Muth v. Muth (In re Muth)

Muth v. Muth (In re Muth) 10 Cir. B.A.P., CO-13-055 (May 1, 2014) [Not for Publication]
In an unpublished opinion, the 10th Circuit Bankruptcy Appellate Panel Affirmed the ruling by the Bankruptcy Court that dismissed the debtor's chapter 11 case and the award of attorney's fees to debtor's former spouse. The case was dismissed for cause pursuant to 11 U.S.C.1112 because of 1) absence of a reasonable likelihood of Debtor’s ability to present or fund a confirmable plan, and 2) Debtor filed his petition in bad faith.
Procedural context:
Debtor Steven Muth (“Debtor”) appeals both the bankruptcy court’s dismissal of his Chapter 11 bankruptcy and its award of attorney’s fees to appellee Kimberly Muth (“Kimberly”), Debtor’s former spouse.
Debtor Steven Muth and his ex-wife Kimberly Muth have been litigating issues related to their divorce and the custody and support of their minor child for several years. In 2007, Debtor, Steven Muth, filed a motion in his and Kimberly’s divorce proceeding to modify his child support obligation. The state court determined Debtor’s motion to be “frivolous, groundless and vexatious,” and awarded Kimberly the attorney’s fees she incurred responding to Debtor’s motion. In April 2010, the state court entered a judgment in the amount of $37,487 plus interest in favor of Kimberly and against Debtor. When Debtor filed his bankruptcy petition on August 13, 2012, Kimberly was actively pursuing collection of her judgment against him in state court. In July 2012, Kimberly learned that Debtor had received a federal income tax refund of nearly $22,000 that was attributable to a joint tax return she and Debtor jointly filed. Kimberly obtained a state court order directing Debtor to endorse the check to Kimberly and deliver it to her counsel. Debtor delivered the check, but did not endorse it, which led Kimberly to file a motion for contempt of court against him. Kimberly also sought to garnish Debtor’s fiancé, Linda Sease (“Sease”), on the ground that Sease and Debtor were hiding his assets in an attempt to avoid collection. Sease resisted the garnishment and the related discovery requests, and the garnishment issues were set for hearing in state court on August 21, 2012. Kimberly Muth's motion for contempt against Debtor was also pending at that time. /p/ /p/ Eight days prior to the scheduled garnishment hearing, Debtor filed a petition for Chapter 11 bankruptcy relief, which automatically stayed the state court proceedings. In his initial bankruptcy filings, Debtor omitted any reference to Linda Sease, her assets, and her expenses, although he and Sease had been cohabiting for some time prior to the filing. Kimberly filed a proof of claim in Debtor’s bankruptcy, seeking approximately $54,000 as a non-dischargeable domestic support obligation. Linda Sease also filed a proof of claim in Debtor’s bankruptcy, asserting Debtor owed her $112,351 for loans she had made to him. Although Debtor objected to Kimberly’s claim, the bankruptcy court denied his objection and allowed the claim. Debtor’s father, Ernest Muth, did not file a proof of claim, but was listed by Debtor as holding a claim of $100,000 in his list of his 20 largest unsecured creditors. The Securities & Exchange Commission (“SEC”) filed a proof of claim, for approximately $925,000, owed to it by Debtor as the result of fines that had been imposed on him for securities violations. Kimberly Muth filed a motion to dismiss Debtor’s bankruptcy pursuant to § 1112(b)(1), asserting as “cause” that Debtor had no reasonable likelihood of rehabilitation, and that the bankruptcy had been filed in bad faith. An evidentiary hearing was held on Kimberly’s motion over the course of three separate days in 2013: January 16, February 5, and June 11. The bankruptcy court granted Kimberly Muth's motion and dismissed Steven Muth's bankruptcy case 1) absence of a reasonable likelihood of Debtor’s rehabilitation, and 2) Debtor filed his petition in bad faith Debtor, Steven Muth, timely appealed.
THURMAN, Chief Judge, CORNISH, and MICHAEL, Bankruptcy Judges.

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