SEYBERT, District Judge:
Currently pending before the Court is an appeal filed by Maura Lynch ("Debtor"), appearing
The Court assumes the parties' familiarity with the full facts and extensive procedural history of this case and summarizes only those facts and history pertinent to the pending appeal.
On November 9, 2015, Debtor filed a voluntary petition in the Bankruptcy Court, seeking bankruptcy relief under Chapter 11 of the United States Code (the "Bankruptcy Code"). (Conversion Order at 3;
After filing for bankruptcy, Debtor operated as a Debtor in possession pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code. (Conversion Order at ECF p. 3.) On June 7, 2016, Debtor filed her first Chapter 11 plan of reorganization, to which a creditor, Wells Fargo Bank, N.A. ("Wells Fargo") objected on June 17, 2016.
During a September 14, 2016 hearing, Debtor requested additional time to seek confirmation of a plan and advised the Bankruptcy Court that she wished to mediate her disputes with Vaccaro.
On November 7, 2016, the Bankruptcy Court entered an order assigning to mediation all disputes between Debtor and Vaccaro, including disputes related to their pre-petition matrimonial action. (Conversion
On March 21, 2017, Vaccaro filed a letter stating that the mediation did not result in a settlement. (Conversion Order at ECF p. 6.) During a scheduled status conference on March 22, 2017, the Bankruptcy Court advised Debtor that the deadlines to obtain approval of a plan and disclosure statement would not be extended again. (Conversion Order at ECF p. 6.)
At a May 10, 2017 hearing, the Bankruptcy Court advised the parties that it did not appear that the plan Debtor had filed had a substantial likelihood of being confirmed, and that given the objections to the plan and disclosure statement it was not likely that Debtor would be able to meet the deadlines to obtain confirmation and approval of the disclosure statement. (Conversion Order at ECF p. 6.) The Bankruptcy Court also expressed concerns about the continued accrual of costs of administration and the deficit at which the estate was operating each month. (Conversion Order at ECF p. 6.) Therefore, the Bankruptcy Court issued an Order to Show Cause ("OSC") directing Debtor to appear for a hearing on May 22, 2017 to show cause why the case should not be converted to Chapter 7, or in the alternative, dismissed. (Conversion Order at ECF p. 6.) In accordance with that order, on May 17, 2017, Debtor filed an outline of an amended plan of reorganization. (Conversion Order at ECF p. 6.) Both Debtor and Vaccaro filed their separate responses to the OSC on May 19, 2017. (Conversion Order at ECF pp. 6-7.)
At the May 22, 2017 hearing, Debtor and Vaccaro reached a settlement and stated its terms on the record. (Conversion Order at ECF p. 7.) At the Bankruptcy Court's direction, two days after the hearing, Debtor filed a term sheet (the "Term Sheet") outlining the agreed upon settlement terms, including that Vaccaro would vote in favor of a plan of reorganization that contained the terms of the parties' settlement. (Conversion Order at ECF p. 7.)
On June 6, 2017, Debtor filed a motion pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure ("Rule 9019") seeking authorization and approval of the settlement. (Conversion Order at ECF p. 7.) Eight days later, on June 14, 2017, Debtor filed a notice of withdrawal of her Rule 9019 motion. (Conversion Order at ECF p. 7.) That same day, Debtor also filed an amended disclosure statement, a second amended Chapter 11 plan, a motion to approve the adequacy of the amended disclosure statement, and a motion to shorten the time for creditors to consider approval of the disclosure statement. (Conversion Order at ECF p. 7.)
On June 15, 2017, Vaccaro filed an objection to Debtor's motions arguing that
At the June 28, 2017 hearing, the Bankruptcy Court noted that it could not hear the Rule 9019 motion as Debtor had withdrawn it. (OSC Hr'g Tr., 41:16-17.) It also acknowledged that the amended plan did not incorporate the terms of the agreement Vaccaro and Debtor had reached. (OSC Hr'g Tr., 41:25-42:2.) Additionally, the United States Trustee ("Trustee") stated that Debtor's amended disclosure statement was not in a form which could be approved under 11 U.S.C. § 1125, since it lacked any significant financial information and the amended plan did not appear to be confirmable. (Conversion Order at ECF p. 8.) Further, the Bankruptcy Court stressed that no agreement had been reached for a modification of the loan owed to Wells Fargo, which was then over $700,000 in arrears, even though the bankruptcy case had been pending for more than eighteen months. (Conversion Order at ECF p. 8; OSC Hr'g Tr., 16:2-17:7; 31:8-25.) The Bankruptcy Court also emphasized that it had been consistent and clear that if Debtor could not efficiently administer the estate by the court-imposed deadlines, the case would be converted or dismissed. (OSC Hr'g Tr., 45:11-18.) Finally, it noted that conversion of the case served the creditors more than dismissal because it would allow assets to be liquidated to pay creditors. (OSC Hr'g Tr., 45:1-5.)
Therefore, "based on the long history of this case, given the inability of Debtor to obtain approval of a Disclosure Statement and confirmation of a Plan of Reorganization as required by prior Orders of this Court, given unreasonable delays by Debtor which are prejudicial to creditors, and, given the conversion of this case to chapter 7 is in the better interests of creditors than dismissal," the Bankruptcy Court ordered conversion of the case from Chapter 11 to Chapter 7 pursuant to Section 1112(b)(4)(A),(E) and (J). (Conversion Order at ECF pp. 8-9.) R. Kenneth Barnard ("Barnard") was appointed as the Chapter 7 trustee over Debtor's estate. (
Debtor filed a Notice of Appeal of the Conversion Order on July 13, 2017. (Notice Appeal, Docket Entry 1, at 1-2.) She filed her brief on February 13, 2018, (
This Court has jurisdiction to hear appeals from decisions of a bankruptcy court pursuant to 28 U.S.C. § 158(a), which provides in relevant part that "[t]he district courts of the United States shall have jurisdiction to hear appeals ... from final judgments, orders, and decrees; ... [and,] with leave of court, from other interlocutory
The scope of this appeal is limited to the Bankruptcy Court's Conversion Order. Accordingly, the Court will disregard Debtor's arguments that were the subject of a prior appeal to this Court,
Section 1112 of the Bankruptcy Code ("Section 1112") governs the conversion or dismissal of a case filed under Chapter 11, and "is intended to preserve estate assets by preventing the debtor in possession from gambling on the enterprise at the creditors' expense when there is no hope of rehabilitation."
Here, the Bankruptcy Court found cause for conversion under three independent factors: (1) under Section 1112(b)(4)(A), based upon "substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation"; (2) under Section 1112(b)(4)(E), based upon "failure to comply with an order of the court"; and (3) under Section 1112(b)(4)(J), based upon "failure to file a disclosure statement, or to file or confirm a plan, within the time fixed by this title or by order of the court." 11 U.S.C. § 1112(b)(4)(A), (E), (J); (
The evidence before the Bankruptcy Court clearly supports its decision. Among other things, the Bankruptcy Court found that Debtor initially failed to timely file a disclosure statement and plan of reorganization after it granted her numerous extensions of time in which to do so. (OSC Hr'g Tr., 36:17-37:4.) Further, it found that the disclosure statement and plan that Debtor eventually submitted on June 14, 2017 was unlikely to be approved. (OSC Hr'g Tr., 22:13-24.) Thus, the Bankruptcy Court noted that it would have been impossible for Debtor to obtain confirmation of the plan by the court-imposed deadline of July 24, 2017. (OSC Hr'g Tr., 23:12-17; 42:12-21.) Additionally, the Bankruptcy Court found that the plan submitted was not consistent with the settlement agreement Debtor had reached with Vaccaro.
The Trustee's findings further support the Bankruptcy Court's Conversion Order. At the June 28, 2017 hearing on the OSC, the Trustee noted that Debtor's proposed plan was not confirmable for numerous reasons, including because "[t]he disclosure statement is incapable of being determined by the Court as containing adequate
(OSC Hr'g Tr., 23:21-24:25.)
In light of the above, the Bankruptcy Court's order converting Debtor's Chapter 11 case to a Chapter 7 proceeding was not an abuse of discretion. The Bankruptcy Court ordered conversion principally because of its concern that the value of the estate was being diminished and the proposed reorganization plans appeared to have little chance of succeeding. (OSC Hr'g Tr., 30:16-31:7; 41:4-44:22.) The Bankruptcy Court emphasized that eighteen months into the bankruptcy case, "there [was] no agreement for repayment of or modification of the Wells Fargo mortgage nor does the estate have adequate unencumbered funds to secure those substantial arrears which now appear to exceed $700,000." (OSC Hr'g Tr., 41:11-15.) The Bankruptcy Court also noted that there were more creditors in the case that were not afforded the opportunity to object to or approve the Rule 9019 motion, as Debtor withdrew it. (OSC Hr'g Tr., 41:17-24.)
Therefore, in light of Debtor's inability to obtain approval of the disclosure statement and confirmation of a plan as required by prior court orders and Debtor's series of delays that were prejudicial to creditors, the Bankruptcy Court concluded that converting the case to Chapter 7, rather than dismissal, would be in the best interest of the creditors.
Under Section 1112(b) of the Bankruptcy Code, the court may convert a case only "after notice and a hearing." 11 U.S.C. § 1112(b). The hearing requirement contained in Section 1112(b) is not absolute and requires only that interested parties be afforded "`such opportunity for a hearing as is appropriate in the particular circumstances.'"
Debtor argues that the Bankruptcy Court's Conversion Order should be overturned on the ground that she was denied notice and a hearing. (Appellant Br. at 33-35.) This argument rests upon a flawed factual premise inasmuch as the Bankruptcy Court provided notice and hearings to Debtor on multiple occasions. First, at a hearing held on July 13, 2016, the Bankruptcy Court warned Debtor that "[i]f [she] is not able to obtain confirmation of a plan by November 7th the Court will convert the case to Chapter 7 unless the debtor shows cause why even after being unable to obtain confirmation dismissal is better for her creditors." (July 13, 2016 Hr'g Tr.,
At the May 22, 2017 hearing, the Bankruptcy Court allowed the parties to mediate, which resulted in a settlement agreement memorialized on the record. (Conversion Order at ECF p. 7.) However, as noted, Debtor pulled out of that agreement by withdrawing her Rule 9019 motion on June 14, 2017. (Conversion Order at ECF pp. 7.) Finally, the Bankruptcy Court held a final hearing on the issue of conversion on June 28, 2017, when it noted that it had been "consistent and clear that if the debtor could not efficiently administer the estate by the deadlines previously set, the case
Thus, Debtor was provided with ample notice and numerous hearings prior to the conversion of her Chapter 11 case, which satisfied Section 1112(b)'s notice and hearing requirements.
The order appealed from is AFFIRMED and Debtor's appeal is DISMISSED. The Clerk of the Court is directed to mail a copy of this Order to the
SO ORDERED.