In re Haffey ( 2017 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 17b0007p.06
BANKRUPTCY APPELLATE PANEL
OF THE SIXTH CIRCUIT
IN RE: SHANE M. HAFFEY, dba Sandlin Farms, ┐
Debtor. │
___________________________________________ │
│
SHANE HAFFEY, > Nos. 15-8018/8027
Appellant, │
│
v. │
│
SAMUEL K. CROCKER, United States Trustee; │
DEUTSCHE BANK TRUST COMPANY AMERICAS, │
Appellees. │
┘
Appeal from the United States Bankruptcy Court
for the Eastern District of Kentucky at Lexington.
No. 14-50824—Gregory R. Schaaf, Judge.
Argued: August 22, 2017
Decided and Filed: November 28, 2017
Before: HUMPHREY, OPPERMAN and PRESTON, Bankruptcy Appellate Panel Judges.
_________________
COUNSEL
ARGUED: Heather McKeever, Lexington, Kentucky, for Appellant. Carrie Ann Rohrscheib,
DEPARTMENT OF JUSTICE, Memphis, Tennessee, for Appellee Samuel K. Crocker. Edmund
S. Sauer, BRADLEY ARANT BOULT CUMMINGS LLP, Nashville, Tennessee, for Appellee
Deutsche Bank. ON BRIEF: Heather McKeever, Lexington, Kentucky, for Appellant. Carrie
Ann Rohrscheib, DEPARTMENT OF JUSTICE, Memphis, Tennessee, for Appellee Samuel K.
Crocker. Edmund S. Sauer, BRADLEY ARANT BOULT CUMMINGS LLP, Nashville,
Tennessee, for Appellee Deutsche Bank.
Nos. 15-8018/8027 In re Haffey Page 2
_________________
OPINION
_________________
C. KATHRYN PRESTON, Bankruptcy Appellate Panel Judge. In these consolidated
appeals, Debtor Shane Haffey (“Debtor”), appeals the dismissal of his chapter 12 bankruptcy
case. He asserts that he was denied due process when the Bankruptcy Court dismissed his case
following an expedited hearing. Assistant United States Trustee John Daugherty (“Trustee”),
and creditor Deutsche Bank Trust Company Americas (“Deutsche Bank”) assert that dismissal
was appropriate given that the case had been pending over a year, Debtor was not profitable,
Debtor was unable to propose a confirmable plan, and Debtor had engaged in dilatory tactics.
For the reasons stated below, the Panel AFFIRMS.
ISSUES ON APPEAL
1. Whether the Bankruptcy Court violated the Debtor’s due process rights by
holding a hearing on June 2, 2015, on issues that had been scheduled to be heard on June 25,
2015, without giving Debtor adequate notice and opportunity to be heard?
2. Whether the Bankruptcy Court erred by dismissing the chapter 12 case pursuant
to 11 U.S.C. § 1208?
JURISDICTION AND STANDARD OF REVIEW
The Bankruptcy Appellate Panel of the Sixth Circuit (“BAP”) has jurisdiction to decide
this appeal. The United States District Court for the Eastern District of Kentucky has authorized
appeals to the Panel, and neither party has timely elected to have this appeal heard by the district
court. 28 U.S.C. §§ 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as
of right pursuant to 28 U.S.C. § 158(a)(1). The Bankruptcy Court’s order dismissing the
Debtor’s case is a final, appealable order. In re Anderson, 397 B.R. 363, 365 (B.A.P. 6th Cir.
2008).
The question whether a bankruptcy court has committed a due process violation is
reviewed under a de novo standard. See In re Royal Manor Mgmt., Inc., 525 B.R. 338, 346
Nos. 15-8018/8027 In re Haffey Page 3
(B.A.P. 6th Cir. 2015), aff'd sub nom., Grossman v. Wehrle (In re Royal Manor Mgmt., Inc.),
652 F. App’x. 330 (6th Cir. 2016), cert. denied, 137 S Ct. 831 (2017). See United States v.
Sanders, 452 F.3d 572, 576 (6th Cir. 2006) (“A due process claim raising a mixed question of
law and fact is reviewed de novo.”)
The Bankruptcy Court’s dismissal of Debtor’s case is reviewed for an abuse of discretion.
Pertuset v. Am. Sav. Bank, FSB (In re Pertuset), No. 10-8024, 2010 WL 3422455, at *1 (B.A.P.
6th Cir. Aug. 24, 2010). “‘An abuse of discretion occurs only when the [trial] court relies upon
clearly erroneous findings of fact or when it improperly applies the law or uses an erroneous
legal standard.’” Kaye v. Agripool, SRL (In re Murray, Inc.), 392 B.R. 288, 296 (B.A.P. 6th Cir.
2008) (quoting Volvo Commercial Fin. LLC the Americas v. Gasel Transp. Lines, Inc. (In re
Gasel Transp. Lines, Inc.), 326 B.R. 683, 685 (B.A.P. 6th Cir. 2005)). “The question is not how
the reviewing court would have ruled, but rather whether a reasonable person could agree with
the bankruptcy court's decision; if reasonable persons could differ as to the issue, then there is no
abuse of discretion.” Behlke v. Eisen (In re Behlke), 358 F.3d 429, 438 (6th Cir. 2004) (citation
omitted). “The findings of a bankruptcy court which support dismissal of the bankruptcy case
are factual determinations which are reviewed under the clearly erroneous standard.” In re
Cline, No. 11-8075, 2012 WL 1957935 (B.A.P. 6th Cir. June 1, 2012) (quoting Riverview
Trenton R.R. Co. v. DSC, Ltd. (In re DSC, Ltd.), 486 F.3d 940, 944 (6th Cir. 2007) (internal
citations and quotation marks omitted)).
FACTS
Debtor and his non-debtor spouse Heather McKeever (“McKeever”) own and operate a
livestock and horse farm in Lexington, Kentucky known as Sandlin Farms. Debtor and
McKeever have filed several lawsuits over the years in an attempt to invalidate the mortgage of
Deutsche Bank against the property. All attempts have failed. Most recently, the United States
Supreme Court denied certiorari of the Sixth Circuit Court of Appeals’ affirmance of a district
court order granting summary judgment to Deutsche Bank and dismissing Debtor and his wife’s
complaint against Deutsche Bank.
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Sandlin Farms purportedly filed a petition for relief under chapter 12 of the Bankruptcy
Code on April 2, 2014. Shortly after filing, Debtor amended the petition to name himself
individually, d/b/a Sandlin Farms, as the debtor. Approximately five months after the case was
filed, Debtor filed a chapter 12 plan. The plan did not propose to pay the mortgage loan on the
farm property, declaring that the lien was not valid and, as a result, there existed no claim. The
plan also failed to propose payment of a mortgage loan on property in South Carolina claiming
that the lien against that property also was invalid. Creditors Deutsche Bank and Bank of
America objected.
Debtor requested and was granted a continuance of the confirmation hearing on his
proposed plan in order to file adversary proceedings to avoid the liens on both properties.
Debtor filed the adversary complaints on October 22, 2014.
Trustee filed a motion to dismiss the chapter 12 case on January 29, 2015 due to
inaccurate monthly reports and Debtor’s inability to generate sufficient income to implement his
plan if the liens were determined valid. The Bankruptcy Court initially scheduled a hearing for
February 19, 2015. Debtor filed a response to the motion on February 17, 2015. Debtor
requested a continuance on the hearing on the motion to dismiss until after April 15, 2015.
Trustee reluctantly agreed due to adverse weather conditions on the date that the hearing was to
originally occur.
The Bankruptcy Court dismissed the adversary proceeding against Deutsche Bank on
February 2, 2015, holding that the adversary proceeding was barred by res judicata. Debtor
appealed.1 On March 30, 2015, Debtor voluntarily dismissed the adversary proceeding against
Bank of America challenging the lien on the South Carolina property. Following the dismissal
of the adversary proceedings, Debtor did not take any action to re-notice the confirmation
hearing or amend the plan.
1
Debtor’s appeal from the February 2, 2015 order was docketed as BAP Case No. 15-8005. Upon the
parties’ request, that case was held in abeyance by the BAP pending resolution of a related case by the Sixth Circuit
Court of Appeals. BAP Case No. 15-8005 was dismissed with prejudice by stipulation of the parties on February 9,
2017.
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On April 8, 2015, Debtor filed a motion to stay proceedings in the chapter 12 case
pending appeal of the dismissal of his adversary proceeding against Deutsche Bank. On April
23, 2015, the Bankruptcy Court held a hearing on the motion for stay pending appeal. The
Bankruptcy Court denied the motion and entered an order setting an evidentiary hearing on the
Trustee’s motion to dismiss for cause pursuant to 11 U.S.C. § 1208. The hearing was scheduled
for June 25, 2015 with discovery to be completed by June 11, 2015. Debtor appealed again.2
On April 28, 2015, Trustee emailed Debtor’s attorney, Richard Getty (“Getty”), and
asked for Debtor’s availability within the next three weeks for a deposition. Receiving no
response from Debtor’s counsel, on May 5, 2015, Trustee filed notices to take the deposition of
Debtor on May 19, 2015, and McKeever on May 20, 2015. Trustee’s certificate of service of
McKeever’s subpoena shows that she was served in person at the South Carolina property.
In an email to Trustee on May 13, 2015, McKeever indicated that they had spoken that
morning regarding her subpoena. McKeever acknowledged receipt of the subpoena and
professed an inability to travel due to health issues. She indicated a willingness to meet in-
person in mid-June. On May 15, 2015, Trustee responded via email noting that, as stated in their
previous conversation, he was willing to work out a day and time for a deposition prior to the
June 11 deadline and was willing to conduct the deposition by video conference in Charleston
SC, Columbia, SC, or Savannah, GA. He asked for availability between May 20, 2015 and June
4, 2015 to conduct the deposition.
Emails between Debtor’s attorney and Trustee dated May 15, 2015 showed that Debtor’s
counsel requested and Trustee agreed to reschedule Debtor’s deposition for May 28, 2015. The
certificate of service of the Amended Notice of Deposition Duces Tecum of Shane Haffey filed
on May 15, 2015 indicated that service was provided through ECF.
2
Debtor’s appeal from the April 23, 2015 order was docketed as BAP Case No. 15-8018. Trustee and
Deutsche Bank filed a motion to dismiss the appeal for lack of jurisdiction based on finality and mootness, but by
then the chapter 12 case had been dismissed and a third appeal filed (BAP Case No. 15-8027). The Panel
consolidated the appeals and referred the motion to dismiss to the merits panel. Case No. 15-8018 is now moot and
shall be dismissed by separate order.
Nos. 15-8018/8027 In re Haffey Page 6
On May 19, 2015, Getty filed an emergency motion to withdraw as attorney for Debtor.
In the motion, Getty stated that on May 19, 2015, he received instruction from Debtor “to
withdraw immediately.” The motion requested reasonable time for Debtor to find new counsel
and also requested all future service be sent to Debtor at the farm address in Lexington. The
motion requested a hearing on May 21, 2015, noting the urgency due to the upcoming June 25,
2015 hearing regarding dismissal of the case.
On May 20, 2015, an email exchange between McKeever and Trustee showed that
McKeever was aware of Getty’s motion to withdraw and the request for the May 21, 2015
hearing. In her email, McKeever did not indicate any objection to the motion for withdrawal and
stated that “[i]f the Motion is Granted, both Mr. Haffey and I will be free to work with you
directly and meet with you in your office in [L]exington after June 10, 2015.” Trustee responded
that he did not oppose Getty’s motion to withdraw but still intended to move forward with
Debtor’s deposition on May 28, 2015. In her email response, McKeever stated that Debtor’s
daughter’s graduation was that week and asserted that Getty had not consulted with Debtor prior
to scheduling the deposition for May 28, 2015. In his email back to McKeever, Trustee again
indicated a willingness to accommodate Debtor and McKeever by conducting video depositions
near the South Carolina property and again asked for their availability.
On May 26, 2015, Trustee sent an email to Debtor asking for confirmation that Debtor
would appear at the May 28, 2015 deposition in Lexington, KY, and asking for immediate
contact if Debtor did not plan to appear. Debtor responded on May 27, 2015 stating that he was
in South Carolina for his daughter’s graduation. Debtor also informed Trustee of a motion
Debtor filed on May 26, 2015 seeking to alter or amend the order granting withdrawal of his
attorney because it did not cancel the June 25, 2015 hearing or give him reasonable time to find
new counsel. Trustee responded that he was skeptical of the reasons Debtor had given to avoid
the deposition and that he would file a motion for sanction seeking dismissal of the case if
Debtor did not provide Trustee with a date and time for a deposition between May 29, 2015 and
June 4, 2015. McKeever responded to Trustee’s email and included scanned copies of the
announcements of the graduation events that were occurring. The attached announcements
reflected graduation related ceremonies on Thursday, May 21, 2015 at 8:30 a.m., Sunday, May
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31, 2015 at 3:00 p.m. and Friday, June 5, 2015 at 10:00 a.m. McKeever again reiterated their
willingness to meet after June 11, 2015. Her email did not address why Debtor and McKeever
were not willing to participate in a deposition in between graduation activities.
Debtor did not appear for his deposition on May 28, 2015. That same day Trustee filed a
Motion for Dismissal as a Sanction for Failure to Cooperate with Discovery (“Motion for
Sanction”). Trustee requested dismissal of the case. Trustee also filed a Motion to Shorten Time
for hearing on the Motion for Sanction. Both the Motion for Sanction and the Motion to Shorten
Time included a “Notice of Hearing” that set a hearing date of June 2, 2015. Additionally,
Trustee filed an objection to Debtor’s motion to alter or amend. Trustee’s certificates of service
of all three documents reflected that he served both Debtor and McKeever via United States
Postal Service (“USPS”) at both the Kentucky and South Carolina addresses, and emailed the
documents to the two email addresses through which Debtor and McKeever had been
communicating.
On May 29, 2015 the Bankruptcy Court entered an order setting a hearing on the motion
to alter or amend and the objection for June 2, 2015 and striking but not resetting the hearing on
the motion to dismiss set for June 25, 2015. The certificate of service shows service on Debtor
by USPS at both the Kentucky and South Carolina addresses. Additionally, Trustee testified at
the June 2, 2015 hearing that he emailed the order to Debtor and McKeever at their respective
email addresses.
On June 2, 2015, the Bankruptcy Court held a hearing. Debtor did not appear. Trustee
and the Chapter 12 Trustee John Lyon were present. The Bankruptcy Court queried Trustee
“how the Debtor would have received notice of the matters on for today.” (Hr’g Tr. at 5:14–15,
Bankr. Case No. 14-50824, June 2, 2015.) Trustee responded that he had served Debtor via
USPS and email. The Bankruptcy Court noted that it had not received a request from Debtor to
appear telephonically. The CM/ECF Docket contains a letter from Debtor dated June 1, 2015
and sent to the Court via overnight courier. In the letter, Debtor acknowledged that he received
an email from Trustee that threatened a motion for sanction and indicated a hearing date for June
2, 2015. But Debtor asserted that as of noon on June 1, 2015, he had not received documents
from either the Bankruptcy Court or Trustee via USPS. Debtor further suggested that if a
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hearing were to be held, he considered it a due process violation. He also attached some (but not
all) of the emails between himself, McKeever, and Trustee regarding the attempt to schedule
depositions. The attached emails did not include emails reflecting Trustee’s attempt to schedule
a video conference nor did they illustrate why Debtor would not agree to one. It appears that this
letter was received by the Bankruptcy Court after the hearing had already been held. Following
the hearing, the Bankruptcy Court took the matter under advisement.
On June 5, 2015, the Bankruptcy Court issued a written opinion and order. The
Bankruptcy Court dismissed the case pursuant to 11 U.S.C. § 1208(c) based on (1) an inability to
present a timely confirmable plan; (2) a clear record of unreasonable and prejudicial delay; and
(3) a continuing loss to the estate without a reasonable likelihood of rehabilitation. While
finding the Motion for Sanction moot, the Bankruptcy Court also noted:
[t]he facts could easily support dismissal as a sanction pursuant to Bass v. Jostens,
Inc., 71 F.3d 237, 241 (6th Cir. 1995). The record shows the Debtor ha[d] no
genuine intention of appearing for a deposition and the Debtor’s delay tactics
[made] it impossible for the United States Trustee to timely comply with the
evidentiary hearing deadlines.
(Op. at 9, Bankr. Case No. 14-50824 ECF No. 148.) On June 18, 2015, Debtor timely filed a
notice of appeal to the BAP.
DISCUSSION
I. Due Process
The landmark case on the issue of due process of law regarding adequate and fair notice
is Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S. Ct. 652 (1950), in which
the Supreme Court said:
An elementary and fundamental requirement of due process in any proceeding
which is to be accorded finality is notice reasonably calculated, under all the
circumstances, to apprise interested parties of the pendency of the action and
afford them an opportunity to present their objections. The notice must be of such
nature as reasonably to convey the required information, and it must afford a
reasonable time for those interested to make their appearance. But if with due
regard for the practicalities and peculiarities of the case these conditions are
reasonably met, the constitutional requirements are satisfied. “The criterion is not
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the possibility of conceivable injury, but the just and reasonable character of the
requirements, having reference to the subject with which the statute deals.”
Id. at 314–15 (citations omitted) (quoting Am. Land Co. v. Zeiss, 219 U.S. 47, 67, 31 S. Ct. 200,
207 (1911)).
Before a chapter 12 bankruptcy case can be dismissed for cause, the Bankruptcy Code
requires “notice and a hearing.” 11 U.S.C. § 1208(c). Bankruptcy Rule 2002(a)(4) requires that
the debtor be given notice by mail at least twenty-one days prior to a hearing on dismissal of the
case. Fed. R. Bankr. P. 2002(a)(4). However, the Bankruptcy Rules also grant bankruptcy
courts discretion to modify this twenty-one day time period. Bankruptcy Rule 9006(c)(1) states:
[W]hen an act is required or allowed to be done at or within a specified time by
these rules or by a notice given thereunder or by order of court, the court for cause
shown may in its discretion with or without motion or notice order the period
reduced.
Fed. R. Bankr. P. 9006(c)(1). “[A] fundamental purpose of the Federal Rules of Bankruptcy
Procedure is to set forth what process is due in various categories of bankruptcy matters.” In re
Stacy, 405 B.R. 872, 878 (Bankr. N.D. Ohio 2009) (citations omitted).
Initially, the motion to dismiss pursuant to § 1208 was scheduled for hearing on June 25,
2015. Debtor received notice more than twenty-one days regarding that hearing. However, the
Bankruptcy Court cancelled that hearing and instead considered the question of dismissal for
cause at a hearing on June 2, 2015. The Bankruptcy Court neither ordered a reduction of the
notice period nor informed Debtor that the Bankruptcy Court would take up the issue at the June
2, 2015 hearing. Thus, Debtor was denied due process.
The notice provided by Trustee regarding the hearing on the motion for sanction did not
provide notice that the Bankruptcy Court would consider dismissal pursuant to § 1208. The
record reflects that Trustee provided notice of his Motion for Sanction and his Motion to Shorten
Time by sending them via email as well as USPS. These motions contained a “Notice of
Hearing” for June 2, 2015. While email may be a proper form of service, a motion commencing
a contested matter, such as the Motion to Sanction, is required to be served in the manner
provided for service of a summons and a complaint by Federal Rule of Bankruptcy Procedure
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7004. Nevertheless, Trustee’s use of email, as well as USPS indicates a desire to provide Debtor
with as much actual notice as possible under the circumstances. This notice by Trustee was
served upon Debtor in a manner reasonably calculated to inform him of Trustee’s intention to
seek dismissal of the case due to Debtor’s lack of cooperation in the discovery process related to
the scheduled evidentiary hearing. However, this notice, provided via email, two business days
prior to a hearing, which also did not inform Debtor of all issues to be considered, was not
sufficient notice to satisfy due process under the circumstances.
On Friday May 29, 2015, the Bankruptcy Court entered an order setting hearing, which
scheduled a hearing on Debtor’s motion to alter or amend for June 2, 2015. The Bankruptcy
Court mailed notice of the order setting hearing on the same day it was entered. However,
mailing notice to Debtor on Friday May 29, 2015 for a Tuesday June 2, 2015 hearing was not
calculated to give Debtor reasonable notice of the hearing and an opportunity to be heard.
Moreover, even if the amount of time had been sufficient, the order did not clearly convey the
issues to be taken up. Nowhere in that order did the Bankruptcy Court state that it was granting
Trustee’s motion to shorten time or that it would hear the motion for sanction on June 2, 2015.
Nor did it state that a hearing would be held on the motion to dismiss for cause pursuant to
§ 1208. In fact, the order setting hearing cancelled the June 25, 2015 hearing on the motion to
dismiss for cause. While it appears that the Bankruptcy Court intended to advance this hearing
to June 2, 2015, Debtor could have reasonably inferred that the Bankruptcy Court was actually
cancelling the June 25, 2015 hearing in order to give him more time to hire a new attorney,
which Debtor had requested in his motion to alter or amend. Notice which does not clearly
convey the issues to be taken up is not sufficient. In re Talon Auto. Grp., Inc., 284 B.R. 622, 625
(Bankr. E.D. Mich. 2002) (“Due process is met if notice is reasonably calculated to reach all
interested parties, reasonably conveys all of the required information, and permits a reasonable
amount of time for response.”) (citing Mullane, 339 U.S. at 314).
Although it appears reasonably clear to the Panel that Debtor had some actual notice that
a hearing would occur on June 2, 2015, the notice provided to Debtor was not reasonably
calculated to give him sufficient notice of exactly what issues would be addressed at that hearing.
Nor was the notice reasonably calculated to give him an opportunity to be heard. The
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Bankruptcy Court violated Debtor’s due process right to notice and a hearing prior to dismissal
of his chapter 12 case for cause.
II. Harmless Error
“Due process is required to prevent, to the extent possible, an erroneous deprivation of
property.” Garcia v. Fed. Nat’l Mortg. Ass'n, 782 F.3d 736, 741 (6th Cir. 2015) (emphasis
added) (citing Gilbert v. Homar, 520 U.S. 924, 930–32, 117 S. Ct. 1807, 1811-12 (1997) (due
process calls for such procedural protections as the situation demands)).
Some courts have indeed held that “a party who claims to be aggrieved by a
violation of procedural due process must show prejudice.” Perry v. Blum, 629 F.
3d 1, 17 (1st Cir. 2010). Other courts have held otherwise that “a due process
violation cannot constitute harmless error.” In re New Concept Hous., Inc.,
951 F.2d 932, 937 n.7 (8th Cir. 1991); see Fuentes v. Shevin, 407 U.S. 67, 87, 92
S. Ct. 1983, 32 L. Ed. 2d 556 (1972) (“The right to be heard does not depend
upon an advance showing that one will surely prevail at the hearing.”).
In re Motors Liquidation Co., 829 F.3d 135, 161 (2d Cir. 2016), cert. denied sub nom. Gen.
Motors LLC v. Elliott, 137 S. Ct. 1813 (2017). See Aja v. Fitzgerald (In re Aja), 441 B.R. 173,
179–80 (B.A.P. 1st Cir. 2011) (suggesting that even if there had been a due process violation
because of shortened notice, such error would be harmless under the facts of the case). See also
Rosson v. Fitzgerald (In re Rosson), 545 F.3d 764, 777 (9th Cir. 2008) (“Because there is no
reason to think that, given appropriate notice and a hearing, Rosson would have said anything
that could have made a difference, Rosson was not prejudiced by any procedural deficiency.”);
City Equities Anaheim, Ltd. v. Lincoln Plaza Dev. Co. (In re City Equities Anaheim, Ltd.),
22 F.3d 954, 959 (9th Cir. 1994) (rejecting due process claim for lack of prejudice where debtor
could not show that any different or additional arguments would have been presented if the
bankruptcy court had timely approved petition for new counsel); Sanders v. Cohen (In re
Sanders), B.A.P. No. CC-15-1284-FKiKu, 2016 WL 3961804, at *6–7 (B.A.P. 9th Cir. July 15,
2016) (debtor’s inability on appeal to present any persuasive substantive arguments against
dismissal showed that even if the court had violated debtor’s due process rights, debtor was not
prejudiced in any way). Citing the Ninth Circuit, another bankruptcy court in the Southern
District of Ohio recently denied a motion for stay pending an appeal after examining the debtors’
likelihood of success on the merits based on a harmless error analysis. McDermott v. Junk (In re
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Junk), 533 B.R. 639, 648 (Bankr. S.D. Ohio 2015) (“‘[I]n order to prevail on a procedural due
process claim, prejudice must be demonstrated by showing that the outcome of the proceeding
would have been different.’” (quoting Rosson, 545 F.3d at 777)).
The Panel has every reason to believe that the Sixth Circuit Court of Appeals would
apply this harmless error rule in the context of the present case. First, the Sixth Circuit has
applied a similar rule in the context of notice and procedural due process in immigration cases.
In Graham v. Mukasey, the Sixth Circuit held that “in order to prevail on a procedural due
process challenge, [petitioner] must also show prejudice. . . . [T]o establish the requisite
prejudice, he must show that the due process violations led to a substantially different outcome
from that which would have occurred in the absence of those violations.” 519 F.3d 546, 549–50
(6th Cir. 2008) (citation omitted). See also Diaz-Aguilar v. Holder, 555 F. App’x 545, 547 (6th
Cir 2014). The Sixth Circuit Court of Appeals has also applied a harmless error analysis in the
bankruptcy context when it determined that unlisted, unsecured claims are discharged in no-asset
cases even when the creditor did not receive proper notice of the bankruptcy case. See Zirnhelt
v. Madaj (In re Madaj), 149 F.3d 467 (6th Cir. 1998); See also Republic Bank & Tr. Co. v.
Hutchinson, 444 B.R. 728, 733 (W.D. Ky. 2011) (“Because this case had a no asset designation,
Appellant suffered no harm to Due Process from any lack of knowledge of its claim.”)
Accordingly, the Panel will examine the Bankruptcy Court’s reasons for dismissal to
determine if a substantially different result would have occurred if Debtor had been given
reasonable notice and opportunity to be heard.
III. Dismissal For Cause
The ultimate goal in a Chapter 12 bankruptcy case is to confirm a plan of
reorganization for the family farmer. See 8–1200 Collier on Bankruptcy
¶ 1200.01. Only the debtor may file a plan, which must be done no later than
90 days after the petition is filed unless the court extends this period based on
circumstances for which the debtor should not justly be held accountable.
11 U.S.C. [§] 1221. The bankruptcy court is statutorily required to conclude the
confirmation hearing no later than 45 days after the filing of the debtor’s
propose[d] plan, “except for cause.” 11 U.S.C. § 1224. These mandatory time
periods are included so that “chapter 12 cases would be processed expeditiously
by the bankruptcy courts and would not be subject to delay so often characteristic
of chapter 11 cases.” 8–1200 Collier on Bankruptcy ¶ 1200.01. The legislative
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history suggests that Congress intended that Chapter 12 bankruptcy cases were to
move along expeditiously to protect creditor’s interests and to preclude
diminution in the value of collateral if a reorganization cannot be achieved. In re
Pretzer, 96 B.R. 790, 793 (Bankr. N.D. Ohio 1989) (citations omitted).
In re Pertuset, 492 B.R. 232, 247 (Bankr. S.D. Ohio), aff'd, 485 B.R. 478 (B.A.P. 6th Cir. 2012).
Section 1208 provides a non-exclusive list of reasons a bankruptcy court may dismiss a
case for cause. In the present case, the Bankruptcy Court dismissed the case pursuant to
§ 1208(c) based on: (1) an inability to present a timely confirmable plan; (2) a clear record of
unreasonable and prejudicial delay; and (3) a continuing loss to the estate without a reasonable
likelihood of rehabilitation.
A. Failure to File a Confirmable Plan
Debtor received an extension of time to offer a plan. After five months in bankruptcy,
the plan he offered proposed to void all liens against his property and only pay his attorney.
Trustee and creditors immediately objected to the plan. Even though other courts had previously
determined the mortgages were valid, Debtor was given time to file adversary proceedings
attempting to avoid the mortgages. As the Bankruptcy Court noted, Debtor knew, since the
dismissal of the last adversary proceeding on March 30, 2015, that the proposed plan would not
work. Over sixty days had passed since that point to the date of dismissal of the case and Debtor
had not proposed a new plan. In Pertuset, the BAP affirmed a bankruptcy court’s conclusion
“that the Debtors’ dispute of essentially all of their creditors’ claims . . . is a major factor
supporting dismissal of [the] case on the grounds of bad faith.” 492 B.R. at 257. Additionally,
the Bankruptcy Court noted that dismissal of the adversary proceedings functioned as a de facto
denial of the proposed plan, which had required successful prosecution of those cases, and served
as grounds for dismissal pursuant to § 1208(c)(5).
Debtor’s brief asserts that his former attorney is to blame for the failure to present a
confirmable plan. His argument wholly fails.
Petitioner voluntarily chose this attorney as his representative in the action, and he
cannot now avoid the consequences of the acts or omissions of this freely selected
agent. Any other notion would be wholly inconsistent with our system of
representative litigation, in which each party is deemed bound by the acts of his
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lawyer-agent and is considered to have ‘notice of all facts, notice of which can be
charged upon the attorney.’
Link v. Wabash R.R. Co, 370 U.S. 626, 633–34, 82 S. Ct. 1386, 1390 (1962) (citation omitted).
See also Nafziger v. McDermott Int'l, Inc., 467 F.3d 514, 524 (6th Cir. 2006). Further, over two
years have passed since the dismissal of the case. Debtor has had plenty of time and several
opportunities to reach an agreement with the creditors, but has not done so.
When asked during oral argument whether Debtor could propose a confirmable plan if
the case were remanded, McKeever3 equivocated. She stated that Debtor might possibly propose
a plan funded by a third party. Following the hearing, Debtor attempted to supplement the
record on appeal with a hypothetical plan. The Panel declines to consider this hypothetical plan
as there is no provision in the Federal Rules of Bankruptcy Procedure for supplementing the
record in this manner. Moreover, given the other grounds for dismissal discussed below, this
effort is not dispositive.
B. Unreasonable Delay
The Bankruptcy Court found that Debtor’s failure to cooperate with discovery, along
with the failure to offer a confirmable plan, was evidence of unreasonable delay. The
Bankruptcy Court noted that Debtor’s excuse that he could not miss his daughter’s graduation
activities was not reasonable in that Trustee had begun seeking deposition dates over a month
before graduation, the graduation activities only affected three individual days, and Trustee had
attempted to arrange video conferencing to accommodate Debtor. The Bankruptcy Court further
noted that McKeever’s proposal to conduct the deposition sometime after the discovery deadline
was further evidence of unreasonable delay.
Debtor’s appellate brief did not assert any justification for his refusal to participate in a
video conference on one of the days when graduation activities were not scheduled. Debtor’s
only argument regarding delay once again blamed his former attorney, claiming “[u]p and until
May 22, 2015, the decision to file any and all pleadings, including Responses to Motions rested
solely in the hands of Debtor’s counsel Hon. Richard Getty.” (Appellant’s Br. at 8.) As
3
McKeever is a licensed attorney and acted as Debtor’s counsel on appeal.
Nos. 15-8018/8027 In re Haffey Page 15
previously stated, Debtor is responsible for his attorney’s actions prior to withdrawal. Moreover,
Debtor’s own failure to cooperate with discovery after his attorney withdrew demonstrated
unreasonable delay. The Bankruptcy Court correctly determined that cause existed to dismiss
the chapter 12 case based on Debtor’s unreasonable delay. There is no evidence or indication in
the record that this conclusion would have been any different if Debtor had proper notice of the
June 2, 2015 hearing.
C. Continuing Losses to the Bankruptcy Estate
Section 1208(c)(9) provides that on the request of a party in interest, a bankruptcy court
may dismiss a chapter 12 case for cause, including “continuing loss to or diminution of the estate
and absence of a reasonable likelihood of rehabilitation . . . .” In its opinion, the Bankruptcy
Court cited Debtor’s monthly operating reports that showed a loss. Debtor had reported an
ending asset balance of $17,658.92 in April 2014. In March 2015, the ending balance was
reported as $7,984.38. Thus, in that time, the estate incurred a loss of over $9,000. Additionally,
the Bankruptcy Court noted that because Debtor did not avoid the liens securing the debt on the
property, Debtor would have to service that debt through a chapter 12 plan. The Bankruptcy
Court concluded such debt service was not possible based on the receipts shown in Debtor’s
monthly operating reports.
On appeal, Debtor did not address the Bankruptcy Court’s conclusion that the continuing
losses to the estate provide cause for dismissal pursuant to § 1208(c)(9). Issues that are not fully
developed and argued on appeal are waived for appellate review. United States v. Layne,
192 F.3d 556, 566 (6th Cir. 1999). See also Camara v. Gonzales, 166 F. App’x 840, 844 n.1 (6th
Cir. 2006) (Equal protection argument waived when the term “equal protection” not even
mentioned in discussion section of brief.); Wojcik v. Gold (In re Daher), 522 B.R. 743, 2014 WL
6805281, at *9 n.4 (B.A.P. 6th Cir. 2014) (Brief that contained “hints and tones” of argument not
sufficient for appellate review). Debtor wholly failed to assert that the Bankruptcy Court erred in
its conclusion that the estate had suffered continuing losses during the pendency of the case. Nor
did Debtor assert he had the means to propose a confirmable plan. Therefore, Debtor is
prohibited from arguing that the Bankruptcy Court erred in its conclusion that cause existed for
dismissal pursuant to § 1208(c)(9).
Nos. 15-8018/8027 In re Haffey Page 16
CONCLUSION
Debtor failed to refute the Bankruptcy Court’s conclusion that cause existed to dismiss
the chapter 12 case. Therefore, the lack of proper notice and opportunity to be heard prior to
dismissal was not prejudicial. The Bankruptcy Court’s order dismissing the case is AFFIRMED.