United States District Court, Northern District of Indiana, Hammond Division
APPEAL OF CASE NO. 12-20432-jpk
MEMORANDUM OPINION AND ORDER
PHILIP P. SIMON, CHIEF JUDGE UNITED STATES DISTRICT COURT.
When used properly, bankruptcy affords individuals and companies who are overwhelmed by debt a fresh start. When used improperly, however, the process can be used by debtors to improperly stall creditors from collecting their debts. Unfortunately, the latter case is before me today.
B-3 Properties, L.L.C., appeals the dismissal of its second bankruptcy attempt. In a nutshell, B-3 owns a single asset – a large piece of property in Hobart, Indiana – that it has been unable to sell during the pendency of each of its bankruptcies. David Lasco, a member of B-3 who is also one of its creditors, has foreclosed on the property and each time the property has been up for auction, B-3 has filed a last-minute bankruptcy to stay the sale. (The bankruptcies have been instituted on behalf of B-3 by one of its owners who evidently no longer sees eye-to-eye with his partner, Lasco.)
During this second bankruptcy, the bankruptcy court eventually ordered B-3 to submit both a valid purchase agreement and earnest money check by a date certain or face dismissal and a bar to refiling. Then things went from bad to worse with B-3 tendering multiple incomplete, invalid purchase offers and two bad earnest money checks in an attempt to stave off the sale of the property yet again. Because B-3 violated the bankruptcy court’s order, it dismissed the bankruptcy and barred any refiling of it.
Since dismissal, the foreclosure action has moved ahead in state court. The state court receiver has accepted Lasco’s bid to purchase the property and all that remains is for the sale to close. I stayed the sale, however, pending this appeal because if the sale went through, this appeal would be moot.
As alluded to above, what really seems to be driving this dispute is a conflict between two of B-3's members and Lasco. I don’t know why B-3 wants so desperately to keep this property out of Lasco’s hands, but I do know that this is an improper use of the bankruptcy process and it needs to stop. I will therefore AFFIRM the bankruptcy court’s dismissal and bar to refiling.
B-3 Properties, L.L.C., is an Indiana limited liability company owned by Robert Stiglich, Suheil Nammari, and David Lasco. Lasco is the Creditor/Appellee in this action. B-3's sole asset is a 200 acre plot of land in Hobart, Indiana. On February 20, 2013, Stiglich filed a Chapter 11 bankruptcy on behalf of B-3, minutes before a scheduled auction sale of the property. (Rec. #1 at 6-14, 16-17.) This was B-3's second bankruptcy; the first was voluntarily dismissed by B-3 after failing to pay any quarterly fees and failing to file required monthly reports. (Id. at 33, 200.) That first bankruptcy was also filed on the eve of a scheduled sale of the property. (Id. at 6-14, 16-18.)
Lasco moved to dismiss the Chapter 11 case, alleging, among other transgressions, bad faith by B-3. (Id. at 18-19.) Lasco also requested a bar to refiling. (Id.) At a hearing on the motion to dismiss, the bankruptcy court allowed B-3 another chance to sell the property, ordering B-3 to submit a marketing plan by June 10, 2013. (Id. at 131-32.) Judge Klingeberger stated that the reason for requiring this marketing plan was that there were concerns about having extensive proceedings in the bankruptcy considering that it was a second bankruptcy for B-3, and that there had already been “unsuccessful attempts to market/sell the property under the protection of the automatic stay.” (Id.) It is unclear whether B-3 complied with that order, although the subsequent proceedings lead me to believe it did not.
After a pretrial conference on June 26, 2013, the court further considered the motion to dismiss and afforded B-3 a final chance to sell the property, ordering B-3 to submit a motion to sell the property, including an offer to purchase that conformed to the Agreed Terms of Sale. (Id. at 170-71.) In the event that B-3 failed to comply, Judge Klingeberger made it clear that he would grant Lasco’s motion to dismiss forthwith, “with a bar to refiling of any subsequent case under Title 11 . . . .” (Id.) The Agreed Terms of Sale required a non-refundable payment of $75, 000.00 and a signed purchase agreement. (Id. at 173 (“There shall be a non-refundable earnest money deposit of Seventy-five Thousand Dollars ($75, 000.00), which shall be paid immediately upon execution of Purchase Agreement by Buyer and Seller.”).) This was all detailed in the bankruptcy court’s Order of July 17, 2013 and the parties’ Agreed Terms of Sale. (Id. at 170-71, 173.)
On September 28, 2013, B-3 submitted a motion to sell the property, attaching a purchase agreement and a copy of a $75, 000.00 check representing the non-refundable deposit. (Id. at 176-77, 188.) There were a couple of major problems with the motion: the purchase agreement was not signed by the debtor and, more troubling, the check later bounced. (Id. at 186, 197, 216, 220.) This was the second time B-3 had submitted a bad check from a purported buyer. (Id.) And yet what is odd about this, according to Lasco, is that B-3 never pursued any fraud charges against the people who furnished the bad checks, which Lasco believes helps to demonstrate bad faith on the part of B-3. (DE 21 at 5; see also Rec. #1 at 216.) In other words, according to Lasco, there really wasn’t a bonafide purchaser of the property and instead Lasco’s partners were just jerking him around to stave off his efforts to foreclose on the property. In any event, after the check bounced, the would-be purchaser withdrew the offer to purchase. (Rec. # 1 at 220.)
On November 7, 2013, B-3 tried yet again; on that date it submitted yet another offer to purchase the property. The problem was that this offer came more than a month after the bankruptcy court’s deadline, and, in any event, the purchase offer was otherwise fraught with problems: the offer was not signed, nor was any earnest money provided. (Id. at 203-206.) Not surprisingly, Lasco again moved for dismissal asking the bankruptcy court to grant its original Motion to Dismiss, as the court said it would do if B-3 failed to comply with its Order of July 17, 2013. (Id. at 214-17.)
The bankruptcy court set the matter for a final hearing on Lasco’s motion to dismiss and an extensive hearing was held on December 19, 2013. (Rec. #2 at 10-11; Addendum to Appellant’s Br. at 10, 20.) The court dismissed the action on the record, following that up with a docket entry stating “Case Dismissed by separate order.” (Rec #1 at 5.) B-3 then filed on January 2, 2014 an Emergency Motion to Reconsider Dismissal, challenging the oral December 19, 2013 dismissal. (Rec. #2 at 11.) The bankruptcy court both denied that motion and issued its written order of dismissal on January 9, 2014. (Id. at 11-12.) The dismissal stated:
B-3 Properties, LLC, and any party having an interest in that entity, or otherwise with respect to real property which comprised property of the bankruptcy estate in Case No. 13-20432, is permanently enjoined from filing any case under Title 11 of the United States Code which includes as property of the bankruptcy estate of any such person or entity any real estate comprising property of the bankruptcy estate in Case No. 13-20432.
(Rec. #2 at 149.) B-3 then filed a second motion for reconsideration on January 23, 2014, challenging the January 9, 2014 dismissal order and that motion was denied on February 7, 2014. (Id. at 12.) B-3 filed its Notice of Appeal on February 21, 2014. (Id.)
B-3 initially appealed both the bankruptcy court’s dismissal and bar to refiling, and its denial of B-3's request for a stay. Before its appeal of the denial of its request for stay was docketed, B-3 filed in this Court an emergency motion requesting a stay of the state court sale. (DE 6.) After the parties fully briefed the issue and I heard oral argument (DE 16), I granted the stay (DE 18), mooting the appeal of the stay order. The only issue before me, then, is B-3's appeal of the dismissal and permanent bar to refiling. In addition, Lasco challenges my jurisdiction over this appeal, claiming that B-3 has filed the appeal too late.
In reviewing a bankruptcy court’s decision pursuant to 28 U.S.C. § 158(a), the district court functions as an appellate court and is authorized to affirm, reverse, modify, or remand the bankruptcy court’s ruling. Fed.R.Bankr.P. 8013. The standard for review of bankruptcy court decisions depends upon the issue being reviewed. Findings of fact are upheld unless clearly erroneous, but legal conclusions are reviewed de novo. Id.; In re Marrs-Winn, 103 F.3d 584, 589 (7th Cir. 1996). Dismissals of bankruptcy petitions are reviewed for an abuse of discretion. In re Hall, 304 F.3d 743, 746 (7th Cir. 2002).
In reviewing for abuse of discretion, I have to reverse where a bankruptcy court’s “decision is premised on an incorrect legal principle or a clearly erroneous factual finding, or when the record contains no evidence on which the court rationally could have relied.” In re KMart Corp., 381 F.3d 709, 713 (7th Cir. 2004); see also Corp. Assets, Inc. v. Paloian, 368 F.3d 761, 767 (7th Cir. 2004). Whether I agree with the bankruptcy judge’s decision is beside the point as long as the decision is within the range of options from which one would expect a reasonable trial judge to select. Liu v. Price Waterhouse LLP, 302 F.3d 749, 754 (7th Cir. 2002). It is for this reason ...