Opinion
Case No. 98-31996
November 4, 1998
OPINION
Before the Court is the Motion for Reconsideration, Rehearing, Amendment and Alteration of Judgment and Amendment of Findings of Fact filed by Idrees Muhammad ("Debtor") on October 13, 1998. In an Opinion and Order dated October 6, 1998, the Court granted the Motion to Dismiss filed by Bi-Rite Petroleum, Ltd. ("Bi-Rite") Debtor now seeks to have the dismissal set aside.
On June 26, 1998, Debtor filed his petition under Chapter 13 of the Bankruptcy Code. On or about July 14, 1998, Bi-Rite filed its Motion to Dismiss Debtor's Chapter 13 petition. In December, 1995, Bi-Rite filed a civil action against Debtor, two other individuals, and a corporation in Missouri state court for damages allegedly inflicted by the defendants on Bi-Rite's real estate. Bi-Rite alleged that Debtor used a faulty gasoline pump on the property, knowing that it was broken and knowing that damage to Bi-Rite's property would result. Bi-Rite also asserted that Debtor concealed the damage and failed to cooperate in the restoration of the property.
The state court civil trial was scheduled to begin on Monday, June 29, 1998. On Friday, June 26, 1998, three days before the scheduled start of the state court trial, Debtor filed his Chapter 13 petition. When the case was called for trial, none of the defendants appeared, and the state court entered a default judgment against two of the four defendants and in favor of Bi-Rite in the amount of $2,019,989.60 in compensatory damages, $500,000.00 in punitive damages, or a total of $2,519,989.60 plus costs. Because the Debtor and one other defendant had filed bankruptcy, the state court judgment was entered only against the two non-bankrupt defendants.
Bi-Rite's Motion to Dismiss was called for hearing on September 8, 1998. After hearing arguments of the parties and after reviewing the parties' memoranda, the Court entered its Order granting Bi-Rite's Motion to Dismiss on October 6, 1998. In its Opinion, the Court found that Debtor was not eligible for relief under Chapter 13 because his noncontingent, liquidated, unsecured debts exceeded $250,000 in violation of Section 109 (e) of the Bankruptcy Code which provides, inter alia, that only an individual with noncontingent, liquidated, unsecured debts of less than $250,000 may be a debtor under Chapter 13 of the Bankruptcy Code. The Court explained that at least certain elements of Bi-Rite's state court claim against Debtor were liquidated at the time the case was filed. Specifically, the Court found that Bi-Rite's claim against Debtor for unpaid lease payments of $122,500.00, simple interest of $11,911.17, late charges of $3,500.00, property taxes of $971.84, and real estate taxes of $12,648.14 were liquidated.
In his Motion for Reconsideration, Debtor states that the Court's Opinion was in error in that Bi-Rite has not asserted claims against Debtor for unpaid lease payments, simple interest, late charges, property taxes or real estate taxes.
In preparing its October 6, 1998 Opinion, the Court relied upon the accuracy of certain statements contained in Bi-Rite's Memorandum in Support of Motion to Dismiss. Specifically, Bi-Rite argued that certain elements of Bi-Rite's state court claim, including unpaid lease payments of $122,500, "take the Debtor well over the statutory maximum set forth in § 109 (e)" Memorandum at p. 4. Bi-Rite further argued that these sums were fixed and readily ascertainable requiring no further computation or analysis . . . Id. The Court, apparently incorrectly, concluded from this statement that the Debtor was, in fact, obligated to Bi-Rite for unpaid lease payments. Debtor's Motion for Reconsideration states that Debtor was not liable for unpaid lease payments, simple interest, late charges, property taxes or real estate taxes, and that Bi-Rite did not seek to collect these sums from Debtor in the state court civil action. Bi-Rite has not filed a response to Debtor's Motion for Reconsideration; thus, the Court accepts Debtor's statements regarding Bi-Rite's state court claim against Debtor as true, and the Court acknowledges that its finding that Bi-Rite's claim against Debtor included unpaid lease payments, simple interest, late charges, property taxes, and real estate taxes was in error.
However, as an alternative basis for dismissing Debtor's Chapter 13 case, the Court found that even if Debtor had been eligible under Section 109 (e) for relief under Chapter 13, Debtor had filed his Chapter 13 petition in bad faith. In its Opinion entered October 6, 1998, the Court stated that "Debtor has also unfairly manipulated the Bankruptcy Code by timing the filing of his petition to obtain jurisdiction under Chapter 13. Debtor's Chapter 13 Plan is not a good faith attempt to pay his creditors; rather it is an attempt to take advantage of the "super-discharge" provisions of Section 1328 (a) to wipe out Bi-Rite's debt which might very well be nondischargeable in a Chapter 7 case." Opinion at p. 6.
Debtor asserts that these conclusions are also erroneous, and that his Chapter 13 plan is a good faith attempt to pay creditors. The facts in this case belie that argument and the Court rejects it. The state court trial was scheduled to commence one business day after Debtor filed his Chapter 13 petition. Debtor apparently decided that filing a Chapter 13 bankruptcy was preferable to defending the state court civil suit. As the Court has previously stated, the timing of the filing strongly suggests that Debtor has manipulated the Bankruptcy Code to his own benefit and to the detriment of his creditors. Debtor knew at the time he filed his Chapter 13 petition that he owed other noncontingent, liquidated, unsecured debts of $178,708.70. Debtor further knew that any judgment against him in excess of $71,291.30 ($178,708.70 + $71,291.30 = $250,000.00) would make him ineligible for relief under Chapter 13 under Section 109 (e). As the alleged amount of actual damages exceeded $2,000,000, Debtor knew that there was a strong possibility that the entry of a judgment against him by the state court would make him ineligible for Chapter 13 relief. Debtor's solution, rather than to face Bi-Rite and defend the claim brought against him, was to file his Chapter 13 petition on the eve of trial. In addition, the charges, though as of now unproven, include the making of false representations and breach of fiduciary duty, which suggest that any such judgment against Debtor might ultimately be nondischargeable pursuant to 11 U.S.C. § 523 (a) in a Chapter 7. For this reason as well, the timing and the Debtor's motivation behind filing the Chapter 13 petition are suspect. Finally, irrespective of the eligibility requirements of Section 109 (e), the amount of damages alleged in the state court action against Debtor is substantial. If damages were proven and assessed against Debtor in amounts alleged, Debtor's Chapter 13 plan payments of $1,000 per month for 36 months would constitute nothing more than token payments to his unsecured creditors. In any case, Debtor's Chapter 13 plan made no provision for the adjudication or satisfaction of Bi-Rite's claim, which is further evidence of Debtor's lack of good faith. See In re Love, 957 F.2d 1350, 1357 (7th Cir. 1992) (factors determining whether a Chapter 13 petition was filed in good faith include nature of the debt, including whether it would be nondischargeable in a Chapter 7; timing of the petition; how the debt arose; debtor's motive in filing; how debtor's actions affected creditors, and debtor's treatment of creditors before and after filing) (citations omitted)
This Chapter 13 case is not a good-faith attempt to pay creditors; it is an attempt to avoid paying a large and possibly nondischargeable state court claim. For all of these reasons, the Court finds that Debtor's Chapter 13 petition was not filed in good faith, and Debtor's Motion for Reconsideration is denied.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
OPINION
Before the Court is the Motion to Dismiss filed by Bi-Rite Petroleum, Ltd. ("Bi-Rite") and the Objection thereto filed by Idrees Muhammad ("Debtor"). The Court conducted a hearing on August 25, 1998, at the conclusion of which the matter was taken under advisement. Both parties have since submitted a memorandum in support of their respective positions.
In December 1995, Bi-Rite filed a civil action against Debtor, two other individuals and a corporation in the Circuit Court of the County of St. Louis, State of Missouri, seeking damages for alleged damage to real property owned by Bi-Rite and situated at 1922 Gravois Road, St. Louis, Missouri. The property was leased by Bi-Rite to Asian Oil, Inc., a Missouri corporation owned and operated by Debtor. Bi-Rite asserted that, on September 19, 1995, a line from a storage tank located on the property containing gasoline began to lose pressure and, as a result, an internal leak detector automatically shut down the gasoline pump. However, despite actual knowledge of the leak, Debtor used the pump, which caused approximately 400 gallons of gasoline to be leaked into the soil of the property. In doing so, Bi-Rite asserts, Debtor breached the lease by intentionally continuing to use the equipment, knowing that damage to the real estate would result. Finally, Bi-Rite contends that Debtor concealed the damage and failed to cooperate with Bi-Rite and authorities.
On June 26, 1998, Debtor filed his Chapter 13 petition. On June 29, 1998, the state court entered a default judgment against two of the defendants and in favor of Bi-Rite in the amount of $2,019,989.60 in compensatory damages, $500,000.00 in punitive damages, or a total of $2,519,989.60 plus costs. However, due to the filing of the petition in bankruptcy by Debtor and one other defendant, the state court judgment entered the order only against the non-bankrupt defendants.
On July 14, 1998, Bi-Rite filed its Motion to Dismiss alleging that pursuant to Section 109 (e) of the Bankruptcy Code, Debtor is not eligible to be a debtor under Chapter 13.
Section 109 (e) of the Bankruptcy Code states in part as follows:
(e) Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $250,000 and noncontingent, liquidated, secured debts of less than $750,000 . . . may be a debtor under chapter 13 of this title.
Bi-Rite argues that because its claim alone exceeds $250,000, Debtor does not meet the requirements of Section 109 (e). Debtor asserts that Bi-Rite's claim against him, if there is one, is contingent and unliquidated and, as a result, Debtor is eligible for relief under Chapter 13 of the Bankruptcy Code.
Contingency relates the nature or origin of a liability whereas liquidation refers to ascertaining the amount due. In re McGovern, 122 B.R. 712, 715 (Bankr. N.D. Ind. 1989). Where all the facts giving rise to liability are in existence at the time of the filing of the petition, and no future occurrence is required in order to establish debtor's liability, the claim is not contingent as to liability. Id. citing In re Dill, 30 B.R. 546, 549 (9th Cir. BAP 1983), aff'd 731 F.2d 629 (9th Cir. 1984). This is not to say that the uncertainty that exists over whether a finder of fact will ultimately determine that those events actually occurred and impose liability makes a claim contingent.McGovern, supra, 122 B.R. at 716. Otherwise, every claim, whether in contract or tort, would be contingent until judgment had been entered.Id.
In this case, Bi-Rite's claim is not contingent. All of the events that gave rise to Bi-Rite's claim against Debtor had occurred pre-petition and liability is not dependent on some future event that may never happen. See Dill, supra, 30 B.R. at 549. The fact that the debt may not have been reduced to judgment, at least not as to this Debtor, does not make the debt contingent. In re Ristic, 142 B.R. 856, 862 (Bankr. E.D. Wis. 1992) citing In re Lova, 123 B.R. 338, 340 (9th Cir. BAP 1991)
Liquidation is dependent upon the certainty or uncertainty of the amount due. McGovern, supra, 122 B.R. at 716.
It is clear that the value of at least certain elements of Bi-Rite's claim is easily ascertainable and do not involve the use of judgment or discretion. See McGovern, supra, 122 B.R. at 717. According to Debtor's schedules, on the date of filing, Debtor owed noncontingent, liquidated, unsecured debts of $194,894.02. Accordingly, Bi-Rite's noncontingent, liquidated unsecured claim may not exceed $55,105.98 in order for Debtor to be eligible for relief under Chapter 13 of the Bankruptcy Code.
In addition to its perhaps unliquidated claim for damages to its real estate, attorney fees and costs, the value of certain other components of Bi-Rite's claim is easily ascertainable and the claim is at least partly liquidated. Bi-Rite has a claim against Debtor for unpaid lease payments from November 1995 through the end of the lease of $122,500.00, simple interest through June 13, 1997 of $11,911.17, late charges of $3,500.00, property taxes for 1995 through September, 1998 of $971.84, and real estate taxes for 1995 through September, 1998 of $12,648.14. These amounts total $151,531.15. When added to Debtor's other scheduled noncontingent, liquidated unsecured debts, the liquidated component of Bi-Rite's claim makes Debtor ineligible for relief under Chapter 13 of the Bankruptcy Code under Section 109 (e). The fact that Debtor may dispute these claims is irrelevant; disputed claims are included by a majority of courts in the debt limit calculation of Section 109 (e). In re Ekeke, 198 B.R. 315, 317-18 (Bankr. E.D. Mo. 1996) citing Matter of Knight, 55 F.3d 231, 235 N. 4 (7th Cir. 1995); In re Sylvester, 19 B.R. 671 (9th Cir. BAP 1982); In re Madison, 168 B.R. 986, 989 (D. Hawaii 1994);In re Jordan, 166 B.R. 201, 202 (Bankr. D. Me. 1994); In re Albano, 55 B.R. 363, 368 (N.D. Ill. 1985). See also In re Ristic, 142 B.R. 856, 861 (Bankr. E.D. Wis. 1992) citing Gould v. Gregg, Hart, Farris Rutledge, 137 B.R. 761 (W.D.Ark. 1992).
As an additional basis for granting Bi-Rite's motion to dismiss, the Court finds that Debtor filed his Chapter 13 petition in bad faith. In In re Love, 957 F.2d 1350, 1357 (7th Cir. 1992), the Seventh Circuit has set forth a nonexclusive list of factors to examine in evaluating whether a Chapter 13 petition was filed in good faith:
1. The nature of the debt, including the question of whether the debt would be dischargeable in a chapter 7 proceeding;
2. The timing of the petition;
3. How the debt arose;
4. The debtor's motive in filing the petition;
5. How the debtor's actions affected creditors;
6. The debtor's treatment of creditors both before and after the petition was filed; and
7. Whether the debtor has been forthcoming with the bankruptcy court and the creditors.
In this case, Debtor has unfairly manipulated the Bankruptcy Code by timing the filing of his petition to obtain jurisdiction under Chapter 13. Debtor's Chapter 13 Plan is not a good faith attempt to pay his creditors; rather, it is an attempt to take advantage of the "super-discharge" provisions of Section _____ to wipe out a debt which might very well be nondischargeable in a Chapter 7 case.
For the reasons set forth above, Bi-Rite's Motion to Dismiss is hereby granted.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
See written Order.