JEFF BOHM, Chief Judge.
On February 4, 2013, Triumph Christian Center, Inc. (the Debtor) filed the instant Chapter 11 case. [Doc. No. 1]. The Debtor had previously been a debtor in a Chapter 11 case filed on December 7, 2010 [Case No. 10-41239, Doc. No. 1], and had obtained confirmation of its plan of reorganization in that case on August 23, 2011. [Case No. 10-41239, Doc. No. 66]. On February 11, 2013, Foundation Capital Resources, Inc. (FCR) filed its "Motion of Foundation Capital Resources, Inc. (FCR) to Dismiss for Serial Filing" (the Motion). [Doc. No. 14].
In the Motion, FCR seeks dismissal of the Second Case "for cause" pursuant to Federal Bankruptcy Rule 1017(f)(2) and 11 U.S.C. § 1112(b)(1). [Doc. No. 14, ¶ 8]. Specifically, FCR alleges that the Debtor has filed this second Chapter 11 case in bad faith, and therefore "cause" for dismissal exists under section 1112(b).
On April 24, 2013, this Court held a hearing on the Motion. The Court heard testimony from one witness: the President of the Debtor, Pastor Ladell Graham. The Court also admitted FCR's exhibits one through ten and the Debtor's exhibits one through seventeen. For the reasons set forth herein, the Court finds that the Debtor's filing of the instant Chapter 11 case is an impermissible attempt to modify the plan in its prior Chapter 11 case, which has already been substantially consummated, in violation of section 1127(b) of the Bankruptcy Code. Further, the Debtor has not demonstrated unanticipated changed circumstances which would warrant this second Chapter 11 filing. For these reasons, and because of the presence of other indicators of bad faith, the Court finds that there is cause for dismissal under section 1112(b)(1). Therefore, the Motion should be granted.
The Court now makes the following findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 9014 and Federal Rule of Civil Procedure 52, as made applicable by Federal Rule of Bankruptcy Procedure 7052.
1. The Debtor filed its first Chapter 11 case on December 7, 2010 (the First Case).
2. FCR is engaged in lending to faith-based organization such as churches. In December of 2008, FCR loaned the Debtor $2,433,500.00 for the purpose of building a new worship center. As part of the loan transaction, the Debtor granted FCR a security interest in its twenty-three acres of real property and improvements thereon located in the City of Rosenberg, Fort Bend County, Texas (the Property). The security interest was granted and is memorialized in "that one certain Deed of Trust, Assignment of Leases and Rents and Security Agreement dated December 10, 2008, recorded under Fort Bend County Clerk's File No. 2008127989, in the Official Public Records of Real Property of Fort Bend County, Texas" (the Deed of Trust). See [FCR's Ex. 4].
3. In the First Case, on August 23, 2011, this Court confirmed a plan of reorganization filed by the Debtor (the Plan). [Case No. 10-41239, Doc. No. 66]. The Plan was a heavily negotiated consensual plan, and the confirmation order was signed by counsel for the Debtor, counsel for FCR, counsel for Fort Bend County, and counsel for the Internal Revenue Service. [Id.].
4. Under the Plan, FCR was the Class 1 claimant. [FCR's Ex. 1, p. 7]. The treatment was negotiated between the Debtor and FCR, and their respective counsel, and required the Debtor to execute a Modification Renewal and Extension Agreement which restructured the indebtedness owed by the Debtor to FCR (the Restructure Agreement). The Plan further provided that:
[Id. at pp. 8-9].
5. Pursuant to the Plan, the Debtor did, in fact, execute the Restructure Agreement. See [FCR's Ex. 3]. The Restructure Agreement contains the following language:
[Id. at p. 3].
6. In September and October of 2011, the Debtor timely made the payments under
7. On October 6, 2011, this Court entered an Order closing the First Case. [Case No. 10-41239, Doc. No. 89]; [FCR's Ex. 8].
8. In November of 2011, the Debtor began a building fund campaign to raise $65,000.00 for the purpose of completing what Pastor Graham refers to as "the Champion Center" (the Center). [Debtor's Ex. 6]. As a result of this campaign, the congregates giving to the ministry every Sunday declined as they gave instead to the building fund campaign. [Apr. 24, 2013 Tr. 14:918; 16:1121]. The Plan did not mention the Debtor's plans to raise additional funds to put towards construction of the Center or what the cost of the additional construction would be. [FCR's Ex. 1]; [Case No. 10-41239, Doc. No. 53]. Nor did the disclosure statement which the Debtor filed in conjunction with the Plan. [Case No. 10-41239, Doc. No. 50].
9. In November of 2011, the Debtor also experienced an electrical power surge that resulted in the burning up of ten circuit commercial breakers. [Apr. 24, 2013 Tr. 20:17-24]. The cost of repairing and replacing these breakers was $5,850.00. [Debtor's Ex. 8].
10. In December of 2011, the five pastors who work at the ministry voluntarily took a ten percent pay cut. [Tape Recording, 04/24/2013 Hearing at 05:36:07-05:37:50 p.m.] Also, the Debtor replaced the paid children's minister with a volunteer, resulting in a savings of approximately $3,500.00 per month. [Id.].
11. The Debtor was leasing two mobile modular units from Mobile Modular Management Corporation. On September 26, 2012, Mobile Modular Management Corporation sent a demand letter to the Debtor setting forth that the Debtor was in default under the lease in the amount of $17,399.00, and that the modular units would be repossessed if payment was not made. [Debtor's Ex. 9]. In October of 2012, the Debtor paid $4,140.00 of this amount, and has been able to maintain possession of these units. [Apr. 24, 2013 Tr. 22:12-21].
12. On January 3, 2012, the Debtor entered into a construction contract with JTJ Builders, Inc. for the purpose of completing the Center (the Contract). [FCR's Ex. 10]. Article 15 of the Contract sets forth that the total amount to be paid by the Debtor was $753,760.00, with periodic payments to be made according to phases of work done by JTJ Builders, Inc. [Id.]. Pastor Graham was unable to testify as to the amount that the Debtor has paid so far to JTJ Builders, Inc. under the Contract.
13. In October of 2012, the Debtor had to replace an air conditioning unit, and the cost of doing so was $4,200.00. [Debtor's Ex. 10].
14. In November of 2012, the Debtor made no payment at all under the Restructure Agreement. [FCR's Ex. 9].
15. On November 28, 2012, FCR's counsel sent the Debtor a letter giving notice of default and setting forth that FCR was accelerating the maturity of the promissory note, the payments of which had been restructured pursuant to the Restructure Agreement. [FCR's Ex. 4]. This letter also set forth that the total amount now due and payable was $2,923,924.40. [Id.]. Finally, the letter enclosed a Notice of Substitute Trustee Sale setting forth that foreclosure of the Property would occur pursuant to the Deed of Trust on January 1, 2013. [Id.]. At the hearing on the Motion held on April 24, 2013, Pastor Graham testified that the Debtor had paid
16. In December of 2012, the Debtor made no payment at all under the Restructure Agreement. [FCR's Ex. 9].
17. On December 26, 2012, the Debtor filed suit against FCR in the District Court of Fort Bend County, Texas and obtained a temporary restraining order preventing FCR from going forward with the foreclosure sale scheduled on January 1, 2013. [FCR's Exs. 5 & 6]. The temporary restraining order set a hearing for January 8, 2013 to determine whether the temporary restraining order should be made a temporary injunction. [FCR's Ex. 6].
18. The Debtor passed the hearing on January 8, 2013, the temporary restraining order expired, and there is no temporary injunction in place. [Doc. No. 31, p. 6].
19. On January 8, 2013, FCR's counsel sent the Debtor a letter once again enclosing a Notice of Substitute Trustee Sale setting forth that foreclosure of the Property pursuant to the Deed of Trust would now occur on February 5, 2013. [FCR's Ex. 7].
20. In January of 2013, the Debtor made no payment at all under the Restructure Agreement. [FCR's Ex. 9].
21. On February 4, 2013 — one day before the scheduled foreclosure — the Debtor filed its second Chapter 11 petition, thereby initiating the Chapter 11 case presently pending in this Court (the Second Case). [Case No. 13-30623, Doc. No. 1].
22. The Schedules filed by the Debtor in the Second Case reflect that the only new creditor in the Second Case is Mobile Modular Management Corporation in the amount of $12,908.00. [Case No. 13-30623, Doc. No. 1, p. 13]. All of the other creditors in the Second Case are the same creditors as in the First Case.
23. On February 11, 2013, FCR filed a "Motion of Foundation Capital Resources, Inc. [FCR] to Dismiss for Serial Filing" (previously defined as the Motion). [Doc. No. 14]. The Debtor filed a response in opposition to the Motion on March 3, 2013. [Doc. No. 21]. On April 18, 2013, the Debtor filed a "First Amended Response and Objection to Motion to Dismiss and Request for Hearing." [Doc. No. 31].
24. On April 24, 2013, this Court held a hearing on the Motion. This Court heard testimony from one witness, Pastor Graham, and admitted exhibits of both parties.
25. On May 22, 2013, this Court heard closing arguments from counsel for FCR and counsel for the Debtor, and then took the matter under advisement. The Court now issues this Memorandum Opinion to explain why it will grant the Motion.
One witness testified at the hearing: Pastor Graham. The Court finds that he was a credible witness and therefore gives considerable weight to his testimony.
The Court has jurisdiction over this contested matter pursuant to 28 U.S.C.
The Supreme Court's decision in Stern v. Marshall recognized certain limitations on bankruptcy courts' constitutional authority to enter final orders. Stern v. Marshall, ___ U.S. ___, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). Therefore, this Court has a duty to question its constitutional authority to enter a final order for any matter brought before it. The Court concludes that the facts in the pending suit are distinguishable from those in Stern, and that this Court has the authority to enter a final order on the Motion. In Stern, the debtor filed a counterclaim based solely on state law, and the resolution of this counterclaim did not resolve the validity, or invalidity, of the claim held by the defendant. Id. Here, FCR seeks relief pursuant to Federal Bankruptcy Rule 1017(f)(2) and 11 U.S.C. § 1112(b). As the Motion and the requested relief are based on an express provision of the Code and an express Bankruptcy Rule, rather than on state law, this matter is distinguishable from the suit in Stern. This Court is, therefore, constitutionally authorized to enter a final order on the Motion.
FCR alleges that the instant Chapter 11 filing represents an attempt by the Debtor to impermissibly modify the Plan — which has already been substantially consummated
Courts have allowed a limited exception where there are "unanticipated changed circumstances" which were "unknown at the time of the substantial consummation of the prior plan and must have substantially affected the debtor's ability to perform that plan." Id. (citing In re Casa Loma Assocs., 122 B.R. 814, 818-19 (Bankr.N.D.Ga.1991)). Where unanticipated changed circumstances exist, Chapter 11 relief may be justified even when obligations created under a previously confirmed, substantially consummated plan will be modified. In re Elmwood Dev. Co., 964 F.2d at 512. The rationale is that, "[i]n that instance, a second petition would not necessarily contradict the original proceedings because a legitimately varied and previously unknown factual scenario might require a different plan to accomplish the goals of bankruptcy relief." Id. at 511.
The Debtor is in default under the Plan and filed the Second Case, in part, to halt a foreclosure sale by FCR due to arrearages on the debt owed to it. [Doc No. 45, p. 2]. As discussed above, section 1127(b) of the Code prohibits modification of a confirmed plan of reorganization once the plan has been substantially consummated. See 11 U.S.C. § 1127(b). Where a debtor has defaulted under a confirmed plan of reorganization, the debtor will generally not be permitted to proceed with a second case if the second filing is merely an attempt to circumvent this rule. Matter of Savannah, Ltd., 162 B.R. 912, 915 (Bankr.S.D.Ga.1993). The Debtor asserts that its filing of the Second Case does not run afoul of these principles because: (1) no Plan provision precludes the Debtor from seeking to modify FCR's claim; and (2) under the Plan, FCR did not retain the right to foreclose; thus, the Debtor is not modifying this right. [Doc. No. 45, pp. 2]. The Court finds that the Debtor's arguments are unpersuasive; and that the Second Case is, in fact, an impermissible attempt by the Debtor to modify the Plan.
First, in its "Brief in Support of First Amended Response and Opposition to Motion to Dismiss," the Debtor asserts that it may modify its treatment of FCR's claim because "[t]here is no Plan provision or stipulation precluding the Debtor from seeking any further modification of [FCR's] claim." [Doc. No. 45, p. 2]. However, the plain language of the Plan reads as follows:
[Finding of Fact No. 4] (emphasis added). The confirmation order contains nearly identical language. See [FCR's Ex. 2, p. 4]. Thus, according to the Plan and confirmation order, FCR's claim may be modified only if FCR and the Debtor agree in writing.
There is no question that FCR has not agreed in writing — or, for that matter, orally — to a modification of its claim. Indeed, once the Debtor defaulted on its payments to FCR under the Plan [Finding of Fact Nos. 14 & 16], FCR accelerated the maturity of the note and posted the Property for foreclosure. [Finding of Fact Nos. 15 & 19]. To stop the foreclosure, the Debtor first obtained a temporary restraining order from the Fort Bend County District Court [Finding of Fact No. 17]; but, when that Court did not thereafter issue an injunction [Finding of Fact No. 18], the Debtor filed its second Chapter 11 petition (initiating the Second Case) to prevent the scheduled foreclosure from proceeding. [Finding of Fact No. 21]. Under these circumstances, the Court finds that by filing the Second Case, the Debtor seeks to unilaterally modify FCR's claim in contravention of the Plan.
Further, the Debtor alleges that the Second Case does not contradict the First Case because "[t]here are no terms in the Confirmed Plan governing [FCR's] remedies in the event of default. For example, no rights were retained by [FCR], such as the right to foreclose if the stipulated payments were not made, or that the automatic stay would not apply to [FCR] in a succeeding bankruptcy case." [Doc. No. 45, p. 7]. However, as the Plan and confirmation order make clear, FCR retained "all liens, security interests and other rights provided in its deed of trust, security agreement and other loan documents..."
From this discussion, it is clear that the Second Case represents an attempt by the Debtor to unilaterally modify rights that FCR negotiated for, and the Debtor agreed to, in the First Case. Stated differently, the Second Case does indeed contradict the First Case. The Second Case therefore runs afoul of the prohibition against modification of a substantially consummated plan contained in section 1127(b) of the Code. Thus, under applicable case law, the Second Case must be dismissed unless the Debtor can prove that unanticipated changed circumstances exist which permit the Debtor to proceed with the Second Case even though it seeks to
Although the Second Case would modify the Plan, this serial filing may still be justified if unanticipated changed circumstances exist. In re Elmwood Dev. Co., 964 F.2d at 512. The Debtor bears the burden of proof of demonstrating an unanticipated change in circumstances which would justify a serial Chapter 11 filing. In re Casa Loma Assocs., 122 B.R. at 818. Subsequent filings have only been permitted in very unusual, almost extraordinary, factual situations. Id.; In re Frank's Nursery & Crafts, Inc., Case No. 04-15826(PCB), 2006 WL 2385418, at *3, 2006 Bankr.LEXIS 1964, at *10 (Bankr.S.D.N.Y. May 8, 2006) (citing In re Northtown Realty Co., L.P., 215 B.R. 906, 911 (Bankr.E.D.N.Y.1998)). Further, "[e]ven extraordinary and unforeseeable changes will not support a new Chapter 11, if these changes do not substantially impair the debtor's performance under the confirmed plan." In re Adams, 218 B.R. 597, 601-02 (Bankr.D.Kan.1998). The unanticipated changed circumstances must justify the debtor's default under the first plan, while making reorganization under a second plan likely. In re Casa Loma Assocs., 122 B.R. at 819.
As there is no established bright-line test for determining when unanticipated changed circumstances exist, this Court will first examine the relatively few cases that have found unanticipated changed circumstances which have warranted a serial bankruptcy filing. For example, in Casa Loma, the court found that unanticipated changed circumstances justified a second Chapter 11 filing in a case where the debtor's market was substantially and detrimentally affected by a change in the law. Id. There, the debtor operated an adults-only apartment complex. Id. at 815-16. After the plan in the debtor's first Chapter 11 case had been substantially consummated, a federal law was enacted that prohibited discrimination against children as tenants. Id. As a result, the debtor suffered unexpected financial losses due to increased vacancies and higher operating costs associated with the admission of children into the complex. Id. at 816. Important were the facts that the law had substantially changed the debtor's ability to perform under the initial plan and that the change was unknown and not reasonably foreseen at the time the plan was substantially consummated. Id. at 819.
Likewise in Bouy, Hall & Howard & Assoc., the court found that unanticipated changed circumstances warranted a second Chapter 11 filing where the debtor owned a motel near the airport and the departure of three airlines and relocation of two others caused a "fundamental change in its market." In re Bouy, Hall & Howard & Assocs., 208 B.R. 737, 745 (Bankr.S.D.Ga. 1995). The court noted that "changed market conditions alone are not sufficiently changed circumstances to warrant a second filing." Id. However, under the facts of that case, the debtor was able to demonstrate "not only ... that the demand for its service decreased, but also that the market itself had been significantly altered." Id.; see also In re Deed & Note Traders, LLC, No. AZ-11-1091-PaDJu, 2012 WL 1191891, at *8 (9th Cir. BAP Apr. 5, 2012) (noting that an "unanticipated collapse in the general availability of credit" was a sufficient changed circumstance,
Additionally, unanticipated changed circumstances sufficient to justify a debtor's serial Chapter 11 filing have been found where the debtor had amassed a significant amount of new debt after the initial Chapter 11 plan was substantially consummated; thus, the court found that the second filing was not an attempt to modify the prior plan after substantial consummation had occurred. In re Garsal Realty, Inc., 98 B.R. 140, 149 (Bankr.N.D.N.Y. 1989). Similarly, in a case where a substantial adverse judgment was entered against the debtor after substantial consummation of the debtor's first plan of reorganization, the court found this was an unanticipated changed circumstance and that the debtor's "only way ... to prevent [enforcement of the judgment] from occurring was to file the second Chapter 11 case." In re Woodson, 213 B.R. 404, 406 (Bankr.M.D.Fla.1997). In another case, unanticipated changed circumstances were found where "[a] wide spread range fire... burned 3,000 acres of [the debtor's] 8,000 acres of ranch and cropland," along with part of his cattle herd. In re Adams, 218 B.R. at 602. The court found that not only was the fire and resulting damage unanticipated, but it substantially impaired the debtor's ability to perform under the plan by causing him to lose income and expend significant sums of money on repairs. Id.
Now that the Court has considered the instances in which courts have found unanticipated changed circumstances justified a debtor's serial filing, it considers other cases in which the alleged unanticipated changed circumstances were insufficient to justify the debtor's serial filing. The Fifth Circuit, in one of the earliest cases to address this issue, concluded that none of the following factors were sufficient to justify a serial Chapter 11 filing by a debtor whose main asset was an office building: (1) tenants moving into a vacant floor of the building; (2) a settlement agreement with another creditor wherein the creditor agreed to accept a smaller share of funds than it was otherwise entitled to; (3) the identification of a prospective buyer; (4) pending litigation among two of its creditors to resolve lien priority; and (5) a nation-wide "credit crunch." In re Elmwood Dev. Co., 964 F.2d at 512. The Court found that, under the circumstances of that case, all these factors were not only foreseeable at the time of the debtor's first Chapter 11 case, but in fact were expected by the debtor. Id.
A string of cases decided shortly after Elmwood shed further light on what facts do not constitute unanticipated changed circumstances. In a case where the debtor owned and operated an office building, it alleged that the following were unanticipated changed circumstances: (1) mismanagement due to the property manager's drug use; (2) repairs to the roof and air conditioner; (3) the principal balance of a debt coming due; and (4) a decline in the market for office space. In re Mableton-Booper Assoc., 127 B.R. 941, 942 (Bankr. N.D.Ga.1991). The court rejected all of these arguments and found that, as to the first three, they were all foreseeable at the time the first plan was confirmed. Id. at 944. As to the last argument, the court noted that changed market conditions alone are insufficient to constitute unanticipated changed circumstances. Id. (citing Casa Loma, 122 B.R. at 818).
Additionally, where the debtor operated a building that leased space to a restaurant,
More recent cases have continued to shed light on the analysis of what constitutes unanticipated changed circumstances which justify a serial Chapter 11 filing. For example, one case held that "the economic fallout from the [September 11, 2001] attacks do not constitute an unforeseeable change in circumstances" where the debtor's plan of reorganization was formulated prior to September 2001, but was not approved until June of 2002. In re Motel Properties, Inc., 314 B.R. 889, 896-97 (Bankr.S.D.Ga.2004). Additionally, a number of cases have addressed this issue in light of the recent economic downturn. In In re Woods, for example, the court concluded that the inability to refinance a mortgage does not constitute an unanticipated change of circumstances. In re Woods, No. 10-12397, 2011 WL 841270, at *4 (Bankr.D.Kan. Mar. 7, 2011). Similarly, in In re Caviata Attached Homes, LLC, the court found that a decline in the economy, followed by the real estate and lending markets not recovering, were not unanticipated changed circumstances. In re Caviata Attached Homes, LLC, 481 B.R. 34, 50 (9th Cir. BAP 2012). Finally, this Court had occasion to consider the issue in In re McMahan, where it concluded that the inability to sell property was neither an unpredictable, nor an unanticipated, changed circumstance. In re McMahan, 481 B.R. 901, 919 (Bankr. S.D.Tex.2012).
In the case at bar, the Debtor's first argument is that a reduction in monthly tithing contributions constitutes an unanticipated changed circumstance which warrants the filing of the Second Case. Specifically, in November of 2011 — a mere three months after the Plan was confirmed [Finding of Fact Nos. 3 & 8] — the Debtor initiated a building fund campaign to raise $65,000 to complete the Center. [Finding of Fact No. 8]. As a result of this campaign, regular contributions decreased for the months of November and December of 2011 and January of 2012. [Id.]. The Debtor contends that "[i]t was not anticipated that the members would reduce their monthly contributions as they
The Court finds that the decrease in contributions is not an "unanticipated changed circumstance" which justifies the Debtor's successive Chapter 11 filing. First, these facts do not rise to the level of unusual or extraordinary circumstances which courts have found were sufficient to constitute unanticipated changed circumstances. The temporary drop in contributions is akin to a mere market fluctuation, which is insufficient to constitute unanticipated changed circumstances. It is distinguishable from a permanent or prolonged fundamental change, like the change of the law in Casa Loma or the fundamental market change in Bouy, Hall & Howard & Assoc., both of which did constitute unanticipated changed circumstances.
Also important is the fact that the decrease in tithing contributions was caused not by some outside, unexpected force, but rather by the Debtor's own actions. "Those courts which construe that second chapter 11 filings may be in good faith, despite the terms of an earlier confirmed plan, consistently hold that the default in the first plan cannot be attributed to events caused by the debtor, events which were known at the time of confirmation, or events which are generally foreseeable." In re Roxy Real Estate Co., Inc., 170 B.R. 571, 576 (Bankr.E.D.Pa.1993). Here, by asking its congregates to give to a building campaign, it was reasonably foreseeable that the congregates might then give less to the general fund. This is true regardless of the fact that the Debtor asked its congregates to donate above and beyond what they would normally give. It should have been foreseeable to the Debtor that some of its congregates would only have limited funds to give, and might therefore divert funds that they normally would have given as general contributions to the special building project.
Further, the Debtor began soliciting contributions for the special building project a mere three months after the Plan was confirmed. [Finding of Fact Nos. 3 & 8]. Yet, at the time of confirmation of the Plan, the Debtor knew that the Center was not fully constructed. If the Debtor intended to expend additional sums on construction, it could have — and should — have provided for these expenditures in the Plan. For these reasons, the Court finds that the changed circumstance of the decrease in tithing contributions does not constitute an unanticipated changed circumstance which would justify the filing of the Second Case.
Similarly, the Debtor's argument that the so-called "unforeseen" rate increase and demand for payment on two leased Mobile Modular buildings was an unanticipated changed circumstance also fails. Not only was the rate increase foreseeable, but it was likely avoidable. The Debtor, having entered into a lease agreement with Mobile Modular Management Corporation in the first place, had knowledge of the terms of that lease agreement. This includes knowledge of when the lease term was set to expire. It should have come as no surprise to the Debtor that holding over past the expiration of the lease term would result in a rate increase.
Indeed, this is an entirely foreseeable result, and one which the Debtor likely could have prevented by remaining cognizant of the terms of the lease and negotiating a new lease agreement with Mobile Modular Management Corporation when the previous term expired. Under these circumstances, it is also foreseeable that Mobile Modular Management Corporation would demand payment of any unpaid, past due amounts, and seek to repossess
Finally, the Debtor alleges that unforeseen repairs — specifically, the repair of electrical breakers that were damaged due to a power surge in November of 2011 at a cost of $5,850.00 [Finding of Fact No. 9] and the repair of an air conditioning compressor that overheated in October of 2012 at a cost of $4,200.00 [Finding of Fact No. 13] — constitute additional unanticipated changed circumstances so as to justify its second Chapter 11 filing. Yet, in a similar case where the debtor argued that $42,000.00 worth of repairs constituted unanticipated changed circumstances, the court expressly rejected this argument. Matter of Savannah, 162 B.R. at 915. The court noted that "none of these repairs are extraordinary in the sense that all of them are for maintenance or repair of equipment and fixtures which are recognized to have a limited life expectancy such as cash registers, microwave oven, air conditioning units, wide screen television, electronic signs, and so forth." Id. Thus, "although the specific repairs may not have been anticipated, [d]ebtor must have anticipated continuing maintenance and replacement expenses." Id. at 916.
Similarly here, although the Debtor might not have anticipated having to repair the electrical breakers and the air conditioning unit in particular, the Debtor should have anticipated some repair and replacement expenses. This is particularly true where, as here, the repairs were to the type of equipment that is recognized to have a limited life expectancy. For these reasons, the Court finds that the repairs to the electrical breakers and the air conditioning compressor do not constitute unanticipated changed circumstances. Rather, the Debtor should have anticipated having to make some repairs and budgeted for them in the Plan so that the costs of these repairs would not detrimentally affect the Debtor's ability to perform under the Plan.
In sum, the Debtor has failed to meet its burden of demonstrating unanticipated changed circumstances. See In re Casa Loma Assocs., 122 B.R. at 818. To the contrary, the repair costs, the decrease in tithing contributions, and the rate increase and demand for payment on two leased Mobile Modular buildings are all attributable "to events caused by the debtor, events which were known at the time of confirmation, or events which are generally foreseeable." In re Roxy Real Estate Co., Inc., 170 B.R. 571, 576 (Bankr.E.D.Pa. 1993). Under these circumstances, bad faith may be inferred. See, e.g., In re Mableton-Booper Assoc., 127 B.R. 941, 944 (holding that bad faith may be inferred where a "debtor can anticipate the changed circumstances before confirmation of the first plan and later files a second petition to relieve itself of its obligations under the prior plan."). The fact that there are no unanticipated changed circumstances necessitating the filing of the Second Case indicates that it was filed in bad faith.
There is no precise test for determining whether a serial petition was filed
FCR argues that the presence of some of these factors is yet a further indication that the Debtor's filing of the Second Case is not in good faith. [Doc. No. 14, pp. 5-7]. The Debtor "vigorously disputes this conclusion," arguing instead that the Little Creek factors do not support a finding of bad faith. [Doc. No. 45, pp. 4-7]. This Court will now discuss the application of the Little Creek factors to the dispute at bar.
In conclusion, the presence of five of the six Little Creek factors is evidence that the Debtor filed the Second Case in bad faith. Most important is the fact that this is essentially a two-party dispute between the Debtor and FCR, which holds ninety-seven percent of the Debtor's total debt, as well as a dispute that was already in litigation in state court when the Debtor initiated the Second Case. [Finding of Fact No 17]. Indeed, it was the Debtor who initiated the suit in state court after the Debtor defaulted under the Plan and FCR posted the Property for foreclosure. The Debtor thus chose its forum to stop the foreclosure, and there is no good reason why the Debtor should now be allowed to further forum shop by filing the Second Case and looking to this Court for protection. As the Debtor noted in its own brief, the suit in Fort Bend County District Court is still pending [Doc. No. 31, p. 6], and the Debtor, after this Second Case is dismissed, can certainly return to that forum to seek the injunction that it could have pursued, but chose not to, on January 8, 2013.
For all of the reasons discussed above, the Court concludes that under Little Creek, there is also cause for dismissal under section 1112(b) of the Code due to the Debtor's bad faith in filing the Second Case.
Although FCR has established cause for dismissal under 11 U.S.C. § 1112(b)(1), and although the Debtor has failed to establish unanticipated changed circumstances, this Court may not dismiss the
Bankruptcy courts have significant discretion in making the determination as to whether there are unusual circumstances that should prevent dismissal. In re 1031 Tax Group, LLC, 374 B.R. 78, 93 (Bankr.S.D.N.Y.2007). "Although a finding of unusual circumstances is within the court's discretion, the word `unusual' contemplates facts that are not common to chapter 11 cases generally." 7-1112 COLLIER ON BANKRUPTCY ¶ 1112.05[2] (citing In re Pittsfield Weaving Co., 393 B.R. 271, 274 (Bankr.D.N.H.2008)). "A determination of the existence of `unusual circumstances' is necessarily fact intensive." Id.
Unusual circumstances have been found where a debtor accrued post-petition debt as a result of the unexpected loss of a key customer and where the debtor's trade creditors assumed the risk of continuing losses by continuing to deal with the debtor. In re Pittsfield Weaving Co., 393 B.R. at 275. In another case, a court found that the filing of a plan which proposed to pay all creditors in full as of the effective date of the plan constituted an "unusual circumstance" preventing dismissal. In re Orbit Petroleum, Inc., 395 B.R. 145, 149 (Bankr. D.N.M.2008).
However, given the record before this Court, the Debtor has failed to prove unusual circumstances. This is not a case where the Debtor has accrued unexpected post-petition debt and where the Debtor's creditors have assumed a risk of continuing losses by continuing to deal with the Debtor. Indeed, here, FCR's attempts to foreclose unambiguously indicate that the Debtor's largest creditor does not want to assume the risk of the Debtor continuing to have cash flow problems resulting in monetary defaults to FCR. Additionally, unlike the debtor in Orbit Petroleum, the Debtor here has not filed a plan which proposes to pay all creditors in full as of the effective date; indeed, the Debtor has filed no plan whatsoever. Finally, even if this Court found that there were "unusual circumstances" establishing that dismissal of this case would not be in the best interests of the Debtor's creditors,
While the filing of a second Chapter 11 case is not per se barred, here, the Debtor has not met its burden of showing unanticipated changed circumstances which would justify the filing of the Second Case. The circumstances which the Debtor alleged were unanticipated — namely, a decrease in congregational contributions, repairs, and a rate increase and demand for payment on two leased buildings — were all, in fact, foreseeable. Because the Debtor's filing of the Second Case is an impermissible attempt to modify the Plan, which has already been substantially consummated, and because there are no unanticipated changed circumstances, there is cause for dismissal under section 1112(b). Further, the presence of five of the six Little Creek factors supports a finding of bad faith, which, in turn, is also cause for dismissal under section 1112(b). Finally, the Debtor has failed to establish the elements of the "unusual circumstances" test. Therefore, for all of these reasons, the Court finds that the Motion should be granted.
An Order consistent with this Memorandum Opinion will be entered on the docket simultaneously herewith.
Here, the parties do not dispute that the Plan has been substantially consummated.
