Theresa Marshall v. Mark McCarty ( 2009 )

United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
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No. 08-6051
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In re: Theresa Marshall, *
*
Debtor *
*
Theresa Marshall, * Appeal from the United States
* Bankruptcy Court for the
Debtor - Appellant, * Eastern District of Arkansas
*
vs. *
*
Mark T. McCarty, Chapter 13 Trustee, *
*
Movant - Appellee *
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Submitted: May 26, 2009
Filed: June 23, 2009
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Before FEDERMAN, MAHONEY and SALADINO, Bankruptcy Judges
FEDERMAN, Bankruptcy Judge
Debtor Theresa Marshall appeals from an order of the Bankruptcy Court1 which
denied her motion to extend the automatic stay, dismissed her Chapter 13 case with
prejudice, and barred her from filing another bankruptcy case for one year. The
1
The Honorable James G. Mixon, United States Bankruptcy Judge for the
Eastern and Western Districts of Arkansas.
Debtor claims that the Court erred in dismissing her case when she had made a
substantial number of her payments in previously filed cases. For the reasons that
follow, we affirm.
FACTUAL BACKGROUND
The Debtor filed this Chapter 13 petition on June 9, 2008. This is her fourth
Chapter 13 case since 1995, all of which were filed on the eve of foreclosure.
Throughout her various bankruptcy proceedings, the Debtor filed numerous motions
contesting the amount she owes on her mortgage. She has hired and fired eight
attorneys and is now representing herself pro se on appeal.
In each of those prior cases, the Debtor paid a substantial amount of money into
the plan before ultimately failing to complete her requirements. The first case was
filed in November 1995 and was dismissed in December 2001. Because the Debtor
had not made all of her plan payments, she exited that case with an arrearage on her
mortgage obligation. Two months later, the Debtor again filed for bankruptcy
protection. That case was dismissed in May 2005 for the Debtor’s failure to comply
with an agreed “strict compliance order” requiring her to make timely payments to her
trustee. These missed payments caused the arrearage on her mortgage to increase
since no funds remained above her regular monthly mortgage debt to settle this
amount and its accumulating interest. After three months, in August 2005, the Debtor
filed yet another bankruptcy case. During this case, the parties again agreed to a strict
compliance order requiring the Debtor to make all her payments in full and on time
from January 2008 to June 2008. After the Debtor failed to comply with the order,
that case was dismissed.
Four months later, on June 9, 2008, the Debtor filed the instant case within the
period of the strict compliance order in the last case. Both the mortgage holder and
the Chapter 13 Trustee moved to dismiss the case for bad faith. In dismissing this
2
case, the Bankruptcy Court found this filing was “abusive in the extreme” because it
allowed the Debtor, for a second time, to circumvent her strict compliance agreement.
After a hearing on the motions to dismiss, which included another challenge of the
amount owed on the arrearage, the Court dismissed the current Chapter 13 case,
denied her motion to extend the stay as moot, and barred her from filing again for one
year. It is that order from which the Debtor now appeals.
STANDARD OF REVIEW
We review findings of fact for clear error and legal conclusions de novo.2 The
Bankruptcy Court has discretion to dismiss a Chapter 13 case and to impose
limitations on refiling.3 Both decisions are reviewed under an abuse of discretion
standard.4 An abuse of discretion occurs when the Bankruptcy Court “fails to apply
the proper legal standard or bases its order on findings of fact that are clearly
erroneous.”5
2
First Nat’l Bank of Olathe v. Pontow (In re Pontow), 111 F.3d 604, 609
(8th Cir. 1997).
3
In re Casse, 198 F.3d 327, 337-38 (2d Cir. 1999).
4
Id. at 341.
5
Official Comm. Of Unsecured Creditors v. Farmland Indus., Inc. (In re
Farmland Indus, Inc.), 397 F.3d 647, 651 (8th Cir. 2005).
3
DISCUSSION
The Debtor claims that the Bankruptcy Court’s dismissal of her Chapter 13 case
was an abuse of discretion.6 The Bankruptcy Court dismissed the case due to the
abusive effect of the Debtor’s repeated attempts to relitigate the amount she owed on
the mortgage arrearage and to circumvent strict compliance orders by filing new cases.
Courts may dismiss a case under § 1307(c) if such case was filed in bad faith.7
Whether a Chapter 13 debtor is acting in bad faith is an issue of fact for the
Bankruptcy Court to determine and will only be overturned if clearly erroneous.8
The bad faith determination focuses on the totality of the circumstances,
including whether the debtor has stated his debts and expenses accurately; whether he
has made any fraudulent misrepresentation to mislead the bankruptcy court; or
whether he has unfairly manipulated the Bankruptcy Code.9 For automatic stay
purposes, a case is presumed to be filed in bad faith if a debtor’s previous case “was
dismissed within [the preceding] 1-year period, after the debtor failed to . . . perform
the terms of a plan confirmed by the court” or “there has not been a substantial change
in the financial or personal affairs of the debtor since the dismissal of the next most
6
Debtor also appeals the Bankruptcy Court’s decision to deny as moot her
motion to impose the automatic stay under § 362(a). Since we are affirming the
dismissal, we need not address this issue.
7
In re Molitor, 76 F.3d 218, 220 (8th Cir. 1996). See also Marrama v.
Citizens Bank of Massachusetts, 549 U.S. 365, 127 S.Ct. 1105, 166 L.Ed.2d 956(2007) (holding that atypical bad faith conduct is grounds to dismiss a Chapter 13
case, or to deny conversion of a case from Chapter 13 to Chapter 7).
8
Matter of Smith, 848 F.2d 813, 816, n. 2 (7th Cir. 1988).
9
In re Molitor, 76 F.3d at 220.
4
previous case . . . .”10 The Debtor may rebut this presumption only by a showing of
clear and convincing evidence.11
The Debtor has failed to meet this burden. While she has, throughout her
various bankruptcy cases, made significant payments to her creditors, her failure to
comply with more than one strict compliance order was properly considered in
determining her bad faith. The Bankruptcy Court also properly considered the amount
of time the Debtor has “reposed herself in bankruptcy,” her pattern of making
unsuccessful filings on the eve of foreclosure, and her history of filing excessive
motions throughout the various bankruptcy cases. The Bankruptcy Court’s finding
that the Debtor’s conduct in refiling her petition to circumvent the strict compliance
order was “abusive in the extreme” is not clearly in error. In these circumstances, the
Bankruptcy Court properly found that the Debtor unfairly manipulated the Code and
was operating in bad faith.
While not directly raised in the Debtor’s appeal, since she is filing pro se, we
will consider the propriety of the Bankruptcy Court’s order barring her from refiling
for one year. Whether a bankruptcy court has the authority to bar subsequent Chapter
13 filings presents a question of law which is reviewed under a de novo standard.12
If the court has the power to issue that order, its decision to do so will be reviewed
under an abuse of discretion standard.13
Bankruptcy courts “invariably derive from § 105(a) or § 349(a) of the Code .
. . the power to sanction bad-faith serial filers . . . by prohibiting further bankruptcy
10
11 U.S.C. § 362(c)(3)(C)(i).
11
Id.12
See In re Casse, 198 F.3d at 334.
13
Id. at 341.
5
filings for [over] 180 days.”14 In evaluating whether to bar subsequent filings, courts
have recognized that “a dismissal order that bars subsequent litigation is a severe
sanction warranted only by egregious misconduct.”15 Court orders prohibiting refiling
often occur “where a debtor files a series of bankruptcy petitions that are strategically
timed to thwart a secured creditor from foreclosing on its collateral” or where the
debtor files a subsequent petition in violation of a previous order.16 Thus, Courts in
this circuit have barred refiling to allow a creditor to exercise its rights under state law
where serial filings abuse the bankruptcy process and cannot be prevented by an
injunction under § 109(g).17
14
Id. at 337, 338. Appellate courts in the Second and Fourth Circuits have
upheld the practice. See id.; In re Tomlin, 105 F.3d 933 (4th Cir. 1997).
However, the Tenth Circuit found that the 180 day bar in § 109 (g) provides an
absolute upward limit. In re Frieouf, 938 F.2d 1099 (10th Cir. 1993). This
decision has been criticized by multiple courts. See Casse at 340 (rejecting Frieouf
and adopting a textual interpretation of § 349(a) that permits a court with cause to
dismiss a case with prejudice to the filing of a subsequent petition); In re Earl, 140
B.R. 728, 741 (Bankr. N.D. Ind. 1992) (arguing for broad power under § 105(a)
due to similarity to 28 U.S.C. § 1651(a)). Over the past fifteen years, bankruptcy
courts in the Eighth Circuit have consistently followed the majority view. See n.
17, infra.
15
In re Tomlin, 105 F.3d at 937.
16
See In re Ventura, 375 B.R. 103, 109 (Bankr. E.D. N.Y. 2007). See also In
re Robinson, 198 B.R. 1017 (Bankr. N.D. Ga. 1996) (sanction appropriate where
filing made to deal with specific problem of imminent foreclosure with no effort
made to reorganize).
17
See In re Tolbert, 258 B.R. 387 (Bankr. W.D. Mo. 2001) (imposing three
year restriction where debtor filed eight cases solely to protect his assets with no
reasonable prospect of reorganizing); In re Belden, 144 B.R. 1010 (Bankr. D.
Minn 1992) (barring debtor with pattern of making minimal payments to satisfy
trustee at confirmation and then resuming noncompliance); In re Rusher, 283 B.R.
544 (Bankr. W.D. Mo. 2002) (enjoining for three years debtor who used successive
filings to retain all of her assets without making plan payments or confirming a
6
The Bankruptcy Court did not abuse its discretion in dismissing the Debtor’s
petition with prejudice to refiling for one year. While the Debtor in previous cases has
made an effort to pay money into the plan, the Bankruptcy Court had the discretion to
determine that her manipulation of the filing process to avoid her strict compliance
agreements is sufficiently egregious to justify a year long ban.
CONCLUSION
The Bankruptcy Court did not abuse its discretion in dismissing the Debtor’s
Chapter 13 case and barring her from filing for one year. Accordingly, the Bankruptcy
Court’s judgment is affirmed.18
plan ); In re Mattson, 241 B.R. 629 (Bankr. D. Minn. 1999) (“Failing to prohibit
the debtors from future bankruptcy filings would give them an open opportunity to
continue to frustrate the Objecting Creditors’ attempts to collect.”).
18
The Clerk is directed to enter an order granting the Debtor’s motion to file
a second amended reply brief, which brief we considered in this appeal.
77