In re: Dietrich, T. v. ( 2007 )


Menu:
  •           NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
    File Name: 07a0120n.06
    Filed: February 15, 2007
    No. 05-2255
    UNITED STATES COURT OF APPEALS
    FOR THE SIXTH CIRCUIT
    THERESITA K. DIETRICH,                         )
    )   ON APPEAL FROM THE
    Plaintiff-Appellant,              )   UNITED STATES DISTRICT
    )   COURT FOR THE EASTERN
    v.                                             )   DISTRICT OF MICHIGAN
    )
    NOB-HILL STADIUM PROPERTIES,                   )   OPINION
    )
    Defendant-Appellee.               )
    BEFORE: BOGGS, Chief Judge; DAUGHTREY, Circuit Judge; and MILLS,
    District Judge.*
    RICHARD MILLS, District Judge.
    Theresita K. Dietrich appeals the judgment of the district court affirming the
    bankruptcy court’s dismissal of her Chapter 7 bankruptcy case. In dismissing
    Dietrich’s case, the district court determined that the bankruptcy court’s dismissal of
    a previous Chapter 7 proceeding had the effect of barring Dietrich from taking any
    *
    The Honorable Richard Mills, United States District Judge for the Central
    District of Illinois, sitting by designation.
    -1-
    further bankruptcy action to discharge the debt to Defendant-Appellee Nob-Hill
    Stadium Properties.
    Since we conclude the district court committed no error, we affirm.
    I. FACTUAL AND PROCEDURAL BACKGROUND
    This case arises out of the purchase by a general partnership of the Stadium
    Apartments, an apartment complex in Ann Arbor, Michigan. The financing consisted
    of a first mortgage on the property and also a second mortgage running in favor of
    Nob-Hill Stadium Properties. As part of the financing, Debtor and Plaintiff-
    Appellant Theresita K. Dietrich and her then-husband Edgar J. Dietrich, the general
    partners, guaranteed the second mortgage obligation to Nob-Hill. This mortgage was
    executed in 1989; Nob-Hill filed suit on the mortgage in 1994. On March 11, 1996,
    the Wayne County Circuit Court entered its consent judgment in the amount of
    $437,894.68. Since the date of the entry of the consent judgment, the Debtor or other
    defendants who are indebted to Nob-Hill have made payments of $288,902.59, on
    March 21, 2001, and $23,962.57 on April 12, 2001.
    In 2000, Nob-Hill sued Dietrich and her family trust, alleging the fraudulent
    conveyance of her residence located at 345 Piche, Grosse Point Farms, Michigan
    (“the Piche Property”). On June 18, 2001, the court entered an opinion granting the
    plaintiff’s motion for summary judgment and denying the defendant’s motion for
    -2-
    summary judgment. That court found the transfer of the Piche Property to be a
    fraudulent conveyance and appointed a Receiver for the property. The Receiver
    signed a purchase agreement for the sale of the Piche Property. A closing on the sale
    was set for August 12, 2004.
    Dietrich filed three bankruptcy petitions prior to the one at issue in this appeal.
    The three prior cases were each dismissed on the motion of Nob-Hill. Her first case
    was a Chapter 13 Petition, which was dismissed on December 14, 2001 because the
    bankruptcy court found that Nob-Hill’s claim exceeded the $400,000 jurisdictional
    amount. Dietrich’s second case was a Chapter 11 proceeding, which was dismissed
    with prejudice on May 1, 2002. She claims the case was dismissed because she did
    not have a reasonable likelihood of proposing a successful plan and that Nob-Hill
    would not accept a plan. Dietrich’s third case was a Chapter 7 proceeding, which was
    filed on May 21, 2002. That case was dismissed on August 27, 2002; the bankruptcy
    court concluded “that its prior dismissal with prejudice barred the debtor from re-
    filing a case under any chapter of Title 11.” The court stated, “Dietrich’s chapter 7
    petition is dismissed with prejudice to her right to file a petition under any chapter of
    Title 11.”
    Dietrich filed a voluntary petition for Chapter 7 bankruptcy proceeding on July
    21, 2004, the same date that the circuit court approved the sale of the Piche Property.
    -3-
    This was her fourth bankruptcy petition. At the hearing on the motion to dismiss held
    before the bankruptcy court, Nob-Hill made several arguments in support of its
    assertion that the case was filed in bad faith. The court entered an order on the same
    day granting Nob-Hill’s motion to dismiss, thereby dismissing the Chapter 7
    bankruptcy case with prejudice. Dietrich then filed a motion for reconsideration,
    which was denied by the bankruptcy court. Following Dietrich’s appeal, the district
    court affirmed the bankruptcy court’s dismissal and its subsequent award of
    sanctions.1
    On appeal, we consider whether the bankruptcy court was authorized on
    August 27, 2002, to dismiss Dietrich’s third bankruptcy petition “with prejudice to
    her right to file a petition under any chapter of Title 11.”
    II. DISCUSSION
    1
    More than three months after entering its judgment on the merits, the
    district court granted a motion by Dietrich to reopen the time to file an appeal. See
    Fed. R. App. P. 4(a)(6). Its order granting the motion stated that Dietrich “shall
    have thirty days to file an appeal.” Rule 4(a)(6), however, only permits a district
    court to “reopen the time to file an appeal for a period of 14 days after the date
    when its order to reopen is entered.” 
    Id. We have
    held that a notice of appeal
    filed more than fourteen days after a motion to reopen time is granted cannot
    convey jurisdiction, even if the district court’s order erroneously stated that the
    appellant had more time. Bowles v. Russell, 
    432 F.3d 668
    , 669 (6th Cir. 2005),
    cert. granted, 
    127 S. Ct. 763
    (2006). Fortunately, in this case, Dietrich did not file
    her notice of appeal more than 14 days after the district court granted her motion.
    -4-
    “This court reviews a bankruptcy court’s decision directly, not the district
    court’s review of the bankruptcy decision.” In re AMC Mortgage Co., Inc., 
    213 F.3d 917
    , 920 (6th Cir. 2000). The bankruptcy court’s factual findings are reviewed for
    clear error, while its conclusions of law are subject to de novo review. 
    Id. Dietrich first
    contends that the bankruptcy court’s August 27, 2002 order
    lacked the res judicata effect of precluding the discharge of debts in subsequent
    bankruptcy petitions. That order stated, “Theresita Dietrich’s Chapter 7 petition is
    dismissed with prejudice to her right to file a petition under any Chapter of Title 11.
    IT IS SO ORDERED.” Dietrich believed that only the section 109(g) temporary bar
    to filing applied, which bars a debtor from re-filing a bankruptcy petition within 180
    days if–
    (1) the case was dismissed by the court for willful failure of the
    debtor to abide by orders of the court, or to appear before the court in
    proper prosecution of the case; or
    (2) the debtor requested and obtained the voluntary dismissal of the
    case following the filing of a request for relief from the automatic
    stay provided by section 362 of this title.
    11 U.S.C. § 109(g). Dietrich claims that it is common bankruptcy practice to employ
    the phrase “dismissed with prejudice” to refer to a temporary bar under section 109(g)
    to filing another petition. Dietrich claims that the language of dismissal neither
    prevents her from re-filing a case under any chapter of Title 11, except for the 180-
    -5-
    day period of section 109(g), nor does it permanently bar discharge of certain debts.
    Dietrich claims that she never acted in bad faith or abused the bankruptcy
    system throughout the litigation. Her prior bankruptcies were dismissed based on
    procedural grounds, not bad faith. Dietrich claims that she never manipulated the
    process to avoid payment to creditors. She asserts that the usual remedy in cases such
    as this is the section 109(g) temporary bar.
    Dietrich contends that the bankruptcy court’s decision to prevent her from
    filing any bankruptcy case concerning the debts at issue in the third petition for a
    period in excess of 180 days exceeds the authority granted by sections 349(a) and
    109(g) and infringes upon her constitutional rights. Section 349(a) provides:
    Unless the court, for cause, orders otherwise, the dismissal of a case
    under this title does not bar the discharge, in a later case under this title,
    of debts that were dischargeable in the case dismissed; nor does the
    dismissal of a case under this title prejudice the debtor with regard to the
    filing of a subsequent petition under this title, except as provided in
    section 109(g) of this title.
    11 U.S.C. § 349(a).
    Dietrich alleges that interpreting these statutes to allow bankruptcy courts to
    prohibit future filings for more than 180 days contradicts the plain meaning of section
    -6-
    109(g). Section 105(a) provides in pertinent part, “The court may issue any order,
    process, or judgment that is necessary or appropriate to carry out the provisions of
    this title.” 11 U.S.C. § 105(a). Dietrich asserts, however, that the broad powers a
    bankruptcy court has under section 105(a) may not be exercised in a manner that is
    inconsistent with other more specific provisions of the Bankruptcy Code. She claims
    that in this case, the bankruptcy court’s permanent prohibition against filing a
    bankruptcy petition, which plainly contradicts the 180-day limitation under section
    109(g), cannot be sustained under section 105(a).          Dietrich also asserts that
    interpreting section 349(a) and section 109(g) to allow bankruptcy courts to prohibit
    future filings for more than 180 days violates the Fifth Amendment’s due process and
    equal protection guarantees.
    Nob-Hill contends that the bankruptcy court has the authority to dismiss a case
    with prejudice for cause. It notes that section 349(a) establishes the general rule that
    dismissal of a case is without prejudice. Nob-Hill contends, however, the statute
    expressly grants a bankruptcy court the authority to dismiss the case with prejudice.
    Nob-Hill notes that although the word “cause” has not been defined by the
    Bankruptcy Code, “egregious behavior that demonstrates bad faith and prejudices
    creditors” has generally been required before a bankruptcy court would forever bar
    a debtor from seeking to discharge debts which were then in existence. In re Leavitt,
    -7-
    
    209 B.R. 935
    , 939 (9th Cir. B.A.P. 1997) (citations omitted).
    Nob-Hill next alleges that a number of cases support the authority of the
    bankruptcy court to dismiss a debtor’s case with prejudice to future filings that
    extends beyond 180 days, among other remedies. Some of these cases were cited in
    In re Stump, 
    280 B.R. 208
    (Bankr. S.D. Ohio 2002):
    In re Cooper, 
    153 B.R. 898
    , 899-900 (D. Colo. 1993), aff’d, 
    13 F.3d 404
          (10th Cir. 1993) (Involved permanent denial of a discharge of debt
    totaling $65,000); In re Jones, 
    41 B.R. 263
    , 267 (Bankr. C.D. Ca. 1984)
    (Debtor and counsel sanctioned for multiple bankruptcy filings); In re
    Leavitt, 
    209 B.R. 935
    , 941-943 (9th Cir. B.A.P. 1997) (Ninth Circuit
    B.A.P. concluded that upon finding of cause for dismissal with prejudice
    future filings could be barred indefinitely), aff’d 
    171 F.3d 1219
    , 1223
    (9th Cir. 1999); In re Geller, 
    96 B.R. 564
    , 568-69 (Bankr. E.D. Pa. 1989)
    (Counsel for debtor sanctioned under F.R.B.P. 9011, six month filing
    moratorium imposed, and court required prior permission before any
    new case could be filed); In re Millers, 
    90 B.R. 567
    , 568 (Bankr. S.D.
    Fla. 1988) (Permanent filing bar imposed where multiple filings were
    commenced with different names and social security numbers); In re
    Casse, 
    198 F.3d 327
    , 339 (2nd Cir. 1999) (The Second Circuit held that
    bankruptcy courts may impose indefinite bar to refiling in order to allow
    creditor to complete collection efforts); contra In re Frieouf, 
    938 F.2d 1099
    , 1102-1105 (10th Cir. 1991), cert. denied 
    502 U.S. 1091
    , 112 S.
    Ct. 1161, 
    117 L. Ed. 2d 408
    (1992) (The Tenth Circuit concluded that the
    new filings can only be barred for 180 days pursuant to section 109(g)
    of the Code); In re Weaver, 
    222 B.R. 521
    , 522-524 (Bankr. E.D. Va.
    1998) (Case dismissed with prejudice and debtor barred from re filing
    for twelve months. When debtor filed despite this moratorium, court
    barred discharge of debt and applicability of the automatic stay); In re
    Stathatos, 
    163 B.R. 83
    , 87-88 (N.D. Tex. 1993) (Serial filing dismissed
    with prejudice to re filing for two years, and affirmed on appeal by the
    district court); In re Lerch, 
    94 B.R. 998
    , 1001-1002 (N.D. Il. 1989)
    (Serial chapter 12 dismissed with prejudice to a re-filing for two years).
    -8-
    
    Id. at 215
    n.3.
    The Tenth Circuit has read section 349(a) as limiting a bankruptcy court’s
    authority to restrict future filings for more than 180 days. In re Frieouf, 
    938 F.2d 1099
    , 1103-04 (10th Cir. 1999). “Interpreting section 349(a) and section 109(g) to
    allow bankruptcy courts to prohibit future filings for a period greater than 180 days,
    not only contradicts the statute’s plain meaning, but encroaches on the fifth
    amendment’s due process and equal protection guarantees.” 
    Id. at 1104.
    In
    discussing section 349(a), the Tenth Circuit stated:
    The statute consists of two clauses, separated by a semicolon and
    addressing two distinct concerns: (1) the discharge in a later case of the
    particular debts dischargeable in the case dismissed and (2) the much
    different matter of the filing of any subsequent bankruptcy petition.
    Furthermore, each clause contains its own qualifying phrase; the
    discharge clause is modified by the “unless the court, for cause, orders
    otherwise” language, and the filing clause is modified differently by
    reference to section 109(g).
    
    Id. at 1103.
    The court in Frieouf determined that “section 349(a), by its plain
    language, must be read as allowing a bankruptcy court, ‘for cause,’ to permanently
    disqualify a class of debts from discharge, but a bankruptcy court may not deny future
    access to the bankruptcy court, except under the circumstances of section 109(g).”
    
    Id. Any other
    interpretation is inconsistent with the language and punctuation used
    -9-
    by Congress. 
    Id. The Second
    Circuit has described the Tenth Circuit’s construction of the statute
    as a minority view. In re Casse, 
    198 F.3d 327
    , 336-37 (2d Cir. 1999) (noting “no
    other circuit has adopted its reading of the Bankruptcy Code, and the Fourth Circuit
    rejects it, and so do all the lower courts which sit outside the Tenth Circuit.”). Nob-
    Hill further notes that the Eastern District of Michigan has also declined to follow
    Frieouf. That court stated, “This Court declines to follow Frieouf, and in keeping
    with the majority of the circuits and the case law, concludes that the Bankruptcy
    Court had the authority to bar future filings in excess of 180 days.” Javens v. Ruskin,
    
    2000 WL 1279189
    , at *2 (E.D. Mich. 2000); see also In re Grischkan, 
    320 B.R. 654
    ,
    661 (Bankr. N.D. Ohio 2005) (noting that section 349(a) provides a court with
    authority to sanction a debtor for cause by imposing a bar against re-filing); In re
    Nixon, 
    2005 WL 4041245
    , at *1 (Bankr. S.D. Ohio 2005) (reiterating that the
    bankruptcy court may in certain circumstances under section 349(a) sanction a debtor
    beyond the 180-day period).
    The court in Javens observed that the Fourth Circuit stated that section 109 was
    “added to the Bankruptcy Code in 1984 to address the precise abuse of the
    bankruptcy system at issue here–the filing of meritless petitions in rapid succession
    to improperly obtain the benefit of the Bankruptcy Code’s automatic stay provisions
    -10-
    as a means of avoiding foreclosure under a mortgage or other security interest.”
    Javens, 
    2000 WL 1279189
    , at *2 (quoting In re Tomlin, 
    105 F.3d 933
    , 937 (4th Cir.
    1997)). The Fourth Circuit noted that based on certain language in section 349(a),
    specifically the clause which states “nor does the dismissal of a case under this title
    prejudice the debtor with regard to the filing of a subsequent petition under this title,
    except as provided in section 109(g) of this title,” some have speculated that the
    intention of Congress was to eliminate a bankruptcy court’s authority to bar
    permanently the discharge of existing debt. 
    Tomlin, 105 F.3d at 938
    (quoting 11
    U.S.C. § 349(a)). In dismissing this possibility, that court discussed the interplay
    between section 349 and section 109(g):
    Our analysis of the plain language and statutory scheme of the statute .
    . . leads us to conclude that § 349 was never intended to limit the
    bankruptcy court’s ability to impose a permanent bar to discharge that
    would have res judicata effect. Rather, the language of § 349, as
    amended, seems to make clear that the court has the power to order such
    a sanction in circumstances other than those dealt with by new § 109(g).
    
    Tomlin, 105 F.3d at 938
    (internal citations and quotations omitted).
    The issue of whether the bankruptcy court is authorized to dismiss with
    prejudice a petition such as the one in this case has not been addressed by this court.
    We conclude that the plain language of section 349(a) appears to allow a bankruptcy
    court to dismiss a bankruptcy petition with prejudice, permanently, if there is
    -11-
    sufficient cause. That result is consistent with the decisions of most courts outside
    of the Tenth Circuit which have addressed the issue.2
    In dismissing Dietrich’s petition with prejudice on August 23, 2004, the
    bankruptcy court found that she had acted in bad faith and violated that court’s
    August 27, 2002 order dismissing her prior Chapter 7 petition “with prejudice to her
    right to file a petition under any chapter of title 11.” We are unable to conclude that
    the bankruptcy court committed error in finding that Dietrich acted in bad faith.
    Dietrich’s argument that the bankruptcy court’s previous order simply implied a 180-
    day limit to re-filing her bankruptcy petition is without merit. We conclude that the
    bankruptcy court was authorized to dismiss with prejudice Dietrich’s bankruptcy
    petition.
    2
    Bankruptcy courts sometimes have used the phrase “dismissed with
    prejudice” to refer to the 180-day bar of the second clause of section 349(a) rather
    than the permanent bar authorized by the first clause. See In re Jones, 
    192 B.R. 289
    , 291 (Bankr. M.D. Ga. 1996); Jolly v. Great W. Bank (In re Jolly), 
    143 B.R. 383
    , 385 (E.D. Va. 1992), aff’d 
    45 F.3d 426
    (4th Cir. 1994); In re Armwood, 
    175 B.R. 779
    , 787 (Bankr. N.D. Ga. 1994); In re Hollis, 
    150 B.R. 145
    , 147 (D. Md.
    1993); In re Standfield, 
    152 B.R. 528
    , 539-40 (Bankr. N.D. Ill. 1993); Owings v.
    Doniff (In re Doniff), 
    133 B.R. 351
    , 354 (Bankr. E.D. Va. 1991). While we defer
    to the bankruptcy court’s interpretation of its own prior order, see Zevitz v. Zevitz
    (In re Zevitz), No. 99-2400, 
    2000 U.S. App. LEXIS 25283
    , at *4 (6th Cir. Sept.
    20, 2000), we note that much confusion in this litigation could have been avoided
    had the bankruptcy court addressing Dietrich’s third petition stated clearly which
    bar–the 180-day bar on all filings or the permanent bar on the discharge of
    existing debt–it meant to apply.
    -12-
    The judgment of the district court is AFFIRMED.
    -13-