In re: Carol L. Engen

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: July 6, 2020
• Docket: WW-20-1019-BSG
• Status: Unpublished

Opinion

FILED JUL 6 2020

SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

In re: BAP No. WW-20-1019-BSG CAROL L. ENGEN, Debtor. Bk. No. 2:18-bk-12259-TWD CAROL L. ENGEN, Appellant, v. MEMORANDUM* JASON WILSON-AGUILAR, Chapter 13 Trustee, Appellee.

Appeal from the United States Bankruptcy Court for the Western District of Washington Timothy W. Dore, Bankruptcy Judge, Presiding

Before: BRAND, SPRAKER, and GAN, Bankruptcy Judges.

INTRODUCTION

Appellant Carol L. Engen appeals an order dismissing her chapter 131

* This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. 1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, all "Rule" references are to the Federal Rules of Bankruptcy Procedure, and all "Civil Rule" references are to the Federal Rules of Civil Procedure. bankruptcy case for cause under § 1307(c). We AFFIRM.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

A. Engen's bankruptcy filing and the IRS's proof of claim

The Internal Revenue Service ("IRS") filed a complaint against Engen in

the district court to reduce to judgment outstanding tax assessments and

foreclose tax liens on Engen's real property in Washington ("Property").

Engen responded by filing her chapter 13 bankruptcy case on June 6, 2018.

Jason Wilson-Aguilar was the chapter 13 trustee ("Trustee").

The IRS, Engen's only creditor of note, filed an amended secured proof

of claim for $250,517.27. Engen objected to the claim. The bankruptcy court

overruled the claim objection without prejudice, determining that the

complex tax matter should be resolved by an adversary proceeding.

The bankruptcy court entered an order confirming Engen's chapter 13

plan on October 13, 2018 ("Plan"). The 36-month Plan provided for a 100%

dividend to creditors via two sources: (1) a $100.00 monthly plan payment;

and (2) the sale of the Property within 18 months of the petition date, or

December 6, 2019. Engen had to obtain the bankruptcy court's approval prior

to selling the Property.

Meanwhile, Engen continued to dispute the IRS's claim. With the

assistance of counsel, she timely filed her adversary complaint against the

IRS. This was followed by various pro se motions for summary judgment,

wherein Engen, among other things, challenged the IRS's standing. After a

2 hearing, the bankruptcy court denied Engen's motions. On Engen's motion

under Civil Rule 41(a)(2), the bankruptcy court dismissed the adversary

proceeding on June 12, 2019.

Undeterred, Engen then challenged the IRS's claim with a series of

motions filed in the main case. One was her "Notice of Legal Conundrum"

filed on November 12, 2019. While difficult to decipher, Engen argued that

the claim was or could be satisfied with valuable "securities" which she

recently discovered had been created and titled in her name. Engen

maintained that the only reason she agreed in her Plan to sell the Property to

pay claims and administrative expenses was because she was unaware of

these securities when the Plan was confirmed. Now, given their existence and

value, Engen maintained that she would not comply with the terms of the

Plan and sell the Property: "Going forward, the real estate asset will not be

used to pay a single penny of any claims or expenses . . . ." Engen also

maintained that the Plan required modification, but that she could not file a

motion to modify until obtaining the necessary information about the

securities assets, which she claimed were property of the estate. After a

hearing, the bankruptcy court entered an order denying the Notice of Legal

Conundrum for lack of merit.

B. Trustee's motion to dismiss

On December 6, 2019, Trustee moved to dismiss Engen's chapter 13

case, arguing that "cause" existed to dismiss under § 1307(c)(1) and (6):

3 Engen was in material default of her Plan by failing to sell the Property by

December 6, 2019, and, by failing to do so, she had caused unreasonable

delay that was prejudicial to creditors who would be paid from the proceeds.

To date, Trustee had not made any Plan payments to creditors but paid only

Engen's former attorney $1,606.70 pursuant to the Plan and the court's order

approving fees. Trustee did not take a position on the IRS's claim, but noted

only that the IRS held an allowed claim due to Engen's inability to

successfully challenge it.

Engen opposed the motion to dismiss, arguing that Trustee had filed it

in bad faith. As for her alleged material default, Engen argued that her

previous attorney had told her she had 18 months from the Plan confirmation

date, not the petition date, to sell the Property. Thus, she mistakenly believed

she had until April 2020 to sell it. Engen also argued that dismissing the case

before resolving the IRS's claim was premature.

After a hearing, the bankruptcy court issued an oral ruling granting the

motion to dismiss for "cause" under § 1307(c)(1) and (6), which was followed

by a written order. Engen timely appealed.

II. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.

III. ISSUE

Did the bankruptcy court abuse its discretion when it dismissed

4 Engen's chapter 13 case?

IV. STANDARD OF REVIEW

We review the bankruptcy court's chapter 13 case dismissal for an

abuse of discretion. Schlegel v. Billingslea (In re Schlegel), 526 B.R. 333, 338 (9th

Cir. BAP 2015). A bankruptcy court abuses its discretion if it applies the

wrong law or its factual findings are illogical, implausible, or without support

in the record. Id. (citing TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832

(9th Cir. 2011)).

V. DISCUSSION

Under § 1307(c), the bankruptcy court may dismiss a chapter 13 case for

cause. The statute sets forth a non-exhaustive list of grounds that constitute

"cause" for dismissal or conversion, whichever is in the best interests of the

estate's creditors. de la Salle v. U.S. Bank, N.A. (In re de la Salle), 461 B.R. 593,

605 (9th Cir. BAP 2011).

We see no abuse of discretion by the bankruptcy court in finding that

"cause" existed to dismiss Engen's case under § 1307(c). Specifically, the court

found that her failure to sell the Property by December 6, 2019, constituted a

material default with respect to a term of her confirmed Plan under

§ 1307(c)(6).2 To date, Engen had not taken any steps to sell the Property. In

fact, she stated in her Notice of Legal Conundrum filed three weeks earlier

2 Section 1307(c)(6) gives the bankruptcy court discretion to dismiss based on "material default by the debtor with respect to a term of a confirmed plan."

5 that she had no intent to comply with the terms of the Plan and sell the

Property. However, absent the sale of the Property, creditors would not be

paid in full per the terms of the Plan. In particular, the IRS had received

nothing on its allowed claim for 18 months, and it would receive nothing

without a sale.

Engen argues that dismissal of her case was premature. She argues that

not all assets were accounted for, and had they been, she could have modified

the Plan to pay creditors. As for the alleged "securities" assets that Engen

argued did or could pay the IRS's claim in full, the bankruptcy court

considered that argument and ruled that it lacked merit. The court further

noted that Engen's monthly payment of $100.00, even if extended to 60

months, provided only $6,000 to creditors. The administrative expenses of

Engen's former attorneys alone totaled over $18,000. Thus, even if the IRS's

claim was reduced to $0, sale of the Property was required to complete the

Plan.

The only other decipherable argument Engen asserts is that the

bankruptcy court refused to adjudicate the issues properly presented to it,

namely the merits of the IRS's claim. The record belies this. Engen was given

ample opportunity over the course of 18 months to advance a legitimate

challenge to the IRS's claim and she failed to do so. Given the complexity of

the claim, the court directed Engen to file an adversary proceeding to resolve

it. She did so. For whatever reason, she voluntarily dismissed it. Engen then

6 filed multiple motions in the main case to defeat the IRS's claim, even though

the court had already made clear that filing motions was not the proper

procedure for accomplishing that task. In any case, the court still heard those

motions and ruled on their merits. Engen was not successful in her efforts.

Once the court has found "cause" under § 1307(c), it must decide

whether converting or dismissing the case is in best interests of the creditors

and the estate. In re de la Salle, 461 B.R. at 605. Although Engen does not raise

the issue, we also see no abuse of discretion by the bankruptcy court in

deciding that dismissal, as opposed to conversion, was in the best interests of

creditors and the estate. The court determined that dismissal was favored in

this case because (1) it was essentially a two-party dispute between Engen

and the IRS; the only other allowed claims were administrative expense

claims and a small claim filed by Verizon; and (2) the legal proceeding

already pending in the district court between Engen and the IRS when she

filed her bankruptcy case could now be completed. In short, Engen had no

real need for the bankruptcy.

VI. CONCLUSION

For the reasons stated above, we AFFIRM.