Opinion
Case No. 14-55009
03-23-2015
In re: MICHAEL D. WILSON, Debtor.
Chapter 13
OPINION AND ORDER ON DEBTOR'S MOTION TO DISMISS CHAPTER 13 CASE AND MOTION OF TAMCO CORPORATION TO CONVERT CASE TO CHAPTER 7
This matter is before the Court following a hearing on the motion of Debtor Michael D. Wilson ("Wilson") to dismiss his Chapter 13 case ("Dismissal Motion") (Doc. 26) and the motion of Tamco Corporation ("Tamco") to convert the case to Chapter 7 ("Conversion Motion") (Doc. 32). Wilson contends that he has the absolute right to dismiss his case, while Tamco argues that this right is qualified by an exception for bad faith and abuse of the bankruptcy process and that, under the circumstances, the case should be converted to Chapter 7. For the reasons explained below, the Court concludes that it must grant the Dismissal Motion.
The Court has jurisdiction to hear and determine this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. This is a core proceeding. See 28 U.S.C. § 157(b)(2)(A) and (O). The Court also has the constitutional authority to hear and determine the matter. See In re Cyncynatus, No. 12-10111, 2013 WL 3864310, at *1 (Bankr. N.D. Ohio July 24, 2013) ("The issue is whether § 1307(b) gives the debtors an absolute right to dismiss, regardless of whether they acted in bad faith in their bankruptcy case. . . . This [matter] is within the court's constitutional authority as analyzed by the United States Supreme Court in Stern v. Marshall, 131 S. Ct. 2594 (2011).").
In arguing for dismissal, Wilson relies on § 1307(b) of the Bankruptcy Code, which provides that "[o]n request of the debtor at any time, if the case has not been converted under section 706, 1112, or 1208 of this title, the court shall dismiss a case under this chapter." 11 U.S.C. § 1307(b) (emphasis added). By contrast, in seeking conversion, Tamco relies on § 1307(c), under which
This Chapter 13 case has not been converted from another chapter of the Bankruptcy Code.
on request of a party in interest or the United States trustee and after notice and a hearing, the court may convert a case under this chapter to a case under chapter 7 of this title, or may dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause[.]11 U.S.C. § 1307(c) (emphasis added).
Since their enactment, these two subsections have engendered disagreement over whether Chapter 13 debtors enjoy the absolute right to dismiss their cases even if they engage in bad-faith conduct. Because § 1307(b) "unambiguously requires that if a debtor 'at any time' moves to dismiss a case that has not been previously converted, the court 'shall' dismiss the action," Barbieri v. RAJ Acquisition Corp. (In re Barbieri), 199 F.3d 616, 619 (2d Cir. 1999), some courts held the right to dismiss to be absolute, while others held to the contrary on the basis that permitting Chapter 13 debtors "to respond to a motion to convert by voluntarily dismissing [their cases] with impunity would render section 1307(c) a dead letter and open up the bankruptcy courts to a myriad of potential abuses." Molitor v. Eidson (In re Molitor), 76 F.3d 218, 220 (8th Cir. 1996). A split of authority also existed among the lower courts. See In re Neiman, 257 B.R. 105, 108-10 (Bankr. S.D. Fla. 2001) (citing cases on both sides of the issue). In Neiman, the bankruptcy court followed Barbieri after recognizing that, while courts in the Molitor camp were "clearly motivated by a desire to prevent debtors from abusing the system for the purpose of delaying and defrauding creditors[,]" the Bankruptcy Code and Bankruptcy Rules have "other provisions to protect creditors in the face of an abusive debtor." Id. at 109.
In 2007, the United States Supreme Court held that a bad-faith exception limits the right of debtors to convert their Chapter 7 cases to Chapter 13 under § 706(a) of the Bankruptcy Code. See Marrama v. Citizens Bank of Mass, 549 U.S. 365, 371-76 (2007). The Supreme Court reasoned that Chapter 7 debtors who engage in bad-faith conduct are ineligible for Chapter 13 relief and that the authority to deny such debtors' conversion motions could be found in § 706(d), which provides that "[n]otwithstanding any other provision of this section, a case may not be converted to a case under another chapter of this title unless the debtor may be a debtor under such chapter." 11 U.S.C. § 706(d). See id. at 374.
Under § 706(a), "[t]he debtor may convert a case under this chapter to a case under chapter 11, 12, or 13 of this title at any time, if the case has not been converted under section 1112, 1208, or 1307 of this title." 11 U.S.C. § 706(a).
Since Marrama, courts have disagreed about its effect on the proper interpretation of §§ 1307(b) and (c) and have continued to diverge on the question whether § 1307(b) provides Chapter 13 debtors the absolute right to dismiss their cases or whether § 1307(c) qualifies that right. Compare Procel v. United States Tr. (In re Procel), 467 B.R. 297, 305-08 (S.D.N.Y. 2012) (holding that § 1307(b) provides Chapter 13 debtors an absolute right to dismiss), In re Williams, 435 B.R. 552, 554-60 (Bankr. N.D. Ill. 2010) (same), and In re Campbell, No. 07-457, 2007 WL 4553596, at *4 (Bankr. N.D. W. Va. Dec. 18, 2007) (same), with Jacobsen v. Moser (In re Jacobsen), 609 F.3d 647, 660-61 (5th Cir. 2010) (holding that the right of dismissal under § 1307(b) is subject to an exception for bad-faith conduct), Rosson v. Fitzgerald (In re Rosson), 545 F.3d 764, 772-73 (9th Cir. 2008) (same), Cyncynatus, 2013 WL 3864310 at *2 (same), and In re Armstrong, 408 B.R. 559, 569-72 (Bankr. E.D.N.Y. 2009) (same). Neither the Supreme Court nor the United States Court of Appeals for the Sixth Circuit has weighed in on this issue.
After carefully considering all of the cases cited above, as well as others cited by the parties, the Court concludes that § 1307(b) provides Chapter 13 debtors with an absolute right of dismissal. As the court stated in Williams, "[a]t its core . . . the question is a straightforward one of statutory construction, which can be resolved in three steps." Id . at 554. The court's first step was to acknowledge that the mandatory language of § 1307(b) "gives debtors in unconverted Chapter 13 cases an unqualified right to dismissal." Id . At the second step, the court applied the well-established principle that "a court may not modify a statute simply because the court believes a different version would implement good policy," meaning that "any limitation on § 1307(b) would have to come from another statutory provision." Id. Finally, the Williams court demonstrated that "no statutory provision applicable here limits the right to dismissal under § 1307(b)." Id.
See, e.g., Chapman v. Higbee Co., 319 F.3d 825, 832 (6th Cir. 2003) ("A result . . . is not absurd merely because it does not comport with one's notion of what constitutes good policy. We typically embark upon the exceptional task of divining Congress's intent outside the literal language of the statute only when the statute produces a result not which we dislike but which is patently illogical or contrary to Congress's intent.") (en banc) (footnote omitted).
The court in Williams supported the three steps of its statutory analysis with cogent legal reasoning. Indeed, notwithstanding the circuit-level opinions to the contrary, the Court finds the Williams court's rationale to be unassailable. Not only that, but the Williams court thoroughly evaluated and refuted the arguments made against the absolute right to convert, including the arguments based on Marrama, those based on § 1307(c) and those based on § 105(a) of the Bankruptcy Code, which provides that
[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.11 U.S.C. § 105(a).
In Williams, the bankruptcy court held that "[b]ecause a bad-faith exception would directly conflict with § 1307(b)'s requirement that courts 'shall' dismiss a Chapter 13 case upon the debtor's request, it falls beyond the scope of any authority conferred by § 105(a)." Williams, 435 B.R. at 560. Contrary to those decisions holding that Marrama limited Chapter 13 debtors' unqualified right to dismiss, the Williams court found that Marrama instead was consistent with that unqualified right. See id. ("The Court invoked § 105(a) as a vehicle to implement § 706(d) and avoid the 'procedural anomaly' of permitting Chapter 7 debtors to convert their cases to a chapter for which they were ineligible.").
See also Procel, 467 B.R. at 308 ("Marrama only held, after analyzing the interplay among §§ 706(a), 706(d), and 1307(c), that a debtor who has engaged in prepetition bad-faith conduct does not have an absolute right to convert from Chapter 7 to Chapter 13, because such a debtor would be disqualified from Chapter 13 relief under § 1307(c), which provides for conversion back to Chapter 7 or dismissal 'for cause.'"). --------
That Marrama did not undermine Chapter 13 debtors' unqualified right to dismiss became all the more clear after the Supreme Court's recent decision in Law v. Siegel, 134 S. Ct. 1188, 1197 (2014). As the Supreme Court explained in Siegel, Marrama "suggests that in some circumstances a bankruptcy court may be authorized to dispense with futile procedural niceties in order to reach more expeditiously an end result required by the Code." Id . But "Marrama most certainly did not endorse, even in dictum, the view that equitable considerations permit a bankruptcy court to contravene express provisions of the Code[,]" id ., such as § 1307(b)'s directive that, if a debtor requests dismissal of a case that has not been previously converted, the court shall dismiss the case.
As another court has stated, after Siegel bankruptcy courts "retain[] the authority to sanction a debtor's bad faith conduct so long as such sanctions do not contravene any explicit provisions of the Bankruptcy Code[,]" and "[t]here is certainly nothing in Section 1307(b) that prohibits a dismissal on terms and conditions, including a proscription on re-filing a case for a defined period of time." In re Criscuolo, No. 09-14063, 2014 WL 1910078, at *5 (Bankr. E.D. Va. May 13, 2014). During the hearing on the Dismissal Motion and the Conversion Motion, counsel for Wilson, while not conceding that Wilson had engaged in bad-faith conduct, did acknowledge that, if he had done so, dismissal with conditions would be appropriate. Tamco, however, has requested only conversion, not dismissal with conditions. The Court therefore will dismiss the case without conditions.
In sum, the Court is persuaded by the thorough legal reasoning set forth in Williams, 435 B.R. at 554-60, and adopts that reasoning by reference. Issuance of a more detailed opinion by this Court accordingly would be duplicative and would serve no jurisprudential purpose. For the foregoing reasons, the Dismissal Motion is GRANTED and the Conversion Motion is DENIED. Wilson's Chapter 13 case is hereby DISMISSED.
IT IS SO ORDERED.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
/s/ _________
John E. Hoffman, Jr.
United States Bankruptcy Judge Dated: March 23, 2015 Copies to: All Creditors and Parties in Interest