Opinion
Case No. 19-57515
2021-08-16
IN RE: Roger D. ANDERSON, Debtor.
Brian D. Flick, DannLaw, Cuyahoga, OH, for Debtor.
Brian D. Flick, DannLaw, Cuyahoga, OH, for Debtor.
OPINION AND ORDER ON TRUSTEE'S MOTION TO DISMISS AND SETTLERS BANK'S MOTION TO DISMISS WITH PREJUDICE (DOCS. #41 & 42)
C. Kathryn Preston, United States Bankruptcy Judge
This cause came on for evidentiary hearing on July 12, 2021, upon the Motion to Dismiss (Doc. #41) filed by Chapter 12 Trustee, the Motion to Dismiss With Prejudice (Doc. #42) filed by Creditor, Settlers Bank, and the omnibus response to the motions (Doc. #49) of Roger D. Anderson ("Debtor"). Debtor does not contest dismissal of this case but contests whether the case should be dismissed with prejudice. Present at the trial were Debtor, pro se; Khadine Ritter, attorney for Settlers Bank; and Steve Hall, Senior Vice President of Settlers Bank.
The Trustee elected not to take a position on whether the case is dismissed with or without prejudice, and was excused from appearing at the trial.
I. JURISDICTION
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and General Order 05-02 entered by the United States District Court for the Southern District of Ohio, referring all bankruptcy matters to this Court. This is a core proceeding pursuant to 28 U.S.C. § 157(B)(2)(A).
II. FINDINGS OF FACT & PROCEDURAL BACKGROUND
Upon the evidence submitted, the Court makes the following findings of fact:
Debtor commenced this case, with the assistance of legal counsel experienced in bankruptcy law, with a Chapter 12 petition for relief filed on November 21, 2019. The meeting of creditors, required by 11 U.S.C. § 341, was originally scheduled for December 19, 2019; at the request of Debtor, the meeting was rescheduled for January 16, 2020. Debtor, however, failed to appear at the meeting of creditors. Debtor had acted on the advice of his legal counsel to pursue relief under Chapter 12 of the Bankruptcy Code, and when the case was filed, he believed he was eligible for Chapter 12 relief. It is patently clear from Debtor's Schedules and Statement of Financial Affairs, however, that Debtor was not eligible to be a debtor under Chapter 12 inasmuch as the documents reflect that Debtor had earned no income from farming operations within the past few years. Debtor's counsel was aware of Debtor's sources of income, so Debtor does not know why his counsel recommended Chapter 12 to him.
Debtor's legal counsel withdrew as counsel for Debtor during the pendency of this case (Doc. #91). Debtor continued prosecuting the case pro se.
For 40 years, Debtor had practiced medicine. Debtor had also intermittently timbered farmland that he owned. At the time Debtor filed the petition commencing this case, he had ceased practicing medicine, had enhanced his timbering operation, and begun farming activity. He owned several properties, many of which Settlers Bank had financed, including: 12745 SR 550, Fleming, Ohio (approximately 300 acres); 13630 State Route 550, Fleming, Ohio (single family home, commercial store property, and storage buildings); 101-101 ½ Putnam St., Marietta, Ohio (commercial property); and 3118 Barnett Ridge Road, Fleming Ohio (single family home). Debtor and Settlers Bank had established a lending relationship over several years. In addition to mortgages on the previously listed properties, Settlers Bank also made loans to several of Debtor's business entities, for which Debtor extended personal guarantees. Debtor's last payment to Settlers Bank was in March of 2019. In April 2019, Debtor stopped practicing medicine due to various investigations being conducted by local and federal authorities, at which point Debtor increased timbering on his property. Debtor did not remit any monies made from the timbering operations to Settlers Bank. Debtor now keeps some cattle on the property and grows hay to feed the cattle, but Debtor did not commence these farming activities until after 2019 and does not derive any income from these activities.
Debtor transferred the commercial property at this address to Jussen Trust in October 2019, prior to filing the Chapter 12 petition. Debtor Statement of Financial Affairs, Part 7 (Doc. #30).
Debtor used the income derived from harvesting timber to pay two employees that assisted him in harvesting the timber, as well as to pay for basic necessities.
Prior to the commencement of this Chapter 12 case, Debtor had initiated two other bankruptcy proceedings. In 2016, Debtor found himself in financial difficulties due to downturn in his medical practice. On June 30, 2016, the day before a planned foreclosure sale, Debtor filed a petition for relief under Chapter 13 of the Bankruptcy Code, without assistance of counsel (Case No. 2:16-bk-54293, Doc. #1). The Chapter 13 Trustee moved for dismissal of the case, for Debtor's failure to file the required credit counseling certificate, as well as Debtor's failure to file schedules and a proposed plan within fourteen (14) days of the petition date. The Chapter 13 case was dismissed on August 10, 2016.
A few months later, on November 17, 2016, again the day before a planned foreclosure sale, Debtor filed a Chapter 11 petition for relief, with the assistance of legal counsel (Case No. 2:16-bk-57421, Doc. #1). In September 2017, the United States Trustee moved for dismissal of the case for Debtor's failure to "maintain an appropriate budget consistent with his Schedules, which ... led to continuing loss and gross mismanagement of the bankruptcy estate" and Debtor's failure to pay required quarterly fees. Debtor never filed a plan in the case. Debtor's financial condition began to improve during the pendency of the case. Believing that he could resolve his financial difficulties, Debtor agreed to dismissal of the case. The Court entered an agreed order dismissing the Chapter 11 case on September 26, 2017.
For a while, Debtor was able to work with his creditors, bringing the debt owed some institutional lenders current and establishing payment plans with others. However, Debtor experienced another decline in his medical practice, in his opinion due to law enforcement investigations of his medical practices. In March 2019, he was indicted. As a result, he stopped practicing medicine. Debtor filed the petition for relief under Chapter 12 commencing this case on November 21, 2019. Once again, Debtor filed on the eve of a foreclosure sale set for November 22, 2019. On January 24, 2020, the Chapter 12 Trustee filed his Motion to Dismiss this Chapter 12 case on the grounds that (1) Debtor is ineligible to file under Chapter 12 because he is not a "family farmer or family fisherman with regular annual income" as defined by 11 U.S.C. § 101(18), and (2) Debtor delayed filing required schedules and failed to attend the meeting of creditors, resulting in unreasonable delay that is prejudicial to creditors. On January 24, 2020, Settlers Bank filed its Motion to Dismiss with Prejudice on various grounds, including (1) similar ineligibility issues as argued by the Trustee, and (2) that Debtor filed the Chapter 12 petition in bad faith. By this time, Debtor had become aware that he did not qualify for Chapter 12 relief. Debtor submitted an omnibus response to both motions acknowledging that "the ineligibility issue exists," but requesting an evidentiary hearing on the issue of bad faith in filing the petition. The Court scheduled a trial on the issue of bad faith for April 21, 2020.
Settlers Bank asserts that timbering is not a farming operation within the scope of Chapter 12; however, the Court need not, and does not, decide this issue because Debtor has admitted that he is ineligible for Chapter 12 relief.
Due to the COVID pandemic, and because the parties desired an in-person trial (which was not possible for many months due to the pandemic), the trial was continued several times. During this time, Settlers Bank obtained relief from the automatic stay and pursued foreclosure sale as to three (3) properties owned by Debtor: 101 Putnam Street, Marietta, Ohio; 3118 Barnett Ridge Road, Fleming, Ohio; and 231.729 acres in Barlow and Warren Townships, in Washington County, Ohio. The Court conducted the trial on the Motions to Dismiss on July 12, 2021, taking the matter under advisement.
III. DISCUSSION
A. Bad Faith as Grounds for Dismissal under 11 U.S.C. § 1208(c)
Settlers Bank claims that Debtor's petition should be dismissed with prejudice pursuant to 11 U.S.C. § 1208(c), due to Debtor's bad faith filing of the petition. Section 1208(c) states that "[o]n request of a party in interest, and after notice and a hearing, the court may dismiss a case under this chapter [ 11 USCS §§ 1201 et seq. ] for cause ..." and provides a nonexclusive list of ten (10) bases on which a court may find cause. 11 U.S.C. § 1208(c) (emphasis added); see also Gahm v. United States , No. 98-4510, 2000 WL 1277212, at *3, 2000 U.S. App. LEXIS 22736, at *11 (6th Cir. Aug. 31, 2000) (explaining that "the list is not exhaustive"). Although not given as a basis in the statute, "[e]vidence of a bad faith filing constitutes cause for dismissal pursuant to § 1208(c)." In re Burger , 254 B.R. 692, 696 (Bankr. S.D. Ohio 2000). "Bankruptcy courts ... routinely treat dismissal for prepetition bad-faith conduct as implicitly authorized by the words ‘for cause.’ " Marrama v. Citizens Bank , 549 U.S. 365, 373, 127 S. Ct. 1105, 1111, 166 L.Ed.2d 956 (2007).
Upon determining that a debtor has acted in bad faith in filing a petition under Chapter 12, it is within the bankruptcy court's discretion whether dismissal is appropriate. In re Pertuset , No. 12-8014, 2012 WL 6598444, at *16, 2012 Bankr. LEXIS 5792, at *41-42 (B.A.P. 6th Cir. Dec. 18, 2012) (citation omitted). Many bankruptcy courts consider factors relevant to the analogous analysis of bad faith under Chapter 13. See, e.g., Burger , 254 B.R. at 696. This makes sense inasmuch as Chapter 12 of the Bankruptcy Code is modeled after Chapter 13. The two remedial chapters are very similar, focused on reorganization of an individual's financial affairs through a three to five year plan, administered by a trustee, with many of the same standards for confirmation. The Sixth Circuit Court of Appeals has held that the test for good faith, or the lack thereof, "requires consideration of the totality of circumstances." Alt v. United States (In re Alt) , 305 F.3d 413, 419 (6th Cir. 2002) (citation omitted). The following may be considered in examining the totality of Debtor's circumstances and ascertaining good faith in filing the petition:
(1) the debtor's income;
(2) the debtor's living expenses;
(3) the debtor's attorney's fees;
(4) the expected duration of the ... plan;
(5) the sincerity with which the debtor has petitioned for relief ...;
(6) the debtor's potential for future earning;
(7) any special circumstances, such as unusually high medical expenses;
(8) the frequency with which the debtor has sought relief before in bankruptcy;
(9) the circumstances under which the debt was incurred;
(10) the amount of payment offered by debtor as indicative of the debtor's sincerity to repay the debt;
(11) the burden which administration would place on the trustee; [and]
(12) the statutorily-mandated policy that bankruptcy provisions be construed liberally in favor of the debtor.
Id. (citation omitted).
However, these factors, like the grounds for dismissal under § 1208(c), are not exhaustive. Indeed, Settlers Bank did not address many of the listed factors, focusing almost solely on Debtor's serial bankruptcy cases, the timing of his petitions, his ineligibility for Chapter 12 relief, and the accuracy of his filings in all of his cases. The Sixth Circuit emphasizes that the analysis for good faith is a "fact-specific and flexible determination." Id. (citation omitted). "[N]o list is exhaustive of all the conceivable factors which could be relevant when analyzing a particular debtor's good faith ... [N]o one factor should be viewed as being a dispositive indication of the debtor's good faith." In re Pertuset , 2012 WL 6598444, at *16, 2012 Bankr. LEXIS 5792, at *43 (citation omitted). The "ultimate inquiry ... is whether the debtor has abused the bankruptcy process." Burger , 254 B.R. at 696 (citation omitted).
B. Alleged Indicia of Bad Faith Actions of Debtor
Settlers Bank argues there are several indicia of bad faith illustrating Debtor's intent to abuse the bankruptcy process. First, Settlers Bank argues that Debtor's filing a petition under Chapter 12, in itself, was in bad faith as it was "blatantly obvious" that Debtor did not meet the eligibility requirements of 11 U.S.C. § 101(18). Mot. To Dism. With Prej. at 8. At trial, Settlers Bank illustrated that, based on Debtor's Schedule I disclosing income and Debtor's Statement of Financial Affairs, Debtor clearly admitted that he derived no income from his timbering; therefore, Debtor could not have expected to meet the eligibility requirements to qualify as a debtor under Chapter 12. See 11 U.S.C. §§ 101(18)(A), 109(f). Second, Settlers Bank argues that Debtor's pattern of filing this, as well as the two previous bankruptcy petitions, on the eve of foreclosure sale suggests that Debtor's purpose in filing was to frustrate Settlers Bank's state court foreclosure proceedings. Settlers Bank argues that the timing of these filings, in combination with the fact that Debtor's financial position did not appear to improve between filings, indicates that Debtor had no good faith intention to actually utilize the bankruptcy process to reorganize, but rather he filed merely for the benefit of the automatic stay. Third, Settlers Bank argues that, at a minimum, Debtor's failure to appear at the meeting of creditors is an indication that Debtor was not taking the bankruptcy case seriously.
As further evidence of bad faith, Settlers Bank complains that Debtor failed to accurately complete his Schedules in both this Chapter 12 case and Debtor's Chapter 11 case. Finally, Settlers Bank points out that shortly prior to commencement of this case, Debtor transferred the commercial property at 13630 State Route 550, Fleming, Ohio to Jussen Trust.
Based on any combination of the foregoing indicia of bad faith, Settlers Bank argues that Debtor's case should be dismissed with prejudice, barring Debtor from filing a subsequent bankruptcy petition for somewhere between 180 days and two years.
C. Debtor Did Not File the Chapter 12 Petition in Bad Faith
Considering the totality of Debtor's circumstances and the evidence before the Court, the Court finds that Debtor did not file the petition in bad faith. Clearly, Debtor was not eligible to be a debtor under Chapter 12 at the time he filed the petition for relief in this case. For Debtor to be eligible for protection under Chapter 12 of the Bankruptcy Code, among other requirements, Debtor must have generated at least 50 percent of his income for either the 2018 taxable year or both the 2016 and 2017 taxable years from the farming operations. See 11 U.S.C. §§ 109(f), 101(18)(A). Debtor conceded in his Schedules and other documents that he did not generate income in the relevant years from farming operations. But the Court is persuaded that Debtor believed that he was eligible and was following the advice of experienced counsel when electing to pursue Chapter 12 relief.
Nor do Debtor's repeat filings convince the Court that he acted in bad faith. Debtor's failure to prosecute his series of bankruptcy cases, including Debtor's failure to file a plan in any of the cases, was initially troubling to the Court, as were the several omissions in Debtor's Schedules in this and previous bankruptcy cases. However, Debtor sufficiently explained how Debtor's cases progressed, which avoids a conclusion of bad faith: At trial, Debtor explained, and it is understandable, that in his Chapter 13 case, he struggled with the bankruptcy filing process without the assistance of legal counsel. Though this explanation does not excuse Debtor's non-compliance with the requirements of the bankruptcy process (which ultimately resulted in the dismissal of that case), it is relevant to ascertaining whether Debtor's failure to file the required information was in bad faith. Due to his debt load, he was ineligible for Chapter 13 relief, so he did not contest the dismissal, planning to follow dismissal of that case with the Chapter 11 case.
At trial, Debtor admitted that he failed to disclose an interest in certain hunting leases, expenses paid for the retention of legal defense counsel related to criminal proceedings against him, the retention of employees related to timbering, and possibly other information required to be disclosed.
Debtor further explained that during the Chapter 11 case and after its dismissal, his financial position improved. In light of the improvement, Debtor did not anticipate needing bankruptcy relief moving forward and did not resist dismissal of the Chapter 11 case. It is worth noting that there was no deadline set for Debtor to file a plan in the case. The United States Trustee filed the motion to dismiss the case less than ten (10) months after the petition had been filed. It is not unusual for a Chapter 11 plan to be filed more than a year after a Chapter 11 case is commenced. It was only upon another unexpected decline in his financial position that he was again forced to file another bankruptcy petition as a last resort.
Additionally, Debtor posited that, since the filing of the petition, Debtor's financial situation as to Settlers Bank has also improved, since Settlers Bank obtained relief from the automatic stay and sold three (3) properties. But this is irrelevant to the question of Debtor's good faith in filing the petition for relief.
In this Chapter 12 case, the Motions to Dismiss were both filed before the deadline set forth in 11 U.S.C. § 1221 for Debtor to file a plan. Because Debtor determined that he would not contest dismissal of this case, it is reasonable that Debtor would not prepare and file a plan. Settlers Bank relies on In re Pappalardo , 109 B.R. 622 (Bankr. S.D.N.Y. 1990), for the proposition that Debtor's failure to appear at the Section 341 Meeting of Creditors alone should entitle Settlers Bank to a 180 day bar prohibiting Debtor from filing a subsequent bankruptcy petition. Mot. to Dism. With Prej. at 13. Though the Court is certainly troubled by Debtor's failure to appear at the meeting of creditors, the Court is not persuaded that this demands dismissal of Debtor's case with prejudice. Pappalardo is materially distinguishable from the instant case. In Pappalardo , it was evident that the debtor's motivation for failure to attend the meeting of creditors was to avoid being examined. The debtor in that case posited that attendance was not mandatory until after the plan had been confirmed. The Court found Debtor's excuse preposterous. Pappalardo , 109 B.R. at 625 ("There is no question that the debtors deliberately chose not to attend the § 341(a) meeting."). In this case, Settlers Bank did not present evidence of Debtor's motivation for failure to attend; therefore, the Court is not persuaded that Debtor's failure to attend alone warrants a bar to Debtor filing a subsequent bankruptcy petition. Debtor's filing the petitions on the eve of foreclosure sales does not trouble the Court. Admittedly at trial, Debtor conceded that his intent at the time of filing the Chapter 12 petition was to "stop Settlers Bank from ... pursuing foreclosure [and/or] the sale of property that [Debtor] had made mortgage payments on ... for many years ...." (Hr'g Rec. at 12:08:46). But a foreclosure sale is most frequently the final impetus for a debtor to file a bankruptcy reorganization case, and this Court cannot impute bad faith based upon this timing.
The Court notes that because trial was delayed well in excess of 180 days after Settlers Bank obtained relief from stay as to all properties for which it requested such relief, and almost 18 months after Settlers Bank filed its Motion to Dismiss, Settlers Bank has effectively achieved most of the goal that it sought in its quest for a bar to refiling.
In addition to Debtor's good faith motivations for filing this and both preceding bankruptcy proceedings, the other applicable factors relevant to the totality of Debtor's circumstances at the time of filing set forth by the Sixth Circuit in Alt also do not suggest bad faith. See Alt , 305 F.3d at 419. Debtor explained most (admittedly not all) of the issues surrounding the condition of Debtor's Schedules across Debtor's bankruptcy cases. Debtor's actual and expected income fluctuated, impacting his need to continue through each proceeding. In connection with this Chapter 12, Debtor thought that a reorganization could be funded from his timbering income and income derived from affiliated business entities with rental properties. The Court is persuaded of Debtor's sincerity of his intentions in filing each petition.
Finally, the Court has discretion in considering the totality of Debtor's circumstances as they were at the time Debtor filed the Chapter 12 petition, and that analysis is a "fact-specific and flexible determination." Alt , 305 F.3d at 419 (citation omitted). The "ultimate inquiry ... is whether the debtor has abused the bankruptcy process." Burger , 254 B.R. at 696 (citation omitted). Considering all of the evidence, the Court concludes that Debtor did not file his Chapter 12 petition in bad faith and has not abused the bankruptcy process.
IV. CONCLUSION
In accordance with the foregoing, it is hereby
ORDERED AND ADJUDGED that the Chapter 12 Trustee's Motion to Dismiss (Doc. #41) is GRANTED. It is further
ORDERED AND ADJUDGED that Settlers Bank's Motion to Dismiss With Prejudice (Doc. #42) is GRANTED to the extent that it seeks dismissal of this case, and DENIED to the extent it seeks dismissal with prejudice.
The Court will enter a separate final order dismissing this case.