Rosson v. Fitzgerald ( 2008 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In the Matter of: JON G. ROSSON, 
Debtor,
JON G. ROSSON,
Appellant,
No. 06-35724
v.
K MICHAEL FITZGERALD, Chapter  D.C. No.
CV-05-01842-JLR
13 Trustee; JAMES RIGBY; UNITED
STATES INTERNAL REVENUE SERVICE; OPINION
THOMAS STONE, Jr.; 925 PIKE
STREET BUILDING CORP; NEW
CENTURY MORTGAGE CORPORATION;
MUNDT MACGREGOR LLP,
Appellees.

Appeal from the United States District Court
for the Western District of Washington
James L. Robart, District Judge, Presiding
Argued and Submitted
March 13, 2008—Seattle, Washington
Filed September 24, 2008
Before: Betty B. Fletcher and Richard A. Paez,
Circuit Judges, and William W Schwarzer,* District Judge.
Opinion by Judge Paez
*The Honorable William W Schwarzer, Senior United States District
Judge for the Northern District of California, sitting by designation.
13543
13546 IN THE MATTER OF ROSSON
COUNSEL
Rod McCarvel, Seattle, Washington, for the debtor-appellant.
David A. Gebben (argued), McCarty & Gebben, Bellevue,
Washington; Bruce P. Kriegman, Bruce Kriegman Law
Office, Seattle, Washington, for the appellees.
OPINION
PAEZ, Circuit Judge:
Unable to pay his debts, appellant Jon G. Rosson filed a
voluntary petition for protection under Chapter 13 of the
Bankruptcy Code. For almost a year, Rosson assured the court
and his creditors that he would soon be receiving several hun-
dred thousand dollars in an arbitration award, and that he
IN THE MATTER OF ROSSON 13547
would use that money to fund his proposed Chapter 13 plan.
When the money finally came in, however, Rosson failed to
deliver it to the Chapter 13 Trustee as the bankruptcy court
had ordered him to do. Upon discovering that the arbitration
proceeds had not been delivered to the Trustee, the bank-
ruptcy court found that Rosson was “rebelliously” “horsing
around” with estate assets and, on its own motion, converted
the Chapter 13 case to one under Chapter 7. Before the court
filed the formal conversion order, Rosson invoked his right to
voluntarily dismiss his Chapter 13 petition under 11 U.S.C.
§ 1307(b). The bankruptcy court denied the request for dis-
missal and converted the case.
Relying on a holding from the Bankruptcy Appellate Panel,
see Beatty v. Traub (In re Beatty), 162 B.R. 853 (B.A.P. 9th
Cir. 1994), Rosson brought this appeal asserting that
§ 1307(b) afforded him an “absolute” right to voluntarily dis-
miss his Chapter 13 case at any time prior to the filing of a
conversion order, and that the bankruptcy court therefore
abused its discretion by denying his request for dismissal. We
write to clarify that, after Marrama v. Citizens Bank of Mas-
sachusetts, 127 S. Ct. 1105 (2007), a debtor’s right to volun-
tarily dismiss a Chapter 13 case under § 1307(b) is not
absolute, but is qualified by an implied exception for bad-faith
conduct or abuse of the bankruptcy process. The bankruptcy
court did not clearly err in finding bad-faith conduct here.
Moreover, although the bankruptcy court failed to provide
Rosson with adequate notice and hearing before converting
the case to Chapter 7, as required by 11 U.S.C. §§ 102(1) and
1307(c), Rosson cannot show prejudice from the bankruptcy
court’s deficient procedures. Therefore, we affirm.
BACKGROUND
Rosson filed his voluntary petition for bankruptcy protec-
tion under Chapter 13 on August 13, 2004. At that time, Ros-
son was involved in an arbitration concerning the breakup of
an entity called Bleu, LLC. Over the next nine months, while
13548 IN THE MATTER OF ROSSON
attempting to confirm a Chapter 13 plan over objections from
creditors and the United States Trustee, Rosson repeatedly
assured the bankruptcy court that he would soon be receiving
several hundred thousand dollars as the result of the arbitra-
tion proceeding, and that the funds would be used to pay his
debts under the plan.1
On July 1, 2005, Rosson reported to the court that the arbi-
trator had awarded him approximately $185,000. On July 6,
2005, the court ordered Rosson to deposit the arbitration
funds with the Chapter 13 Trustee. Rosson admits that he did
not deposit the funds with the Trustee until early September,
at which time he deposited only $104,000.2
Meanwhile, on August 11, 2005, Rosson’s attorney, Harris,
moved to withdraw as attorney of record, stating that there
was a breakdown in communication with his client. A hearing
on the motion to withdraw was set for August 17, 2005.
At the August 17, 2005 hearing on Harris’s motion to with-
draw, the court was informed that Rosson had not yet com-
plied with the order to deliver the $185,000 to the Trustee.
The court gave Rosson less than one hour to deliver the
money before the court, on its own motion, would convert
Rosson’s case to Chapter 7. Rosson did not deliver the
money, and the bankruptcy court docket reflects that the case
was converted to Chapter 7 on August 17, although a formal
order was not filed or entered until later. As the district court
1
The bankruptcy court granted limited relief from the automatic stay to
allow the arbitration proceeding to go forward.
2
Rosson spent the balance of the funds to remodel his home, although
this was not disclosed to the bankruptcy court until after the court’s rulings
that are challenged in this appeal. It appears that Rosson’s home was later
sold in foreclosure proceedings, with the proceeds distributed to secured
creditors. Thus, although at least part of the $81,000 spent on the home
was ultimately recovered by Rosson’s creditors, Rosson’s unauthorized
use of the funds resulted in a redirection of estate assets from the general
pool of creditors to those creditors holding a security interest in the home.
IN THE MATTER OF ROSSON 13549
later concluded, the bankruptcy court converted the case with
“essentially no notice.” The bankruptcy court explained that
there was too much money involved to be “horsing around
with” and “the Court[ was] left with . . . only one course of
action, . . . to convert the case so there’s a [Chapter 7] trustee
to go after the money.” The same day (August 17) Rosson
filed a “Notice of Dismissal” notifying the court that he was
voluntarily dismissing his Chapter 13 case under 11 U.S.C.
§ 1307(b) and asked the court to enter an order dismissing the
petition.3 On September 7, 2005, the court entered an order
converting the case to a Chapter 7 proceeding and denying the
request for dismissal.4 On September 8, 2005, Rosson
appeared through new counsel and moved for reconsideration
on the basis that his right to voluntary dismissal was “abso-
lute.” In an order entered September 16, 2005, the court
denied the motion, stating that it would be a “gross miscar-
riage of justice to allow [Rosson] to dismiss this case and
abscond with [estate] proceeds.” In denying the motion for
reconsideration, the court applied a local rule stating that such
motions are “disfavored” and will be granted only upon a
showing of “manifest error” or “new facts or legal authority
which could not have been [raised] earlier with reasonable
diligence.” W.D. Wash. Local Civ. R. 7(h)(1); see also W.D.
Wash. Local Bankr. R. 9013(h) (applying Local Civil Rule
7(h)(1) to bankruptcy cases).
3
The parties disagree as to whether Rosson’s Notice of Dismissal,
which the bankruptcy court characterized as a motion to dismiss, was
properly filed. We need not decide that question because it does not affect
our resolution of the case. We assume for purposes of this appeal that Ros-
son’s notice, or motion, was properly filed.
4
That order inaccurately stated that: “This matter came before the . . .
Court on August 17, 2005 on the Debtor’s motion to dismiss his Chapter
13 case. That motion was heard on August 17, 2005 and was denied by
this Court at the hearing.” In fact, as noted above, the August 17, 2005
hearing related to Harris’s motion to withdraw as counsel of record. The
motion to dismiss was not discussed or ruled on at the August 17 hearing.
Indeed, it appears that the motion to dismiss (or “Notice of Dismissal”)
was not even filed until after that hearing.
13550 IN THE MATTER OF ROSSON
Rosson appealed to the district court, which affirmed. He
then timely appealed to this court, raising essentially the same
arguments that he raised before the district court: (1) the right
to dismiss a Chapter 13 case under 11 U.S.C. § 1307(b) is
absolute; and (2) when the bankruptcy court converted his
case to Chapter 7, it violated his right to notice and a mean-
ingful hearing under 11 U.S.C. §§ 102(1) and 1307(c).
JURISDICTION
[1] The district court had jurisdiction to review final bank-
ruptcy court orders under 28 U.S.C. § 158(a), and we have
jurisdiction, under 28 U.S.C. § 158(d), to review bankruptcy
court orders originally reviewed under 28 U.S.C. § 158(a).
We have not previously considered whether an order convert-
ing a bankruptcy case to Chapter 7 is final and appealable.5
But cf. Pioneer Liquidating Corp. v. United States Trustee (In
re Consol. Pioneer Mortgage Entities), 264 F.3d 803, 804
(9th Cir. 2001) (reviewing order converting case from Chap-
ter 11 to Chapter 7 without addressing finality). We have no
trouble, however, concluding that such an order is sufficiently
final to permit review under 28 U.S.C. § 158(a) and (d).
“We have adopted a ‘pragmatic approach’ to finality in
bankruptcy . . . [that] emphasizes the need for immediate
review, rather than whether the order is technically interlocu-
tory.” Bonham v. Compton (In re Bonham), 229 F.3d 750, 761
(9th Cir. 2000) (internal quotation marks omitted). “[A] bank-
ruptcy court order is considered to be final and thus appeal-
able where it 1) resolves and seriously affects substantive
rights and 2) finally determines the discrete issue to which it
5
Neither party contends otherwise. Nevertheless, we have an indepen-
dent obligation to assure ourselves of our own jurisdiction, as well as the
jurisdiction of the district court, even if the parties are prepared to concede
it. See, e.g., Solidus Networks, Inc. v. Excel Innovations, Inc. (In re Excel
Innovations, Inc.), 502 F.3d 1086, 1092 (9th Cir. 2007), cert. denied, ___
U.S. ___, 128 S. Ct. 2080 (2008).
IN THE MATTER OF ROSSON 13551
is addressed.” Id. (internal quotation marks omitted); see also
Allen v. Old Nat’l Bank of Wash. (In re Allen), 896 F.2d 416,
418 (9th Cir. 1990) (per curiam) (“Bankruptcy orders that
determine and seriously affect substantial rights can cause
irreparable harm if the losing party must wait until bankruptcy
court proceedings terminate before appealing.”).
[2] An order converting a case under another chapter to one
under Chapter 7 determines finally the discrete issue to which
it is addressed, i.e., whether or not the case will be converted.
See Vista Foods U.S.A., Inc. v. Unsecured Creditors’ Comm.
(In re Vista Foods U.S.A., Inc.), 202 B.R. 499, 500 (B.A.P.
10th Cir. 1996) (per curiam) (“Conversion ends the litigation
regarding the discrete controversy of whether the case should
proceed under chapter 11 or chapter 7.”). Moreover, because
a conversion to Chapter 7 takes control of the estate out of the
hands of the debtor, it seriously affects substantive rights and
may lead to irreparable harm to the debtor if immediate
review is denied. See Mason v. Young (In re Young), 237 F.3d
1168, 1173 (10th Cir. 2001) (explaining that “under Chapter
7, once the debtor’s assets have been liquidated, it is virtually
impossible to reassemble them, and therefore an order con-
verting to Chapter 7 is necessarily more final in nature than
an order converting to Chapter 13”)6; see also In re Firstcent
Shopping Ctr., Inc., 141 B.R. 546, 550 (S.D.N.Y. 1992)
(holding that “[c]onversion of a bankruptcy case [to Chapter
7] is final and . . . appealable” and quoting In re Rebeor, 89
B.R. 314, 320-21 (Bankr. N.D.N.Y. 1988) (“[I]mmediate
review [i]s necessary to protect Debtor’s substantive rights to
reorganize in Chapter 13 and to prevent irreparable harm
6
In Young, the Tenth Circuit held that, in contrast to an order converting
a case to Chapter 7, an order converting a case from Chapter 7 to Chapter
13 did not become final and appealable until after confirmation of a Chap-
ter 13 plan. See id. at 1173. But see, e.g., Bannish v. Tighe (In re Bannish),
311 B.R. 547, 548-49 (C.D. Cal. 2004) (holding order “effectively con-
vert[ing] . . . case from Chapter 7 to Chapter 13” final and appealable).
Our holding today is limited to the finality of those conversion orders that
convert a case to Chapter 7.
13552 IN THE MATTER OF ROSSON
through the potential loss of his property sold to good faith
purchasers.”)). We therefore hold, in accordance with all
other courts of which we are aware that have considered the
issue,7 that a bankruptcy court order converting a case from
one under another chapter of the Bankruptcy Code to one
under Chapter 7 is a final and appealable order.
STANDARD OF REVIEW
“On appeal from a district court’s affirmance of a bank-
ruptcy court decision, we independently review the bank-
ruptcy court’s decision, without giving deference to the
district court.” Hebbring v. U.S. Trustee, 463 F.3d 902, 905
(9th Cir. 2006). We review for abuse of discretion the bank-
ruptcy court’s ultimate decisions to deny a request for dis-
missal of a Chapter 13 case under § 1307(b) and to convert a
case from Chapter 13 to Chapter 7. See Leavitt v. Soto (In re
Leavitt), 171 F.3d 1219, 1222-23 (9th Cir. 1999); Croston v.
Davis (In re Croston), 313 B.R. 447, 450 (B.A.P. 9th Cir.
2004), abrogated on other grounds by Marrama, 127 S. Ct.
7See, e.g., Cabral v. Shamban (In re Cabral), 285 B.R. 563, 571 (B.A.P.
1st Cir. 2002) (“Orders converting a Chapter 13 case to a case under
Chapter 7 are final orders.”); In re Vista Foods U.S.A., Inc., 202 B.R. at
500 (B.A.P. 10th Cir.) (holding that order converting case from Chapter
11 to Chapter 7 is final and appealable); Halvajian v. Bank of N.Y. (In re
Halvajian), 216 B.R. 502, 510 (D.N.J.) (same), aff’d, 168 F.3d 478 (table)
(3d Cir. 1998) (unpublished order); Firstcent Shopping Ctr., Inc., 141 B.R.
at 550-51 (S.D.N.Y.) (same); Rebeor, 89 B.R. at 321 (Bankr. N.D.N.Y.)
(Chapter 13 to Chapter 7).
We note that one district court ruled that a bankruptcy court order con-
verting a case to Chapter 7 was non-final and non-appealable, but that rul-
ing was abrogated on appeal. See Fraidin v. Weitzman (In re Fraidin),188
B.R. 529, 532 & n.1 (D. Md. 1995) (holding that order converting case
from Chapter 11 to Chapter 7 was not final or appealable, but providing,
in the alternative, analysis of appeal on the merits), aff’d on other grounds,
110 F.3d 59 (table), 1997 WL 153826, at *1 (4th Cir. 1997) (unpublished
per curiam opinion) (holding that bankruptcy court’s conversion order was
appealable, either on grounds of finality or as a collateral order, but
affirming district court’s alternate decision on the merits).
IN THE MATTER OF ROSSON 13553
1105. We review the bankruptcy court’s legal conclusions de
novo and its factual findings for clear error. Hebbring, 463
F.3d at 905.
DISCUSSION
As noted, Rosson argues that: (1) he was improperly denied
his right to voluntarily dismiss his Chapter 13 case; and (2)
he was denied statutorily-guaranteed procedures when the
bankruptcy court converted his case without notice and a
meaningful hearing. We address these arguments in turn.
I. Denial of right to voluntarily dismiss a Chapter 13
case
[3] Sections 1307(b) and 1307(c) of the Bankruptcy Code
provide as follows:
(b) 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.
(c) . . . [O]n request of a party in interest or the
United States trustee 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 . . . .
11 U.S.C. § 1307(b)-(c). These two provisions—i.e., that the
court “shall” dismiss a case on request of the Chapter 13
debtor, but that the court also “may” convert a Chapter 13
case to Chapter 7 “for cause”—can conflict where, on the one
hand, a debtor requests voluntary dismissal, while, on the
other hand, a party in interest or the trustee moves to convert
13554 IN THE MATTER OF ROSSON
—or the court, acting on its own, converts—the case to Chap-
ter 7.8
[4] The conflict between § 1307(b) and (c) has divided
courts, including two of our sister circuits, with some courts
holding that a debtor has an absolute right to dismiss under
§ 1307(b), notwithstanding pending motions to convert under
§ 1307(c), while other courts hold that a bankruptcy court
retains the power to convert a case under § 1307(c), even in
the face of a debtor’s request for dismissal under § 1307(b).
Compare, e.g., Barbieri v. RAJ Acquisition Corp. (In re Bar-
bieri), 199 F.3d 616, 619 (2d Cir. 1999) (holding that, at any
time prior to an actual order of conversion, “a debtor has an
absolute right to dismiss a Chapter 13 petition under
§ 1307(b), subject only to the limitation explicitly stated in
that provision”), with, e.g., Molitor v. Eidson (In re Molitor),
76 F.3d 218, 220 (8th Cir. 1996) (rejecting “absolute” right of
dismissal under § 1307(b) in cases involving bad faith or
abuse of process, because “the purpose of the bankruptcy
code is to afford the honest but unfortunate debtor a fresh
start, not to shield those who abuse the bankruptcy process in
order to avoid paying their debts”). See generally In re Jacob-
sen, 378 B.R. 805, 809 (Bankr. E.D. Tex. 2007) (collecting
cases on both sides of the split).
[5] Although we have not weighed in on this question,9 our
8
Although the statute provides for conversion “on request of a party . . .
or the . . . trustee,” 11 U.S.C. § 1307(c), there is no doubt that the bank-
ruptcy court may also convert on its own motion. See id. § 105(a) (“No
provision of this title providing for the raising of an issue by a party in
interest shall be construed to preclude the court from, sua sponte, taking
any action or making any determination necessary or appropriate to
enforce or implement court orders or rules, or to prevent an abuse of pro-
cess.”).
9
In the district court, Rosson argued that we had addressed this question
in Nash v. Kester (In re Nash), 765 F.2d 1410 (9th Cir. 1985), where we
stated: “Under § 1307(b), a debtor has an absolute right to dismiss a Chap-
ter 13 petition.” Id. at 1413. Our holding in Nash, however, was concerned
IN THE MATTER OF ROSSON 13555
circuit’s Bankruptcy Appellate Panel (BAP) adopted the “ab-
solute right” approach in Beatty. See Beatty, 162 B.R. at 857(“The better reasoned view is that a court must dismiss the
case upon the debtor’s request for dismissal under section
1307(b) if that request is made prior to the . . . [formal] order
converting the case to Chapter 7.”); see also Croston, 313
B.R. at 451 (reaffirming and following Beatty). In his opening
brief, Rosson argues that we should follow and adopt Beatty
and hold that the bankruptcy court abused its discretion by
refusing to grant his request for dismissal, which was filed
prior to the court’s formal order converting the case to Chap-
ter 7.10
[6] After Rosson filed his opening brief, however, the
Supreme Court issued Marrama v. Citizens Bank of Massa-
chusetts, 127 S. Ct. 1105 (2007). In Marrama, the Court
firmly rejected the analysis that the BAP applied in Croston—
the case that followed and reaffirmed Beatty—and implicitly
abrogated Beatty as well. Indeed, in his reply brief, Rosson
acknowledges that the “absolute” right to dismissal under
§ 1307(b), as recognized in Beatty, is no longer viable after
Marrama because that right must be qualified by the court’s
power to convert a case based on the debtor’s bad-faith con-
with the res judicata effect of a prior voluntary dismissal under § 1307(b),
not the potential conflict between § 1307(b) and § 1307(c). The quoted
sentence is thus likely dicta as applied to this case. More importantly, as
explained in the text infra, even if the statement in Nash is a holding, it
has been abrogated by subsequent Supreme Court precedent. See Miller v.
Gammie, 335 F.3d 889, 900 (9th Cir. 2003) (en banc) (holding that a
three-judge panel is not bound by a prior three-judge panel’s published
decision where subsequent Supreme Court case law is “clearly irreconcil-
able” with original panel’s holding).
10
BAP opinions are not binding on this court, Bank of Maui v. Estate
Analysis, Inc., 904 F.2d 470, 472 (9th Cir. 1990), but we have noted the
importance of the BAP in providing “guidance on frontier bankruptcy
issues,” id. (O’Scannlain, J., concurring specially), and we have adopted
BAP opinions where persuasive. See, e.g., Onink v. Cardelucci (In re Car-
delucci), 285 F.3d 1231, 1234 (9th Cir. 2002).
13556 IN THE MATTER OF ROSSON
duct or abuse of the bankruptcy process. Nevertheless, Rosson
argues that he did not engage in any bad-faith conduct, and
that he therefore had a right to dismiss his case. Below, we
first briefly clarify the effect of Marrama on the rule
announced in Beatty and then address Rosson’s argument that
he should prevail, even under the new rule.
A. Status of Beatty’s “absolute right” rule after Marrama
As noted, courts have split on the question of the “abso-
lute” nature of the right to dismissal of a Chapter 13 case
under § 1307(b). After Marrama, however, the “absolute
right” position is no longer viable.
In Marrama, the Court took up the same question
addressed by the BAP in Croston—the right of a debtor,
under 11 U.S.C. § 706(a), to convert his Chapter 7 case to
Chapter 13. See Marrama, 127 S. Ct. at 1108 (identifying the
issue as whether “even a bad-faith debtor has an absolute right
to convert at least one Chapter 7 proceeding into a Chapter 13
case”). As the BAP recognized in Croston, this question is
analytically indistinguishable from the question in Beatty (i.e.,
the absolute right of a debtor to voluntarily dismiss his Chap-
ter 13 case). As Croston held, the text of § 706(a)11 “is indis-
tinguishable from the parallel language of § 1307(b) . . . [and]
it follows that [Beatty’s] analysis of the absolute nature of
§ 1307(b) applies to the same question under § 706(a).” Cros-
ton, 313 B.R. at 451. Thus, in Croston, the BAP followed
Beatty and held that a debtor had an “absolute,” one-time
right to convert his case from Chapter 7 to Chapter 13, and
11
Section 706(a) provides:
The debtor may convert a case under this chapter to a case
under chapter 11, 12, or 13 of this title at any time, if the case has
not been converted under section 1112, 1208, or 1307 of this title.
Any waiver of the right to convert a case under this subsection
is unenforceable.
11 U.S.C. § 706(a).
IN THE MATTER OF ROSSON 13557
that this was true notwithstanding a bankruptcy court’s con-
cern with “perceived dysfunction” or “bad faith manipula-
tion” of the bankruptcy process. Id. at 451-52.
In Marrama, however, a majority of the Court unequivo-
cally rejected the Croston position, holding that the right to
convert to Chapter 13 was impliedly limited by the bank-
ruptcy court’s power to take any action necessary to prevent
bad-faith conduct or abuse of the bankruptcy process. See id.
at 1111-12 (noting that the Bankruptcy Code specifically
grants bankruptcy judges “broad authority . . . to take any
action necessary or appropriate ‘to prevent an abuse of pro-
cess’ ”) (quoting 11 U.S.C. § 105(a)). Thus, the Court held
that bankruptcy judges had the power to differentiate between
“the vast majority” “of honest but unfortunate debtors who do
possess an absolute right to convert their cases from Chapter
7 to Chapter 13” and “the atypical litigant who has demon-
strated that he is not entitled to the relief available to the typi-
cal debtor.” Id. at 1111.
Although the Court declined to decide “with precision what
conduct qualifies as ‘bad faith’,” the Court “emphasize[d] that
the debtor’s conduct must, in fact, be atypical.” Id. at 1112
n.11. Applying the rule to the facts before it, the Court con-
cluded that Marrama had “made a number of statements about
his principal asset [a house] . . . that were misleading or inac-
curate,” id. at 1108, and that he had therefore “forfeited his
[purportedly absolute] right to proceed under Chapter 13.” Id.
at 1109.
[7] There is no doubt that after Marrama, Croston is no
longer good law. Marrama expressly cited Croston as one of
the cases recognizing a debtor’s absolute right to convert a
Chapter 7 case to Chapter 13—an approach that the Court
then rejected. See id. at 1108 n.2, 1111-12. Moreover,
although Marrama did not address the exact issue decided in
Beatty, it is clear that, after Marrama, Beatty too is no longer
good law, insofar as it holds that a Chapter 13 debtor has an
13558 IN THE MATTER OF ROSSON
absolute right to dismiss under § 1307(b). As noted above,
Croston was at pains to explain that there was no analytical
distinction between the legal issue in that case and the issue
in Beatty. See Croston, 313 B.R. at 451-52. We agree, and
accordingly we conclude that the Court’s rejection of the “ab-
solute right” theory as to § 706(a) applies equally to § 1307(b).12
Therefore, in light of Marrama, we hold that the debtor’s
right of voluntary dismissal under § 1307(b) is not absolute,
but is qualified by the authority of a bankruptcy court to deny
dismissal on grounds of bad-faith conduct or “to prevent an
abuse of process.” 11 U.S.C. § 105(a). See Jacobsen, 378
B.R. at 811 (reaching same conclusion). But see In re Polly,
___ B.R. ___, 2008 WL 3330636 (Bankr. N.D. Tex. Aug. 8,
2008) (holding that right to voluntarily dismiss Chapter 13
case is “absolute” (distinguishing Marrama).
B. Application of Marrama to Rosson’s case
Rosson acknowledges in his reply brief that, after Mar-
rama, bad-faith conduct can “justify the bankruptcy court’s
denial of . . . the right to voluntarily dismiss a [Chapter 13]
petition,” but he attempts to distinguish his case from Mar-
rama on the facts, insisting that his “conduct is nothing like
that of the dishonest [debtor] described in Marrama.” Rosson
states that “Marrama involved a debtor who consciously lied
to the court, attempted to remove assets from the court’s juris-
diction, and took efforts to conceal what he had done.” Ros-
son argues that, by contrast, he merely pledged the arbitration
proceeds “for use in [his] Chapter 13 case,” and that “it is not
at all obvious that [he] must have known that investing a por-
tion of the arbitration award in repairs to the residence—a
12
This is true even though, as Rosson points out, § 706(a) states that a
debtor “may” convert a case, whereas § 1307(b) states that the court
“shall” dismiss a case at the debtor’s request. Here, the different formula-
tions are not dispositive; the important point established by Marrama is
that even otherwise unqualified rights in the debtor are subject to limita-
tion by the bankruptcy court’s power under § 105(a) to police bad faith
and abuse of process.
IN THE MATTER OF ROSSON 13559
valuable asset of the estate—was inconsistent with ‘using’ the
funds in his Chapter 13 case.”
[8] Rosson’s argument is not persuasive. Even conceding
the doubtful proposition that Rosson decided in good faith
that using the arbitration proceeds to remodel his home was
consistent with his repeated pledges to apply that money to
his Chapter 13 plan, his use of the money was still in defiance
of the bankruptcy court’s specific order to deposit the money
with the Chapter 13 Trustee. Moreover, Rosson never—not
even in his motion for reconsideration—provided the bank-
ruptcy court with an explanation of what happened to the
missing funds. He simply failed to deliver the funds as
ordered and then, when taken to task for failing to do so,
invoked his supposedly absolute right to withdraw from the
bankruptcy process by requesting that his Chapter 13 petition
be dismissed. Under these circumstances, it was hardly unrea-
sonable for the bankruptcy court to conclude that Rosson
sought to voluntarily dismiss his case in order to “abscond
with [estate] proceeds.” Moreover, bad faith is a finding of
fact reviewed for clear error. Leavitt, 171 F.3d at 1222-23;
Eisen v. Curry (In re Eisen), 14 F.3d 469, 470 (9th Cir. 1994)
(per curiam). Even if Rosson’s conduct was arguably less
egregious than Marrama’s, the bankruptcy court did not
clearly err in finding that Rosson’s failure to deliver to the
Trustee $185,000 in estate assets (or, when given the chance,
to explain the status of the money) amounted to atypical, bad-
faith debtor conduct.13
[9] In sum, it is clear from the record that the bankruptcy
court acted “to prevent” what it reasonably perceived to be
13
The bankruptcy court never used the words “bad faith” or “abuse of
process.” Nevertheless, the court’s comments at the August 17 hearing and
in its order denying the motion for reconsideration make clear that this
was the basis for its decision. See Leavitt, 171 F.3d at 1222-23, 1226(affirming dismissal of Chapter 13 case, notwithstanding lack of “express
findings” of bad faith, where record “provide[d] a clear and complete
understanding of the basis for [the bankruptcy court’s] ruling”).
13560 IN THE MATTER OF ROSSON
“an abuse of process.” 11 U.S.C. § 105(a). As this type of
action was specifically approved by Marrama, we hold that
the bankruptcy court did not abuse its discretion when it con-
verted the case on its own motion and denied voluntary dis-
missal.
II. Denial of notice and a meaningful hearing
[10] We next turn to Rosson’s claim that “the bankruptcy
court erred by converting his case from Chapter 13 to Chapter
7 without notice and a hearing, as required by 11 U.S.C.
§ 102(1)(A).”
Section 102(1) of the Bankruptcy Code states that:
“[A]fter notice and a hearing”, or a similar phrase—
(A) means after such notice as is appropriate in the
particular circumstances, and such opportunity for a
hearing as is appropriate in the particular circum-
stances; but (B) authorizes an act without an actual
hearing if such notice is given properly and if— (i)
such a hearing is not requested timely by a party in
interest; or (ii) there is insufficient time for a hearing
to be commenced before such act must be done, and
the court authorizes such act.
11 U.S.C. § 102(1); see also id. § 1307(c) (requiring “notice
and a hearing” as prerequisite to conversion of a case from
Chapter 13 to Chapter 7); cf. Tennant v. Rojas (In re Ten-
nant), 318 B.R. 860, 870 (B.A.P. 9th Cir. 2004) (holding that
“notice and a hearing” are required even where the bank-
ruptcy court acts pursuant to “its general powers under Sec-
tion 105(a)”). We have “emphasize[d] that the notice-and-
hearing definition in § 102(1) is flexible and sensitive to con-
text.” Law Offices of David A. Boone v. Derham-Burk (In re
Eliapo), 468 F.3d 592, 603 (9th Cir. 2006). “The essential
point is that the court should give counsel a meaningful
IN THE MATTER OF ROSSON 13561
opportunity to be heard.” Id. (internal quotation marks omit-
ted).
Here, Rosson correctly points out that the bankruptcy
court’s initial August 17, 2005 “hearing” on conversion pro-
vided him essentially no notice, and no “opportunity to pre-
sent legal argument and/or evidence.” Id. (internal quotation
marks omitted). Although various motions to convert the case
had been pending for months, those motions were scheduled
to be addressed at a September hearing, and Rosson had no
notice that conversion to Chapter 7 would be addressed at the
August 17 hearing on Harris’s motion to withdraw. Neverthe-
less, the bankruptcy court was within its discretion to enter,
with minimal or no notice, what it perceived as an emergency
ruling to prevent dissipation of assets. As the district court
noted, the bankruptcy court was “[f]aced with circumstances
strongly suggesting that Mr. Rosson sought to defraud his
creditors and the court.” Thus, at the August 17 hearing, hav-
ing learned of the status of the arbitration funds, the court pro-
vided the minimal notice due under the circumstances. See 11
U.S.C. § 102(1) (authorizing notice “appropriate in the partic-
ular circumstances” and “an act without an actual hearing if
. . . there is insufficient time . . . before such act must be
done”).
[11] The problem, if any, is what happened next. Although
the court was entitled to act summarily to prevent dissipation
of the estate, Rosson was nevertheless entitled to a subse-
quent, meaningful opportunity to present any arguments that
he had against conversion. Having issued an order to preserve
assets of the estate, the bankruptcy court should then have
promptly scheduled a hearing to allow Rosson to present
argument and supporting declarations explaining why the
order should be vacated. Instead, the court left it to Rosson to
request a hearing, which he did by filing a motion for recon-
sideration. Although Rosson had an opportunity to present
arguments against conversion in that motion, as a motion for
reconsideration, it was decided with considerable deference to
13562 IN THE MATTER OF ROSSON
the original ruling. See W.D. Wash. Local Civ. R. 7(h)(1)
(quoted above). Thus, Rosson never received a meaningful
hearing of his arguments against conversion.
[12] Of course, as the record shows, Rosson knew that he
was required to turn over the arbitration funds to the Trustee,
and that delivery of the $185,000 was a major factor in fend-
ing off the pending motions to convert. Nonetheless, Rosson
was still entitled to an opportunity to be heard as to why the
funds had not been delivered, and why the case should not
have been converted. For instance, there could have been an
unavoidable delay in transferring the funds from escrow. Or
Rosson may have been confused about the deadline for turn-
ing over the funds (the bankruptcy court’s prior, oral order to
turn the funds over to the Trustee did not specify such a dead-
line). Rosson might have had any number of explanations of
why his actions did not amount to bad-faith conduct, did not
constitute abuse of the bankruptcy process, and did not justify
conversion. Thus, even though the initial conversion order
was justified, we agree with Rosson that the overall process
provided by the bankruptcy court failed to afford him a mean-
ingful opportunity to be heard, as required by § 1307(c) and
§ 102(1).
The difficulty for Rosson, however, is that, even when
given an opportunity, he has never actually provided a satis-
factory explanation of why the funds were not delivered. Ros-
son’s motion for reconsideration provided no argument of the
facts and offered no excuse for his failure to produce the
$185,000 as ordered by the court. He did not make any of the
kinds of arguments alluded to above. Instead, Rosson rested
on the (now) manifestly inadequate legal claim that he had an
“absolute” right to voluntarily dismiss his case.14 For this rea-
14
At oral argument, Rosson’s counsel speculated that he may have made
a “strategic error” by relying on the overly “legalistic” argument of the
absolute right to dismiss under Beatty. Even if that statement is accurate,
however, it is too late for this court to remedy that mistake.
IN THE MATTER OF ROSSON 13563
son, Rosson can show no prejudice arising from the defective
process afforded him. See Fed. R. Bankr. P. 9005 (“Harmless
Error”) (incorporating into bankruptcy rules Federal Rule of
Civil Procedure 61, which provides: “At every stage of the
proceeding, the court must disregard all errors and defects that
do not affect any party’s substantial rights.”); cf. 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 bankruptcy court had timely approved
petition for new counsel).15
[13] In short, even after receiving notice of the conversion
and having the opportunity to be heard in opposition, Rosson
offered nothing to counter the court’s finding of bad faith.
Under these circumstances, even though the bankruptcy court
improperly applied the demanding standard of a motion to
reconsider, it is nevertheless clear that the bankruptcy court
properly denied the request for voluntary dismissal.16 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 proce-
dural deficiency. We hold that the bankruptcy court did not
abuse its discretion in denying the motion to dismiss and con-
15
See also, e.g., Union Planters Bank Nat’l Ass’n v. Martin (In re Mar-
tin), 306 B.R. 591, 610-11 (C.D. Ill. 2004) (affirming ruling despite failure
to provide adequate notice and hearing where debtor “was not prejudiced
by the Bankruptcy Court’s procedures”); Fraidin, 188 B.R. at 532 n.1
(cited supra n.7) (holding, in alternative, that any violation of notice and
hearing requirement before converting case from Chapter 11 to Chapter 7
was harmless under Bankruptcy Rule 9005).
16
We note that, although the bankruptcy court recited the deferential
standard for a motion for reconsideration, its order—which states that “[i]t
would be a gross miscarriage of justice to allow the Debtor to dismiss this
case and abscond with proceeds that should be distributed to creditors of
this estate”—makes clear that the court would have rejected Rosson’s
claim even if it had entertained Rosson’s motion anew.
13564 IN THE MATTER OF ROSSON
verting the case to Chapter 7. See Leavitt, 171 F.3d at 1223(“[An] appellate court may affirm the lower court on any
ground fairly supported by the record.”).
AFFIRMED.