that lay witness testimony be based on personal knowledge, and "[m]erely being informed by others and believing is not personal knowledge testimony." Taipe v. Carson (In re Carson) , 510 B.R. 627, 642 (Bankr. E.D. Cal. 2014). Debtor's sole witness was its counsel's paralegal, who stated that she filled out Debtor's exhibits using numbers that other people provided and that she did not verify. See Tr. Hr'g 35:17–36:24. She did not have personal knowledge of Debtor's finances or intent to pay.
Although the transcript is incomplete due to participants’ "faulty remote connections," see Tr. Hr'g 69, the gist of the witness's testimony is clear, and supports the bankruptcy court's conclusion that "she just got numbers that the Debtor provided her and she plugged them into a spreadsheet." See Hearing 61:6–7.
In sum: Debtor failed to introduce credible evidence supporting its projected disposable income. Not only was its evidence inadmissible, contradictory, and/or incomplete—Debtor was unable to even provide a single consistent figure for how much disposable income it expected to have over the coming years. Given these facts, the bankruptcy court's conclusion that Debtor failed to prove that the Amended Plan was fair and equitable certainly was not clearly erroneous. As such, the court did not abuse its discretion in denying confirmation. The denial of confirmation is affirmed.
As stated by the bankruptcy judge at the hearing:
So today we spent a lot of time on the Projected Disposable Income requirement. The bottom line, I was treated to a mismatch of, frankly, incomprehensible, inconsistent, I just could not understand projections from the Debtors. They just weren't credible.
I started to keep track and then I lost track but I asked the Debtor's Counsel three or four times what the Debtor's projected disposable income was and I got a different answer every time, different ones every time. And at the end of the hearing, at the conclusion when I asked why the Proposed Confirmation Order has a figure of Projected Disposable Income of $20[6,590], where did that number come from and the answer was, Well, it's not on the spreadsheet; it's off the spreadsheet of projections. So I can't find that Debtor is paying its projected disposable income to creditors with this kind of evidence.
Tr. Hr'g 59:16–60:6.
2. Alternatively, the bankruptcy court did not abuse its discretion in denying the Amended Plan after finding that it was not proposed in good faith
A separate, "independent reason" that the bankruptcy court gave for denying confirmation was its finding that the Amended Plan was not proposed in good faith. Order Denying Stay 7–8; Tr. Hr'g 63:16–18. Debtor argues that this was an abuse of discretion because "the uncontroverted documentary and testimonial evidence proved otherwise." Opening Br. 9.
Even if a plan otherwise satisfies the requirements of Chapter 11, a court may deny confirmation upon finding that it was not proposed in good faith. 11 U.S.C. § 1129(a)(3). A debtor must show its plan was proposed in good faith by a preponderance of the evidence. Pearl Res. , 622 B.R. at 260. This good faith requirement applies to both standard Chapter 11 bankruptcies and Subchapter V bankruptcies. In re Robinson , 632 B.R. 208, 214 (Bankr. D. Kan. 2021).
"Where the plan is proposed with the legitimate and honest purpose to reorganize and has a reasonable hope of success, the good faith requirement of § 1129(a)(3) is satisfied." Est. of Brite v. Sun Country Dev., Inc. (In re Sun Country Dev., Inc.) , 764 F.2d 406, 408 (5th Cir. 1985). The court should consider "the totality of the circumstances surrounding establishment of a Chapter 11 plan, keeping in mind that the purpose of the Bankruptcy Code is to give debtors a reasonable opportunity to make a fresh start." Pearl Res. , 622 B.R. at 260. Bankruptcy courts normally construe § 1129(a)(3) narrowly. See In re Urgent Care Physicians, Ltd. , No. 21-24000-beh, 2021 WL 6090985, at *4 (Bankr. E.D. Wis. Dec. 20, 2021). However, "[d]eference to the bankruptcy court's findings is ‘particularly important’ on the factual question of a party's motivation," SCC Kyle Partners , 518 B.R. at 407 (quoting Save Our Springs All., Inc. v. WSI (II)-COS, L.L.C. (In re Save Our Springs All., Inc.) , 632 F.3d 168, 175 (5th Cir. 2011) ), because "[t]he bankruptcy judge is in the best position to assess the good faith of the parties’ proposals," Jasik v. Conrad (In re Jasik) , 727 F.2d 1379, 1383 (5th Cir. 1984).
The bankruptcy court found that Debtor's Amended Plan was not proposed in good faith based on a series of events both before and during the hearing. Good faith concerns first arose because Debtor's Original Plan proposed full payment to its creditors, but mere months later, the Amended Plan proposed paying unsecured creditors nothing. See Tr. Hr'g 6:21–24, 8:21–9:10; Am. Plan 5, 12–18. It was not until the hearing that Debtor explained that the inconsistency came from a major calculation error in the Original Plan. See Tr. Hr'g 8:2–20, 63:19–64:17. Furthermore, MHC and Engs were both involved in Debtor's first Chapter 11 case but did not receive notice of the second proceeding—and the bankruptcy court expressed concern that other creditors similarly might have been left out of the second case. Tr. Hr'g 65:7–66:24. And as previously discussed, the Amended Plan contained inaccuracies and inconsistencies, some of which were only disclosed at the hearing.
These facts support the bankruptcy court's finding of bad faith. "[W]hether expenses are accurately disclosed" is relevant to good faith, see Urgent Care , 2021 WL 6090985, at *3, and the major discrepancies between the Original Plan and the Amended Plan, which went unexplained in the Amended Plan itself, suggest inaccurate disclosure. The Amended Plan "should have been [Debtor's] best effort at proposing confirmable terms," so Debtor's attempt to make "significant, last-minute changes to [its] plan do[es] not show good faith." See Young , 2021 WL 1191621, at *5. Additionally, for the reasons discussed above, the Amended Plan did not have "a reasonable hope of success," see Sun Country Dev. , 764 F.2d at 408, given the bankruptcy court's finding that Debtor's projections were "incomprehensible, inconsistent," and generally not proven by any "credible ... supporting evidence," Tr. Hr'g 59:18, 61:9–10; see also Young , 2021 WL 1191621, at *5 (finding that debtors’ "lackadaisical attitude toward their reporting obligations" was in bad faith). And Debtor's failure to give adequate notice to at least "two large creditors," both of which filed proofs of claims in its first Chapter 11 case, further supports the bankruptcy court's conclusion that Debtor did not intend to deal with its creditors in good faith. See Tr. Hr'g 66:15–24; In re Ciarcia , 578 B.R. 495, 500–01 (Bankr. D. Conn. 2017) (considering lack of notice to creditors as evidence of bad faith). The bankruptcy court did not abuse its discretion in denying confirmation under § 1129(a)(3), and so its denial is affirmed on the alternative grounds that Debtor did not prove it proposed the Amended Plan in good faith.
C. The Bankruptcy Court Properly Denied Leave to Modify
Debtor also appeals the bankruptcy court's denial of leave to modify. Opening Br. 7, 21–23. The court did not permit Debtor to modify the Amended Plan because it found Debtor had not followed the proper procedure to file a modification. See Order Denying Stay 8.
A Subchapter V debtor "may modify a plan at any time before confirmation." 11 U.S.C. § 1193(a). "After the modification is filed with the court, the plan as modified becomes the plan." Id. The procedure for a Chapter 11 modification is governed by Bankruptcy Rule 3019(a). In re Oakland Physicians Med. Ctr., L.L.C. , No. 15-51011-wsd, 2016 WL 424810, at *8 (Bankr. E.D. Mich. Feb. 2, 2016). If the debtor "file[s] a modification of the plan" before confirmation, the court must conduct a hearing on whether the modification "adversely change[s] the treatment of the claim of any creditor ... who has not accepted in writing the modification." Fed. R. Bankr. P. 3019(a) ; see also In re Dow Corning Corp. , 237 B.R. 374, 377–78 (Bankr. E.D. Mich. 1999) (describing when the rule applies).
Debtor never filed a modification with the bankruptcy court. Instead, it tried to modify the Amended Plan via its Memorandum and an oral request at the hearing. See Order Denying Stay 8. The bankruptcy court found that these attempts at modification did not comply with the requirement that a modification must be "filed with the court." See, e.g. , Tr. Hr'g 11:18–23 (citing 11 U.S.C. § 1193(a) ) ("[T]he Bankruptcy Code has a way that you modify a plan. [...] I've never seen anybody modify a plan by filing a 20-page boilerplate memorandum and saying, This is the modified plan."). The court additionally denied leave to modify because it found that it would not have time to conduct the required hearing before Debtor's confirmation deadline. See Order Denying Stay 8. The court did not abuse its discretion in upholding the requirements of § 1193(a) and Bankruptcy Rule 3019(a). See generally De Galofre v. US Bank Nat'l Ass'n , No. 0:18-cv-60511-UU, 2018 WL 9458260, at *5 (S.D. Fla. Oct. 1, 2018) (holding that bankruptcy court "plainly did not abuse its discretion" in denying appellant's motion when appellant "failed to comply with numerous bankruptcy rules and procedures"). The denial of leave to modify is affirmed.
D. The Bankruptcy Court Properly Converted the Case to Chapter 7
Finally, Debtor appeals the conversion of its case from a Chapter 11 reorganization to a Chapter 7 liquidation. Opening Br. 12, 23.
Under 11 U.S.C. § 1112(b), a bankruptcy court shall convert a Chapter 11 case to a Chapter 7 case for cause when it determines that doing so is "in the best interests of creditors and the estate" after notice and a hearing. 11 U.S.C. § 1112(b)(1). The court may do so sua sponte. In re Nikron, Inc. , 27 B.R. 773, 776–77 (Bankr. E.D. Mich. 1983). "A determination of whether or not cause under section 1112(b) exists rests in the sound discretion of the bankruptcy court." Sullivan Cent. Plaza I, Ltd. v. BancBoston Real Est. Cap. Corp. (In re Sullivan Cent. Plaza I, Ltd.) , 935 F.2d 723, 728 (5th Cir. 1991) (citing Koerner v. Colonial Bank (In re Koerner) , 800 F.2d 1358, 1367 & n.7 (5th Cir. 1986) ). As enumerated in § 1112(b)(4), "cause" includes "failure to comply with an order of the court," and "failure to ... file or confirm a plan, within the time fixed by this title or by order of the court." 11 U.S.C. § 1112(b)(4)(E), (J). Additionally, a court's finding that a plan was not filed in good faith is also cause for conversion. See In re Delta AG Grp., LLC , 596 B.R. 186, 194 (Bankr. W.D. La. 2019) (collecting cases).
There is no abuse of discretion in the Order Converting Case. The bankruptcy court converted Debtor's case as permitted by § 1112(b)(4)(J) after Debtor failed to obtain timely confirmation of the Amended Plan. See Order Denying Stay 5. Although courts have warned against applying § 1112(b)(4)(J) ’s time limit too harshly, see, e.g., In re Simbaki, Ltd. , 522 B.R. 917, 923–24 (Bankr. S.D. Tex. 2014) (rejecting a mechanistic reading of § 1112(b)(4)(J) when it would lead to "absurd results"), the bankruptcy court was well within its discretion to find that cause existed under these circumstances. It only converted the case after finding that Debtor had failed to confirm a Chapter 11 plan three times: once in its original Chapter 11 case, and twice in this case. See Tr. Hr'g 67:17–68:8; Order Denying Stay 10. The bankruptcy court had no duty to grant Debtor a fourth bite at the apple. See Woodbrook Assocs. , 19 F.3d at 322 (observing, under that § 1112(b), "bankruptcy courts are given a great deal of discretion to say when enough is enough"). Moreover, while the bankruptcy court did not cite bad faith as cause, its finding that the Amended Plan was not filed in good faith is also grounds for conversion. See Delta AG Grp. , 596 B.R. at 194. The Order Converting Case is affirmed.
The Court notes Appellees’ argument that Debtor waived its appeal of its case's conversion because it did not adequately address the issue in its Opening Brief. See Resp. Br. 12. The Court need not decide if Debtor's treatment of conversion was so minimal as to constitute waiver because the argument fails on its merits.
III. CONCLUSION
For the foregoing reasons, the bankruptcy court's Order Denying Confirmation, Order Converting Case, and Order Dismissing Objection are AFFIRMED .