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In re Clark

United States District Court, D. Idaho

March 4, 2014

In re: JAY P. CLARK, dba, CRYSTAL SPRINGS RANCH, Debtor.
v.
TOM DEVRIES, DEVRIES FAMILY FARMS, LLC., SIMPLOT GROWER SOLUTIONS, MURPHY LAND COMPANY, LLC., Appellees. JAY P. CLARK, dba, CRYSTAL SPRINGS RANCH, Appellant, No. 1:13-cv-00305-EJL

MEMORANDUM DECISION AND ORDER

EDWARD J. LODGE, District Judge.

Pending before the Court in the above-entitled matter is Debtor-Appellant Jay P. Clark's, d/b/a Crystal Springs Ranch, appeal from the decision of Bankruptcy Judge Jim D. Pappas granting the Appellee Tom DeVries and the DeVries Family Farm, LLC's Motion to Convert the bankruptcy from a Chapter 12 to a Chapter 7 bankruptcy case. The parties have submitted their responsive briefing and the matter is now ripe for the Court's review. Having fully reviewed the record herein, the Court finds that the facts and legal arguments are adequately presented in the briefs and record. Accordingly, in the interest of avoiding further delay, and because the Court conclusively finds that the decisional process would not be significantly aided by oral argument, this matter shall be decided on the record before this Court without oral argument.

FACTUAL BACKGROUND

On March 27, 2012, Debtor-Appellant Jay P. Clark's, d/b/a Crystal Springs Ranch, filed a voluntary petition for Chapter 12 bankruptcy. Thereafter, on April 4, 2012, Appellee Tom DeVries and the DeVries Family Farm, LLC entered into a contract to purchase 1500 tons of alfalfa hay for $180 per ton from "Crystal Springs Ranch - Jay Clark." (Dkt. 30-4, ER at 553.) Mr. DeVries signed the written agreement and sent it to Mr. Clark along with a check for $135, 000 as a down payment on the hay. The hay has never been delivered.

On April 18, 2012, Mr. Clark sent Mr. DeVries a letter indicating that Mr. Clark was in the midst of state court proceedings and the hay comprising the subject matter of their contract was potentially in jeopardy. The state court proceeding had been instituted by Appellees Murphy Land Company, LLC ("Murphy Land") who owned the land upon which Mr. Clark operated Crystal Springs Ranch and had grown the hay that is the subject of his contract with Mr. DeVries. Murphy Land's state court case sought to evict Mr. Clark from the land.

In the state proceeding, on March 20, 2012, the state court judge had orally granted Murphy Land's motion for partial summary judgment and ruled that Mr. Clark's crop share lease was "void ab initio. "[1] A written order formalizing that ruling was issued on March 26, 2012. (Dkt. 30-4, ER at 563.) The next day Mr. Clark filed his bankruptcy petition in this case. Mr. DeVries then filed a Motion to Convert the bankruptcy from a Chapter 12 to a Chapter 7. Bankruptcy Judge Pappas held a two-day hearing on the matter and, on May 31, 2013, ruled that the Motion to Convert should be granted pursuant to 11 U.S.C. § 1208(b) because Mr. Clark had committed fraud "in connection with the case."[2] It is this May 31, 2013 Order that is the subject of Mr. Clark's appeal.

STANDARD OF REVIEW

A federal District Court has jurisdiction to entertain an appeal from the Bankruptcy Court under 28 U.S.C. § 158(a), which provides: "The district courts of the United States shall have jurisdiction to hear appeals... from final judgments, orders, and decrees[ ] of bankruptcy judges[.]" On appeal, the Bankruptcy Court's conclusions of law are reviewed de novo and the factual findings for clear error. In re Greene, 583 F.3d 614, 618 (9th Cir. 2009) (citation omitted); see also Fed.R.Bankr.P. 8013 ("Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses."). Questions of statutory interpretation are subject to de novo review. In re MacIntyre, 74 F.3d 186, 187 (9th Cir. 1996).

A Bankruptcy Court's decision that is made within its discretion under the Bankruptcy Code will not be set aside unless there is plain error or abuse of discretion. See In re Rosson, 545 F.3d 764 (9th Cir. 2008) (explaining that a bankruptcy court's decision to deny debtor's request for dismissal of his Chapter 13 case and to convert the case from Chapter 13 to Chapter 7 was reviewed for an abuse of discretion); In Re Sherman, 491 F.3d 948, 969 (9th Cir. 2007) ("[W]e review a bankruptcy court's decision to grant or deny a motion to dismiss for misconduct that constitutes cause' for abuse of discretion.").

Where, as here, the Bankruptcy Court's decision is in regard to a motion for conversion of a case, that decision is reviewed for abuse of discretion. See In re Levesque, 473 B.R. 331, 335 (B.A.P. 9th Cir. 2012) (citations omitted). A two-part test applies to determine whether the bankruptcy court abused its discretion. Id. (citation omitted). First, the court must "determine de novo whether the [bankruptcy] court identified the correct legal rule to apply to the relief requested." Id. Second, the court examines the Bankruptcy Court's factual findings for clear error. Id. The Bankruptcy Court's factual findings are affirmed unless those findings are "(1) illogical, ' (2) implausible, ' or (3) without support in inferences that may be drawn from the facts in the record.'" Id.

ANALYSIS

1. Did the Bankruptcy Court apply the correct legal rule

The question before the Bankruptcy Court in this case centered on whether to dismiss or convert the case under 11 U.S.C. § 1208(d) which states: "On request of a party in interest, and after notice and a hearing, the court may dismiss a case under this chapter or convert a case under this chapter to a case under chapter 7 of this title upon a showing that the debtor has committed fraud in connection with the case." 11 U.S.C. § 1208(d).

Section 1208(b), however, states that a debtor may at any time request that a case be dismissed. 11 U.S.C. § 1208(b). A debtor's right to dismiss under § 1208(b) is not absolute but is instead subject to an exception allowing a creditor to convert a bankruptcy where the debtor has abused the legal process through fraud. See In re Kahle, No. 11-61359-13, 2013 WL 492465, at *7 (Bankr. D. Mont. Feb. 8, 2013); Rossen, 545 F.3d at 771 (Chapter 13 Bankruptcy case). This exception accounts for the circumstance where the purposes of the Bankruptcy Code to protect the "honest but unfortunate debtor" are thwarted by a debtor who commits fraud in connection with ...


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