FILED APR 25 2016 1 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL 2 OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. CC-15-1211-KuDTa ) 6 IRISON LOMONT JONES, ) Bk. No. 2:13-bk-15206-SK ) 7 Debtor. ) ______________________________) 8 ) IRISON LOMONT JONES; ) 9 ELZA JONES, ) ) 10 Appellants, ) ) 11 v. ) MEMORANDUM* ) 12 WESLEY H. AVERY, Chapter 7 ) Trustee; KATHY A. DOCKERY, ) 13 Chapter 13 Trustee; BRETT BOYD) CURLEE, ) 14 ) Appellees. ) 15 ______________________________) 16 Argued and Submitted on March 17, 2016 at Pasadena, California 17 Filed – April 25, 2016 18 Appeal from the United States Bankruptcy Court 19 for the Central District of California 20 Honorable Sandra R. Klein, Bankruptcy Judge, Presiding 21 Appearances: Jessica Ponce argued for appellants Irison Lomont Jones and Elza Jones; Brett Boyd Curlee argued for 22 appellees Wesley H. Avery, Chapter 7 Trustee, and Brett Boyd Curlee. 23 24 Before: KURTZ, DUNN and TAYLOR, Bankruptcy Judges. 25 26 * This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8024-1. 1 INTRODUCTION 2 The debtor Irison Lomont Jones appeals from a bankruptcy 3 court order dismissing his chapter 131 bankruptcy case and 4 imposing restrictions on his future bankruptcy filings. The 5 dismissal order barred Jones from obtaining a discharge of his 6 existing debts in any future bankruptcy case and also barred 7 Jones from filing a new case for three years absent a court 8 order, obtained in advance, permitting the bankruptcy filing. 9 The dismissal order also imposed the same restrictions on 10 Jones’ wife, Elza, who also appeals from the bankruptcy court’s 11 dismissal order. 12 The record supports all aspects of the bankruptcy court’s 13 decision against Jones. Over the course of several years, Jones 14 engaged in a pattern of conduct aimed at unfairly manipulating 15 the bankruptcy process in order to prevent his secured creditors 16 from foreclosing on his real property assets, and he did so 17 without any real desire or intent to obtain actual bankruptcy 18 relief. Jones’ conduct also was egregious and justified the 19 exceptional restrictions the court imposed against him. 20 On the other hand, in the process of imposing restrictions 21 against Elza, the bankruptcy court committed both procedural and 22 substantive errors. Elza was not named as a party in the 23 dismissal motion, nor was any relief requested against her in the 24 motion. More importantly, no evidence was offered demonstrating 25 1 26 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 27 all "Rule" references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. All “Civil Rule” references are to 28 the Federal Rules of Civil Procedure.
2 1 that she actively participated in Jones’ misconduct, and no 2 findings were made supporting the extraordinary bankruptcy 3 restrictions imposed against her. 4 Accordingly, we REVERSE those portions of the dismissal 5 order barring Elza from discharging her existing debts in future 6 bankruptcy cases and barring her from filing bankruptcy for three 7 years in the absence of a prefiling order permitting such filing. 8 All other aspects of the bankruptcy court’s dismissal order are 9 AFFIRMED. 10 FACTS 11 Jones commenced his current bankruptcy case, a chapter 7 12 case, in February 2013. According to Jones, he commenced the 13 case because of foreclosure proceedings pending against a four- 14 unit apartment building he owned in Culver City, California. 15 This was not Jones' first bankruptcy case. In July 2008, Jones 16 filed a chapter 11 petition, which he voluntarily dismissed a few 17 months later. 18 Jones also was involved in four other bankruptcy cases 19 filed with the obvious intent to prevent foreclosure of his 20 residence located in Lancaster, California. The secured 21 creditor, Indymac Bank, recorded a notice of trustee’s sale in 22 March 2010 scheduling the sale to take place on April 16, 2010. 23 Before that sale could take place, however, Jones proceeded to 24 make a series of transfers of 25% fractional interests in his 25 Lancaster residence to third parties, who then commenced their 26 own bankruptcy cases. These events are more specifically 27 described as follows: 28 • On April 14, 2010, Jones executed a quitclaim deed, which
3 1 was recorded on April 15, 2010, transferring a 25% interest 2 in the Lancaster property to his brother, Brett Jones- 3 Theophilious. 4 • On April 15, 2010, Theophilious commenced a chapter 13 5 bankruptcy case. In his face-sheet filing, Theophilious 6 identified the address of the Lancaster property as his 7 street address, and the only creditor he included on his 8 mailing list was Indymac. 9 • On May 7, 2010, the bankruptcy court dismissed Theophilious’ 10 bankruptcy case, with an 180-day bar to refiling, because he 11 failed to file any of the required schedules or a statement 12 of financial affairs. 13 • On May 11, 2010, Jones executed a quitclaim deed, which was 14 recorded on May 14, 2010, transferring a 25% interest in the 15 Lancaster property to Armando Carranza, Jr. 16 • On May 14, 2010, Carranza commenced a chapter 13 bankruptcy 17 case. In his face-sheet filing, Carranza identified the 18 address of the Lancaster property as his street address, and 19 the only creditor he included on his mailing list was 20 Indymac. 21 • On June 4, 2010, the bankruptcy court dismissed Carranza’s 22 bankruptcy case because he failed to file any of the 23 required schedules or a statement of financial affairs. 24 • On July 6, 2010, Carranza commenced a second chapter 13 25 bankruptcy case. In his second petition, Carranza 26 identified the address of the Lancaster property as his 27 street address, and the only creditor he scheduled and 28 included on his mailing list was Indymac.
4 1 • On July 26, 2010, the bankruptcy court dismissed Carranza’s 2 second bankruptcy case because he failed to file all but one 3 of the required schedules, and he also failed to file a 4 statement of financial affairs. 5 • On August 3, 2010, Jones executed a quitclaim deed, which 6 was recorded on August 19, 2010, transferring a 25% interest 7 in the Lancaster property to Tamisha Mealand Herbert. 8 • On August 19, 2010, Herbert commenced a chapter 13 9 bankruptcy case. In her face-sheet filing, Herbert 10 identified the address of the Lancaster property as her 11 street address, and the only creditor she included on her 12 mailing list was Indymac. 13 • On August 19, 2010, the bankruptcy court dismissed Herbert’s 14 bankruptcy case because she failed to file any of the 15 required schedules or a statement of financial affairs. 16 In contrast, in his own 2013 case, Jones did file bankruptcy 17 schedules, although his first attempt at doing so was less than 18 adequate. For example, Jones did not list any real property on 19 his Schedule A. He did list both his Culver City property and 20 his Lancaster residence on his Schedule C – property claimed as 21 exempt – but he did not identify in his Schedule C any exemption 22 that he actually was claiming. 23 When Jones eventually filed amended schedules in June 2013, 24 he listed both the Lancaster property and the Culver City 25 property in his amended Schedule A, but Jones included nothing in 26 his schedules to reflect the 25% fractional interests in the 27 Lancaster property he had conveyed in 2010 to Theophilious, 28 Carranza and Herbert, or to reflect that he only held a 25%
5 1 interest in the Lancaster property as a result of those 2 transfers. 3 In his amended Schedule B, Jones listed a nonfunctioning 4 Subaru automobile, an Apple boat trailer, a Ford recreational 5 vehicle, a Yamaha all-terrain vehicle, and a Sun Tracker boat. 6 The total aggregrate value he attributed to these items was 7 $13,200. The same personal property transportation assets were 8 listed on Jones’ original schedules, with the same aggregate 9 value stated. 10 The initial § 341(a) first meeting of creditors was held in 11 March 2013. At the initial meeting, the chapter 7 trustee, 12 Wesley Avery, requested that Jones provide additional documents 13 so that Avery could complete his investigation of Jones’ assets, 14 and Avery continued the § 341(a) hearing until May 2013. Jones 15 never complied with Avery’s document requests, and he 16 corresponded with Avery to tell him that he would not attend the 17 continued § 341(a) hearing, as required by statute. In his 18 correspondence, Jones advised Avery that “[d]ue to my current 19 circumstances, I am no longer seeking chapter 7 bankruptcy 20 protection at this time.” But Jones did not take any action in 21 the bankruptcy court to voluntarily dismiss or convert his 22 chapter 7 case. Instead, he filed his amended chapter 7 23 schedules in June 2013.2 24 25 2 Around the same time, in May 2013, Avery commenced two 26 adversary proceedings. While the two adversary proceedings did not play a leading role in the bankruptcy court’s June 2015 27 decision to dismiss Jones’ bankruptcy case, they did play a supporting role, and they are part of the context in which the 28 (continued...)
6 1 Jones’ most notable incidents of debtor misconduct related 2 to Avery’s attempts to sell Jones’ Lancaster residence. When 3 Avery and his professionals contacted Jones by phone in March 4 2013 seeking to gain access to the Lancaster property and the 5 Culver City property for a “walk-through,” Jones verbally refused 6 and hung up on them. 7 Later on, in February 2014, the bankruptcy court granted 8 Avery approval to sell the Lancaster property over Jones’ 9 objections. Even though Jones had advised Avery in April 2013 10 that he no longer desired chapter 7 relief, Jones did not file a 11 motion to voluntarily dismiss his chapter 7 case until January 12 2014, shortly after Avery filed his motion to sell the Lancaster 13 property. 14 Around the same time, Jones also filed a motion to convert 15 his bankruptcy case to chapter 13 and a motion effectively 16 seeking to have the bankruptcy court reconsider its prior ruling 17 limiting his homestead exemption to his 25% interest in the 18 19 2 (...continued) 20 bankruptcy court dismissed Jones’ case with a bar to discharge and a three-year bar to refiling. In the first (Adv. Dkt. No. 21 13-01502), Avery sued Theophilious, Carranza and Herbert to avoid and recover the fractional interests in the Lancaster property 22 Jones previously conveyed to them. In the second (Adv. Dkt. No. 23 13-01559), Avery sued Jones, primarily seeking to deny Jones a discharge, but also seeking to bar Jones from recovering any 24 transfers avoided by Avery in the first adversary proceeding. Subsequently, Avery obtained default judgments against 25 Theophilious, Carranza and Herbert in the first adversary 26 proceeding, and he added claims for relief for waste and conversion of estate property against both Jones and his wife 27 Elza in the second adversary proceeding. The second adversary proceeding was still pending at the time the bankruptcy court 28 dismissed Jones’ bankruptcy case.
7 1 Lancaster property. According to Jones, because Avery obtained a 2 default judgment avoiding the fractional interests Jones had 3 conveyed to Theophilious, Carranza and Herbert, Jones now was 4 entitled to a homestead exemption for a 100% interest in the 5 Lancaster property. In addition, Jones asserted that the 6 bankruptcy court should deny Avery’s motion to sell because of 7 his entitlement to a homestead exemption and because he and his 8 family resided at the Lancaster property and would be left 9 homeless if the property were sold. 10 The court rejected all of the arguments Jones made in 11 opposition to the sale and entered an order on February 7, 2014 12 authorizing Avery to sell the Lancaster property to a third party 13 for $535,000. The court further ordered that all of the 14 occupants of the property, including Jones and his spouse, needed 15 to turn over possession of the property to Avery by no later than 16 5:00 pm on February 24, 2014. Jones filed a notice of appeal 17 from the sale order and sought a stay pending appeal, which the 18 bankruptcy court and this Panel both denied. 19 In advance of the turnover of possession, on February 19, 20 2014, Avery’s field agent Rommel Agee inspected all of the 21 automobiles and boats located on the Lancaster property. In 22 addition to the personal property transportation assets listed on 23 Jones’ Schedule B, Agee found five additional motor vehicles on 24 the property, an additional recreational vehicle, an additional 25 boat, and a “Sea Doo” watercraft. 26 Agee returned to the Lancaster property on February 24, 27 2014, at 1:00 p.m., to assist Avery in recovering possession of 28 the residence. According to Agee, all of the motor vehicles
8 1 formerly on the property had been removed, except for the Ford 2 recreational vehicle. The two boats and the boat trailer also 3 were present. After an unidentified man threatened Agee, Agee 4 parked his car several yards from the property but with a clear 5 view of the property and observed the unidentified man get into a 6 truck and tow away the Sun Tracker boat and the boat trailer at 7 about 3:00 p.m. 8 At roughly 5:00 p.m., Avery’s real estate broker met Agee at 9 the Lancaster property, and they attempted to take possession of 10 the property from Jones and his spouse, but Jones refused, saying 11 that they still were in the process of moving out. Later that 12 same evening, Agee observed Jones loading personal property into 13 the Ford recreational vehicle and driving away. Apparently, Agee 14 made some comment to Jones at that time about him not being 15 authorized to leave with the recreational vehicle, that the 16 vehicle belonged to the bankruptcy trustee. According to Agee, 17 Jones responded that he was taking the recreational vehicle 18 “because he needed a place to live.” 19 At roughly 10:30 p.m. that same night, Agee, Avery’s real 20 estate agent, and the purchaser’s real estate agent were able to 21 enter into the interior of the property. Upon entering, they 22 discovered that many fixtures had been removed and that the 23 residence had been vandalized. The bankruptcy court summarized 24 the damage to the property in the following manner: 25 1. Significant portions of the plumbing had been smashed out and the electrical wiring was substantially 26 compromised; 27 2. Concrete was poured down the drains and the plumbing was ripped out; 28
9 1 3. The pool filtration system was taken out and concrete was poured down the pipes leading from 2 the pool filtration system to the pool; 3 4. All the appliances from the indoor kitchen and the outdoor barbeque/wet bar area had been removed and 4 the utility lines to the outdoor barbeque area had been destroyed; 5 5. The range hood had been ripped out of the ceiling 6 in the kitchen; 7 6. Parts of the marble counter tops had been smashed out; 8 7. The ceiling fans had been torn out; 9 8. The cabinetry was demolished and/or damaged; 10 9. The sink in the bar area of the kitchen had been 11 removed; 12 10. All of the light poles in the backyard had been torn out; 13 11. Debris were [sic] strewn throughout; 14 12. Dry concrete had been poured and mashed into 15 carpets; 16 13. The built-in fireplace facade had been destroyed and the gas lines had been ripped out; and 17 14. Assorted animals had been slaughtered and 18 dismembered and left in containers in the backyard. 19 20 Final Ruling (June 11, 2015) at pp. 7-8. 21 Subsequently, Avery obtained a contractor’s bid estimating 22 the cost of repairs that needed to be made to the Lancaster 23 property at $90,000. In light of the damage done to the 24 Lancaster property, the pending sale could not be completed and 25 was cancelled. Avery also was unsuccessful in recovering the 26 personal property transportation assets, and Jones ignored 27 Avery’s demands that Jones disclose information regarding the 28 location of those assets, their registration and any liens held
10 1 against them. 2 In May 2014, Avery withdrew his opposition to conversion of 3 Jones’ bankruptcy case from chapter 7 to chapter 13. Shortly 4 thereafter, the bankruptcy court entered a conversion order. 5 During the rest of 2014 and the first quarter of 2015, Jones 6 attempted to confirm several different versions of his chapter 13 7 plan. Ultimately, the bankruptcy court denied confirmation of 8 Jones’ third amended chapter 13 plan. The court ruled that it 9 would be impossible for Jones to obtain confirmation of a 10 chapter 13 plan. According to the court, there were a number of 11 unresolved inconsistencies regarding the case and regarding 12 Jones’ reporting of his assets. 13 At Avery’s request, at the final plan confirmation hearing 14 held on April 2, 2015, the court set a date for Avery and his 15 former counsel and his former accountant – all three creditors 16 holding chapter 7 administrative claims – to file a motion to 17 dismiss Jones’ case, with a bar to refiling and/or a bar to 18 discharge.3 The court also set May 6, 2014 as the date for that 19 motion to be heard, but the court later continued the hearing 20 date to June 10, 2014, because, at least initially, Avery only 21 served the dismissal motion on Jones’ counsel and not on Jones 22 3 23 Whereas all three chapter 7 administrative claimants jointly filed an objection to Jones’ third amended chapter 13 24 plan, only the attorney and the accountant were named as movants in the dismissal motion. Meanwhile, on appeal, Avery and his 25 former attorney jointly filed an appellee’s responsive brief. 26 While the parties nominally opposing Jones changed somewhat over time, Jones has not raised any issue in relation to these 27 changes, nor do we perceive any potentially dispositive issue concerning these changes. For ease of reference, we continue to 28 refer to the party opposing Jones simply as Avery.
11 1 himself. 2 At the June 2014 hearing on the motion to dismiss, the 3 bankruptcy court ruled that the case should be dismissed, that 4 Jones should be permanently barred from discharging his existing 5 debts, and that Jones additionally should be barred from filing 6 another bankruptcy case for three years in the absence of prior 7 bankruptcy court approval. In support of its ruling, the 8 bankruptcy court stated that it was examining the totality of the 9 circumstances and considering the following four factors 10 articulated by the Ninth Circuit: 11 (1) Whether the debtor misrepresented facts in his petition or plan, unfairly manipulated the Bankruptcy 12 Code, or otherwise filed his Chapter 13 petition or plan in an inequitable manner; 13 (2) The debtor's history of filings and dismissals; 14 (3) Whether the debtor only intended to defeat state 15 court litigation; and 16 (4) whether egregious behavior is present. 17 Final Ruling (June 11, 2015) at p. 16 (citing Leavitt v. Soto 18 (In re Leavitt), 171 F.3d 1219, 1224 (9th Cir. 1999). 19 Addressing the first Leavitt factor, the bankruptcy court 20 found that Jones misrepresented in his petition and schedules the 21 extent of his ownership in the Lancaster property (by not 22 disclosing that he only held a 25% interest in the property). 23 The bankruptcy court also found that Jones unfairly manipulated 24 the bankruptcy process. According to the court, once Jones 25 learned of Avery’s intent to carry out his statutory duties as 26 chapter 7 trustee to collect and liquidate Jones’ assets, 27 particularly the Lancaster property, Jones wholly refused to 28 cooperate with Avery and instead sent a letter to Avery stating
12 1 that he no longer was seeking chapter 7 protection. In addition, 2 the court noted, Jones obstructed Avery’s efforts to sell the 3 Lancaster property, ultimately by vandalizing the property, which 4 led to cancellation of the sale. 5 The bankruptcy court also made two findings that led the 6 court to conclude that Jones proposed his chapter 13 plans in an 7 inequitable manner. First, the bankruptcy court found that 8 Jones’ plans either wholly omitted the allowed administrative 9 claims of Avery and his professionals or proposed to pay those 10 claims with a vacant lot rather than in cash. Second, the 11 bankruptcy court found that Jones manipulated the income and 12 expense figures in the various versions of his schedules I and J 13 to support whatever at the moment he was attempting to propose in 14 his plan. 15 Addressing the second Leavitt factor, the bankruptcy court 16 turned its attention to the history of bankruptcy filings and 17 dismissals in which Jones was involved. The bankruptcy court 18 focused on the fractional interest bankruptcy scheme involving 19 the Lancaster property. The bankruptcy court rejected Jones’ 20 argument that he only engaged in this scheme because a paralegal 21 told him that the scheme was legal. The court, in effect, found 22 that Jones was not credible on this point and that Jones 23 knowingly and actively sought to obstruct all efforts undertaken 24 to divest him of the Lancaster property. 25 As for the third Leavitt factor, the bankruptcy court found 26 nothing in the record indicating the existence or status of state 27 court litigation against Jones, so the court concluded that the 28 third Leavitt factor was inapplicable. However, with respect to
13 1 the fourth Leavitt factor, the bankruptcy court found that Jones 2 had acted egregiously in the following ways: 3 by interfering with Avery’s performance of his statutory duties and by vandalizing or allowing to be 4 vandalized the Lancaster Property, which caused the cancellation of the sale. Further, it appears that 5 Jones either removed or allowed to be removed from the Lancaster Property several vehicles that could have 6 been liquidated for the benefit of creditors and the estate. 7 8 Final Ruling (June 11, 2015) at p. 128. 9 After determining that dismissal, rather than conversion 10 back to chapter 7, was in the best interests of creditors, the 11 bankruptcy court next addressed what restrictions it should 12 impose on any future bankruptcy filings by Jones. In accordance 13 with In re Leavitt, 171 F.3d at 1224, the bankruptcy court 14 applied the same factors it had considered in dismissing Jones’ 15 bankruptcy case and held that Jones should be barred from 16 discharging his existing debts in any future bankruptcy case. As 17 an additional restriction on Jones’ future bankruptcy filings, 18 the bankruptcy court ruled that Jones would be barred for three 19 years from filing another bankruptcy case unless he first 20 obtained court approval to file bankruptcy. The bankruptcy court 21 further specified that, in any future bankruptcy case filed by 22 Jones, by his wife or by any person to whom Jones has transferred 23 property, the filing party would need to file a copy of the 24 bankruptcy court’s final ruling in this matter within seven days 25 of the filing of the bankruptcy petition. 26 Notwithstanding the above, the final written order of the 27 bankruptcy court, based on a form of order submitted by Avery, 28 went further. Whereas the bankruptcy court’s ruling at the time
14 1 of the hearing only barred Jones from discharging his existing 2 debts and from filing another bankruptcy for three years, the 3 final written order also applied the same bars to Jones’ wife, 4 Elza. 5 On June 30, 2015, Jones and Elza timely filed their notice 6 of appeal. 7 JURISDICTION 8 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 9 §§ 1334 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. 10 § 158. 11 ISSUES 12 1. Did the bankruptcy court commit reversible error when it 13 dismissed Jones’ case based on Jones’ bad faith, or when it 14 imposed restrictions on Jones’ future bankruptcy filings? 15 2. Did the bankruptcy court commit reversible error when it 16 imposed restrictions on Elza’s future bankruptcy filings? 17 STANDARDS OF REVIEW 18 We review the bankruptcy court’s case dismissal and its 19 restrictions on Jones’ and Elza’s future bankruptcy filings for 20 an abuse of discretion. Ellsworth v. Lifescape Med. Assocs., 21 P.C. (In re Ellsworth), 455 B.R. 904, 914 (9th BAP Cir. 2011); 22 see also Richardson v. Melcher (In re Melcher), 2014 WL 1410235, 23 at *9 (Mem. Dec.) (9th Cir. BAP Apr. 11, 2014). 24 The bankruptcy court abused its discretion if it applied an 25 incorrect legal standard or its findings were illogical, 26 implausible or without support in the record. United States v. 27 Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc). 28
15 1 DISCUSSION 2 Under § 1307(c), the bankruptcy court may dismiss a 3 chapter 13 bankruptcy case “for cause”. The bad faith of the 4 debtor in filing his or her bankruptcy petition is one type of 5 cause for dismissal. In re Leavitt, 171 F.3d at 1224. 6 Jones has not challenged on appeal the legal standards the 7 bankruptcy court applied in support of its decision to dismiss 8 his case. We accept those standards as correct. The bankruptcy 9 court correctly examined the totality of circumstances and duly 10 considered the four factors enunciated in In re Leavitt, 171 F.3d 11 at 1224. 12 Jones also has not challenged, in general, the procedures 13 the bankruptcy court employed before dismissing his case and 14 before imposing restrictions on Jones’ future bankruptcy filings. 15 Jones had sufficient notice and time to respond to Avery’s 16 motion, which specifically sought dismissal of the current case, 17 a bar to discharge existing debts in future cases, and a 18 permanent bar to filing a new bankruptcy case absent prior court 19 approval. Nor did Jones request either an evidentiary hearing or 20 a continuance of the dismissal hearing for the purpose of further 21 addressing the proposed restrictions. Moreover, the bankruptcy 22 court duly considered alternatives to the restrictions Avery 23 proposed and, in fact, opted for a three-year ban on future 24 filings in lieu of the permanent ban Avery requested. Under 25 these circumstances, we cannot say that the procedures employed 26 by the bankruptcy court were fatally deficient with respect to 27 Jones. See In re Ellsworth, 455 B.R. at 922-23. 28 On appeal, Jones primarily challenges a handful of the
16 1 bankruptcy court’s findings and the weight the court gave to 2 other findings in determining that Jones filed his bankruptcy 3 petition in bad faith. Jones concentrates heavily on the 4 bankruptcy court’s finding that all four versions of his 5 chapter 13 plan were proposed in an inequitable manner. Jones 6 contends that the plans were both feasible and equitable. More 7 specifically, Jones points out that, at the time his original 8 plan and his first amended plan were filed, he did not provide 9 for any chapter 7 administrative claims because none of the 10 chapter 7 administrative creditors had yet requested or obtained 11 allowance of their administrative claims. He also points out 12 that his second and third amended plans did contain provisions 13 aimed at paying the chapter 7 administrative claimants. 14 Jones further argues that, in determining his plans to be 15 inequitable, the bankruptcy court should not have made a finding 16 that Jones changed the amounts he reported in the various 17 versions of his Schedules I and J to support whatever he was 18 proposing at the time in his various proposed plans. According 19 to Jones, the court violated his constitutional due process 20 rights by considering the inconsistent Schedules I and J because 21 they were not discussed in Avery’s dismissal motion. 22 We disagree. Due process is a relatively minimal standard 23 that only requires “notice reasonably calculated, under all the 24 circumstances, to apprise interested parties of the pendency of 25 the action and afford them an opportunity to present their 26 objections.” Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 27 306, 314 (1950). Avery’s moving papers made it clear that Avery 28 was seeking dismissal of Jones’ bankruptcy case, a bar to
17 1 discharging existing debts in future bankruptcy cases and a 2 permanent bar to refiling bankruptcy absent advance court 3 approval. The moving papers also identified the correct legal 4 standard, which required the bankruptcy court to examine “all of 5 the relevant facts and circumstances in a case.” Motion 6 (April 10, 2015) at 20:3-4. Under this exceptionally broad 7 standard, Jones cannot credibly argue that inconsistencies within 8 his bankruptcy schedules were beyond the scope of the dismissal 9 motion. Nor can Jones credibly argue that the information 10 contained in the schedules was unknown to him, as he was the one 11 who filed them. 12 That Jones, as a matter of strategy or tactics, chose not to 13 address the inconsistencies in his schedules is not a violation 14 of his due process rights. Tellingly, the bankruptcy court’s 15 concerns regarding the inconsistent amounts in Jones’ Schedules I 16 and J were disclosed in the bankruptcy court’s tentative ruling, 17 which was emailed to the parties the day before the hearing on 18 the dismissal motion. Yet Jones did not comment on those 19 concerns at the hearing, nor did he ask for more time to address 20 those concerns. Indeed, even on appeal, Jones has not offered 21 any alternate explanation for the inconsistencies in his 22 Schedules I and J – documents within his own knowledge and 23 control. In short, the only plausible explanation ever offered 24 for Jones’ inconsistent Schedules I and J was the explanation the 25 bankruptcy court inferred: that Jones changed the income and 26 expense amounts stated in his Schedules I and J to support 27 whatever proposal he was making at the time in his chapter 13 28 plan.
18 1 As for the bankruptcy court’s criticism of Jones’ plan 2 treatment of his chapter 7 administrative creditors, even if we 3 were to assume that there is some merit to Jones’ complaints 4 regarding this criticism, this criticism was one of two alternate 5 findings on which the bankruptcy court based its determination 6 that Jones had filed his chapter 13 plans inequitably. As 7 explained above, Jones’ challenge to the alternate finding – 8 regarding changes to his Schedules I and J to suit his plan needs 9 – lacks merit. 10 Moreover, the court’s determination that Jones filed his 11 plans in an inequitable manner was one of three alternate grounds 12 the bankruptcy court offered for concluding that the first factor 13 enunciated in In re Leavitt was satisfied. The bankruptcy court 14 additionally determined that Jones misrepresented facts in his 15 petition and that Jones attempted to unfairly manipulate the 16 bankruptcy process. In support of its misrepresented facts 17 determination, the bankruptcy court relied on the undisputed 18 fact that Jones’ amended schedules indicated that he held a 100% 19 fee simple ownership interest in the Lancaster property and the 20 undisputed fact that nowhere in Jones’ schedules did he mention 21 that he had conveyed 25% fractional interests in that property to 22 Theophilious, Carranza and Herbert, thereby reducing his own 23 interest to 25%. 24 In support of its unfair manipulation of the bankruptcy 25 process determination, the bankruptcy court pointed to Jones’ 26 refusal to appear for examination at the continued § 341(a) 27 meeting of creditors and his efforts to obstruct Avery’s attempts 28 to liquidate his assets for the estate’s benefit, including his
19 1 vandalization of the Lancaster property, which led to the 2 cancellation of the pending sale of that property. 3 Jones’ argument on appeal attacking these findings is 4 exceptionally weak. Without explanation, Jones characterizes the 5 bankruptcy court’s findings regarding his refusal to appear for 6 examination at his continued § 341(a) meeting and his failure to 7 accurately list his actual ownership interest in the Lancaster 8 property as immaterial or of minimal probative value. We 9 disagree. Jones had statutory duties both to appear for 10 examination and to accurately list his assets in his bankruptcy 11 schedules. See §§ 343, 521. The debtor’s full, complete and 12 accurate disclosure of his financial affairs in his bankruptcy 13 case is essential to the functioning of our bankruptcy system. 14 Searles v. Riley (In re Searles), 317 B.R. 368, 378 (9th Cir. BAP 15 2004), aff'd, 212 Fed. Appx. 589 (9th Cir. 2006). More to the 16 point, Jones’ failure to cooperate in the financial disclosure 17 process is highly indicative of his unfairly gaming the 18 bankruptcy system, as the bankruptcy court essentially found. 19 As for the bankruptcy court’s finding that Jones vandalized 20 the Lancaster property before moving out (or that he permitted 21 others to vandalize the property while he was in possession and 22 control of the property), Jones’ challenge to this finding is 23 twofold. First, Jones claims that he was denied due process 24 because Avery refused his requests to access the property so that 25 he could inspect the alleged damage and respond to the charges of 26 vandalism and waste. Second, Jones contends that the evidence in 27 the record does not reasonably support the bankruptcy court’s 28 finding that Jones vandalized the Lancaster property or permitted
20 1 it to be vandalized. According to Jones, the bankruptcy court 2 had no evidence before it that would allow it reasonably to infer 3 that Jones vandalized the property at the time he moved out. 4 Jones was not denied due process. If Jones desired to 5 inspect the Lancaster property and if Avery refused access to 6 Jones for that purpose, Jones could have sought relief from the 7 bankruptcy court in the form of a motion seeking to compel Avery 8 to permit the inspection. Jones’ alleged waste of the Lancaster 9 property was at issue in Avery’s adversary proceeding against 10 Jones (Adv. No. 13-01559) since April 2014, so Jones had ample 11 time and incentive to pursue the issue of an inspection in 12 conjunction with that adversary proceeding. But Jones never 13 requested relief in that adversary proceeding seeking to compel 14 Avery to permit that inspection. Nor did Jones request such 15 relief in the main bankruptcy case. Jones’ failure to pursue his 16 rights by filing an appropriate motion with the court does not 17 constitute a violation of Jones’ due process rights. 18 As for the bankruptcy court’s finding that Jones vandalized 19 the Lancaster property, that finding was not illogical, was not 20 implausible, and was supported by reasonable inferences drawn 21 from the facts in the record. Avery submitted sufficient 22 evidence to support the bankruptcy court’s finding. That 23 evidence included the declaration testimony of several witnesses 24 who observed the condition of the Lancaster property immediately 25 after Jones moved out. The evidence also included photographs 26 showing the condition of the property both before and after Jones 27 moved out. Jones never objected to any of the evidence offered 28 by Avery.
21 1 The evidence also included Jones’ declaration stating that 2 the Lancaster property was his “pride and joy” and that he never 3 would have destroyed any part of it. Jones did admit, however, 4 that he removed from the property a number of fixtures including 5 a walk-in freezer, a marble table top, and an oven and oven hood. 6 These admissions are consistent with other admissions that Jones 7 made in other declarations he filed in the bankruptcy court. For 8 instance, in a declaration he filed in March 2014 in the main 9 bankruptcy case, Jones admitted to removing refrigeration units, 10 kitchen equipment, and “other equipment throughout the premises.” 11 In another declaration filed in April 2014 in Avery’s adversary 12 proceeding against Jones, Jones admitted to removing the above- 13 referenced fixtures as well as ceiling fans. While Jones 14 protested that he and his movers were very careful not to damage 15 anything as they moved him out of the Lancaster property, the 16 bankruptcy court apparently found Jones not credible on this 17 point. Instead, the bankruptcy court found that, as part of 18 Jones’ ongoing efforts to obstruct Avery’s attempted sale of the 19 Lancaster property, Jones vandalized the property before he moved 20 out. On this record, we cannot say that the bankruptcy court’s 21 view of the evidence or the inferences it drew from that evidence 22 were unreasonable. Accordingly, we have no basis to overturn the 23 bankruptcy court’s determination that Jones unfairly manipulated 24 the bankruptcy process or to overturn the findings on which the 25 bankruptcy court based that determination. 26 This only leaves the bankruptcy court’s determination that 27 Jones’ conduct was egregious – the final relevant In re Leavitt 28 factor. Jones contends that his conduct did not rise to the
22 1 level of egregiousness required to justify the restrictions on 2 future bankruptcy filings the bankruptcy court imposed. In 3 challenging the bankruptcy court’s egregiousness determination, 4 Jones, in essence, claims that something more in the way of 5 misconduct was required before the bankruptcy court properly 6 could order a bar to discharge and a three-year bar to refiling. 7 We will address each restriction on future filings in turn. 8 The bankruptcy court articulated the correct standard for 9 dismissing a case with a bar to discharging existing debts in 10 future cases. See 11 U.S.C. § 349(a); In re Leavitt, 171 F.3d at 11 1224; In re Ellsworth, 455 B.R. at 922. When the bankruptcy 12 court dismisses a case with a bar to discharging debts in future 13 bankruptcy cases, the bankruptcy court must consider the four 14 In re Leavitt factors and must find egregious conduct. 15 In re Leavitt, 171 F.3d at 1224 (“a finding of bad faith based on 16 egregious behavior can justify dismissal with prejudice”). 17 There is no standard definition as to what constitutes 18 egregious conduct for purposes of dismissing a bankruptcy case 19 with prejudice. Rather, the holdings in In re Leavitt and 20 In re Ellsworth suggest that the egregiousness determination 21 ordinarily should be made on a case-by-case basis. We see no 22 justification to depart from that methodology here, nor has Jones 23 offered us any justification. Suffice it to say that Jones’ 24 fractional interest bankruptcy scheme, his refusal to satisfy his 25 duties to fully and accurately disclose his financial affairs, 26 his obstruction of the trustee’s sale of the Lancaster property 27 and his changing the amounts stated in his Schedules I and J to 28 suit the needs of his proposed chapter 13 plans, when considered
23 1 together, more than sufficiently justify the bankruptcy court’s 2 egregiousness determination and dismissal of Jones’ case with a 3 bar to discharging existing debts in future bankruptcy cases. 4 The bankruptcy court also correctly stated the standards for 5 imposing a permanent bar to refiling absent a prior court order – 6 often referred to as a prefiling order. Citing In re Melcher, 7 2014 WL 1410235, at *9-*10, the bankruptcy court stated that, 8 before a bankruptcy court enters an indefinite prefiling order 9 against a debtor, the court must do all of the following: 10 (1) ensure that the debtor has been given adequate notice and 11 opportunity for hearing; (2) facilitate the development of an 12 adequate record enumerating the debtor’s abusive activities; 13 (3) determine that the debtor’s positions were frivolous or were 14 brought with the intent to harass other parties; and (4) narrowly 15 tailor the remedy to deter the debtor’s specific misconduct. Id. 16 at *9 (citing DeLong v. Hennessey, 912 F.2d 1144, 1147-48 (9th 17 Cir. 1990)). 18 In turn, in performing the third and fourth tasks set forth 19 above, the bankruptcy court must consider the following five 20 factors: 21 (1) the litigant's history of litigation and in particular whether it entailed vexatious, harassing or 22 duplicative lawsuits; (2) the litigant's motive in pursuing the litigation, e.g. does the litigant have an 23 objective good faith expectation of prevailing?; (3) whether the litigant is represented by counsel; 24 (4) whether the litigant has caused needless expense to other parties or has posed an unnecessary burden on the 25 courts and their personnel; and (5) whether other sanctions would be adequate to protect the courts and 26 other parties. 27 In re Melcher, 2014 WL 1410235, at *10 (quoting Safir v. U.S. 28 Lines, Inc., 792 F.2d 19, 24 (2d Cir. 1986), cited with approval
24 1 in, Molski v. Evergreen Dynasty Corp., 500 F.3d 1047, 1058 (9th 2 Cir. 2007)). 3 However, when the bankruptcy court ruled that it would 4 impose a three-year prefiling order, it did not make specific 5 findings addressing each of the five Safir factors.4 Instead, 6 the bankruptcy court relied on the findings and analysis it 7 already had made in its decision to dismiss the case for bad 8 faith. As the bankruptcy court put it: 9 I will impose a three-year bar to refiling based upon my analysis of the facts in this case, as well as the 10 relevant case law that’s cited in the tentative ruling. I believe that a three-year bar to filing another case 11 is appropriate. And again, that’s a three-year bar absent an order [of] the Court authorizing such filing. 12 13 Hr’g Tr. (June 10, 2015) at 17:7-13. 14 Even so, we do not consider the bankruptcy court’s three 15 year prefiling order fatally deficient. When, as here, the 16 record is fully developed and is sufficient to support the 17 bankruptcy court’s ultimate conclusion, we do not need to remand 18 for further findings. Simeonoff v. Hiner, 249 F.3d 883, 891 (9th 19 Cir. 2001). Nor is remand necessary when, as here, the appellate 20 court reasonably can infer from the bankruptcy court’s findings 21 other facts that would suffice to support the bankruptcy court’s 22 decision. Brock v. Big Bear Market No. 3, 825 F.2d 1381, 1384 23 (9th Cir. 1987). 24 The first Safir factor – inquiring into Jones’ history of 25 26 4 The bankruptcy court apparently considered explicit 27 findings on all five of the Safir factors necessary only if it was going to impose a permanent prefiling order. See Final 28 Ruling (June 11, 2015) at p. 23 n.17.
25 1 vexatious, harassing or duplicative lawsuits – effectively was 2 satisfied by the facts the bankruptcy court found regarding 3 Jones’ fractional interest bankruptcy scheme and the facts 4 surrounding Jones’ 2013 chapter 7 bankruptcy filing. As for the 5 second Safir factor – examining the motives behind Jones’ 6 litigation, we reasonably can infer from the bankruptcy court’s 7 findings that Jones did not harbor any objective good faith 8 expectation that he would prevail on any of the positions taken 9 in the bankruptcies filed by Theophilious, Carranza and Herbert 10 or on any of the positions taken in his own 2013 bankruptcy case, 11 particularly before he converted his case to chapter 13. To the 12 contrary, the overwhelming weight of the evidence, and the 13 bankruptcy court’s specific findings, demonstrate that the 14 positions taken in all four of these bankruptcy cases were part 15 of a scheme orchestrated by Jones to prevent him from losing his 16 real property assets to foreclosure, without him desiring or 17 intending to obtain actual bankruptcy relief. 18 Regarding the third Safir factor – representation by counsel 19 – it is not apparent that Jones was represented by counsel at 20 the time he engaged in his fractional interest bankruptcy scheme 21 or when he filed his chapter 7 petition. Nonetheless, the 22 tactics and strategy Jones employed throughout demonstrate both 23 volition and a significant level of sophistication in unfairly 24 manipulating the bankruptcy process in order to keep his secured 25 creditors and the chapter 7 trustee at bay. 26 With respect to the fourth Safir factor – focusing on the 27 burden and expense Jones’ positions imposed on others and the 28 needlessness of that burden and expense – the bankruptcy court’s
26 1 findings and the record establish that all of Jones’ creditors, 2 both secured and unsecured, needlessly lost out on recovering on 3 account of their claims as a result of Jones’ tactics in unfairly 4 manipulating the bankruptcy process. 5 Finally, on the fifth Safir factor – concerning the 6 availability of other sanctions sufficient to protect the courts 7 and third parties – both the bankruptcy court’s written final 8 ruling and its comments at the June 2015 dismissal motion hearing 9 reflect that the court gave careful thought to whether a 10 prefiling order was necessary and the appropriate duration of the 11 prefiling order. Simply put, we are convinced that the 12 bankruptcy court’s three-year prefiling order was narrowly 13 tailored to deter Jones from filing another bankruptcy as part of 14 an effort to further hinder his existing secured and unsecured 15 creditors. 16 The substance and procedure relating to the relief granted 17 against Elza are an entirely different matter. We are not aware 18 of any provision of the bankruptcy code giving the bankruptcy 19 court authority to place restrictions on a non-debtor party from 20 filing a future bankruptcy case in the context of a motion to 21 dismiss someone else’s bankruptcy case. To the extent a 22 bankruptcy court might be able to grant such relief under its 23 general equitable authority,5 the bankruptcy court would need to 24 25 5 This is a questionable proposition after Law v. Siegel, 26 134 S.Ct. 1188, 1194-95 (2014), in which the Supreme Court emphatically reaffirmed the principle that, “‘whatever equitable 27 powers remain in the bankruptcy courts must and can only be exercised within the confines of’ the Bankruptcy Code.” Id. 28 (continued...)
27 1 exercise that authority with extreme caution and would need to 2 carefully balance the affected parties’ respective rights after 3 ample notice and opportunity for hearing, which typically would 4 include the procedural protections afforded in an adversary 5 proceeding. See In re Van Ness, 399 B.R. 897, 904 (Bankr. E.D. 6 Cal. 2009), cited with approval in, Ellis v. Yu (In re Ellis), 7 523 B.R. 673, 679 n.9 (9th Cir. BAP 2014). 8 Here, there was no adversary proceeding initiated against 9 Elza. She was not even named as a party in Avery’s motion to 10 dismiss, nor did Avery’s motion request any relief directly 11 against her. Furthermore, the bankruptcy court did not make any 12 findings pertaining to Elza. In fact, there was no evidence in 13 the record from which the bankruptcy court reasonably could have 14 inferred that Elza actively participated in any of Jones’ 15 misconduct, let alone evidence that would justify such 16 extraordinary relief as restricting Elza’s future bankruptcy 17 filings. 18 Under these circumstances, the bankruptcy court committed 19 reversible error when it imposed bankruptcy filing restrictions 20 against Elza. In this limited respect, the bankruptcy court’s 21 order was both substantively and procedurally deficient. 22 CONCLUSION 23 For the reasons set forth above, we REVERSE those portions 24 of the dismissal order barring Elza from discharging her existing 25 debts in any future bankruptcy case and barring her from filing 26 5 27 (...continued) (quoting Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 206 28 (1988)).
28 1 bankruptcy for three years in the absence of a prefiling order 2 permitting such filing. All other aspects of the bankruptcy 3 court’s dismissal order are AFFIRMED. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28