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In re Sattler

Summarizing by Lars Fuller

Sullivan v. Harnisch (In re Sullivan)

Citation:
Sullivan v. Harnisch (In re Sullivan), 9th Cir. B.A.P. (BAP No. CC-14-1225-TaDKi) December 9, 2014 [UNPUBLISHED OPINION]
Tag(s):
Ruling:
In an unpublished opinion, the 9th circuit bankruptcy appellate panel reversed the ruling and order of the bankruptcy court to dismiss the appellants' chapter 11 bankruptcy case because the appellant filed the bankruptcy petition in bad faith. The appellate panel found that bankruptcy court abused its discretion, when the court failed to consider the best interests of all creditors and the estate, not just the interest of the creditor who filed the motion to dismiss the petition, asserting it was filed in bad faith. The appellate panel also found that the bankruptcy courts finding that the bankruptcy case was filed in bad faith was in error.
Procedural context:
Debtor filed his bare bones petition for relief under chapter 11 on February 4, 2014. Eight days later debtor filed a Chapter 11 Status Report and supporting declaration. Six days after filing the status report, Debtor filed his schedules and statement of financial affairs. The day after Debtor filed his schedules and statement of financial affairs, Appellees filed their motion seeking dismissal of the case. The hearing on the motion was set concurrently with Debtor’s applications to employ two law firms, his motion for approval of his budget, and a chapter 11 scheduling and management conference. The bankruptcy court heard argument on the Appellees’ motion first. After oral argument by the parties, and without allowing testimony or other additional evidence, the bankruptcy court took the motion under submission and continued the other hearings. Shortly thereafter, it issued its written Statement of Decision and a separate order dismissing the case. The Debtor timely filed a notice of appeal to the BAP and an emergency motion with the bankruptcy court for stay pending appeal, which was denied. Debtor thereafter filed a motion with the BAP for a stay pending appeal, which a motions panel granted.
Facts:
Debtor filed his bare bones petition for relief under chapter 11 on February 4, 2014. Eight days later debtor filed a Chapter 11 Status Report and supporting declaration. Six days after filing the status report, Debtor filed his schedules and statement of financial affairs. The day after debtor filed his schedules and statement of financial affairs, and fifteen days after debtor Joseph Sullivan filed a chapter 11 petition, Appellees, as holders of a large state court judgment and related judgment liens, filed a motion to dismiss the case as a bad faith filing. They contended that the case was a two-party dispute and that Debtor improperly filed solely to delay their collection efforts. They also argued that Debtor lacked any reasonable probability of confirming a chapter 11 plan because Appellees would vote against it. Debtor opposed the motion, supported by his declaration and timely filed schedules, statement of financial affairs, and a chapter 11 status report. In the status report, he outlined the events leading to the filing of his petition, including Appellees’ active efforts to execute on their judgment lien and to seize his non-exempt assets, and stated his intent to file a plan within the exclusivity period. The United States Trustee did not file any papers in response to Appellees’ motion but advised the bankruptcy court orally that it did not join in the motion. Notwithstanding the early state of the chapter 11 case and the merely circumstantial nature of Appellees’ evidence, the bankruptcy court granted Appellees’ motion, finding that Debtor filed the case in bad faith without any possibility of confirming a plan. Then, without considering or determining whether dismissal or conversion of the case would be in the best interests of creditors and the estate, the bankruptcy court dismissed the case.
Judge(s):
TAYLOR, DUNN, and KIRSCHER, Bankruptcy Judges.

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