SunTrust Bank v. Hardigan, No. 4:2013cv00130 - Document 33 (S.D. Ga. 2014)
Court Description: ORDER amending the Court's September 19, 2014 Order (Doc. 29). The Court affirms the Bankruptcy Court's Order denying Appellant's motion to convert or dismiss. The Clerk shall terminate all deadlines and motions, and close this case. Signed by Judge J. Randal Hall on 10/29/2014. (thb)
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SunTrust Bank v. Hardigan Doc. 33 IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF GEORGIA SAVANNAH DIVISION IN THE MATTER OF: KENNETH R. HARDIGAN, 4:13-cv-00130-JRH Debtor Bankruptcy Case: SUNTRUST BANK, No. 12-40484-LWD Appellant, v. KENNETH R. HARDIGAN, Appellee ORDER Suntrust Bank1 Court's March States Trustee's ("Appellee") alternative, 29, ("Appellant") 2013 Order motions Chapter 7 to dismiss. appeals to filing the Bankruptcy Appellant's denying from and the convert to a Kenneth Chapter R. 11 United Hardigan's or, in the Because the Bankruptcy Court did not err in refusing to convert the Chapter 7 case to one under Chapter 11 and did not err in applying the totality of the circumstances test when assessing abuse, this Court AFFIRMS the Bankruptcy Court's Order. This Order amends the Court's September 19, 2014 Order (Doc. 29). Dockets.Justia.com I. Appellee (Doc. no. is 1-2 a at cardiologist 1, 19.) bankruptcy on March 7, that his debts BACKGROUND are He 2012. residing filed his in Savannah, Chapter 7 Georgia. petition for (Doc. no. 1-8 at 1. ) It is undisputed primarily consumer in nature. (Id. at 3.) Appellant moved on May 23, 2012 to convert the case to a Chapter 11 or, in the alternative, to dismiss on the ground that Appellee's bankruptcy petition constituted an abuse of the Chapter 7 process. (Doc. no. 1-6.) In determined that no of 11 U.S.C. (Bankr. ruling Ga. the motion, the Bankruptcy presumption of abuse based on the § 707(b)(2) S.D. on existed. 2013). In re Hardigan, Appellant alleged "means 490 B.R. that given Court test" 437, 440 Appellee's ability to pay, his Chapter 7 petition constituted abuse based on the of "totality U.S.C. the § 707(b)(3)(B). circumstances" (Doc. no. test 1-6 at 4-5.) set forth in 11 The Bankruptcy Court held that based on a number of factors, Appellee's petition did not constitute abuse. In re Hardigan, 490 B.R. at 459. the Bankruptcy Court declined to convert Appellee's Additionally, petition to a Chapter 11 under 11 U.S.C. § 706(b). Id^_ at 446-47. II. This Court U.S.C. § 158(a)(1) JURISDICTION AND STANDARD OF REVIEW has and appellate jurisdiction Bankruptcy Rules 8001 et pursuant to seq. appeal, On 28 the Court reviews the Bankruptcy Court's factual findings for clear error, and its legal conclusions de novo. 567 F.3d 1291, In under 1296 (11th Cir. determining whether 11 U.S.C. § 707(b)(3), In re Globe Mfg. Corp., 2009). Chapter 7 relief "bankruptcy courts constitutes have abuse considerable discretion" only for 1298-99 when and, abuse when challenged, of (11th Cir. it discretion." "[the district In re court] Kulakowski, review[s] 735 F.3d 1296, 2013). A bankruptcy court abuses its discretion "applies the erroneous findings (11th Cir. wrong of principle fact." In law This appeal in presents Court erred denying U.S.C. § 707(b)(3)(B); 719 makes F.3d clearly 1253, 1271 DISCUSSION two issues: Appellant's and Piazza, or 2013). III. re of (2) (1) whether motion whether the to the Bankruptcy dismiss Bankruptcy under Court 11 erred in denying Appellant's motion to convert to a Chapter 11 under 11 U.S.C. § 706(b). A. Dismissal Under 11 U.S.C. On appeal, Appellant § 707(b)(3)(B) challenges the Bankruptcy Court's application of the "totality of the circumstances" test. The Court reviews this determination for an abuse of discretion. See In re Kulakowski, 735 F.3d 1296, 1299 (11th Cir. 2013). The Bankruptcy Code provides for dismissal of a Chapter 7 case where "the granting of relief would be an abuse of the provisions of [the Code]." 11 U.S.C. § 707(b)(1). A presumption of abuse arises where the debtor fails the "means test," which is calculated by a statutory formula. 11 U.S.C. § 707(b)(2). Even where this presumption of abuse does not arise, however, the court may still find abuse by considering (1) whether the debtor filed the petition in bad faith; or (2) "the totality of the circumstances. .. of the debtor's financial situation In the present case, " 11 U.S.C. § 707(b) (3) (A-B) . the Bankruptcy Court found that Appellee's petition would not constitute abuse under the totality of the circumstances test. In re Hardigan, 490 B.R. 437, 459 (Bankr. S.D. Ga. 2013). In making its determination, the Bankruptcy Court relied on the following meaningful portion of debts; factors: negotiate with "meaningful" reduce the (4) debtor's necessities; (7) and (8) the Hardigan, 490 B.R. 437, 446 B.R. 638, pay pointed result. a 447 642 toward Specifically, debtor's Chapter without period stability (Bankr. abuse, case; a S.D. provide a ability to the which debtor of the debtor's Ga. to (6) depriving the debts income. 2013) were In (citing re In re 2010)). found that, the repay repay debts and ability 13 over of (S.D. Ga. The Bankruptcy Court to the in time incurred; Truax, (5) expenses the to (3) eligibility for Chapter 11 the debtor's efforts to creditors; distribution ability (2) whether the bankruptcy was caused by an unforeseen or sudden calamity; or Chapter 13 relief; (1) other although Appellee's factors Bankruptcy Court dictated held a ability contrary Appellee's fresh start would be impaired by a Chapter 11 proceeding; the real estate market debts collapse were "spending constituted an unforeseeable incurred spree"; over years Appellee and dealt not calamity; through fairly and a Appellee's pre-bankruptcy honorably with creditors; and Appellee was not attempting to "game" the bankruptcy system. Id. at 451-57. In test, challenging Appellant the makes Bankruptcy Court's two claims. First, should have dismissed the case based on alone and, application the of Bankruptcy this Court the ability to pay factor second, the Bankruptcy Court improperly relied on other factors not relevant to Appellee's ability to pay. (Doc. no. 14, "Appellant's Brief," at 14-21.) As to the first contention, Appellant alleges that the "the ability to pay is the most important, and driving, factor in the 4 totality arguing, of the circumstances analysis." at 16.) In so Appellant cites a number of cases where courts have found the ability to repay creditors sufficient, abuse. (Id. See, e.g., In re Lamanna, 153 standing alone, F.3d (holding that the "bankruptcy court may, 1, but 4 (1st to find Cir. 1998) is not required to, find ^substantial abuse'2 if the debtor has an ability to repay, in light of all of the circumstances"); (6th Cir. 1989) In re Krohn, 886 F.2d 123, 126 (stating that the ability to repay debts "alone may be sufficient to warrant dismissal"). These cases, however, state that a bankruptcy court may permissibly rely solely on ability to pay. They do not dictate such a result. se rules In fact, the court in In re Lamanna "reject [ed] mandating dismissal for ^substantial abuse' any per whenever the debtor is able to repay his debt out of future disposable income, or forbidding dismissal on that basis alone." 153 F.3d at 4. Emphasizing that ability to pay is but one factor that can be utilized, the Eleventh Circuit declined to decide "whether a debtor's ability to pay his or her debts can alone be dispositive under the totality-of-the-circumstances test[,]" demonstrating that ability to pay is but one factor that may be considered. In re Witcher, 702 F.3d 619, 623 (11th Cir. 2012) (emphasis added). In fact, many other courts have found that ability to pay, in and of itself, e.g., is insufficient to compel dismissal for abuse. In re Lavin, 424 B.R. 558, 563 (Bankr. M.D. Fla. See, 2010) ("Congress could have required dismissal based solely on a debtor's 2 In 2005, Congress amended section 707(b)(3) to call for "abuse" rather than "substantial abuse" with the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA") . See In re Walker, 383 B.R. 830, 836 (Bankr. N.D. Ga. 2008). Because of the similarity in tests, courts continue to apply preBAPCPA case law in determining whether abuse is present. Id. (" [B]ankruptcy courts have looked to pre-BAPCPA case law for guidance in determining whether to dismiss a chapter 7 case pursuant to section 707(b)."). 5 'ability to pay.' Instead, section 707(b)(3)(B) requires evaluation of the 'totality something more pay."); In re (Bankr. N.D. of the than just Rudmose, Ga. circumstances.' the No. Nov. Thus, debtor's 2010) UST mathematical 10-74514-WLH, 8, the 2010 (citing WL must ability 4882059, several show cases at for to *3 the proposition that "courts also generally hold that an ability to pay alone is not sufficient to justify dismissal of a case for abuse"). Appellant's application of Appellant second claim addresses the Bankruptcy the other seven factors listed above. alleges that sufficient reasons separately or the why Bankruptcy any collectively of the - Court [were] Specifically, "d[id] remaining not factors relevant Court's to provide - either [Appellee's] financial situation and outweigh his ability to repay a meaningful amount of his debts." the Bankruptcy (Appellant's Brief at 17.) While it is true Court addressed dealings with his creditors, Appellee's fair and honorable it also relied on a multitude of other factors that have bearing on the totality of Appellee's "financial situation," including his future financial prospects, which the debts were incurred, surrendered his real estate, following Hardigan, Thus, bankruptcy, based little secured and will, property. In re (Bankr. S.D. Ga. 2013). a careful review Order and the parties' briefs, I cannot Court abused its on and the fact that Appellee sold or reduced his unsecured debt, retain 490 B.R. 437, 455 the manner in discretion by refusing of the Bankruptcy find that to Court's the Bankruptcy find abuse of process based on ability to pay alone or by the other factors relied on in its analysis. B. Conversion Under 11 U.S.C. Appellant next convert Appellee's As discussed challenges case to above, the § 706(b) the Bankruptcy a Chapter 11 under 11 Court will review clear error and conclusions of law de novo. 567 F.3d 1291, Section party and Chapter does (11th Cir. 706(b) after 7 not 1296 case provides notice to provide a and Chapter any Court's failure U.S.C. findings to § 706(b). of fact In re Globe Mfg. for Corp., 2009). that, a upon request hearing, 11. 11 additional the U.S.C. of court an may § 706(b). requirements, convert This instead decision to the "sound discretion of the court, interested a section leaving the based on what will most inure to the benefit of all parties in interest." S. Rep. No. 95-989, at 853 (Bankr. D.N.M. 940 (1978); 2011) see also In re ("[Section 706(b)] Lobera, 454 B.R. is not mandatory; 824, the Court should use its discretion in any decision to convert."). Courts have relied on various factors in determining whether a section 706(b) ability to repay reconversion; plan; and In debt; (3) (4) conversion. 2012); conversion the whether would (2) the the of parties Schlehuber, appropriate: absence likelihood See In re Gordon, re be in interest B.R. 683, 570 the immediate confirmation 465 B.R. 489 of (1) of debtor's grounds a Chapter would benefit 692-94 (Bankr. (B.A.P. for 8th from N.D. Cir. 11 Ga. 2013) (relying on ability to pay and potential for confirmation). The findings Bankruptcy of fact: Court, in Appellee had its the order, ability made to the repay following debts; the likelihood of confirmation of a Chapter 11 plan was "dubious" given the disputed claim between Appellee and a contractor; continued under Chapter within and months; 7 all unsecured conversion would 7 creditors not benefit if the case could be all paid parties involved. Ga. In re Hardigan, 490 B.R. 437, 447, 451-53 (Bankr. S.D. 2013) . Upon a Bankruptcy careful Court's Accordingly, and section 706(b) review factual of the findings applying the record, were highly to those findings of fact, I not find clearly deferential this case involves a the erroneous. standard of the Bankruptcy Court did not err in refusing to convert the case to Chapter ll.3 that that controlling question of Recognizing law as to which there is substantial ground for difference of opinion,4 an immediate appeal may materially advance the ultimate termination of the litigation. CONCLUSION As discussed above, the Court AFFIRMS the Bankruptcy Court's Order denying Appellant's motion to convert or dismiss. shall terminate all deadlines and motions, The Clerk and CLOSE this case. ORDER ENTERED at Augusta, Georgia, this /5w "clay of October, 2014. UNITED/STATES DISTRICT JUDGE IERN 3 The Court does interplay between not address sections 706(b) the DISTRICT OF GEORGIA Bankruptcy Court's and 707(b) because discussion there is of the sufficient evidence in the record to determine that the Bankruptcy Court did not err in refusing to convert the case under section 706(b) alone. 4 The Eleventh Circuit declined to answer "whether the ability to pay may be dispositive and, if not, what weight it should be given as compared to other factors[.]" In re Witcher, 702 discussed in detail supra, Appellant F.3d 619, 623 (11th Cir. 2012). As contends that the bankruptcy court abused its discretion by denying the motion to dismiss where the ability to pay factor was met. Contrarily, Appellee asserts that the bankruptcy court did not err by considering ability to pay alongside other factors. 8
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