In Re: Ricks

Filing 37

MEMORANDUM DECISION AND ORDER - IT IS ORDERED: All grounds for appeal are DENIED and the Bankruptcy Courts Orders at issue in this appeal are AFFIRMED. Costs and attorneys fees on appeal are awarded to Appelleespursuant to Idaho Code §§ 12-120. Signed by Judge Edward J. Lodge. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (cjs)(Emailed to TLM, sh, & aw at Bankruptcy Court.)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

In re:
Bk. Case No. 13-00264-TLM
THOMAS MECHAM RICKS,
Debtor.

THOMAS MECHAM RICKS,
Appellant,

MEMORANDUM DECISION
AND ORDER

vs.
Case No. 1:15-cv-00504-EJL
RANDAL J. FRENCH, P.C.;
MCHUGH BROMLEY, PLLC; and
JOHN WOOD,
Appellees-Respondents.

Pending before the Court in the above-entitled matter is Appellant/Debtor Thomas
M. Ricks’ appeal of Chief Bankruptcy Judge Terry L. Myers’ Orders involuntarily
converting the case to a Chapter 7 bankruptcy and denying Ricks’ Motion for
Reconsideration. Having fully reviewed the record, the Court finds that the facts and legal
arguments are adequately presented in the briefs and record. Accordingly, in the interest of
avoiding further delay, and because the Court conclusively finds that the decisional process
would not be significantly aided by oral argument, this matter shall be decided on the
record before this Court without oral argument.
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PROCEDURAL AND FACTUAL BACKGROUND
Ricks filed a Chapter 11 bankruptcy petition on February 19, 2013. Excerpt of
Record (ER), Tab 1, Dkt. 9. On December 17, 2014 the United States Trustee sought to
dismiss the petition. ER, Tab 5. A stipulated Order was entered on February 5, 2015, that
provided Ricks additional time to seek confirmation of a Chapter 11 plan until September
25, 2015 or the case would be dismissed. ER, Tab 7. The stipulated Order also provided
the agreement of the parties and ‘this order do not prejudice the parties’ rights to raise the
issues asserted in the United States Trustee’s Motion to Dismiss or Convert in any
subsequent motion to dismiss or convert, or any other motion or proceeding.” Id.
Judge Myers denied Ricks plan on August 18, 2015. ER, Tab 39, Dkt. 11. On
September 2 and 3, 2015, two administrative creditors, Randal J. French, P.C. and McHugh
Bromley PLLC filed motions to convert Ricks’ case to a Chapter 7. The Bankruptcy Court
held an evidentiary hearing on the motion. Ricks maintained pursuant to 11 U.S.C.
§ 1112(c) the Court could not involuntarily convert the case as Ricks is a “farmer.” Ricks
testified at the hearing that his income was inaccurately reflected on his personal and
business tax returns, but that he farmed the crops grown on the Grandview, Idaho property
and he also operated the cattle operation of Ricks Ranches, Inc. (RRI) and therefore, 80%
of his income came from farming operations as defined by 11 U.S.C. § 101 (21) as he is the
sole shareholder of RRI, a subchapter S corporation.
On September 25, 2015, the Bankruptcy Court rejected Ricks’ argument based on
the tax records and other documents filed in the case and found Ricks had not carried his
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burden to establish via credible evidence that he met the definition of a “farmer” set out in
11 U.S.C. § 101(20). ER, Tab 18. The Bankruptcy Court also granted the motions for
conversion to Chapter 7. Id.
Ricks filed amended personal and business tax returns for 2012 after the evidentiary
hearing and after the Court’s ruling on the motion to convert. Ricks then moved for
reconsideration of the Court’s order converting the case based on amended tax returns
claiming they were newly discovered evidence. The Bankruptcy Court denied the motion
finding the amended tax returns were not “newly discovered evidence” but “newly
manufactured evidence.” ER, Tabs 23 (Memorandum of Decision) and 24 (Order). Ricks
filed his appeal of the Order converting the case and the Order denying his motion for
reconsideration.
JURISDICTION
This Court has jurisdiction over “final judgments, orders, and decrees” of
bankruptcy judges pursuant to 28 U.S.C. § 158(a)(1).

ISSUES ON APPEAL
1. Did the Bankruptcy Court err in failing to dismiss the case pursuant to the
stipulated Order of February 5, 2015?
2. Did the Bankruptcy Court err in finding Debtor did not meet the definition of a
“farmer” and involuntarily converting the Chapter 11 petition to a Chapter 7 case?
3. Did the Bankruptcy Court err in denying the motion for reconsideration?
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STANDARD OF REVIEW
This Court reviews the Bankruptcy Court’s order converting the case to Chapter 7
for an abuse of discretion. See Pioneer Liquidating Corp. v. U.S. Trustee (In re Consol.
Pioneer Mortg. Entities), 264 F.3d 803, 807 (8th Cir. 2001), Johnston v. JEM Dev’t Co. (In
re Johnston), 149 B.R. 158, 160 (9th Cir. BAP 1992). Under United States v. Hinkson, 585
F.3d 1247 (9th Cir. 2009), this Court applies a two-part, objective test to determine if the
Bankruptcy Court abused its discretion. First, the court reviews de novo whether the
Bankruptcy Court identified the correct legal rule to apply the relief requested. Id. at 126163. Second, this Court reviews the Bankruptcy Court’s findings, and its application of those
findings, to determine the application of the correct legal standard was “(1) ‘illogical,’ (2)
‘implausible.’ or (3) without ‘support in inferences that may be drawn from the facts in the
record.’” Id. at 1262 (citation omitted).
The standard of review for a motion for reconsideration is also the abuse of
discretion standard. See Tracht Gut, LLC v. Cnty. of L.A. Treasurer & Tax Collector (In re
Tracht Gut, LLC), 503 B.R. 804, 809 (9th Cir. BAP 2014).

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ANALYSIS
1. Did the Bankruptcy Court err in failing to dismiss the case pursuant to the
stipulated Order of February 5, 2015?
No. Debtor reads the February 5, 2015 Order too restrictively. The stipulation of
certain parties regarding an extension of the date for a plan’s confirmation did not expressly
or impliedly limit or restrict the rights of other creditors to seek a different remedy from the
Bankruptcy Court under the applicable Bankruptcy statutes and rules. In this case,
administrative creditors sought to have the case converted and the Bankruptcy Court held
an evidentiary hearing and evaluated which alternative, dismissal or conversion, was in the
best interests of all the creditors in the bankruptcy estate. The Bankruptcy Court did not
abuse its discretion in proceeding on ruling on the two creditors’ motion to convert as
Judge Myers correctly applied the law while also giving consideration to prior orders
entered by the Bankruptcy court.

2. Did the Bankruptcy Court err in finding Debtor did not meet the definition of a
“farmer” and involuntarily converting the Chapter 11 petition to a Chapter 7 case?
No. Debtor’s main argument is that he is a “farmer” protected from an involuntary
conversion to a Chapter 7 bankruptcy pursuant to 11 U.S.C. § 1112(c). The Bankruptcy
Court set forth the proper 80% gross income test for determining if a debtor is a “farmer”
pursuant to 11 U.S.C. § 101(20). The Court weighed the testimony and exhibits admitted at
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the evidentiary hearing along with the bankruptcy records for debtor over the past seven
years. The Court did not find Ricks’ testimony credible when he tried to explain his 2012
tax returns. The 2012 tax returns clearly set forth that Ricks’ income is passive income that
flows through from his two corporations RRI and Spur Development, Inc. While it is true
Ricks is the sole owner of RRI, income from a corporation does not make the shareholder
the owner or operator of the farm operations. Stated another way, § 101(20) requires “that
the farming operation be owned or operated by the person claiming to be the farmer.” In Re
Gilbert, 2012 WL 1297867 (Bkrtcy. N.D. Georgia, March 12, 2012).The 2012 tax returns
for RRI establishes the farming operation was owned by RRI, not Ricks.
Ricks now argues on appeal that this Court should consider that since he was the
sole shareholder of RRI, he both “owned and operated” the farming operation so he was a
farmer under the statute. The Court rejects this argument. Ricks intentionally filed the 2012
tax returns for himself and RRI. He has an accounting degree and is not a novice in
Bankruptcy Court. Moreover, he was represented by counsel during much of the time his
bankruptcy matters were pending. He created the entity, RRI, and Ricks ran the farming
operations through RRI’s books and since RRI was not the party filing for Chapter 11
protection, the Court is forced to look a the personal tax returns Ricks filed to determine if
80% of his gross income was from farming.
Nothing on Ricks’ personal tax returns shows his income was from farming.
Moreover, the Bankruptcy Court found Ricks’ testimony not to be credible based on the
totality of the record before the court. More than just the tax returns leads a fact finder to
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this conclusion. There were also the security interests granted by RRI in the farming assets
and numerous inconsistent statements made by Ricks on bankruptcy filings made under
oath. Moreover, Judge Myers found that Ricks abused the bankruptcy system when Ricks
filed multiple bankruptcy petitions over the years to prevent foreclosure by the bank.
The Bankruptcy Court applied the correct legal standard and its findings of fact
applied to the legal standard do not establish (1) illogical, (2) implausible or (3) inferences
lacking support that were drawn from the facts in the record. Hinkson at 1262. The
Bankruptcy Court did not abuse its discretion in determining Ricks was not a farmer.
Having found debtor was not a “farmer,” the Bankruptcy Court then applied
11 U.S.C. § 1112 in determining whether conversion was allowed and was in the best
interest of the creditors. The Court set forth its analysis why a dismissal (with a bar on
filing for bankruptcy for a period of time) was not warranted based on the breached
agreements by Ricks, the length of time the creditors had been unpaid and the fact a
dismissal would cause more expense, delay and risk to the creditors of the estate. These are
not illogical, implausible or unsubstantiated inferences from the facts presented. For these
reasons, this Court finds the Bankruptcy Court did not abuse its discretion is determining
conversion was the proper course of action in this bankruptcy proceeding.

3. Did the Bankruptcy Court err in denying the motion for reconsideration?
No. It is undisputed that Ricks filed amended 2012 tax returns for himself and RRI
in October of 2015 after the Court’s ruling on the conversion of the case to Chapter 7.
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Judge Myers found Ricks’ hearing testimony not to be credible in his ruling on the motion
to convert the bankruptcy to Chapter 7. The filing of the amended tax returns appears to
have been meant to corroborate Ricks’ testimony at the evidentiary hearing that his
personal income was from farming.
Ricks Motion for Reconsideration relies on Bankruptcy Rule 9023 which applies
Fed. R. Civ. P. 59(e). The Ninth Circuit has stated that motions to reconsider should be
treated as motions to alter or amend under Federal Rule of Civil Procedure 59(e). Sierra
On-Line, Inc. v. Phoenix Software, Inc., 739 F.2d 1415, 1419 (9th Cir. 1984). Rule 59(e) is
an "extraordinary remedy, to be used sparingly in the interests of finality and conservation
of judicial resources." Carroll v. Nakatani, 342 F.3d 934, 945 (9th Cir. 2003).

The

Ninth Circuit has identified three reasons sufficient to warrant a court’s reconsideration of a
prior order: (1) an intervening change in controlling law; (2) the discovery of new
evidence not previously available; and (3) the need to correct clear or manifest error in law
or fact, to prevent manifest injustice. School Dist. No. 1J v. ACandS, Inc., 5 F.3d 1255,
1263 (9th Cir. 1993), cert. denied, 512 U.S. 1236 (1994). See also, Turner v. Burlington
North. Santa Fe R.R. Co., 338 F.3d 1058, 1063 (9th Cir. 2003)(citation omitted). Upon
demonstration of one of these three grounds, the movant must then come forward with
“facts or law of a strongly convincing nature to induce the court to reverse its prior
decision.” Donaldson v. Liberty Mut. Ins. Co., 947 F. Supp. 429, 430 (D. Haw. 1996).
The Bankruptcy Court cited the correct standard legal standard for granting a motion for
reconsideration when it cited Marlyn Nutraceuticals, Inc. v. Mucos Pharma GmbH &Co,
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571 F.3d 873, 880 (9th Cir. 2009) and In re Oak Park Calabasas Condo. Ass’n, 302 B.R.
682, 683 (Bank. C.D. Cal 2003).
In this case, Judge Myers cited to binding Ninth Circuit law that “evidence of events
occurring after the trial is not newly discovered evidence within the meaning of the rules.”
Corex Corp. v. United States, 638 F.2d 119, 121-122 (9th Cir. 1981). Based on this Ninth
Circuit law, Judge Myers found that the amended 2012 tax returns were not newly
discovered evidence nor previously unavailable evidence that the Bankruptcy Court could
consider. The decision not to consider the amended returns is not an abuse of discretion.
Additionally, consideration of the amended tax returns does not fall under the
“manifest error of fact “ exception based on the entire record considered by Judge Myers on
the motion to convert the petition. Instead, the submission of the amended returns was an
improper attempt to reargue matters already disposed of by the Bankruptcy Court.
Whatever may be the purpose of Rule 59(e) it should not be supposed that it is intended to
give an unhappy litigant one additional chance to sway the judge. Illinois Central Gulf
Railroad Company v. Tabor Grain Company, 488 F. Supp. 110, 122 (N.D. Ill. 1980) (a
rehash of the arguments previously presented affords no basis for a revision of the court's
order).
Where Rule 59(e) motions are merely being pursued "as a means to reargue matters
already argued and disposed of and to put forward additional arguments which [the party]
could have made but neglected to make before judgment, [s]uch motions are not properly
classifiable as being motions under Rule 59(e)" and must therefore be dismissed. Davis v.
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Lukhard, 106 F.R.D. 317, 318 (E.D. Va. 1984). See also, Above the Belt, Inc. v. Mel
Bohannan Roofing, Inc., 99 F.R.D. 99, 101 (E.D. Va. 1983)("Plaintiff improperly used the
motion to reconsider to ask the Court to rethink what the Court had already thought -rightly or wrongly.").
For these reasons, Appellant has failed to establish the denial of the motion for
reconsideration was an abuse of discretion based on an incorrect legal standard or a
misapplication of the facts to the law. Judge Myers’ Order on the motion for
reconsideration was not illogical, implausible or based on unsupported inference. The
Memorandum of Decision and Order were a proper application of the correct law to an
improper attempt by Ricks to claim the amended tax returns were newly discovered
evidence.

ORDER
IT IS ORDERED:
All grounds for appeal are DENIED and the Bankruptcy Court’s Orders at issue in
this appeal are AFFIRMED. Costs and attorneys fees on appeal are awarded to Appellees
pursuant to Idaho Code §§ 12-120.
September 29, 2016

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