In Re James Samuel Dickey

Filing 21

District Judge Timothy S Hillman: AMENDED ORDER entered on 1 Bankruptcy Appeal (Castles, Martin)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
__________________________________________
)
)
)
)
v.
)
William K. Harrington, Trustee,
)
Appellee.
)
_________________________________________ )
In re JAMES S. DICKEY,
Appellant/Debtor,

Civ. Act. No. 16-10649-TSH
Bankruptcy Chapter 11
Case No. 16-40283-CJP

AMENDED1 ORDER ON APPEAL FROM BANKRUPTCY COURT
November 4, 2016
HILLMAN, D.J.
Background
This is an appeal from a final order of the United States Bankruptcy Court for the District
of Massachusetts by debtor, James S. Dickey (“Dickey”). On November 5, 2015, Dickey filed
for relief under chapter 13 of 11 U.S.C. § 101, et seq. (the “Bankruptcy Code”)(“Chapter 13
case”). That case was dismissed on December 23, 2016, without opposition from Dickey, as the
result of his failure to provide evidence of insurance on property located at 497 East Fourth
Street, South Boston, Massachusetts (“Property”); the Property was listed on his Schedule A. On
February 25, 2016, Dickey filed a voluntary petition for relief under chapter 11 of the
Bankruptcy Code (“Chapter 11 case”). On February 29, 2016, the United States Trustee
(“Trustee”) filed a motion seeking dismissal of the Chapter 11 case pursuant to 28 U.S.C.
§586(a)(3)(G) and 11 U.S.C. § 1112 on the grounds that Dickey had failed to provide proof of

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The opinion is amended to reflect that this case is brought under Chapter 11 of the Bankruptcy
Code and the Trustee is William K. Harrington.

appropriate insurance coverage with respect to his listed property (including, the Property). In
opposition to the motion to dismiss, Dickey asserted that he does not own the Property, rather it
is owned by East Fourth Street, LLC (“LLC”). Dickey was ordered by the bankruptcy court to
provide evidence of insurance to the Trustee by the close of business on March 8, 2016. On
March 7, 2016, Dickey filed a notice of appeal of the bankruptcy court’s order and a motion to
stay the bankruptcy court’s order pending appeal to this Court. The motion to stay was denied
by the bankruptcy court, and Dickey’s interlocutory appeal of the bankruptcy court’s order
requiring him to provide proof of insurance was dismissed by this Court on June 23, 2016. See In
re James S. Dickey, Civ. Act. 16-10473-TSH.
On March 16, 2016, the bankruptcy court issued an order dismissing the Chapter 11 case
after finding that: (1) based on Dickey’s Schedules and Statement of Financial Affairs
(“SOFA”), he holds a one hundred percent (100%) membership interest in LLC and he controls
LLC; (2) he transferred the Property into LLC on November 5, 2015, the date he filed his
Chapter 13 case; (2) the Property was not insured for personal injury, fire or other loss (other
than “forced place” insurance that would cover only the amount of the first mortgage); (3)
Dickey had an application for insurance pending, but had not yet provided the Trustee with proof
of insurance; (4) while the Property may not directly constitute property of the bankruptcy estate,
given the nature of the LLC and Dickey’s claimed one hundred percent (100%) interest, the
estate has a significant interest in the Property; (5) Dickey failed to demonstrate that there are
unusual circumstances to establish that dismissal of the Chapter 11 case is not in the best interest
of creditors and the estate, (6) Dickey failed to establish that there is reasonable likelihood that a
plan could be confirmed or that failure to obtain insurance covering the Property was reasonably

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justified; (7) there appears to be no impediment to Dickey obtaining insurance for the Property;
and (8) dismissal is in the best interest of the bankruptcy estate and its creditors.
On March 29, 2016, Dickey filed a notice of appeal from the bankruptcy court’s
dismissal of his Chapter 11 case; he did not file a motion to extend the stay pending disposition
of the appeal. 2 Dickey filed a brief in support of his appeal. The Trustee filed a motion to strike
the brief and appendix for failure to comply with Fed.R.Bank.P. 8013, 8014 and 8018 and Local
Rules 203.8001, 203.8013 and 2013.8018 The Court denied the motion to strike, but advised
Dickey that his brief was deficient. The Court gave Dickey an opportunity to “file a superseding
brief which complies with the Courts rules, including, without limitation, proper formatting,
citation to legal authority and the record and inclusion of all relevant transcripts and records from
the bankruptcy proceedings.” See Docket Entry No. 12. Dickey was warned that if he failed to
file a superseding brief, this matter would go forward based on his current brief and he will have
waived any legal issues not properly presented (which could potentially result in dismissal of his
appeal) Id. Dickey opted not to file a superseding brief.

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The holder of the first mortgage on the Property had scheduled a foreclosure sale for February 26, 2016,
which was postponed when Dickey filed his Chapter 11 case on February 25, 2016. Given that Dickey did not seek
an extension of the stay pending this appeal, on May 4, 2016, the first mortgagee foreclosed on the Property. Neither
party has argued that the sale of the Property moots Dickey’s appeal of the dismissal of his Chapter 11 case. I
assume this is because if the dismissal were vacated, there would be still be limited assets left to administer. See In
re Sasso, 409 B.R. 251, 254 (B.A.P. 1st Cir. 2009)(appeal is moot for equitable reasons where appellant's failure to
request stay allowed events to develop in reliance on bankruptcy court order to such degree that meaningful
appellate relief has become impracticable or impossible). I will further note that even if I had found that the
bankruptcy court had erred in dismissing the Chapter 11 case, because the automatic stay had been lifted at the time,
the foreclosure sale could not be voided. See Lomagno v. Salomon Bors. Realty Corp. (In re Lomagno), 320 B.R.
473 (1st Cir. BAP 2005)(once bankruptcy case is dismissed, automatic stay is lifted; if dismissal is vacated, the
reinstatement of automatic stay is not retroactive and therefore, actions taken while the stay was lifted are valid).

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Standard of Review
When considering an appeal of the bankruptcy court’s dismissal of a case under 11
U.S.C. § 1112(b), this Court “review[s] the bankruptcy court’s findings of fact for clear error and
conclusions of law de novo. “ In re Colon Martinez, 472 B.R. 137, 143 (B.A.P. 1st Cir. 2012).
“The bankruptcy court, however, has ‘broad discretion to determine whether either conversion or
dismissal is in the best interests of creditors and the estate after finding cause.’ Accordingly, the
decision of the bankruptcy court on which relief to elect is reviewed for an abuse of discretion.
‘A court abuses its discretion if it does not apply the correct law or if it rests its decision on a
clearly erroneous finding of material fact.’” In re Efron, 529 B.R. 396, 405 (B.A.P. 1st Cir. 2015)
(internal citation and citation to quoted case omitted).
Discussion
Dickey asserts that the bankruptcy court erred when it dismissed his Chapter 11 case for
failure to obtain insurance. In support, he argues that the requirement that assets of the
bankruptcy estate be insured is not obligatory, but is within the discretion of the bankruptcy
judge. He further argues that 11 U.S.C. §1123(b)(4) does not require that the debtor provide
proof of insurance of property that is outside the bankruptcy estate. Dickey does not cite to any
legal authority or provide any cogent legal analysis in support of his arguments. For this reason
alone, the Court finds that this appeal should be dismissed. Nonetheless, the Court will examine
the merits of Dickey’s appeal.
Except as otherwise provided under the statute, “on request of a party in interest, and
after notice and a hearing, the court shall convert a case under [chapter 11] to a case under
chapter 7 or dismiss a case …, whichever is in the best interests of creditors and the estate, for

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cause unless the court determines that the appointment under section 1104(a) of a trustee or an
examiner is in the best interests of creditors and the estate.” 11 U.S.C. § 1112(b)(1). For
purposes of Section 1112, “cause” includes “failure to maintain appropriate insurance that poses
a risk to the estate or to the public.” 11 U.S.C. §1112(b)(4)(C). The bankruptcy court may not
convert or dismiss a case if: (1) “it finds and specifically identifies unusual circumstances
establishing that converting or dismissing the case is not in the best interests of creditors” and (2)
it is established that there is a reasonable likelihood that a plan will be confirmed within a
reasonable period of time and any reasonably justified acts or omissions of the debtor which
constitute cause will be cured within a reasonable period of time. Id. (b)(2). To paraphrase,
“when an interested party files a motion to convert or dismiss a Chapter 11 case, the bankruptcy
court inquires as follows: Does ‘cause’ exist to convert or dismiss the case; and, if so, is
conversion or dismissal in the best interests of creditors and the estate?” In re Hoover, 828 F.3d
5, 8 (1st Cir. 2016)(citing 11 U.S.C. § 1112(b)(1)).
The Property was listed on Dickey’s SOFA in the Chapter 11 case; Dickey indicated that
the Property was owned by LLC and he owned one hundred percent (100%) of LLC. At the time
he completed the SOFA, Dickey valued the Property at $1,000,000.3 The bankruptcy court found
that even if the Property was not a direct asset of the bankruptcy estate, Dickey’s ownership of
LLC was an estate asset. The bankruptcy court further found that since the Property was LLC’s
only asset, failure to properly insure the Property could adversely affect the creditors of the
bankruptcy estate. This finding is not clearly erroneous.

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In 2012 the Property was placed in the hands of a state court receiver due to serious and longstanding
violations of the Massachusetts sanitary code.

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It is undisputed that LLC failed to maintain insurance on the Property. The holder of the
first mortgage had force-placed hazard insurance on the property. However, such insurance did
not cover personal injuries. Moreover, given Dickey’s position that LLC had equity in the
Property, the value of Dickey’s indirect ownership on the Property would have been at risk in the
event of a fire because the Property would be underinsured.4 Thus, the record supports the
bankruptcy court’s finding that LLC did not maintain adequate insurance on the Property. Given
that the Property was the only asset of LLC and that Dickey’s ownership interest in LLC was the
primary asset of the bankruptcy estate, I find that the failure to maintain appropriate insurance on
the Property posed a risk to the bankruptcy estate or the public within the meaning of 11 U.S.C.
§1112(b)(4)(C). It is also clear from the record that Dickey did not establish that: (1) unusual
circumstances existed such that dismissal of the Chapter 11 case was not in the best interest of
creditors and the estate; (2) there existed a reasonable likelihood a bankruptcy plan could be
confirmed; or (3) failure to obtain the appropriate insurance was justified. The bankruptcy court
also determined that dismissal of the Chapter 11 case was warranted given that neither party had
argued that conversion was in the best interest of the creditors and the estate. On appeal, neither
party has asserted that conversion was the better alternative and therefore, the argument is
waived.
Under these circumstances, I do not find that the bankruptcy court erred in dismissing the
Chapter 11 case. For that reason, I need not address the Trustee’s further argument that this
Court should affirm dismissal of the Chapter 11 case on the alternative ground that Dickey had

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Because the first mortgage holder insured the Property only up to the value of LLC’s outstanding loan
obligation.

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not maintained insurance on any of his listed properties.5 The judgment of the bankruptcy court
is affirmed.
Conclusion
The judgment of the Bankruptcy Court is affirmed.
SO ORDERED.

/s/ Timothy S. Hillman
TIMOTHY S. HILLMAN
DISTRICT JUDGE

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The Trustee had raised this issue before the bankruptcy court, however, that court did not find it necessary
to rule on this issue. As noted by the Trustee, this Court can affirm an any grounds supported by the record, even if
not addressed by the bankruptcy court. See In re Hoover, 828 F.3d at 8.

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