In re Maura E. Lynch

• Court: Court of Appeals for the Second Circuit
• Decided: February 18, 2020
• Docket: 18-2934-bk
• Status: Unpublished

Opinion

18‐2934‐bk In re Maura E. Lynch

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURTʹS LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION ʺSUMMARY ORDERʺ). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 18th day of February, two thousand twenty.

PRESENT: DENNIS JACOBS, GUIDO CALABRESI, DENNY CHIN, Circuit Judges. ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐x

In Re: MAURA E. LYNCH, Debtor.

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MAURA E. LYNCH, Debtor‐Appellant,

‐v‐ 18‐2934‐bk

STEPHEN VACCARO, Creditor‐Appellee, R. KENNETH BARNARD, Chapter 7‐Trustee‐Appellee,

UNITED STATES TRUSTEE, Trustee‐Appellee.

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FOR DEBTOR‐APPELLANT: MAURA E. LYNCH, pro se, Sag Harbor, New York.

FOR CHAPTER 7‐TRUSTEE‐APPELLEE: GARY F. HERBST (David A. Blansky, on the brief), Lamonica Herbst & Maniscalco, LLP, Wantagh, New York.

Appeal from a judgment of the United States District Court for the Eastern

District of New York (Seybert, J.).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,

ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED.

Debtor‐appellant Maura E. Lynch appeals from a judgment of the district

court entered September 20, 2018, affirming an order of the bankruptcy court and

dismissing her appeal. By order entered June 28, 2017, the bankruptcy court (Trust, B.J.)

converted Lynchʹs Chapter 11 case to a Chapter 7 case. The district court explained its

reasoning in a memorandum and order filed September 19, 2018. Lynch appeals. We

assume the partiesʹ familiarity with the underlying facts, the procedural history of the

case, and the issues on appeal.

2 We review de novo the orders of district courts acting as appellate courts in

bankruptcy cases. See Anderson v. Credit One Bank, N.A. (In re Anderson), 884 F.3d 382,

387 (2d Cir. 2018), cert. denied sub nom. Credit One Bank, N.A. v. Anderson, 139 S. Ct. 144

(2018). In so doing, we ʺapply the same standard of review employed by the district

court to the decision of the bankruptcy court,ʺ thereby ʺreview[ing] the bankruptcy

courtʹs findings of fact for clear error and its legal determinations de novo.ʺ Id. An

order converting a bankruptcy case for cause is reviewed for abuse of discretion. See

Blaise v. Wolinsky (In re Blaise), 219 B.R. 946, 950 (2d Cir. B.A.P. 1998) (conversion from

Chapter 13 to Chapter 7 is reviewed for abuse of discretion). ʺA bankruptcy court

abuses its discretion if it bases its decision on an erroneous view of the law or clearly

erroneous factual findings,ʺ or commits a ʺclear error of judgment . . . based on all the

appropriate factors.ʺ Id. at 950.

The bankruptcy court has authority to convert a Chapter 11 proceeding to

a case under Chapter 7 for cause, after notice and hearing, where such conversion is in

the best interests of creditors and the estate. See 11 U.S.C. § 1112(b)(1). The bankruptcy

court may convert to Chapter 7 upon the motion of a party in interest, 11 U.S.C.

§ 112(b)(1), or sua sponte ʺ[as] necessary or appropriate to enforce or implement court

orders or rules, or to prevent an abuse of process.ʺ 11 U.S.C. § 105(a).

3 Lynch contends that the bankruptcy court committed reversible error by

failing to give her notice and to conduct a proper hearing and because the requirements

for conversion were not met.

A. Notice and Hearing

Lynch was provided with both notice and an adequate hearing. The

bankruptcy court noted several times prior to issuing an order to show cause that it was

considering conversion of the proceedings because of Lynchʹs continuing failure to

propose a confirmable reorganization plan. The bankruptcy court gave notice orally on

July 13, 2016, and subsequently in three written orders. Moreover, Stephen Vaccaro,

Lynchʹs former husband and a creditor in the proceedings, made both written and oral

requests for Chapter 7 conversion, and Lynch was represented by counsel during the

bankruptcy proceedings. Lynch therefore received adequate notice that conversion to

Chapter 7 was requested.

Lynch also challenges the sufficiency of the hearing on June 28, 2017, when

the bankruptcy court ordered the conversion of the case to Chapter 7. But a full

evidentiary hearing is not required as long as the record permits the bankruptcy court to

ʺdraw the necessary inferencesʺ to determine cause. C‐TC 9th Ave. Pʹship v. Norton Co.

(In re C‐TC 9th Ave. Pʹship), 113 F.3d 1304, 1312‐13 (2d Cir. 1994) (concluding that

4 informal hearing that offered debtor opportunity to address dismissal for bad faith was

sufficient under § 1112(b)). Although the hearing here did not focus wholly on

conversion, Lynch, Vaccaro, and the U.S. Trustee had opportunities to speak on the

conversion issue and did so. Accordingly, we conclude that Lynchʹs procedural

objections to the bankruptcy courtʹs conversion order are meritless.

B. The Merits

The bankruptcy court did not abuse its discretion in converting the case to

a Chapter 7 proceeding. The bankruptcy court identified three grounds for conversion:

(1) Lynchʹs repeated delays caused the bankruptcy estate to incur increased costs and

legal fees; (2) she failed to comply with court orders; and (3) it was apparent that she

would be unable to obtain a court‐approved disclosure statement and confirm a

reorganization plan by the deadline imposed by the bankruptcy court. See 11 U.S.C. §§

1112(b)(4)(A), (E), and (J); 11 U.S.C. § 1125(b) (requiring court approval of the disclosure

statement prior to plan confirmation); Fed. R. Bankr. P. 2002(b).

Indeed, Lynchʹs delays generated over $400,000 in legal fees, and she

continued to accrue arrears on her Wells Fargo mortgage while the bankruptcy case was

pending ‐‐ more than $700,000 in total as of June 2017. She also failed to comply with

the bankruptcy court order requiring her to obtain an approved disclosure statement by

5 June 16, 2017. Finally, the U.S. Trustee explained that Lynchʹs proposed reorganization

plan was not confirmable for ʺnumerous reasons,ʺ including that the disclosure

statement provided inadequate information and the issues with respect to Vaccaro had

not been resolved. Appʹx at 567. Although, as Lynch contends, there might have been

sufficient assets in her estate to cover her debts, a year and a half had transpired with

little having been accomplished, and it was apparent that Lynch was not going to be able

to bring the matter to a successful resolution under Chapter 11. The bankruptcy court

reasonably concluded that it was in the best interest of the creditors and the estate to

convert the proceedings to a Chapter 7 liquidation.

* * *

We have reviewed the remainder of Lynchʹs arguments and conclude they

are without merit. Accordingly, we AFFIRM the judgment of the district court.

FOR THE COURT: Catherine OʹHagan Wolfe, Clerk of Court