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In re Soelberg

United States District Court, D. Idaho

March 14, 2017

In re JOSEPH LLOYD SOELBERG, HEATHER MICHELLE SOELBERG, Debtors.
v.
KATHLEEN A. McCALLISTER, ANNETTE DAVIDSON, Appellees. JOSEPH LLOYD SOELBERG, HEATHER MICHELLE SOELBERG, Appellants, Bk. No. 15-01355-TLM

          MEMORANDUM DECISION AND ORDER

          Edward J. Lodge United States District Judge

         INTRODUCTION

         Pending before the Court in the above-entitled matter is an appeal of Bankruptcy Judge Terry L. Myers' decision granting the Motions to convert the case to a Chapter 7 bankruptcy proceeding. The parties have filed their responsive briefing and the matter is now ripe. The facts and legal arguments are adequately presented in the briefs and record and, therefore, 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 AND PROCEDURAL BACKGROUND

         On October 15, 2015 Debtors Joseph Lloyd Soelberg and Heather Michelle Soelberg, husband and wife, filed a joint petition under Chapter 13 of the Bankruptcy Code. The Trustee, Kathleen McCallister, and creditor Annette Davidson filed Motions to Convert the case to a Chapter 7 proceeding. The Bankruptcy Court held a hearing and, on July 5, 2016, Bankruptcy Judge Myers issued an oral ruling granting the Motions to Convert and ordered the bankruptcy case to proceed under Chapter 7. (Dkt. 9-3.) Debtors filed an appeal of that decision which is now before this Court. The facts underlying the bankruptcy proceeding are as follows.

         Mr. Soelberg and Ms. Davidson were divorced in March of 2007. Under their Judgment and Decree of Divorce, which incorporated all but one paragraph of their Mediated Parenting Agreement and Property Settlement Agreement, Mr. Soelberg agreed to pay $2, 200 per month to Ms. Davidson in spousal support for a period of ten years plus child support payments. Mr. Soelberg made spousal support payments from April 2007 to approximately November 2010. Mr. Soelberg stated he stopped making the spousal support payments because Ms. Davidson had remarried.

         Ms. Davidson pursued payment of the lapsed obligations first by emailing Mr. Soelberg and then retaining counsel. In February of 2011, Ms. Davidson obtained a state court Judgment against Mr. Soelberg for $28, 100 which was upheld on appeal. See Davidson v. Soelberg, 296 P.3d 433 (Idaho App. 2013). Ms. Davidson pursued collection of the unpaid spousal support obligations from Mr. Soelberg through various retained attorneys, including Eric Clark who undertook more aggressive collection activities against Mr. Soelberg in 2015. Mr. Clark served Mr. Soelberg with post-judgment interrogatories and request for production which Mr. Soelberg answered on January 30, 2015. Mr. Clark also sought garnishment of amounts owed to Mr. Soelberg from Data One, LLC, a company owned by Mr. Soelberg.

         In February 2015, Ms. Davidson filed a second lawsuit against Mr. Soelberg to recover the all of unpaid spousal support obligation. The Idaho state court granted summary judgment in favor of Ms. Davidson on July 15, 2015. Mr. Soelberg was served with a second set of interrogatories which he answered on September 16, 2015. Also in September of 2015, Ms. Davidson filed a complaint in Valley County, Idaho to set aside a homestead exemption claimed by the Soelbergs as to a cabin located in Cascade, Idaho. On September 30, 2015, the Sheriff issued a Notice of Attachment and Levy against Mr. Soelberg's interest in Data One, LLC. On October 15, 2015, one day before the Sheriff's sale, the Soelbergs filed their Chapter 13 Bankruptcy petition.

         During this time, late 2014 up to the filing of the bankruptcy petition, the Soelbergs engaged in various transactions involving: a cabin located in Cascade, Idaho; a residence in Star, Idaho; a Trust; a boat; various automobiles; and salary payments, loans, and other transactions involving Data One, LLC. These transactions and dealings are the basis for much of the Bankruptcy Court's decision on the Motions to Convert.

         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.”).

         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 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.”). A two-part test applies to determine whether the bankruptcy court abused its discretion. Levesque, 473 B.R. at 335 (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. De Novo Review of the ...


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