First Bank of Georgia v. Lamb et al

Filing 11

ORDER Affirming the bankruptcy court's order. The Clerk of Court is instructed to DISMISS the appeal. Signed by Chief Judge Lisa G. Wood on 5/29/2012. (csr)

N the Vnitib Atatto 3ttrtct Cowl
for the £'outbevn Atotrkt of eorgIa
uguta oibigton
On appeal from
IN RE:
W.T. LAMB and MARIAN R. LAMB,
Debtors.

FIRST BANK OF GEORGIA,
Appellant,

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CASE NO. 11-11522
(Chapter 11)

CV 112-011

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V.

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W.T. LAMB and MARIAN R. LAMB,

Appellees.

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ORDER
Presently before the Court is First Bank of Georgia's
appeal from Bankruptcy Court Judge Susan D. Barrett's order
denying First Bank of Georgia's Motion to Dismiss the Appellees'
Chapter 11 bankruptcy case. Dkt. No. 1, Att. No. 30. For the
reasons stated below, the bankruptcy court's order is AFFIRMED.'

'Neither party has requested oral argument on this appeal. The Court finds
that "the facts and legal arguments are adequately presented in the briefs
and record and the decisional process would not be significantly aided by
oral argument." Fed. R. Bankr. P. 8012. Accordingly, the Court will rule on
this matter without oral argument.
AO 72A
(Rev. 8/82)

On appeal from the bankruptcy court is an order denying the
Appellant's motions for dismissal of three separate Chapter 11
bankruptcy cases. Dkt. No. 1, Att. No. 30.

The three Chapter

11 bankruptcy cases are (1) First Bank of Georgia v. W.T. Lamb &
Marian R. Lamb, Chapter 11 Case No. 11-11522, (2) First Bank of
Georgia v. L.P.B. Properties, Inc., Chapter 11 Case No. 1111523, and (3) First Bank of Georgia v. Judith L. Bostick,
Chapter 11 Case No. 11-11543. The three cases were analyzed in
one order by the bankruptcy court because - as has been stated
by all concerned - the parties are so inextricably woven that
any analysis of one debtor's finances necessarily requires a
review and analysis of the others. Dkt. No. 7 at 3 (Appellees'
Brief); Dkt. No. 10-1 at 9 (Appellant's Brief). 2 Nevertheless,
each chapter 11 case was appealed separately (1) First Bank of
Georgia v. W.T. Lamb & Marian R. Lamb, Case No. 1:12-011, (2)
First Bank of Georgia v. L.P.B. Properties, Inc., Case No. 1:12012, and (3) First Bank of Georgia v. Judith L. Bostick, Case

No. 1:12-014. (collectively referred to as the "Debtors").
Therefore, while each case will be addressed independently, the
Court will reference all three cases throughout this Order.
W.T. Lamb and Marian R. Lamb (the "Lambs" or the
"Appellees") are a retired couple whose income consists of
2

The Appellant filed nearly identical Motions to Dismiss in each of the
Chapter 11 cases of the affiliated Debtors.
AO 72A
(Rev. 8/82)

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earnings from real property and social security. Dkt. No. 1,
Att. No. 30 at 2-3. Judith Bostick is the Lambs' daughter, and
receives income from W.T. Lamb investments, real property, and
distributions from various businesses . 3 Id. at 3. L.P.B.
Properties is a privately held Georgia corporation which is
wholly owned by the Lambs and Judith Bostick. Id. at 2.
The Lambs testified at their § 341 meetings that their
financial difficulties resulted from a decline in the real
estate market. Id. at 3. Their financial status is one
described by the bankruptcy court, and acknowledged by the
Lambs, as land rich and cash poor. Id. This label is evidenced
by the Lambs attempts to sell portions of their land but
inability to obtain offers. Id. About one year prior to filing
for bankruptcy, the Lambs experienced cash flow problems and
began liquidating assets in an effort to generate positive cash
flow. Id. at 4.
Ultimately, however, the Lambs were unable to pay their
obligations as they came due. As a result, the Appellant, a
secured creditor, accelerated over $9,000,000.00 in debt from
the Lambs. In the notice of acceleration, the Appellant advised
the Lambs that if the entire amount of the accelerated
indebtedness was not paid within ten days the Appellant would
seek collection of approximately $1,500,000.00 (or 15%) in
3 Mr. Lamb is the father of Judith Bostick, Mrs. Lamb is her step-mother.
AO 72A
(Rev. 8/82)

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statutory attorney's fees pursuant to O.C.G.A. § 13-1-11. The
Lambs testified that this letter was not the only factor as to
why they were having financial difficulties, but it was what
sent them over the edge. Dkt. No. 1, Att. No. 30 at 13.
On August 5, 2011, within the ten day period, the Lambs
filed the instant Chapter 11 case, together with other
affiliated Chapter 11 and Chapter 7 entities. On October 28,
2011, the Appellant moved the bankruptcy court to dismiss the
Lambs' Chapter 11 petition for cause pursuant to 11 U.S.C. §
1112(b). The appellant argued that the petition was filed in
bad faith because the purpose of the filing was to avoid
liability for attorney's fees. Dkt. No. 1, Att. No. 13. This
motion was denied orally on the record at a hearing held on
December 9, 2011, Dkt. No. 1, Att. No. 23, and supplemented by a
written order on January 25, 2012. Dkt. No. 1, Att. No. 30. 4 The
Appellant has appealed this order.

STANDARD OF REVIEW

Appellant seeks review of the bankruptcy court's order
denying Appellant's motion for dismissal of the Appellees'
pending Chapter 11 case pursuant to 11 U.S.C. § 1112(b).
Dismissals pursuant to § 1112(b) are reviewed under an abuse of
discretion standard. In re Pegasus Wireless Corp., 391 F. App'x
4 The written order was supplemented on January 26, 2012 in order to correct a
typographical error.
AO 72A
(Rev_ 8/82)

II

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802, 802 n.2 (11th Cir. 2010) (citing In re Bal Harbour Club,
Inc., 316 F.3d 1192, 1194-95 (11th Cir. 2003)). Under this
standard, "[a] bankruptcy judge abuses [her] discretion if [she]
fails to apply the correct legal standard or [her] factual
findings are clearly erroneous." In re Celotex Corp., 227 F.3d
1336, 1338 (11th Cir. 2000)

DISCUSSION
Section 1112(b) of the Bankruptcy Code permits dismissal of
a bankruptcy case for cause. A case under Chapter 11 may be
dismissed for cause pursuant to § 1112 of the Bankruptcy Code if
a petition was not filed in good faith. Albany Partners Ltd. v.
Westbrook (In re Albany Partners, Ltd.), 749 F.2d 670, 674 (11th
Cir. 1984). The Eleventh Circuit has stated that in this
context there is "no particular test for determining whether a
debtor has filed a petition in bad faith." Phoenix Piccadilly,
Ltd. v. Life Ins. Co. of Va., (In re Phoenix Piccadilly, Ltd.),
849 F.2d 1393, 1394 (11th Cir. 1988). Rather, courts may
consider "any factors which evidence 'an intent to abuse the
judicial process and the purposes of the reorganization
provisions' or in particular, factors which evidence that the
petition was filed 'to delay or frustrate the legitimate efforts
of secured creditors to enforce their rights." Id. (quoting In
re Albany Partners, Ltd., 749 F.2d at 674).

AO 72A
(Rev. 8/82)

Furthermore, in the Eleventh Circuit several factors have
been enumerated as pertinent to determining whether a case was
filed in bad faith. These factors include: (1) whether the
debtor is a so-called single asset debtor; (2) whether the
debtor has relatively few unsecured claims whose claims are
small in relation to those of secured creditors; (3) whether the
debtor has a limited number of employees; (4) whether the asset
of the debtor is subject to a pending foreclosure action as a
result of arrearages on the indebtedness; (5) whether the
debtor's financial problems involve largely a dispute between
the debtor and secured creditors which can be resolved in a
pending state court action; and (6) whether the timing of the
debtor's filing evidences an attempt to delay or frustrate the
legitimate efforts of the secured creditors to enforce their
rights. In re Vallambrosa Holdings, L.L.C., 419 B.R. 81, 85
(Bankr. S.D. Ga. 2009) (citing In re Phoenix Piccadilly, Ltd.,
849 F.2d at 1394)
As a preliminary matter, the Appellant states that it does
not challenge the bankruptcy court's findings of fact. Dkt. No.
10-1 at 8. Notably, a determination of bad faith is a question
of fact that is made on a case-by-case basis. In re Roan Valle
L.L.C., 2009 WL 6498188, at *4 (Bankr. N.D. Ga. Nov. 25, 2009);
see also In re Sweat, 428 B.R. 917, 920 (Bankr. M.D. Ga. 2010)
("Good faith is a finding of fact . . . determined by the
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(Rev. 8/82)

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totality of the circumstances.") (internal citations omitted);
In re Smith, 243 B.R. 169, 194 (Bankr. N.D. Ga. 1999) (noting
that "the presence or absence of bad faith is a question of
fact"). Setting aside Appellant's apparent acceptance of the
ruling which it now appeals, this Court is satisfied that the
bankruptcy court's determination that the Appellees did not file
in bad faith was proper, and not an abuse of discretion.
Indeed, the Court has reviewed the bankruptcy court's order
and concludes that it correctly determined that the evidence
established that the Appellees' did not file the bankruptcy
action in bad faith. First, the bankruptcy court noted that
this is not a single asset case. Dkt. No. 1, Att. No. 30 at 9.
Next, the bankruptcy court correctly pointed out that this case
is not just a dispute between the Appellant and the Appellees,
but rather, that several other secured and unsecured creditors
existed. Id. The bankruptcy court also noted that the Appellees
do not have employees. Id.
Thus, the bankruptcy court surmised that the most relevant
factor in this case was whether the timing of the Appellees'
filing demonstrates an intent to delay or frustrate the
legitimate efforts of the Appellees' secured creditors from
enforcing their rights. Id. The bankruptcy court ultimately
concluded that at the time of filing, each respective Debtor was
in financial distress and filed bankruptcy for the legitimate
AO 72A
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purposes of preserving equity and allowing for an orderly
distribution of their property to creditors. Id. at 15. The
record supports this conclusion.
On appeal, the Appellant attempts to frame the issue as
determining whether filing for bankruptcy solely to avoid paying
statutory attorney's fees pursuant to O.C.G.A. § 13-1-11 evinces
bad faith. Appellant's argument in this regard is belied by its
acceptance of the bankruptcy court's finding of fact that the
Appellees' did not file for bankruptcy solely for this reason.
In fact, the Appellant went so far as to cite a portion of the
bankruptcy court's oral ruling which made this finding:
• . . there is no doubt that these debtors
individually were suffering liquidity issues. They
were involved in trying to make their debts. The
Lambs both had liquidated approximately $70,000 of
assets to be able to make their obligations. Ms.
Bostick has sold a car, had sold land, had sold an
IRA, had sold timberland, she was involved in a
divorce, and they were all having difficulties in
making their obligations. They all acknowledged that
the 13-1-11 letter is what sent them over the edge but
they were all having financial difficulties, and the
13-1-11 letter in fact shows that you are having
financial difficulties. There was a default. They
were trying to work it out with the various lenders
and for whatever reason that failed but I am not
finding that that reaches to the level of bad faith.
The 13-1-11 was one of the factors but it wasn't the
only factor. They were having liquidity issues. The
land rich and cash poor comes to mind. I think it has
been said several times at the hearings and it
certainly was said at the Lambs' 341 hearings on
there. So I am finding that the timing by the 13-1-11
is what finally drove them to file. It was not the
only event.

A072A
(Rev. 8/82)

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Dkt. No. 10-1 at 8-9 (citing Dec. 9, 2011 Transcript) . However,
the Court notes that even if the Appellant had contested this
finding, the Court finds that the bankruptcy court did not abuse
its discretion in making it.
In a similar vein, the Appellant argues that because the
Lambs possessed sufficient assets to eventually pay all
creditors they did not have a proper bankruptcy purpose for
using Chapter 11. Dkt. No. 10-1 at 7. Indeed, the Appellant
goes to great lengths to argue that each Debtor on appeal was
solvent when they filed for bankruptcy. Insolvency, however, is
not a requirement for filing bankruptcy. See In re Liptak, 304
B.R. 820, 832 (Bankr. N.D. Iii. 2004) ("It is true that
insolvency is not a requirement for filing a bankruptcy case
under any Chapter."); In re Marshall, 300 B.R. 507, 510 (Bankr.
C.D. Cal. 2003) ("As a statutory matter, it is clear that the
bankruptcy law does not require that a bankruptcy debtor be
insolvent, either in the balance sheet sense (more liabilities
than assets) or in the liquidity sense (unable to pay the
debtor's debts as they come due), to file a chapter 11 case or
proceed to the confirmation of a plan of reorganization."); In
re The Bible Speaks, 65 B.R. 415, 426 (Bankr. D. Mass. 1986)
(finding that debtors are not required to be insolvent before
filing). Nor is it the sole factor in determining whether or
not a petition was filed in good faith as Appellant's argument
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suggests. This is because "[a]lthough a debtor's assets may
exceed liabilities, the debtor's income or cash flow may be
insufficient to pay those debts as they become due. Such debtor
is, nevertheless, financially distressed because of the
inability to pay." In re Watkins, 210 B.R. 394, 399 (Bankr. N.D.
Ga. 1997)
The bankruptcy court found that based on the evidence it
was apparent that each of the Debtors was having difficulties in
meeting their financial obligations. Dkt. No. 1, Att. No. 30 at
13. Even though the Debtors were arguably solvent on paper when
the petitions were filed, they still had liquidity issues and
were unable to pay their debts as they came due. Id. In an
effort to meet their financial obligations, the Debtors
liquidated assets. Id. However, despite these efforts, the
Debtors simply did not have the ability to meet their financial
obligations. Thus, the bankruptcy court's determination that
the Debtors were "financially distressed" is amply supported by
the record.
Appellant also cites a Third Circuit opinion, In re
Integrated Telecom Express, Inc., 384 F.3d 108 (3d Cir. 2004),
which it states is "compelling and must govern the present
case." Dkt. No. 10-1 at 17. However, the Court need not look
further than the issue on appeal in that case to distinguish it
from the case
AO 72A
(Rev. 8/82)

sub judice.

Namely, in In re Integrated Telecom
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Express, Inc., the debtor was
bankruptcy

solely to

financially healthy

and filed for

take advantage of a provision in the

Bankruptcy Code that limits claims on long-term leases. Here,
the Appellees were in financial distress and did not file for
bankruptcy solely because of the O.C.G.A. § 13-1-11 letter. 384
F.3d at 112. Thus, the Third Circuit's opinion in In re
Integrated Telecom Express, Inc. does not govern the present
case.
In sum, the bankruptcy court's determination that the Lambs
did not file for bankruptcy in bad faith was not an abuse of
discretion. Accordingly, the bankruptcy court's denial of
Appellant's motion to dismiss for cause pursuant to 11 U.S.C. §
1112(b) was proper.

CONCLUSION

For the reasons stated above, bankruptcy court's order is
AFFIRMED. The clerk of court is instructed to DISMISS the

appeal.
SO ORDERED, this 29th day of May, 2012.

LISA GODBEY WbOD, CHIEF JUDGE
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF GEORGIA

AO 72A
(Rev 8/82)

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