FILED
OCT 21 2022
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
ORDERED PUBLISHED
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. NV-22-1014-FLB
JASON PHILIP POWELL,
Debtor. Bk. No. 3:21-bk-50147-NMC
TICO CONSTRUCTION COMPANY
INC.,
Appellant,
v. OPINION
WILLIAM ALBERT VAN METER,
Chapter 13 Trustee; MELISSA HOOVEN,
FKA Melissa Powell; JASON PHILIP
POWELL,
Appellees.
Appeal from the United States Bankruptcy Court
for the District of Nevada
Natalie M. Cox, Bankruptcy Judge, Presiding
APPEARANCES:
Patrick Sean O’Rourke of Humphrey Law PLLC argued on behalf of
appellant; Michael G. Millward of Millward Law, Ltd. argued on behalf of
appellee Jason Philip Powell
Before: FARIS, LAFFERTY, and BRAND, Bankruptcy Judges.
FARIS, Bankruptcy Judge:
INTRODUCTION
Jason Philip Powell sought to dismiss his chapter 13 1 bankruptcy
case. Judgment creditor TICO Construction Company, Inc. (“TICO”)
objected, arguing that Mr. Powell did not have an absolute right to dismiss
his case because he was abusing the bankruptcy process and was not
eligible to be a chapter 13 debtor. TICO argued that the bankruptcy court
should instead convert the case to one under chapter 7. The bankruptcy
court disagreed with TICO’s analysis and dismissed the case.
TICO appeals. We discern no error and AFFIRM.
We publish to explain that ineligibility to be a chapter 13 debtor does
not deprive the debtor of the near-absolute right to dismiss the chapter 13
case.
FACTS
A. Prepetition events
TICO previously employed Mr. Powell as a senior project manager.
In May 2000, it sued Mr. Powell and others in state court, alleging that he
breached non-compete and non-disclosure covenants in his employment
contract. According to TICO, Mr. Powell misappropriated trade secrets and
information belonging to TICO and shared that proprietary information
Unless specified otherwise, all chapter and section references are to the
1
Bankruptcy Code,
11 U.S.C. §§ 101-1532.
2
with a new company that he had formed while working for TICO.
Following arbitration, the state court entered judgment against Mr. Powell
totaling $215,149.86, and TICO recorded the judgment against all of
Mr. Powell’s property in Washoe County, Nevada.
B. Mr. Powell’s chapter 13 petition
Mr. Powell filed a chapter 13 petition. He scheduled secured debt
totaling $789,501.44, including $215,629.86 owed to TICO (of which
$53,129.86 was unsecured). He scheduled $87,000 of priority unsecured
debt due to the IRS; he also included twelve additional creditors holding
nonpriority unsecured claims of “unknown” amounts. Later, Mr. Powell
filed amended schedules and increased his secured debt to $947,843.68,
including $364,066.51 owed to TICO. His unsecured debt remained
unchanged at $87,000, with numerous “unknown” amounts.
TICO challenged Mr. Powell’s chapter 13 filing. TICO filed a proof of
claim based on the state court judgment debt. It also filed an adversary
complaint seeking to have its debt declared nondischargeable under
§§ 523(a)(4) and (6). Among other things, TICO alleged that Mr. Powell
attempted to shield his assets from creditors by transferring real property
prepetition to his ex-wife, Melissa Hooven, through a marital settlement
agreement.
TICO objected to Mr. Powell’s homestead exemption for numerous
reasons. Mr. Powell opposed the objection. TICO also filed a motion to
value collateral, which Mr. Powell also opposed.
3
C. Mr. Powell’s motion to dismiss
According to Mr. Powell, at this point, he claimed that he had had
enough of the bankruptcy litigation. He filed a Motion for Voluntary
Dismissal (“Motion to Dismiss”) pursuant to § 1307(b). He cited Nichols v.
Marana Stockyard & Livestock Market, Inc. (In re Nichols),
10 F.4th 956 (9th
Cir. 2021), for the proposition that a chapter 13 debtor has an absolute right
to dismiss his case under § 1307(b), even in the face of allegations of bad
faith or abuse of the bankruptcy process, so long as the case has not been
previously converted.
TICO opposed the Motion to Dismiss. It argued that Mr. Powell
engaged in abusive practices, namely, a “sham” divorce from Ms. Hooven
orchestrated to transfer all non-exempt assets to her. TICO contended that
the bankruptcy court should not encourage further wrongdoing by
allowing him to dismiss his chapter 13 case. TICO also argued that
Mr. Powell had too much unsecured debt to be a chapter 13 debtor: it
calculated that Mr. Powell’s unsecured debt totaled $557,139.06 (exceeding
the limit of $419,275). 2 It cited Rosson v. Fitzgerald (In re Rosson),
545 F.3d
764, 772 (2008), for the proposition that, if the debtor’s debt exceeded the
2
On the petition date, § 109(e) provided that “[o]nly an individual with regular
income that owes, on the date of the filing of the petition, noncontingent, liquidated,
unsecured debts of less than $419,275 and noncontingent, liquidated, secured debts of
less than $1,257,850 . . . may be a debtor under chapter 13 of this title.” § 109(e).
4
statutory limits, the court could convert the case rather than dismiss it.
TICO took the position that Nichols was a “non-final” decision that
was inapplicable because it did not concern the issue of Mr. Powell’s
eligibility to be a chapter 13 debtor.
TICO requested that the bankruptcy court convert the case to chapter
7 or 11, rather than dismiss it outright. It argued that conversion was in the
best interests of the estate and creditors, because Mr. Powell’s bad faith and
fraud demonstrated the necessity of a chapter 7 trustee to prevent
dissipation of estate assets. Alternatively, it requested that the court
sanction Mr. Powell for his “improperly maintained” bankruptcy case.
Mr. Powell responded that, even if TICO could prove its claims of
bad faith, he was still entitled to dismiss his case as a matter of right under
Nichols. He also argued that it was not necessary for the court to determine
his eligibility under § 109(e); there was no authority supporting TICO’s
position that a chapter 13 debtor exceeding the debt limits loses his
absolute right to dismiss his case. Finally, he argued that he did not engage
in bad faith or otherwise abuse the bankruptcy process.3
The bankruptcy court held a hearing and agreed with Mr. Powell,
holding that “[b]ad faith and debt limits are irrelevant” to the debtor’s right
to voluntarily dismiss his case. It granted the Motion to Dismiss and denied
TICO’s request for sanctions. In its written order, the bankruptcy court
3
Separately, Ms. Hooven disputed TICO’s allegations of a “sham divorce” and
fraudulent transfers.
5
explained that it was bound by the Ninth Circuit’s Nichols decision and
concluded that Mr. Powell had an absolute right to dismiss his chapter 13
case.
TICO timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction under
28 U.S.C. §§ 1334 and
157(b)(2)(A). We have jurisdiction under
28 U.S.C. § 158.
ISSUE
Whether the bankruptcy court erred in granting Mr. Powell’s motion
to voluntarily dismiss his chapter 13 case.
STANDARD OF REVIEW
We review the bankruptcy court’s decision to dismiss a case for an
abuse of discretion. See Leavitt v. Soto (In re Leavitt),
171 F.3d 1219, 1223 (9th
Cir. 1999).
To determine whether the bankruptcy court has abused its discretion,
we conduct a two-step inquiry: (1) we review de novo whether the
bankruptcy court “identified the correct legal rule to apply to the relief
requested” and (2) if it did, we consider whether the bankruptcy court’s
application of the legal standard was illogical, implausible, or without
support in inferences that may be drawn from the facts in the record.
United States v. Hinkson,
585 F.3d 1247, 1262 (9th Cir. 2009) (en banc).
DISCUSSION
TICO urges us to reverse the bankruptcy court’s decision allowing
6
Mr. Powell to voluntarily dismiss his chapter 13 case, because he was never
properly a chapter 13 debtor. We disagree: Nichols makes clear that a
chapter 13 debtor’s absolute right to dismiss the case is subject only to the
limitation set forth in § 1307(b); the statute does not limit that right based
on chapter 13 eligibility.
A. Section 1307(b) affords chapter 13 debtors an absolute right to
dismiss their case, subject to a statutory exception.
Mr. Powell sought to dismiss his case under § 1307(b). That section
provides: “On request of the debtor at any time, if the case has not been
converted under section 706, 1112, or 1208 of this title, the court shall
dismiss a case under this chapter. Any waiver of the right to dismiss under
this subsection is unenforceable.” § 1307(b) (emphasis added).
There is a split of authority over whether § 1307(b) confers on debtors
an absolute right to dismiss. Some courts have held that bad faith or an
abuse of the bankruptcy process can preclude voluntary dismissal. See
Jacobsen v. Moser (In re Jacobsen),
609 F.3d 647, 660 (5th Cir. 2010) (“[A]
bankruptcy court has the discretion to grant a pending motion to convert
for cause under § 1307(c) where the debtor has acted in bad faith or abused
the bankruptcy process and requested dismissal under § 1307(b) in
response to the motion to convert.”); Mitrano v. United States (In re Mitrano),
472 B.R. 706, 710 (E.D. Va. 2012) (“This Court agrees with those courts
holding that the right to dismissal upon request under § 1307(b) is limited
to good-faith debtors.”); In re Johnson,
228 B.R. 663, 668 (Bankr. N.D. Ill.
7
1999) (“[T]he better reasoned authorities hold that a debtor’s right to
voluntary dismissal of a Chapter 13 petition under § 1307(b) can be
trumped under certain circumstances by a motion to convert under
§ 1307(c).”). Until recently, the Ninth Circuit adhered to this view. In re
Rosson,
545 F.3d at 773 n.12 (holding that, under Marrama v. Citizens Bank of
Massachusetts,
549 U.S. 365 (2007), “even otherwise unqualified rights in the
debtor are subject to limitation by the bankruptcy court’s power under
§ 105(a) to police bad faith and abuse of process”).
But, as the bankruptcy court correctly held, the Ninth Circuit’s recent
Nichols decision overruled Rosson and made clear that chapter 13 debtors
have an absolute right to dismiss their case at any time, so long as the case
had not been previously converted. In Nichols, the bankruptcy court denied
the chapter 13 debtors’ motion to dismiss, ruling that the debtors had
abused the bankruptcy process by frustrating creditors during the
pendency of criminal proceedings. 10 F.4th at 959. Instead, the court
converted the case to chapter 7. We affirmed. Id.
On further appeal, the Ninth Circuit concluded that Rosson’s implied
exception was no longer good law after the U.S. Supreme Court’s decision
in Law v. Siegel,
571 U.S. 415 (2014). It acknowledged Law’s holding that
§ 105 does not “allow the bankruptcy court to override explicit mandates of
other sections of the Bankruptcy Code[.]” In re Nichols, 10 F.4th at 961
(quoting Law,
571 U.S. at 421). It concluded that Law clearly rejected the
reasoning underpinning Rosson, so Rosson had been effectively overruled
8
and is no longer binding precedent. Id. at 961-62.
Accordingly, the Ninth Circuit held that “[s]ection 1307(b)’s text
plainly requires the bankruptcy court to dismiss the case upon the debtor’s
request. There is no textual indication that the bankruptcy court has any
discretion whatsoever.” Id. at 963. It concluded that “§ 1307(b)’s text
confers upon the debtor an absolute right to dismiss a Chapter 13
bankruptcy case, subject to the single exception noted expressly in the
statute itself.” Id. at 964.
B. The bankruptcy court did not err in holding that Mr. Powell had an
absolute right to dismiss his chapter 13 case.
TICO argues that the bankruptcy court should not have allowed
Mr. Powell to voluntarily dismiss his chapter 13 case because he exceeded
the unsecured debt limit 4 and was not eligible to be a chapter 13 debtor
with the absolute right to dismiss his case. Rather, TICO contends that the
court should have treated Mr. Powell as a chapter 7 debtor and considered
the best interests of the estate and creditors before it dismissed his case.
If accepted, TICO’s arguments would create a new limitation, not
found in § 1307(b), on the debtor’s absolute right to dismiss a chapter 13
case. This is exactly what Law forbids. Nothing in the text of § 1307(b) limits
voluntary dismissal to only “eligible” debtors. Rather, as discussed above,
4
TICO argues that it presented the bankruptcy court with calculations showing
that Mr. Powell’s unsecured debt exceeded the unsecured debt limit in § 109(e). For
purposes of this decision, we assume without deciding that Mr. Powell’s unsecured
debts exceeded the statutory debt limits.
9
Nichols makes clear that, absent the single statutory exception, a chapter 13
debtor has an absolute right to dismiss his case. Because Mr. Powell’s case
had not been converted from another chapter, the bankruptcy court did not
err in allowing him to dismiss his case.
TICO offers no authority that directly supports its argument. 5 It relies
on our decision in FDIC v. Wenberg (In re Wenberg),
94 B.R. 631 (9th Cir.
BAP 1988), aff’d,
902 F.2d 768 (9th Cir. 1990). But Wenberg cuts against
TICO’s position. It holds that § 109(e) eligibility is not jurisdictional, such
that the bankruptcy court need not immediately dismiss an ineligible
chapter 13 debtor’s case; rather, an ineligible debtor may move to convert
his case to chapter 7. Id. at 636-37. Wenberg does not limit a chapter 13
debtor’s ability to convert his case under § 1307(a), so we see no reason
why it would limit Mr. Powell’s absolute right to dismiss his case under
§ 1307(b). 6
5
At least one court has denied a debtor’s motion to dismiss based in part on his
inability to qualify as a chapter 13 debtor under § 109(e). In re Letterese,
397 B.R. 507
(Bankr. S.D. Fla. 2008). But that ruling was based on the premise that § 109(e) eligibility
goes to the question of bad faith. In that case, the bankruptcy court for the Southern
District of Florida denied the debtor’s motion to dismiss and granted the trustee’s
motion to convert because it determined in part that the debtor exceeded the statutory
debt limit and lacked a regular income, so he did not meet § 109(e)’s eligibility
requirements to be a chapter 13 debtor. Id. at 513. It held that “the Debtor was clearly
not eligible to be a debtor in chapter 13 at the time of filing. This fact alone is prima facie
evidence of bad faith.” Id. at 514.
Unlike the Florida bankruptcy court, we are bound by Nichols and do not
consider a chapter 13 debtor’s alleged bad faith as a bar to voluntary dismissal.
6
TICO relies on In re Tatsis,
72 B.R. 908 (Bankr. W.D.N.C. 1987), which we cited
10
TICO also cites a Fifth Circuit case, Nikoloutsos v. Nikoloutsos (In re
Nikoloutsos),
199 F.3d 233 (5th Cir. 2000), for the proposition that the court
cannot allow a debtor to “invoke the provisions of Section 1307” if the
court is on notice that the debtor exceeded the unsecured debt limit.
However, Nikoloutsos does not concern voluntary dismissal of a chapter 13
case under § 1307(b), but rather conversion from chapter 7 to chapter 13. Id.
at 237. That decision has nothing to do with a chapter 13 debtor’s right to
voluntarily dismiss his case. 7
in Wenberg, for the proposition that a chapter 13 debtor’s right to dismiss his case ends
when a party files a motion to convert the case. But the Ninth Circuit’s Nichols decision
is binding on us, while Tatsis is not. Additionally, many courts reach the opposite
conclusion as Tatsis and hold that a chapter 13 debtor may voluntarily dismiss his case
at any time, even if a party has already moved to convert the case to chapter 7. See, e.g.,
In re Mills,
539 B.R. 879, 884 (Bankr. D. Kan. 2015) (granting the debtor’s motion to
dismiss because there is “no ‘implicit exception’ to the debtor’s unqualified right of
dismissal” and denying the trustee’s motion to convert as moot); In re Patton,
209 B.R.
98, 102 (Bankr. E.D. Tenn. 1997) (holding that “the court is confident that Congress
intended to provide Chapter 13 debtors with an absolute right to dismiss their case
notwithstanding a competing motion to convert. . . . [T]he court is satisfied that the
plain language of the statute, the legislative history, and the objectives and policies
underlying the Bankruptcy Code persuasively establish Congress’ intent that a debtor’s
right of dismissal trumps a creditor’s right to convert under such circumstances”); In re
Sanders,
100 B.R. 338, 341 (Bankr. S.D. Ohio 1989) (recognizing the debtor’s absolute
right to dismiss his case and holding he “has the right to dismiss his chapter 13 case
notwithstanding the trustee’s motion to convert”).
7 Many of TICO’s cited cases similarly concern the effect of § 109(e)’s debt limits
on a debtor’s ability to convert to chapter 13, or to convert from chapter 13, but not a
chapter 13 debtor’s ability to dismiss his case. TICO repeatedly cites In re Kwiatkowski,
486 B.R. 409 (Bankr. E.D. Mich. 2013), but that case does not support its position. In that
case, the bankruptcy court determined that the debtor exceeded the debt eligibility
limits and denied confirmation of his chapter 13 plan. The court decided that it would
allow the debtor to choose between conversion to chapter 7 or dismissal with a one-year
11
Finally, we are not swayed by TICO’s argument that we must punish
Mr. Powell for bad faith and abuse of the bankruptcy process. Recognizing
that Nichols forecloses such an argument, TICO attempts to disclaim it;
nevertheless, it repeatedly accuses Mr. Powell of bad faith. Nichols dictates
that bad faith or abuse of the bankruptcy process does not deprive a
chapter 13 debtor of his right to voluntarily dismiss his case. Nichols also
recognizes that the bankruptcy court has other tools to address such abuse.
See In re Nichols, 10 F.4th at 964. For example, it could impose a bar on
refiling or other conditions under § 105.
CONCLUSION
The bankruptcy court did not err in granting Mr. Powell’s Motion to
Dismiss. We AFFIRM.
bar on refiling. Id. at 421 (“[T]he Court will not deny Debtor the opportunity to convert
this case to Chapter 7, if that is what Debtor decides he now wants to do. Nor will the
Court deny the Debtor the opportunity to dismiss this bankruptcy case, if that is
Debtor’s choice.”). The bankruptcy court was not considering a § 1307(b) voluntary
motion to dismiss and did not prevent the debtor from dismissing his case.
12
