Shulkin Hutton v. Treiger , 552 F.3d 958 ( 2008 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In the Matter of: J’AMY LYNN 
OWENS,
Debtor,
No. 07-35634
SHULKIN HUTTON, INC., P.S.,
Appellant,  BAP No.
WW-06-01421-KMoR
v.
OPINION
KENNETH TREIGER; J’AMY LYNN
OWENS; THE BANK OF AMERICA;
THE VICENS,
Appellees.

Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Riblet, Klein, and Montali, Bankruptcy Judges, Presiding
Submitted December 11, 2008*
Seattle, Washington
Filed December 31, 2008
Before: Ronald M. Gould, Richard C. Tallman, and
Consuelo M. Callahan, Circuit Judges.
Opinion by Judge Gould
*The panel unanimously finds this case suitable for decision without
oral argument. See Fed. R. App. P. 34(a)(2).
16873
IN THE MATTER OF OWENS 16875
COUNSEL
Jerome Shulkin, Shulkin Hutton, Inc., P.S., Mercer Island,
Washington, for the appellant.
Charles A. Johnson, Jr., Law Office of Charlie Johnson, Seat-
tle, Washington, for the appellees.
OPINION
GOULD, Circuit Judge:
Shulkin Hutton, Inc., P.S. (“Shulkin Hutton”), a law firm
creditor of debtor J’Amy Lynn Owens, appeals the decision
of the Bankruptcy Appellate Panel (“BAP”) affirming the
bankruptcy court’s dismissal of Owens’ Chapter 11 case. We
conclude that the bankruptcy court did not abuse its discretion
in dismissing Owens’ case rather than converting it to Chapter
7, and we affirm.
I
J’Amy Owens and Ken Treiger were married in 1997 and
bought a home (“Maplewood”) on Maplewood Place in Seat-
16876 IN THE MATTER OF OWENS
tle using community assets. The couple separated in 2000 and
received a final divorce decree on June 19, 2002.
Prior to the divorce decree, Treiger filed for Chapter 13
bankruptcy, later converted to Chapter 7. In an adversary pro-
ceeding filed against Owens by the trustee, the bankruptcy
court ruled that Maplewood was community property and
therefore property of Treiger’s Chapter 7 estate. Owens and
the trustee then entered into a settlement agreement, in which
Owens paid the trustee $215,000 in full satisfaction of all
trustee claims against Owens relating to Maplewood, and the
trustee conveyed Maplewood to Owens through a quitclaim
deed. Treiger’s bankruptcy case closed on March 21, 2005.
Owens and Treiger resumed their divorce litigation in
Washington Superior Court over the division of their prop-
erty. On April 17, 2006, the state court ruled that Maplewood
was a combination of community and separate property
because some of the funds Owens used in purchasing the quit-
claim deed were themselves community property. The court
ordered Maplewood sold and the proceeds divided equally
between the former spouses.
Maplewood was scheduled for sale on September 18, 2006.
On September 7, Owens filed for Chapter 11 bankruptcy,
claiming Maplewood as her only significant asset. Among
Owens’ listed unsecured creditors was Shulkin Hutton, to
which she owed legal expenses incurred in an earlier Chapter
11 case.1
Treiger filed a motion to dismiss Owens’ bankruptcy case
as a bad faith filing under 11 U.S.C. § 1112(b) and/or to order
a sale free and clear of Maplewood. The bankruptcy court
granted the motion, ruling that the bankruptcy was filed in
bad faith as a litigation tactic intended to delay Maplewood’s
1
Owens had previously filed for Chapter 11 bankruptcy on February 19,
2002, and that case closed on July 5, 2005.
IN THE MATTER OF OWENS 16877
sale. Shulkin Hutton appealed the dismissal to the BAP,
which affirmed the bankruptcy court. In its decision, the BAP
found that Owens had an annual earning capacity between
$150,000 and $800,000.
II
We independently review the bankruptcy court’s rulings on
appeal from the BAP. Miller v. Cardinale (In re DeVille), 361
F.3d 539, 547 (9th Cir. 2004). We review for abuse of discre-
tion the bankruptcy court’s decision under 11 U.S.C.
§ 1112(b) to dismiss a Chapter 11 case as a “bad faith” filing.
Marsch v. Marsch (In re Marsch), 36 F.3d 825, 828 (9th Cir.
1994). Findings of fact by the BAP are reviewed for clear
error. Wolkowitz v. Shearson Lehman Bros., Inc. (In re Weis-
berg), 136 F.3d 655, 657 (9th Cir. 1998).
III
[1] Shulkin Hutton does not challenge the bankruptcy
court’s determination that there was cause for dismissal.
Instead, Shulkin Hutton argues that the bankruptcy court
should have converted the case to Chapter 7 rather than dis-
missing it outright because, as Shulkin Hutton sees it, conver-
sion would be in the “best interests of creditors and the
estate.” 11 U.S.C. § 1112(b). Yet we conclude that Shulkin
Hutton has not shown that conversion would be in the best
interests of Owens’ other creditors. We agree with the Fourth
Circuit that when deciding between dismissal and conversion
under 11 U.S.C. § 1112(b), “the court must consider the inter-
ests of all of the creditors.” Rollex Corp. v. Associated Mate-
rials, Inc. (In re Superior Siding & Window, Inc.), 14 F.3d
240, 243 (4th Cir. 1994).
[2] Here, the BAP determined that Owens has substantial
future earning capacity, and we see no clear error in its factual
finding. Consequently, Owens’ other creditors would fare
worse under Chapter 7 because the accompanying discharge
16878 IN THE MATTER OF OWENS
would deny them access to Owens’ future income. See 11
U.S.C. § 727(b). We conclude that the bankruptcy court did
not base its decision on an erroneous conclusion of law and
that the record contained sufficient evidence for the court to
decide that the best interests of creditors and the estate would
favor dismissal over conversion. We consider this a sufficient
basis on which to affirm the decision of the bankruptcy court.
See Benedor Corp. v. Conejo Enters., Inc. (In re Conejo
Enters., Inc.), 96 F.3d 346, 351 (9th Cir. 1996).
[3] We also reject Shulkin Hutton’s argument that the
Washington state court had no jurisdiction to divide Maple-
wood. Shulkin Hutton contends that bankruptcy courts have
exclusive jurisdiction over Maplewood because rights to the
property were decided by the settlement agreement between
Owens and Treiger, and as part of the settlement Owens
received a quitclaim deed to Maplewood. Cf. Henrichs v. Val-
ley View Development, 474 F.3d 609, 614 (9th Cir. 2007)
(“[A] state court judgment entered in a case that falls within
the federal courts’ exclusive jurisdiction may be collaterally
attacked in a district court.”). We conclude that there is no
jurisdictional problem. When the dissolution decree was
entered, Treiger’s bankruptcy proceeding had ended, and so
there was no competing jurisdictional claim to Maplewood.
The state court considered the settlement agreement but found
that Maplewood was still community property because a por-
tion of the money that Owens used in the settlement was com-
munity property. Moreover, the state court acted within its
jurisdiction even if Maplewood was Owens’ separate prop-
erty. In dissolution proceedings, Washington courts have the
power to divide both community and separate property
between the parties. Wash. Rev. Code § 26.09.080.
IV
[4] The bankruptcy court’s decision to dismiss was sup-
ported by the record and was not an abuse of discretion.
AFFIRMED.