United States Court of Appeals,
Eleventh Circuit.
No. 94-2381
Non-Argument Calendar.
In re Timothy W. McCORMICK, Debtor.
Timothy W. McCORMICK, Plaintiff-Appellant,
v.
BANC ONE LEASING CORPORATION, U.S. TRUSTEE, Defendant-Appellee.
April 19, 1995.
Appeal from the United States District Court for the Middle
District of Florida. (No. 90-1272-CIV-t-21c), L. Clure Morton,
Judge.
Before ANDERSON and CARNES, Circuit Judges, and RONEY, Senior
Circuit Judge.
PER CURIAM:
The debtor appeals the denial of his Chapter 11 reorganization
plan for lack of good faith in an order which simply stated that
"The Debtor's invocation of his Fifth Amendment privilege in
connection with this case demonstrates that the Plan of
Reorganization was not filed in good faith." The debtor had
invoked the Fifth Amendment and refused to testify in a related
adversary proceeding. The district court affirmed without opinion.
This appeal comes without the benefit of a brief from the appellee.
On the simple issue presented by this appeal, we hold that
the debtor's assertion of the Fifth Amendment in a related
adversary proceeding, standing alone, when all other aspects of his
Chapter 11 Plan of Reorganization are consistent with the goals of
the Bankruptcy Code, is not sufficient evidence of bad faith to
merit the denial of his plan.
In order to be confirmed, a Chapter 11 reorganization plan
must be submitted in good faith and not by any means forbidden by
law.
11 U.S.C. § 1129(a)(3). While the Bankruptcy Code does not
define the term, courts have interpreted "good faith" as requiring
that there is a reasonable likelihood that the plan will achieve a
result consistent with the objectives and purposes of the Code. In
re Block Shim Development Company-Irving,
939 F.2d 289, 292 (5th
Cir.1991); In re Madison Hotel Associates,
749 F.2d 410, 425 (7th
Cir.1984); In re Coastal Cable T.V., Inc.,
709 F.2d 762, 764-65
(1st Cir.1983) (in corporate reorganization, plan must bear some
relation to statutory objective of resuscitating a financially
troubled company).
Where the plan is proposed with the legitimate and honest
purpose to reorganize and has a reasonable hope of success, the
good faith requirements of section 1129(a)(3) are satisfied. Kane
v. Johns-Manville Corp.,
843 F.2d 636, 649 (2nd Cir.1988); In re
Sun Country Development, Inc.,
764 F.2d 406, 408 (5th Cir.1985);
In re Mulberry Phosphates, Inc.,
149 B.R. 702, 707
(Bankr.M.D.Fla.1993).
The focus of a court's inquiry is the plan itself, and courts
must look to the totality of the circumstances surrounding the
plan, Block Shim, 939 F.2d at 292; Madison Hotel, 749 F.2d at 425,
keeping in mind the purpose of the Bankruptcy Code is to give
debtors a reasonable opportunity to make a fresh start. Sun
Country, 764 F.2d at 408.
Other than the debtor's refusal to testify in a related
adversary proceeding, the totality of the circumstances surrounding
Timothy McCormick's proposed reorganization plan would seem to
negate any specific showing of bad faith. McCormick, who filed an
individual, voluntary petition for relief under Chapter 11 of the
Bankruptcy Code, complied with all necessary financial and other
disclosure requirements. McCormick timely filed the required
schedules and statement of financial affairs, and he testified at
the meeting of creditors. The bankruptcy court approved the
disclosure statement. The debtor secured the necessary number of
the ballots by creditors in favor of the plan.
McCormick proposed to distribute approximately $23,000 to his
creditors along with another $200 per month for 36 months.
Apparently, McCormick could have filed a Chapter 7 petition,
liquidating all his assets and obtaining a discharge, leaving his
creditors in worse condition than under the Chapter 11 plan.
There is no doubt that the Fifth Amendment privilege extends
to bankruptcy proceedings. McCarthy v. Arndstein,
266 U.S. 34,
45
S.Ct. 16,
69 L.Ed. 158 (1924). In Chapter 7 liquidation cases, the
Bankruptcy Code provides that absent a grant of immunity, the
debtor is free to invoke his Fifth Amendment privilege and still
receive a discharge from his debts.
11 U.S.C. § 727(a)(6)(B); In
re Martin-Trigona,
732 F.2d 170 (2nd Cir.), cert. denied,
469 U.S.
859,
105 S.Ct. 191,
83 L.Ed.2d 124 (1984).
The Bankruptcy Code does not dictate nor have we found any
other court to have held that a bankruptcy court may deny
confirmation of a reorganization plan solely because the debtor
refused to testify on the basis of the privilege against
self-incrimination in a related proceeding during the pendency of
a Chapter 11 case.
While his case was proceeding, one of McCormick's creditors,
First Interstate Credit Alliance, Inc., filed a separate adversary
proceeding against McCormick seeking to declare a debt
non-dischargeable under section 523 of the Code. During a related
deposition, McCormick asserted his Fifth Amendment privilege
against self-incrimination and refused to testify. Notably,
McCormick and First Interstate later agreed to a compromise on the
dispute. The bankruptcy court entered an order approving the
compromise. Prior to the final confirmation hearing, after
McCormick filed the necessary disclosure statement and proposed
reorganization plan, three creditors, Advanta Leasing Corporation,
Banc One Leasing Corporation, and First Interstate, filed
objections to the confirmation claiming McCormick's plan was not
proposed in good faith, as required by section 1129(a)(3) of the
Bankruptcy Code. Only Advanta cited as its reason for objecting to
the plan McCormick's assertion of the Fifth Amendment during the
course of the proceedings. The bankruptcy court concluded that
McCormick's failure to testify in some of the proceedings was
contrary to the goals of the Bankruptcy Code and was evidence he
did not propose the plan in good faith.
As long as McCormick's failure to testify at the First
Interstate deposition did not impede the basic bankruptcy
administration of his case, however, assertion of his Fifth
Amendment privilege alone cannot be the basis for denying
confirmation of his plan. E.g., In re Connelly,
59 B.R. 421
(Bankr.N.D.Ill.1986).
It may well be that the bankruptcy court may have denied
McCormick's confirmation for reasons additional to his refusal to
testify in the First Interstate deposition, or that his refusal
impeded the administration of the Chapter 11 plan in a way not
disclosed by this record. If so, that issue may be addressed on
remand. Being unable to find support in this record for the
bankruptcy court's finding of bad faith under section 1129(a)(3) of
the Bankruptcy Code on the refusal to testify alone, however, we
must vacate the decision of the district court and remand for
further proceedings consistent with this opinion.
The petition of the debtor was filed September 13, 1988. The
Order of the bankruptcy court was entered on July 24, 1990. The
Order of the district court affirming was entered on February 22,
1994 by a visiting senior district judge who had not been assigned
the case until some time after December 1993. It may well be that
in the almost five years since the case was before the bankruptcy
court, interceding events or changed circumstances will affect the
proper disposition of this case on remand.
VACATED and REMANDED.
