In re: Carl Pertuset v.

By order of the Bankruptcy Appellate Panel, the precedential effect
of this decision is limited to the case and parties pursuant to 6th
Cir. BAP LBR 8013-1(b). See also 6th Cir. BAP LBR 8010-1©.
File Name: 12b0009n.06
BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT
In re: CARL PERTUSET; VERA PERTUSET, )
) No. 12-8014
Debtors. )
______________________________________ )
Appeal from the United States Bankruptcy Court
for the Southern District of Ohio
No. 11-15607.
Submitted: November 13, 2012
Decided and Filed: December 18, 2012
Before: FULTON, HARRIS, and SHEA-STONUM, Bankruptcy Appellate Panel Judges.
____________________
COUNSEL
ON BRIEF: William B. Logan, Jr., Kenneth M. Richards, Christian D. Donovan, FARM CREDIT
SERVICES OF MID-AMERICA, Columbus, Ohio, Susan M. Argo, Cara R. Hurak, GRAYDON
HEAD & RITCHEY LLP, Cincinnati, Ohio, Elizabeth Brown Alphin, MAPOTHER &
MAPOTHER P.S.C., Louisville, Kentucky, for Appellees. Carl Pertuset, Vera Pertuset, McDermott,
Ohio, pro se.
____________________
OPINION
____________________
THOMAS H. FULTON, Bankruptcy Appellate Panel Judge. This appeal arises from two
orders entered by the Bankruptcy Court for the Southern District of Ohio. The first order dismissed
Carl E. Pertuset and Vera Pertuset’s (“the Debtors”) Chapter 12 case with prejudice for a period of
two years and denied confirmation of their proposed Chapter 12 plan. This order also denied the
Debtors’ oral motion to continue the confirmation hearing and several of the Debtors’ pro se
evidentiary requests. The second order denied the Debtors’ motion to reconsider pursuant to Federal
Rules of Civil Procedure 59(e) and 60(b).
I. ISSUES ON APPEAL
The issues in this appeal are (1) whether the Debtors’ objection to proofs of claim stripped
the claims of their presumptive validity pursuant to 11 U.S.C. § 502(a); (2) whether the creditors had
standing to file claims or seek relief in the Debtors’ Chapter 12 bankruptcy proceeding; (3) whether
the bankruptcy court erred in denying several of the Debtors’ pro se evidentiary requests; (4) whether
the bankruptcy court erred in denying the Debtors’ oral motion to continue the confirmation hearing;
(5) whether the bankruptcy court erred in dismissing the Debtors’ case with prejudice for a period
of two years pursuant to 11 U.S.C. §§ 105(a), 349(a), and 1208©; (6) whether the bankruptcy court
erred in denying confirmation of the Debtors’ proposed Chapter 12 plan; and (7) whether the
bankruptcy court erred in denying the Debtors’ motion to reconsider.
For the following reasons, we affirm (1) the March 5, 2012 order dismissing the Debtors’
case with prejudice for a period of two years, denying confirmation of the Debtors’ proposed Chapter
12 plan, denying the Debtors’ pro se evidentiary requests, and denying the Debtors’ oral motion to
continue the confirmation hearing, and (2) the March 30, 2012 order denying the Debtors’ motion
to reconsider.
II. JURISDICTION AND STANDARD OF REVIEW
The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal.
The United States District Court for the Southern District of Ohio has authorized appeals to the
Panel, and neither party has timely elected to have this appeal heard by the district court. 28 U.S.C.
§§ 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as of right pursuant to
28 U.S.C. § 158(a)(1). For purposes of appeal, an order is final if it “ends the litigation on the merits
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and leaves nothing for the court to do but execute the judgment.” Midland Asphalt Corp. v. United
States, 489 U.S. 794, 798, 109 S. Ct. 1494, 1497 (1989) (citations omitted).
The bankruptcy court’s order denying confirmation of the Debtors’ plan and dismissing the
case with prejudice is a final, appealable order. Raynard v. Rogers (In re Raynard), 354 B.R. 834,
836 (B.A.P. 6th Cir. 2006). An order denying a motion for reconsideration under Federal Rule of
Civil Procedure 59(e) or 60(b) is also a final order for purposes of appeal. Hamerly v. Fifth Third
Mortg. Co. (In re J & M Salupo Dev. Co.), 388 B.R. 795, 800 (B.A.P. 6th Cir. 2008). Once final
judgment is entered on all claims, pre-trial orders relating to discovery are final orders. In re Gray,
447 B.R. 524, 531 (E.D. Mich. 2011).
The bankruptcy court’s denial of the Debtors’ motion to reconsider is reviewed for an abuse
of discretion. In re J & M Salupo Dev. Co., 388 B.R. at 805. An abuse of discretion is established
when the reviewing court is left with a “definite and firm conviction that the trial court committed
a clear error of judgment.” Mich. Div.-Monument Builders of N. Am. v. Mich. Cemetery Ass’n,
524 F.3d 726, 739 (6th Cir. 2008). “An abuse of discretion occurs only when the [trial] court relies
upon clearly erroneous findings of fact or when it improperly applies the law or uses an erroneous
legal standard.” Kaye v. Agripool, SRL (In re Murray, Inc.), 392 B.R. 288, 296 (B.A.P. 6th Cir.
2008) (citation omitted) (internal quotation marks omitted).
The bankruptcy court’s dismissal of the Debtors’ case with prejudice presents a mixed
question of law and fact. Cusano v. Klein (In re Cusano), 431 B.R. 726, 730 (B.A.P. 6th Cir. 2010).
When a mixed question of law and fact arises in the bankruptcy context, the reviewing court “must
break it down into its constituent parts and apply the appropriate standard of review for each part.”
Bank of Montreal v. Official Comm. of Unsecured Creditors (In re Am. HomePatient, Inc.), 420 F.3d
559, 563 (6th Cir. 2005) (citation omitted).
The factual findings which support dismissal of the bankruptcy case, including
determinations as to whether the Debtors acted in bad faith, are reviewed under the clearly erroneous
standard. Riverview Trenton R.R. Co. v. DSC, Ltd. (In re DSC, Ltd.), 486 F.3d 940, 944 (6th Cir.
2007); Cusano, 431 B.R. at 730. “[A] finding [of fact] is clearly erroneous when although there is
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evidence to support it, the reviewing court on the entire evidence is left with the definite and firm
conviction that a mistake has been committed.” Anderson v. City of Bessemer City, N.C., 470 U.S.
564, 573, 105 S. Ct. 1504, 1511 (1985) (citation omitted) (internal quotation marks omitted).
“The bankruptcy court’s legal conclusions, including whether the bankruptcy court had
authority to bar the Debtor from refiling . . . for two years, are reviewed de novo.” Cusano, 431 B.R.
at 730 (citation omitted). “Under a de novo standard of review, the reviewing court decides an issue
independently of, and without deference to, the trial court’s determination.” Menninger v.
Accredited Home Lenders (In re Morgeson), 371 B.R. 798, 800 (B.A.P. 6th Cir. 2007) (citation
omitted).
The bankruptcy court’s decision to deny confirmation of the Debtors’ plan also presents a
mixed question of law and fact. Raynard, 354 B.R. at 836. The legal conclusions underlying the
bankruptcy court’s decision are reviewed de novo. Id. A court’s determination that a plan does not
meet the “best interests of the creditors test” is a conclusion of law. Id. The factual findings
underlying the bankruptcy court’s decision are reviewed for an abuse of discretion. Id. The
bankruptcy court’s determinations that the plan was not proposed in good faith and that the plan is
not feasible are factual findings reviewed under the clearly erroneous standard. Gen. Elec. Credit
Equities, Inc. v. Brice Rd. Devs., L.L.C. (In re Brice Rd. Devs., L.L.C.), 392 B.R. 274, 282 (B.A.P.
6th Cir. 2008); In re Dow Corning Corp., 255 B.R. 445, 498 (E.D. Mich. 2000) .
A court’s evidentiary decisions are reviewed for an abuse of discretion. Gen. Elec. Co. v.
Joiner, 522 U.S. 136, 141, 118 S. Ct. 512, 517 (1997). This standard of review applies to decisions
denying requests for a continuance and requests for an extension of the discovery deadlines. Woods
v. McGuire, 954 F.2d 388, 391 (6th Cir. 1992); Bennett v. Scroggy, 793 F.2d 772, 774-75 (6th Cir.
1986). A court’s determination on evidentiary matters “will be reversed only if the abuse of
discretion caused more than harmless error.” Tompkin v. Philip Morris USA, Inc., 362 F.3d 882, 897
(6th Cir. 2004) (citations omitted).
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III. FACTS
The Debtors filed their voluntary Chapter 12 petition on September 14, 2011. The Debtors
are family farmers who operate a timber business. At all times during the proceedings before the
bankruptcy court, the Debtors were represented by counsel.
This is the Debtors’ second Chapter 12 filing. They filed their first Chapter 12 petition on
November 16, 2009. The bankruptcy court dismissed that case on April 9, 2010, pursuant to 11
U.S.C. § 1208(c)(3) for failure to file a plan timely and 11 U.S.C. § 1208(c)(9) for continuing loss
to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation. The
bankruptcy court’s decision to dismiss the first case under § 1208(c)(9) was based on the Debtors’
inability to demonstrate they had sufficient income with which to fund a Chapter 12 repayment plan.
On appeal, the BAP affirmed on both grounds. Pertuset v. Am. Sav. Bank, FSB (In re Pertuset), 438
B.R. 354 (B.A.P. 6th Cir. 2010) (table). Throughout the pendency of that case, the Debtors were also
engaged in the timber business.
According to Schedule I, Carl Pertuset’s sole source of income is $989.00 per month from
Social Security disability payments. Vera Pertuset’s sole source of income is $2,000.00 per month
from operation of the Debtors’ timber business. The Debtors listed total monthly expenses of
$2,985.00 on Schedule J. These expenses included a $1,000.00 monthly Chapter 12 plan payment
but did not include any expenses associated with the timber farming business.
On their most recent bankruptcy petition, the Debtors listed a number of creditors on
Schedule D, including Quality Car and Truck Leasing (“Quality Leasing”), Farm Credit Services of
Mid-America (“FCS”), and American Savings Bank, FSB (“ASB”) (collectively “Appellees”). The
Debtors did not formally indicate on Schedule D that any of the claims were contingent,
unliquidated, or disputed.
Quality Leasing filed seven claims on September 21, 2011. All seven claims were secured
by various pieces of equipment. Quality Leasing attached copies of the relevant security documents
to each claim. These documents demonstrate that Quality Leasing was the secured creditor/lender
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for all of the claims. The security interests were perfected by either filing the U.C.C. financing
statement with the Ohio Secretary of State or by notation on the certificates of title.
FCS filed two claims on October 24, 2011, which were amended January 10, 2012. One was
for the Debtors’ personal guaranties on a lease. This claim was filed as unsecured. The other claim
was for three notes which were cross collateralized by real estate and equipment. FCS attached
copies of the relevant security documents to the claims. All of these documents reflect FCS as the
secured creditor/lender for all the claims. The security interests were perfected by filing the
mortgage with the Scioto County Recorder’s office, filing the U.C.C. financing statements with the
Ohio Secretary of State, or notation on the certificates of title.
ASB filed one claim on November 4, 2011, which included the total due under five separate
notes. All five notes were secured by real property. ASB attached copies of their security documents
to the proof of claim. These documents show ASB as the secured creditor/lender for all the claims.
The security interests were perfected by filing the mortgages with the Scioto County Recorder’s
office.
On September 21, 2011, Quality Leasing filed a motion for relief from the automatic stay and
a motion for adequate protection. Quality Leasing and the Debtors resolved the motion for relief
from stay by consent order. The motion for adequate protection was continued.
On October 31, 2011, ASB filed a motion for relief from stay (“Motion for Relief”). ASB
sought authority to enforce their rights in their collateral in state court. The collateral consisted of
three parcels of real property in McDermott, Ohio. According to ASB’s motion, the Debtors had not
made a payment on any of the properties since September 2009.
On November 4, 2011, ASB filed a motion to dismiss (“Motion to Dismiss”) the Debtors’
case pursuant to 11 U.S.C. § 1208(c)(1) and (c)(9). ASB alleged that the Debtors’ failure to maintain
insurance on ASB’s collateral and their failure to demonstrate that they had the ability to generate
sufficient income amounted to gross mismanagement that was prejudicial to ASB within the
meaning of § 1208(c)(1). ASB also alleged cause for dismissal was warranted under § 1208(c)(9)
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due to continuing loss to or diminution of the Debtors’ estate and the absence of a reasonable
likelihood of rehabilitation. According to ASB’s motion, Carl Pertuset testified at his § 341 meeting
of creditors that the Debtors currently only had two contracts for the harvesting and sale of timber
and that both contracts were oral agreements with family members. The Debtors refused to disclose
the identities of these family members or any details about these contracts. Consequently, ASB
argued it was impossible to ascertain any details about the contracts, including how much income
they will generate and whether the contracts are valid and enforceable. ASB also argued that there
was no proof that the Debtors could fund expenses associated with the timber business or that the
Debtors could afford to pay for all of the property they were proposing to retain in their Chapter 12
plan.
On November 28, 2011, Quality Leasing joined in ASB’s Motion to Dismiss. Quality
Leasing argued that because the Debtors were in default on all of the accounts with Quality Leasing,
the Debtors could not propose a feasible plan.
At the hearing on ASB’s Motion for Relief and Motion to Dismiss, the bankruptcy court took
the motions under advisement pending submission of supplemental documentation by the Debtors.
The bankruptcy court directed the Debtors to file proof of insurance on ASB’s collateral. Based on
concerns raised by several parties that the Debtors did not meet the income requirements for Chapter
12, the bankruptcy court also ordered the Debtors to provide historical financial information.
The Debtors failed to file the necessary documents. Although they filed a “Notice of Filing
of Insurance,” that notice was insufficient. The Debtors did not present proof of insurance policies
which reflected ASB as the loss payee for any of the three parcels of real property. ASB
subsequently filed an objection to the Debtors’ notice.
As for the historical income information, the Debtors filed an untimely response which
indicated that their farm revenue was $196,021.00 in 2009 and $82,599.00 in 2010. This
information contradicted the figures the Debtors provided on their Statement of Financial Affairs.
Those figures indicated that the Debtors’ farm income was “(business loss)” for 2009 and $9,238.00
for 2010.
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One day before the § 1221 deadline expired, the Debtors filed a proposed Chapter 12 plan.
The Debtors stated therein that they believed there were numerous issues with many of their
creditors’ claims. Under various theories including securitization, the Debtors alleged that ASB,
FCS, and Quality Leasing did not have valid security interests in the Debtors’ property and, as such,
did not have valid claims against the estate.
The Debtors proposed to pay $52,000.00 to their secured creditors with valid proofs of claim.
The Debtors further proposed to pay their unsecured creditors 1% of their claims for a period of 5
years. Any amounts not paid were to be discharged upon successful completion of the plan. The
plan, however, was unclear about which claims the Debtors believed were valid and which were
contested. The plan was also unclear about which creditors were to be paid and in what amounts.
The Debtors did not attach a liquidation analysis as an exhibit to their plan, nor did they provide any
present or projected income expense figures in the plan.
The bankruptcy court set a confirmation hearing for January 13, 2012, and directed any
parties wishing to object to the plan to file such objections by January 9, 2012. The court further
directed any party intending to present evidence or testimony at the confirmation hearing to file the
necessary documents with the court by January 9, 2012.
On December 15, 2011, the bankruptcy court issued a second supplemental order extending
the deadlines for the Debtor to file copies of the relevant insurance policies and evidence of their
income. The bankruptcy court ordered the Debtors to submit proof of both issues by December 30,
2011.
On December 30, 2011, the Debtors’ attorney, Robert Hoskins (“Hoskins”), filed a second
notice of filing of insurance and proof of farm income. The information with regard to the insurance
remained unchanged from the earlier filing. With respect to the proof of income, Hoskins filed a list
of income for 2008 through 2010 which consisted of copies of portions of the Debtors’ federal
income tax returns. According to this document, the Debtors’ net income was $908.00 in 2008,
$4,505.00 in 2009, and negative $21,008.00 in 2010.
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Despite the fact that they were represented by counsel, the Debtors submitted three pro se
filings on December 30, 2011. The first filing was styled as a request to take judicial notice of the
fact that the court did not have jurisdiction over the matters and that the court was not the proper
venue for the proceedings. The second pro se filing was styled “Affidavit of Facts” in which the
Debtors stated they were unable to obtain insurance on one parcel of ASB’s collateral. Lastly, the
Debtors filed a letter which indicated that they wanted summonses issued to W. Nawaz Raja
(“Raja”), “a mortgage forensic auditor,” and Rodney Dale Class (“Class”) as “P.A.G.” [private
attorney general].
The bankruptcy court conducted a telephonic status conference on January 5, 2012. Counsel
for ASB and FCS, the Chapter 12 Trustee, and Hoskins all appeared telephonically for the hearing.
At the hearing, the bankruptcy court granted the Debtors’ motion to continue the confirmation
hearing to January 25, 2012. The bankruptcy court also extended the deadline for filing an objection
to the plan, exhibits, or other evidence through January 23, 2012. Hoskins represented that he had
the authority to, and would in fact, withdraw the Debtors’ pro se filings by January 6, 2012. Hoskins
also stated that he did not believe the Debtors would make any further pro se filings. The order
memorializing the court’s ruling indicated that if the Debtors filed an amended proposed Chapter
12 plan prior to the January 25, 2012 hearing, the confirmation hearing would still be conducted on
that date.
Despite his assurances to the contrary, Hoskins never withdrew the Debtors’ December 30,
2011 pro se filings. On January 6, 2012, the Debtors submitted a number of additional pro se filings.
The first filing was an objection to the January 5, 2012 telephonic status conference. The Debtors
alleged that by being excluded from the hearing, their right to due process was being violated under
the “Taft Hartley Act,” also known as the National Labor Relations Act, 29 U.S.C. §§ 151 - 169.
The Debtors also submitted a filing which asked the bankruptcy court yet again to take
judicial notice of the venue issues in the case and a “Motion of Entry Appearance” for Class as a
“Private Attorney General.” As authority for this employment, the Debtors cited to various
provisions of the Civil Rights Act, 42 U.S.C. § 1983, and the Rules of Procedure for the
Occupational Safety and Health Administration, 29 C.F.R. § 2200.23.
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The last pro se filing the Debtors submitted was a document docketed as, and drafted in the
style of, a proposed order (“Proposed Order”). Within the body of this order, the Debtors set forth
objections to 17 of the 21 claims filed in their case. These objections included all of the claims filed
by the Appellees. As grounds for each objection, the Debtors state, “deny for lack of want of
knowledge.” The Debtors did not sign the filing. Instead, they inserted a signature line for the
bankruptcy court and included the phrase, “it is so ordered.”
On January 9, 2012, the Chapter 12 Trustee filed an objection to confirmation in which he
asserted the Debtors had not submitted a feasible plan and that the plan that was submitted lacked
specificity.
On January 10, 2012, Hoskins filed a motion to withdraw from his representation of the
Debtors. The bankruptcy court set the motion for a hearing contemporaneous with the confirmation
hearing on January 25, 2012. Within the scheduling order, the bankruptcy stated it would not allow
Hoskins to withdraw prior to the hearing unless the Debtors were able to obtain substitute counsel
prior to January 25, 2012.
On January 20, 2012, the Debtors submitted five more pro se filings. The first filing
purported to direct the court to summon various parties including ASB and Quality Leasing to appear
at the January 25, 2012 hearing. The Debtors also submitted a filing which asked the court to take
judicial notice of the fact that there were jurisdictional, securitization, and standing issues with
respect to the claims of ASB, FCS, and Quality Leasing. Within this filing, the Debtors stated that
they would not release Hoskins from his representation of them.
The Debtors also filed another “Evidence of Facts” on January 20, 2012, which stated the
Debtors would present four exhibits at the January 25, 2012 hearing. Three of the exhibits were
“Mortgage Forensic Securitization Analysis Reports” prepared by Raja purporting to detail the
securitization of the Debtors’ loans by ABS, FCS, and Quality Leasing. The fourth exhibit was a
listing of federal and state court decisions which discuss “Finance and Credit” issues within the
realm of agricultural law.
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The bankruptcy court conducted a hearing on January 25, 2012, on the following matters:
1. Confirmation of the Debtors’ Chapter 12 plan and objections thereto by the
Chapter 12 Trustee, FCS, ASB, Quality Leasing, and the Ohio Valley Resource
Conservation and Development;
2. Quality Leasing’s motion for adequate protection and the Debtors’ response
thereto;
3. ASB’s motion for relief from the automatic stay;
4. ASB’s motion to dismiss, which Quality Leasing had joined, and the Debtors’
response thereto;
5. Hoskins’s motion to withdraw;
6. FCS’s oral motion to dismiss the Debtors’ case with a two-year bar to refiling; and
7. The Debtors’ oral motion to continue the confirmation hearing for the purpose of
filing a revised plan.
On March 5, 2012, the bankruptcy court entered an order:
1. denying the Debtors’ oral motion to continue the confirmation hearing;
2. denying confirmation of the Debtors’ proposed Chapter 12 plan for failure to
comply with 11 U.S.C. § 1225(a)(3), (a)(5), and (a)(6);
3. dismissing the Debtors’ case pursuant to 11 U.S.C. § 1208(c);
4. dismissing the Debtors’ case with prejudice for a period of two years pursuant to
11 U.S.C. §§ 109(g) and 349(a);
5. denying ASB’s motion for relief from the automatic stay as moot;
6. denying Quality Car’s motion for adequate protection as moot;
7. granting Hoskins’s motion to withdraw as the Debtors’ attorney; and
8. denying the Debtors’ pro se filings and their requests regarding certain evidentiary
matters.
On March 14, 2012, the Debtors filed a pro se motion to reconsider the bankruptcy court’s
March 5, 2012 order pursuant to Federal Rules of Civil Procedure 59(e) and 60(b). As one of the
grounds for this motion, the Debtors alleged that the bankruptcy judge was biased in favor of the
creditors. The Debtors alleged that the bankruptcy judge previously represented “the secured lenders
and unsecured creditors in bankruptcy proceedings” and that the bankruptcy judge had worked in the
banking industry prior to obtaining her law degree. (Mot. to Reconsider at 3, Bankr. Case No. 11-
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15607, ECF No. 119.) The Debtors also stated that the bankruptcy judge “repeatedly threatened”
Hoskins with sanctions and contempt proceedings. (Id. at 4.)
As the other grounds for their motion, the Debtors repeated their securitization and standing
arguments from earlier filings. They also alleged that the bankruptcy court erred in denying the
Debtors’ request to introduce the mortgage securitization reports and to present the testimony of Raja
and Class as witnesses at the confirmation hearing. Lastly, the Debtors argued that the Appellees
had engaged in “Servicing Misconduct,” “Unfair, Deceptive and Unlawful Loan Loss Mitigation
Processes,” “Wrongful Conduct Related to Foreclosure,” “Bankruptcy-Related Misconduct,” and
“Violations of the False Claims Act” and that the bankruptcy court had erred in not addressing these
claims.
On March 30, 2012, the bankruptcy court issued an order denying the Debtors’ motion to
reconsider. On April 2, 2012, the Debtors filed their timely notice of appeal.
IV. DISCUSSION
A. Claims Allowance and Standing Issues
As framed by the Debtors, the issues in this appeal are: (1) whether the Debtors’ objection
to the Appellees’ proofs of claim stripped the claims of their presumptive validity pursuant to 11
U.S.C. § 502(a); and (2) whether the Appellees had standing to file claims or seek relief in the
Debtors’ Chapter 12 bankruptcy proceeding. While it is true that the Debtors repeatedly argued that
the Appellees did not have standing in their case, it does not appear that they ever specifically argued
that their objection to the proofs of claim stripped the claims of their presumptive validity prior to
filing their briefs in this appeal. Nor does it appear that the bankruptcy court ever considered such
an argument. Ordinarily, issues raised for the first time on appeal are considered waived. R.D.F.
Devs., Inc. v. Sysco Corp. (In re R.D.F. Devs., Inc.), 239 B.R. 336, 340 (B.A.P. 6th Cir. 1999). If,
however, parties are proceeding with an appeal pro se, the Panel may hold the appellants to a less
stringent standard and consider the novel arguments. See Martin v. Overton, 391 F.3d 710, 712 (6th
Cir. 2004).
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In determining whether the Debtors’ objection to the Appellees’ proofs of claim stripped the
claims of their presumed validity, we must first consider whether the Debtors validly objected to the
Appellees’ claims. In their brief on appeal, the Debtors argue that they filed a valid objection to the
claims when they presented their Proposed Order to the bankruptcy court on January 6, 2012. They
also argue that the bankruptcy court erred in not conducting a hearing on their objection and in not
considering the evidence in support of their objection.
Although the Proposed Order filed on January 6, 2012, stated that the Debtors objected to
all of the Appellees’ claims, the Debtors were represented by counsel at the time they filed the
Proposed Order. Pursuant to 28 U.S.C. § 1654, parties have the right to “plead and conduct their
own cases personally or by counsel” in all federal courts. 28 U.S.C. § 1654 (emphasis added). The
statute is written in the disjunctive. As a result, courts have consistently held that there is no
statutory right to hybrid representation. MOVE, Org. v. City of Phila., 89 F.R.D. 521, 523 n.1 (E.D.
Pa. 1981). A party may elect to either represent himself or be represented by an attorney. He cannot
choose to do both. United States v. Cromer, 389 F.3d 662, 680 (6th Cir. 2004); O’Reilly v. New
York Times Co., 692 F.2d 863, 868 (2d Cir. 1982) (“[T]he rights of self-representation and
representation by counsel cannot both be exercised at the same time” under 28 U.S.C. § 1654.)
(citation omitted). In order to “assert his statutory right of self-representation,” an individual must
“unequivocally discharge any lawyer previously retained.” Id. The decision to allow a party to
switch from being represented by counsel to self representation is within the court’s sound
discretion. United States v. Mosely, 810 F.2d 93, 98 (6th Cir. 1987); United States v. Halbert, 640
F.2d 1000, 1009 (9th Cir. 1981).
A court has no obligation to recognize any pro se filings or arguments made by a party if the
party was represented by counsel at the time the filings or arguments were made. United States v.
Martinez, 588 F.3d 301, 328 (6th Cir. 2009); United States v. Williams, 495 F.3d 810, 813 (7th Cir.
2007). When a party is represented by counsel, courts are only bound to recognize filings submitted
by the party’s attorney. In re Trinsey, 115 B.R. 828, 832-33 (Bankr. E.D. Pa. 1990). Consequently,
such pro se filings may be treated as if they are not properly before the court. United States v.
Flowers, 428 F. App’x 526, 530 (6th Cir. 2011); Chasteen v. Jackson, No. 1:09-CV-413, 2012 WL
1564493, at *3 (S.D. Ohio May 3, 2012).
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In the case currently on appeal, the Debtors had not discharged Hoskins as their attorney at
the time of filing their Proposed Order. In fact, in another pro se filing submitted subsequent to the
Proposed Order, the Debtors definitively stated that they would not agree to release Hoskins from
his role as their attorney. (Judicial Notice at 3, Bankr. Case No. 11-15607, ECF No. 95.) As a result,
the Debtors’ Proposed Order in which they attempted to object to 17 of the 21 claims filed in their
case was not properly before the bankruptcy court. The bankruptcy court, therefore, did not err in
refusing to acknowledge the objection set forth in the Proposed Order or to set it for a hearing. As
a result, the Debtors never filed a valid objection to the Appellees’ proofs of claim, and the claims,
therefore, were not stripped of their presumptive validity. The Debtors’ first argument is wholly
without merit.
Turning to the Debtors’ second asserted issue, we must determine whether the Appellees had
standing to file claims or seek dismissal of the Debtors’ Chapter 12 bankruptcy petition. Pursuant
to 11 U.S.C. § 501, “a creditor . . . may file a proof of claim.” 11 U.S.C. § 501(a). Section
101 defines “creditor” as an entity that has a claim against the debtor that arose at the time of or
before the order for relief concerning the debtor . . . .” 11 U.S.C. § 101(10)(A). “Claim,” in turn,
is defined as a “right to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured,
or unsecured . . . .” 11 U.S.C. § 101(5)(A).
In the case currently on appeal, the Debtors listed ASB, Quality Leasing, and FCS as secured
creditors on Schedule D of their petition. Both Debtors signed their schedules under penalty of
perjury. See Fed. R. Bankr. P. 1008. By signing that declaration, the Debtors averred that the
information set forth in the schedules was correct to the best of their knowledge, information, and
belief. The Debtors never sought to amend their schedules. Therefore, by the Debtors’ own
admission, ASB, Quality Leasing, and FCS were creditors with claims against the Debtors at the
time the petition was filed. The Debtors also included the Appellees in their proposed Chapter
12 plan. Although the Debtors argued in a number of filings, both submitted by counsel and by the
Debtors pro se, that the debts owing to the Appellees were disputed, such designation would not
defeat the Appellees’ standing to file a claim. The Bankruptcy Code defines a “creditor” as an entity
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holding a claim. By its very definition, “claim” includes a right to payment that is disputed. Clearly,
ASB, Quality Leasing, and FCS had standing to file a claim in the Debtors’ case.
Section 1208(c) of the Bankruptcy Code provides that “a party in interest” may file a motion
to dismiss a debtor’s Chapter 12 case. Although the term “party in interest” is often used in the
Bankruptcy Code, the Code does not define it. “Whether a party qualifies as a ‘party in interest’ is
determined on a case-by-case basis, taking into consideration whether that party has a ‘sufficient
stake’ in the outcome of that proceeding, which can include having a pecuniary interest directly
affected by the bankruptcy proceeding.” Church Mut. Ins. Co. v. Am. Home Assurance Co. (In re
Heating Oil Partners, LP), 422 F. App’x 15, 17 (2d Cir. 2011) (citation omitted). Clearly under this
definition, a creditor is a party with a pecuniary interest directly affected by the continuation or
dismissal of a bankruptcy petition. See Mitan v. Duval (In re Mitan), 178 F. App’x 503, 506 (6th
Cir. 2006); In re Abijoe Realty Corp., 943 F.2d 121, 125 (1st Cir. 1991).
The Debtors’ argument that the Appellees were not the proper holders of the notes or that the
mortgages or other security documents were somehow defective does not defeat the Appellees’
standing to seek dismissal of the Debtors’ Chapter 12 case.
Although a defective mortgage or assignment may extinguish a creditor’s legal
interest in the property and/or defeat his interest as against a subsequent lien creditor
or bona fide purchaser, the creditor would still have an equitable interest therein as
against the mortgagor.
In re Lee, 467 B.R. 906, 916 (B.A.P. 6th Cir. 2012) (citations omitted). Accordingly, the Debtors’
second issue on appeal is without merit.
B. Debtors’ Evidentiary and Continuance Requests
As stated supra, a court’s rulings on evidentiary matters are reviewed for an abuse of
discretion. A court has broad discretion in ruling on evidentiary requests and those decisions will
only “be reversed if the abuse of discretion caused more than harmless error.” Tompkin v. Philip
Morris USA, Inc., 362 F.3d 882, 897 (6th Cir. 2004) (citation omitted).
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In its March 5, 2012 order, the bankruptcy court began its analysis of the Debtors’ evidentiary
requests by addressing the Debtors’ oral request at the January 25, 2012 hearing to have Class appear
as a “Private Attorney General.” Because Class admitted he was not licensed to practice law in any
court in the country, the bankruptcy court denied the Debtors’ “Private Attorney General” request.
As recognized by the bankruptcy court in its March 5, 2012 order, 42 U.S.C. § 1988(b)
allows the award of “a reasonable attorney’s fee” to “the prevailing party” in various
kinds of civil rights cases, including suits brought under § 1983 . . . . When a
plaintiff succeeds in remedying a civil rights violation, we have stated, he serves “as
a ‘private attorney general,’ vindicating a policy that Congress considered of the
highest priority.”
Fox v. Vice, 131 S. Ct. 2205, 2213 (2011) (quoting Newman v. Piggie Park Enters., Inc., 390 U.S.
400, 402, 88 S. Ct. 964 (1968) (per cuiam)). In no way does the concept of a “private attorney
general” permit an individual not licensed to practice law to represent a party in a court proceeding.
An unlicensed individual who attempts to appear in a representative capacity for a party in court
commits the unauthorized practice of law which is strictly prohibited. 28 U.S.C. § 1654; Eagle
Assocs. v. Bank of Montreal, 926 F.2d 1305, 1308 (2d Cir. 1991) (“[Section 1654] does not allow
for unlicensed laymen to represent anyone else other than themselves.”) (citation omitted).
Consequently, the Debtors’ request to have Class appear as a “Private Attorney General” was wholly
without merit, and the bankruptcy court properly denied it.
Turning to the Debtors’ request to introduce the testimony of Raja, a mortgage forensic
auditor, and his mortgage securitization reports, the bankruptcy court determined that neither Raja
nor the reports were properly before the court. Although the Debtors submitted pro se filings
seeking to have a summons issued for Raja and indicating they intended to present the forensic report
at the hearing, the Debtors were represented by Hoskins at the time, and Hoskins stated his
unwillingness to adopt the filings as Debtors’ counsel. As stated supra, pro se filings submitted by
a party who is represented by counsel are not properly before a court pursuant to 28 U.S.C. § 1654.
Martinez, 588 F.3d at 328. Thus, the bankruptcy court did not err in determining that the requests
to introduce the report and Raja’s testimony were not properly before it.
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As for the Debtors’ oral motion to continue the confirmation hearing, the bankruptcy court
did not abuse its discretion in denying that motion. The Debtors wanted a thirty-day continuance for
the asserted purpose of filing a revised plan, conducting limited discovery, filing a proper objection
to ASB’s, FCS’s, and Quality Leasing’s proofs of claim, properly identifying witnesses and exhibits,
and retaining new counsel. Chapter 12 contains relatively short deadlines for submission and
confirmation of Chapter 12 plans. Section 1221 requires a debtor to file a plan within 90 days after
the case is filed, and § 1224 provides that a hearing on confirmation of the plan shall be concluded
within 45 days after the plan is filed. 11 U.S.C. §§ 1221 and 1224. These accelerated time periods
reflect the “the expedited nature of chapter 12 cases.” Collier on Bankruptcy, 16th ed., ¶ 1224.01[3].
Although § 1224 provides for continuance of the confirmation hearing beyond the 45-day
time limit, such continuances may only be granted “for cause.” Section 1224 does not give examples
of what constitutes “cause;” however, the legislative history makes clear that the exception should
be used only in extraordinary circumstances:
Section 1224 requires that Chapter 12 confirmation hearings be concluded within
forty-five days after the filing of the plan. The Conferees are aware that this imposes
a burden on the bankruptcy courts. Therefore, an exception for cause is provided.
While a backlog of cases is sufficient cause for an extension of the forty-five day
requirement, the Conferees expect this exception to be used sparingly in order the
facilitate the proper operation of Chapter 12—which proper operation depends on
prompt action.
H.R. REP. No. 99-958, at 50 (1986) (Conf. Rep.).
When orally requesting a continuance of the confirmation hearing, the Debtors in this case
argued that they needed additional time to properly object to the Appellees’ claims and conduct
discovery to support their allegations that there were issues with Appellees’ notes and security
documents. As recognized by the bankruptcy court, ASB, Quality Leasing, and FCS all filed claims
by November 4, 2011. The Debtors began making their securitization and standing arguments as
early as November 9, 2011, when they filed a response to ASB’s motion to dismiss and motion for
relief from the automatic stay. The Debtors had over two months to initiate proper proceedings
objecting to, or seeking evaluation of, the Appellees’ claims. In addition, the court was explicit in
its January 5, 2012 order granting the Debtors’ motion to continue the confirmation hearing that it
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would conduct a hearing on the Debtors’ plan on January 25, 2012 regardless of whether the Debtors
filed an amended Chapter 12 plan prior to the hearing. Lastly, the bankruptcy court noted in its
March 5, 2012 order that the Debtors had been asserting the securitization and standing grounds in
state court proceedings prior to the filing of the current Chapter 12 petition. (March 5, 2012 Order
at 16 n.11, Bankr. Case No. 11-15607, ECF No. 117.)
C. Denial of Confirmation
After reviewing the Debtors’ proposed Chapter 12 plan, the bankruptcy court concluded that
the Debtors failed to meet their burden of proving the plan was confirmable. As submitted, the plan
failed to satisfy the “best interests of the creditors” test and the requirements of feasibility and good
faith within the meaning of 11 U.S.C. § 1225(a).
Section 1225 of the Bankruptcy Code provides the requirements for confirmation of a
Chapter 12 plan. “The debtor has the burden of proof to establish each of the elements for
confirmation . . . .” In re Luchenbill, 112 B.R. 204, 208 (Bankr. E.D. Mich. 1990) (citation omitted).
Section 1225(a)(4) is commonly referred to as the “best interests of the creditors” test and
provides that the court shall confirm a plan if
the value, as of the effective date of the plan, of property to be distributed under the
plan on account of each allowed unsecured claim is not less than the amount that
would be paid on such claim if the estate of the debtor were liquidated under chapter
7 of this title on such date[.]
11 U.S.C. § 1225(a)(4). This test “requires performing a hypothetical liquidation analysis taking into
account the value of the property available to creditors as of the effective date of the plan and then
comparing that value to what each creditor will be receiving under the plan as proposed.” In re
Novak, 252 B.R. 487, 491 (Bankr. D.N.D. 2000); In re Perdue, 95 B.R. 475, 476 (Bankr. W.D. Ky.
1988).
In the case currently on appeal, the Debtors did not provide a liquidation analysis with their
plan. They also failed to provide consistent financial information throughout the pendency of this
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case. The plan itself is unclear about what amounts will be paid to creditors and when. Without the
benefit of consistent financial information or a liquidation analysis with which the creditors and the
bankruptcy court could determine what amounts, if any, would be available to unsecured creditors
in a hypothetical Chapter 7 liquidation, the Debtors clearly failed to meet their burden of proving
their plan satisfied the best interests of the creditors test under § 1225(a)(4).
Section 1225(a)(6) requires a debtor to prove that his plan is feasible. To do this, the Chapter
12 plan must demonstrate that “the debtor will be able to make all payments under the plan and to
comply with the plan.” 11 U.S.C. § 1225(a)(6).
[T]he chapter 12 feasibility standard requires a court to scrutinize a debtor’s proposed
plan payments in light of projected income and expenses in order to determine
whether it is likely the debtor will be able to make the payments required by the plan.
It is not necessary for debtors to guarantee the ultimate success of their plan, but only
to provide a reasonable assurance that the plan can be effectuated.
In re Howard, 212 B.R. 864, 878-79 (Bankr. E.D. Tenn. 1997) (citations omitted) (internal question
marks omitted). “In order to sufficiently establish such reasonable assurance, ‘a plan must provide
a realistic and workable framework for reorganization.’ ” In re Brice Rd. Devs., L.L.C., 392 B.R.
274, 283 (B.A.P. 6th Cir. 2008) (citation omitted).
In the case currently on appeal, the Debtors did not provide a list of any of their current
farming expenses. The historic income information they provided throughout the pendency of the
case was wildly inconsistent. Comparing the figures provided for 2010 alone, the difference is
drastic: $9,238.00 as stated on the petition and negative $21,008.00 on their income tax return. That
is a difference of $30,246.00. Additionally, the Debtors refused to disclose any of the details of the
oral contracts for the timber farming operation. By failing to do this, the Debtors made it completely
impossible for the bankruptcy court, the Chapter 12 Trustee, or their creditors to determine whether
the Debtors’ plan was feasible. Therefore, the bankruptcy court properly determined that the Debtors
also failed to meet their burden of proof with respect to the feasibility requirement of 11 U.S.C.
§ 1225(a)(6).
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Lastly, § 1225(a)(3) provides that a Chapter 12 plan must be “proposed in good faith and not
by any means forbidden by law.” 11 U.S.C. § 1225(a)(3).
As required by § 1225(a)(3), in order to be confirmed, a court must determine that,
based upon a totality of the circumstances following a factual inquiry, the plan was
proposed in good faith. Although not defined under the Code, “good faith” is
generally interpreted to mean a reasonable likelihood that the plan will achieve a
result consistent with the objectives and purposes of the Bankruptcy Code.
In re Chambers, No. 08-31399, 2008 WL 5649690, at *13 (Bankr. E.D. Tenn. Nov. 20, 2008)
(internal citations omitted) (internal quotation marks omitted). In determining whether a plan is filed
in good faith, courts traditionally look to the nonexhaustive list of 12 factors set forth in Hardin v.
Caldwell (In re Caldwell), 851 F.2d 852, 859 (6th Cir. 1988). These factors include (1) the amount
of the proposed payments, (2) the debtor’s ability to earn income, (3) whether the plan accurately
lists the debtor’s debts, expenses, and percentage to be paid to unsecured creditors, and (4) “whether
the debtor is attempting to abuse the spirit of the” Bankruptcy Code. Id.; In re Zurface, 95 B.R. 527,
535-36 (Bankr. S.D. Ohio 1989) (applying factors from Caldwell which are used to determine good
faith in the context of Chapter 13 to the concept of good faith under § 1225(a)(3)). These factors are
to be analyzed under a totality of the circumstances approach. Caldwell, 851 F.2d at 860.
In the case on appeal, the bankruptcy court stated:
While the Debtors’ intent in commencing this case and in proposing their plan is
perhaps not malicious, their imprudent and misguided dealings with their creditors
and this Court have the effect of hindering the legitimate expectations of creditors
and abusing the letter and spirit of the Bankruptcy Code.
(March 5, 2012 Order at 33, Bankr. Case No. 11-15607, ECF No. 117.) In reaching this conclusion,
the bankruptcy court relied on the fact that the Debtors had not satisfied their burden of proving that
the plan was confirmable. The bankruptcy court also relied on the Chapter 12 Trustee’s assessment
that he had reservations about the Debtors’ conduct in the case and that it would be impossible for
him to administer the plan as proposed. The bankruptcy court also reasoned that the Debtors’
allegations that 17 of the 21 claims filed in their case were invalid was “so improbable” that it
evidenced the Debtors’ bad faith in proposing the plan. (Id. at 34.)
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The bankruptcy court did not abuse its discretion in finding that the Debtors lacked good faith
in proposing their plan. Although the Debtors stated in their plan that they disputed the majority of
their secured creditor’s claims, they never filed any type of motion or adversary complaint to
determine the extent and/or validity of the claims. Additionally, the Debtors failed to disclose
reliable, consistent financial information such that the bankruptcy court or creditors could determine
whether the Debtors’ proposed repayment plan was feasible. And, as the bankruptcy court
recognized, the validity of a number of the disputed claims had already been established in state
court. (See Order at 34, Bankr. Case No. 11-15607, ECF No. 117) (“Several claims in fact appear
to have been reduced to judgment in state court proceedings.”) The plan’s failure to clearly set forth
which claims were to be paid would make the Chapter 12 Trustee’s burden of administering the case
also inordinately difficult.
A review of the facts in this case and the relevant legal theories demonstrates that the
bankruptcy court properly denied confirmation of the Debtors’ proposed Chapter 12 plan under 11
U.S.C. § 1225(a)(3), (4), and (6).
D. Dismissal of the Debtors’ Case
In addressing the motion to dismiss, the bankruptcy court concluded that Quality Leasing and
ASB had met their burden of demonstrating that cause existed to dismiss the Debtors’ case under
§ 1208(c): including (1) unreasonable delay or gross mismanagement by the Debtors that is
prejudicial to creditors; (2) continuing loss to or diminution of estate coupled with no reasonable
likelihood of rehabilitation; and (3) bad faith in commencing the case and in proposing the plan. At
the confirmation hearing, ASB sought to question both Debtors about their ability to earn income,
the details of their Chapter 12 plan, and about other financial issues; however, both Debtors refused
to testify about these issues. On appeal, the Debtors challenge the bankruptcy court’s dismissal of
their case only to the extent that the bankruptcy court improperly rejected their pro se filings and
their arguments about Appellees’ claims.
Although the bankruptcy court relied on multiple grounds in concluding that dismissal of the
Debtors’ case was warranted, any one of the grounds alone was sufficient for dismissal, including
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the court’s finding of bad faith. Cedar Shore Resort, Inc. v. Mueller (In re Cedar Shore Resort,
Inc.), 235 F.3d 375, 381 (8th Cir. 2000); Trident Assocs. Ltd. P’ship v. Metro. Life Ins. Co. (In re
Trident Assocs. Ltd. P’ship), 52 F.3d 127, 130 (6th Cir. 1995); In re Sanchez, 429 B.R. 393, 399-400
(Bankr. D.P.R. 2010); In re Walton, 116 B.R. 536, 539-40 (Bankr. N.D. Ohio 1990) (“The
[Bankruptcy] Code has an implied requirement of good faith in filing a bankruptcy petition, the lack
of which is cause for dismissal” in a Chapter 12 proceeding.). Because we conclude that the
bankruptcy court properly dismissed the Debtors’ case based on a finding of bad faith, it is
unnecessary to review the bankruptcy court’s decision as to dismissal under 11 U.S.C. § 1208(c)(1)
and (c)(9). This approach is especially appropriate given that the Debtors do not challenge the
bankruptcy court’s dismissal of their case in their brief on appeal.
Section 1208(c) provides that a court may dismiss a Chapter 12 case “for cause.” Although
examples of cause are listed in § 1208(c)(1) through (9), this list is nonexclusive. Michels v.
Maynard Sav. Bank (In re Michels), 305 B.R. 868, 872 (B.A.P. 8th Cir. 2004). Courts routinely have
found that a debtor’s lack of good faith in filing for bankruptcy relief can serve as grounds for
dismissal. Trident Assocs. Ltd. P’ship, 52 F.3d at 130; In re Burger, 254 B.R. 692, 696 (Bankr. S.D.
Ohio 2000). The party seeking dismissal of a case based on a debtor’s bad faith must demonstrate
a debtor’s bad faith by a preponderance of the evidence. Alt v. United States (In re Alt), 305 F.3d
413, 420 (6th Cir. 2002); In re Westgate Props., Ltd., 432 B.R. 720, 723 (Bankr. N.D. Ohio 2010).
A bankruptcy court has broad discretion to determine if a “for cause” dismissal of a bankruptcy case
is warranted. Gateway N. Estates, Inc. v. U.S. Trustee (In re Gateway N. Estates, Inc.), 165 B.R.
427, 428 (E.D. Mich. 1994). “Accordingly, the decision to dismiss the case will be upheld unless
it was an abuse of discretion, defined as ‘a definite and clear conviction that the trial court committed
a clear error of judgment.’ ” AMC Mortg. Co., Inc. v. Tenn. Dep’t of Rev. (In re AMC Mortg. Co.,
Inc.), 213 F.3d 917, 920 (6th Cir. 2000) (citing Bowling v. Pfizer, Inc., 102 F.3d 777, 780 (6th Cir.
1996)).
There is no single test for determining whether a bankruptcy petition was filed in good faith.
Trident Assocs. Ltd. P’ship, 52 F.3d at 131. Instead, it “is a fact-specific and flexible determination”
that must be made on a case-by-case basis by looking to a totality of the circumstances. Alt,
305 F.3d at 419; Metro Emps. Credit Union v. Okoreeh-Baah (In re Okoreeh-Baah), 836 F.2d 1030,
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1033 (6th Cir. 1988) (“Good faith is an amorphous notion, largely defined by factual inquiry.”).
Factors to consider in making a good faith filing determination include the factors used in
determining whether a plan has been proposed in good faith. Alt, 305 F.3d at 420; Burger, 254 B.R.
at 696 (noting that Chapter 12 was modeled after Chapter 13, such that decisions analyzing Chapter
13 may be useful). Other factors to consider include:
(1) the nature of the debt including the question of whether the debt would be
nondischargeable in a Chapter 7 proceeding;
(2) the timing of the petition;
(3) how the debt arose;
(4) the debtor’s motive in filing the petition;
(5) how the debtor’s actions affected creditors;
(6) the debtor’s treatment of creditors both before and after the petition was filed;
(7) whether the debtor has been forthcoming with the bankruptcy court and the
creditors.
(8) the debtor’s sincerity in petitioning for bankruptcy relief; and
(9) the amount of payment offered by debtor as indicative of the debtor’s sincerity
to repay the debt.
Alt, 305 F.3d at 419. “[N]o list is exhaustive of all the conceivable factors which could be relevant
when analyzing a particular debtor’s good faith . . . . [N]o one factor should be viewed as being a
dispositive indication of the debtor’s good faith.” In re Mehlhose, 469 B.R. 694, 708 (Bankr. E.D.
Mich. 2012) (citing Caldwell, 851 F.2d at 860). “The ultimate inquiry behind this judicially created
ground for dismissal is whether the debtor has abused the bankruptcy process.” Burger, 254 B.R.
at 696 (citation omitted) (internal quotation marks omitted).
After reviewing all of the facts, the bankruptcy court in this appeal found many indicia of bad
faith in the Debtors’ filing for Chapter 12 relief. These factors included (1) the absence of basic
financial information; (2) serious deficiencies in the Debtors’ proposed plan; (3) the Debtors’
characterization of almost all the claims as disputed; (4) the Debtors’ refusal to respond to the
Appellees’ offers to examine the original notes and security documents; (5) the Debtors’ refusal to
acknowledge the validity of the documents when presented with them; (6) Carl Pertuset’s failure to
be candid with the bankruptcy court; (7) Carl Pertuset’s evasive testimony on issues regarding
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insurance coverage, his signature on various loan documents, etc.; (8) the Debtors’ refusal to testify
at the confirmation hearing about issues related to the plan and the Debtors’ ability to earn income;
and (9) the Debtors’ refusal to acknowledge that some of the claims disputed by the Debtors had
already been adjudged by state courts to be valid and enforceable. All of these facts led the
bankruptcy court to conclude that the Debtors were not forthcoming with the court or their creditors.
The bankruptcy court also found that the Debtors’ course of conduct in this case “draws into
question the Debtors’ good faith in filing their petition and Proposed Plan.” (March 5, 2012 Order
at 35, Bankr. Case No. 11-15607, ECF No. 117.) The bankruptcy court noted that in both the prior
case and the current case “the Debtors advanced peculiar theories as to how they proposed to repay
their creditors.” (Id. at 36.) In their 2009 Chapter 12 case, the Debtors proposed to fund their plan
by liquidating their interest in a multi-billion dollar maritime judgment lien which the bankruptcy
court found was specious at best. In their current case, the Debtors proposed avoiding most of the
secured liens based on unusual theories of securitization. The Debtors advanced these arguments
despite the fact that all of the loan documents in the record demonstrated that the creditors filing
claims were the original creditors on the notes and security agreements. The bankruptcy court also
noted that the Debtors had a “history of diverging from counsel and pursuing questionable
alternatives in connection with a plan of reorganization.” (Id. at 37.) The court found that this was
also a factor that weighed in favor of dismissing the Debtors’ case for bad faith.
Other factors the bankruptcy court determined were indicia of bad faith were the close
proximity in time of the Debtors’ bankruptcy filing to resolution of the state court proceedings with
FCS and ASB and the fact that the Debtors’ pro se filings advanced a multitude of obscure claims
and defenses, many of which had been raised in the state court proceedings. Given that Chapter 12
was “intended to give ‘family farmers facing bankruptcy a fighting chance to reorganize their debts
and keep their land,’ ” the bankruptcy court concluded that the Debtors in this case had abused the
bankruptcy system by not being fundamentally fair with the creditors or the bankruptcy court.
(March 5, 2012 Order at 33, Bankr. Case No. 11-15607, ECF No. 117.)
A review of the facts in this case clearly demonstrates that the bankruptcy court did not abuse
its discretion in determining that dismissal of the Debtors’ case was appropriate under § 1208(c)
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based on the Debtors’ bad faith. Throughout the case, the Debtors offered up inapplicable legal
theories about a range of subjects. They also asserted entitlement to certain rights under irrelevant
laws including the Occupational Safety and Health Administration Rules and the National Labor
Relations Act. In arguing that various debts were not enforceable, the Debtors made blanket
allegations of forgery and photo shopping without ever producing even a scintilla of evidence
supporting their claims. In what appears to be a very disingenuous argument, Carl Pertuset testified
he signed the original notes, but that he did not sign the copies he was presented with by the
Appellees. Several of the Appellees offered to show the original notes to the Debtors on several
occasions both before and during the most recent Chapter 12 filing, but the Debtors refused to take
advantage of those offers. Additionally, the Debtors had not made payments on a large number of
their debts since at least 2009. They only proposed to pay approximately 4.7% of their total
liabilities in the Chapter 12 case. Under a totality of the circumstances, the bankruptcy court was
not clearly erroneous in finding that the Debtors lacked good faith.
E. Dismissal With Prejudice
The bankruptcy court provided in its March 5, 2012 order that dismissal of the Debtors’ case
was with prejudice for a period of two years. Section 349(a) of the Bankruptcy Code provides that
“[u]nless the court, for cause, orders otherwise, . . . dismissal of a case under this title [does not]
prejudice the debtor with regard to the filing of a subsequent petition under this title, except as
provided in section 109(g) of this title.” Section 109(g) provides:
Notwithstanding any other provision of this section, no individual or family
farmer may be a debtor under this title who has been a debtor in a case pending under
this title at any time in the preceding 180 days if–
(1) the case was dismissed by the court for willful failure of
the debtor to abide by orders of the court, or to appear before the
court in proper prosecution of the case;
11 U.S.C. § 109(g). “Section 109(g) represents Congress’s response to the problem created by those
debtors who make sequential filings to abuse the Code and creditors.” In re Pike, 258 B.R. 876, 881
(Bankr. S.D. Ohio 2001) (citation omitted). Taken together, §§ 109(g) and 349(a) grant a bankruptcy
court the authority to prohibit bankruptcy filings for 180 days or longer when sufficient cause exists
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for doing so. Dietrich v. Nob-Hill Stadium Props., No. 05-2255, 2007 WL 579547, at *5 (6th Cir.
Feb. 15, 2007); Cusano v. Klein (In re Cusano), 431 B.R. 726, 736 (B.A.P. 6th Cir. 2010)
(concluding that a two year bar to refiling was appropriate for a pro se debtor).
Although “willful” as used in § 109(g)(1) is not defined in the Bankruptcy Code, courts have
held that
the court will construe repeated failure to appear or lack of diligence as willful
conduct. Repeated conduct strengthens the inference that the conduct was deliberate.
Additionally, the court will infer from a pattern of dismissals and refilings in
unchanged circumstances willful failure to abide by orders of the court and an abuse
of the bankruptcy process which this amendment was designed to prevent.
In re Nelkovski, 46 B.R. 542, 544 (Bankr. N.D. Ill. 1985) (citation omitted); See also Casse v. Key
Bank Nat’l Assoc. (In re Casse), 198 F.3d 327, 336-37 (2nd Cir. 1999) (agreeing with Sixth Circuit
cases). In Cusano, the Bankruptcy Appellate Panel held that filing three petitions in three years in
response to collection efforts undertaken in state court constitutes willful conduct sufficient to
prohibit the debtor from refiling for bankruptcy relief for 2 years. Cusano, 431 B.R. at 737.
Likewise, “[a] bankruptcy court’s finding of bad faith, or an abuse of the bankruptcy process
particularly in the case of serial filers, is generally considered sufficient cause to impose a bar to
refiling for more than 180 days.” In re Mehlhose, 469 B.R. 694, 712 (Bankr. E.D. Mich. 2012)
(citation omitted).
In the case currently on appeal, the bankruptcy court found that dismissal of the Debtors’ case
with prejudice for a period of two years was appropriate based on a number of facts which include
the following: (1) the Debtors had been given two opportunities to reorganize and save their family
farm over the last three years; (2) none of the Debtors’ creditors had been paid for an extended
period of time; (3) the creditors had spent a great deal of time and resources in seeking to enforce
their state law rights in bankruptcy court and in state court; and (4) the Debtors had been extremely
litigious between dismissal of their 2009 case and the filing of their current Chapter 12 petition. In
so ruling, the bankruptcy court recognized that
the Debtors’ home and livelihood are at risk in this proceeding. This Court was
hopeful that the Debtors would work with their bankruptcy counsel and propose an
amended plan of reorganization for creditors to consider prior to the Confirmation
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Hearing, a sentiment similarly echoed by Farm Credit Services and the Chapter 12
Trustee. While the Debtors may truly believe the theories they espouse in support
of their position in this and their previous Chapter 12 bankruptcy case, as was argued
by Attorney Hoskins at the Confirmation Hearing, the Debtors have been unable to
propose[] a confirmable plan and have been given a fair opportunity to pursue such
arguments.
(March 5, 2012 Order at 40, Bankr. Case No. 11-15607, ECF No. 117.) Given the facts in the
Debtors’ case, the bankruptcy court concluded that a two-year bar to refiling was necessary “to
protect the integrity of the bankruptcy process and prevent further prejudice to creditors.” (Id.).
A review of all the facts in this case indicates that the bankruptcy court was not clearly
erroneous in concluding that the Debtors’ bad faith and serial filings were sufficient to warrant
dismissal of their case with prejudice for two years. The Debtors’ arguments before the bankruptcy
court and in this appeal were nonsensical and, at times, incomprehensible. The Debtors
unsuccessfully raised these same arguments in many of the state court proceedings. The Debtors
asserted rights under wholly inapplicable legal theories. With regard to their securitization and
standing arguments, the Debtors never produced any proof to support their contentions.
Following dismissal of their previous Chapter 12 case, the Appellees sought to enforce their
rights in state court, only to have the Debtors refile for bankruptcy relief once the state court entered
judgments in some of the proceedings. If the creditors are not given a sufficient period of time in
which to enforce those judgments, the Debtors could easily frustrate collection efforts by filing
another bankruptcy petition in bad faith.
F. Motion to Reconsider
A motion to alter or amend under Federal Rule of Civil Procedure 59(e), applicable to
bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 9023, may be granted “if there is:
(1) a clear error of law; (2) newly discovered evidence; (3) an intervening change in controlling law;
or (4) a need to prevent manifest injustice.” Intera Corp. v. Henderson, 428 F.3d 605, 620 (6th Cir.
2005) (citing GenCorp, Inc. v. Am. Int’l Underwriters, 178 F.3d 804, 834 (6th Cir. 1999)). The
decision to grant relief pursuant to Federal Rule of Civil Procedure 59(e) is within the sound
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discretion of the court. Hamerly v. Fifth Third Mortg. Co. (In re J & M Salupo Dev. Co.), 388 B.R.
795, 805 (B.A.P. 6th Cir. 2008) (citation omitted). A motion to alter or amend a judgment is
considered “an extraordinary remedy and should be granted sparingly because of the interest in
finality and conservation of scarce judicial resources.” Id. The burden of demonstrating grounds
for relief under Rule 59(e) lies with the movant. Id. “A motion under Rule 59(e) is not intended to
provide the parties an opportunity to relitigate previously-decided matters or present the case under
new theories.” Id. The denial of a Rule 59(e) motion is reviewed for an abuse of discretion.
Federal Rule of Civil Procedure 60(b), applicable to bankruptcy proceedings by Federal Rule
of Bankruptcy Procedure 9024, allows for relief from a final judgment or order based on
(1) mistake, inadvertence, surprise, or excusable neglect;
(2) newly discovered evidence that, with reasonable diligence, could not have
been discovered in time to move for a new trial under Rule 59(b);
(3) fraud (whether previously called intrinsic or extrinsic), misrepresentation,
or misconduct by an opposing party;
(4) the judgment is void;
(5) the judgment has been satisfied, released or discharged; it is based on an
earlier judgment that has been reversed or vacated; or applying it prospectively is no
longer equitable; or
(6) any other reason that justifies relief.
Fed. R. Civ. P. 60(b). Relief is granted under Rule 60(b)(6) “only in exceptional or extraordinary
circumstances which are not addressed by the first five numbered clauses of the Rule.” Olle v. Henry
& Wright Corp., 910 F.2d 357, 365 (6th Cir. 1990) (citation omitted). A decision to grant or deny
a Rule 60(b) motion is within the discretion of the trial court. Gourlay v. Sallie Mae, Inc. (In re
Gourlay), 465 B.R. 124, 125 (B.A.P. 6th Cir. 2012). As with Rule 59(e), the party seeking relief
pursuant to Rule 60(b) “bears the burden of establishing that its prerequisites are satisfied.” Rogan
v. Countrywide Home Loans (In re Brown), 413 B.R. 700, 705 (B.A.P. 6th Cir. 2009) (citation
omitted). The movant must establish the necessary grounds by clear and convincing evidence. Info-
Hold, Inc. v. Sound Merchandising, Inc., 538 F.3d 448, 454 (6th Cir. 2008). “Rule 60(b) does not
allow a defeated litigant a second chance to convince the court to rule in his or her favor by
presenting new explanations, legal theories, or proof.” Jinks v. AlliedSignal, Inc., 250 F.3d 381, 385
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(6th Cir. 2001) (citation omitted). The denial of a Rule 60(b) motion is reviewed for an abuse of
discretion. Eglinton v. Loyer (In re G.A.D., Inc.), 340 F.3d 331, 334 (6th Cir. 2003) (citation
omitted).
In the case currently on appeal, the Debtors argued that the bankruptcy court was biased
against them. The Debtors also argued that the bankruptcy court erred in ruling on the Debtors’
securitization arguments and in denying the relief requested in their pro se filings. With respect to
their arguments of bias, the Debtors never raised those allegations prior to filing their motion to
reconsider. Because Rule 59(e) does not permit parties to raise new legal theories or advance new
issues, the bankruptcy court concluded the Debtors were not entitled to relief on their claims of bias.
That decision was not an abuse of discretion. Rule 59(e) does not allow the Debtors to advance new
legal theories.
Even if the Debtors were allowed to raise the allegations of bias, however, their claims would
fail.
To determine whether Rule 59 or 60 relief is appropriate based on a violation of
[28 U.S.C.] § 455, the court considers the risk of injustice to the parties, the risk that
denial of relief will cause injustice in other cases and the risk of undermining public
confidence in the judicial process. See Liljeberg v. Health Servs. Acquisition Corp.,
486 U.S. 847, 863 (1988). Under either subsection [of § 455], the honesty, integrity
and impartiality of judges is presumed; therefore, a party seeking recusal bears the
substantial burden of proving otherwise. See United States v. Martinez, 446 F.3d
878, 883 (8th Cir. 2006); Dyas v. Lockhart, 705 F.2d 993, 997 (8th Cir. 1983).
White v. National Football League, No. 4-92-906(DSD), 2008 WL 1827423, at *3 (D. Minn. Apr.
22, 2008). In making their allegations, the Debtors made vague, general accusations of bias. They
failed to advance any support for their allegations. Prior to her appointment to the bench, the
bankruptcy judge represented both creditors and debtors. The Debtors also offered no proof that the
bankruptcy judge had ever represented FCS, ASB, or Quality Leasing, at any time in the past. In
addition, the Debtors’ allegations about sanctioning Hoskins and threatening him with contempt
were completely false. The bankruptcy court never sanctioned Hoskins, nor did it ever issue a
contempt order against him or the Debtors. All in all, the Debtors’ claims of bias are “baseless and
unsubstantiated.” Staten v. Nissan N. Am., Inc., 134 F. App’x 963, 966 (7th Cir. 2005). The
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Debtors’ claim for reconsideration under either Rule 59(e) or 60(b) on their allegation of bias was
without merit, and the bankruptcy court did not abuse its discretion in denying it.
Turning to the Debtors’ other arguments about their pro se requests to introduce evidence
and testimony and their securitization and standing arguments, the bankruptcy court determined that
the Debtors’ claims for relief under Rule 59(e) were wholly without merit. The bankruptcy court had
considered both issues at the confirmation hearing and had addressed both issues in its March 5,
2012 order. The Debtors failed to allege that the bankruptcy court made a clear error in applying the
law or that there had been a change in controlling law or newly discovered evidence which would
require reconsideration of the bankruptcy court’s decision. The bankruptcy court also determined
that the Debtors had not demonstrated any grounds for relief from those decisions under Rule 60(b).
The Debtors simply reiterated their earlier arguments about the introduction of witnesses and
testimony. They failed to advance any grounds for relief under Rule 59(e) or 60(b).
A motion for reconsideration is not designed to be used “as a substitute for an appeal . . . or
as a means of seeking review of [a] Court’s previous opinion . . . .” Rivera v. Scism, 472 F. App’x
105, 106 (3d Cir. 2012) (internal citations omitted). If a party seeks to use a motion to reconsider
for either purpose, a court does not abuse its discretion in denying the motion to reconsider. Id.;
Varden v. Danek Medical, Inc., 58 F. App’x 137, 139 (6th Cir. 2003). Accordingly, the bankruptcy
court in this appeal did not abuse its discretion in denying the Debtors’ request to reconsider the
bankruptcy court’s denial of the Debtors’ evidentiary requests or its rejection of the Debtors’
securitization/standing arguments.
As for the Debtors remaining allegations about “Servicing Misconduct,” etc., the Debtors had
never raised these allegations prior to filing the motion to reconsider. Therefore, the bankruptcy
court did not abuse its discretion in determining that the Debtors were not entitled to relief under
Rule 59(e) or 60(b) under any of these new theories. Insofar as the Debtors were seeking affirmative
relief, the bankruptcy court ruled that the matter was not properly before the court. A party who is
seeking affirmative relief must either file a motion pursuant to Federal Rules of Bankruptcy
Procedure 9013 and 9014 or an adversary proceeding complaint pursuant to Federal Rule of
Bankruptcy Procedure 7001. The Debtors did neither.
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V. CONCLUSION
For the foregoing reasons, we affirm the March 5, 2012 bankruptcy court order dismissing
the case with prejudice pursuant to 11 U.S.C. § 1208(c)(1), (c)(5) and (c)(9); dismissing the case
with prejudice for a period of two years pursuant to 11 U.S.C. §§ 105(a) and 349(a); denying
confirmation of the Debtors’ proposed Chapter 12 plan; denying the Debtors’ evidentiary requests;
and denying the Debtors’ oral motion to continue the confirmation hearing; and affirm the March
30, 2012 bankruptcy court order denying the Debtors’ motion to reconsider.
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