Taylor v. Danielson (In re Taylor)

472 B.R. 570, 2012 WL 1247190, 2012 U.S. Dist. LEXIS 52553
CourtDistrict Court, C.D. California
DecidedApril 13, 2012
DocketNo. EDCV 11-1879-GHK
StatusPublished
Cited by1 cases

This text of 472 B.R. 570 (Taylor v. Danielson (In re Taylor)) is published on Counsel Stack Legal Research, covering District Court, C.D. California primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Taylor v. Danielson (In re Taylor), 472 B.R. 570, 2012 WL 1247190, 2012 U.S. Dist. LEXIS 52553 (C.D. Cal. 2012).

Opinion

MEMORANDUM

GEORGE H. KING, District Judge.

This matter is before us on Appellants Lavarro Taylor and Teresa Delphine Tay[571]*571lor’s (“Appellants”) Appeal from Bankruptcy Court (“Appeal”). We have jurisdiction pursuant to 28 U.S.C. § 158(a)(1). We have considered the papers filed in support of and in opposition to this Appeal and deem this matter appropriate for resolution without oral argument. L.R. 7-15. As the Parties are familiar with the facts of this case, we will repeat them only as necessary.

I.Background

On May 11, 2011, Appellants filed a voluntary petition for bankruptcy protection under Chapter 18 of the Bankruptcy Code. (Excerpts of Record (“ER”) 1). In their Chapter 13 plan (“Plan”), Appellants proposed to cure the arrearage owed on then-home mortgage. (ER 3-4). On June 29, 2011, the Bankruptcy Court held a confirmation hearing regarding Appellants’ Plan. During the hearing, the Bankruptcy Court expressed concern that the Plan “seem[ed] unfeasible on its face.” (ER 3). Nonetheless, Appellants’ attorney represented that the Plan was feasible, stating: “[Tjhere is definitely enough income over expenses to make the plan feasible. I would ask that [Appellants] be given a chance by the Court either to confirm it today or put it out to October.” (ER 5).

The Bankruptcy Court continued the confirmation hearing to October 5, 2011. At the same time, the court issued an “OSC re dismissal of the case as of October 5th.” (ER 5). The court explained that if Appellants failed to make their Plan payments or post-petition mortgage payments until the next hearing, or if they failed to comply with the provisions of the Local Bankruptcy Rules, the Federal Rules of Bankruptcy Procedure, or the Bankruptcy Code, the case would be dismissed with a bar to refiling. (ER 5).

On October 4, 2011, Appellants filed a “Notice of Conversion of Bankruptcy Case from Chapter 13 to Chapter 7” (“Notice of Conversion”). (ER 11). On October 5, 2011, the Bankruptcy Court held the rescheduled confirmation hearing. At the hearing, Appellants’ attorney promptly informed the court that the case “was ... converted to Chapter 7 yesterday.” (ER 13). The court responded: “No, it wasn’t. Confirmation denied. Case dismissed. 109(g) applies.” (ER 13). The purported reason for dismissal was Appellants’ failure to make payments and failure to timely file a secured debt payment history declaration. (ER 13).

II. Question Presented

According to Appellants, this Appeal presents a single question: “Did the [Bankruptcy Court] err in denying the effect of [Appellants’] Notice of Conversion from chapter 13 to chapter 7 and subsequently dismissing [Appellants’] chapter 13 case?” (Appellants Opening Brief (“AOB”) 2).

III. Standard of Review

We review the Bankruptcy Court’s “findings of fact for clear error and its conclusions of law de novo.” In re Jan Weilert RV, Inc., 315 F.3d 1192, 1196 (9th Cir.2003). The Bankruptcy Court’s alleged failure to give effect to Appellants’ Notice of Conversion presents a legal question that is subject to de novo review.

IV. Discussion

Appellants argue that 11 U.S.C. § 1307(a) provides debtors an “absolute right” to convert a case filed under Chapter 13 to a Chapter 7 proceeding and, therefore, the Bankruptcy Court erred in denying the effect of their Notice of Conversion and subsequently dismissing their Chapter 13 case. In the alternative they argue that even if the right to convert under § 1307(a) is not absolute, and can be [572]*572forfeited by bad-faith conduct, the Bankruptcy Court still erred in dismissing the case because it did not make any explicit finding of bad faith.

Section 1307(a), which governs conversion of Chapter 13 cases, provides: “The debtor may convert a case under this chapter to a case under chapter 7 of this title at any time. Any waiver of the right to convert under this subsection is unenforceable.” “Bankruptcy courts within the Ninth Circuit have historically considered the right to convert from chapter 13 to chapter 7 as ‘absolute’ .... ” In re DeFrantz, 454 B.R. 108, 113 (9th Cir. BAP 2011) (collecting cases). However, “[w]hether the right to convert from chapter 13 to chapter 7 is truly ‘absolute’ has been called into question by the Supreme Court’s decision in Marrama [v. Citizens Bank of Mass., 549 U.S. 365, 127 S.Ct. 1105, 166 L.Ed.2d 956 (2007) ].” Id.

In Marrama, the Court examined 11 U.S.C. § 706(a), which allows a debtor to convert a case commenced under Chapter 7 to a Chapter 13 proceeding. The language of § 706(a) is nearly identical to that of § 1307(a).1 Although some courts had previously treated the right to convert under § 706(a), like the right to convert under § 1307(a), as absolute, in Marrama the Court held that the right to convert from Chapter 7 to Chapter 13 could be forfeited by bad-faith conduct. 549 U.S. at 374, 127 S.Ct. 1105. The Court’s decision rested largely on its construction of the language of § 706(d) in conjunction with § 1307(c). Under § 706(d), a Chapter 7 debtor may not convert to another chapter through § 706(a) “unless the debtor may be a debtor under such chapter.” Under § 1307(c), a bankruptcy court may dismiss a Chapter 13 proceeding or convert it to Chapter 7 “for cause,”2 which courts have “routinely” interpreted to include bad-faith conduct. Marrama, 549 U.S. at 373, 127 S.Ct. 1105. Reading these two provisions together, the Court reasoned that a Chapter 7 debtor who has proceeded in bad faith and wishes to convert his case to Chapter 13 is not eligible to “be a debtor” under Chapter 13 because his case would be subject to dismissal or reconversion to Chapter 7 pursuant to § 1307(c). Id. at 373-74, 127 S.Ct. 1105 (“In practical effect, a ruling that an individual’s Chapter 13 case should be dismissed or converted to Chapter 7 because of prepetition bad-faith conduct, including fraudulent acts committed in an earlier Chapter 7 proceeding, is tantamount to a ruling that the individual does not qualify as a debtor under Chapter 7.”). Thus the Court concluded that “[t]he text of § 706(d) ... provides adequate authority for the denial of [a] motion to convert [on the grounds of bad faith].” Id. at 374, 127 S.Ct. 1105. Finally, the Court emphasized that “the broad authority granted to bankruptcy judges to take any action that is necessary or appropriate ‘to prevent an abuse of process’ described in § 105(a) of the Cod ... is ... adequate to authorize an immediate denial of a motion [573]*573to convert filed under § 706 in lieu of a conversion order that merely postpones the allowance of equivalent relief and may provide a debtor with an opportunity to take action prejudicial to creditors.” Id. at 375, 127 S.Ct. 1105.

One year later, in In re Rosson,

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Bluebook (online)
472 B.R. 570, 2012 WL 1247190, 2012 U.S. Dist. LEXIS 52553, Counsel Stack Legal Research, https://law.counselstack.com/opinion/taylor-v-danielson-in-re-taylor-cacd-2012.