Seidling, Bernard v. Kelly, Paul et al

Filing 22

OPINION and ORDER affirming the decision of the United States Bankruptcy Court for the Western District of Wisconsin. Signed by District Judge James D. Peterson on 9/15/2023. (acd),(ps)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN

BERNARD SEIDLING,
Appellant,
v.

OPINION and ORDER

PAUL KELLY, MARK WOYCHIK,
PAULA WOYCHIK, GLEN CUNNINGHAM, and
PATRICK S. LAYNG, U.S. Trustee,

22-cv-598-jdp

Appellees.
Debtor Bernard Seidling appeals the bankruptcy court’s order converting his Chapter
11 bankruptcy petition to a Chapter 7 petition. A conversion order is final for the purpose of
allowing this court to exercise jurisdiction over the appeal. See In re USA Baby, Inc., 674 F.3d
882, 883 (7th Cir. 2012). Seidling has not shown that the bankruptcy court abused its
discretion, so I will affirm the decision.

ANALYSIS
This case started as a Chapter 11 petition for reorganization. But the trustee and
creditor Paul Kelly filed separate motions to convert the case to Chapter 7, which would require
a liquidation of assets. After holding a hearing, the bankruptcy court determined that
conversion to Chapter 7 was in the best interest of the creditors and the estate. Dkt. 1-1.
Seidling contends that the bankruptcy court should have either dismissed the bankruptcy
petition or converted it to a Chapter 13 petition, which would have allowed him to enter into
a repayment plan.
Conversion from Chapter 11 to Chapter 7 is governed by 11 U.S.C. § 1112(b)(1):

Except as provided in paragraph (2) and subsection (c), on request
of a party in interest, and after notice and a hearing, the court
shall convert a case under this chapter to a case under chapter 7
or dismiss a case under this chapter, whichever is in the best
interests of creditors and the estate, for 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.
This provision requires the court to do three things before converting a Chapter 11 petition to
Chapter 7: (1) provide the debtor notice and a hearing; (2) identify the cause for dismissal or
conversion; and (3) explain why conversion rather than dismissal or appointment of a trustee
or examiner is in the best interests of the creditors. Seidling doesn’t challenge the adequacy of
the notice he received or his opportunity to be heard, and he doesn’t contend that the
bankruptcy court should have appointed a trustee or examiner, so I need not consider those
issues. The determination of cause and the decision to convert the case are reviewed for abuse
of discretion. Matter of Woodbrook Associates, 19 F.3d 312, 316 (7th Cir. 1994). And I must
accept any underlying findings of fact unless they are clearly erroneous. In re Sparrgrove, 313
B.R. 283, 288 (W.D. Wis. 2004).
The bankruptcy court gave two reasons for finding cause to dismiss or convert the case.
First, Seidling himself did not wish to proceed under Chapter 11. He testified during the
hearing that he could not meet the requirements for reorganization. Dkt. 20-4, at 33–34.
Second, Seidling didn’t file the Chapter 11 petition in good faith. At the time Seidling filed his
Chapter 11 petition, he was already proceeding with a Chapter 13 petition. But the automatic
stay had been lifted in the Chapter 13 proceeding, so Seidling filed a new petition to obtain a
new stay. Dkt. 1-1, at 2; Dkt. 20-4, at 152.
The bankruptcy court also gave several reasons for converting the case to Chapter 7. As
an initial matter, the court concluded that it didn’t have authority to convert the case to

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Chapter 13, as Seidling requested. The choices under § 1112(b)(1) are dismissal, conversion
to Chapter 7, or appointment of a trustee or examiner. Conversion to Chapter 13 is not an
option. This makes sense because Chapter 13, like Chapter 11, would require Seidling to
submit a plan, which he failed to do. Although Seidling continues to argue that the bankruptcy
court should have considered conversion to Chapter 13, he still identifies no legal or factual
basis for doing so.
As for the decision to convert to Chapter 7 rather than dismiss, the bankruptcy court
offered the following reasons:


Seidling engaged in misconduct during the proceedings: he did not list all of his
assets and creditors on his schedules.



Conversion would be more likely to lead to equitable distribution of assets
because more creditors could be identified.



Smaller creditors would be more likely to receive some distribution rather than
being left behind in a “race to the courthouse” in the event of a dismissal.



Conversion would preserve the trustee’s strong-arm powers, including the ability
to recover preferential transfers and an extended lookback period for certain
preferential transfers.



If the court were to dismiss the case, Seidling would likely file another
bankruptcy petition.

Dkt. 1-1, at 4–7; Dkt. 20-4, at 152–56.
Seidling doesn’t challenge any of these reasons in his brief. Instead, he says that the
bankruptcy court erred by accepting “false, unsworn” statements from Paul Kelly. It is true
that Kelly made many unsworn allegations about Seidling in his motion. In re Seidling, No. 2211191 (W.D. Wis. Bankr.), Dkt. 55. But the bankruptcy court didn’t rely on any of those
allegations in its decision; it relied on Seidling’s own conduct and the evidence presented during
the hearing. For example, Seidling himself admitted during the hearing that he had filed the

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Chapter 11 petition because the stay on his Chapter 13 petition had expired. Dkt. 20-4, at 34.
The court also cited claims and assets that Seidling had failed to disclose. Dkt. 1-1, at 4–5.
Seidling doesn’t identify any evidence that the bankruptcy court relied on in its decision that
wasn’t supported by the record.
Seidling also says that the bankruptcy court should have taken into account that he is
in failing health. Seidling doesn’t explain why or how his health is relevant to determining
whether conversion or dismissal was the more appropriate option. But even if it were relevant,
he doesn’t point to any portion of the record in which he raised the issue with the bankruptcy
court, so he forfeited the issue. Even now, Seidling hasn’t submitted evidence showing that his
health prevents him from participating in Chapter 7 proceedings.
The bankruptcy court gave reasonable grounds, both for finding that there was cause
for dismissing or converting Seidling’s bankruptcy petition and for finding that converting the
petition to Chapter 7 was in the best interests of the creditors and the estate. Seidling hasn’t
shown that the bankruptcy court abused its discretion or relied on any clearly erroneous facts.
The court will affirm the bankruptcy court’s decision.

ORDER
IT IS ORDERED that the October 3, 2022 final order of the bankruptcy court is
AFFIRMED.
Entered September 15, 2023.
BY THE COURT:
/s/
________________________________________
JAMES D. PETERSON
District Judge

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