Memorandum Decision re Trustee's Motion to Convert or Dismiss

DO NOT PUBLISH
UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA

MEMORANDUM RE TRUSTEE'S MOTION TO CONVERT OR DISMISS

The chapter 13 trustee's motion to dismiss or convert came for hearing on July 10, 2000. Adam N. Barasch appeared for the chapter 13 trustee David Burchard (Trustee). Debtor Raymond L. Dobard appeared in pro per. Upon due consideration, and for the reasons set forth below, I determine that the case should be converted to one under chapter 7, that Debtor should be ordered to show cause why certain restrictions should not be imposed upon future motions of Debtor, that this order be stayed until July 24, 2000, and that any voluntary dismissal of this case by Debtor during that stay shall bar refiling under chapter 13 for two years.

I. CONVERSION TO CHAPTER 7

Trustee moves to dismiss this case or convert it to one under chapter 7 on the basis that Debtor interfered with a court-ordered valuation of Debtor's assets.

Four creditors and Trustee filed objections to confirmation of Debtor's chapter 13 plan. The court held a prehearing conference regarding these objections on March 15, 2000. It became apparent at that conference that a major issue regarding confirmation is whether Debtor's plan provides creditors as much as they would receive in a chapter 7 liquidation, the "best-interest-of-creditors test." See 11 U.S.C. § 1325(a)(4).

Debtor's schedules and chapter 13 plan show total liabilities of $51,027. This consists of priority debts of $0, general unsecured debts of $30,293, and arrears on secured debts of $20,734. Debtor did not list any of these liabilities as unliquidated, contingent, or disputed.

Debtor's schedules show assets with realizable equity of at least $86,450. Debtor owns thousands of antique phonograph records. He first listed the value as unknown, then as $2,000, then as $27,000. After costs of sale and income tax, the recordings would yield $13,770(1). Debtor owns five real properties. Four of these properties have at least some equity. Debtor's real property in New Orleans appears to have equity after costs of sale and income tax of at least $72,680.(2)

Debtor's chapter 13 plan provides for monthly payments totalling $27,120. The plan provides for payments of $100 per month for the first 12 months and payments of $540 per month for the next 48 months. The plan also provides for the creditors to be paid through the sale or refinance of Debtor's real properties, but there is every reason to doubt whether Debtor will carry through on that provision. Six months into the case, Debtor has undertaken no steps to sell any property, and Debtor has asserted adamantly on several occasions that he cannot be required to liquidate any property in a chapter 13 case. It will be difficult for Debtor to refinance any of the real property because Debtor states he receives income of only $3,030 per month from all of the properties. See Debtor's Declaration Following Court Order, filed April 28, 2000, at 6. It is doubtful Debtor can increase the amount paid through the plan without selling property, as his schedules show disposable income of only $137 per month.(3)

Because there is a serious question whether Debtor's plan is consistent with the best-interest-of-creditors test, the court authorized the chapter 13 trustee to conduct an investigation regarding the value of Debtor's real properties and phonograph recordings. The court issued an order on March 17, 2000 that provides in relevant part:

(1) Debtor shall by April 14, 2000 file and serve a declaration under penalty of perjury stating the number and location of all musical recordings in which Debtor has an interest, and stating whether he has transferred any such recordings after the petition date. Trustee and/or any evaluator retained by Trustee shall be permitted to inspect the recordings on 48 hours notice.

. . .

(3) On 48 hours notice, Debtor shall grant Trustee and any broker or appraiser retained by Trustee access to all real properties in which Debtor has an interest to permit Trustee to assess the fair market value of such properties.

Trustee gave timely notice to Debtor that he intended to inspect the recordings and all of Debtor's Bay Area real properties on May 24, 2000.

Debtor actively interfered with Trustee's inspection of the properties. Trustee's counsel appeared at Debtor's residence on May 24th with two evaluators: a real estate broker to evaluate the real properties; and a record dealer to evaluate the collection of phonograph records. I credit fully the testimony of Trustee's counsel, Adam Barasch, regarding what transpired on the date of the scheduled inspection. Barasch testified that Debtor immediately challenged the right of Trustee to conduct the investigation, threatened to sue the evaluators and their employers, and demanded to know the evaluators' names and qualifications. Neither of the evaluators was willing to give Debtor his card or perform an inspection after receiving these threats. It would not have been unreasonable for Debtor to ask in a polite manner for the names of Trustee's experts. The manner in which Debtor acted was completely unreasonable. Debtor's conduct effectively prevented Trustee from conducting the property inspection expressly authorized by the court.

I find that Debtor acted as he did with the intent to prevent Trustee from performing any valuation of Debtor's properties. In so finding, I rely upon the following considerations. First, the very nature of Debtor's conduct suggests an intent to intimidate. Second, Debtor has previously attempted to exclude from participa-tion in this case all other persons who dare to disagree with any position he takes by filing frivolous motions to disqualify such persons. These prior motions provide insight to Debtor's motives in acting as he did regarding the inspection.(4) Third, Debtor's own testimony regarding the incident is entirely consistent with an intent to stop the court-authorized inspection. The substance of Debtor's testimony is that the inspection was improper because Trustee did not provide for a realtime translator during the inspection, and because any inquiry related to liquidation is improper in a chapter 13 case.

Debtor, who is hearing impaired, contends that he was not obligated to allow Trustee's counsel to inspect his property because Trustee did not provide him a realtime interpreter to assist Debtor during the inspection. This argument is unpersuasive. First, Debtor relies upon 29 U.S.C. § 794 and 28 C.F.R. §§ 35.104 and 35.160, which address discrimination on the basis of disability in state and local government proceedings, entities receiving federal financial assistance, and Executive agencies. These regulations and statute do not govern the federal courts. Second, and more important, Debtor was not required to participate in the property inspection to preserve his rights. Any binding determination of value would be made by this court at a hearing at which Debtor could challenge Trustee's evidence of value and at which the court would provide Debtor with appropriate interpretive services. See Memmer v. Marin County Courts, 169 F.3d 630, 633 (9th Cir. 1999) (court did not have a duty to provide interpretive services for a visually impaired litigant in pre-trial matters where the disabled litigant was not disadvantaged by lack of such services). Debtor knew from a prior written notice that Trustee's counsel was there only to inspect his property.

I determine that Trustee has established cause to convert this case to one under chapter 7. Debtor actively and intentionally interfered with Trustee's conduct of his duties and failed to obey an order of this court. By interfering with Trustee's efforts to determine whether Debtor's plan satisfies the best-interest-of-creditors test, Debtor has caused unreasonable delay that is prejudicial to creditors. Debtor's failure to obey a court order and efforts to intimidate officers of the court also indicate that Debtor is not prosecuting this chapter 13 case in good faith.

Other considerations support conversion. For the reasons described above, it is likely that Debtor's current chapter 13 plan cannot be confirmed, because it does not appear to be consistent with the best-interest-of-creditors test. In light of Debtor's adamant opposition to even evaluating any of his property for liquidation, and his uniform habit of attacking anyone who raises a legitimate question about his plan rather than responding construc-tively to those questions, there is every reason to doubt that Debtor would faithfully perform any plan that requires him to sell any property. Successful conclusion of a chapter 7 case is not so completely dependent upon the good faith of the debtor.

II. ORDER TO SHOW CAUSE

Even after this case is converted, it is essential that Debtor not be permitted to harass other parties, particularly the chapter 7 trustee and his professionals, with frivolous motions. Debtor's prior conduct in this case requires this court to consider whether certain restraints be placed upon future motions filed by Debtor.

Debtor has repeatedly filed motions for an improper purpose and without a basis in law and fact. Most troubling is Debtor's motion to remove Trustee. Debtor asserted that Trustee should be removed for filing the instant motion to dismiss or convert. Debtor describes Trustee's motion as a breach of Trustee's fiduciary duty to the estate. See Declaration of Debtor re Removal of Trustee, filed May 3, 2000, at 2-3. In substance, Debtor seeks to remove Trustee for doing his job. I find that this motion was frivolous and was filed for the improper purpose of intimidating Trustee and attempting to dissuade him from performing his statutory duties. Following a similar approach, Debtor moved to disqualify me after I declined to remove Trustee or to strike Trustee's motion to dismiss or convert. Debtor's motion stated no cognizable basis for disqualification. See Affidavit for Disqualification of Judge, filed June 30, 2000, at 2-3.(5) I also note that virtually every paper Debtor has filed in this case accuses someone of racial discrimination. When secured creditor Washington Mutual objected to Debtor's unauthorized use of cash collateral, for instance, Debtor alleged without supporting evidence that the creditor's objection was filed out of racial bias. See Debtor's Reply to Washington Mutual's Objection to Confirmation, filed March 10, 2000, at 4-5.

Because Debtor accuses others of racial discrimination so aggressively and systematically, and without any supporting evidence, I am forced to conclude that Debtor has filed many papers in bad faith and for an improper purpose, and that this court must consider imposing restrictions on the motions Debtor is permitted to file in the future. See DeLong v. Hennessey, 912 F.2d 1144 (9th Cir.), cert. denied sub nom. DeLong v. American Protective Services, 498 U.S. 1001 (1990).

Debtor is therefore ordered to appear on August 18, 2000 at 9:30 a.m. to show cause why the following restrictions should not be imposed.

(1) No response need be filed to any motion filed by Debtor until the court reviews the motion to determine whether it has been filed for a proper purpose and states a valid basis for the relief sought.

(2) The court will review promptly each motion filed by Debtor and either deny the motion or call for a response to the motion and set a schedule for hearing.

(3) No motion filed by Debtor may be set for hearing except under the procedures described in the previous paragraph.

(4) If Debtor believes that any motion requires expedited consideration, an explanation of the need for expedited treatment and a proposed schedule should be included in the motion.

Any response to this order to show cause shall be in writing and shall be filed by August 11, 2000.

III. STAY OF CONVERSION OF CASE

Conversion of this case to one under chapter 7 is stayed until July 24, 2000. Before that time, Debtor may exercise his right to dismiss this chapter 13 case voluntarily pursuant to section 1307(b) of the Bankruptcy Code. In light of the findings set forth above, however, I determine that if Debtor does dismiss voluntarily, he should be barred from filing a new chapter 7 case for one year after such dismissal, and from filing a chapter 11 or chapter 13 case for two years after such dismissal. No response to the order to show cause is required if Debtor files a timely voluntary dismissal.

Dated: July 14, 2000 __________________________________ Thomas E. Carlson United States Bankruptcy Judge

1. I assume a sale price of $27,000, costs of sale of $4,050 (15 percent), and income tax on the gain of $9,180 (40 percent of the proceeds after costs of sale). The net proceeds would be greater if the property has a positive tax basis or if the estate's marginal tax rate is less than 40 percent.

2. Debtor lists the fair market value of the New Orleans property as $140,000, subject to a lien of $4,600. I assume costs of sale of $11,200 (8 percent) and income tax on the gain of $51,520 (40 percent of the proceeds after costs of sale). The net proceeds would be greater if the property has a positive tax basis or if the estate's marginal tax bracket is less than 40 percent.

3. The lack of disposable income also casts doubt on Debtor's ability to make the scheduled payments of $540 per month over the last 48 months of the plan.

4. These motions are discussed more fully in Part II, below.

5. It is interesting to note that Debtor had filed a previous chapter 13 case in the Oakland division of this court. When Judge Jellen made a ruling Debtor did not like, Debtor dismissed that case and filed the present case in the San Francisco division. In so doing, he stated that he believed Judge Jellen had a personal bias against him. See Debtor's Affidavit re Disqualification, filed March 10, 2000, at 2.

NOTE: File also available in pdf format: DOBARD-CONV-DISM-MM0.pdf