Opinion
No. 08-12615.
February 13, 2009
Memorandum on Motion to Dismiss
Prior to bankruptcy, debtor Ahmad Ali Mohyee lost a lawsuit in state probate court. The state court found that Mohyee had wrongfully and in bad faith taken property of a conservatee. The state court awarded the conservator a judgment against Mohyee of over $4 million and ordered Mohyee to return the conservatee's real property.
On December 5, 2008, Mohyee filed a Chapter 11 petition. In his status conference statement, Mohyee stated that he "intends to use the provisions of the bankruptcy code to get a respite from the litigations by his unsecured creditors under 11 USC § 362 in order to preserve his right to appeal from the $5 million judgment under 11 USC § 108." The U.S. Trustee has moved for dismissal of this case as having been filed in bad faith for an improper purpose.
A bankruptcy case should be dismissed as having been filed in bad faith where the debtor has filed only to use the automatic stay as a replacement for a state court appeal bond. In re Marsch, 36 F.3d 825, 828 (9th Cir. 1994). While dismissal is not mandated where the debtor has a legitimate purpose for reorganizing independent of the state court lawsuit, "[t]he test is whether a debtor is attempting to unreasonably deter and harass creditors or attempting to effect a speedy, efficient reorganization on a feasible basis." Id.
In this case, it is clear that Mohyee has filed to thwart enforcement of the state court judgment. He has no plans for reorganizing other than holding his creditors at bay until he supposedly wins his appeal. Mohyee only expects to begin paying his creditors "upon return to his normal business activities after the disposition of his appeal." He does not explain how he could possibly obtain confirmation of a plan over the objection of the judgment creditor. His "reorganization" plan is not speedy, efficient or feasible. The court will accordingly grant the U.S. Trustee's motion to dismiss this case.
The court also notes that by virtue of the state court findings Mohyee is not fit to be a debtor in possession. If the court were not dismissing this case, appointment of a trustee would be mandated by § 1104(a)(1) of the Bankruptcy Code.
Counsel for the U.S. Trustee shall submit an appropriate form of order.