Windscheffel v. Montebello Unified School District (In re Windscheffel

Case Type:
Consumer
Case Status:
Affirmed
Citation:
BAP No. CC-16-1303-FLKu (9th Circuit, Apr 03,2017) Not Published
Tag(s):
Ruling:
BAP for 9th Circuit affirmed bankruptcy court's (C.D. Cal.) dismissal of debtor's chapter 11 case for bad faith, finding no error in application of judicially-created bad faith tests, rather than statutory factors in 1112(b)(4), in finding cause to dismiss. Case was clearly filed to stay execution on judgment in lieu of posting supersedeas bond; judgment creditor was only meaningful creditor. "Cause" existed for dismissal, including best interest of estate, i.e., creditor. Proposed plan did not overcome bad faith by proposing to mirror creditor's likely recovery outside of bankruptcy.
Procedural context:
Bankruptcy court dismissed debtor's chapter 11 case. Debtor appealed to BAP for 9th Circuit.
Facts:
Debtor and his company, Fitness Profile, Inc. (FPI), operated after-school programs for Montebello Unified School District (MUSD). MUSD filed suit against debtor and FPI in Los Angeles Superior Court, alleging that debtor and FPI had breached agreements with MUSD and committed fraud, breach of contract, and conversion of public funds. Following a bench trial, the state court awarded judgment against debtor and FPI, and awarded MUSD damages of $2.2M, plus attorneys fees and costs of $672k, with interest at 10 percent. Debtor and FPI appealed, but debtor failed to post bond to stay enforcement. Debtor filed bankruptcy to stay MUSD's enforcement efforts. Debtor's chapter 11 petition listed MUSD's claim of $2.2 million, and two other creditors with claims totaling $500. MUSD moved to dismiss, alleging bad faith.
Judge(s):
Faris, Lafferty, Kurtz

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