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In re Lapham

United States District Court, D. Idaho

June 7, 2018

In re RAFE RUSSELL LAPHAM II, Debtor,
v.
UNITED STATES TRUSTEE, Appellee. RAFE RUSSELL LAPHAM II, Appellant,

          MEMORANDUM DECISION

          B. Lynn Winmill Chief U.S. District Court Judge.

         INTRODUCTION

         Debtor and Appellant Rafe Lapham II appeals from the bankruptcy court's decision to convert his Chapter 11 bankruptcy case to a Chapter 7 case. For the reasons explained below, the Court will affirm.

         BACKGROUND

         Mr. Lapham sells art and antiquities in Bellevue, Idaho. He also works on inventions, and he has previously operated a fishing lodge and worked as a graphic designer and as a marketing consultant. Lapham had to close the fishing lodge when he “gradually came across hard times.” Opening Br., Dkt. 8, at 7. Additionally, slow sales in the antiquities market prompted him to file a Chapter 11 bankruptcy petition in May 2017.

         Lapham included the following assets in his bankruptcy schedules:

1) a home and outbuildings on 10 acres in Bellevue, Idaho, valued at $1.3 million;
2) a fishing lodge, three cabins, and a pool on 2.75 acres in Ennis, Montana, valued at $1 million;
3) ten vehicles, valued at $120, 000; and
4) antiques and art, valued at roughly $1.29 million.

         When the U.S. Trustee asked about insurance on these assets, Lapham provided a copy of his homeowners' policy. But that policy only covered the Bellevue residence up to a maximum value of $752, 500; it did not cover personal property at Lapham's business address, nor did it cover the Montana property. As for the ten vehicles, Lapham supplied proof of insurance only for one. Lapham later provided a new homeowner's insurance policy, but although that policy increased coverage for the Bellevue property to $2 million, it did not purport to cover the Montana property or the personal property located at Lapham's business.

         The Trustee's concern over the lack of adequate insurance coverage prompted a motion to convert or dismiss. And although the lack of adequate insurance was the driving force behind the motion, the Trustee also had other concerns: (1) Lapham did not file complete, timely, or accurate Monthly Operating Reports, (2) he failed to pay real property taxes for the Montana and Idaho properties; (2) he listed the Montana property for sale with a real estate agent without first seeking court approval to employ professionals; (3) he sent art or antiquities to auction houses without first seeking approval to employ professionals; and (4) he failed to set up and properly use Debtor-in-Possession (DIP) accounts.

         After conducting an evidentiary hearing, the bankruptcy court granted the motion and converted Lapham's Chapter 11 reorganization to a Chapter 7 liquidation. Lapham appeals this order.

         JU ...


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