FILED NOV 9 2023 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT NOT FOR PUBLICATION
UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: BAP No. EC-22-1245-GLS JERRY ENRIQUE WATKINS, Debtor. Bk. No. 22-20925-A-12
JERRY ENRIQUE WATKINS, Appellant, v. MEMORANDUM* U.S. BANK NATIONAL ASSOCIATION; NEWRES, c/o PHH Mortgage Service; FRANCHISE TAX BOARD, c/o Anthony Franklin; INTERNAL REVENUE SERVICE, c/o Mary Sevilla; MICHAEL MEYER, Chapter 12 Trustee, Appellees.
Appeal from the United States Bankruptcy Court for the Eastern District of California Fredrick E. Clement, Chief Bankruptcy Judge, Presiding
Before: GAN, LAFFERTY, and SPRAKER, Bankruptcy Judges.
* 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. INTRODUCTION
Chapter 121 debtor Jerry Enrique Watkins (“Debtor”) appeals the
bankruptcy court’s order dismissing his case and imposing a three-year bar
to refiling under § 349(a). Debtor filed a total of seven chapter 12 cases
between 2009 and 2022. He confirmed a plan in three of those cases but
defaulted under the terms of each confirmed plan.
In the present case, Debtor proposed to pay creditors in full through
a lump sum payment from proceeds of a new loan secured by his farm
property. The proposed loan was insufficient to pay the asserted secured
claim of creditor U.S. Bank N.A. (“US Bank”). Debtor objected to US Bank’s
claim, but only disputed $30,540 of its $2.6 million claim.
Although Debtor’s claim objection was still pending, the bankruptcy
court denied confirmation because Debtor’s proposed loan was insufficient
to pay the claims under the plan, even if US Bank’s claim was reduced by
the amount of Debtor’s objection. The court dismissed the case and
imposed a three-year bar to refiling.
Debtor argues that the court erred by dismissing the case prior to
resolving his claim objection, and by imposing a refiling bar without
adequate notice or a sufficient factual basis. Debtor does not demonstrate
error. We AFFIRM.
Unless specified otherwise, all chapter and section references are to the 1
Bankruptcy Code, 11 U.S.C. §§ 101–1532. 2 FACTS
A. Debtor’s bankruptcy and the court’s order to show cause
Debtor filed his chapter 12 petition in April 2022. He listed six prior
chapter 12 bankruptcy cases filed between 2009 and 2019, the last of which
was dismissed by the court in March 2022. Debtor scheduled total assets of
$9,827,293, including his farm, which he valued at $3,000,000. He scheduled
total debts of $1,295,505, consisting primarily of US Bank’s secured claim,
which Debtor listed as $1,201,590.
Debtor filed a status report indicating his intent to file a plan
providing for full payment to all creditors through a new “reverse
mortgage” of his farm property. Debtor stated that if he was unable to
obtain the loan, he would provide for alternate financing to pay creditors,
including a possible sale of his farm property.
Chapter 12 trustee Michael Meyer (“Trustee”) also filed a status
report which outlined in detail Debtor’s prior chapter 12 cases. Trustee
questioned Debtor’s eligibility for chapter 12 and argued that Debtor
lacked sufficient income to fund a plan. Trustee stated that Debtor had
admitted that the reverse mortgage would not provide adequate funds to
pay creditors.
At the initial status hearing in May 2022, the court expressed its
concerns about Debtor’s eligibility and the fact that Debtor had been in
chapter 12 for eleven of the past thirteen years without real progress
toward reorganization. The court indicated that it wanted to give Debtor
3 one more effort to reorganize, and it issued an order to show cause
(“OSC”) requiring Debtor to prove chapter 12 eligibility, attend the
meeting of creditors, timely file all operating reports, and timely file and
confirm a chapter 12 plan. The OSC stated that if Debtor failed to perform
his duties under the Bankruptcy Code, or to prove his eligibility for chapter
12, the court would dismiss the case and impose a three-year bar to refiling.
At the hearing on the OSC, the court held that Debtor satisfied the
threshold issue of eligibility, and it continued the hearing.
B. Debtor’s plan and claim objection
On June 22, 2022, loan servicer PHH Mortgage Corporation (“PHH”)
filed a proof of claim on behalf of US Bank evidencing a claim of
$2,626,603.20, secured by Debtor’s farm. Debtor thereafter filed his chapter
12 plan which provided for payment of all claims through a refinancing of
the farm. The plan required Debtor to make a lump sum payment to
Trustee by December 1, 2022, in an amount sufficient to satisfy all allowed
claims, which Debtor estimated at $1,415,956.34. As an exhibit to the plan,
Debtor attached a payoff quote provided by PHH stating a total amount
due of $1,223,371.90. At Debtor’s request, the bankruptcy court extended
the confirmation deadline to August 29, 2022.
On August 1, 2022, US Bank filed an amended proof of claim for
$2,608,154.85, including prepetition arrears of $1,461,127.91, and it filed an
objection to confirmation of Debtor’s plan. US Bank argued that Debtor’s
plan failed to properly treat its secured claim under § 1225(a)(5), did not
4 satisfy the best interests test of § 1225(a)(4), and was not feasible as
required by § 1225(a)(6). Trustee also objected to confirmation and argued
there was no evidence that Debtor would be able to obtain sufficient
funding to make the payments required by the plan. Trustee provided a
detailed history of Debtor’s prior unsuccessful efforts to confirm a plan in
his most recent chapter 12, which similarly provided for a lump sum
payment.
In response, Debtor disputed US Bank’s claim and cited the payoff
quote and the proof of claim filed by US Bank in Debtor’s 2019 bankruptcy
case in the amount of $1,043,960.38. He concurrently filed an objection to
US Bank’s claim and argued it should be limited to $1,223,373.90, the
amount demanded in its payoff quote.
US Bank responded to the claim objection by asserting the payoff
quote—and its proof of claim in the 2019 case—were erroneously
generated from its internal systems based on the confirmed plan in
Debtor’s 2017 case. The 2017 plan provided for a cramdown of US Bank’s
claim to $950,000, to be paid at 5.5% interest, but stated that US Bank
would retain its secured claim for the full amount under the loan in the
event of dismissal or conversion. Because Debtor’s 2017 case was
dismissed, US Bank argued it was entitled to the full amount of its claim
under the note and deed of trust, as asserted in its amended proof of claim.
In support of its response, US Bank provided documents from Debtor’s
5 2017 case, including its proof of claim for $2,147,747.87, with supporting
documentation, and Debtor’s confirmed 2017 plan.
Debtor filed a reply and argued that US Bank failed to account for
payments made under Debtor’s first chapter 12, filed in 2009. He attached
the trustee’s final report and account from that case showing
disbursements to the prior holder of the loan, in the total amount of
$30,540.
The bankruptcy court extended the deadline for confirmation and
continued the hearing to December 12, 2022. The court ordered Debtor to
file further briefs and provide evidence with respect to confirmation issues
raised by US Bank and Trustee, and it advised Debtor that failure to do so
sufficiently could result in summary denial of confirmation. The
bankruptcy court encouraged Debtor to resolve his claim objection prior to
the deadline for confirmation and warned that, “given the debtor’s history
of filings, as time passes the likelihood of further extensions diminishes.”
On November 21, 2022, the court held a hearing on Debtor’s claim
objection. Debtor acknowledged that the amount in dispute was only
$30,540 but stated that there might be an additional $200,000 in uncredited
payments. Debtor conceded the disputed amount was not enough to affect
confirmation, but he requested a continuance to allow US Bank to respond
to discovery requests and, if appropriate, to allow Debtor to file an
amended claim objection. Debtor noted that the discovery responses were
late and suggested he would consider filing a motion to compel.
6 The bankruptcy court continued the claim objection hearing to
January 9, 2023, and informed the parties that it intended to go forward
with confirmation on December 12, 2022, because the $30,540 dispute
would not affect confirmation and did not form a basis for further delay.
However, the court told Debtor that, if he provided strong evidence
supporting an objection to additional amounts, it would consider further
extending the confirmation deadline. The court advised: “the fact that [the
claim objection] is unresolved will not defeat you if you can show me
you’ve got a good chance of success and have been duly diligent in
pursuing the information necessary to prosecute your claim objection.”
C. The confirmation hearing and the court’s ruling
Prior to the continued confirmation hearing, Debtor filed exhibits
demonstrating his pre-approval for a loan sufficient to pay creditors
$1,400,000, and documents which he asserted showed that US Bank’s claim
should be further reduced by $14,510.12. Debtor contended that he was
continuing to obtain evidence of other payments made on the loan which
were not included in US Bank’s calculations.
US Bank filed the trustee’s final report and account for each of
Debtor’s six prior bankruptcy cases which showed total payments of
$67,772: (1) $30,540 disbursed in the 2009 case; and (2) $37,232 disbursed in
the 2017 case. US Bank maintained that it was working to verify whether
Debtor made any additional payments since 2009 but asserted it had not
received from Debtor any evidence of such payments. US Bank reiterated
7 its objection that Debtor’s plan was not feasible and did not adequately
treat its claim.
At the continued confirmation hearing, Debtor admitted that his
objection pertained only to $30,540 of US Bank’s $2,608,154.85 claim, and
his proposed refinance loan was insufficient to pay the claim. Debtor again
stated that he believed another $200,000 in payments were not properly
accounted for in US Bank’s claim, but he could not make an offer of proof
because he had not yet received evidence from his bank or discovery
responses from US Bank. Debtor requested a continuance to January 9,
2023, to coincide with the claim objection hearing.
US Bank opposed a further continuance and requested denial of
confirmation. Trustee agreed and argued that, even if Debtor could prove
he made additional payments of $200,000, his plan was still not feasible.
Trustee noted that Debtor did not modify or amend his plan, and he failed
to make the lump sum payment required by it.
The bankruptcy court denied Debtor’s request for a continuance and
denied confirmation. The court reasoned that Debtor’s objection to $30,540
of US Bank’s $2.6 million claim was not significant, and Debtor’s failure to
obtain the loan on a final basis, or make the lump sum payment, made the
plan not feasible.
Debtor agreed that dismissal was appropriate because he did not
confirm the plan by the deadline, but he argued the court should impose
no more than a one-year refiling bar because US Bank had a pending
8 foreclosure sale. US Bank and Trustee each argued for a three-year bar,
given Debtor’s filing history and the possibility of lengthy state court
litigation.
The bankruptcy court took the matter under advisement and entered
a written order, dismissing the case and imposing a three-year bar. The
court reasoned the refiling bar was warranted based on Debtor’s history of
bankruptcy filings, his failure to act in proper prosecution of the case, and
his failure to abide by the court’s order to obtain confirmation by the
December 12, 2022 deadline. The court held that Debtor’s actions
constituted egregious behavior, and Debtor unfairly manipulated the
Bankruptcy Code or otherwise serially filed cases in an inequitable manner
as described in Leavitt v. Soto (In re Leavitt), 171 F.3d 1219 (9th Cir. 1999).
Debtor timely appealed.
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.
ISSUES
Did the bankruptcy court abuse its discretion by dismissing Debtor’s
chapter 12 case?
Did the bankruptcy court abuse its discretion by imposing a three-
year bar to refiling?
9 STANDARDS OF REVIEW
We review for abuse of discretion a bankruptcy court’s decision to
dismiss a case with a bar to refiling. In re Leavitt, 171 F.3d at 1223. A
bankruptcy court abuses its discretion if it applies an incorrect legal
standard or its factual findings are illogical, implausible, or without
support in the record. TrafficSchool.com v. Edriver, Inc., 653 F.3d 820, 832 (9th
Cir. 2011).
“The determination of bad faith or egregious conduct for purposes of
dismissal with prejudice is reviewed for clear error as a mixed question of
law and fact as to which facts predominate.” Duran v. Gudino (In re Duran),
630 B.R. 797, 807 (9th Cir. BAP 2021). Factual findings are clearly erroneous
if they are illogical, implausible, or without support in the record. Retz v.
Samson (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010).
DISCUSSION
A. The bankruptcy court did not abuse its discretion by dismissing the case.
Section § 1208(c) provides that a bankruptcy court may dismiss a
chapter 12 case for “cause,” including ten specified examples.2 Though not
2 The non-exhaustive list of “cause” for dismissal under § 1208(c) includes: (1) unreasonable delay, or gross mismanagement, by the debtor that is prejudicial to creditors; (2) nonpayment of any fees and charges required under chapter 123 of title 128; (3) failure to file a plan timely under section 1221 of this title; (4) failure to commence making timely payments required by a confirmed plan; 10 specifically enumerated, “cause” for dismissal also includes bad faith by
the debtor in filing the petition. See In re Bootjack Dairy M&D, Case No. 23-
40226-JMM, 2023 WL 5535821, at *10 (Bankr. D. Idaho Aug. 28, 2023); In re
Olsen, 609 B.R. 339, 348-49 (Bankr. D. Mont. 2019). Because “the Bankruptcy
Code contains an implied requirement of good faith in the filing of any
bankruptcy petition,” In re Borg, 105 B.R. 56, 57 (Bankr. D. Mont. 1989),
standards for determining a bad faith filing under chapters 11 or 13 are
applicable to chapter 12, In re Olsen, 609 B.R. at 348.
“To determine if a petition has been filed in bad faith courts are
guided by the standards used to evaluate whether a plan has been
proposed in bad faith.” Eisen v. Curry (In re Eisen), 14 F.3d 469, 470 (9th Cir.
1994) (per curiam). Both determinations require the court to consider the
“totality of the circumstances.” Id. Bankruptcy courts “may consider any
factors which evidence an intent to abuse the judicial process and the
(5) denial of confirmation of a plan under section 1225 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 1230 of this title, and denial of confirmation of a modified plan under section 1229 of this title; (8) termination of a confirmed plan by reason of the occurrence of a condition specified in the plan; (9) continuing loss to or diminution of the estate and absence of a reasonable likelihood of rehabilitation; and (10) failure of the debtor to pay any domestic support obligation that first becomes payable after the date of the filing of the petition. 11 purposes of the reorganization provisions.” Marshall v. Marshall (In re
Marshall), 721 F.3d 1032, 1048 (9th Cir. 2013) (cleaned up). In other words,
“[t]he test is whether a debtor is attempting to unreasonably deter and
harass creditors or attempting to effect a speedy, efficient reorganization on
a feasible basis.” Marsch v. Marsch (In re Marsch), 36 F.3d 825, 828 (9th Cir.
1994) (citations omitted).
Although Debtor’s long history of multiple bankruptcy cases
concerned the bankruptcy court, it decided to permit Debtor one final
chance to reorganize. The bankruptcy court ultimately dismissed the case
because Debtor failed to comply with the OSC and confirm a plan by the
deadline. Debtor admits that his plan was not confirmable, and he does not
appeal the court’s decision to deny confirmation. Instead, he argues that
the bankruptcy court erred by dismissing the case prior to finally
determining the amount of US Bank’s claim.
Given the totality of circumstances, including Debtor’s six prior
unsuccessful chapter 12 cases, his lack of a firm funding source sufficient to
pay creditors under his plan, and his lack of evidence to support a
significant reduction to US Bank’s claim, we find no abuse of discretion in
the court’s decision to dismiss the case instead of granting further
extensions of the confirmation deadline.
The bankruptcy court twice extended the confirmation deadline, and
it gave Debtor notice from the outset that failure to timely confirm the plan
would result in dismissal. The court informed Debtor that further
12 extensions were unlikely absent a showing that his claim objection could
significantly reduce US Bank’s claim, or that Debtor was duly diligent in
pursuing that evidence. But Debtor did not file a motion to compel US
Bank’s responses to his discovery requests, he did not amend his claim
objection, and he did not provide any evidence, including his own bank
records, showing additional payments beyond those disbursed through his
prior chapter 12 cases. At the confirmation hearing, Debtor acknowledged
that his claim objection was limited to the $30,540 disbursed in his 2009
case.
Although his plan was unconfirmable as proposed, Debtor did not
amend his plan or provide for alternate treatment of US Bank’s claim if it
were allowed as asserted. And though Debtor claims he relied on the
erroneous prepetition payoff quote, and was ambushed by US Bank’s proof
of claim, US Bank filed its initial proof of claim for $2,626,603.20 on June 22,
2022—over two weeks before Debtor filed his chapter 12 plan, and nearly
six months before the confirmation hearing.
The bankruptcy court properly denied confirmation because Debtor’s
plan was not feasible, and Debtor did not demonstrate that a further
extension would provide a reasonable likelihood of confirmation. The
bankruptcy court did not abuse its discretion by dismissing the case
13 because the record supports a finding of “cause” based on Debtor’s failure
to timely confirm his plan of reorganization in accordance with the OSC. 3
B. The bankruptcy court did not abuse its discretion by imposing a three-year bar to refiling.
Once a bankruptcy court has determined that dismissal is
appropriate, it must decide which form of dismissal should apply.
Ellsworth v. Lifescape Med. Assocs., P.C. (In re Ellsworth), 455 B.R. 904, 922
(9th Cir. BAP 2011). “Section 349(a) establishes a general rule that dismissal
of a case is without prejudice but expressly grants a bankruptcy court the
authority to dismiss the case with prejudice—i.e., a permanent bar to
refiling.” In re Bayati, BAP No. CC-16-1072-KiTaKu, 2016 WL 5848892, at *4
(9th Cir BAP Oct. 5, 2016) (footnote omitted) (citing In re Leavitt, 171 F.3d at
1223-24), appeal dismissed, 689 F. App’x 867 (9th Cir 2017). The statute
necessarily confers judicial discretion to impose a bar of shorter duration.
Id.; see also In re Duran, 630 B.R. at 809 (“The § 349(a) power of the court ‘for
cause’ to ‘order otherwise’ necessarily confers judicial discretion to impose
a wide variety of consequences of dismissal . . . .”).
3 Although the court based its decision on the OSC, the record also supports cause based on § 1208(c)(1), (5), and (9). Additionally, the court’s finding of bad faith for purposes of imposing the refiling bar is sufficient to establish “cause” to dismiss for bad faith. See In re Duran, 630 B.R. at 808-10 (noting that, unlike “bad faith” for purposes of dismissal, “bad faith” for purposes of § 349(a) requires egregious conduct and stating that, “‘[c]ause’ to impose a condition of prejudice on a dismissal is a more rigorous concept than ‘cause’ to dismiss a case.”). 14 Debtor argues that the bankruptcy court violated due process by not
giving notice that it would dismiss the case with prejudice, and he argues
that the court erred by imposing a three-year refiling bar.
1. The bankruptcy court gave adequate notice of dismissal with prejudice.
Due process requires notice “reasonably calculated, under all the
circumstances, to apprise interested parties of the pendency of the action
and afford them an opportunity to present their objections.” Mullane v.
Cent. Hanover Bank & Tr. Co., 339 U.S. 306, 314 (1950). An alleged due
process violation cannot constitute reversible error unless the party
asserting the violation can demonstrate prejudice. See Rosson v. Fitzgerald
(In re Rosson), 545 F.3d 764, 776-77 (9th Cir. 2008), partially abrogated on other
grounds as recognized by Nichols v. Marana Stockyard & Livestock Mkt., Inc. (In
re Nichols), 10 F.4th 956, 962 (9th Cir. 2021).
The court gave Debtor ample warning of its intent to dismiss the case
with a three-year bar. The OSC specifically referenced the possibility of a
refiling bar, and the court repeatedly warned Debtor that failure to confirm
the plan would result in dismissal with a refiling bar. Moreover, after
Debtor conceded that dismissal was appropriate, the court afforded him an
opportunity to argue against imposition of the three-year bar, and it
considered Debtor’s argument before issuing a written decision.
At the heart of Debtor’s due process argument is confusion about
whether the provision in the dismissal order that dismissal is “with
15 prejudice” operates as an additional restriction beyond the three-year bar. 4
Because § 349(a) confers judicial discretion to impose a wide variety of
consequences, “[a]ppellate courts have had to discern from facts what was
intended when a bankruptcy court dismisses a case ‘with prejudice’
without explanation.” In re Duran, 630 B.R. at 809 (citations omitted).
Here, it is clear that the court used the phrase “with prejudice” to
reference its authority under § 349(a) to impose the three-year refiling bar.
At the confirmation hearing, the court informed the parties that it was
considering whether a one- or three-year bar was appropriate, and the
court’s written order expressly imposes a three-year bar.
We find no basis to construe the court’s use of the phase “with
prejudice” as imposing any restriction beyond the three-year bar. A refiling
bar of longer duration, including a permanent bar, would necessarily
subsume the three-year bar and render it meaningless. Furthermore,
neither the order, nor statements made by the court at the hearing, indicate
an intent to impose any other form of restriction. See id. (describing the
variety of restrictions which courts have imposed under “with prejudice”
dismissal orders).
4The dismissal order states: 1. the case is dismissed with prejudice under 11 U.S.C. § 349(a); 2. the debtor is barred from filing another bankruptcy case for a period of 3 years commencing from the date of entry of this order. 16 The court satisfied due process by providing Debtor sufficient notice
of its intent to dismiss with a three-year bar, and the order does exactly
that.
2. The bankruptcy court did not err by determining that Debtor’s actions constituted bad faith for purposes of § 349(a).
As the bankruptcy court correctly held, the standard for cause to
dismiss with prejudice under § 349(a) is the totality of circumstances,
considering the four factors outlined in Leavitt: (1) whether the debtor
misrepresented facts in his petition or plan, unfairly manipulated the Code,
or otherwise filed his petition or plan in an inequitable manner; (2) the
debtor’s history of filings and dismissals; (3) whether the debtor only
intended to defeat state court litigation; and (4) whether the debtor’s
behavior is egregious. 171 F.3d at 1224. Because the determination involves
the totality of the circumstances, not every Leavitt factor must be satisfied.
See Khan v. Barton (In re Khan), 846 F.3d 1058, 1066 (9th Cir. 2017) (“[T]he
[Leavitt] factors are simply factors to consider . . . what matters is the
totality of the circumstances.” (cleaned up)). “A finding of bad faith does
not require fraudulent intent by the debtor.” In re Leavitt, 171 F.3d at 1224.
The bankruptcy court considered the Leavitt factors and found bad
faith and egregious conduct in Debtor’s failure properly to prosecute the
case, failure to obtain confirmation by the court’s deadline, and his history
of filings and dismissals. The court noted that Debtor enjoyed the
protections of the Bankruptcy Code for over eleven years during the span
17 of his six prior cases, while mortgage arrears increased over $1,300,000.
Debtor confirmed three plans in his six cases, but defaulted on each of
them, and he engaged in a pattern of failing to prosecute his proposed
chapter 12 plans.
On appeal, Debtor argues that the facts cited by the court do not rise
to the level of bad faith or egregious conduct, but he does not demonstrate
that the court’s factual findings are clearly erroneous. The bankruptcy
court’s findings are supported by evidence in the record and are neither
illogical nor implausible. The bankruptcy court appropriately considered
the Leavitt factors and the totality of the circumstances, and we do not
substitute our judgment for that of the bankruptcy court. See Legal Serv.
Bureau, Inc. v. Orange Cnty. Bail Bonds, Inc. (In re Orange Cnty. Bail Bonds,
Inc.), 638 B.R. 137, 149 (9th Cir. BAP 2022).
CONCLUSION
Based on the foregoing, we AFFIRM the court’s order dismissing
Debtor’s case and imposing a three-year bar to refiling.