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In re: Joseph William Sullivan, CC-14-1225-TaDKi (2014)

Court: United States Bankruptcy Appellate Panel for the Ninth Circuit Number: CC-14-1225-TaDKi Visitors: 8
Filed: Dec. 22, 2014
Latest Update: Mar. 03, 2020
Summary: , 27, 28, 1 TAYLOR, Bankruptcy Judge:, 2, 3 INTRODUCTION, 4 Fifteen days after debtor Joseph Sullivan filed a, 5 chapter 111 petition, Appellees, as holders of a large state, 6 court judgment and related judgment liens, filed a motion to, 7 dismiss the case as a bad faith filing., 2 1 a plan.
                                                                  FILED
                                                                   DEC 22 2014
                                                               SUSAN M. SPRAUL, CLERK
 1                                                               U.S. BKCY. APP. PANEL
                                                                 OF THE NINTH CIRCUIT
 2
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )      BAP No. CC-14-1225-TaDKi
                                   )
 6   JOSEPH WILLIAM SULLIVAN,      )      Bk. No. SA 14-bk-10711-CB
                                   )
 7                  Debtor.        )
     ______________________________)
 8                                 )
     JOSEPH WILLIAM SULLIVAN,      )
 9                                 )
                    Appellant,     )
10                                 )
     v.                            )      OPINION
11                                 )
     WILLIAM HARNISCH; PECONIC     )
12   PARTNERS LLC; PECONIC ASSET   )
     MANAGERS LLC,                 )
13                                 )
                    Appellees.     )
14   ______________________________)
15                  Argued and Submitted on October 23, 2014
                              at Malibu, California
16
                           Filed - December 22, 2014
17
               Appeal from the United States Bankruptcy Court
18                 for the Central District of California
19       Honorable Catherine E. Bauer, Bankruptcy Judge, Presiding
                      ________________________________
20
21   Appearances:     Sean A. O’Keefe of O’Keefe & Associates Law
                      Corporation, PC argued for Appellant Joseph
22                    William Sullivan; Y. David Scharf of Morrison
                      Cohen LLP argued for Appellees William Harnisch,
23                    Peconic Partners LLC, and Peconic Asset Managers
                      LLC.
24                     __________________________________
25
26   Before:   TAYLOR, DUNN, and KIRSCHER, Bankruptcy Judges.
27
28
 1   TAYLOR, Bankruptcy Judge:
 2
 3                               INTRODUCTION
 4        Fifteen days after debtor Joseph Sullivan filed a
 5   chapter 111 petition, Appellees, as holders of a large state
 6   court judgment and related judgment liens, filed a motion to
 7   dismiss the case as a bad faith filing.    They contended that the
 8   case was a two-party dispute and that Debtor improperly filed
 9   solely to delay their collection efforts.   They also argued that
10   Debtor lacked any reasonable probability of confirming a chapter
11   11 plan because Appellees would vote against it.
12        Debtor opposed the motion, supported by his declaration and
13   timely filed schedules, statement of financial affairs, and a
14   chapter 11 status report.   In the status report, he outlined the
15   events leading to the filing of his petition, including
16   Appellees’ active efforts to execute on their judgment lien and
17   to seize his non-exempt assets, and stated his intent to file a
18   plan within the exclusivity period.    The United States Trustee
19   did not file any papers in response to Appellees’ motion but
20   advised the bankruptcy court orally that it did not join in the
21   motion.
22        Notwithstanding the early state of the chapter 11 case and
23   the merely circumstantial nature of Appellees’ evidence, the
24   bankruptcy court granted Appellees’ motion, finding that Debtor
25   filed the case in bad faith without any possibility of confirming
26
          1
             Unless specified otherwise, all chapter and section
27   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
     all “Rule” references are to the Federal Rules of Bankruptcy
28   Procedure, Rules 1001-9037.
                                    - 2 -
 1   a plan.   Then, without considering or determining whether
 2   dismissal or conversion of the case would be in the best
 3   interests of creditors and the estate, the bankruptcy court
 4   dismissed the case.   Because we determine that the bankruptcy
 5   court’s failure to consider the best interests of creditors and
 6   the estate was an abuse of its discretion and further because we
 7   determine that its finding of bad faith was in error on this
 8   record, we REVERSE.
 9                                   FACTS
10        Debtor filed his bare bones petition for relief under
11   chapter 11 on February 4, 2014.   Eight days later he filed2 a
12   Chapter 11 Status Report and supporting declaration.
13   Chapter 11 Status Report
14        In the status report, Debtor presented his version of the
15   prepetition disputes and six years of litigation between Debtor
16   and Appellees in New York and the events immediately leading to
17   the petition.   According to Debtor, he was employed until October
18   2008 as the Chief Operating Officer and Chief Compliance Officer
19   of appellees Peconic Partners, LLC and Peconic Asset Managers,
20   LLC (together, “Peconic”).   He was also a member of Peconic
21   entitled to share in profits.   He described Peconic as an
22   institutional investment manager and registered investment
23   adviser founded by appellee William Harnisch.
24
          2
             The status report filed as docket 17 on the bankruptcy
25   case electronic docket is not contained in the record provided by
     the parties in this appeal. We have exercised our discretion to
26   take judicial notice of documents electronically filed in the
     underlying bankruptcy case. See O’Rourke v. Seaboard Sur. Co.
27   (In re E.R. Fegert, Inc.), 
887 F.2d 955
, 957-58 (9th Cir. 1989);
     Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 
293 B.R. 28
  227, 233 n.9 (9th Cir. BAP 2003).
                                     - 3 -
 1        Disagreements arose, Debtor’s employment was involuntarily
 2   terminated in late 2008, and litigation followed.   Although
 3   Debtor recited some initial successes at the trial court level,
 4   such successes were overturned on appeal and eventually Appellees
 5   obtained a judgment of approximately $1.5 million that resolved
 6   one of several counterclaims Appellees filed against Debtor.     The
 7   record contains no evidence that this judgment is
 8   nondischargeable; it appears to be based exclusively on contract.
 9   Debtor described the judgment as requiring that he repay to
10   Peconic a $1 million advance that Peconic made to him, with
11   interest.   The judgment did not fully resolve the state court
12   litigation.   Debtor stated that costs to continue litigation plus
13   entry of the judgment rendered him insolvent and that he filed
14   bankruptcy seeking a breathing spell to allow him time either to
15   reorganize his financial affairs through a plan of reorganization
16   or to effect a liquidation through a liquidating plan.
17        Debtor set forth his intent to resolve a tax issue that
18   could provide recovery of over $550,0003 for the estate; to
19   determine if and how to proceed with the remaining New York
20   litigation; and to analyze the costs and benefits to recover as
21   preferential transfers over $70,000 removed from Debtor’s bank
22   accounts by the sheriff as part of Appellees’ collection efforts
23   on the unstayed judgment and to deal with Appellees’ judgment
24
25
26
          3
             Debtor later increased his estimate of the potential tax
27   recovery to $850,000. When Debtor filed the status report he
     already had obtained court approval to retain a CPA to pursue the
28   recovery.
                                    - 4 -
 1   lien recorded against Debtor’s New York residence.4   Debtor also
 2   stated his intent to file a plan and disclosure statement within
 3   the 120 day exclusivity period.
 4        Debtor described his primary assets as consisting of: a 50%
 5   interest in a residence owned in New York with his wife, with a
 6   market value of approximately $700,000 and subject to a mortgage
 7   and Appellees’ judicial lien (combined total of $2.2 million);
 8   two 401K retirement accounts he claimed as fully exempt; and
 9   three vehicles owned free and clear, which he intended to claim
10   as partially exempt.   He estimated the total value of his assets
11   at $749,002, exclusive of the potential tax refunds, a possible
12   employment performance bonus, and pending claims against
13   Appellees.   Exclusive of the judgment, Debtor estimated total
14   unsecured claims of $217,296.
15        Six days after filing the status report, Debtor filed his
16   schedules and statement of financial affairs.
17   Schedules and Statement of Financial Condition
18        The Debtor’s summary of schedules reflects $350,000 in real
19   property assets and $397,985 in personal property assets for
20   total assets of $747,985; secured debt of $2,007,347; unsecured
21   claims of $231,036; and total liabilities of $2,238,383, which
22   Debtor identified as primarily business debt, not consumer debt.
23   Debtor’s secured debt consisted of a $498,151 mortgage secured by
24   the New York residence and the $1,509,195 judgment.   His
25   scheduled unsecured debt consisted of $52,208 on four credit
26
27        4
             Appellees filed the judgment with the New York County
     Clerk 89 days prior to the petition date, and Debtor did not post
28   a bond to stop their collection efforts.
                                     - 5 -
 1   cards; $73,192 owed to three different law firms; $600 in
 2   membership dues; $27.00 in unpaid utilities; and $105,000 in
 3   personal loans from two individuals (Gerard Sullivan and Thomas
 4   Sullivan, apparently members of Debtor’s family).
 5        In his statement of financial affairs, among other things,
 6   Debtor disclosed $875,000 in gross income in 2013 which included
 7   $675,000 that he described as a gross settlement amount; $242,639
 8   in IRA distributions taken in the two years preceding bankruptcy;
 9   $249,000 paid to the IRS and Franchise Tax Board in November
10   2013; the pending litigation in New York and related entry of a
11   sister state judgment in California in November 2013; and
12   multiple restraining orders, account restrictions, and apparent
13   levies on behalf of Appellees in the two months preceding the
14   bankruptcy filing.   Debtor also disclosed legal retainers of
15   $222,543 paid in the one year pre-filing, $98,000 of which was
16   paid by Gerard, Joseph, or Thomas Sullivan.   Of the retainers
17   paid, $42,049 was for fees incurred pre-petition.
18        The day after Debtor filed his schedules and statement of
19   financial affairs, Appellees filed their motion seeking dismissal
20   of the case.
21   The Motion to Dismiss
22        Appellees’ motion5 sought dismissal of the case under § 1112
23   on the stated grounds that: (1) Debtor filed the petition in bad
24   faith – to “delay, hinder or interfere with enforcement” of
25   Appellees’ judgment; (2) Debtor had “no reasonable probability of
26
          5
             Appellees’ only support for the motion was a declaration
27   that authenticated and attached documents consisting primarily of
     documents filed by the parties at various stages of the six years
28   of litigation in New York.
                                    - 6 -
 1   confirming a Chapter 11 plan”; and (3) the filing was a
 2   “strategic move in a two-party dispute.”   Motion, Dkt. #38 at
 3   6:6-9.   Appellees supplied no evidence in support of their
 4   contentions beyond a request that the bankruptcy court take
 5   judicial notice of the record in the New York litigation which
 6   documented their litigation victory but failed to evidence either
 7   a judgment that would be nondischargeable or any kind of
 8   inappropriate litigation conduct by Debtor.
 9        Lack of a confirmable plan
10        Appellees argued that Debtor’s chapter 11 case must be
11   dismissed based on the lack of any reasonable likelihood that
12   Debtor could propose a confirmable plan of reorganization.    They
13   argued that they would not consent to any plan that proposed less
14   than 100% payment on unsecured creditors’ claims.
15        Two-party dispute and timing of petition6
16        Appellees also contended that Debtor’s case represented a
17   typical two-party dispute and that through the bankruptcy case
18   Debtor sought to collaterally attack final rulings in New York.
19   They argued that Peconic was the creditor most impacted by any
20
21        6
             For the balance of their arguments, and the factors
     identified and analyzed, Appellees relied on Marshall v. Marshall
22   (In re Marshall), 
721 F.3d 1032
, 1048 (9th Cir. 2013) (in
     considering bad faith as cause for dismissal, courts “may
23   consider any factors which evidence ‘an intent to abuse the
     judicial process and the purposes of the reorganization
24   provisions.’”); Leavitt v. Soto (In re Leavitt), 
171 F.3d 1219
,
     1225 (9th Cir. 1999) (dismissal with prejudice of chapter 13 case
25   for bad faith requires consideration of whether debtor
     misrepresented facts or manipulated the Bankruptcy Code, debtor’s
26   history of filings and dismissals, whether debtor “only intended
     to defeat state court litigation,” whether egregious behavior is
27   present); and Ellsworth v. Lifescape Med. Assocs.
     (In re Ellsworth), 
455 B.R. 904
, 917-18 (9th Cir. BAP 2011)
28   (same).
                                    - 7 -
 1   proposed plan and that the New York forum, not the bankruptcy
 2   court, would best and adequately protect all parties and assure a
 3   just and equitable result.   Appellees made no attempt to explain
 4   how the New York forum would protect anyone other than Appellees.
 5        Misrepresentations/manipulation
 6        As additional indication of Debtor’s alleged bad faith,
 7   Appellees asserted that Debtor was less than forthright in his
 8   filings in the bankruptcy case.   In support, Appellees contended
 9   that Debtor’s characterization of his debts as primarily business
10   debts, rather than consumer debts, was improper.   Appellees
11   argued that the judgment debt was for repayment of funds Debtor
12   borrowed for personal or family purposes, that Debtor
13   mischaracterized this debt as a tax advance, and that the related
14   legal fees also were not business expenses.   They provided no
15   case law support for their argument regarding characterization of
16   Debtor’s debts.   Appellees also argued that Debtor lacked
17   substantial unsecured debt and that this suggested that Debtor
18   was abusing the system.
19        Other indicators of bad faith
20        Appellees also argued that Debtor’s failure to pay anything
21   toward the judgment prior to filing bankruptcy showed Debtor’s
22   bad faith.   Finally, Appellees also contended that they would get
23   nothing under a plan by Debtor, there was no business to be
24   preserved, there were no jobs to be saved – and, thus, that there
25   was no proper purpose for Debtor’s case.   Appellees failed to
26   explain how their business preservation arguments squared with
27   the fact that this is an individual chapter 11 case.
28

                                    - 8 -
 1        Conversion to chapter 7 not a proper option
 2        Based on Appellees’ conclusion that Debtor’s debts were
 3   primarily consumer debts, Appellees argued that a presumption of
 4   abuse would arise under § 707(b) if Debtor were to seek
 5   conversion of his case to chapter 7.   Therefore, Appellees
 6   summarily concluded, conversion to chapter 7 was not an option.
 7   Appellees provided no case law to support this conclusion.
 8   Debtor’s Opposition
 9        Debtor opposed the motion and supported the opposition with
10   his declaration.   Debtor described himself as a 57-year-old
11   resident of Seal Beach, California, employed as an investment
12   executive at a salary of $200,000 per annum.
13        Relying on the legal standard identified by the Ninth
14   Circuit in Idaho Dep’t of Lands v. Arnold (In re Arnold), 806
15 F.2d 937
, 939 (9th Cir. 1986),7 and citing In re Marshall, 298
16 B.R. 670
, 680-81 (Bankr. C.D. Cal. 2003), Debtor argued that the
17   “good faith inquiry ‘is essentially directed to two questions:
18   (1) whether the debtor is trying to abuse the bankruptcy process
19   and invoke the automatic stay for improper purposes; and (2)
20   whether the debtor is really in need of reorganization.’”
21   Opposition, Dkt. #68 at 14:13-16.   Debtor stated that he was
22   forced to file bankruptcy to obtain a breathing spell from
23   Appellees’ aggressive collection efforts and that he filed with
24
          7
             Debtor provided the following quote from the Ninth
25   Circuit’s decision in In re Arnold: “The existence of good faith
     depends on an amalgam of factors and not upon a specific fact.
26   The bankruptcy court should examine the debtor’s financial
     status, motives, and the local economic environment. . . . Good
27   faith is lacking only when the debtor’s actions are a clear abuse
     of the bankruptcy 
process.” 806 F.2d at 939
(internal citations
28   omitted). Opposition, Dkt. #68 at 14:9-11.
                                    - 9 -
 1   the intent to prepare a fair and equitable plan of
 2   reorganization.     He argued that he was hopelessly insolvent both
 3   from a balance sheet perspective and from his inability to pay
 4   debts as they became due in light of the accrual of 9% interest
 5   on the judgment ($150,000 annually) compared to his current
 6   before-tax annual salary of $200,000.    Debtor also argued that
 7   through the bankruptcy filing he sought to preserve the home he
 8   owned in New York with his wife.
 9        As to Appellees’ specific allegations of bad faith factors,
10   Debtor responded as follows:
11        Plan confirmability
12        Debtor primarily argued that consideration of confirmability
13   of a plan not yet filed was premature and placed an improper
14   burden on him at such an early stage of the case.    Debtor argued
15   that despite Appellees’ contention that they will thwart any plan
16   the Debtor files, “[f]requently even the most obstreperous of
17   creditor ultimately finds common ground with the debtor later in
18   the case.”   Opposition, Dkt #68 at 15:1-2.   In addition, Debtor
19   argued that ample law existed to justify separately classifying
20   the Appellees’ claim given their particular characteristics,
21   including receipt of a preferential transfer within 90 days prior
22   to the petition.8
23        Two-party dispute
24        Debtor argued that the bankruptcy case involved over
25
26        8
             In a footnote in the opposition, Debtor alleged that
     Peconic filed a transcript of the judgment with the Clerk of
27   Nassau County, New York, on January 17, 2014, which resulted in
     the creation of a lien in favor of Peconic on the residence in
28   New York owned by the Debtor with his wife.
                                     - 10 -
 1   $400,000 in other claims and thus, factually, did not constitute
 2   a two-party dispute.   As to Appellees’ collateral attack
 3   argument, Debtor argued that he did not seek to defeat the
 4   validity of the judgment in the bankruptcy court, but would treat
 5   the judgment under the plan in accordance with the Bankruptcy
 6   Code, including distributions and appropriate discharge of any
 7   unpaid balance, “[u]nless and until the New York Judgment is
 8   vacated in the course of a continuation of the New York Action.”
 9   
Id. at 18:10-11.
10        Alleged misrepresentations and the conversion option
11        Debtor argued that he properly categorized his case as a
12   non-consumer case.   Because the debt resulted from a judgment on
13   a business dispute between employer and employee, Debtor argued
14   it had no consumer attributes.    Thus, Debtor argued that
15   chapter 7 was clearly an option.
16        Other alleged bad faith indicators
17        Debtor argued that Appellees were wrong to contend that
18   Debtor had the ability to pay the judgment, especially in light
19   of the accruing interest.
20        Other arguments
21        Debtor finally argued that the Supreme Court’s decision in
22   Toibb v. Radloff, 
501 U.S. 157
(1991), specifically held that an
23   individual is eligible to reorganize under chapter 11 despite the
24   lack of any ongoing business.    Further, Debtor argued that his
25   filing was consistent with the objectives of the Bankruptcy Abuse
26   Prevention and Consumer Protection Action (“BAPCPA”): “to channel
27   individuals with higher levels of income and larger balance
28   sheets into Chapter 13, or Chapter 11.”   
Id. at 21:20-21.
   He

                                     - 11 -
 1   acknowledged in his opposition that § 1115, added by BAPCPA,
 2   brings an individual chapter 11 debtor’s post-petition income
 3   into the estate, and that § 1129(a)(15), also added under BAPCPA,
 4   requires that he commit five years of projected disposable net
 5   income to his plan effort.
 6   Appellees’ Reply
 7        On reply, Appellees responded that although they believed
 8   Debtor was capable of paying all his debts, Debtor’s allegation
 9   that he was insolvent established his inability to present a
10   confirmable plan, and thus the case should be dismissed.9
11   Appellees argued that the case was simple: Debtor “lives a lavish
12   lifestyle” and “filed this case in order to maintain his current
13   level of spending,” and concluded that, therefore, the case “does
14   not belong in bankruptcy.”   Reply, Dkt. #77 at 9:7-14.
15   The bankruptcy court’s findings and conclusion
16        The hearing on the motion was set concurrently with Debtor’s
17   applications to employ two law firms, his motion for approval of
18   his budget, and a chapter 11 scheduling and management
19   conference.   The bankruptcy court heard argument on the
20   Appellees’ motion first.   Counsel for the United States Trustee,
21   who appeared but did not otherwise participate in the arguments,
22   advised the bankruptcy court that the United States Trustee did
23   not join in the motion.    After oral argument by the parties, and
24
25        9
             Appellees also argued against Debtor’s contention that
     Appellees’ judgment appropriately could be separately classified
26   and presented their assessment of Debtor’s legitimate debts and
     his inability to appropriately identify an impaired class capable
27   of accepting a plan over Appellees’ objection. And Appellees
     argued that Debtor’s arguments that his debts are not consumer
28   debts were unsupportable.
                                    - 12 -
 1   without allowing testimony or other additional evidence, the
 2   bankruptcy court took the motion under submission and continued
 3   the other hearings.   Shortly thereafter, it issued its written
 4   Statement of Decision and a separate order dismissing the case.
 5        In the Statement of Decision the bankruptcy court held that
 6   the bankruptcy case was not filed in good faith.    It stated that
 7   “[t]he existence of good faith depends on an amalgam of factors
 8   and not upon a specific fact,” criticizing Debtor’s argument that
 9   his subjective good faith in filing the case was important.
10   Statement of Decision, Dkt. #93 at 2 n.1 (citing In re Arnold,
11 806 F.2d at 939
).   It identified as the appropriate test:
12   “whether a debtor is attempting to unreasonably deter and harass
13   creditors or attempting to effect a speedy, efficient
14   reorganization on a feasible basis.”   
Id. (again citing
15   In re Arnold, along with In re 
Marsch, 36 F.3d at 828
).
16        The bankruptcy court then specifically found that: “It is
17   obvious that Debtor’s sole purpose for filing bankruptcy was to
18   stop Peconic from collecting on its judgment.”   
Id. at 3:1-3.
   As
19   supporting facts it stated that the case was a two-party dispute
20   filed after six years of litigation, only 89 days after judgment
21   was entered against the Debtor, and when Peconic had just begun
22   collection efforts.
23        In addition, the bankruptcy court found that “a confirmable
24   plan of reorganization is not possible since Peconic (by far the
25   largest unsecured creditor), has indicated that it will vote
26   against any plan of reorganization that does not propose to pay
27   unsecured creditors 100 percent of their claims.”   
Id. at 2.
    The
28   bankruptcy court referred to Debtor’s estimation in the bare

                                   - 13 -
 1   bones petition that there would be no funds available for
 2   distribution to unsecured creditors; and it concluded that Debtor
 3   could not artificially impair his mortgage lender because there
 4   was no unsecured portion to impair.
 5        The Debtor timely filed a notice of appeal to the BAP and an
 6   emergency motion with the bankruptcy court for stay pending
 7   appeal, which was denied.    Debtor thereafter filed a motion with
 8   the BAP for a stay pending appeal, which a motions panel granted.
 9                                JURISDICTION
10        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
11   §§ 1334 and 157(b)(2)(A).    We have jurisdiction under 28 U.S.C.
12   § 158.
13                                   ISSUES
14        Whether the bankruptcy court abused its discretion when it
15   dismissed the bankruptcy case.
16                             STANDARD OF REVIEW
17        We review the bankruptcy court’s decision to dismiss a case
18   under an abuse of discretion standard.      Leavitt v. Soto
19   (In re Leavitt), 
171 F.3d 1219
, 1223 (9th Cir. 1999).         We apply a
20   two-part test to determine whether the bankruptcy court abused
21   its discretion.   United States v. Hinkson, 
585 F.3d 1247
, 1261-62
22   (9th Cir. 2009) (en banc).    First, we consider de novo whether
23   the bankruptcy court applied the correct legal standard to the
24   relief requested.   
Id. Then, we
review the bankruptcy court’s
25   fact findings for clear error.    
Id. at 1262
& n.20.    See also
26   Eisen v. Curry (In re Eisen), 
14 F.3d 469
, 470 (9th Cir. 1994)
27   (the bankruptcy court’s finding of “bad faith” is reviewed for
28   clear error); St. Paul Self Storage Ltd. P’ship v. Port Auth.

                                     - 14 -
 1   (In re St. Paul Self Storage Ltd. P’ship), 
185 B.R. 580
, 582 (9th
 2   Cir. BAP 1995) (same).   We must affirm the bankruptcy court’s
 3   fact findings unless we conclude that they are illogical,
 4   implausible, or without support in the record.   Hinkson, 
585 F.3d 5
  at 1262.   We may view a factual determination as clearly
 6   erroneous if it was without adequate evidentiary support or was
 7   induced by an erroneous view of the law.   Wall St. Plaza, LLC v.
 8   JSJF Corp. (In re JSJF Corp.), 
344 B.R. 94
, 99 (9th Cir. BAP
 9   2006).
10                               DISCUSSION
11        The bankruptcy court dismissed Debtor’s case as a bad faith
12   filing based on two primary determinations: (1) its factual
13   finding that the case was a two-party dispute and that Debtor’s
14   sole purpose in filing was to stop Appellees’ collection efforts;
15   and (2) its legal conclusion that Debtor could not propose a
16   confirmable plan.   These determinations are not supported
17   adequately by the record.   Alternatively, the bankruptcy court
18   abused its discretion by dismissing the case without considering
19   whether conversion or dismissal would be in the best interests of
20   all creditors and the estate.
21        Section 1112(b)(1) provides in relevant part that “. . . the
22   court shall convert a case under this chapter to a case under
23   chapter 7 or dismiss a case under this chapter, whichever is in
24   the best interests of creditors and the estate, for cause
25   . . . .”   11 U.S.C. § 1112(b)(1).   If cause is established, the
26   decision whether to convert or dismiss the case falls within the
27   sound discretion of the court.    Mitan v. Duval (In re Mitan),
28   
573 F.3d 237
, 247 (6th Cir. 2009); Nelson v. Meyer

                                     - 15 -
 1   (In re Nelson), 
343 B.R. 671
, 675 (9th Cir. BAP 2006) (chapter 13
 2   case).    And, if a bankruptcy court determines that there is cause
 3   to convert or dismiss, it must also: (1) decide whether
 4   dismissal, conversion, or the appointment of a trustee or
 5   examiner is in the best interests of creditors and the estate;
 6   and (2) identify whether there are unusual circumstances that
 7   establish that dismissal or conversion is not in the best
 8   interests of creditors and the estate.   § 1112(b)(1), (b)(2); and
 9   see Shulkin Hutton, Inc., P.S. v. Treiger (In re Owens), 
552 F.3d 10
  958, 961 (9th Cir. 2009) (“the court must consider the interests
11   of all of the creditors”); In re Prods. Int’l Co., 
395 B.R. 101
,
12   107 (Bankr. D. Ariz. 2008).
13   A.   The bankruptcy court abused its discretion when it failed to
          consider whether conversion or dismissal was in the best
14        interests of all creditors and the estate.
15        We determine as a preliminary matter that even if we
16   determine that the bankruptcy court’s findings of bad faith and
17   plan futility were not in error, the bankruptcy court abused its
18   discretion by failing to consider whether conversion or dismissal
19   was in the best interests of all creditors and the estate.   We
20   also determine that on the current record this error was not
21   harmless.   We begin here because clarification on this point
22   provides guidance in our analysis of the bankruptcy court’s other
23   determinations.
24        Appellees argue on appeal that dismissal was in the best
25   interests of creditors and that Debtor waived any contrary
26   argument because he did not raise it in his opposition to the
27   motion.   We disagree.   In the motion and opposition the parties
28   both argued as to whether chapter 7 was an available option for

                                    - 16 -
 1   the Debtor.10   And regardless of the parties’ arguments, the
 2   bankruptcy court had an independent obligation under § 1112 to
 3   consider what would happen to all creditors on dismissal and, in
 4   light of its analysis, whether dismissal or conversion would be
 5   in the best interest of all creditors, not just the largest and
 6   most vocal creditor.   See In re 
Owens, 552 F.3d at 961
(agreeing
 7   with the Fourth Circuit that “when deciding between dismissal and
 8   conversion under 11 U.S.C. § 1112(b), ‘the court must consider
 9   the interest of all of the creditors.’”) (quoting Rollex Corp. v.
10   Assoc. Materials (In re Superior Siding & Window, Inc.), 
14 F.3d 11
  240, 243 (4th Cir. 1994)).
12        When determining the best interest of the creditors under
13   § 1112(b), the Code’s fundamental policy of achieving equality
14   among creditors must be a factor considered, “and it is not
15   served by merely tallying the votes of the unsecured creditors
16   and yielding to the majority interest.”   In re Superior Siding &
17   Window, 
Inc., 14 F.3d at 243
; and see In re Graphic Trade
18   Bindery, Inc., 2012 Bankr. LEXIS 1598 at *17 (Bankr. D. Md.
19   Apr. 12, 2012) (“the mere fact that a section 1112(b) motion
20   seeks only conversion is no bar to dismissal if the court
21   determines that dismissal is in the best interest of the
22   creditors and the estate.    The opposite is also true.   The task
23   of the bankruptcy court is to determine which option is the
24   better choice.”).
25
          10
             Both sides focused their arguments, however, on whether
26   Debtor’s case would be subject to dismissal as an abuse pursuant
     to § 707(b) due to Debtor’s income level and the nature of his
27   debts. Appellees argued that Debtor mischaracterized his
     consumer debts as primarily business debts; Debtor argued to the
28   contrary.
                                    - 17 -
 1        While we acknowledge that unsecured creditors did not take a
 2   position here, it is notable that the United States Trustee made
 3   clear that it did not support dismissal.
 4        Based on our reading of the hearing transcript, it appears
 5   that the bankruptcy court may have believed that its limited task
 6   was to grant or deny the relief requested by Appellees –
 7   dismissal.   The bankruptcy court was not so limited.   It had at
 8   least three options available to it: let Debtor try to propose a
 9   plan; convert the case to chapter 7; or dismiss it, as Appellees
10   requested.   When considering these options, the bankruptcy court
11   was required to consider the unrefuted evidence that:
12   (1) Appellees had judgment liens and immediate collection
13   abilities superior to all of Debtor’s unsecured creditors upon
14   dismissal of the case; (2) Appellees’ judgment liens, however,
15   were subject to attack as preferences; (3) there was no evidence
16   that creditors other than Appellees had any avenue for prompt or
17   meaningful payment outside a bankruptcy case; (4) recovery of the
18   tax refund would be enhanced in either a chapter 11 or chapter 7
19   case; and (5) dismissal as a result of these factors was far less
20   advantageous than conversion for all creditors of the estate
21   other than Appellees.   This was not harmless error.
22        We cannot determine from the record whether the bankruptcy
23   court believed that § 707(b) barred conversion to chapter 7, but
24   the Appellees certainly argued that this was the case.   We
25   disagree; § 707(b) abuse analysis did not bar conversion on this
26   record.
27
28

                                   - 18 -
 1        There is a substantial body of decisional law11 focusing on
 2   the applicability of § 707(b) when a debtor seeks to voluntarily
 3   convert a chapter 13 case to chapter 7 – and the courts are split
 4   as to whether conversion under these facts is appropriate.    We
 5   located only one case discussing a debtor’s attempt to
 6   voluntarily convert a chapter 11 case to chapter 7.   See
 7   In re Traub, 
140 B.R. 286
(Bankr. D.N.M. 1992).   We located no
 8   case authority, and the parties cited none, addressing the
 9   applicability of § 707(b) abuse analysis to chapter 7 cases
10   converted involuntarily from chapter 11.   Dismissal under
11   § 707(b), however, requires the exercise of the bankruptcy
12   court’s discretion; the statute states that the bankruptcy court
13   “may” dismiss - dismissal is not required.
14        Further, the bankruptcy court’s ability to rely on § 707(b)
15   for dismissal requires a determination that the Debtor’s debts
16   were primarily consumer.   Suffice it to say that this question
17   is, at best for Appellees, an open one.
18        Finally, we are aware of individual chapter 11 cases
19   converted to chapter 7 by court order after either failure by
20   debtors to achieve plan confirmation timely or as a result of
21   default under confirmed chapter 11 plans – none of which involved
22   “means test” or § 707(b) abuse consideration.   We located nothing
23   in the record before the bankruptcy court to support a conclusion
24   that Debtor’s chapter 11 case would not be eligible for
25   conversion to chapter 7 in the event Debtor was not able to
26
          11
             For an interesting survey of the majority, minority, and
27   hybrid approaches, see Anna Haugen, James C. Eidson and Amir
     Shachmurove, Should § 707(b) Apply in Chapter 7 Cases Converted
28   from Chapter 13?, 33-APR Am. Bankr. Inst. J. 48 (2014).
                                   - 19 -
 1   confirm a plan because Appellees ultimately prevailed in a plan
 2   objection based on their veto under § 1129(a)(8).
 3        The bankruptcy court here failed to consider whether
 4   dismissal or conversion was in the best interests of the
 5   creditors and the estate.   Conversion was and is a viable option
 6   even if § 707(b) is applicable.   And given the facts in the
 7   record currently before us, we cannot conclude that the
 8   bankruptcy court’s failure to consider conversion was harmless
 9   error.   The evidence strongly suggests that conversion is in the
10   best interest of all creditors other than Appellees.   Thus, the
11   bankruptcy court erred in this regard.
12
     B.   The bankruptcy court erred when it found the Debtor filed
13        this case not in good faith.
14        The bankruptcy court has broad discretion in determining
15   what constitutes “cause” under section 1112(b).    See Chu v.
16   Syntron Bioresearch, Inc. (In re Chu), 
253 B.R. 92
, 95 (S.D. Cal.
17   2000).   The movant bears the burden of establishing by a
18   preponderance of the evidence that cause exists.    StellarOne Bank
19   v. Lakewatch LLC (In re Park), 
436 B.R. 811
, 815 (Bankr. W.D. Va.
20   2010).   Because good faith is required in the commencement and
21   prosecution of a chapter 11 case, “the lack thereof constitutes
22   ‘cause’ for dismissal under § 1112(b)(1).”   In re Mense, 
509 B.R. 23
  269, 276 (Bankr. C.D. Cal. 2014) (citing In re 
Marsch, 36 F.3d at 24
  828 (“Although section 1112(b) does not expressly require that
25   cases be filed in ‘good faith,’ courts have overwhelmingly held
26   that a lack of good faith in filing a Chapter 11 petition
27   establishes cause for dismissal.”)).   “The good faith requirement
28   ‘deter[s] filings that seek to achieve objectives outside the

                                   - 20 -
 1   legitimate scope of the bankruptcy laws.’”    
Id. 2 The
bankruptcy court found that the bankruptcy case was a
 3   two-party dispute with no possibility of plan confirmation and
 4   was filed for the sole purpose of stopping Appellees’ collection
 5   on their judgment.    The limited record then before the bankruptcy
 6   court in the early stages of the case does not support these
 7   findings and conclusions.
 8        1.      The bankruptcy court erred by finding Debtor’s sole and
                  bad faith purpose was to stop Appellees’ collection
 9                efforts.
10        It is well recognized that the automatic stay under § 362,
11   activated upon filing a bankruptcy petition (with some exceptions
12   not applicable here), is intended to provide debtors in
13   bankruptcy with a breathing spell from their creditors’
14   collection actions.    And it is not unusual to encounter a
15   chapter 11 case filed “because of the crushing weight of a
16   judgment.”    In re 
Marshall, 298 B.R. at 683
.   If, however, a
17   debtor seeks to use a chapter 11 filing to “unreasonably deter
18   and harass creditors,” such a filing lacks good faith.
19   In re 
Marsch, 36 F.3d at 828
.
20        The bankruptcy court here found that Debtor filed his
21   chapter 11 case solely to stop Appellees’ collection efforts and
22   concluded that this constituted bad faith.    The bankruptcy court
23   made no finding that stopping Appellees’ collection efforts was
24   unreasonable or was intended to harass Appellees, however, and we
25   find no support in the record for such inferences.
26        Based on Debtor’s schedules and statement of financial
27   affairs, for at least the two years preceding the bankruptcy
28   filing, Debtor supplemented his salary with substantial

                                     - 21 -
 1   withdrawals from retirement accounts, credit cards, and
 2   significant loans from family members.   Then two months before
 3   filing, Appellees commenced aggressive collection efforts,
 4   freezing or levying against bank and brokerage accounts.      The
 5   Debtor concurrently continued to incur substantial legal fees.
 6   As stated in Debtor’s declaration in opposition to the motion,
 7   which was not disputed by any evidence submitted by Appellees,
 8   the litigation costs, entry of the judgment, and unpaid legal
 9   bills left him insolvent.   Appellees’ contrary argument that
10   Debtor was solvent and could and should have paid Appellees’
11   judgment is not supported by the record.
12        At oral argument, the bankruptcy court expressed its
13   disbelief12 in assertions by Debtor that he was financially
14   strapped prepetition, when he had a house in New York that he
15   planned to keep and three high-end vehicles – unlike the people
16   the bankruptcy court was “used to” – “people who literally are
17   living in homeless shelters.”    Hr’g Tr. (Apr. 9, 2014) at
18   17:22-23.   The bankruptcy court directed argument away from
19   Debtor’s alleged insolvency,13 as a “non-issue.”   
Id. at 15:17.
20   As articulated by the Ninth Circuit, however, when assessing a
21   debtor’s good faith the bankruptcy court “should examine the
22   debtor’s financial status [and] motives. . . .”    In re Arnold,
23
          12
             The bankruptcy court told Debtor’s counsel “don’t tell
24   me this gentleman is impoverished, please.” Hr’g Tr. (Apr. 9,
     2014) at 18:10-11.
25
          13
             Nonetheless Debtor’s counsel advised the bankruptcy
26   court that Debtor moved to California, not because he wanted to
     be 2,000 miles away from his wife, but because he had to do so
27   for employment. His wife remained in New York as a cancer
     survivor who had a network of people and medical caregivers
28   supporting her there.
                                     - 22 -
 
1 806 F.2d at 939
.    Here, the bankruptcy court’s disinclination to
 2   examine the Debtor’s financial status beyond his possession of a
 3   home in New York and three admittedly valuable vehicles
 4   contributed to its erroneous conclusion.14
 5        Debtor’s petition, filed within 8915 days of perfection of
 6   Appellees’ judgment lien, not only appropriately provided Debtor
 7   a breathing spell,16 it laid the ground work for another key goal
 8   underlying the bankruptcy process, leveling the playing field for
 9   other creditors of the estate.    See In re Superior Siding &
10   Window, 
Inc., 14 F.3d at 243
.    Appellees appear to have obtained
11   their judgment lien within the preference period.    Not
12   surprisingly, Appellees argued that they would be better off if
13   allowed to pursue collection on their judgment outside of the
14   bankruptcy case – absent the bankruptcy filing, Appellees would
15   have a substantial advantage over other creditors.
16        In addition, Debtor stated his clear intention to save
17   equity in the New York home, where his wife lived, and his desire
18   for orderly liquidation of assets if he could not propose a
19   confirmable plan.   The record does not evidence that the
20
21        14
             As recently discussed by the Ninth Circuit, “bankruptcy
     law must apply equally to the rich and poor alike, fulfilling the
22   Constitution’s requirement that Congress establish ‘uniform laws
     on the subject of bankruptcies throughout the United States.’”
23   Hawkins v. Franchise Tax Bd. of Cal., 
769 F.3d 662
, 669 (9th Cir.
     2014).
24
          15
             The record is not fully developed as to the mechanism by
25   which Appellees obtained lienholder status; it appears
     undisputed, however, that Debtor’s filing on February 4, 2014,
26   put Appellees’ lien status within the 90-day preference period.
27        16
             At the hearing on the motion, Debtor’s counsel argued
     that the breathing spell benefit of the automatic stay was
28   negated here by Appellees’ quickly filed motion.
                                     - 23 -
 1   bankruptcy court considered either of these goals.    But both
 2   goals are legitimate reasons to file bankruptcy.   See Warner v.
 3   Universal Guardian Corp. (In re Warner), 
30 B.R. 528
, 529 (9th
 4   Cir. BAP 1983) (nothing in the Code prohibits the use of chapter
 5   11 by debtors seeking to save their family home from
 6   foreclosure); and In re Soundview Elite, Ltd., 
503 B.R. 571
, 580
 7   (Bankr. S.D.N.Y. 2014) (“[I]t is not bad faith to file a chapter
 8   11 petition for the purpose of a more orderly liquidation.”).
 9   And although Debtor had not filed a proposed plan as of the
10   hearing on the motion, Debtor argued that through the chapter 11
11   bankruptcy process he intended to seek recovery of as much as
12   $850,000 on overpayment of taxes.
13        All the evidence before the bankruptcy court indicated that
14   Debtor had significant financial need for protection under the
15   Bankruptcy Code.   No evidence was presented from which the
16   bankruptcy court could infer that Debtor intended to unreasonably
17   deter or harass Appellees or any of his other creditors.
18        2.   The existence of disputes between Debtor and Appellees
               does not render the case a two-party dispute filed in
19             bad faith.
20        “Petitions in bankruptcy arising out of a two-party dispute
21   do not per se constitute a bad-faith filing by the debtors.”
22   In re Stolrow’s, Inc., 
84 B.R. 167
, 171 (9th Cir. BAP 1988).
23   Courts that find bad faith based on two-party disputes do so
24   where “it is an apparent two-party dispute that can be resolved
25   outside of the Bankruptcy Court’s jurisdiction.”     Oasis at Wild
26   Horse Ranch, LLC v. Sholes (In re Oasis at Wild Horse Ranch,
27   LLC), 2011 Bankr. LEXIS 4314 at *29 (9th Cir. BAP Aug. 26, 2011)
28   (emphasis added) (citing N. Cent. Dev. Co. v. Landmark Capital

                                   - 24 -
 1   Co. (In re Landmark Capital Co.), 
27 B.R. 273
, 279 (D. Ariz.
 2   1983)); and see St. Paul Self Storage Ltd. 
P’ship, 185 B.R. at 3
  583 (debtor’s only significant asset was a claim against one
 4   creditor set to be tried in state court and bankruptcy court
 5   supervision of debtor’s liquidation was not necessary to protect
 6   other creditors).   Typical bad faith two-party dispute cases may
 7   involve delays on the eve of trial (litigation tactics), forum
 8   shopping, new-debtor syndrome (special purpose entities), repeat
 9   filers, and repeatedly delayed foreclosure sales.   There are no
10   such common indicators here.
11        The evidence before the bankruptcy court established that
12   the parties were involved in six years of litigation in state
13   court prior to the petition date; Debtor was using exempt assets,
14   family loans, and credit card debt to fund the litigation and his
15   expenses; and Appellees started to aggressively collect on their
16   judgment.   With assets of approximately $750,000 versus the
17   $1.5 million judgment, and interest accruing at 9% on the
18   judgment versus Debtor’s annual salary of $200,000, Debtor was
19   balance sheet and cash flow insolvent before considering living
20   expenses and other significant debt.    Such numbers do not support
21   the bankruptcy court’s implicit determination that resolution
22   outside the bankruptcy court was preferable or even possible.
23   This was not a case where Appellees offered any kind of
24   settlement or any resolution of the judgment other than Debtor’s
25   full liquidation.    Nor does the evidence support a conclusion
26   that the bankruptcy filing did not provide important protection
27   to other legitimate creditors by leveling the playing field.
28   “Good faith is lacking only when the debtor’s actions are a clear

                                    - 25 -
 1   abuse of the bankruptcy process.”   In re 
Arnold, 806 F.2d at 939
.
 2   Keeping the Appellees from seizing all liquid assets ahead of
 3   other creditors and bringing preferential transfers back into the
 4   estate for the benefit of all creditors not only do not
 5   constitute abuses of the bankruptcy process, they achieve primary
 6   goals of the bankruptcy process.    Nor did Appellees present any
 7   evidence to support an inference that Debtor sought to have the
 8   bankruptcy court act as an appellate court in connection with the
 9   pending state court matters or to shift to the bankruptcy court
10   the decision making on claims in the state court litigation.
11        During oral argument on the motion, the bankruptcy court
12   repeatedly stated that Debtor had one creditor.   Appellees argued
13   that Debtor’s scheduled debts were insignificant and questionable
14   – Appellees were most affected by the filing, and, implicitly, of
15   singular importance.   To the contrary, Debtor’s schedules, which
16   the bankruptcy court acknowledged having reviewed, establish the
17   existence of significant debt owed to credit card companies,
18   attorneys, and family members.   The bankruptcy court had no
19   evidence before it from which it could appropriately infer that
20   any of such debt was not legitimate.   Nor did any evidence exist
21   to dispute Debtor’s contention that the interest accrual on the
22   judgment alone made his financial survival outside of bankruptcy
23   impossible.   To conclude otherwise was not supported by the
24   record.
25   3.   Appellees’ stated intention not to accept a less-than-100%-
          plan by Debtor, alone, does not support a conclusion that
26        Debtor filed the case in bad faith.
27        The bankruptcy court also found that Debtor could not
28   propose a confirmable plan because Appellees argued they would

                                   - 26 -
 1   vote against it.   Many are the judgment creditors who gnash their
 2   teeth (metaphorical or otherwise) in chagrin when their
 3   collection campaign is stayed by a bankruptcy filing.   Only
 4   slightly less frequent are the immediate post-filing threats that
 5   no quarter will be given.   Such jeremiads, however, are not a
 6   sufficient basis for a universal conclusion of plan futility.
 7   And they certainly do not unequivocally establish the debtor’s
 8   bad faith.   Economic considerations and rationality often result
 9   in resolution.
10        Here, the Appellees’ statements must be taken in context.
11   Debtor had not filed a plan, and Appellees, apparently, had not
12   had time to compare their possible treatment under a plan with
13   the certainly less favorable treatment in a chapter 7 case.     It
14   is indeed possible that Appellees would elect chapter 7,
15   notwithstanding that they lose the opportunity to obtain any
16   access to Debtor’s post-petition income.   It is further possible
17   that the tax refunds will not be more easily collected in a
18   chapter 11 case such that this factor does not support a
19   continuation in chapter 11.   And it is certainly possible that
20   the Debtor will try to take advantage of his creditors rather
21   than dealing with them forthrightly as he promises.   But the
22   possibility that the Appellees will not act in their economic
23   best interest, when the choice is correctly presented as not
24   being limited to dismissal or chapter 11, or that the Debtor will
25   act in a manner inconsistent with the only evidence before the
26   bankruptcy court, do not equate to bad faith.   Here, the only
27   evidence is not supportive of bad faith and only suggestive of
28   plan futility.   Indeed, it is worth noting that the Appellees’

                                   - 27 -
 1   stated unwillingness to ever support Debtor’s plan was not
 2   supported by declaratory evidence of any type.   It is possible
 3   that this is a reasoned response that would retain rationality
 4   even if conversion is the alternative, but on this record it is
 5   illogical to so assume.
 6        Moreover, nothing in the record indicates that Debtor was
 7   aware that Appellees would take such a position when he filed his
 8   petition.   And when the bankruptcy court ruled on the motion,
 9   Debtor had not filed a proposed plan at all.17   In essence, the
10   bankruptcy court concluded, based on a very scant record, that
11   Debtor could neither propose the 100% plan Appellees demanded,
12   negotiate a consensual resolution, or cram down a lesser payout
13   plan.18   Such determinations were premature.
14
          17
             At oral argument, the bankruptcy court heard the Debtor
15   to suggest that he would artificially impair the secured lender
     on the New York property to obtain an impaired class to vote in
16   favor of a future plan. The bankruptcy court included in its
     findings, however, that the “New York property is worth more than
17   what is owed to the secured lender, so there is no unsecured
     portion to impair.” Statement of Decision at 2. We were unable
18   to find support in the record for this finding. Debtor scheduled
     50% of the estimated value of the New York residence as property
19   of the estate due to his nonfiling wife’s joint interest, but it
     is not clear from the schedules whether Debtor likewise scheduled
20   50% of the mortgage debt against the property or 100%. Nor did
     we locate any evidence regarding the status of payments to the
21   mortgage lender or whether Debtor’s nonfiling spouse contributed
     to the mortgage payments or had independent assets or income.
22
          18
             The bankruptcy court referred to an estimate contained
23   in Debtor’s petition itself that no funds would be available for
     distribution after exempt property and administrative claims. In
24   his appellate opening brief, Debtor undertook to explain in a
     footnote that the “no distribution” box in the emergency
25   petition, as referred to by the bankruptcy court, was checked
     automatically by the software system used by counsel. As the
26   bankruptcy court acknowledged at oral argument on the motion that
     it had reviewed the schedules and other documents on the docket,
27   which necessarily included Debtor’s multiple declarations, we
     conclude that reliance on a checked box on the bare bones
28                                                      (continued...)
                                    - 28 -
 1           We note that Debtor acknowledged that his postpetition
 2   earnings and net disposable income are available in a chapter 11
 3   plan.        Under § 502 of the Code, Appellees would not be entitled
 4   to the 9% interest on their judgment postpetition,19 reducing the
 5   amount required to be paid from Debtor’s not-insubstantial
 6   $200,000 annual salary.       Debtor proposed to seek a large recovery
 7   from the IRS to contribute to plan payments.       And Debtor’s
 8   schedules disclosed not-insignificant amounts of exempt assets
 9   that the Debtor could, if so inclined, commit to a chapter 11
10   plan payout.       Such possibilities were neither discussed nor
11   considered nor given adequate time for development.
12           Although it is well within a bankruptcy court’s decision-
13   making authority to determine facial non-confirmability of a
14   proposed plan (such as when considering a motion for approval of
15   a filed disclosure statement20), determining the facial non-
16   confirmability of an unfiled plan so early in the case and absent
17   a fully developed record is not supportable.       See Can-Alta
18   Props., Ltd. v. State Sav. Mortg. Co. (In re Can-Alta Properties,
19   Ltd.), 
87 B.R. 89
, 92-93 (9th Cir. BAP 1988) (lifting of the
20   automatic stay based on bad faith, where the court lacked
21   evidence of confirmability or feasibility of a plan and afforded
22
23           18
           (...continued)
     petition was insufficient grounds for the bankruptcy court to
24   conclude no plan could be confirmed.
25           19
             Section 502(b)(2) provides for the disallowance of a
     claim to the extent that “such claim is for unmatured interest.”
26
             20
             See e.g., In re Main St. AC, Inc., 
234 B.R. 771
, 775
27   (Bankr. N.D. Cal. 1999) (a court may disapprove of a disclosure
     statement if the plan to which it refers could not possibly be
28   confirmed).
                                        - 29 -
 1   no opportunity for the debtor to amend the then existing plan to
 2   respond to the court’s concerns, constituted an abuse of
 3   discretion).
 4                              CONCLUSION
 5        Based on the foregoing, we REVERSE.
 6
 7
 8
 9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
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28

                                  - 30 -

Source:  CourtListener

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