In re Bage

In Re: Justin F. Bage, Debtor.

Case No. 13-33367

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO WESTERN DIVISION

September 24, 2014

Chapter 7

JUDGE MARY ANN WHIPPLE

MEMORANDUM OF DECISION REGARDING MOTION TO DISMISS

This case is before the court on the Amended Motion of the United States Trustee ("the UST") to Dismiss pursuant to 11 U.S.C. § 707(a) ("Motion") [Doc. # 22] and Debtor's Amended Response [Doc. # 43]. The UST seeks dismissal of this case for cause, asserting that Debtor filed the case in bad faith. The court held a hearing on the Motion that Debtor, his counsel and counsel for the UST attended in person and at which the parties presented testimony and other evidence in support of their respective positions.

The district court has jurisdiction over this Chapter 7 case pursuant to 28 U.S.C. § 1334(a) as a case under Title 11. It has been referred to this court by the district court under its general order of reference. 28 U.S.C. § 157(a); General Order 2012-7 of the United States District Court for the Northern District of Ohio. Proceedings to determine a motion to dismiss a case under § 707(b) are core proceedings that this court may hear and decide. 28 U.S.C. § 157(b)(1), (b)(2)(O).

This memorandum of decision constitutes the court's findings of fact and conclusions of law pursuant to Fed. R. Civ. P. 52, made applicable to this contested matter by Fed. R. Bankr. P. 9014(c) and7052. Regardless of whether specifically referred to in this Memorandum of Decision, the court has examined the briefs and arguments of counsel, weighed the credibility of the witnesses, considered all of the evidence, and reviewed the entire record of the case. Based upon that review, and for the reasons discussed below, the court will deny the Motion.

FACTUAL BACKGROUND

Debtor is a high school graduate and is 33 years old. He was employed as a paramedic by Medcorp, Inc. ("Medcorp"), which was owned and operated by his parents, from 1999 until 2010 when the business was put into a state court receivership at the request of the Huntington National Bank ("Huntington") for the purpose of enforcing a judgment. Prior to the appointment of a receiver, Debtor had already experienced a reduction in his pay by Medcorp. In 2011, he was hired as a paramedic by Medcorp's successor, where he worked until his employment was terminated in November 2013.

In 2011 and 2012, Debtor was able to supplement his otherwise reduced income through his deployment with the National Strategic Ambulance Response Team after Hurricane Irene and Hurricane Sandy occurred. In addition, his girlfriend moved in and shared living expenses with him.

Some time in 2012, Debtor entered into a workout agreement with Huntington with respect to his home mortgage loan. The agreement required him to make payments in an amount one and a half times his normal payment amount. In November 2012, after Debtor's girlfriend moved out and was no longer sharing expenses, he stopped making the mortgage payment. Debtor testified that he attempted to refinance but was unable to do so due to his poor credit. Debtor was also delinquent in payment of the real estates taxes on his home. Debtor testified that his monthly mortgage payment was supposed to, and he believed did, include a property tax escrow. He learned after his mortgage was transferred from Sky Financial to Huntington that none of his payment was ever escrowed.

In addition to Debtor's mortgage relationship with Huntington, Debtor also maintained bank accounts at Huntington. Debtor testified that, in August 2010, because of his "dislike" for Huntington after learning that it had caused his parents' business to be put in receivership, he terminated his banking relationship and opened new accounts at PNC Bank. He opened three accounts as part of a "package deal" that included a safety deposit box. Debtor did not actually obtain a key for the safety deposit box until February 2011, at which time he put some paperwork, a few coins and cash equal to one month's house payment in the safety deposit box. Shortly thereafter, he allowed his mother to place a bag of items in the safety deposit box, which he later learned contained some antique family jewelry.

Initially only Debtor deposited money in the PNC accounts. Later, at his parents' request, he allowed them to use one of his accounts. Although Debtor was unable to identify who made certain smaller deposits from a "Sharebuilder" account in October, November and December of 2010, Debtor does not dispute that, at least by February 2011, his parents began depositing money into one of his PNC accounts. Specifically, Debtor identified five deposits totaling slightly over $194,600 that were made by his parents between February 22, 2011, and June 8, 2011. In addition, in May 2011, Debtor's mother began having her paycheck directly deposited into Debtor's account. Debtor also permitted his parents to write checks against his account for payment of living expenses and to exercise control over the account.

In September 2011, Huntington filed a complaint for monetary and injunctive relief against Debtor and his parents in state court ("Huntington Litigation"), alleging that Debtor's parents fraudulently transferred certain of their assets to Debtor's bank accounts and that Debtor participated and conspired in the fraudulent transfers. [See UST Ex. 10]. Some time thereafter, all of Debtor's PNC accounts were frozen.

Debtor filed for relief under Chapter 7 of the Bankruptcy Code on August 13, 2013. [UST Ex. 2]. At that time, no judgment had been entered and the Huntington Litigation remained pending. Debtor testified that a foreclosure judgment with respect to his home mortgage was obtained before his petition was filed but that Huntington continued thereafter to send him letters in 2013 regarding restructuring his loan. Debtor credibly testified that his intent in filing his petition was to save his home and that he believed if he obtained a discharge regarding any claims in the Huntington Litigation, he could put a plan together to do so. But the termination of Debtor's employment on November 20, 2013, precluded any further attempt by him to save his home. Huntington was granted relief from stay and Debtor's home was eventually sold at a foreclosure sale.

Debtor's bankruptcy schedules show total general unsecured debt in the amount of $273,937.87, which includes $250,000.00 as unliquidated debt relating to the Huntington Litigation. [See id. at 22-25]. Debtor's schedules also disclose various assets, including a thirty-foot boat that was turned over to the Chapter 7 Trustee. [See id. at 14]. The Chapter 7 Trustee filed a notice of assets in this case, and a claims bar date of March 3, 2014, was set. [Doc. ## 24, 30]. Although Huntington filed a claim with respect to the mortgage debt, it did not file a proof of claim in this case with respect to the Huntington Litigation, nor has it filed an adversary complaint seeking nondischargeability of any debt owed to it. Neither Huntington nor any other creditor or party in interest, see 11 U.S.C. § 727(c)(1), objected to Debtor's discharge, cf. 11 U.S.C. §§ 727(a)(2), (a)(7) and 101(31)(A). The deadline to challenge the dischargeability of debts relatingto alleged fraudulent transfers and conduct as alleged in the Huntington Litigation was November 29, 2013. [See Doc. # 3]. The deadline to object to Debtor's discharge under § 727(a) was also November 29, 2013. [Id.].

LAW AND ANALYSIS

The UST moves for dismissal of this case "for cause" under 11 U.S.C. § 707(a), which provides that "[t]he court may dismiss a case under this chapter only after notice and a hearing and only for cause. . . ." As the moving party, the burden of proving "cause " under § 707(a) is on the UST. Simon v. Amir (In re Amir), 436 B.R. 1, 16 (B.A.P. 6th Cir. 2010); Piazza v. Nueterra Healthcare Physical Therapy (In re Piazza), 719 F.3d 1253, 1266 (11th Cir. 2013); In re McFadden, 477 B.R. 686, 691 (Bankr. N.D. Ohio 2012); In re Horan, 304 B.R. 42, 46-47 (Bankr. D. Conn. 2004); In re Kuhns, No. 11-31518, 2011 WL 4713225, *2, 2011 Bankr. LEXIS 3900, *4 (Bankr. N.D. Ohio Oct. 11, 2011); see In re Webb, 447 B.R. 821, 827 (Bankr. N.D. Ohio 2010) (stating that the burden under 707(b)(3)(A) of showing that the debtors filed their petition in bad faith was on the UST). Contra In re Tamecki, 229 F.3d 205 (3d Cir. 2005)(once evidence is provided to impugn good faith, burden shifts to debtor to prove good faith).

As cause for dismissal, the UST contends that Debtor filed his petition in bad faith. The Sixth Circuit has interpreted the "for cause" provision of § 707(a) as permitting a bankruptcy court to dismiss a Chapter 7 petition if it finds that the petition was not filed in good faith. Indus. Ins. Servs., Inc. v. Zick (In re Zick), 931 F.2d 1124, 1126-27 (6th Cir. 1991); cf. Marrama v. Citizens Bank of Mass., 549 U.S. 365, 373 (2007) (noting that the nonexclusive list of causes justifying dismissal under § 1307(c) does not mention bad faith but recognizing that dismissal for bad-faith is implicitly authorized by the words "for cause" in that section). The Sixth Circuit recognized that "[t]he facts required to mandate dismissal based upon a lack of good faith are as varied as the number of cases." Zick, 931 F.2d at 1127. It cautioned, however, that dismissal "should be confined carefully and is generally utilized only in those egregious cases that entail concealed or misrepresented assets and/or sources of income, and excessive and continued expenditures, lavish lifestyle, and intention to avoid a large single debt based on conduct akin to fraud, misconduct, or gross negligence." Id. at 1129. "A hallmark of good faith is the existence of an honest intention in filing bankruptcy." In re Groscost, No. 11-60502, 2011 WL 4498871, *3, 2011 Bankr. LEXIS 3701, *7 (Bankr. N.D. Ohio Sept. 27, 2011) (citing Tamecki, 229 F.3d 205). "The decision to dismiss under § 707(a) is an equitable...