Suggs v. Stanley , 224 F. App'x 343 ( 2007 )

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT March 29, 2007
Charles R. Fulbruge III
No. 06-30343 Clerk
In the matter of: JAMES HENRY STANLEY; DOROTHY JEAN WICKER
STANLEY,
Debtor.
KATHLEEN SUGGS,
Appellee-Cross-Appellant,
versus
JAMES HENRY STANLEY AND DOROTHY JEAN WICKER STANLEY,
Appellants-Cross-Appellees.
Appeals from the United States District Court
for the Western District of Louisiana
(No. 5:04cv0059; No. 5:04cv0060)
Before GARWOOD, WIENER, and CLEMENT, Circuit Judges.
PER CURIAM:*
Debtors-Appellants-Cross-Appellees James Henry Stanley and
Dorothy Jean Wicker Stanley filed a petition for bankruptcy under
Chapter 13 of the United States Bankruptcy Code. Creditor-
Appellee-Cross-Appellant Kathleen Suggs, an unsecured creditor of
the Stanleys, objected to the confirmation of the Chapter 13 plan
and moved to convert it to one under Chapter 7, asserting that the
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
Stanley’s did not file the petition in good faith, as required by
11 U.S.C. § 1325(a)(3). The bankruptcy court denied Suggs’s motion
after finding that the Stanleys had filed the petition in good
faith. On appeal, however, the district court reversed, holding
that the bankruptcy court clearly erred in finding good faith. The
Stanleys appeal, asking us to reinstate the ruling of the
bankruptcy court; Suggs cross-appeals, supporting the ruling of the
district court but contending that the Stanleys’ bankruptcy action
should be dismissed rather than converted to a Chapter 7
proceeding. We reverse the ruling of the district court, affirm
the ruling of the bankruptcy court, and remand for further
proceedings in that court.
I. FACTS & PROCEEDINGS
A. The Judgment
Suggs was the long-time companion of Gilbert Wicker, a brother
of Dorothy Stanley. In July 1999, Suggs found Wicker dead in his
house in Little Rock, Arkansas. After a brief investigation, the
Little Rock police department determined that the cause of death
was suicide.1 In the week following Wicker’s death, Mrs. Stanley
and her sister challenged the determination that the cause of
Wicker’s death was suicide, suggesting that Suggs may have played
a role in his death. As a result, Suggs brought a diversity action
against the decedent’s sisters in the Eastern District of Arkansas,
claiming that they had defamed her. The jury found in favor of
1
Suggs v. Stanley, 324 F.3d 672, 675-76 (8th Cir. 2003).
Suggs and awarded her $50,000 in damages. The sisters appealed,
and the Eighth Circuit affirmed with one dissent.2
B. The Bankruptcy Petition and Decision
On April 15, 2003, the same day that the judgment against Mrs.
Stanley became final and before Suggs could file her judgment in
the public records and thus become a secured creditor, the Stanleys
filed a petition for relief under Chapter 13 of the Bankruptcy
Code. The next month, Suggs filed an objection to the proposed
wage earners’ plan on the grounds that it was a “continuation of
the malice of Dorothy Stanley against Kathleen Suggs.” Suggs
asserted that the plan had not been proposed in good faith, so that
confirmation should be denied pursuant to 11 U.S.C. § 1325(a)(3).
Suggs also filed a motion to have the Stanleys’ Chapter 13 case
converted to one under Chapter 7.
Suggs asserted that the Stanleys’ lack of good faith was
evident from: (1) an earlier filing of a Chapter 7 petition; (2)
the timing of the filing of the petition; (3) their attempt to
discharge a debt that, according to Suggs, would not be
dischargeable in a Chapter 7 bankruptcy, because it arose from a
willful or malicious injury; (4) the Stanleys’ alleged
determination not to pay the debt; (5) Mrs. Stanley’s voluntarily
quitting her job the month following the entry of the judgment in
the district court in Arkansas; (6) the original plan’s provision
for repayment into a retirement account; (7) the Stanleys’ failure
2
Id. at 676-77, 682.
to comply with Suggs’s requests for documents; (8) false or
undisclosed information on a loan application filed by the Stanleys
two months before the bankruptcy filing; (9) the denuding of the
Stanleys’ home equity by obtaining a mortgage loan; and (10) the
plan’s preferential treatment of some of the Stanleys’ unsecured
creditors over Suggs.
After conducting a hearing, the bankruptcy court confirmed the
plan and denied Suggs’s motion to convert, finding that the plan
had been proposed in good faith. In reaching its conclusion of
good faith, the bankruptcy court addressed each of Suggs’s
proffered indicia of a lack of good faith, rejecting each in turn
with reasons. In sum, the bankruptcy court held that the Stanleys
filed their petition because “they had no place else they could go
and continue to live, pay their bills, and . . . support their
dependents.” The bankruptcy court entered an order overruling
Suggs’s objection and denying the motion to convert, which Suggs
timely appealed to the district court. Following entry of this
order, the bankruptcy court allowed modification of the Stanleys’
plan, and Suggs objected to the modified plan for substantially the
same reasons that she had objected to the original plan. The
modified plan was confirmed on December 2, 2003. Suggs again
timely appealed to the district court.
The district court consolidated the appeals, eventually
reversing the bankruptcy court. The district court concluded that
the bankruptcy court had failed to consider the totality of
circumstances and remanded the matter to the bankruptcy court for
further proceedings. The Stanleys appeal the district court’s
ruling. Suggs cross-appeals, asserting that the Stanleys’
bankruptcy petition should be dismissed rather than converted to a
Chapter 7 proceeding.
II. ANALYSIS
A. Standard of Review
In reviewing cases originating in bankruptcy, “we perform the
same function as did the district court: Fact findings of the
bankruptcy court are reviewed under a clearly erroneous standard
and issues of law are reviewed de novo.”3 Whether a petition was
filed in good faith is a question of fact that we review for clear
error.4 “When a finding of fact is premised on an improper legal
standard, or a proper one improperly applied,” however, that
finding is reviewed de novo.5
B. Good Faith
3
Nationwide Mut. Ins. Co. v. Berryman Prods. (In re
Berryman), 159 F.3d 941, 943 (5th Cir. 1998).
4
In re Elmwood Dev. Co., 964 F.2d 508, 510 (5th Cir.
1992) (chapter 11 petition); see also In re Love, 957 F.2d 1350,
1356 (7th Cir. 1992) (chapter 13 petition). “A finding of fact
is clearly erroneous when although there is evidence to support
it, the reviewing court on the entire evidence is left with a
firm and definite conviction that a mistake has been committed.”
In re Missionary Baptist Found. of Am., 712 F.2d 206, 209 (5th
Cir. 1983)) (internal quotation marks omitted).
5
In re Missionary Baptist Found. of Am., 712 F.2d at
209; see also In re Mercer, 246 F.3d 391, 402 (5th Cir. 2001)
(“[T]he clear error standard does not apply to findings of fact
resulting from application of an incorrect legal standard.”).
Section 1325(a)(3) of the Bankruptcy Code states that the
“court shall confirm a plan if . . . the plan has been proposed in
good faith and not by any means forbidden by law.”6 “The good
faith standard protects the integrity of the bankruptcy courts and
prohibits a debtor’s misuse of the process where the overriding
motive is to delay creditors without any possible benefit, or to
achieve a reprehensible purpose through manipulation of the
bankruptcy laws.”7 In proceedings to confirm a plan, the debtor
has the burden of proving good faith8; in proceedings to convert or
dismiss for lack of good faith, the creditor has the burden of
showing that the debtor lacks good faith.9
To determine whether a Chapter 13 plan was filed in good
faith, the bankruptcy court applies a “totality of the
circumstances” test.10 Under this test, the court considers such
factors as (1) “the reasonableness of the proposed repayment
plan,”11 (2) “whether the plan shows an attempt to abuse the spirit
of the bankruptcy code,”12 (3) whether the debtor genuinely intends
6
11 U.S.C. § 1325(a)(3).
7
In re Elmwood Dev. Co., 964 F.2d at 510.
8
See Hardin v. Caldwell, 895 F.2d 1123, 1126 (6th Cir.
1990) (In re Caldwell).
9
See In re Love, 957 F.2d at 1355-56.
10
E.g., In re Chaffin, 816 F.2d 1070, 1073 (5th Cir.
1987) (“Chaffin I”), modified, In re Chaffin, 836 F.2d 215, 216-
17 (5th Cir. 1988) (“Chaffin II”).
11
Id.12
Id.to effectuate the plan, (4) whether there is any evidence of
misrepresentation, unfair manipulation, or other inequities, (5)
whether the filing of the case was part of an underlying scheme of
fraud with an intent not to pay, (6) whether the plan reflects the
debtor’s ability to pay, and (7) whether a creditor has objected to
the plan.13 In applying this test, the bankruptcy court “exacts an
examination of all of the facts in order to determine the bona
fides of the debtor.”14
If the bankruptcy court determines that a Chapter 13 plan has
not been filed in good faith, it may deny confirmation.15
Furthermore, at the request of an interested party, the court may
convert a Chapter 13 case not filed in good faith to one under
Chapter 7 or dismiss the case in its entirety, “whichever is in the
best interests of creditors and the estate.”16
13
Chaffin II, 836 F.2d at 216-17, modifying Chaffin I,
816 F.2d 1070.
14
Chaffin I, 816 F.2d at 1074.
15
Section 1325(a)(3) of the Bankruptcy Code states that
“the court shall confirm a plan if . . . the plan has been
proposed in good faith and not by any means forbidden by law.”
11 U.S.C. § 1325(a)(3).
16
Section 1307(c)(5) provides that:
on request of a party in interest . . . and after
notice and a hearing, the court may convert a case
under . . . [chapter 13] to a case under chapter 7 of
this title, or may dismiss a case under this chapter,
whichever is in the best interests of creditors and the
estate, for cause, including . . . denial of
confirmation of a plan under section 1325 of this title
and denial of a request made for additional time for
filing another plan or a modification of a plan.
C. Application
Before determining whether the bankruptcy court applied the
totality-of-the-circumstances test and, if so, whether the court
applied it correctly, we must first identify the standard of review
that applies, i.e., de novo or clear error. Suggs insists that,
despite the general rule that, being factual, findings of good
faith are reviewed for clear error,17 de novo review should be
applied in this instance, because, she contends, the bankruptcy
court did not properly apply the totality-of-the-circumstances
test. The district court agreed with Suggs, holding that the
bankruptcy court had not considered the totality of the
circumstances. In so holding, that court concluded that the
bankruptcy court had failed to give adequate weight to various
indicia of bad faith. Specifically, the district court focused on
the timing of the filing of the petition and the possibility that
the debt would be non-dischargeable under Chapter 7.
We disagree with the district court’s ruling and conclude that
the bankruptcy court applied the totality-of-the-circumstances test
11 U.S.C. § 1307(c)(5). Although not explicitly enumerated
as a reason for dismissal or conversion, “[m]ost courts have
held that lack of good faith can be cause for dismissal or
conversion of a chapter 13 plan.” 8 COLLIER ON BANKRUPTCY §
1307.04[10] at 1307-21 (15th ed. revised 1996) (collecting
cases).
17
In re Elmwood Dev. Co., 964 F.2d at 510; In re
Missionary Baptist Found. of Am., 712 F.2d at 209 (“A finding of
fact is clearly erroneous when although there is evidence to
support it, the reviewing court on the entire evidence is left
with a firm and definite conviction that a mistake has been
committed.”) (internal quotation marks omitted).
and did so properly. The bankruptcy court analyzed each of the
most relevant indicia of bad faith, rejecting each in turn for
reasons that are not clearly erroneous. It ultimately concluded
that
[t]he indicia that [Suggs’s counsel] argues of bad faith,
there is a lot of smoke. [Suggs’s counsel] was not
improper or wrong in pursuing this matter. He did have
something to shake and pop on each one of these items.
It’s just that when you shake and pop and clear the
smoke, there’s no real fire.
The Stanleys filed their petition, ruled the court, because “they
had no place else they could go and continue to live, pay their
bills, and . . . support their dependents.”
It is true that the bankruptcy court did not explicitly state
that it was considering the individual circumstances cumulatively,
but the Supreme Court has instructed that a court is not required
to make “a formulary statement” that it considered the relevant
facts “individually and cumulatively” in applying the totality-of-
the-circumstances test.18 Rather, “[i]t suffices that that was the
fair import of the [lower court’s] opinion.”19 Here, “the fair
import” of the bankruptcy court’s analysis is that it considered
each indicium and considered them all in toto. We therefore review
the bankruptcy court’s determination that the Stanleys acted in
good faith for clear error. “As long as there are two permissible
views of the evidence, we will not find the factfinder’s choice
between competing views to be clearly erroneous. If the bankruptcy
18
Early v. Packer, 537 U.S. 3, 9 (2002) (per curiam)
19
Id.court’s account of the evidence is plausible in light of the record
viewed as a whole, we will not reverse it.”20
After reviewing the briefs and the record, and hearing oral
argument by able counsel for the parties, we conclude that the
bankruptcy court’s determination that the Stanleys acted in good
faith was not clearly erroneous. First, that court’s determination
that the timing of the petition and the prior bankruptcy filing did
not indicate bad faith is plausible. Although these factors are
relevant, they are not per se evidence of a lack of good faith, and
we cannot say that the bankruptcy court clearly erred in
discounting them.
Second, the bankruptcy court did not clearly err in declining
to consider whether the Stanleys’ debt to Suggs would be non-
dischargeable as a “willful and malicious injury” under Section
523(a)(6) of Chapter 7.21 Contrary to Suggs’s contention, Arkansas
law does not appear to require a finding that Mrs. Stanley acted
maliciously within our interpretation of Section 523(a)(6). We
have held that the “test for willful and malicious injury under
Section 523(a)(6) . . . is condensed into a single inquiry of
whether there exists ‘either an objective substantial certainty of
harm or a subjective motive to cause harm’ on the part of the
20
In re Acosta, 406 F.3d 367, 372 (5th Cir. 2005)
(internal citation omitted).
21
Chapter 7 states that any debt “for willful and
malicious injury by the debtor to another entity or to the
property of another entity” is non-dischargeable. 11 U.S.C. §
523(a)(6).
debtor.”22 In this case, a verdict against Mrs. Stanley could have
been supported by a finding that she acted with reckless disregard
for the consequences of her act, a finding that would place the
actions outside the scope of Section 523(a)(6). More importantly,
even if the debt were non-dischargeable under Chapter 7, this is
only one of many factors to be considered in the totality of the
circumstances. Alone, it does not demand a finding of a lack of
good faith.
Third, the bankruptcy court considered and rejected the
remaining asserted signals of bad faith —— for example, Mrs.
Stanley’s decision to stop working, the discovery disputes, a loan
application containing incorrect information, and the Stanleys’
stripping of equity from their home —— because the court accepted
the justifications that the Stanleys offered for these actions
during their testimony. These determinations are, after all, based
largely on the trial court’s credibility calls, to which we (and
the district court sitting as an appellate court) owe considerable
deference. We decline to call them clearly erroneous and therefore
decline to disturb them.
Finally, Suggs’s repeated assertion that the Stanleys’ motive
of spite somehow warrants a finding of bad faith fails. Even if we
assume arguendo that the Stanleys did act with spite and malice,
this would not mean that they are automatically not entitled to the
protection of the Bankruptcy Code: One may be an honest debtor even
22
In re Williams, 337 F.3d 504, 509 (5th Cir. 2003).
if his past dealings with his creditor have been dishonest. The
debt in Chaffin I and Chaffin II, for example, stemmed from the
debtor’s conviction for securities fraud and theft.23
Inasmuch as “the bankruptcy court’s account of the evidence is
plausible in light of the record viewed as a whole,”24 we reverse
the appellate ruling of the district court and affirm the original
good faith ruling of the bankruptcy court.
III. CONCLUSION
The bankruptcy court applied the totality of the circumstances
test and did so properly. Its conclusion that the Stanleys acted
in good faith is not clearly erroneous. Accordingly, we REVERSE
the appellate ruling of the district court and AFFIRM the rulings
of the bankruptcy court that Suggs appealed. As we have concluded
that the bankruptcy court’s decisions were not error, we deny
Suggs’s request that the bankruptcy petition be dismissed, and we
REMAND this case to the bankruptcy court for further proceedings
consistent with its affirmed ruling.
23
Chaffin I, 816 F.2d at 1071.
24
In re Acosta, 406 F.3d at 372.