In re Jimenez

IN RE: ANA EMILIA ORTIZ JIMENEZ Debtor

CASE NO. 18-04070 (ESL)

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO

June 3, 2019

CHAPTER 11

OPINION AND ORDER

This case is before the court upon the Motion Requesting Judgment be Entered for Dismissal with Prejudice and Prohibition to Refile for 24 Months (Docket No. 103) filed by RL Capital International LLC ("RL"); the Opposition to Motion Requesting Judgment be Entered for Dismissal with Prejudice and Prohibition to Refile for 24 Months filed by the Debtor, Ana Emilia Ortiz Jimenez ("Debtor") (Docket No. 109); and the Reply to Opposition to Motion Requesting Judgment be Entered for Dismissal with Prejudice and Prohibition to Refile for 24 Months filed by RL (Docket No. 116).

RL argues that, following the court's determination that cause for dismissal existed pursuant to §1112(b)(4)(c) and that the petition was filed in bad faith as no special circumstances were demonstrated, the dismissal order should be with prejudice with a bar to refile for twenty-four (24) months. The Creditor argues that, "due to the strong evidence of bad faith on the part of Debtor Ana Emilia Ortiz Jimenez, the Court should find Debtor's behavior deserving of a dismissal with prejudice under §105(a), §109(g) and §349(a)..."

In its Opposition, the Debtor contends that this is the first time RL submits to the court a request for a bar to refile and has failed to sustain the allegations and submit evidence in support of the request. The Debtor additionally states that "...none of Debtor's circumstances justify or merit a bar to refile: she has appeared at all her hearings and complied with all the Court's request; she has obtained the permit to operate her business, and she explained [to] the Court the circumstances that resulted in several filings".

RL filed a Reply to the Opposition arguing that in the Joint Trial Report "RL clearly argued not only the reasons to warrant not only the dismissal of the case but also to enjoin future filings"; and that the Debtor's number of cases dismissed constitutes a pattern of abuse (this is the Debtor's fifth petition). The Creditor also alleged that the Debtor was not candid during the 341 meeting and in her answer to Motion for Lift of Stay.

Legal Analysis and Discussion

Dismissal Pursuant to 11 U.S.C. §1112 and Bar to Refile

Pursuant to 11 U.S.C. §1112(b) on request of a "party in interest" a bankruptcy court may dismiss a chapter 11 case for "cause". Section 1112(b)(4) provides a non-exhaustive list of "causes" that constitute grounds for dismissal. Casse v. Key Bank Nat'l Ass'n (In Re Casse), 198 F.3d 327, 335 (2^nd Cir. 1999). On November 7, 2018, the court, after notice and a hearing, determined the following:

"The facts o[f] this case show that the debtor has not made any payment to the secured creditor since 2010, foreclosure has been stalled since the filing of the first petition on December 8, 2010, irrespective of whether or not the debtor expressly authorized the filing of the other three petitions prior to the present one. The filing of this petition was on the eve of the public sale. The debtor has not shown reasonable likelihood of rehabilitation within a reasonable period of time. The combination of these factors do establish that the petition was filed in bad faith, that is, to continue forestalling execution." Docket No. 102, page 14.

The court also found that the debtor had failed to show evidence of insurance as of the date of the hearing, which is a cause for dismissal pursuant to 1112(b)(4)(C) and that the debtor failed to show unusual circumstances.

Nonetheless, although 1112(b)(4) provides the substantive criteria for dismissal, the effect of such dismissal is governed by §349(a). See Gonzalez Ruiz v. Doral Fin. Corp. (In Re Gonzalez-Ruiz) 341 B.R. 371 (B.A.P. 1^st Cir. 2006). "Generally, dismissals are ordered without prejudice to carry out the remedial purpose of the Bankruptcy Code and to restore property rights, insofaras is practicable, to the same positions as when the case was first filed, but without affecting the disposition of debts." Leavitt v. Soto (In re Leavitt), 171 F.3d 1219, 1223 (9^th Cir. 1999) citing In re Tomlin, 105 F.3d 933, 936-37 (4th Cir. 1997); See also In re Lawson, 156 B.R. 43, 45 (9th Cir. BAP 1993).

Section 349(a) states:

"[u]nless the court, for cause, orders otherwise, the dismissal of a case under this title does not bar the discharge, in a later case under this title, of debts that were dischargeable in the case dismissed; nor does the dismissal of a case under this title prejudice the debtor with regard to the filing of a subsequent petition under this title, except as provided in section 109(g) of this title."

Section 349(a) refers to section 109(g), which provides temporal and circumstantial restrictions on debtor filing subsequent petitions within one hundred and eighty (180) days after a case is dismissed in certain circumstances, namely, where the debtor willfully failed to abide by orders of the court, or to appear before the court in proper prosecution of the case, or if a debtor voluntarily dismissed a case after the filing of a request for relief from the automatic stay. Id. "Nor does the dismissal, in and of itself, constitute a bar to the filing of a subsequent petition by the same debtor, unless section 109(g) is applicable." Alan N. Resnick & Henry J. Sommer eds., 3 Collier on Bankruptcy ¶ [349.02] (16^th ed. 2017) However, the prong of section 109(g) is applicable only when an earlier case is dismissed. "The issue of whether a bankruptcy filing is barred by section 109(g) arises only if a second petition is filed within 180 days of an earlier dismissal. Alan N. Resnick & Henry J. Sommer eds., 1 Collier on Bankruptcy ¶ [109.08] (16^th ed. 2017). The issue of a bar pursuant to section 109(g) is typically raised by a motion to dismiss in a subsequent case and the moving party has the burden of proof. Id. When confronted with an allegation grounded upon the debtor's failure to obey a court's order pursuant to section 109(g)(1), the debtor must establish that the failure was not willful. In re Jones, 2005 Bankr. LEXIS 303, *3, 2005 WL 486758 (Bankr. W.D. Mo. 2005). "§109(g) of the Bankruptcy Code was 'added to the Bankruptcy Code in 1984 to address...the filing of meritless petitions in rapid succession to improperly obtain the benefit of the Bankruptcy Code's automatic stay provisions as a means ofavoiding foreclosure under a mortgage or other security instrument.'" In Re Cline, 2012 Bankr. LEXIS 2456, 2012 WL 1957935 (B.A.P. 6^th Cir. 2012), citing In Re Price, 304 B.R. 769, 772 (Bankr. N.D. Ohio 2004).

A motion requesting voluntary dismissal that does not relate to a request for relief of stay does not activate the filing restrictions of §109(g)(2). As stated by Collier on Bankruptcy, the restriction included in §109 is inapplicable "...if the Debtor successfully defended against or resolved the motion for relief from the stay or paid in full the creditor who moved for relief. Further, when the dismissal of the first case is remote in time from the motion for stay relief - perhaps years after it was filed- section 109(g) should not be automatically applied." Collier on Bankruptcy at 349.02. (foot notes omitted). "...[T]he purpose of preventing abusive refiling is not served when the motion for relief and the dismissal are totally unrelated". Id.

However, the restrictions included in §109(g)(2) are inapplicable to the present case. Although the debtor is a serial filer, the debtor had no pending case in the preceding 180 days before the filing of the fifth petition. "Section 109(g) is not, however, a limitation on the bankruptcy court's authority to impose sanctions fashioned to prevent abuse of the bankruptcy system. Where there is sufficient cause, bankruptcy courts have the authority pursuant to §105(a) and §349(a) to prohibit bankruptcy filings in excess of 180 days." Cusano v. Klein (In Re Cusano), 431 B.R. 726, 737 (B.A.P. 6^th Cir. 2010). The majority view is that §109(g) and §349(a) are reconcilable, the former is specifically aimed at preventing serial filers from bogging down the bankruptcy process; the latter being a more general provision that allows bankruptcy judges to bar refiling when there is otherwise good cause for doing it. B-3 Props, LLC v. Lasco, 517 B.R. 889, 897 (Bankr. N.D. Ind. 2014). "...[B]ankruptcy courts are authorized to bar refiling beyond the 180 days set forth in §109(g) under either section 349(a), authorizing the court to bar refiling for cause, or section 105(a) authorizing courts to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title... or prevent abuse of process."" Id. "Numerous courts derive the power of the bankruptcy court to sanction serial or bad faith filers by baring future filings for reasons and longer periods of time other than those specified by§109(g), from either §105(a), §349(a) or both". Gonzalez Ruiz at 385. The capability of a bankruptcy court to condition a dismissal, as provided by §349, is an important protection to creditors. In Re Davis, 352 B.R. 758, 765 (Bankr. D.S.C. 2006). Although a majority of circuit courts have ruled that the bankruptcy courts have the power to bar serial filer from filing petitions for periods of time beyond the scope of §109(g), the Court of Appeals for the First Circuit has not specifically ruled upon the matter.¹ See In Re Gonzalez-Ruiz, supra. However, this court has declared its authority to sanction serial or bad faith filers by baring future filings for reasons and longer periods of time other than those specified by 11 U.S.C. §109(g), from either 11 U.S.C. §105(a), 11 U.S.C. §349(a), or both. In Re Llanos, 578 B.R. 700, 711 (Bankr. D.P.R. 2017). Furthermore, section 349(a) expressly confers bankruptcy courts the authority and discretion to make exceptions to the general rule that the dismissal of a case is without...