SunTrust Bank v. Hardigan
Filing
33
ORDER amending the Court's September 19, 2014 Order (Doc. 29). The Court affirms the Bankruptcy Court's Order denying Appellant's motion to convert or dismiss. The Clerk shall terminate all deadlines and motions, and close this case. Signed by Judge J. Randal Hall on 10/29/2014. (thb)
IN THE UNITED STATES DISTRICT COURT
FOR THE
SOUTHERN DISTRICT OF GEORGIA
SAVANNAH DIVISION
IN THE MATTER OF:
KENNETH R.
HARDIGAN,
4:13-cv-00130-JRH
Debtor
Bankruptcy Case:
SUNTRUST BANK,
No.
12-40484-LWD
Appellant,
v.
KENNETH R.
HARDIGAN,
Appellee
ORDER
Suntrust
Bank1
Court's
March
States
Trustee's
("Appellee")
alternative,
29,
("Appellant")
2013
Order
motions
Chapter
7
to dismiss.
appeals
to
filing
the
Bankruptcy
Appellant's
denying
from
and
the
convert
to
a
Kenneth
Chapter
R.
11
United
Hardigan's
or,
in
the
Because the Bankruptcy Court did not err
in refusing to convert the Chapter 7 case to one under Chapter 11
and did not err in applying the totality of the circumstances test
when assessing abuse,
this Court AFFIRMS the Bankruptcy Court's
Order.
This Order amends the Court's September 19, 2014 Order (Doc. 29).
I.
Appellee
(Doc.
no.
is
1-2
a
at
cardiologist
1,
19.)
bankruptcy on March 7,
that
his
debts
BACKGROUND
are
He
2012.
residing
filed
his
in
Savannah,
Chapter
7
Georgia.
petition
for
(Doc. no. 1-8 at 1. ) It is undisputed
primarily
consumer
in
nature.
(Id.
at
3.)
Appellant moved on May 23, 2012 to convert the case to a Chapter 11
or,
in
the
alternative,
to
dismiss
on
the
ground
that Appellee's
bankruptcy petition constituted an abuse of the Chapter 7 process.
(Doc.
no.
1-6.)
In
determined that no
of 11 U.S.C.
(Bankr.
ruling
Ga.
the
motion,
the
Bankruptcy
presumption of abuse based on the
§ 707(b)(2)
S.D.
on
existed.
2013).
In re Hardigan,
Appellant
alleged
"means
490 B.R.
that
given
Court
test"
437,
440
Appellee's
ability to pay,
his Chapter 7 petition constituted abuse based on
the
of
"totality
U.S.C.
the
§ 707(b)(3)(B).
circumstances"
(Doc.
no.
test
1-6 at
4-5.)
set
forth
in
11
The Bankruptcy Court
held that based on a number of factors, Appellee's petition did not
constitute
abuse.
In
re
Hardigan,
490
B.R.
at
459.
the Bankruptcy Court declined to convert Appellee's
Additionally,
petition to a
Chapter 11 under 11 U.S.C. § 706(b). Id^_ at 446-47.
II.
This
Court
U.S.C. § 158(a)(1)
JURISDICTION AND STANDARD OF REVIEW
has
and
appellate
jurisdiction
Bankruptcy Rules
8001
et
pursuant
to
seq.
appeal,
On
28
the Court reviews the Bankruptcy Court's factual findings for clear
error,
and its legal conclusions de novo.
567 F.3d 1291,
In
under
1296 (11th Cir.
determining
whether
11 U.S.C. § 707(b)(3),
In re Globe Mfg. Corp.,
2009).
Chapter
7
relief
"bankruptcy courts
constitutes
have
abuse
considerable
discretion"
only
for
1298-99
when
and,
abuse
when challenged,
of
(11th Cir.
it
discretion."
"[the district
In
re
court]
Kulakowski,
review[s]
735
F.3d
1296,
2013). A bankruptcy court abuses its discretion
"applies
the
erroneous
findings
(11th Cir.
wrong
of
principle
fact."
In
law
This
appeal
in
presents
Court
erred
denying
U.S.C.
§ 707(b)(3)(B);
719
makes
F.3d
clearly
1253,
1271
DISCUSSION
two
issues:
Appellant's
and
Piazza,
or
2013).
III.
re
of
(2)
(1)
whether
motion
whether
the
to
the
Bankruptcy
dismiss
Bankruptcy
under
Court
11
erred
in denying Appellant's motion to convert to a Chapter 11 under 11
U.S.C.
§ 706(b).
A. Dismissal Under 11 U.S.C.
On
appeal,
Appellant
§ 707(b)(3)(B)
challenges
the
Bankruptcy
Court's
application of the "totality of the circumstances" test. The Court
reviews
this
determination
for
an
abuse
of
discretion.
See
In
re
Kulakowski, 735 F.3d 1296, 1299 (11th Cir. 2013).
The Bankruptcy Code provides for dismissal of a Chapter 7 case
where "the granting of relief would be an abuse of the provisions
of
[the
Code]."
11
U.S.C.
§ 707(b)(1).
A
presumption
of
abuse
arises where the debtor fails the "means test," which is calculated
by a statutory formula.
11 U.S.C.
§ 707(b)(2).
Even where this
presumption of abuse does not arise, however, the court may still
find abuse by considering (1) whether the debtor filed the petition
in bad
faith;
or
(2)
"the
totality of the circumstances. .. of the
debtor's financial situation
In
the
present
case,
" 11 U.S.C. § 707(b) (3) (A-B) .
the
Bankruptcy
Court
found
that
Appellee's petition would not constitute abuse under the totality
of
the
circumstances
test.
In
re
Hardigan,
490
B.R.
437,
459
(Bankr. S.D. Ga. 2013). In making its determination, the Bankruptcy
Court
relied
on
the
following
meaningful portion of debts;
factors:
negotiate
with
"meaningful"
reduce
the
(4)
debtor's
necessities;
(7)
and
(8)
the
Hardigan,
490
B.R.
437,
446 B.R.
638,
pay
pointed
result.
a
447
642
toward
Specifically,
debtor's
Chapter
without
period
stability
(Bankr.
abuse,
case;
a
S.D.
provide
a
ability
to
the
which
debtor
of
the
debtor's
Ga.
to
(6)
depriving
the
debts
income.
2013)
were
In
(citing
re
In
re
2010)).
found that,
the
repay
repay debts and
ability
13
over
of
(S.D. Ga.
The Bankruptcy Court
to
the
in
time
incurred;
Truax,
(5)
expenses
the
to
(3) eligibility for Chapter 11
the debtor's efforts to
creditors;
distribution
ability
(2) whether the bankruptcy was caused
by an unforeseen or sudden calamity;
or Chapter 13 relief;
(1)
other
although Appellee's
factors
Bankruptcy Court
dictated
held
a
ability
contrary
Appellee's
fresh
start would be impaired by a Chapter 11 proceeding; the real estate
market
debts
collapse
were
"spending
constituted an unforeseeable
incurred
spree";
over
years
Appellee
and
dealt
not
calamity;
through
fairly
and
a
Appellee's
pre-bankruptcy
honorably
with
creditors; and Appellee was not attempting to "game" the bankruptcy
system.
Id. at 451-57.
In
test,
challenging
Appellant
the
makes
Bankruptcy Court's
two
claims.
First,
should have dismissed the case based on
alone and,
application
the
of
Bankruptcy
this
Court
the ability to pay factor
second, the Bankruptcy Court improperly relied on other
factors not relevant to Appellee's ability to pay.
(Doc.
no.
14,
"Appellant's Brief," at 14-21.)
As to the first contention, Appellant alleges
that the "the
ability to pay is the most important, and driving,
factor in the
4
totality
arguing,
of
the
circumstances
analysis."
at
16.)
In
so
Appellant cites a number of cases where courts have found
the ability to repay creditors sufficient,
abuse.
(Id.
See,
e.g.,
In
re
Lamanna,
153
standing alone,
F.3d
(holding that the "bankruptcy court may,
1,
but
4
(1st
to find
Cir.
1998)
is not required to,
find ^substantial abuse'2 if the debtor has an ability to repay, in
light of all of the circumstances");
(6th Cir.
1989)
In re Krohn,
886 F.2d 123,
126
(stating that the ability to repay debts "alone may
be sufficient to warrant dismissal").
These
cases,
however,
state
that
a
bankruptcy
court
may
permissibly rely solely on ability to pay. They do not dictate such
a result.
se rules
In
fact,
the court in In re Lamanna "reject [ed]
mandating dismissal
for
^substantial abuse'
any per
whenever the
debtor is able to repay his debt out of future disposable income,
or
forbidding
dismissal
on
that
basis
alone."
153
F.3d
at
4.
Emphasizing that ability to pay is but one factor that can be
utilized,
the
Eleventh
Circuit
declined
to
decide
"whether
a
debtor's ability to pay his or her debts can alone be dispositive
under the totality-of-the-circumstances test[,]" demonstrating that
ability to pay is but
one factor that may be considered.
In re
Witcher, 702 F.3d 619, 623 (11th Cir. 2012) (emphasis added).
In fact, many other courts have found that ability to pay, in
and of itself,
e.g.,
is insufficient to compel dismissal for abuse.
In re Lavin,
424
B.R.
558,
563
(Bankr.
M.D.
Fla.
See,
2010)
("Congress could have required dismissal based solely on a debtor's
2
In 2005, Congress amended section 707(b)(3) to call for "abuse" rather
than "substantial abuse" with the Bankruptcy Abuse Prevention and Consumer
Protection Act ("BAPCPA") . See In re Walker, 383 B.R. 830, 836 (Bankr. N.D.
Ga. 2008). Because of the similarity in tests, courts continue to apply preBAPCPA case law in determining whether abuse is present. Id. (" [B]ankruptcy
courts have looked to pre-BAPCPA case law for guidance in determining whether
to dismiss a chapter 7 case pursuant to section 707(b).").
5
'ability to pay.' Instead, section 707(b)(3)(B) requires evaluation
of
the
'totality
something
more
pay.");
In
re
(Bankr.
N.D.
of
the
than
just
Rudmose,
Ga.
circumstances.'
the
No.
Nov.
Thus,
debtor's
2010)
UST
mathematical
10-74514-WLH,
8,
the
2010
(citing
WL
must
ability
4882059,
several
show
cases
at
for
to
*3
the
proposition that "courts also generally hold that an ability to pay
alone is not sufficient to justify dismissal of a case for abuse").
Appellant's
application of
Appellant
second
claim
addresses
the
Bankruptcy
the other seven factors listed above.
alleges
that
sufficient
reasons
separately
or
the
why
Bankruptcy
any
collectively
of
the
-
Court
[were]
Specifically,
"d[id]
remaining
not
factors
relevant
Court's
to
provide
-
either
[Appellee's]
financial situation and outweigh his ability to repay a meaningful
amount of his debts."
the
Bankruptcy
(Appellant's Brief at 17.) While it is true
Court
addressed
dealings with his creditors,
Appellee's
fair
and
honorable
it also relied on a multitude of other
factors that have bearing on the totality of Appellee's "financial
situation," including his future financial prospects,
which the debts were incurred,
surrendered his real estate,
following
Hardigan,
Thus,
bankruptcy,
based
little
secured
and will,
property.
In
re
(Bankr. S.D. Ga. 2013).
a
careful
review
Order
and the parties'
briefs,
I cannot
Court
abused
its
on
and the fact that Appellee sold or
reduced his unsecured debt,
retain
490 B.R. 437, 455
the manner in
discretion by refusing
of
the
Bankruptcy
find that
to
Court's
the Bankruptcy
find abuse
of
process
based on ability to pay alone or by the other factors relied on in
its analysis.
B. Conversion Under 11 U.S.C.
Appellant
next
convert Appellee's
As
discussed
challenges
case to
above,
the
§ 706(b)
the
Bankruptcy
a Chapter 11 under 11
Court
will
review
clear error and conclusions of law de novo.
567 F.3d 1291,
Section
party
and
Chapter
does
(11th Cir.
706(b)
after
7
not
1296
case
provides
notice
to
provide
a
and
Chapter
any
Court's
failure
U.S.C.
findings
to
§ 706(b).
of
fact
In re Globe Mfg.
for
Corp.,
2009).
that,
a
upon
request
hearing,
11.
11
additional
the
U.S.C.
of
court
an
may
§ 706(b).
requirements,
convert
This
instead
decision to the "sound discretion of the court,
interested
a
section
leaving
the
based on what will
most inure to the benefit of all parties in interest." S. Rep.
No.
95-989,
at
853
(Bankr.
D.N.M.
940
(1978);
2011)
see
also
In
re
("[Section 706(b)]
Lobera,
454
B.R.
is not mandatory;
824,
the Court
should use its discretion in any decision to convert.").
Courts have relied on various factors in determining whether a
section
706(b)
ability
to
repay
reconversion;
plan;
and
In
debt;
(3)
(4)
conversion.
2012);
conversion
the
whether
would
(2)
the
the
of
parties
Schlehuber,
appropriate:
absence
likelihood
See In re Gordon,
re
be
in
interest
B.R.
683,
570
the
immediate
confirmation
465 B.R.
489
of
(1)
of
debtor's
grounds
a
Chapter
would benefit
692-94
(Bankr.
(B.A.P.
for
8th
from
N.D.
Cir.
11
Ga.
2013)
(relying on ability to pay and potential for confirmation).
The
findings
Bankruptcy
of
fact:
Court,
in
Appellee
had
its
the
order,
ability
made
to
the
repay
following
debts;
the
likelihood of confirmation of a Chapter 11 plan was "dubious" given
the disputed claim between Appellee and a contractor;
continued under
Chapter
within
and
months;
7 all
unsecured
conversion
would
7
creditors
not
benefit
if the case
could be
all
paid
parties
involved.
Ga.
In
re
Hardigan,
490
B.R.
437,
447,
451-53
(Bankr.
S.D.
2013) .
Upon
a
Bankruptcy
careful
Court's
Accordingly,
and
section 706(b)
review
factual
of
the
findings
applying
the
record,
were
highly
to those findings of fact,
I
not
find
clearly
deferential
this
case
involves
a
the
erroneous.
standard
of
the Bankruptcy Court did
not err in refusing to convert the case to Chapter ll.3
that
that
controlling question of
Recognizing
law as
to which
there is substantial ground for difference of opinion,4 an immediate
appeal
may
materially
advance
the
ultimate
termination
of
the
litigation.
CONCLUSION
As
discussed
above,
the
Court AFFIRMS
the
Bankruptcy Court's
Order denying Appellant's motion to convert or dismiss.
shall terminate all deadlines and motions,
The Clerk
and CLOSE this case.
ORDER ENTERED at Augusta, Georgia, this /5w "clay of October,
2014.
UNITED/STATES DISTRICT JUDGE
IERN
3
The
Court
does
interplay between
not
address
sections
706(b)
the
DISTRICT
OF GEORGIA
Bankruptcy Court's
and
707(b)
because
discussion
there
is
of
the
sufficient
evidence in the record to determine that the Bankruptcy Court did not err in
refusing to convert the case under section 706(b) alone.
4
The Eleventh Circuit declined to answer "whether the ability to pay may
be dispositive and,
if not,
what weight it should be given as compared to
other factors[.]"
In re Witcher, 702
discussed in detail supra, Appellant
F.3d 619, 623 (11th Cir. 2012).
As
contends that the bankruptcy court
abused its discretion by denying the motion to dismiss where the ability to
pay factor was met. Contrarily, Appellee asserts that the bankruptcy court
did not err by considering ability to pay alongside other factors.
8
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