Jeffrey Shotkoski v. Habbo Fokkena ( 2009 )

United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
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No. 09-6063
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In re: *
*
Jeffrey Joseph Shotkoski, *
a/k/a Jeff Shotkoski, *
d/b/a Emerald Storage and *
Constance Lynn Shotkoski, *
a/k/a Connie Shotkoski, *
*
Debtors. *
*
*
Jeffrey Joseph Shotkoski and *
Constance Lynn Shotkoski, *
* Appeal from the United States
Debtors - Appellants, * Bankruptcy Court for the
* District of South Dakota
v. *
*
Habbo Fokkena,1 *
*
U.S. Trustee - Appellee. *
*
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Submitted: November 20, 2009
Filed: November 24, 2009
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Although Debtors named Mr. Fokkena as the Appellee in their notice of appeal, he did
not participate in the bankruptcy proceedings and has declined to participate in this appeal.
Before KRESSEL, Chief Judge, SCHERMER, and SALADINO, Bankruptcy
Judges.
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SALADINO, Bankruptcy Judge.
Jeffrey and Constance Shotkoski, the Chapter 11 Debtors herein, appeal from
an order of the bankruptcy court2 dated September 28, 2009, denying their motion for
final decree. For the reasons stated below, we affirm.
FACTS AND PROCEDURAL HISTORY
The appellants are in the business of owning, managing, and operating storage
units and residential rental properties in the state of South Dakota. On December 28,
2007, they filed a petition seeking relief under Chapter 11 of the Bankruptcy Code.
Their amended disclosure statement was approved by the bankruptcy court on July 2,
2008, and an order confirming plan was entered on September 16, 2008.
On September 16, 2009, appellants filed their motion for entry of a final
decree.3 In the motion they asserted, inter alia, that substantial consummation of the
plan had taken place, that there are no required deposits to be distributed, that they
have assumed the business or management of the property, and that plan payments
had commenced. On September 28, 2009, the bankruptcy court denied the motion for
final decree, stating:
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The Honorable Charles L. Nail, Jr., United States Bankruptcy Judge for the
District of South Dakota.
3
The document was titled Motion for Entry of Final Judgment, but in the
body of the document it was described as a Motion for Entry of Final Decree.
2
Upon consideration of Debtors’ Motion for Entry of
Final Judgment [final decree] (doc. 181) and the record
before the Court; and it appearing 11 U.S.C. § 1141(d)(5),
28 U.S.C. § 1930(a)(5), and Fed.Rs.Bankr.P. 3020, 3021,
and 3022 do not contemplate the closing of an individual
chapter 11 debtor’s case until the administration of the case,
which would include entry of the debtor’s discharge, is
complete; now, therefore,
IT IS HEREBY ORDERED Debtors’ Motion for
Entry of Final Judgment [final decree] is denied, and this
case shall remain open until a final decree is entered or the
case is dismissed.
STANDARD OF REVIEW
Appellants argue that this Court should apply a de novo standard of review
because this is a matter of statutory interpretation. While we agree with the basic
assertion that conclusions of law are reviewed de novo (see, e.g., First Nat’l Bank of
Olathe, Kansas v. Pontow (In re Pontow), 111 F.3d 604, 609 (8th Cir. 1997)), we do
not believe that standard applies here. Instead, we believe that an abuse of discretion
standard applies in reviewing a bankruptcy court’s order denying entry of a final
decree.
In the case of In re Union Home & Industrial, Inc., 375 B.R. 912 (B.A.P. 10th
Cir. 2007), the Tenth Circuit Bankruptcy Appellate Panel engaged in a thorough
analysis of the standard of review applicable to a bankruptcy court’s order entering
or denying a final decree. “For purposes of standard of review, decisions by trial
courts are traditionally divided into three categories, denominated: (1) questions of
law, which are reviewable de novo; (2) questions of fact, which are reviewable for
clear error; and, (3) matters of discretion, which are reviewable for abuse of
discretion.” Id. at 915 (citing Pierce v. Underwood, 487 U.S. 552, 558, 108 S. Ct.
2541, 101 L. Ed. 2d 490 (1988)).
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Following the guidance of the Supreme Court in the Pierce case, the Tenth
Circuit Bankruptcy Appellate Panel determined that it would apply an abuse of
discretion standard in reviewing the bankruptcy court’s order denying entry of final
decree. We agree. 11 U.S.C. § 350(a) and Federal Rule of Bankruptcy Procedure 3022
provide for entry of a final decree and closing of a Chapter 11 case after an estate is
fully administered. Thus, this appeal involves a review of the bankruptcy court’s
determination that the estate is not yet fully administered. In order to determine
whether an estate is “fully administered” for purposes of entering a final decree, the
bankruptcy court must consider numerous factors specific to the case. As the Tenth
Circuit Bankruptcy Appellate Panel stated:
The bankruptcy court is uniquely positioned to make this
determination given that it will have overseen the particular
debtor’s case from the beginning and will have first hand
knowledge of what matters have been, or need to be,
completed before closure of the case. Further, the
bankruptcy court will be very familiar with the debtor’s
confirmed plan of reorganization, the requirements for
consummation of that plan, as well as the status of any
pending motions, contested matters, and adversary
proceedings.
An appellate court, in contrast, is not particularly
well situated to make the final decree determination. The
full history of the case cannot be conveyed in the appellate
record. As such, many of the factors relevant to
determining if a case has been “fully administered” may be
known only to the bankruptcy court, based on its
experience and oversight of the case. The bankruptcy court
will likely have insights and know of practical
considerations not conveyed by the appellate record.
Id. at 917. Thus, the bankruptcy court is entitled to a deferential review of its
determination with respect to whether an estate is fully administered. Under the abuse
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of discretion standard, a trial court “‘has a range of choice, and its decision will not
be disturbed as long as it stays within that range[,] is not influenced by any mistake
of law’ or fact, or makes a clear error of judgment in balancing relevant factors.”
Pamida, Inc. v. E.S. Originals, Inc., 281 F.3d 726, 729 (8th Cir. 2002) (quoting
McKnight v. Johnson Controls, Inc., 36 F.3d 1396, 1403 (8th Cir. 1994)).
“An abuse of discretion occurs when a relevant factor that
should have been given significant weight is not
considered, when an irrelevant or improper factor is
considered and given significant weight, or when all proper
and no improper factors are considered, but the court in
weighing those factors commits a clear error of judgment.”
United States v. McNeil, 90 F.3d 298, 300-01 (8th Cir.
1996). A “court’s decision will not be disturbed as long as
it is within the range of discretion afforded to a given
determination and is not influenced by a mistake of law.”
Id.
Hoffman v. Bullmore (In re Nat’l Warranty Ins. Risk Retention Group), 384 F.3d 959,
962 (8th Cir. 2004).
DISCUSSION
We begin with a review of the applicable Code sections and Rules. Section
1141(d)(5) of the Bankruptcy Code describes the circumstances under which an
individual Chapter 11 debtor may receive a discharge. Specifically, that section
provides that confirmation of the plan does not discharge an individual debtor until
the court grants a discharge upon completion of all payments under the plan.
11 U.S.C. § 350(a) provides that “[a]fter an estate is fully administered and the
court has discharged the trustee, the court shall close the case.” Bankruptcy Rule 3022
implements § 350(a) in the Chapter 11 context by providing “[a]fter an estate is fully
administered in a chapter 11 reorganization case, the court, on its own motion or on
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motion of a party in interest, shall enter a final decree closing the case.” Fed. R.
Bankr. P. 3022. The bankruptcy court determined that the debtor had not yet been
discharged and the estate is not yet fully administered.
Appellants rely upon the Commentary associated with the Rule, which provides
in part as follows:
Entry of a final decree closing a chapter 11 case
should not be delayed solely because the payments required
by the plan have not been completed. Factors that the court
should consider in determining whether the estate has been
fully administered include (1) whether the order confirming
the plan has become final, (2) whether deposits required by
the plan have been distributed, (3) whether the property
proposed by the plan to be transferred has been transferred,
(4) whether the debtor or the successor of the debtor under
the plan has assumed the business or the management of the
property dealt with by the plan, (5) whether payments under
the plan have commenced, and (6) whether all motions,
contested matters, and adversary proceedings have been
finally resolved.
Fed. R. Bankr. P. 3022, Advisory Committee Note (1991). Appellants rely on the
Advisory Committee Note and the factors delineated therein and assert that the facts
and circumstances of this case satisfy all of those factors and, therefore, closing of the
case should not be delayed solely because payments have not been completed and a
discharge has not been entered.
The Advisory Committee Note is the only guidance available to the courts for
determining whether an estate has been fully administered. A definition for “fully
administered” does not appear anywhere in the Code or the Rules. Of course, while
the Advisory Committee Note was intended to provide some guidance, the factors
listed were clearly not intended to be exclusive. Further, there is a real question as to
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the current applicability of the Advisory Committee Note considering it was drafted
in 1991, at which time a discharge would be entered in an individual Chapter 11 case
upon plan confirmation. Thus, since entitlement to a discharge would already be
determined, it was not a factor to even consider in connection with a full
administration analysis in 1991. Now, as a result of the BAPCPA amendments of
2005, an individual debtor’s discharge is not entered until completion of payments
under the plan. 11 U.S.C. § 1141(d)(5).
As the Tenth Circuit Bankruptcy Appellate Panel recognized, bankruptcy courts
are charged with reviewing each request for entry of a final decree on a case-by-case
basis in determining whether an estate has been fully administered. In re Federated
Dep’t Stores, Inc., 43 Fed. Appx. 820, 822 (6th Cir. 2002) (citing In re Jay Bee
Enters., Inc., 207 B.R. 536, 539 (Bankr. E.D. Ky. 1997)). Here, the bankruptcy court
was familiar with the facts and circumstances of the debtor’s Chapter 11 case. In
particular, the bankruptcy court was aware of the specific terms of the debtor’s
confirmed Chapter 11 plan, which provided for the long-term repayment of several
real estate and other loans totaling in excess of $1,700,000.00 and eight classes of
impaired claims. Considering the loan amounts and number of impaired classes at
issue under the plan, and giving deference to the bankruptcy court’s knowledge of the
specific circumstances of the case, we do not believe that the bankruptcy court made
a clear error of judgment or exceeded the bounds of permissible choice under the
circumstances.
As indicated, we believe that the decision as to whether an estate is “fully
administered” is one that falls within the discretion of the bankruptcy judge. To be
clear, by affirming the bankruptcy court in this case, we are not holding that every
individual Chapter 11 case must remain open until such time as all long-term plan
payments have been completed and a discharge is entered. In fact, since the
Bankruptcy Code expressly contemplates the reopening of cases and the exercise of
continuing jurisdiction by the bankruptcy court (see 11 U.S.C. § 350(b)), we do not
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disagree with those courts choosing, for purposes of convenience and efficiency, to
close individual Chapter 11 cases prior to completion of payments and entry of
discharge. Again, we believe it is a case-by-case analysis best left to the discretion of
the bankruptcy judge.
CONCLUSION
Accordingly, we affirm the decision of the United States Bankruptcy Court for
the District of South Dakota denying Debtor’s motion for a final decree.
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