FILED MAY 29 2013 1 SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL 2 OF THE NINTH CIRCUIT UNITED STATES BANKRUPTCY APPELLATE PANEL 3 OF THE NINTH CIRCUIT 4 5 In re: ) BAP No. AZ-12-1320-MkDJu ) 6 PETER F. BRONSON AND SHERRI L. ) Bk. No. 08-00777 BRONSON, ) 7 ) Debtors. ) 8 _______________________________) ) 9 PETER F. BRONSON; SHERRI L. ) BRONSON, ) 10 ) Appellants, ) 11 ) v. ) MEMORANDUM* 12 ) THOMAS M. THOMPSON, ) 13 ) Appellee. ) 14 _______________________________) 15 Submitted Without Oral Argument on May 16, 2013 16 Filed – May 29, 2013 17 Appeal from the United States Bankruptcy Court 18 for the District of Arizona 19 Honorable George B. Nielsen, Jr., Bankruptcy Judge, Presiding 20 Appearances: Appellants Peter Bronson and Sherri Bronson on 21 brief pro se; Jimmie D. Smith on brief for appellee Thomas M. Thompson. 22 23 Before: MARKELL, DUNN and JURY, Bankruptcy Judges. 24 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 8013-1. 1 INTRODUCTION 2 Peter and Sherri Bronson (“Bronsons”) appeal from an order 3 granting the motion of Thomas Thompson (“TMT”) to convert the 4 Bronsons’ bankruptcy case from chapter 111 to chapter 7. The 5 Bronsons also appeal from an order denying their motion to 6 reconsider the conversion order. We AFFIRM both orders. 7 FACTS 8 Notwithstanding the contentious nature of the litigation 9 between the parties, most of the facts relevant to this appeal 10 are undisputed. 11 A. Purchase of Office Building and Default on Financing 12 In 2001, the Bronsons and their business partner Carl 13 Mickler purchased from TMT and his parents a 39,000 square foot 14 commercial building in Miami, Arizona (“Office Building”) for 15 $170,000.2 The purchasers paid $25,000 at the time of the sale 16 and executed a promissory note (“Note”) for the remainder of the 17 purchase price. The Note was secured by a deed of trust and 18 assignment of rents (“Deed of Trust”).3 19 The Note provided for monthly payments of $1,272.00, with a 20 1 Unless specified otherwise, all chapter and section 21 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 22 all “Rule” references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. All “Civil Rule” references are to 23 the Federal Rules of Civil Procedure. 24 2 The Bronsons later acquired from Mickler his 50% interest in the Office Building. 25 3 26 The Note and Deed of Trust also named TMT’s parents as parties to the transaction; however, their involvement is not 27 relevant to our analysis and disposition of this appeal. For ease of reference, we refer herein to both TMT alone and TMT 28 along with his parents as TMT.
2 1 balloon payment for the remaining balance due in September 2007. 2 When the Bronsons defaulted on the balloon payment, TMT commenced 3 nonjudicial foreclosure proceedings. In furtherance thereof, TMT 4 recorded in October 2007 a notice of trustee’s sale, which 5 provided for an auction sale to be held on January 29, 2008. 6 B. Bankruptcy Filings, Relief from Stay and Foreclosure 7 On January 28, 2008, the day before the scheduled trustee’s 8 sale, the Bronsons filed their chapter 11 bankruptcy petition. 9 As a result of the automatic stay, the trustee’s sale could not 10 be held as scheduled. Before he could proceed with the trustee’s 11 sale, TMT had to obtain relief from the automatic stay not only 12 in the Bronsons’ bankruptcy case but also in the bankruptcy case 13 of the Bronsons’ business associate Mark Taylor, who claimed to 14 hold a junior security interest against the Office Building. TMT 15 obtained relief from stay in the Bronsons’ bankruptcy case as of 16 November 19, 2008 and in Taylor’s bankruptcy case as of June 30, 17 2009. The trustee’s sale was held on July 13, 2009, at which TMT 18 was the successful bidder based on a credit bid of $200,000. A 19 trustee’s deed was recorded on July 17, 2009. 20 C. Nondisclosure Lawsuit and Allowance of Judgment Claim 21 Even though the Bronsons had lost title to the property by 22 way of the foreclosure, this did not end the litigation between 23 the parties. In 2007, the Bronsons had commenced a lawsuit 24 against TMT in the Gila County Superior Court (Case No. 2007- 25 0264), alleging among other things breach of contract, 26 nondisclosure, concealment and fraud (“Nondisclosure Lawsuit”). 27 The Bronsons claimed that TMT had wrongfully failed to disclose 28 asbestos contamination in the Office Building.
3 1 At the time of the trustee’s sale, the Nondisclosure Lawsuit 2 was still pending.4 Ultimately, however, TMT prevailed in that 3 action. In June 2010, the Gila County Superior Court entered 4 summary judgment in favor of TMT with respect to all of the 5 Bronsons’ claims and awarded TMT his attorney’s fees and costs in 6 that action in the amount of $26,426.00 (“Gila Judgment”). 7 TMT filed a motion in the bankruptcy court seeking to have 8 the Gila Judgment allowed as an administrative expense. The 9 Bronsons duly opposed that motion. After a hearing on the 10 matter, the bankruptcy court declined to allow the Gila Judgment 11 as an administrative expense claim but instead entered an order 12 allowing it as a prepetition unsecured claim (“Gila Judgement 13 Claim Allowance”). The Bronsons never appealed either the Gila 14 Judgment or the Gila Judgement Claim Allowance. 15 D. Deficiency Lawsuit 16 Meanwhile, in October 2009, Thompson filed an adversary 17 complaint against the Bronsons asserting that he was entitled to 18 a deficiency judgment against them under A.R.S. § 33-814(A) 19 (“Deficiency Lawsuit”).5 20 21 4 The Bronsons removed the Nondisclosure Lawsuit to the 22 bankruptcy court in September 2009, but the bankruptcy court entered an order in December 2009 remanding that matter to the 23 Gila County Superior Court. 5 24 A.R.S. § 33-814(A) provides in relevant part: 25 [W]ithin ninety days after the date of sale of trust 26 property under a trust deed pursuant to § 33-807, an action may be maintained to recover a deficiency 27 judgment against any person directly, indirectly or contingently liable on the contract for which the trust 28 (continued...)
4 1 Three principal issues arose in the Deficiency Lawsuit: 2 (1) whether TMT actually incurred attorney’s fees in enforcing 3 his rights under the Note and the Deed of Trust, (2) the 4 reasonableness of any such fees, and (3) whether the amount of 5 debt that the Bronsons owed TMT actually exceeded the fair market 6 value of the Office Building at the time of the foreclosure sale. 7 The Bronsons initially raised each of these issues in a Civil 8 Rule 12(b)(6) motion to dismiss. In ruling on that motion, the 9 bankruptcy court held that TMT needed to amend his complaint to 10 allege the amount of fees actually incurred and to allege that 11 those fees were reasonable. But the court otherwise denied the 12 Bronsons’ dismissal motion. 13 Over the next two years, the parties litigated over the two 14 fee-related issues (jointly, “Fee Issues”) but largely ignored 15 the third issue regarding the fair market value of the Office 16 Building (“FMV Issue”). At the January 8, 2010 hearing on the 17 Bronsons’ dismissal motion, the Bronsons orally requested that 18 the court set a hearing to determine the FMV Issue. The court, 19 however, indicated that TMT first should file his amended 20 complaint and that the Bronsons should answer that complaint. 21 The court further suggested that the Bronsons should bring up 22 23 5 (...continued) 24 deed was given as security . . . . In any such action against such a person, the deficiency judgment shall be 25 for an amount equal to the sum of the total amount owed 26 the beneficiary as of the date of the sale, as determined by the court less the fair market value of 27 the trust property on the date of the sale as determined by the court or the sale price at the 28 trustee's sale, whichever is higher.
5 1 their request for a hearing on the FMV Issue at the next status 2 conference (scheduled for February 2010), but the Bronsons did 3 not do so. The litigation subsequently focused on the Fee Issues 4 because TMT filed in May 2010 a summary judgment motion seeking 5 partial summary adjudication of the Fee Issues. As the Bronsons 6 have admitted, TMT’s summary judgment motion did not address the 7 FMV Issue at all. The Bronsons filed a cross-motion for partial 8 summary judgment in September 2010, but that motion like TMT’s 9 motion only addressed the Fee Issues. 10 The court never explicitly stated that it was denying the 11 cross-motions for summary judgment, but it did orally rule at a 12 hearing held on September 30, 2010, that it needed an evidentiary 13 hearing on the Fee Issues. At the same hearing, the court 14 indicated that it was aiming to cut off both discovery and 15 dispositive motions by no later than December 2010. 16 The court set trial on the Fee Issues for April 2011; 17 however, shortly before the scheduled trial date, the Bronsons’ 18 attorney obtained permission to withdraw as counsel.6 As a 19 6 20 According to the Bronsons’ former counsel, he felt compelled to withdraw because he felt that his life and his 21 girlfriend’s life were being threatened as a result of his litigation efforts against TMT. The Bronsons followed up with 22 their own list of events and occurrences which they felt 23 demonstrated that TMT’s influence over others in the local area was causing them to experience hostility and unfair treatment 24 from, among others, the local state courts and the local police department. But the claims of misconduct and improper influence 25 are based largely on hearsay and conjecture. Even the Bronsons 26 admitted that it was not possible for them to directly tie TMT to the events and occurrences they were complaining about. More 27 importantly, the only relief the Bronsons sought in conjunction with the above-reference alleged events was for the bankruptcy 28 (continued...)
6 1 result, TMT did not present his case in chief on the Fee Issues 2 until May 24, 2011, and the Bronsons did not present their 3 defense case on the Fee Issues until September 15, 2011. After 4 closing arguments by both sides and the filing of a closing 5 statement (“Closing Statement”) by the Bronsons, the court on 6 October 30, 2011 entered judgment in TMT’s favor on the Fee 7 Issues and further purported to finally determine that TMT was 8 entitled to a deficiency judgment in the amount of $18,574. 9 The Bronsons filed a series of motions seeking relief from 10 the deficiency judgment. These motions caused the bankruptcy 11 court to partially reconsider its October 30, 2011 judgment. 12 While the court upheld its ruling on the Fee Issues, the court 13 concluded that the parties had never litigated the FMV Issue. 14 Accordingly, the court vacated the portions of the October 30, 15 2011 judgment purporting to finally determine that TMT was 16 entitled to a deficiency judgment.7 The court set the FMV Issue 17 for trial in May 2012, but before that trial occurred, the court 18 vacated the trial date in light of the conversion of the case to 19 chapter 7, as discussed below. 20 21 6 (...continued) 22 court: (1) to permit withdrawal of their counsel, (2) to grant a continuance of the pending litigation, and (3) to “order” an FBI 23 investigation. The court permitted the withdrawal and granted the continuance. And as for the FBI investigation, the 24 bankruptcy court later correctly pointed out that it had no authority to “order” the FBI to do anything. Oddly, the Bronsons 25 apparently never attempted to contact the FBI themselves. 26 7 The Bronsons filed an appeal from the court’s partial 27 denial of their motions for relief from the deficiency judgment, but we dismissed that appeal as interlocutory by order entered 28 August 29, 2012 (BAP No. AZ-12-1058).
7 1 E. Plan Confirmation Proceedings 2 During the course of the chapter 11 proceedings, the 3 Bronsons proposed two plans. The Bronsons’ first proposed plan 4 was premised on the sale or refinancing of the Office Building. 5 The Bronsons abandoned that plan shortly after TMT foreclosed on 6 the Office Building. The Bronsons thereafter proposed an amended 7 plan. The amended plan provided three sources of funding: 8 (1) proceeds from litigation against TMT; (2) proceeds from 9 litigation and judgments against others; and (3) sale of a parcel 10 of real property known as the “Railroad Property” or as the 11 “Commercial Land.” TMT objected to the Bronsons’ amended plan. 12 TMT argued that the amended plan did not satisfy the best 13 interests of creditors test under § 1129(a)(7). TMT further 14 argued that the proposed means of funding the amended plan would 15 be insufficient in light of the actual value of the Railroad 16 Property and the value of the Bronsons’ litigation and judgments 17 against others. In addition, according to TMT, the amended plan 18 did not meet the requirements of § 1129(a)(15) (which requires 19 debtors under certain circumstances to commit their projected 20 disposable income to plan funding) and § 1129(a)(9) (which 21 generally requires debtors to pay allowed administrative claims 22 in full upon confirmation). TMT also claimed that the plan was 23 not proposed in good faith, as required by § 1129(a)(3). 24 In response to TMT’s plan objections, the Bronsons contended 25 that, in light of TMT’s foreclosure on the Office Building, all 26 of TMT’s claims against the Bronsons had been satisfied, and so 27 TMT no longer held any allowable claim against the Bronsons’ 28
8 1 bankruptcy estate.8 Therefore, the Bronsons reasoned, TMT had no 2 standing to object to their amended plan. 3 The bankruptcy court held multiple hearings on the Bronsons’ 4 amended plan and considered the issues referenced above as well 5 as other issues. Ultimately, the court sustained most of TMT’s 6 objections to plan confirmation, as reflected in the court’s 7 order entered on January 21, 2011.9 Even though the Bronsons’ 8 bankruptcy case remained in chapter 11 for another 14 months 9 before the court converted the case to chapter 7, the Bronsons 10 never filed a new proposed plan attempting to cure the defects 11 the court had identified in their amended plan. 12 F. TMT’s Motions to Convert 13 TMT filed his first motion to dismiss or convert (“First 14 Conversion/Dismissal Motion”) in February 2009. The bankruptcy 15 court in effect let the First Conversion/Dismissal Motion trail 16 the confirmation proceedings. When the Bronsons abandoned their 17 initial proposed plan in July 2009 (in light of the foreclosure 18 of the Office Building), the court set the First 19 Conversion/Dismissal Motion for hearing. The Bronsons opposed 20 that motion, and on September 22, 2009, the bankruptcy court 21 orally ruled on that motion. The court wanted to give the 22 Bronsons another opportunity to propose a confirmable plan, but 23 the court also acknowledged TMT’s complaints regarding the 24 8 Of course, this contention was the subject of the 25 Deficiency Litigation, which has not been fully resolved. 26 9 While the voluminous record contains multiple transcripts, 27 neither party provided us with the transcript from the January 11, 2011 hearing on plan confirmation, held just before 28 the court entered its order sustaining TMT’s objections.
9 1 Bronsons’ delay in moving their chapter 11 case forward. With 2 these considerations in mind, the court orally ruled that the 3 Bronsons would have until October 22, 2009, to file an amended 4 plan and disclosure statement. If the Bronsons did not timely do 5 so, the court indicated it was prepared to convert the case. If 6 the Bronsons did timely file an amended plan and disclosure 7 statement, the court indicated that this would “moot out” the 8 First Conversion/Dismissal Motion.10 9 Consistent with the bankruptcy court’s ruling, the Bronsons 10 filed their amended plan and disclosure statement on October 22, 11 2009. As mentioned above, the Bronsons proposed to fund and 12 effectuate their amended plan through the proceeds from various 13 lawsuits and judgments and by selling the Railroad Property. As 14 also mentioned above, TMT objected to the amended plan based in 15 part on the Bronsons’ alleged noncompliance with various portions 16 of § 1129(a) and in part on the allegedly minimal value of the 17 assets the Bronsons proposed to use for plan funding. 18 Roughly one year later, in October 2010, while the battle 19 over the amended plan was still ongoing, TMT filed a “Renewed 20 Motion to Convert Case to Chapter 7.” (“Second Conversion/ 21 Dismissal Motion”). TMT’s grounds for conversion or dismissal 22 were similar to his objections to the amended plan. More 23 specifically, TMT asserted: 24 • The Bronsons’ chapter 11 case was two and one half years 25 old, and still they had not been able to confirm a plan. 26 10 27 The bankruptcy docket indicates that the bankruptcy court never entered a written order memorializing its oral ruling on 28 the First Conversion/Dismissal Motion.
10 1 • During the pendency of the chapter 11 case, the Bronsons had 2 accrued unpaid administrative expenses in excess of 3 $100,000. 4 • The Bronsons had scheduled roughly $375,000 in general 5 unsecured debts, none of which had been paid or otherwise 6 resolved. 7 • The Bronsons had not managed to sell any of the real 8 property assets they had proposed selling in either of their 9 proposed plans. 10 • The Bronsons had not been successful in most of their 11 litigation against others and had not collected from most of 12 those parties against whom they held judgments.11 13 • The Bronsons’ chapter 11 operating reports showed little 14 cash on hand, even though the Bronsons had not made any 15 payments on account of either unsecured claims or 16 administrative claims during the course of their chapter 11 17 case. 18 • The Bronsons had little regular income and had not shown any 19 willingness to contribute other nonexempt assets towards the 20 funding of their proposed amended plan. 21 • The Bronsons’ creditors would be best served by the 22 liquidation of the Bronsons’ assets by a chapter 7 trustee. 23 Second Conversion/Dismissal Motion (Oct. 28, 2010) at pp. 1-3. 24 11 The Bronsons were successful in their litigation against 25 the Arizona Department of Environmental Quality (“ADEQ”). As a 26 result of a state appellate court judgment in their favor and a subsequent settlement, the Bronsons apparently obtained a 27 recovery of $33,000. But the record indicates that the amount recovered only served to defray a portion of the attorney fees 28 and costs the Bronsons incurred in that litigation.
11 1 The Bronsons opposed the Second Conversion/Dismissal Motion. 2 The Bronsons argued that, but for TMT, their amended plan already 3 would have been confirmed, as TMT was the only person who had 4 objected to their amended plan. The Bronsons further argued that 5 TMT had no standing either to object to their plan or to seek 6 conversion of their case. According to the Bronsons, all of 7 TMT’s claims had been satisfied by his foreclosure on the Office 8 Building, and all of the claims TMT had asserted since that 9 foreclosure were meritless. 10 Even though the bankruptcy court sustained most of TMT’s 11 objections to the Bronsons’ amended plan in January 2011, and 12 even though the Bronsons did not thereafter propose a new plan, 13 the bankruptcy court did not hold a hearing on the the Second 14 Conversion/Dismissal Motion until April 12, 2012. A week before 15 the hearing on the Second Conversion/Dismissal Motion, the 16 Bronsons filed a motion to continue that hearing. In support of 17 their motion to continue, the Bronsons argued that the court 18 should first resolve all of the disputes concerning TMT’s claims 19 and concerning the Deficiency Lawsuit. According to the 20 Bronsons, once they had prevailed in those disputes, TMT would no 21 longer have any claims against the Bronsons, and hence TMT would 22 have no standing in the Bronsons’ bankruptcy case. Therefore, 23 the Bronsons reasoned, they would be able to move forward with a 24 new plan and disclosure statement without any interference from 25 TMT. The bankruptcy court denied the continuance motion without 26 /// 27 /// 28 ///
12 1 explaining its reasoning.12 2 At the April 12, 2012 hearing, before permitting either side 3 to argue, the bankruptcy court expressed its concerns regarding 4 the viability of the Bronsons reorganizing under chapter 11. It 5 asked the Bronsons to address whether they had the financial 6 resources to fund a chapter 11 plan. In particular, the court 7 asked the Bronsons to update the court on the prospective revenue 8 sources the Bronsons relied upon in support of their amended 9 plan. More specifically, the court asked the Bronsons whether 10 any progress had been made to sell the Railroad Property. The 11 court also noted that the Nondisclosure Lawsuit, another 12 prospective source of plan funding, had been decided against the 13 Bronsons. In addition, the court asked the Bronsons for an 14 update regarding their efforts to collect on judgments they had 15 obtained against third parties. 16 The Bronsons did not address the court’s questions and 17 concerns. Instead, they recapitulated the contentions they had 18 made in their written opposition to the Second 19 Conversion/Dismissal Motion, particularly the need to complete 20 their litigation with TMT. 21 The court was not persuaded by the Bronsons’ presentation. 22 After each side argued, the court orally announced its findings 23 and conclusions. First, the court concluded that TMT had 24 standing. Based on § 1109(b) and prior decisions of this Panel, 25 12 26 Notwithstanding the absence of explicit reasoning for the denial of the continuance motion, the record indicates that the 27 bankruptcy court disagreed with the Bronsons’ belief that resolving their disputes with TMT was going to enable the 28 Bronsons to propose and effectuate a confirmable plan.
13 1 the bankruptcy court held that TMT was a party in interest 2 entitled to oppose the Bronsons plan and to seek conversion even 3 though the Bronsons disputed his claims. 4 The court then went on to address the merits of the 5 conversion motion. According to the court, cause existed under 6 § 1112(b) to dismiss or convert. The court further noted that 7 based on the particular circumstances of the Bronsons’ case, 8 conversion was appropriate. In so ruling, the court pointed to 9 several circumstances, including but not limited to the 10 following: (1) the length of time the case had been pending 11 without a confirmed plan (over four years); (2) the various 12 defects evident in the last plan the Bronsons had proposed, which 13 the court had ruled upon in January 2011 (over 14 months prior); 14 and (3) the Bronsons’ inability to demonstrate any tangible 15 progress toward proposing and funding a new confirmable plan. 16 The following statement by the bankruptcy court is 17 representative of the court’s findings regarding the Bronsons’ 18 failure to address the issues critical to proposing and 19 effectuating a confirmable plan: 20 It appears that there have been money judgments that . . . the State Court [has] entered against the 21 Debtors [in the Nondisclosure Lawsuit]. I have no report or no understanding on the [Railroad Property] 22 or any current marketing efforts. 23 It's -- I have no information on the collection of funds from the stock judgment. I have no indication 24 that they -- the prosecution of a collection action or a liability action against the law firm Tidmore Lerma. 25 There's no amended plan on file. There's no disclosure statement on file. Instead the clear preference is to 26 continue to litigate against Mr. Thompson on his bankruptcy claim and that seems to also require a need 27 to involve the FBI into this case. And I'm told that although the FBI has been talked about, apparently the 28 Bronsons have not talked to the FBI in connection with
14 1 this matter. 2 I don't have a good answer to my question that we started this hearing with . . . . And that is, is 3 there a viable Chapter 11 plan such to make it useful to continue this four year old litigation[?] 4 5 Hr’g Tr. (April 12, 2012) at 26:4-22. 6 G. The Bronsons’ Reconsideration Motion 7 On April 17, 2012, the bankruptcy court entered its order 8 converting the case, and on April 27, 2012, the Bronsons filed a 9 motion for relief from that order under Civil Rule 60(b) 10 (“Reconsideration Motion”). While most of the Bronsons’ 11 arguments in the reconsideration motion reiterate their prior 12 arguments, the Bronsons sought for the first time to present to 13 the court an appraisal dated April 27, 2012, valuing the Office 14 Building as of the date of TMT’s foreclosure at $640,000 – far in 15 excess of the amount owed to TMT at the time of foreclosure. 16 Based on this new appraisal, the Bronsons made two new arguments: 17 (1) that they clearly had a meritorious defense that would cause 18 them to prevail in the Deficiency Lawsuit; and (2) that they now 19 had grounds to assert a cause of action against TMT for unjust 20 enrichment, because TMT otherwise would receive a windfall from 21 his purchase of the Office Building based on a $200,000 credit 22 bid. In their reply in support of their Reconsideration Motion, 23 the Bronsons further requested that the court recuse itself based 24 on the Bronsons’ perception of bias. 25 The bankruptcy court held a hearing on the Reconsideration 26 Motion on June 1, 2012. After finding no grounds to recuse 27 itself, the bankruptcy court denied the Reconsideration Motion, 28 in essence holding that the new information presented – the new
15 1 appraisal - would not have had any impact on the court’s 2 § 1112(b) ruling. 3 The bankruptcy court entered its order denying the 4 Reconsideration Motion on June 5, 2012, and the Bronsons timely 5 appealed on June 15, 2012. 6 JURISDICTION 7 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 8 §§ 1334 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. 9 § 158. 10 ISSUES 11 1. Did the bankruptcy court err when it converted Bronsons’ 12 chapter 11 bankruptcy case to chapter 7 pursuant to 13 § 1112(b)(1)? 14 2. Did the bankruptcy court err in ruling on the Second 15 Conversion Motion without first resolving the Deficiency 16 Lawsuit? 17 STANDARD OF REVIEW 18 Historically, we have reviewed a bankruptcy court’s decision 19 to convert a chapter 11 case to chapter 7 for abuse of 20 discretion. See, e.g., Greenfield Drive Storage Park v. Cal. 21 Para–Professional Servs., Inc. (In re Greenfield Drive Storage 22 Park), 207 B.R. 913, 916 (9th Cir. BAP 1997); Johnston v. Jem 23 Dev. Co. (In re Johnston), 149 B.R. 158, 161 (9th Cir. BAP 1992). 24 While the 2005 amendments to the Bankruptcy Code in some respects 25 limited the bankruptcy court’s discretion in this context, see 26 In re Prods. Int'l Co., 395 B.R. 101, 108 (Bankr. D. Ariz. 2008), 27 it still is appropriate in this appeal to conduct the same type 28 of analysis we ordinarily utilize when reviewing the bankruptcy
16 1 court’s exercise of its discretion. Under the abuse of 2 discretion standard, we first determine de novo whether the court 3 identified the correct legal rule to apply. And if the court 4 identified the correct legal rule, we then review the court’s 5 findings of fact to determine whether those findings were 6 “(1) ‘illogical,’ (2) ‘implausible,’ or (3) without ‘support in 7 inferences that may be drawn from the facts in the record.’” 8 United States v. Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009) 9 (en banc) (quoting Anderson v. City of Bessemer City, N.C., 10 470 U.S. 564, 577 (1985)). 11 We also review for an abuse of discretion the bankruptcy 12 court’s decision not to continue the final hearing on the Second 13 Conversion Motion until after resolution of the Deficiency 14 Lawsuit. See Orr v. Bank of Am., 285 F.3d 764, 783 (9th Cir. 15 2002); Khachikyan v. Hahn (In re Khachikyan), 335 B.R. 121, 125 16 (9th Cir. BAP 2005). 17 DISCUSSION 18 As amended by the Bankruptcy Abuse Prevention and Consumer 19 Protection Act of 2005 (“BACPA”)13 and the Bankruptcy Technical 20 Corrections Act of 2010 (“BTCA”),14 § 1112(b) generally requires 21 a bankruptcy court to dismiss, convert, or appoint a chapter 11 22 trustee or examiner if it finds “cause.” See 11 U.S.C. 23 § 1112(b)(1);15 see also In re Prods. Int'l Co., 395 B.R. at 24 13 25 Pub. L. 109-8, 119 Stat. 23 (Apr. 20, 2005). 14 26 Pub. L. 111-327, 124 Stat 3557 (Dec. 22, 2010). 15 27 Among other things, BTCA clarified that appointment of a trustee or an examiner was an additional alternative to 28 (continued...)
17 1 107-08; 7 COLLIER ON BANKRUPTCY, ¶ 1112.04[7] (Alan N. Resnick & 2 Henry J. Sommer, eds., 16th ed. 2013).16 3 4 15 (...continued) 5 conversion or dismissal. In this appeal, conversion is the only relevant alternative because the bankruptcy court found that 6 conversion was in the best interests of creditors and because the Bronsons have not asserted on appeal that the bankruptcy court 7 instead should have selected one of the other two alternatives to 8 conversion. 16 9 Upon finding cause, the court’s obligation to dismiss, convert or appoint a trustee or examiner is not absolute. 10 Section 1112(b) identifies certain exceptions to this general requirement. The main exception is set forth in § 1112(b)(2), 11 which provides that the court “may not” convert or dismiss a 12 chapter 11 case notwithstanding the existence of cause if it “finds and specifically identifies unusual circumstances 13 establishing that converting or dismissing the case is not in the best interests of creditors and the estate,” and the following 14 additional circumstances are established: 15 (A) there is a reasonable likelihood that a plan will 16 be confirmed within the timeframes established in Sections 1121(e) and 1129(e) of this title, or if such 17 sections do not apply, within a reasonable period of time; and 18 19 (B) the grounds for converting or dismissing the case include an act or omission of the debtor other than 20 under paragraph (4)(A)--
21 (i) for which there exists a reasonable justification for the act or omission; and 22 23 (ii) that will be cured within a reasonable period of time fixed by the court. 24 At the hearing on the Second Conversion/Dismissal Motion, the 25 bankruptcy court in essence found that there was not a 26 “reasonable likelihood” of plan confirmation “within a reasonable period of time.” § 1112(b)(2)(A). We perceive no error in this 27 finding, nor have the Bronsons pointed us to any. Thus, the exception set forth in § 1112(b)(2) does not apply under the 28 facts of this case.
18 1 Here, the bankruptcy court correctly identified the two-step 2 test it needed to consider in applying § 1112(b). As the court 3 put it, it first had to determine if cause existed to act 4 under § 1112(b); and second, if cause existed, it had to 5 determine which remedy, conversion or dismissal, was in the best 6 interest of creditors. See Nelson v. Meyer (In re Nelson), 7 343 B.R. 671, 675 (9th Cir. BAP 2006); see also In re Prods. 8 Int’l Co., 395 B.R. at 108; 7 COLLIER ON BANKRUPTCY, supra, at 9 ¶ 1112.04[7]. 10 In finding “cause” sufficient to satisfy the first step of 11 the two-step test, the bankruptcy court first noted that the 12 types of cause enumerated in § 1112(b)(4) are not exhaustive, 13 citing St. Paul Self Storage Ltd. P'ship v. Port Authority 14 (In re St. Paul Self Storage Ltd. P'Ship), 185 B.R. 580, 582 (9th 15 Cir. BAP 1995). Indeed, we have held that bankruptcy courts 16 enjoy wide latitude in determining whether the facts of a 17 particular case constitute cause for conversion or dismissal 18 under § 1112(b). See Pioneer Liquidating Corp. v. U.S. Trustee 19 (In re Consol. Pioneer Mortg. Entities), 248 B.R. 368, 375 (9th 20 Cir. BAP 2000), aff’d, 264 F.3d 803 (9th Cir. 2001); see also 21 In re Greenfield Drive Storage Park, 207 B.R. at 916. This wide 22 latitude is driven in part by common sense. Having presided over 23 the often lengthy and complex reorganization proceedings, the 24 bankruptcy court has a familiarity with the parties and the 25 issues that puts it in the best position to make the “cause” 26 determination under § 1112(b). In addition, the wide latitude 27 afforded to bankruptcy courts is consistent with the legislative 28 history accompanying § 1112(b): “‘the court will be able to
19 1 consider other factors as they arise, and to use its equitable 2 powers to reach an appropriate result in individual cases.’” 3 In re Consol. Pioneer Mortg. Entities, 248 B.R. at 375 (quoting 4 H. Rept. No. 95–595, 95th Cong., 1st Sess. 405–06 (1977), 5 reprinted in 1978 U.S.C.C.A.N. 6362). 6 In determining whether cause exists under § 1112(b), the 7 bankruptcy court must balance the debtor’s continuing desire to 8 remain in chapter 11 against the prospects for a successful 9 reorganization. Even before all confirmation-related litigation 10 has played out, when it becomes apparent to the court that the 11 debtor will not be able to confirm and effectuate a plan within 12 the foreseeable future, the bankruptcy court should exercise its 13 discretion under § 1112(b) to dismiss or convert. See 7 COLLIER 14 ON BANKRUPTCY, supra, at ¶ 1112.04[5]. 15 This is precisely how the bankruptcy court here assessed the 16 Bronsons’ reorganization prospects. The bankruptcy court 17 essentially found that the Bronsons were fixated on the 18 Deficiency Lawsuit and had given no consideration to moving 19 forward with a new plan in the fourteen months since the court 20 had sustained TMT’s objections to their amended plan. Moreover, 21 the court noted that, even if the Bronsons ultimately were to 22 prevail in the Deficiency Lawsuit, such success in and of itself 23 would not enable the Bronsons to confirm and effectuate a plan. 24 The Bronsons have not disputed that they had over $300,000 in 25 general unsecured debt and over $100,000 in administrative 26 expenses. And yet, when the court asked the Bronsons to provide 27 information on the status and value of assets that potentially 28 could fund their plan, the Bronsons basically ignored the court’s
20 1 inquiry. 2 In sum, after four years in chapter 11 and over 14 months 3 since the Bronsons’ last attempt to confirm a plan, the Bronsons 4 demonstrated an inability or unwillingness to move forward with 5 the plan process without first resolving their disputes with TMT. 6 The bankruptcy court’s conclusion that this constituted “cause” 7 under § 1112(b) was not illogical, implausible or without support 8 in the record. See Hinkson, 585 F.3d at 1261-62. Accordingly, 9 the bankruptcy court did not err in finding cause to convert. 10 On appeal, the Bronsons insist that they ultimately would 11 have prevailed in the Deficiency Lawsuit, either by way of a 12 favorable ruling on the Fee Issues or a favorable ruling on the 13 FMV Issue, or both. According to the Bronsons, once they 14 prevailed, both TMT’s objection to their amended plan and TMT’s 15 motion to convert no longer would have been an obstacle to their 16 reorganization efforts. 17 For purposes of this appeal, we are willing to assume 18 without actually deciding that the Bronsons would have prevailed 19 in the Deficiency Lawsuit. But even if they would have prevailed 20 in that lawsuit, this would not establish that the chapter 11 21 issues – the plan defects and the Second Conversion/Dismissal 22 Motion – would have simply disappeared. The Bronsons apparently 23 believed that their success in the Deficiency Lawsuit would have 24 established that TMT lacked standing. We disagree. Regardless 25 of the outcome of the Deficiency Lawsuit, TMT already had an 26 allowed claim for over $25,000 in the Bronsons’ bankruptcy case. 27 The Bronsons never appealed either the Gila Judgment or the Gila 28
21 1 Judgment Claim Allowance, from which TMT’s allowed claim arose.17 2 By virtue of the Gila Judgment Claim Allowance, TMT was the 3 holder of an allowed unsecured claim with a concrete stake in the 4 outcome of the Bronsons’ chapter 11 case and had standing to be 5 heard on all aspects of the Bronsons’ chapter 11 case. See 6 § 1109(b). As a matter of law, the outcome of the Deficiency 7 Lawsuit would not have altered the Gila Judgment or the Gila 8 Judgment Claim Allowance because those were final judgments or 9 orders that the Bronsons never appealed. See generally United 10 Student Aid Funds, Inc. v. Espinosa, 130 S.Ct. 1367, 1376, 1380 11 (2010) (holding that bankruptcy court’s final order was binding 12 and that appellant could not later collaterally attack that order 13 when the appellant had notice of the proceedings leading up to 14 the entry of the order but never appealed the order). In short, 15 16 17 After the bankruptcy court granted the Gila Judgment Claim 17 Allowance, TMT filed a new proof of claim – Claim Number 20 – with a copy of the Gila Judgment Claim Allowance attached. 18 Presumably, TMT filed Claim Number 20 to ensure that its allowed 19 claim would appear on the claims register and be properly accounted for in the Bronsons’ bankruptcy case. Remember, the 20 Gila Judgment Claim Allowance arose not from a proof of claim but rather from TMT’s motion for allowance of an administrative 21 expense. The Bronsons duly opposed TMT administrative expense motion, but the bankruptcy court ultimately decided, after 22 holding a hearing on the motion, to deny the claim as an 23 administrative expense but allow it as a general unsecured claim. Without TMT’s filing of Claim Number 20, TMT’s allowed unsecured 24 claim based on the Gila Judgment Claim Allowance would not have shown up on the claims register. We acknowledge that the 25 Bronsons have filed an objection to Claim Number 20 and that the 26 bankruptcy court has not yet disposed of this claim objection. Nonetheless, we know of no legal doctrine that would permit the 27 Bronsons to collaterally attack the Gila Judgment Claim Allowance, a final order that was not appealed, by filing an 28 objection to Claim Number 20.
22 1 TMT would not have lost his standing to be heard in the Bronsons’ 2 chapter 11 case even if the Bronsons had prevailed in the 3 Deficiency Lawsuit. 4 The Bronsons’ reliance on the Deficiency Lawsuit also is 5 misplaced for a second, independent reason. Prevailing in that 6 lawsuit might have freed the Bronsons from some of TMT’s claims, 7 but it would not have established their ability to fund or 8 effectuate a confirmable chapter 11 plan. Put another way, even 9 if the Bronsons successfully rid themselves of TMT’s deficiency 10 claim, the bankruptcy court had an independent duty to deny plan 11 confirmation unless the plan requirements set forth in § 1129(a) 12 were satisfied. Varela v. Dynamic Brokers, Inc. (In re Dynamic 13 Brokers, Inc.), 293 B.R. 489, 498–99 (9th Cir. BAP 2003) (stating 14 that bankruptcy courts have an independent duty to verify that 15 all confirmation requirements are satisfied, regardless of 16 whether a creditor objects). But the Bronsons had no answer for 17 the bankruptcy court’s questions and concerns regarding how they 18 were going to propose and effectuate a confirmable plan of 19 reorganization satisfying all of § 1129(a)’s requirements. At 20 the hearing on the Second Conversion/Dismissal Motion, the court 21 noted all of the defects that had prevented confirmation of the 22 Bronsons’ amended plan fourteen months prior, and the Bronsons 23 were unable to explain how those defects would be remedied. All 24 they did was point to their expectation that they ultimately 25 would prevail in the Deficiency Lawsuit. As indicated by our 26 discussion set forth above, the Bronsons’ response was wholly 27 inadequate to address the court’s questions and concerns. 28 In sum, the Bronsons’ expected outcome in the Deficiency
23 1 Lawsuit did not demonstrate that they were capable of confirming 2 a viable plan in the foreseeable future or that conversion to 3 chapter 7 was inappropriate. 4 The Bronsons only explicitly make one other argument in 5 their opening brief: that, if the bankruptcy court had honored 6 their evidentiary hearing requests, they would have been able to 7 demonstrate to the court that TMT and his counsel were guilty of 8 misconduct and concealment. 9 The Bronsons’ evidentiary hearing argument is difficult to 10 follow. The court did hold evidentiary hearings in the 11 Deficiency Lawsuit. As best we can tell from their appeal brief, 12 the Bronsons are upset because the bankruptcy court did not 13 convene separate hearings to address their allegations that TMT 14 and his counsel were guilty of misconduct and concealment. 15 Specifically, the Bronsons contend that TMT and his counsel 16 failed to make required disclosures under Civil Rule 26(a), 17 failed to respond to their informal discovery requests, and did 18 not have a legitimate factual basis for claiming that the FMV of 19 the Office Building was equal to or less than the amount of TMT’s 20 credit bid. 21 As a threshold matter, we note that the Bronsons have not 22 pointed us to, nor has our independent review of the record 23 revealed, that the Bronsons ever filed in the bankruptcy court a 24 discreet formal motion seeking sanctions under either Rule 9011 25 or under Rule 7037. In addition, it does not appear that the 26 Bronsons ever complied with the procedural requirements of 27 Rule 9011(b)(2). 28 But even if the Bronsons had satisfied the relevant
24 1 procedural requirements for relief under either Rule 7037 or 2 9011, they still have not explained how they thereby could have 3 overcome the fact that their amended plan did not satisfy the 4 requirements set forth in § 1129(a), or the fact that they did 5 not appeal and could not collaterally attack the Gila Judgment 6 Claim Allowance, which conclusively established TMT’s standing as 7 a creditor in the Bronsons’ chapter 11 case. 8 Furthermore, most of the Bronsons’ concealment/misconduct 9 allegations do not withstand scrutiny. For instance, the 10 Bronsons complain most about the alleged failure of TMT and his 11 counsel to disclose facts concerning TMT’s foreclosure and 12 subsequent resale of a parcel of commercial real property located 13 on Broad Street in Globe, Arizona (“Broad Property”). According 14 to the Bronsons, TMT purchased the Broad Property in June 2008 at 15 a foreclosure sale for a credit bid of $384,000 and resold the 16 Broad Property to a third party in 2009 for $420,000 (“Broad 17 Sale”). The Bronsons contend that the the Broad Sale established 18 the value of the Broad Property, which in turn established the 19 value of the Office Building, by “extrapolation.” Therefore, the 20 Bronsons conclude, TMT and his counsel should have disclosed the 21 Broad Property and its sale in the Deficiency Lawsuit and in 22 various relief from stay proceedings preceding the Deficiency 23 Lawsuit. 24 We disagree with the Bronsons’ analysis and conclusion for 25 at least three reasons. First, just because the Bronsons 26 believed that the Broad Property was comparable to the Office 27 Building does not necessarily make it so for valuation and 28 disclosure purposes. Second, relief from stay proceedings are
25 1 contested matters, and there is no Civil Rule 26(a) duty to 2 disclose in contested matters. See Rule 9014(c). And third, to 3 the extent TMT and his counsel generally had a duty to disclose 4 in the Deficiency Lawsuit under Civil Rule 26(a), the Bronsons 5 already were aware of the key facts regarding the Broad Property 6 and the Broad Sale by the time they filed their Civil 7 Rule 12(b)(6) motion to dismiss, as they recited those facts in 8 their dismissal motion. Consequently, that the bankruptcy court 9 did not enforce this supposed disclosure duty in the Deficiency 10 Lawsuit was at worst harmless error, when the Bronsons obviously 11 already knew the key facts regarding the Broad Property and the 12 Broad Sale by the time they filed their dismissal motion. As an 13 appellate court, we must ignore harmless error. See Litton Loan 14 Serv'g, LP v. Garvida (In re Garvida), 347 B.R. 697, 704 (9th 15 Cir. BAP 2006). 16 The Bronsons also suggest in their appeal brief that the 17 bankruptcy court “rushed to convert” their chapter 11 bankruptcy 18 case to chapter 7 while at the same time depriving them of an 19 evidentiary hearing on the FMV Issue in the Deficiency Lawsuit. 20 As we explained above, however, no aspect of the Deficiency 21 Lawsuit was going to resolve in the Bronsons’ favor the defects 22 in their amended plan or the apparent cause for conversion under 23 § 1112(b). 24 Moreover, the bankruptcy court record tells a much different 25 story regarding why the Second Conversion/Dismissal Motion was 26 heard before the FMV Issue. The Bronsons brought two motions in 27 the Deficiency Lawsuit that explicitly sought relief based on the 28 FMV Issue. The first was their Civil Rule 12(b)(6) motion filed
26 1 in November 2009. The court denied this dismissal motion, and 2 the Bronsons have not argued on appeal that the bankruptcy court 3 erred by denying their dismissal motion. Nor do we independently 4 perceive any error in this ruling. The Bronsons did not again 5 bring a motion focusing on the FMV Issue until March 2012, when 6 they filed a motion for a judgment on the pleadings. In the 7 interim between these two filings the litigants hotly contested 8 the Fee Issues and largely ignored the FMV Issue. Significantly, 9 in September 2010, when they were still represented by counsel, 10 the Bronsons filed their own summary judgment motion focusing on 11 the Fee Issues. If they were anxious to refocus attention on the 12 FMV Issue, we do not understand why they did not address the FMV 13 Issue in that motion. At a minimum, this would have forced TMT 14 to come forward and provide some evidentiary support for his 15 lower valuation of the Office Building. 16 Meanwhile, the Second Conversion/Dismissal Motion was filed 17 in October 2010, but the bankruptcy court did not hear it until 18 April 2012, roughly 18 months later. We cannot fathom how the 19 Bronsons can characterize this as a “rush to judgment” on the 20 motion to convert. In any event, the record reflects that the 21 setting of hearings on the FMV Issue and on the Second 22 Conversion/Dismissal Motion was not a unilateral decision of the 23 court governed by whim, but rather was a function of the parties’ 24 conduct and how they chose to litigate their disputes. 25 The Bronsons devote none of their appellate brief to arguing 26 that the bankruptcy court erred in denying their Reconsideration 27 Motion or erred in denying the recusal request they made in their 28 reply in support of their Reconsideration Motion. We decline to
27 1 address these issues because the Bronsons chose not to argue them 2 on appeal.18 See Brownfield v. City of Yakima, 612 F.3d 1140, 3 1149 n.4 (9th Cir. 2010) (citing Greenwood v. F.A.A., 28 F.3d 4 971, 977 (9th Cir. 1994)); Van Zandt v. Mbunda (In re Mbunda), 5 484 B.R. 344, 350 n.4 (9th Cir. BAP 2012). 6 CONCLUSION 7 For the reasons set forth above, we AFFIRM the bankruptcy 8 court’s conversion order and the bankruptcy court’s order denying 9 the Reconsideration Motion. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 18 26 Nonetheless, we note that the bankruptcy court carefully considered whether recusal was appropriate during the June 1, 27 2012 hearing on the Reconsideration Motion. Suffice it to say we perceive no error in this recusal analysis or in the court’s 28 decision against recusal.