FOR THE NORTHERN DISTRICT OF CALIFORNIA
PETALUMA BOULEVARD PARTNERS, No. 92-11019
Memorandum of Decision
Secured Creditor Bank of San Francisco has filed a motion for relief from the automatic stay
or, in the alternative, for dismissal of this Chapter 11 proceeding. The court has set a final
hearing on the motion for relief from the stay. For the reasons set forth below, the motion to
dismiss will be denied.
The motion to dismiss alleges bad faith. The bad faith is based on two arguments: that the
debtor filed just to thwart foreclosure, and that the debtor made certain transfers and payments
to insiders just prior to the filing. Neither of these constitutes bad faith in the context of this
Even a debtor with a single asset is entitled to a reasonable time to reorganize. It is an abuse
of discretion for the court to summarily find bad faith just because such a debtor filed a Chapter
11 petition to stop foreclosure. In re Can-Alta Properties, Ltd.
, 87 B.R. 89 (9th Cir.BAP 1988).
In fact, such filings are perfectly legitimate so long as reorganization and not spite is the
debtor's motivation. In re Chisum
, 847 F.2d 597, 598-99 (9th Cir.1988). This case is less than
two months old; if the court finds at the final hearing that there is equity in the property, it is
entirely proper to hold off the foreclosing creditor for a reasonable time in order to allow the
debtor to sell or refinance. Both are a legitimate form of reorganization.
The court knows of no authority for the proposition that a case should be dismissed because
the debtor made preferential or even fraudulent transfers before bankruptcy. A bankruptcy
proceeding creates a framework for recovery of such payments, which can be done by the
debtor in possession or a trustee if the debtor refuses to act. Dismissal would benefit the
transferees of any improper or avoidable transfers, at the expense of the other creditors.
Bad faith dismissal is a court-created equitable remedy. As such, it should be exercised
sparingly; the court should not lightly throw out cases which appear to meet the criteria
established by Congress. See In re Stolrow's Inc.
, 84 B.R. 167 (9th Cir.BAP 1988). If Bank
of San Francisco is not adequately protected, or if there is no equity in the property and the
debtor has no reasonable prospects for a reorganization, then the Bank will be granted relief
from the stay in order to foreclose. In the meantime, the court finds no indicia of bad faith such
as would justify the summary dismissal the Bank seeks. Accordingly, its motion to dismiss will
be denied. Counsel for the debtor shall submit an appropriate form of order.
Dated: June 15, 1992 _______________________