Greenberg v. Champion Mortgage Company ( 2021 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 IN RE ENRIQUE V. GREENBERG, Case No.: 20-cv-01532-GPC-MDD Bankruptcy No. 19-00878-MM11 12 Debtor, 13 ORDER AFFIRMING BANKRUPTCY COURT’S ORDER 14 OF DISMISSAL 15 16 17 ENRIQUE V. GREENBERG, 18 Appellant, 19 v. 20 CHAMPION MORTGAGE COMPANY, 21 Appellee. 22 23 Appellant Enrique V. Greenberg (“Greenberg”) appeals an order of the U.S. 24 Bankruptcy Court dismissing his Chapter 11 bankruptcy case. ECF No. 1. The Court 25 finds this motion suitable for decision without oral argument pursuant to Civ. L.R. 26 7.1(d)(1). For the reasons below, the Court AFFIRMS. 27 \ \ \ 28 \ \ \ 1 I. Background 2 The bankruptcy appeal in this case arises out of proceedings in the Chapter 11 3 bankruptcy case filed on February 20, 2020, Greenberg’s fourth bankruptcy case in the 4 Southern District of California.1 Bk. No. 19-00878-MM11. Greenberg listed Appellee 5 Champion Mortgage Company (“Champion”) as the only secured creditor in the case. 6 Bk. No. 19-00878-MM11, ECF No. 206 at 4. Champion asserts a claim fully secured by 7 Greenberg’s property located in Temecula, California, (“Property”), which is his 8 principal residence. Bk. No. 19-00878-MM11, Claims Register, Claim 2-2. The 9 Property formerly belonged to Greenberg’s mother, Antonia Cortes (“Cortes”), who was 10 the borrower and sole signer of the adjustable rate note and deed of trust that granted 11 Greenberg its security interest in the Property. Id. The note provided a reverse mortgage 12 to Cortes and provided that “[a]ll amounts advanced by Lender, plus interest, if not paid 13 earlier, are due and payable on January 17, 2087.” Id. at 17. The note alternatively 14 required immediate payment in full upon the occurrence of a specified event, including if 15 “A Borrower dies and the Property is not the principal residence of at least one surviving 16 Borrower.” Id. at 19. On December 29, 2010, Cortes passed away, leaving no other 17 borrowers. Bk. No. 19-00878-MM11, ECF No. 206 at 4. 18 Champion filed a proof of claim in Greenberg’s bankruptcy case, to which 19 Greenberg objected. Bk. No. 19-00878-MM11, Claims Register, Claim 2-2. The 20 bankruptcy court overruled that objection, and Greenberg appealed that decision to this 21 Court. See Case No. 3:20-cv-506-GPC-MDD (“Related Case”). Proceedings continued 22 in the bankruptcy court. On April 28, 2020, Greenberg filed his motion to approve the 23 Fourth Amended Individual Chapter 11 Combined Plan of Reorganization and Disclosure 24 Statement (“Plan”), to which Champion objected. Bk. No. 19-00878-MM11, ECF Nos. 25 146, 153. The Plan did not provide for repayment of Champion’s loan on the effective 26 27 1 Appellant has also previously filed for bankruptcy in the Central District of California. See Bk. No. 13- 28 1 date of the Plan, but rather repayment at a variable interest rate over the course of 30 2 years. See Bk. No. 19-00878-MM11, ECF No. 146 at 5. On May 26, 2020, Champion 3 filed a motion to dismiss Greenberg’s bankruptcy case. Bk. No. 19-00878-MM11, ECF 4 No. 154. On August 6, 2020, the bankruptcy court granted Champion’s motion to 5 dismiss finding, among other things, that Greenberg was prosecuting the case in bad 6 faith. Bk. No. 19-00878-MM11, ECF No. 206. On August 7, 2020, Greenberg appealed 7 to this Court. ECF No. 1. 8 On September 10, 2020, Greenberg filed his opening brief. ECF No. 12. On 9 October 8, 2020, Champion filed their opening brief. ECF No. 15. On October 23, 10 Greenberg filed a reply brief. ECF No. 18. 11 On February 2, 2021, the Court issued an order in the Related Case affirming in 12 part and vacating and remanding in part the bankruptcy court’s order overruling 13 Greenberg’s objection to Champion’s proof of claim with respect to the Property. Case 14 No. 3:20-cv-506-GPC-MDD, ECF No. 43. Specifically, the Court found that the record 15 was insufficient to conclude on appeal that Champion had standing to file the proof of 16 claim, and thus the Court vacated and remanded on the question of Champion’s standing. 17 Id. at 22. On February 8, 2021, the Court ordered the parties to file limited additional 18 briefing on the issue of what effect the February 2, 2021 order in the Related Case has on 19 this appeal of the bankruptcy court’s order of dismissal, and the parties did so. Case No. 20 3:20-cv-506-GPC-MDD, ECF Nos. 44, 47, 49. 21 II. Legal Standard 22 The Court has jurisdiction to review a bankruptcy court’s final orders pursuant to 23 28 U.S.C. § 158(a). On appeal, the district court reviews the bankruptcy court’s findings 24 of fact for clear error and its conclusions of law de novo. Havelock v. Taxel, 67 F.3d 187, 25 191 (9th Cir. 1995); Fed. R. Bankr. Proc. 8013. “A finding of fact is clearly erroneous 26 when, after reviewing the evidence,” the Court is “‘left with the definite and firm 27 conviction that a mistake has been committed.’” In re Contractors Equip. Supply Co., 28 1 861 F.2d 241, 243 (9th Cir. 1988) (quoting Anderson v. City of Bessemer City, 470 U.S. 2 564, 573 (1985)). 3 The question of whether a petition was filed in good faith is a question of fact 4 reviewed for clear error, and a bankruptcy court’s decision to dismiss a case as a bad faith 5 filing is reviewed for abuse of discretion. See In re Marsch, 36 F.3d 825, 828 (9th Cir. 6 1994); In re Marshall, 721 F.3d 1032, 1045 (9th Cir. 2013). 7 III. Discussion 8 On appeal, Greenberg contends the bankruptcy court erred in dismissing his case 9 because it misapplied the law relating to whether his proposed plan of reorganization 10 could be confirmed over Champion’s objection. ECF No. 12 at 5. Champion responds 11 that the bankruptcy court properly dismissed the case upon finding that Greenberg was 12 prosecuting the case in bad faith, that the estate was suffering a continuing loss without a 13 reasonable likelihood of rehabilitation, and dismissal was in the best interests of the 14 creditors. ECF No. 15 at 15–16. 15 A. The Bankruptcy Court’s Order of Dismissal 16 In its order granting Champion’s motion to dismiss, the bankruptcy court first 17 found that Greenberg’s proposed plan of reorganization could not be confirmed over 18 Champion’s objection. Bk. No. 19-00878-MM11, ECF No. 206 at 6. The bankruptcy 19 court then determined that two grounds justified dismissal of Greenberg’s bankruptcy 20 case. See id. at 7–9. 21 First, the Court determined that Greenberg’s lack of good faith in filing the 22 bankruptcy case supported dismissal. Id. at 8. The bankruptcy court noted that to 23 determine whether the case had been filed in bad faith, it was required to consider the 24 totality of the circumstances based on the following factors: 25 (1) The debtor has only one asset. (2) The secured creditors’ lien encumbers that asset. 26 (3) There are generally no employees except for the principals. 27 (4) There is little or no cash flow, and no available sources of income to sustain a plan of reorganization or to make adequate protection payments. 28 1 (5) There are few, if any, unsecured creditors whose claims are relatively small. (6) There are allegations of wrongdoing by the debtor or its principals. 2 (7) The debtor is afflicted with the “new debtor syndrome” in which a one-asset 3 equity has been created or revitalized on the eve of foreclosure to isolate the insolvent property and its creditors. 4 (8) Bankruptcy offers the only possibility of forestalling loss of the property. 5 6 Id. at 7 (quoting In re Stolrow’s, Inc., 84 B.R. 167, 171 (B.A.P. 9th Cir. 1988)). 7 The bankruptcy court found that Greenberg’s main asset was the Property, which 8 was encumbered only by Champion’s lien. Id. at 8. Additionally, the bankruptcy court 9 noted that although Greenberg had sufficient income to make payments, Greenberg had 10 not been making payments during the pendency of the case and the monthly payment 11 scheme proposed under his plan of reorganization was not permissible because 12 Greenberg was required to pay the claim in full. Id. The bankruptcy court also found 13 that bankruptcy was the only possibility of stopping foreclosure of the Property. Id. 14 Lastly, the bankruptcy court found that this was Greenberg’s fifth2 unsuccessful 15 bankruptcy filing and noted that bad faith had been found in the past. Id.\ 16 Second, the bankruptcy court determined that there was substantial or continuing 17 loss or diminution of the estate and an absence of a reasonable likelihood of 18 rehabilitation, justifying dismissal under 11 U.S.C. § 1112(b)(4). Id. The bankruptcy 19 court found that continuing losses were shown because Greenberg was not making 20 payments to Champion despite his accrual of cash assets. Id. The bankruptcy court also 21 determined that a continuance of the reorganization effort was not justified, and thus the 22 loss to the estate was not likely to be rehabilitated, because Greenberg had thus far 23 refused to propose a plan that would pay Champion in full, and “through five bankruptcy 24 25 2 The bankruptcy court and the parties alternatively refer to Greenberg’s present bankruptcy case as 26 either his fourth or fifth filing. E.g., ECF No. 15 at 10. This discrepancy is due to the fact that Greenberg filed for bankruptcy in the Central District of California prior to his four petitions in the 27 Southern District. See Bk. Nos. 6:13-BK-29013-wj (Bankr. C.D. Cal.), 14-00260-MM7 (Bankr. S.D. Cal.), 15-04631-MM11 (Bankr. S.D. Cal.), 15-06578-MM11 (Bankr. S.D. Cal.), 19-00878-MM11 (S.D. 28 1 cases has indicated no interest in pursuing this claim in favor of endless litigation.” Id. at 2 8–9. 3 Lastly, the bankruptcy court concluded that dismissal on the grounds of bad faith 4 filing or continuing loss to the bankruptcy estate was appropriate because Champion was 5 Greenberg’s only creditor, and dismissal would allow it to exercise its state law remedies, 6 and because Greenberg would need to pay Champion in full regardless of how he 7 proceeded. Id. at 9. 8 B. The Bankruptcy Court’s Dismissal for Bad-Faith Filing 9 1. Effect of February 2, 2021 Order 10 In considering the merits of this appeal, the Court must resolve whether the 11 February 2, 2021 order in the Related Case, which vacated and remanded the bankruptcy 12 court’s implicit finding that Champion had established standing to file its proof of claim, 13 requires the Court to remand the case to the bankruptcy court or whether the bankruptcy 14 court’s order of dismissal can be affirmed even absent any conclusion that Champion had 15 standing to file the proof of claim. The Court requested the parties file additional briefing 16 following the Court’s February 2 order because it appeared possible that the bankruptcy 17 court’s order of dismissal may have been based in part on the assumption that Champion 18 had standing to file a proof of claim. Champion argues that the two bases for dismissal 19 cited by the bankruptcy court, namely that Greenberg had filed the bankruptcy case in 20 bad faith and that there was a substantial or continuing loss or diminution of the estate 21 and an absence of a reasonable likelihood of rehabilitation, are not disturbed by the 22 Court’s decision on the issue of standing. See Case No. 3:20-cv-506-GPC-MDD, ECF 23 No. 47. Greenberg argues that in light of the Court’s February 2 order, the Court should 24 stay the order of dismissal of his bankruptcy case, reinstate the case, and reinstate the 25 automatic stay pending further bankruptcy proceedings but did not provide legal 26 argument. Case No. 3:20-cv-506-GPC-MDD, ECF Nos. 49, 50. 27 As described above, the bankruptcy court cited several factors in support of its 28 finding that Greenberg’s latest Chapter 11 petition was not filed in good faith. 1 Specifically, the bankruptcy court considered that Greenberg’s proposed plan of 2 reorganization was unconfirmable as it sought to impermissibly modify Champion’s 3 claim and that Greenberg had not been making payments to Champion. ECF No. 206 at 4 8. Given that the Court’s February 2, 2021 order vacated in part the bankruptcy court’s 5 order overruling Greenberg’s objections to Champion’s claim, this factor no longer 6 clearly favors a finding of a lack of good faith because the bankruptcy court has yet to 7 redetermine whether Champion has standing to file a proof of claim, and thus whether the 8 bankruptcy court would allow its claim is an open question. However, the bankruptcy 9 court cited a number of other factors that supported its finding of bad faith that are 10 independent of whether Champion’s claim is ultimately allowed or disallowed in the 11 bankruptcy proceeding. The bankruptcy court noted that Greenberg’s main asset is the 12 Property and Champion is the sole creditor whose lien encumbers the Property; that 13 bankruptcy is the only means to stop foreclosure of the property; and that this is 14 Greenberg’s fifth successive unsuccessful bankruptcy filing, and bad faith had been 15 found in his previous cases. Id. 16 Thus, although some of the factors cited by the bankruptcy court were potentially 17 contingent on Champion having an allowed claim in the bankruptcy case, several others 18 exist even if Champion’s standing to file a proof of claim remains disputed. The Court 19 therefore will proceed to consider whether these other factors could have supported the 20 bankruptcy court’s determination. Cf. In re Wenegieme, No. 17-CV-2100 (RJS), 2018 21 WL 9536800, at *3 (S.D.N.Y. Jan. 9, 2018) (suggesting that even if one bad faith ground 22 was not applicable, bankruptcy court’s conclusion that case was filed in bad faith was 23 clearly supported on other grounds). 24 2. Whether Bankruptcy Court’s Finding of Bad Faith was Clearly Erroneous 25 Although not specifically provided for in Section 1112(b) of the bankruptcy code, 26 the Ninth Circuit has held that a debtor’s lack of good faith in filing a bankruptcy petition 27 can constitute cause for dismissal. See In re Marsch, 36 F.3d at 828. The question of 28 whether a bankruptcy petition was filed in good faith is a factual one. In re Stolrow’s 1 Inc., 84 B.R. at 170. The debtor’s subjective intent is not the determinative factor. In re 2 Marsch, 36 F.3d at 828. Rather, the question is whether the filing seeks “to achieve 3 objectives outside the legitimate scope of the bankruptcy laws.” Id. 4 “The existence of good faith depends on an amalgam of factors and not upon a 5 specific fact.” Id. (quoting In re Arnold, 806 F.2d 937, 939 (9th Cir. 1986)); see also 6 Phoenix Piccadilly, Ltd., 849 F.2d 1393, 1394 (11th Cir. 1988) (quoting In re Albany 7 Partners, Ltd., 749 F.2d 670, 674 (11th Cir. 1984)) (“[T]here is no particular test for 8 determining whether a debtor has filed a petition in bad faith. Instead, the courts may 9 consider any factors which evidence ‘an intent to abuse the judicial process and the 10 purposes of the reorganization provisions’ or, in particular, factors which evidence that 11 the petition was filed ‘to delay or frustrate the legitimate efforts of secured creditors to 12 enforce their rights.’”). The general purpose of bankruptcy is to “to facilitate 13 rehabilitation or reorganization of [a debtor’s] finances and to promote a ‘fresh start’ 14 through the orderly disposition of assets to satisfy creditors.” See Matter of Little Creek 15 Dev. Co., 779 F.2d 1068, 1071 (5th Cir. 1986). As noted by the bankruptcy court, the 16 non-exhaustive list of factors delineated in In re Stolrow’s can help guide a court’s 17 determination of whether a case was filed in good faith or for an improper purpose. See 18 In re Stolrow’s, Inc., 84 B.R. at 171. In addition, the Bankruptcy Appellate Panel for the 19 Ninth Circuit (“BAP”) has also found the following factors relevant: “(1) whether the 20 debtor misrepresented facts in his petition or plan, unfairly manipulated the Bankruptcy 21 Code, or otherwise filed his petition or plan in an inequitable manner; (2) the debtor’s 22 history of filings and dismissals; (3) whether the debtor only intended to defeat state court 23 litigation; and (4) the presence of egregious behavior.” In re Prometheus Health 24 Imaging, Inc., No. BAP CC-14-1576-FKIKU, 2015 WL 6719804, at *4 (B.A.P. 9th Cir. 25 Nov. 2, 2015) (citing In re Welsh, 711 F.3d 1120, 1129 n.45 (9th Cir. 2013)). 26 Here, Greenberg has not put forth any argument or evidence to challenge the 27 bankruptcy court’s finding that he did not file his petition in good faith, aside from his 28 contentions related to the confirmability of his plan and a conclusory assertion of good 1 faith. See ECF No. 18 at 10. Regardless of the merits of Greenberg’s argument that his 2 proposed plan of reorganization did not impermissibly modify Champion’s claim, other 3 factors supported the bankruptcy court’s conclusion that Greenberg’s petition did not 4 have a valid bankruptcy purpose. The Property is Greenberg’s primary asset, and 5 Champion’s lien alone encumbers the Property. Bk. No. 19-00878-MM11, ECF No. 146 6 at 18. Aside from Champion, there were no other creditors listed in the case. See 7 generally id. Champion states that it intends to pursue its state court remedies with 8 respect to its lien on the Property, which leaves bankruptcy as the only possibility to 9 prevent foreclosure. See ECF No. 15 at 15. In fact, as the bankruptcy court noted, 10 Greenberg suggested in his Disclosure Statement that he filed the bankruptcy cases to 11 stop foreclosure of the Property. See Bk. No. 19-00878-MM11, ECF No. 206 at 7; ECF 12 No. 146 at 16–17. Although “[p]etitions in bankruptcy arising out of a two-party dispute 13 do not per se constitute a bad-faith filing by the debtor[],” in this case the debtor is a 14 repeat filer and the issues—including Greenberg’s contentions regarding Champion’s 15 entitlement to enforce the Note—could more effectively be resolved in state court, not 16 through bankruptcy. In re Sullivan, 522 B.R. 604, 616 (B.A.P. 9th Cir. 2014) (quoting In 17 re Stolrow’s, Inc., 84 B.R. at 171); In re St. Paul Self Storage Ltd. P’ship, 185 B.R. 580, 18 583 (B.A.P. 9th Cir. 1995). 19 The bankruptcy court’s finding of bad faith in Greenberg’s previous bankruptcy 20 case, and the BAP’s order affirming its dismissal, supports the Court’s conclusion that 21 the bankruptcy court did not clearly err in dismissing the present bankruptcy case. In 22 Greenberg’s 2015 Bankruptcy Case, Greenberg had attempted to file a proof of claim on 23 then-creditor U.S. Bank’s behalf in the amount of one dollar, but the bankruptcy court 24 granted U.S. Bank’s motion to withdraw the claim so that it could proceed in state court. 25 Bk. No. 15-06578-MM11, ECF No. 134 at 3. The bankruptcy court later dismissed 26 Greenberg’s bankruptcy case on the ground that not been filed in good faith. Bk. No. 15- 27 06578-MM11, ECF Nos. 206, 191 at 5. In affirming, the BAP explained: 28 1 The record clearly evidences Debtor’s intent to forum shop by invoking the automatic stay with the filing of his petition and attempting to have the bankruptcy 2 court, rather than the state court, determine the extent and validity of U.S. Bank’s 3 lien. Those issues are purely state law issues easily resolved by the state court. This was Debtor’s fourth successive bankruptcy filing in two years, which, based on its 4 timing, was likely filed to impede U.S. Bank’s settlement with the chapter 7 trustee 5 and frustrate its efforts to reform the deeds of trust. It is apparent that Debtor’s case had no reorganizational purpose. 6 7 In re Greenberg, No. 3:15-BK-06578-MM, 2017 WL 3816042, at *6 (B.A.P. 9th Cir. 8 Aug. 31, 2017). Greenberg’s circumstances have not meaningfully changed since his 9 prior bankruptcy case. Then, as now, Greenberg’s purpose does not appear to be to 10 reorganize his finances but rather to have the creditor’s claims disallowed and to 11 relitigate the issue settled in the 2015 Compromise Order. 12 Accordingly, Greenberg’s argument regarding the confirmability of his plan does 13 not undermine the bankruptcy court’s factual finding that Greenberg had not filed the 14 bankruptcy case in good faith. Taken together, the other factors cited by the bankruptcy 15 court are sufficient to support its determination that Greenberg’s fifth bankruptcy filing 16 was made not for the purposes of reorganizing his estate, but the purpose of continuing 17 litigation to avoid foreclosure. The Court therefore concludes that the bankruptcy court 18 did not clearly err in finding that Greenberg’s bankruptcy petition was not filed in good 19 faith.3 20 3. Whether Bankruptcy Court’s Dismissal of the Case was an Abuse of Discretion 21 Before dismissing the case, the bankruptcy court was required to consider whether 22 dismissal would be in the best interests of the estate and its creditors. See In re Sullivan, 23 522 B.R. at 612. Greenberg does not argue that the bankruptcy court erred in concluding 24 that dismissal was in the best interests of the creditors or the estate, and thus he may have 25 26 27 3 Because the Court concludes that the bankruptcy court’s order of dismissal on the ground of bad faith should be affirmed, it need not reach the alternative ground identified by the bankruptcy court regarding 28 1 || waived his ability to challenge this issue. See Smith v. Marsh, 194 F.3d 1045, 1052 (9th 2 1999). In any case, the Court finds that the bankruptcy court did not abuse its 3 || discretion in dismissing the case. Here, the only creditor in the case was Champion, and 4 ||the bankruptcy court accepted Champion’s assertion that its interests would be best 5 || protected by dismissal so that it could pursue its state law remedies. See Bk. No. 19- 6 ||00878-MM11, ECF No. 206 at 9. It was also not unreasonable for the bankruptcy court 7 || to conclude that the interests of the bankruptcy estate would be best served by dismissal, 8 || because the purpose would be to pay Champion in full regardless of how Greenberg 9 || proceeded. Id. The estate would therefore not be harmed by dismissal. Given that the 10 || bankruptcy court found Greenberg was not pursuing a legitimate bankruptcy purpose and 11 || that the issues remaining in the case could be pursued outside of the bankruptcy forum, 12 other factors appear to weigh against dismissal. See In re Rand, No. BAP.AZ-10- 13 |} 1160-BAPAJ, 2010 WL 6259960, at *10 n.14 (B.A.P. 9th Cir. Dec. 7, 2010) (citing 7 14 Collier on Bankruptcy § 1112.04[7] (16th ed. 2010)) (listing factors relevant to the 15 || court’s determination of the interests of creditors and the estate). 16 Accordingly, the Court finds that the bankruptcy court properly exercised its 17 || discretion in dismissing the case.* 18 |/IV. Conclusion 19 The Court therefore AFFIRMS the bankruptcy court’s order of dismissal. 20 IT IS SO ORDERED. 21 ||Dated: April 19, 2021 72 22 Hon. athe Ck 23 United States District Judge 24 25 26 * Greenberg filed a “Ex Parte Application to (1) Stay the Order of Dismissal of the Case, (2) Reinstate 27 |! the Case, and (3) Reinstate the Automatic Stay pending Appeal” in the Related Case. See Case No. 28 3:20-cv-506-GPC-MDD, ECF No. 50. Because the Court affirms the dismissal of the bankruptcy case, the Court DENIES the application.