In re Brown

547 B.R. 846

In re: Jason Scott Brown, Debtor,

BANKRUPTCY NO. 13–11913–MM7

United States Bankruptcy Court, S.D. California.

DATE: January 21, 2016

Signed March 18, 2016

Christopher R. Bush, Michael G. Doan, Doan Law Firm, Oceanside, CA, for Debtor.

MEMORANDUM DECISION AND ORDER DENYING MOTION TO RECONSIDER DENYING REQUEST FOR DISMISSAL OF CASE FILED BY DEBTOR

MARGARET M. MANN, JUDGE, United States Bankruptcy Court

Before the court is the second motion for reconsideration of the court's July 25, 2014 order ("Conversion Order") converting this case to one under Chapter 7 despite the request of Debtor Jason Scott Brown ("Brown") that the court dismiss his case instead. The court denied Brown's first motion for reconsideration of the Conversion Order on September 23, 2014. The Bankruptcy Appellate Panel for the Ninth Circuit ("BAP") then affirmed both the Conversion Order and the court's denial of Brown's first motion for reconsideration on October 26, 2015. After failing to timely appeal the BAP's decision to the Ninth Circuit, Brown brought this second motion to reconsider the Conversion Order under Fed.R.Civ.P. 60(b)(5), 60(b)(6), and 60(d), made applicable by Fed. R. Bankr. P. 9024.

While this motion could be disposed of on procedural grounds, it raises an important issue which no court in the Ninth Circuit has addressed. That is, whether Law v. Siegel, ––– U.S. ––––, 134 S.Ct. 1188, 1194, 188 L.Ed.2d 146 (2014), requires that any apparent conflict between 11 U.S.C. § 1307(b) (providing debtors an un-waivable right to dismiss a Chapter 13 case)¹ and § 1307(c) (requiring bankruptcy courts to choose between dismissal and conversion of case based upon the best interests of creditors) be resolved in a manner different than the Ninth Circuit's holding in Rosson v. Fitzgerald (In re Rosson), 545 F.3d 764, 767 (9th Cir.2008). Rosson held that Marrama v. Citizens Bank of Mass ., 549 U.S. 365, 367, 127 S.Ct. 1105, 166 L.Ed.2d 956 (2007), provided bankruptcy courts the authority to convert a Chapter 13 case for bad faith under § 1307(c) despite the mandatory dismissal language in § 1307(b). Rosson, 545 F.3d at 767.

Even if this court has the authority to question Rosson, which it surely lacks, the court finds that Rosson' s analysis of Marrama was, if anything, corroborated by the later authority of Law, 134 S.Ct. at 1194. Because courts in other circuits have reached a different conclusion about the apparent statutory conflict, the court writes this memorandum decision to explain its reasons for denying Brown's second request for reconsideration of the Conversion Order. The court also denies Brown's request to certify this matter for direct appeal to the Ninth Circuit on procedural grounds.

I. BACKGROUND

Brown filed a voluntary petition under Chapter 13 of the Bankruptcy Code on December 13, 2013. On May 20, 2014, Chapter 13 Trustee Thomas H. Billingslea ("Trustee") filed a status report noting that Brown was the sole beneficiary of his father's estate because his siblings assigned their interest to him. Brown then asserted a contrary position, claiming his three brothers were entitled to "receive their fair share" of the probate estate despite the assignments.

To protect the potential for increased recovery to creditors, Trustee requested the court refrain from granting any request for voluntary dismissal without a hearing to consider conversion. Trustee later filed an amended objection to Brown's Chapter 13 plan and sought conversion to Chapter 7 for cause, arguing that Brown's failure to disclose his inheritance was an abuse of the bankruptcy system under Rosson, 545 F.3d at 767. When Trustee became concerned that the liquid assets of the estate would diminish while the case remained in Chapter 13, he filed an amended status report on June 26, 2014, requesting Brown deposit remaining funds from his inheritance in his counsel's client trust account, provide a declaration concerning transfers to his brothers, and provide bank statements and cancelled checks. At that time, Trustee requested immediate conversion to Chapter 7 if Brown failed to deposit $37,569 into his counsel's client trust account by July 8, 2014.

At the later hearing, Brown's counsel represented to the court that he had been unable to provide an accounting since several of the transfers to his brothers were in cash. After the court orally granted Trustee's motion to convert the case to Chapter 7 for cause, but before the Conversion Order was entered, Brown's counsel requested Brown's case be dismissed under § 1307(b) rather than converted under § 1307(c).

The Conversion Order found cause existed to convert Brown's case under § 1307(c) because: (1) Brown's proposed plan provided a 0% dividend to general unsecured creditors; (2) Brown provided no evidence indicating that a modified plan was feasible; (3) Brown ignored the entered Pre–Confirmation Modification requiring Brown to turnover $3,224 within 45 days; (4) Brown did not correct his inaccurate schedules regarding his inheritance; and (5) Brown intentionally spent money of the estate when he transferred funds to his relatives. The court also concluded conversion to Chapter 7 was in the best interest of creditors.

Brown promptly appealed the court's Conversion Order to the BAP and filed his first Motion to Reconsider on August 11, 2014. In denying reconsideration of the Conversion Order, the court reiterated its findings that conversion was appropriate under § 1307(c)(4) because Brown acted in bad faith and because conversion was in the best interests of creditors. The court noted that the facts of this Case were similar to those in Rosson, 545 F.3d at 767, and Marrama, 549 U.S. at 368–69, 127 S.Ct. 1105, and made additional bad faith findings addressing the factors set forth in Drummond v. Welsh (In re Welsh), 711 F.3d 1120, 1129 (9th Cir.2013).

The BAP affirmed the Conversion Order, holding that there was no error in the court's findings of cause to convert Brown's Case under §§ 1307(c)(1), (c)(4), and (c)(5) for bad faith, nor in its findings that conversion was in the best interests of unsecured creditors because there was no other "avenue for prompt payment if Debtor's case was dismissed."

Brown v. Billingslea (In re Brown), No. SC–14–1388–JUKLPA, 2015 WL 6470940, at *11, 2015 Bankr.LEXIS 3625, at *31 (9th Cir. BAP Oct. 26, 2015). Finally, relying on Rosson, 545 F.3d at 774, but without citing Law, 134 S.Ct. at 1194, the BAP rejected Brown's current argument that he had an absolute right to dismiss his case, stating:

To the extent debtor argues that he has an absolute right to dismiss his case under § 1307(b) he is mistaken. The Ninth Circuit in Rosson held that a Chapter 13 debtor's right of voluntary dismissal under § 1307(b) was not absolute, but was qualified by the authority of a bankruptcy court to deny dismissal on grounds of bad faith conduct or "to prevent an abuse of process." 545 F.3d at 774 (citing § 105(a)).

Id.

After the BAP mandate became final, Brown failed to successfully appeal to the Ninth Circuit. Having lost an opportunity to seek appellate relief, Brown returned to this court, claiming that the court must reconsider the Conversion Order because, despite the court's bad faith findings, Brown's right to dismiss his case was absolute under Law, 134 S.Ct. at 1194, which changed prior precedent.

Both Trustee and Brown's Chapter 7 Trustee, Christopher Barclay, oppose Brown's second reconsideration motion. They assert the law has not changed and any prospective effect of the Conversion Order is not inequitable. Brown's reply elaborates on his grounds for relief and argues that a "grave miscarriage of justice" would result if he is not allowed to dismiss his case because it resulted in him and his three brothers being sued for $50,000 by the Chapter 7 Trustee.

II. ANALYSIS

A. Court's Role in Considering Whether Controlling Precedent is Overruled

This court's role in considering whether binding Ninth Circuit authority has been overruled by later Supreme Circuit authority is restrictively circumscribed. Miller v. Gammie, 335 F.3d 889, 900 (9th Cir.2003) (en banc) is clear that, "to preserve the consistency of circuit law," all courts within this Circuit must follow Ninth Circuit authority unless the Supreme Court has "undercut the theory or reasoning underlying the prior circuit precedent in such a way that the cases are clearly irreconcilable." See also Avagyan v. Holder, 646 F.3d 672, 677 (9th Cir.2011) ("A three-judge panel cannot reconsider or overrule circuit precedent unless an intervening Supreme Court decision undermines an existing precedent of the Ninth Circuit, and both cases are closely on point."). This court must thus follow Rosson, 545 F.3d at 774, if it can be reasonably harmonized with the later authority of Law, 134 S.Ct. at 1194. This can easily be done.

B. Impact of Law on Rosson

Rosson, 545 F.3d at 771, specifically noted no conflict between the two subsections of § 1307 at issue here. Under § 1307(b), a bankruptcy court "shall" dismiss a Chapter 13 case on the request of a debtor. See Nash v. Kester (In re Nash), 765 F.2d 1410, 1413 (9th Cir.1985). But under § 1307(c), a court "may" also convert a Chapter 13 case to Chapter 7 "for cause." As noted in Rosson, 545 F.3d at 771, these subsections "can conflict where, on the one hand, a debtor requests voluntary dismissal, while, on the other hand, a party in interest or the trustee moves to convert ... to Chapter 7."

Rosson, 545 F.3d at 767, relied upon Marrama, 549 U.S. at 365, 127 S.Ct. 1105, to hold that "the debtor's right of voluntary dismissal under § 1307(b) is not absolute, but is qualified by the authority of a bankruptcy court to deny dismissal on grounds of bad-faith conduct or ‘to prevent an abuse of process.’ " Rosson, 545 F.3d at 773–74. Marrama involved a debtor who sought to avoid problems in his Chapter 7 case by converting to a Chapter 13 case. See 549 U.S. at 368–70, 127 S.Ct. 1105. The Court instead dismissed the...