IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 95-31029 Summary Calendar _____________________
In the Matter of: GEORGE J BEARD, JR; MELANIE WALKER BEARD
Debtors
GEORGE J BEARD, JR; MELANIE WALKER BEARD
Appellants
v.
UNITED STATES TRUSTEE; PAUL H DAVIDSON; OUACHITA VALLEY FEDERAL CREDIT UNION
Appellees
_________________________________________________________________
Appeal from the United States District Court for the Western District of Louisiana (94-CV-2181) _________________________________________________________________ April 3, 1996 Before KING, SMITH, and BENAVIDES, Circuit Judges.
PER CURIAM:*
Debtors George J. Beard, Jr. and his wife, Melanie Walker
Beard (collectively, the “Beards") appeal the district court's
affirmance of the bankruptcy court's denial of confirmation of
their Chapter 13 plan and sua sponte dismissal of their case. We
affirm.
* Pursuant to Local Rule 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in Local Rule 47.5.4. I. BACKGROUND
In 1992 and 1993, the Beards borrowed substantial sums from
the Ouachita Valley Federal Credit Union ("Ouachita Valley")
through five loans that were variously and partially secured by a
mobile home, a 1986 Oldsmobile, a 1992 Ford pick-up truck, and a
boat, motor, and trailer. When the Beards defaulted on their
loans, Ouachita Valley instituted legal proceedings. On March
10, 1994, Ouachita Valley obtained a judgment on the unsecured
loans and an order for executory process to foreclose on certain
of the remaining secured loans.
On June 14, 1994, the Beards filed a petition for relief in
the United States Bankruptcy Court for the Western District of
Louisiana under Chapter 13 of the United States Bankruptcy Code,
11 U.S.C §§ 101-1330. After filing schedules and an original
plan, the Beards filed an objection to the claim of Ouachita
Valley, questioning the size of the allowable claims and the
valuation of the collateral securing them. The Beards' objection
was noticed for hearing on September 8, 1994--the same date fixed
for the confirmation hearing on their proposed Chapter 13 plan.
One week before the scheduled hearing, Ouachita Valley filed
an objection to the Beards' proposed Chapter 13 plan. Ouachita
Valley's objection to confirmation concerned the same issues
presented by the Beards' objection to Ouachita Valley's claims--
the amount of the outstanding debt and the value of the
collateral securing that debt.2 On the same day Ouachita Valley
2 Ouachita Valley claimed that the Beards undervalued the
2 filed its objection to the plan, it served notice of the
objection on the Beards' counsel. Ouachita Valley served notice
on the Chapter 13 trustee one week later but did not serve the
Beards personally. On September 6, 1994, the Beards' attorney
filed an Answer and Opposition to Ouachita Valley's objection to
confirmation, containing a request for dismissal based on
improper and untimely service.
At the hearing held on September 8, 1994, the Beards argued
that the bankruptcy court should sustain their objection to
Ouachita Valley's claim because Ouachita Valley had not filed a
written response in opposition to the Beards' objection. The
Beards also objected to the bankruptcy court's refusal to
disregard Ouachita Valley's objection to confirmation because of
improper service. The bankruptcy court ruled that Ouachita
Valley was not required to file a written response to the Beards'
objection and that Ouachita Valley's failure to serve the Beards
personally was inconsequential. Over the objection of the
Beards, the bankruptcy court consolidated for hearing the Beards'
objection to Ouachita Valley's claim, Ouachita Valley's objection
to confirmation, and confirmation of the Chapter 13 plan. Upon
conclusion of the evidentiary hearing, the bankruptcy court
denied confirmation and sua sponte dismissed the Beards' case on
collateral which they wished to retain, overstated the value of the collateral which they proposed to return, and violated the loan agreement by failing to provide insurance on the collateral. Ouachita Valley claimed that the amount of the Beards' indebtedness was $54,984.50. The plan that the Beards originally proposed admitted a debt of $39,238.29.
3 the grounds that their bankruptcy plan had not been proposed in
good faith as required by 11 U.S.C. § 1325(a)(3).
The bankruptcy court's determination that the Beards lacked
the requisite good faith was predicated on several factors. (1)
The Beards filed their petition on the day preceding a scheduled
sheriff's sale in Ouachita Valley's foreclosure proceeding. (2)
George Beard's candor was called into question when the judge
found several contradictions in his testimony concerning the
circumstances under which he left one job for a lower paying one.
(3) George Beard cashed an insurance proceeds check without
authority of Ouachita Valley; the check was made out jointly to
him and Ouachita Valley because it had been issued on a claim for
damage to a portion of Ouachita Valley's collateral--a mobile
home. (4) The Beards pawned other collateral--a boat, motor, and
trailer that were subject to Ouachita Valley's security interest-
-and failed to report the transfer in their original filings.
(5) Certain parts of various items of collateral were damaged or
lost just prior to filing or during the pendency of the
bankruptcy petition; the mobile home was damaged and a radio was
inexplicably missing from their pick-up truck. (6) In
contravention of the loan agreement, the Beards did not maintain
insurance on the collateral.3
3 Characterizing it as proof of a "binder" and evidence of their compliance with the agreement, the Beards offered an insurance application and a payment receipt. However, the application expressly stated, "this is not a binder." Moreover, the Beards represented on the application that their insurance coverage had not been cancelled previously, despite George Beard's own testimony that coverage on the mobile home had been
4 The Beards filed a motion for a new trial which was denied.
The U.S. District Court for the Western District of Louisiana
affirmed the judgment of the bankruptcy court in all respects.
This appeal followed.
II. ANALYSIS
We review findings of fact by the bankruptcy court under the
clearly erroneous standard and we decide issues of law de novo.
In re Eagle Bus Mfg., Inc., 62 F.3d 730, 735 (5th Cir. 1995); In
re Christopher, 28 F.3d 512, 514 (5th Cir. 1994). A finding of
fact is clearly erroneous when, although there is enough evidence
to support it, we are left with a firm and definite conviction
that a mistake has been committed. Christopher, 28 F.3d at 514.
"When the district court has affirmed the bankruptcy court's
findings, our review for clear error is strict." Eagle, 62 F.3d
at 735.
The arguments advanced by the Beards on appeal may be
consolidated into three determinative issues. Two issues are
procedural: whether the bankruptcy court erred by conducting the
consolidated evidentiary hearing although Ouachita Valley had not
served the Beards personally; and whether the evidentiary hearing
was improper because Ouachita Valley had not filed a written
response to the Beards' objection to Ouachita Valley's proof of
claim. The third issue is a substantive one: whether it was
error for the district court sua sponte to dismiss the Beards'
cancelled at least three times.
5 case for lack of good faith. We address the substantive issue
first.
A. Good Faith
The Beards argue that the bankruptcy court erred as a matter
of law and fact in dismissing their case on a finding that they
had submitted their Chapter 13 plan in bad faith. They contend
that the bankruptcy court erroneously weighed the evidence
presented at the hearing on September 8, 1994. The Beards
maintain that the court failed to apply the proper standard--the
totality of the circumstances--in arriving at its determination
of bad faith. Additionally, because no one raised the issues of
good faith and dismissal prior to the bankruptcy court addressing
them at the hearing, the Beards contend that they were not given
a reasonable opportunity to prepare for trial on these issues.
They conclude that the bankruptcy court's sua sponte dismissal
order was a denial of due process.
We find the Beards' arguments unconvincing. Contrary to the
assertions of the Beards, we conclude that the lower courts'
conclusions of law and findings of fact were not in error. The
bankruptcy court applied the appropriate standard in arriving at
its factual determination and its findings are not clearly
erroneous. It was not improper for the bankruptcy court to
dismiss sua sponte the Beards' case for lack of good faith. The
Beards were not denied due process.
A Chapter 13 reorganization plan must satisfy a number of
requirements in order to qualify for confirmation by the
6 bankruptcy court. 11 U.S.C. § 1325. One of these requirements
is that the plan must have "been proposed in good faith and not
by any means forbidden by law." 11 U.S.C. § 1325(a)(3).
Although the Bankruptcy Code does not define "good faith," this
court has determined that a good-faith analysis must involve the
consideration of factors such as "the reasonableness of the
proposed repayment plan and whether the plan shows an attempt to
abuse the spirit of the Bankruptcy Code." In re Chaffin, 816
F.2d 1070, 1073 (5th Cir. 1987), modified on reconsideration on
other grounds, 836 F.2d 215 (5th Cir. 1988); Public Fin. Corp. v.
Freeman, 712 F.2d 219, 221 (5th Cir. 1983). Other factors have
been cited as relevant to such an analysis, including the
fairness of the plan to the creditor, the timing of the
bankruptcy filings, the debtor's motive in seeking Chapter 13
relief, whether the plan states the debtor's debts accurately,
and the circumstances under which the debts were incurred. In re
Smith, 848 F.2d 813, 817-18 (7th Cir. 1988). We have noted that
bad faith is typically accompanied by indicia such as the
unsuccessful defense of a foreclosure action in state court and
allegations of wrongdoing on the part of the debtor. In re
Little Creek Dev. Co., 779 F.2d 1068, 1072-73 (5th Cir. 1986)
(holding that evidence was insufficient to establish lack of good
faith in Chapter 11 filing to warrant lifting automatic stay).
"The party who seeks a discharge under Chapter 13 bears the
burden of proving good faith." In re Caldwell, 895 F.2d 1123,
1126 (6th Cir. 1990); see also In re Love, 957 F.2d 1350, 1355
7 (7th Cir. 1992); In re Warren, 89 B.R. 87, 93 (Bankr. 9th Cir.
1988); In re Carver, 110 B.R. 305, 311 (Bankr. S.D. Ohio 1990).
Bankruptcy Rule 3020(b)(2) provides that if "no objection is
timely filed, the Court may determine the plan has been proposed
in good faith and not by any means forbidden by law without
receiving evidence on such issues."4 Fed. R. Bankr. P.
3020(b)(2). Where there is an objection, however, "more than
bare presentation of the plan and provision for payment
thereunder is requisite." Warren, 89 B.R. at 91. Although the
party objecting to confirmation "must meet the initial burden of
producing evidence in support of his objection, the debtor bears
the ultimate burden of persuasion on the issue of compliance with
the confirmation criteria contained in § 1325(a)." Carver, 110
B.R. at 311.
Because the requisite good-faith analysis of a proposed
Chapter 13 plan is a fact-intensive inquiry, appellate courts
have recognized that this determination is best left for
bankruptcy courts to resolve on a case-by-case basis. Love, 957
F.2d at 1355. This court has established that the good-faith
requirement "must be viewed in light of the totality of the
circumstances surrounding the confection of a given Chapter 13
plan." Public Fin. Corp., 712 F.2d at 221. This test entails
4 Use of the permissive "may" has been interpreted to allow the bankruptcy court, even without objection, to require that evidence be presented as to good faith. Warren, 89 B.R. at 91 (citing In re Cash, 51 B.R. 927, 930-31 (Bankr. N.D. Ala. 1985) and In re Hale, 65 B.R. 893, 893 & n.1, 897 (Bankr. S.D. Ga. 1986)).
8 "an examination of all of the facts in order to determine the
bona fides of the debtor." Chaffin, 816 F.2d at 1074. The
Beards argue that the bankruptcy court did not apply the totality
of circumstances standard. We disagree.
In this case, the bankruptcy court arrived at its finding
that the Beards filed their reorganization plan in bad faith by
carefully weighing the evidence presented at the September 8,
1994 hearing. Determination of a debtor's good faith in
proposing a reorganization plan "depends largely upon the
bankruptcy court's on-the-spot evaluation." Little Creek, 779
F.2d at 1072. At the hearing the bankruptcy court examined the
facts surrounding the filing of the Beards' plan. The court
heard testimony from a loan manager employed by Ouachita Valley
and from both of the Beards. The bankruptcy court received into
evidence exhibits presented by Ouachita Valley and exhibits
presented by the Beards. Prefacing its decision by noting the
presence of two of the indicia of bad faith identified in Little
Creek--allegations of wrongdoing and an imminent sheriff's sale,
the court recited a litany of circumstances that pointed to a
lack of good faith on the part of the Beards.
The bankruptcy court found that George Beard exhibited "a
disregard of certain obligations incumbent upon him under his
loan obligations . . . .[, that his] testimony as a whole was
conflicting, [and] his attitude belligerent." The court was
troubled by contradictions in George Beard's testimony concerning
his job change, the necessity of caring for relatives, and damage
9 to the collateral. The fact that the boat, motor, and trailer
had been pawned, and that the radio was missing from the pick-up
were cited by the court as suggestive of bad faith. The
bankruptcy court pointed to the allegations of wrongdoing in
connection with the insurance proceeds check. Particularly noted
by the court was the Beards' failure to maintain insurance on the
collateral and George Beard's false representation on an
application for insurance that his coverage had not been
cancelled previously. We find that the bankruptcy court
considered the totality of the circumstances surrounding the
Beards' proposed plan. Looking at the above evidence we cannot
say that the bankruptcy court's finding that the Beards lacked
good faith in filing their proposed Chapter 13 plan was clearly
erroneous.
Two separate good faith determinations are at issue in a
Chapter 13 proceeding: whether the debtor filed the petition in
good faith and whether the plan is proposed in good faith. Love,
957 F.2d at 1354. "The finding of a lack of good faith in filing
the petition under Section 1307(c) can lead to the dismissal and
termination of the bankruptcy proceedings. . . ." Id. The
bankruptcy court may dismiss a case for cause at the request of a
party in interest or the United States trustee, 11 U.S.C. §
1307(c), or the bankruptcy court may dismiss a case on its own
initiative. In re Hammers, 988 F.2d 32, 34-35 (5th Cir. 1993);
Pleasant Pointe Apartments, Ltd. v. Kentucky Hous. Corp., 139
B.R. 828, 832 (W.D. Ky. 1992) ("[B]ankruptcy court did not err in
10 concluding that it had the authority to dismiss [debtors']
Chapter 11 petitions for cause on its own initiative, without a
specific request to do so by [creditors].").
The bankruptcy court also may address sua sponte the
question of a plan's eligibility. Hammers, 988 F.2d at 35.
1993). Although the Bankruptcy Code does not expressly authorize
sua sponte dismissal, such a result is consistent with the 1986
amendment to § 105(a). Id. at 34-35. That section provides:
The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders, or rules, or to prevent an abuse of process.
11 U.S.C. § 105(a). It follows that, where the bankruptcy court
finds bad faith with regard to both the petition and the plan,
dismissal of the case is not error. In Love, the Seventh Circuit
cautioned that "the bankruptcy court should be more reluctant to
dismiss a petition under Section 1307(c) for lack of good faith
than to reject a plan for good faith under Section 1325(a)."
Love, 957 F.2d at 1356. Nevertheless, because the bankruptcy
court had "conducted an evidentiary hearing and carefully weighed
the evidence before dismissing the petition under Section
1307(c)," the Seventh Circuit affirmed the bankruptcy court's
dismissal of Love's case. Id. Similarly, we find that the
bankruptcy court did not err in dismissing the Beards' case sua
sponte.
11 Moreover, in the instant case, sua sponte dismissal of the
case on the basis of a lack of good faith did not constitute a
denial of due process. "Due process requires only notice that is
both adequate to apprise a party of the pendency of an action
affecting its rights and timely enough to allow the party to
present its objections." Christopher, 28 F.3d at 519. The
Beards' contention that they were not given a reasonable
opportunity to prepare for trial on the issues of good faith and
dismissal is untenable. The Beards had notice of the September
8, 1994 confirmation hearing. Both of the Beards testified at
that hearing. An implicit prerequisite to the Beards' right to
file was good faith on their part. In re Winshall Settlor's
Trust, 758 F.2d 1136, 1137 (6th Cir. 1985). On a finding of bad
faith, the bankruptcy court was empowered to dismiss their case
on its own initiative. See Hammers, 988 F.2d at 35; Warren, 89
B.R. at 87. Their proposed Chapter 13 plan also was subject to
the good-faith requirement. 11 U.S.C. § 1325(a)(3). The Beards
had a full opportunity to articulate how they had complied with
the Code's good faith requirement and the bankruptcy court
accorded their arguments full consideration. Cf. In re Omni
Video, Inc., 60 F. 3d 230, 263 (5th Cir. 1995) (finding that
defendants' due process rights were not violated notwithstanding
defendants' argument that their counsel had been surprised by
bankruptcy trustee's oral motion at hearing). We find that,
12 under the circumstances of this case, the Beards did not suffer a
denial of due process.5
B. Personal Notice and Written Response
In addition to their good-faith argument, the Beards raise
two procedural issues. They contend that, because Ouachita
Valley did not serve the Beards personally with its objection to
confirmation and because it did not file a written response to
the Beards' objection to Ouachita Valley's proof of claim, the
consolidated hearing was improper. In light of our discussion
above, we find that these two issues are moot.
The bankruptcy court's finding of bad faith and its
dismissal of the Beards' case were not based on any issue raised
by Ouachita Valley--either in its objection to the Beards'
proposed plan or in the response offered at the hearing to the
Beards' objection to Ouachita Valley's proof of claim. Ouachita
5 We also find that the following arguments advanced by the Beards are without merit: They contend that the bankruptcy court's denial of their request for a continuance was an abuse of discretion. Unless good cause is shown, motions for continuance are not granted without agreement of all parties. Bankr. W.D. La. Local Rule 2.1(J). Ouachita Valley did not agree to a continuance; the court did not abuse its discretion. The Beards argue that the bankruptcy court committed reversible error by denying them the opportunity to conduct discovery. The outcome of the case turned on the issue of the Beards' good faith. The Beards necessarily were aware of, and had access to, any information relevant to this issue. Therefore, they had no need of discovery. The Beards complain that the bankruptcy court denied them the opportunity to modify their proposed plan. Such a denial is not an abuse of discretion where the court finds that a lack of good faith cannot be cured by modification. In re Beauty, 42 B.R. 655, 657 (E.D. La. 1984), appeal dismissed, 745 F.2d 53 (5th Cir. 1984).
13 Valley's objection to the Beards' plan concerned the amount of
the outstanding debt and the value of the collateral securing the
debt. At the hearing, the court addressed the issue of bad faith
without prompting, and it dismissed the case sua sponte. The
procedural issues raised by the Beards were irrelevant to the
outcome of the case. Therefore, we need not address them.
III. CONCLUSION
For the foregoing reasons, we AFFIRM the judgment of the
district court.