Robert Hatcher v. Allison Financial ( 1998 )

United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
_____________
No. 97-6066SI
_____________
In re: *
*
Robert Hatcher, Ruth Ann Hatcher, *
*
Debtors. *
*
Robert Hatcher, Ruth Ann Hatcher, *
*
Debtors - Appellants, * Appeal from the
United States
* Bankruptcy Court for
the
v. * Southern District of
Iowa
*
U.S. Trustee, *
*
Trustee - Appellee, *
*
Allison Financial Corporation, *
*
Creditor - Appellee. *
_____________
Submitted: February 12, 1998
Filed: March 6, 1998
_____________
Before WILLIAM A. HILL, SCHERMER, and SCOTT, Bankruptcy
Judges.
_____________
WILLIAM A. HILL, Bankruptcy Judge.
The appellants, Robert and Ruth Ann Hatcher (“Hatchers”),
appeal from the order of the bankruptcy court1 dismissing their
Chapter 11 case for cause pursuant to the United States
Bankruptcy Code (“Code”), 11 U.S.C. § 1112(b). For the
following reasons, we affirm the order of the bankruptcy court.
I. BACKGROUND
The Hatchers are Iowa farmers. Prior to 1994, they owned
farmland which was partly encumbered by a mortgage on which
they fell delinquent. As a result, approximately one-half of
their farmland became the subject of a mortgage foreclosure
proceeding. A sheriff’s sale was set for January 6, 1994. The
Hatchers sought a loan in order to save their property;
however, their efforts failed. They then determined to sell
their entire property, which consisted of 46 acres of land on
which their residence and another building were situated. In
preparation for its sale, they platted the land into separate
parcels with an aggregate list price of $316,000.00.
Several months prior to the sheriff’s sale, the Hatchers
located a buyer for their property. The parties agreed upon
a sale price of $69,300.00, with an option for the Hatchers to
repurchase the property within a specified period of time. The
sale collapsed, however, upon the buyer’s inability to obtain
financing for the transaction. Nevertheless, the Hatchers were
able to locate yet another buyer, Allison Financial
Corporation (“Allison”), with which they entered into a similar
sale agreement.
On January 3, 1994, Allison signed a purchase agreement
with the Hatchers to purchase their entire property for
1
The Honorable Russell J. Hill, Chief Judge, United States Bankruptcy Judge for
the Southern District of Iowa.
2
$69,300.00.2 The parties’ agreement provided the Hatchers with
the option to repurchase the property by March 30, 1994. On
January 6, 1994, the
2
As the Court of Appeals of Iowa found, “[t]he lower price was due to a variety of
factors, including the need to remove an old ethanol plant tower, potential environmental
concerns, zoning changes, and the buy-back provision.”
3
Hatchers executed a warranty deed in favor of Allison conveying
their entire real estate. The Hatchers did not exercise the
repurchase option.
Subsequently, the Hatchers filed suit against Allison in
Iowa state district court seeking reformation of the sale
agreement by claiming the sale was intended to be a loan
transaction, and also seeking damages from Allison and several
other defendants for breach of fiduciary duty and for
fraudulent misrepresentation. The district court entered
judgment against the Hatchers in January 1995. Included among
its findings were the following: the Hatchers had attempted
to sell various portions of their farmland since at least 1988;
Mr. Hatcher himself negotiated the terms of the sale of his
property with its first potential buyer, including its sale
price, a repurchase option, and the closing date; Mr.
Hatcher’s real estate agent reduced the sale agreement to
writing, explained it to Mr. Hatcher, and also advised him
against entering into it; and, when the first deal fell
through, the Hatchers expressed to their real estate agent
their desire to locate another buyer. Finally, concerning the
Hatchers’ ultimate sale of their property to Allison, the court
found that:
The terms and conditions of the sale . . . [were]
explained fully in the written real estate sales
agreements. It was explained orally [as well]. It
is without question that [the Hatchers] freely and of
their own accord executed a warranty deed in the
presence of a notary public transferring title of the
real estate to Allison . . . . [The real estate
brokers] made no material misrepresentations so as to
mislead the Hatchers into selling their land.
The court additionally ruled that the Hatchers failed to prove
any breach of fiduciary duties or fraudulent misrepresentation
by the defendants. The court concluded by stating that:
4
[The Hatchers’] current status is due to the elusive
and unrealistic dream of Robert E. Hatcher. At all
times Robert Hatcher maintained a dream or wish that
someone with unlimited finances would pay an
exorbitant price for his farm. Upon receiving this
unreasonable sum, Robert E. Hatcher further
fantasizes of paying all his debts and purchasing a
different and better farm. This delusion was the
reason the [Hatchers] attempted at any cost to
purchase additional periods of time to allow Robert
E. Hatcher to locate his imaginary buyer.
Ultimately, the cost of this fantasy was the
[Hatchers’] home.
5
In a subsequent order entered on February 8, 1995, the
district court reaffirmed its earlier findings as to the
Hatchers’ and Allison’s agreement by ruling that, “It is clear
that the purchase agreement entered between [the Hatchers] and
Allison was intended as an absolute sale of the subject
property for fair and adequate consideration. The relationship
between [the Hatchers] and Allison was as seller and buyer
only.”
The Hatchers appealed the orders of the district court.
In July 1996, the Court of Appeals of Iowa, after undertaking
a de novo review of the complete record, affirmed the entirety
of the district court’s rulings in pertinent part as follows:
[T]he Hatchers’ claim [that] they did not understand
the consequences of the [real estate] transaction was
not supported by the record. Robert Hatcher was
experienced and knowledgeable in real estate matters.
We also give weight to the finding of the trial court
that Hatcher’s expectations were not based on actions
or representations of others, but his own false hope.
. . .
We have carefully reviewed the record and agree
with the trial court [that] Allison [and other
defendants] made no false representations to the
Hatchers which would support the claim for fraudulent
misrepresentation. In particular, no evidence
indicated any of the defendants expressed or implied
the real estate transaction was a loan. The relevant
documents clearly indicate the parties entered into
a sales agreement and any contrary understanding by
the Hatchers was not due to any false representations
made by [Allison]. In fact, the Hatchers had
attempted to sell their farm to another person prior
to the Allison sale, with terms nearly identical to
the Allison transaction. Their claim they didn’t
understand the transaction was a sale was not
reasonable under the circumstances.
6
. . .
We agree the evidence is insufficient to support
reformation. Our goal is to ascertain the intent of
the parties. The evidence clearly shows the parties
intended the transaction to be a sales agreement.
[F]rom the inception the Hatchers knew a sales
transaction was contemplated. The Hatchers and
Allison never maintained a debtor-creditor,
mortgagor-mortgagee relationship. In fact, it was
necessary for Allison to obtain a loan to purchase
the farmland from the Hatchers.
Furthermore, the purchase price was adequate
considering all the circumstances and risks,
associated with the farmland, as well as the buy-back
7
provision. The Hatchers did retain possession of the
farm after the agreement was executed, but only
during the option period. We also observe the
language of the agreement leaves little doubt the
transaction was a conditional sale.
On October 4, 1996, the Supreme Court of Iowa, after an en banc
consideration, denied further review of the matter.
Despite the unfavorable resolution of their appeals in the
Iowa state courts, the Hatchers refused to relinquish their
former real estate. Allison then commenced eviction
proceedings against them. However, on October 21, 1996, just
two hours before a hearing was to be held on the matter, the
Hatchers filed for Chapter 11 protection under the Code.
In their Schedules and Statement of Affairs, the Hatchers
claimed a joint interest in the farmland and buildings which
they had sold to Allison. They listed the value as being
$300,000.00, “subject to a fraudulent conveyance action,” and
additionally claimed a homestead exemption of $150,000.00 in
up to forty acres of the property. The Hatchers scheduled
Allison as a fully secured creditor in the amount of $62,900.00
with the “Debtor’s land” serving as collateral.3
The Hatchers premise the viability of their proposed plan
entirely upon their claim of ownership of the real estate which
they previously sold to Allison. As they stated in Article VII
of their proposed plan, entitled “Means and Execution of the
Plan,” “The Debtor proposes to continue their [sic] farming
business and development business and pay creditors from future
income from this farming business and from the development of
various properties of the Debtors.” Thus, if their plan is to
have any chance of success, the Hatchers must in some way be
found the property’s owners.
3
In their proposed Chapter 11 plan, Allison is listed as a creditor in the amount of
$69,000.00, and is treated as holding a disputed secured claim constituting an impaired
class.
8
Both Allison and the United States Trustee filed motions
to dismiss the Hatchers’ case. Allison also filed a Motion for
Relief from Stay. The debtors resisted these motions,
9
reurging the fraudulent conveyance and loan-versus-sale
arguments which they had presented in the state courts. The
bankruptcy court held an evidentiary hearing on these motions
on December 19, 1996. On July 21, 1997, the court entered an
order dismissing the Hatchers’ case. In reaching this result,
the court stated:
Mr. Hatcher expressed his desire that this Court
find that the transaction with Allison was a loan
rather than a sale of property. This Court cannot
do that. The issue of the validity of the warranty
deed executed by [the Hatchers] was litigated in
state court. The district court decision was
appealed and affirmed by the Court of Appeals of
Iowa. [The Hatchers] were denied further review by
the Supreme Court of Iowa. The issue of the
validity of the transactions has conclusively been
determined; [the Hatchers’] transaction with
Allison was not a loan. This Court finds no
federal statute that provides an exception to the
application of collateral estoppel and therefore
affords full faith and credit to the Iowa state
court judgments in this case.
The court then based its dismissal order upon its determination
that the Hatchers had filed their Chapter 11 petition without
the requisite good faith contemplated under Section 1112(b) of
the Code. In this respect, the court provided the following
analysis:
In this case, Debtors do not own the real property
that is central to their reorganization. Debtors’
plan depends upon them keeping the land. Debtors
were on the brink of being forcibly removed from
Allison’s property. Debtors state they filed
their chapter 11 petition to save the house and
farm and to retain possession of the property. . .
. Even though ownership of the land has been
conclusively decided against them, Debtors continue
to occupy the land and fight efforts to evict them.
The bankruptcy was filed as a litigation tactic
10
after Debtors lost their fight in the Iowa state
courts. Debtors continue to pursue their starry-
eyed dream that the land is theirs and that they
can develop it. A reorganization without Allison’s
land would be futile; there can be no development
business without the land and Debtors cannot
continue their farming operation on this land.
This Court cannot and will not rewrite the sale of
Debtors’ land to Allison . . . This Court finds
that Debtors’ bankruptcy case and plan of
reorganization were filed in bad faith and are
objectively futile.
11
Lastly, because the court determined that the Hatchers’ case
should be dismissed, it denied as moot Allison’s motion for
relief from the automatic stay.
On appeal, the Hatchers argue, inter alia, that under Iowa
state law the transfer of the farmland to Allison constituted
a “constructive fraud” which they may avoid pursuant to 11
U.S.C. § 544(b). Specifically, they contend that upon filing
their bankruptcy petition, they assumed a new cloak of
identity--that of a trustee succeeding to the rights of a
judgment creditor. In this connection, they contend that they
may bring a fraudulent conveyance action based upon state law
by way of Code Section 544(b) and thereby avoid their prior
real estate transaction, independent from and ignorant of their
actions in the sale transaction and before the Iowa state
courts. Additionally, the Hatchers argue that the bankruptcy
court’s dismissal of their Chapter 11 case on the basis of bad
faith on their part was erroneous and should be reversed.
Allison argues that the Hatchers are presently asserting
the same claims which they previously litigated, and which were
decided, in Iowa state courts. It further contends that this
attempt at relitigation is precluded under the doctrines of res
judicata and collateral estoppel, as well as full faith and
credit, and that the bankruptcy court’s order must accordingly
be affirmed.
II. STANDARD OF REVIEW
On appeal, the bankruptcy court’s findings of fact are
reviewed for clear error and its legal determinations are
reviewed de novo. O’Neal v. Southwest Mo. Bank of Carthage (In
re Broadview Lumber Co.), 118 F.3d 1246, 1250 (8th Cir. 1997);
12
Natkin & Co. v. Myers (In re Rine & Rine Auctioneers, Inc.),
74 F.3d 848, 851 (8th Cir. 1996); Hartford Cas. Ins. v. Food
Barn Stores, Inc. (In re Food Barn Stores, Inc.), 214 B.R. 197,
199 (B.A.P. 8th Cir. 1997); see also Fed. R. Bankr. P. 8013.4
“A finding is ‘clearly erroneous’ when although
4
Rule 8013 of the Federal Rules of Bankruptcy Procedure reads, in pertinent part,
as follows:
Findings of fact, whether based on oral or documentary evidence, shall
not be set aside unless clearly erroneous, and due regard shall be given
to the opportunity of the bankruptcy court to judge the credibility of the
witnesses.
Fed. R. Bankr. P. 8013.
13
there is evidence to support it, the reviewing court on the
entire evidence is left with a definite and firm conviction
that a mistake has been committed.” Anderson v. Bessemer City,
470 U.S. 564, 573, 105 S. Ct. 1504, 1511, 84 L. Ed. 2d 518 (1985)
(quoting United States v. United States Gypsum Co., 333 U.S.
364, 395, 68 S. Ct. 525, 542, 92 L. Ed. 746 (1948)); see United
States v. Garrido, 38 F.3d 981, 984 (8th Cir. 1994);
Chamberlain v. Kula (In re Kula), 213 B.R. 729, 735 (B.A.P. 8th
Cir. 1997). This Court may affirm the bankruptcy court upon
any basis supported by the record. Allstate Fin. Corp. v.
United States, 109 F.3d 1331, 1333 (8th Cir. 1997); Dicken v.
Ashcroft, 972 F.2d 231, 233 (8th Cir. 1992); Brown v. Mitchell
(In re Arkansas Communities, Inc.), 827 F.2d 1219, 1222 (8th
Cir. 1987); Turner v. California Dep’t of Real Estate (In re
Turner), 199 B.R. 694, 696 (B.A.P. 9th Cir. 1996).
III. DISCUSSION
Fraudulent Conveyance Action
The Hatchers contend that, having assumed a new identity
upon the filing of their bankruptcy case, they may proceed anew
under Code Section 544(b) with their claim that the transfer
of their property to Allison constituted a fraudulent
conveyance under Iowa state law. “A fraudulent conveyance is
a ‘transaction by means of which the owner of real or personal
property has sought to place the land or goods beyond the reach
of his creditors, or which operates to the prejudice of their
legal or equitable rights.’” Benson v. Richardson, 537 N.W.2d
748, 756 (Iowa 1995); see Hartford-Carlisle Sav. Bank v.
Shivers, 552 N.W.2d 909, 911 (Iowa Ct. App. 1996). The Supreme
Court of Iowa summarized the principles controlling a
creditor’s claim of fraudulent preferential transfer in First
State Bank v. Kalkwarf, 495 N.W.2d 708 (Iowa 1993), as follows:
14
1. A debtor may lawfully prefer one creditor
over another by way of sale, mortgage, or the
giving of security to others even if the debtor’s
intentions toward the nonpreferred creditor are
spiteful and will delay or prevent them from
obtaining payment.
2. A preferred creditor’s knowledge that the
debtor’s purpose was fraudulent will not defeat his
claim, so long as he acts in good faith for his own
protection.
3. Fraud on the part of the debtor will
affect the rights of only those preferred creditors
who in some way participate in it.
4. When a preferred creditor knows of the
debtor’s fraudulent intent and accepts a mortgage
of security wholly or in part to aid the fraud,
that preferred creditor has participated in the
wrong and the mortgage is fraudulent and will not
be honored.
5. Fraud must be found under the
circumstances considered as a whole. Some indicia
of fraud are: inadequacy of consideration;
insolvency of the transferor; and pendency or
threat of third-party creditor litigation.
6. A valid preexisting debt is ordinarily
sufficient consideration for any conveyance or
giving of security, so long as the amount of the
antecedent debt is not materially less than the
value of the property conveyed or encumbered.
7. A nonpreferred creditor bringing suit has
the burden of showing the preferred creditor’s
intentional participation in the fraudulent
preferential transfer by clear and convincing
evidence.
Id. at 712; see, e.g., Benson, 537 N.W.2d at 756-58; Shivers,
522 N.W.2d at 911-912 ; Textron Fin. Corp. v. Kruger, 545
N.W.2d 880, 883-885 (Iowa Ct. App. 1996).
The elements of this action are identical to many which
were previously analyzed by the Iowa state courts in this
matter. Indeed, in their brief to this Court, arguing under
the banner of “fraudulent conveyance,” the Hatchers have raised
precisely those claims which proved unsuccessful for them in
Iowa state courts. They argue, inter alia, that their
transaction with Allison was a loan and not a sale; that
“[u]nrefuted testimony at the trial in the Bankruptcy Court
15
[sic] . . . established clearly that these lands were worth in
excess of $268,000"; that “[t]he $63,000 paid [to the
Hatchers] was not fair consideration for 46 acres of the
[Hatchers’] farm lands.”
16
In this connection, the Iowa state courts determined that
the Hatchers initiated the search for a buyer of their
farmland; that Mr. Hatcher was experienced and knowledgeable
in real estate matters; that he negotiated the terms of the
sale of their farmland; that terms of the sale were fully
explained to him both in writing and orally; that the Hatchers
executed the sale of their farmland freely and of their own
accord; and, that no misrepresentations or false
representations which would support a claim for fraudulent
misrepresentation occurred in the course of the sale
transaction. Significantly, the courts found the purchase
price of $63,000.00 to be adequate consideration for the sale.
Thus, these prior decisions speak directly to the
Hatchers’ renamed action in these bankruptcy proceedings, that
is, to their fraudulent conveyance claim. While the Hatchers
are correct in their arguments that Code Section 544(b)
provides them with a new status and identity in bankruptcy--
that of a trustee with super-avoidance powers, their reliance
on that section is misplaced when they argue, in essence, that
it also provides them with an opportunity to collaterally
attack and disregard prior state court decisions. Section
544(b) does not provide the Hatchers with an opportunity to
relitigate in a federal forum those claims which have
previously been resolved in state courts. We may not, as a
lower federal appellate court, review the orders of those
courts. Only the United States Supreme Court may review state
court decisions.
Rooker-Feldman Doctrine
We note that preclusion, as relied upon by the bankruptcy
court, and the Rooker -Feldman doctrine “are closely related
legal concepts.” Goetzman v. Agribank, FCB (In re Goetzman),
91 F.3d 1173, 1177 (8th Cir.), cert. denied, --- U.S. ----, 117
S. Ct. 612, 136 L. Ed. 2d 537 (1996); see Charchenko v. City of
Stillwater, 47 F.3d 981, 983 n. 1 (8th Cir. 1995). The
Rooker-Feldman doctrine “derives from the prohibition on
federal appellate review of state court proceedings,” Bechtold
v. City of Rosemount,104 F.3d 1062, 1065 (8th Cir. 1997), and
17
provides that “lower federal courts do not have subject matter
jurisdiction over challenges to state court decisions in
judicial proceedings,” Neal v. Wilson, 112 F.3d 351, 356 (8th
Cir. 1997). The doctrine “commands that the United States
Supreme Court is
18
the only federal court which may review state court decisions.”
First Commercial Trust Co. v. Colt’s Mfg. Co., Inc., 77 F.3d
1081, 1083 (8th Cir. 1996); Neal, 112 at 356.
“Although the state and federal claims may not be
identical, impermissible appellate review may occur when a
federal court is asked to entertain a claim that is
‘inextricably intertwined’ with the state court judgment.” In
re Goetzman, 91 F.3d at 1177; see Neal, 112 at 356. “In order
to determine whether a claim is ‘inextricably intertwined’ with
a state court claim, the federal court must analyze whether the
relief requested in the federal action would effectively
reverse the state court decision or void its ruling.”
Bechtold,104 F.3d at 1065; Keene Corp. v. Cass, 908 F.2d 293,
296-97 (8th Cir. 1990); see also Neal, 112 at 356 (“A claim
is inextricably intertwined if the federal claim succeeds only
to the extent that the state court wrongly decided the issue
before it.”).
Examination of the Hatchers’ claims on appeal leads us to
conclude that they are inextricably intertwined with the claims
the Hatchers presented in the prior state court proceedings
previously discussed herein. Central to the state court
proceedings were determinations by both the state district
court and the Court of Appeals of Iowa that the real estate
transaction to which the Hatchers object as being a fraudulent
conveyance, and which they claimed and continue to claim was
a loan, was actually a sale. In the state court proceedings,
it was adjudged that the Hatchers voluntarily sold this
property to Allison for fair consideration and under no
misrepresentations, and that Allison is its present owner.
Nevertheless, in the instant matter, the Hatchers continue to
challenge these state court determinations and additionally
premise the viability of their Chapter 11 plan upon their
purported ownership of this farmland, the ownership of which
the state courts have determined lies in Allison.
Thus, if the Hatchers are to succeed in these bankruptcy
proceedings, this Court must effectively reverse the
determinations of the Iowa state courts. Accordingly, the
19
result the Hatchers currently seek is precisely that which the
Rooker-Feldman doctrine is intended to prevent. “‘Where
federal relief can only be predicated upon a conviction that
the state court was wrong, it is difficult to conceive the
federal proceeding as, in substance, anything other than a
prohibited appeal of the state-court judgment.’” Bechtold,104
F.3d at 1066 (quoting
20
Penzoil Co. v. Texaco, Inc., 481 U.S. 1, 25, 107 S. Ct. 1519,
1533, 95 L. Ed. 2d 1 (1987) (Marshall, J., concurring)). We
conclude that the Hatchers’ instant appeal is, in substance,
a prohibited appeal under the Rooker-Feldman doctrine.
Dismissal for Cause
The bankruptcy court has broad discretion in deciding
whether to dismiss or convert a Chapter 11 case, Lumber Exch.
Bldg. Ltd. Partnership v. Mutual Life Ins. Co. (In re Lumber
Exch. Bldg. Ltd. Partnership), 968 F.2d 647, 648 (8th Cir.
1992), and is free to dismiss such a case where the debtor
cannot propose a confirmable plan, Windsor on the River
Assocs., Ltd. v. Balcor Real Estate Fin., Inc. (In re Windsor
on the River Assocs., Ltd.), 7 F.3d 127, 133 (8th Cir. 1993).
Dismissal is appropriate if “cause” exists, and “if it is ‘in
the best interest of creditors and the estate.’” Windsor, 7
F.3d at 133 (quoting 11 U.S.C. § 1112(b)); In re Schriock
Const., Inc., 167 B.R. 569, 574 (Bankr. D. N.D. 1994).
The statutory definition of “cause” includes, “continuing
loss to or diminution of the estate and absence of a reasonable
likelihood of rehabilitation; inability to effectuate a plan;
[and] unreasonable delay by the debtor that is prejudicial to
creditors[.]” 11 U.S.C. § 1112(b)(1-3). “[T]he statutory
list is not exhaustive and . . . a court may consider other
factors and equitable considerations in order to reach an
appropriate result in the individual case.” Schriock, 167 B.R.
at 575; see In re Federal Roofing Co., 205 B.R. 638, 641
(Bankr. N.D. Ala. 1996).
Such other factors as warrant dismissal under Section
1112(b) may include filings made in bad faith. See Trident
Assocs. Ltd. Partnership v. Metropolitan Life Ins. Co. (In re
Trident Assocs. Ltd. Partnership), 52 F.3d 127, 130 (6th Cir.),
cert. denied, --- U.S. ----, 116 S. Ct. 188, 133 L. Ed. 2d 125
(1995); First Nat’l Bank of Sioux City v. Kerr (In re Kerr),
908 F.2d 400, 404 (8th Cir. 1990); St. Paul Shelf Storage Ltd.
Partnership v. Port Auth. of St. Paul (In re St. Paul Self
Storage Ltd. Partnership), 185 B.R. 580, 582 (B.A.P. 9th Cir.
1995); In re Wentworth, 83 B.R. 705, 707 (Bankr. D. N.D.
21
1988). The following factors are among those which have been
recognized as evidence of a bad faith filing:
22
(1) the debtor has only one asset, the property, in
which it does not hold legal title; (2) the case is
essentially a two-party dispute capable of prompt adjudication
in state court;
(3) there are only a few unsecured creditors;
(4) the debtor’s property has been posted for
foreclosure, and the debtor has been unsuccessful in
defending against the foreclosure in state court;
(5) the filing of the petition effectively allows the
debtor to evade court orders;
(6) the debtor has no ongoing business to reorganize;
(7) the debtor has few employees;
(8) the timing of the debtor’s filing evidences an intent
to delay or frustrate the legitimate efforts of the
debtor’s secured creditor to enforce their rights.
See In re Trident Assocs. Ltd. Partnership, 52 F.3d at 131;
Y.J. Sons & Co., Inc. v. Anemone, Inc. (In re Y.J. Sons & Co.),
212 B.R. 793, 802 (D. N.J. 1997); In re St. Paul Self Storage
Ltd. Partnership, 185 B.R. at 582-83; In re Wentworth, 83 B.R.
at 707.
In concluding that the Hatchers’ case should be dismissed
for cause pursuant to 11 U.S.C. § 1112(b), the bankruptcy court
made the following determinations:
In this case, [the Hatchers] do not own the
property that is central to their reorganization.
[Their] plan depends upon them keeping the land.
[They] were on the brink of being forcibly removed
from Allison’s property. [They] state they filed
their chapter 11 petition to save the house and farm
and to retain possession of the property. [The
Hatchers], operating as the debtor-in-possession,
employ no non-insider employees. While the report of
operations through November 30, 1996, shows a net
income, a significant portion of the income was from
the sale of assets (sixteen percent of the hay and
straw, and ten percent of the cattle scheduled).
[They] scheduled nine unsecured creditors with
relatively small claims, with the exception of the
debt owed [their] former counsel. Even though
ownership of the land has been conclusively decided
23
against them, [the Hatchers] continue to occupy the
land and fight efforts to evict them. The bankruptcy
was filed as a litigation tactic after [they] lost
their fight in the Iowa state courts. [They]
continue to pursue their starry-eyed dream that the
land is theirs and that they can develop it. A
reorganization without Allison’s land would be
futile; there can be no
24
development business without the land and [the
Hatchers] cannot continue their farming operation on
this land. This Court cannot and will not rewrite
the sale of [their] land to Allison, in essence
mandating Allison’s assets be placed in involuntary
servitude for the exclusive use of [the Hatchers].
This Court finds that [the Hatchers] case and plan of
reorganization were filed in bad faith and are
objectively futile.
The record and the case law discussed above fully support the
court’s conclusion. The Hatchers’ appeal amounts to a renewed
effort to adjudicate matters which have already been laid to
rest in state courts; the question of ownership of the
property they sold to Allison cannot be resurrected here.
Thus, it was not error for the bankruptcy court to dismiss the
Hatchers’ Chapter 11 case for cause by finding that their
petition was filed in bad faith.
IV. CONCLUSION
The bankruptcy court did not err in affording full faith
and credit to the state court determinations in this matter.
It would be improper for this Court to revisit for the purpose
of reconsideration the judgments of the Iowa courts.
Furthermore, the bankruptcy court did not err, under its broad
discretion, in dismissing the Hatchers’ case for cause pursuant
to 11 U.S.C. § 1112(b). Accordingly, the order of the
bankruptcy court dismissing this case for cause, and denying
as moot Allison Financial’s Motion for Relief from Stay, is
AFFIRMED.
A true copy.
Attest:
CLERK, U.S. BANKRUPTCY APPELLATE PANEL, EIGHTH
CIRCUIT.
25