Bronson v. Thompson (In re Bronson)

In re Bronson, No. AZ-12-1320-MkDJu (9th Cir. B.A.P. May 29, 2013).
In this not-for-publication memorandum decision, the Ninth Circuit BAP affirmed conversion of a chapter 11 case to chapter 7 because the debtors were unable to confirm and effectuate a plan within the foreseeable future.
Procedural context:
The BAP acted on the appeal by the debtors from the bankruptcy court’s order converting their chapter 11 case to chapter 7.
The bankruptcy court sustained a creditor’s objections to confirmation of the debtors’ first plan and a later amended plan. Fourteen months later, a creditor moved to convert the case to chapter 7 because the debtors had failed to consider moving forward with a new plan or respond to the court’s request for an explanation of the status and value of assets that could fund a plan. The debtors claimed that their prosecution of an adversary proceeding to disallow one of several claims held by the creditor that moved for conversion or dismissal—a proceeding in which they ultimately prevailed—excused their failure to move forward with their plan. But that creditor held two other allowed claims, and the debtors had not explained to the court how they could confirm a plan to address the remaining claims. Their failure to make that explanation constituted cause for conversion under 11 U.S.C. § 1112(b). The types of cause enumerated in § 1112(b)(4) are not exhaustive, and bankruptcy courts enjoy wide latitude in determining whether the facts of a particular case constitute cause for conversion or dismissal. The court must balance a debtor’s continuing desire to remain in chapter 11 against the prospects for a successful reorganization. When it becomes apparent to the court that a debtor will not be able to confirm and effectuate a plan within the foreseeable future, the court should exercise its discretion under § 1112(b) to dismiss or convert. Here, the court concluded that the debtors were unable or unwilling to move forward with the plan process, and that conclusion was not illogical, implausible, or without support in the record.
BAP Judges Markell, Dunn, and Jury

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