In re Gomes

63 B.R. 300, 1986 Bankr. LEXIS 5737

Opinion

SUPPLEMENTAL FINDINGS ON APPEAL

ARTHUR N. VOTOLATO, Jr., Bankruptcy Judge.

On remand from the United States District Court for the District of Rhode Island.

This case, which has developed into a classic example of how creditors may be abused through manipulation of the judicial process, was commenced by the filing of a Chapter 13 petition by Alfred Gomes in February 1981. After hearing on a motion to convert filed by a secured creditor, Mary Angotti (formerly Mary Fawthrop and also the former wife of the debtor), and in light of Mr. Gomes’ lack of credibility and consistently poor track record before this Court, an order was entered on March 8, 1982, providing, inter alia, that

[i]n the event that any payment due to the trustee is not paid on or before the exact date it is due, the case is automatically converted to one under Chapter 7 of the Bankruptcy Code and the trustee is ordered to immediately submit to the Court an Order providing for the conversion of the case.¹

Predictably, the debtor defaulted, and pursuant to the above order the case was converted to Chapter 7 on November 18, 1982. Because the debtor appealed,² we issued formal Findings of Fact and Conclusions of Law, dated January 6, 1983, 26 B.R. 124 (Bankr.R.1.) (Exhibit 1, attached), setting forth the grounds for conversion under 11 U.S.C. § 1307(c).³ On January 20, 1983, we granted the debtor’s motion for stay pending appeal. See Bankruptcy Rule 8005.

On December 21, 1984, Chief Judge Francis J. Boyle vacated the stay we had ordered pending appeal, and remanded the matter to the Bankruptcy Court “for further proceedings to establish a record” (C.A. No. 84-0114B). In January 1985, shortly after the District Court lifted the stay, Mary Angotti purchased the debtor’s residence (206 North Road, South Kingstown, Rhode Island) at a foreclosure sale instituted and conducted by Fleet National Bank.⁴

Proceeding according to what we understood to be Judge Boyle’s remand instructions, a hearing was held on January 9, 1985, to establish a record for review. On February 21, 1985, a transcript of that hearing was forwarded to the District Court, together with the remainder of the record. The matter was again remanded to this Court by Judge Boyle, who entered the following order on July 26, 1985:

Upon review of the appellate record this matter is remanded to the Bankruptcy Court for a determination of the issues presently pending including the arguments presented to this Court that this bankruptcy has been illegally converted....

This Court’s Order of December 21, 1984 is amended to correctly reflect the action taken by this Court, that is a remand to the Bankruptcy Court to “get the record straightened out,” and not for the purpose of “establishing) a record.”

After remand, the possibility of settlement was raised by counsel at a status conference in August 1985, and negotiations followed. It soon became apparent that the dispute could not be resolved by agreement, and we determined that the prudent course would be to reconsider and to hear arguments anew as to the propriety of our November 18, 1982 order of conversion, which is the subject of Mr. Gomes’ appeal. Following that hearing, on October 22, 1985, the debtor was granted leave (with the consent of the trustee) to file yet another amended plan, with updated schedules, after which the feasibility of proceeding under Chapter 13 would again be considered. The plan (Exhibit 2, attached), filed on October 31, 1985, proposed to pay creditors 100% over four years, but omitted to state that the plan was contingent upon: 1) voiding the January 1985 foreclosure sale, 2) dispossessing the present owners and occupants, and 3) bringing the property back into the estate. When that (not previously disclosed) contingency was announced by debtor’s counsel at a hearing on November 1, 1985, the trustee objected and renewed his argument in favor of enforcement of the conversion order. The matter was then taken under advisement.

The debtor contends that the broad grant of authority in 11 U.S.C. § 105(a)⁵ requires us to vacate the order of conversion, and to return the parties “to the position that [they occupied] prior to termination of the automatic stay by the United States District Court.” He also maintains that “the Court ... has the authority to treat the [foreclosure by Fleet] as a post-petition transfer and to avoid.the preference gained by Fleet ... [under] 11 U.S.C. § 549.” Debtor’s Memorandum at 2, 3. In several respects, the debtor’s suggestion is preposterous, beginning with the fact that the foreclosure sale was conducted subsequent to the entry of Chief Judge Boyle’s order vacating the stay.⁶ Secondly, and forgetting for the moment the total lack of merit in debtor’s argument, he has taken none of the necessary procedural steps to obtain the relief which he seeks—complaints against the Bank, Angotti, and the present owners would have tó be brought, before the bizarre relief which debtor requests would even be before the Court. But this debtor continues to dispense with such formalities.

Even if we were being asked to reconsider an order that this Court was capable of reviewing, we would hold that “[t]he necessity for conserving the integrity of sales conducted pursuant to orders of this Court and the District Court dictates that the debtor cannot now ... vacate the foreclosure sale.” Trustee’s Memorandum at 2. See Greylock Glen Corp. v. Community Savings Bank, 656 F.2d 1, 4 (1st Cir.1981). See also Advisory Committee Note to Bankruptcy Rule 8005 (“unless an order approving a sale of property ... is stayed pending appeal, the sale of property to a good faith purchaser ... shall not be affected by the reversal or modification of such order on appeal”). Because the foreclosure sale was conducted subsequent to Judge Boyle’s unappealed December 21 order, the relief requested by the debtor is not authorized under 11 U.S.C. § 549⁷ or any other provision of the Code,⁸ and this Court, especially, is not authorized to fashion any new substantive rights for the debtor under § 105(a). In other words, to grant the relief sought by the debtor would require the Bankruptcy Court to reverse the District Court. Based upon all of the foregoing reasons, as well as the entire, tortured record in this case (see Exhibit 3, docket sheet attached), the debtor’s request that he be allowed to proceed under Chapter 13, which request is contingent upon voiding a January 1985 foreclosure sale, is denied, with prejudice, as is confirmation of Mr. Gomes’ latest proposed plan.

The Findings of Fact and Conclusions of Law, dated January 6, 1983, contain our reasons for providing for automatic conversion. Our rationale for ordering conversion in 1982 is still valid, and we have heard nothing in the interim from the debtor to suggest that a different result should obtain today. We emphasize that the debtor had exhausted all of his remedies and opportunities to avail himself of the benefits of Chapter 13 as far back as 1982 (when the case was converted) largely through his blatant lack of good faith, and his delaying tactics, which we found to be a clear abuse of the judicial process. Material default by the debtor with respect to a term of a confirmed plan (nonpayment) was also cited, as a less subjective ground for conversion. With hindsight, it is no exaggeration to state that in eighteen years on this bench we have seen no case where the debtor has received more consideration and/or time within which to do a plan, or where conversion was as clearly warranted.

In this same regard, we reject Mr. Gomes’ argument that conversion was illegal because it was accomplished by means of a “self-executing order.” The order of conversion was entered only after Gomes had been given every opportunity to continue in Chapter 13 (he had previously failed to comply with an earlier order expressly requiring conversion in the event of nonpayment). Under the circumstances, with the debtor having been granted hearing after hearing, it cannot sensibly be argued that the case was automatically converted without due process. By the time this case was finally converted, Mr. Gomes had long since used up all of the due process he could squeeze out of the system. The reviewing Court is referred to the attached Findings of Fact and Conclusions of Law for a more comprehensive (but by no means exhaustive) discussion of our reasons for ordering the case to be converted to Chapter 7.

We regret that our overindulgence of this debtor has resulted in such unreasonable delay for his creditors, and we have learned the hard way of the potential problems associated with the entry of self-executing conversion orders. Finally, we forewarn Mr. Gomes (and his counsel) that the continued attempt to manipulate the judicial system to Gomes’ advantage, without merit, only to further delay creditors, will result in the imposition of appropriate, substantial sanctions.

Enter Judgment accordingly.

EXHIBIT 1

FINDINGS AND CONCLUSIONS IN SUPPORT OF ORDER CONVERTING CHAPTER 13 CASE TO ONE UNDER CHAPTER 7

Heard on the Trustee’s motion to convert the debtor’s Chapter 13 case to one under Chapter 7 pursuant to 11 U.S.C. § 1307(c).¹ On November 18, 1982 the Court entered an order converting the case, and the debt- or appealed said order to the Bankruptcy Appellate Panel. Because the November 18, 1982, order was not accompanied by formal findings of facts and conclusions of law, for the purpose of completing the record on appeal, they appear below.²

A recital of the complete travel of this case is most relevant to the Court’s decision to enter the order of conversion.³ The debtor filed his Chapter 13 petition on February 19, 1981. A confirmation hearing was first held on April 2, 1981, but because of the debtor’s request to amend the plan, together with insurance problems with his real estate, the confirmation hearing was continued three more times before the Court finally authorized an order of confirmation to be entered on June 24, 1981.⁴ On October 15, 1981 the Trustee filed a motion to convert the case “on the grounds that there has been unreasonable delay by the debtor that is prejudicial to creditors.” A hearing was held on the Trustee’s motion on November 18, 1981, but that hearing was continued to permit the debtor to present an amended plan, based on his projections concerning future construction contracts. At a continued hearing on November 25, 1981 the Trustee agreed to the amended plan, but reserved the right to move again for conversion in the event of yet another default by the debtor. The amended plan was confirmed on December 17, 1981.

On January 12, 1982 Mary Fawthrop, a creditor, filed a motion to convert because of her failure to receive payments both within and outside the plan. A hearing was held on February 25,1982 at which the debtor promised again that he would try to make payments according to the plan. Due to the many previous hearings and continuances accorded the debtor, and problems with non-payment, on March 8, 1982 the Court entered a self-executing order providing for automatic conversion upon default by Mr. Gomes. This is a procedure rarely approved by this Court, but clearly warranted in the circumstances of this case.

Again on May 3, 1982 Mary Fawthrop filed a motion to convert because of the debtor’s failure to meet scheduled payments. The Trustee appeared at the hearing on the motion on May 20 and stated that he intended to file an affidavit to the effect that payments had been missed, triggering the automatic conversion authorized by the March 8 order. The affidavit was filed and another hearing was held on June 15, 1982. At that time, notwithstanding the March 8 order, the hearing was continued at the debtor’s request, because he was now represented by new counsel. At the continued hearing the Trustee agreed to an order skipping one month’s payment (this was after testimony by the debtor asserting confusion as to the amount of the June payment), but keeping the March 8 automatic conversion order in effect. Finally, on November 18,1982 Fleet National Bank, another creditor, filed a motion to convert.⁵

11 U.S.C. § 1307(c) provides that on request of a party in interest, and after notice and hearing, the Court may convert a case under Chapter 13 to one under Chapter 7 for cause, including “unreasonable delay by the debtor which is prejudicial to creditors” and “material default by the debtor with respect to a term of a confirmed plan.” Based on the travel of this case and the Court’s numerous opportunities to see and hear the debtor, the order of conversion was belatedly entered for both of the above reasons. See In re Petro, 18 B.R. 566 (Bankr.E.D.Pa.1982); In re Llorente, 9 B.R. 78 (Bankr.S.D.Fla.1981).

This case was filed almost two years ago, on February 19, 1981. Ten months elapsed before a plan was confirmed. Although the delay at that point was such that a conversion could have been ordered, the Trustee withdrew his motion in order to give the debtor “another chance” to pay creditors through a plan.

After the plan was finally confirmed, the debtor defaulted in payments not once, but several times. Although the Code permits conversion after a material default, here, based on repeated and impassioned requests by the debtor, he was allowed to continue in Chapter 13 through six more hearings. Notwithstanding Mr. Gomes’ alleged desire to pay his creditors, the docket reflects that he has been afforded far too many opportunities to achieve that goal through a Chapter 13 proceeding.⁶ It would add insult to the injury already suffered by creditors to allow this case, with its long history of defaults, to continue any longer.

Mr. Gomes long ago exhausted all of the equitable arguments in support of his representations that he will pay his creditors if just given time. Once the true effect of the debtor’s repeated assertions that his requests for time were “in behalf of creditors” became apparent, an enormous injustice had been done to creditors, secured and unsecured alike, in the name of giving a self-styled, earnest debtor the benefit of doubt after doubt. For this, the Court apologizes to the affected creditors.

EXHIBIT 2

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EXHIBIT 3

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Footnotes

1

. As is probably apparent in the language of the order, Mr. Gomes has managed to discredit himself completely in matters of responsibility and/or credibility.

2

. The debtor’s appeal of our order of conversion was transferred to the District Court on March 6, 1984, after the Bankruptcy Appellate Panel's ruling that it was constitutionally deprived of jurisdiction to hear bankruptcy appeals. See Commonwealth of Massachusetts v. Dartmouth House Nursing Home, Inc. (In re Dartmouth House Nursing Home, Inc.), 30 B.R. 56 (B.A.P. 1st Cir.1983), vacated, 726 F.2d 26 (1st Cir.1984).

3

.§ 1307. Conversion or dismissal

(c) [0]n request of a party in interest and after notice and a hearing, the court may convert a case under this chapter to a case under chapter 7 of this title, or may dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause, including—

(1) unreasonable delay by the debtor that is prejudicial to creditors;

(2) nonpayment of any fees and charges required under chapter 123 of title 28;

(3) failure to file a plan timely under section 1321 of this title;

(4) failure to commence making timely payments under section 1326 of this title;

(5) denial of confirmation of a plan under section 1325 of this title and denial of a request made for additional time for filing another plan or a modification of a plan;

(6) material default by the debtor with respect to a term of a confirmed plan;

(7) revocation of the order of confirmation under section 1330 of this title, and denial of confirmation of a modified plan under section 1329 of this title; or

(8)termination of a confirmed plan by reason of the occurrence of a condition specified in the plan other than completion of payments under the plan.

4

. . The property, which was purchased by Ms. Angotti at foreclosure, was subsequently sold to Frank and Jane Budnick, who are complete strangers to this proceeding, and bona fide purchasers of the property in question.

5

. § 105. Power of court

(a) The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.

6

. The trustee points out that Judge Boyle denied the debtor's requests for rehearing and for a temporary restraining order, and that the debt- or did not appeal those orders. See Trustee’s Memorandum of Law at 1.

7

. § 549. Postpetition transactions

(a) Except as provided in subsection (b) or (c) of this section, the trustee may avoid a transfer of property of the estate—

(1) made after the commencement of the case, and

(2)(A) that is authorized only under section 303(f) or 542(c) of this title; or

(B) that is not authorized under this title or by the court (emphasis added).

8

.There is no evidence or cause for inference that Mary Angotti purchased the subject property at other than a regularly-conducted, noncollu-sive foreclosure sale.

1

.(c) Except as provided in subsection (e) of this section, on request of a party in interest and after notice and a hearing, the court may convert a case under this chapter to a case under chapter 7 of this title, or may dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause, including—

(1) unreasonable delay by the debtor that is prejudicial to creditors;

(2) nonpayment of any fees and charges required under chapter 123 of title 28;

(3) failure to file a plan timely under section 1321 of this title;

(4) denial of confirmation of a plan under section 1325 of this title and denial of additional time for filing another plan or a modification of a plan;

(5) material default by the debtor with respect to a term of a confirmed plan;

(6) revocation of the order of confirmation under section 1330 of this title, and denial of confirmation of a modified plan under section 1329 of this title; and

(7)termination of a confirmed plan by reason of the occurrence of a condition specified in the plan.

2

. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.

3

. The docketed travel tells only part of the entire story. Unrecorded, but very much a part of this case, are numerous office conferences conducted at great length, requiring the repeated attendance of counsel, with resulting legal expense to creditors attempting to have their rights determined.

4

. No order of confirmation was entered because the Trustee, apparently through oversight, did not present one to the Court.

5

. This motion was not considered because on that date the Court acted in accordance with its previous order providing for automatic conversion upon default by the Debtor.

6

. See Docket Sheet attached as Exhibit A.