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Page 1 Case 1:04-cv-12107-NG Document5 Filed 11/17/2004 Page 1 of 13
UNITED STATES DISTRICT COURT FOR THE
DISTRICT OP MASSACHUSETTS
Docket No. 04-12107-NG
IN RE: DANH T. NGUYEN
Debtor
DANH T. NGUYEN
Debtor - Appellant
JOSEPH BRAUNSTEIN, TRUSTEE FOR THE BANKRUPTCY ESTATE OF THE
CHAPTER 7 DEBTOR, DANH T. NGUYEN
Appellee
APPEAL FROM THE UNITED STATES BANKRUPTCY COURT
(Hon. William C. Hillman, U.S. Bankruptcy Court)
BRIEF FOR THE APPELLEE
RIEMER & BRAUNSTEIN LLP
Jeffrey D. Ganz
BBO No. 564375
Three Center Plaza
Boston, Massachusetts 02108
(617) 523-9000
Counsel for the AppelleePage 2 Case 1:04-cv-12107-NG Document5 Filed 11/17/2004 Page2of13
TABLE OF CONTENTS
INTRODUCTION ooo ccc sce ceceee ce enerssceeseneeseanesesseeeseeesseeeceesseeeeseesseaseeseeseaseescasenessnecseseeeas ]
STATEMENT OF THE BASIS OF APPELLATE JURISDICTION |... sce cere eceeteteeee 2
STATEMENT OF THE ISSUES PRESENTED AND STANDARD OF APPELLATE
REVIEW ooocccccccecccsccsecceescesecececescesceaceeeeceetenesuseeenaeeennrevseeneeneeresnesenseessesisescessacsaseeceseenecesse
2
STATEMENT OF THE CASE ooo. ccecccceecececeeceeeree cree riterecevesesytiagesecaasceeeaesssaseeeneeeessessssegseatens 2
1. Nature Of The Case, Course Of Proceedings, And Dispositions... ccc ee ceeerstessreereeeeeteees 2
2. Facts Relevant To The Issues Presented On Appeal ......0.cccccecescscseseeseneeeneesenensenneestteeeeeeee 3
ARGUMENT AND AUTHORITIES wu. cece eeesnence tere cece reece seetnener ee reenr ernest edeeeenasenaecaeneea 5
1. A Chapter 7 Debtor’s Right to Convert to a Chapter 13 Proceeding is Not Absolute. ........... 5
2. The Debtor’s Bad Faith Justified the Bankmiptcy Court’s Denial of the Motion to
CONVENE. oooceccccccecesccssecaseecesceeescaeecueeeceseesece serene ceaeeseseeseeseesuaecnae stent cnsraesbesecnseseasusegesssseaeeeneeseaeeaeees 7
3. An Evidentiary Hearing Was Neither Requested Nor Required, ............:ccccseeesereeeeee veces
CONCLUSION (oc. ccccccecccesececsecesecneeneeeseeeceaeeseeseeesesesessesaecsesussnasersevasasentversaseeaeagasesseeseneeenseenesens 9Page 3 Case 1:04-cv-12107-NG Document5 Filed 11/17/2004 Page3of 13
CASES
Cabral v. Shamban (In re Cabral), 285 B.R. 563 (B.A-P. 1" Cir. 2002) cece 8
tn re Calder, 93 B.R. 739 (Bankr, D.Utah 1988) oe ccecenseeesesneetesenreeeenuaeeennseneseneeeease 6
In re Porter, 276 B.R. 32 (Bankr. D. Mass. 2002)... eee cece tree eee eannea etna 6
In re Spencer, 137 B.R. 506 (Bankr. N.D.OKia. 1992) occ cece cee seer ene e teste tree eeeeeeeeseeneenies 5, 6
Inve Tully, 818 F.2d 106 1" Cir, 1987). cc ccsceenereceen eens reneneeeseeesienenesessereieninrerseenttasecseseesed 6
Kuntz v. Shamban Un re Kuntz), 233 B.R. 580 (BLA.P. 1! Cir, 1999). eccccsseceeeseeneeseeceee 2,5,8
Marrama v. Citizens Bank of Massachusetts (In re. Marrama), 313 B.R. 525 (B.A.P. "
Cir. 2004) oo ciccccccescseccescecescceceeneetcsecsteeeecnaceessesarenaeseasestevsserea¢paasessseesecorseneteserenesedseseetene 2,5,6,7
Martin y. Martin Un re Martin), 880 F.2d 857 (5° Cir, 1989) ..eecececccccececeeeceeseseceseceesecnseseeseseees 2,5
OTHER AUTHORITIES
EL USC. SYO9(C6) viii cecccccnseceseeceseessseeeceeeeeseeeeeseeccaaeeeaetasesusenenaeseranensniegsenassenseeseteseceeseeeees 4
Fed. R.Bank.P. 8013 occ ciccccssscecscccescceeeseeesceseeeeees:eecteaseseaeessuneeraeeesaeneaeeesnase ha ceseneesueeeeeecseceeesaeeesseeees 2
(ii)Page 4 Case 1:04-cv-12107-NG Document5 Filed 11/17/2004 Page4of13
INTRODUCTION
When she sought relief under Chapter 7 of the Bankruptcy Code, the Debtor/Appellant
failed to inform the Bankruptcy Court and her creditors that she had received and disbursed more
than $260,000.00 in proceeds from the sale of her residence within one year of filing her
bankruptcy petition. Instead, she filed false staternents with the Bankruptcy Court which
concealed the sale of that real property and the disposition of the resulting proceeds. After the
Trustee/Appellee began an investigation into the facts and circumstances underlying the transfer
of these assets and the subsequent misrepresentations, the Debtor amended her disclosures and
sought to avoid further investigation and a challenge to her discharge of debts by moving to
convert her Chapter 7 bankruptcy to a proceeding under Chapter 13. That motion was denied
because the admitted, unchallenged, and undisputed facts presented by the Trustee in opposition
to the motion were sufficient to establish the Debtor’s bad faith and, thereby, prevent conversion
of the bankruptcy proceeding. The Bankruptcy Court’s actions were consistent with the well-
settled authority of the Bankruptcy Appellate Panel within this Circuit. Nevertheless, the Debtor
continues her strategy of evasion with this appeal by seeking to create a conflict between the
Bankruptcy Appellate Panel and the District Court. Where the Bankruptcy Code is designed to
provide the honest and forthright debtor with a fresh start, this Debtor’s tactics of evasion and
misrepresentation should not be rewarded and the decision of the Bankruptcy Court should be
affirmed.Page 5 Case 1:04-cv-12107-NG Document5 Filed 11/17/2004 Page5of13
STATEMENT OF THE BASIS OF APPELLATE JURISDICTION
Appellee, Joseph Braunstein, Trustee for the Bankruptcy Estate of the Chapter 7 Debtor,
Danh T. Nguyen (the “Trustee”) is satisfied with the statement of the basis of appellate
jurisdiction submitted by the Appellant, Danh T. Nguyen (the “Debtor”).
STATEMENT OF THE ISSUES PRESENTED AND STANDARD OF
APPELLATE REVIEW
The Debtor presents two issues in this appeal. First, where a Chapter 7 debtor has
exhibited bad faith, does the Bankruptcy Court have the authority to deny that debtor’s motion to
convert to a Chapter 13 proceeding? Second, assuming the Bankruptcy Court does have the
authority to deny a debtor’s motion to convert to a Chapter 13 proceeding, was the Bankruptcy
Court’s decision to deny this Debtor’s motion sufficiently supported by the undisputed facts on
the record?
“Whether a bankruptcy court properiy denied a debtor’s request for conversion is a
question of Jaw requirmg de nove review on appeal.” Marrama v. Citizens Bank of
Massachusetts (In re. Marrama), 313 B.R. 525, 529-30 (B.A.P. 1" Cir. 2004) (citing, Kuntz v.
Shamban (in re Kuntz), 233 B.R. 580, 582 (B.ALP. 1* Cir. 1999)); see also Martin v. Martin (in
re Martin), 880 F.2d 857, 858 (5" Cir. 1989). Although the Bankruptcy Court’s findings of fact
“shall not be set aside unless clearly erroneous,” the Bankruptcy Court made no findings of fact
in connection with the Debtor’s Motion to Convert and thus, that standard is not applicable to
this appeal. See Fed.R.Bank.P. 8013.
STATEMENT OF THE CASE
1. Nature Of The Case, Course Of Proceedings, And Disposition
On April 8, 2003, the Debtor filed a Voluntary Petition for Relief pursuant to Chapter 7
of the United States Bankruptcy Code (the “Code”). See Trustee’s Opposition to Debtor'sPage 6 Case 1:04-cv-12107-NG Document5 Filed 11/17/2004 Page6of 13
Motion to Convert to Chapter 13,4 1 (hereinafter, “Opposition, 4 __"), Debtor’s Response to
Trustee’s Opposition to Verified Motion to Convert to Chapter 13,4 1 (hereinafter, “Response, {|
__”). Thereafter, the Trustee was appointed to administer the affairs of the Debtor’s bankruptcy
estate. See Opposition, | 2; Response, (2. In the course of his duties, the Trustee conducted an
investigation of the Debtor to determine whether sufficient grounds existed under 11 U.S.C. §
727 to object to the discharge of debts sought by the Debtor in her bankruptcy proceeding. See
Opposition, J 16; Response J 16. During that investigation, the Debtor produced a number of
documents and appeared for an examination under oath in accordance with Fed.R.Bank.P. 2004.
See Opposition, Tf 17, 18; Response, J 17, 18. On May 12, 2004, less than two weeks after the
Trustee conducted his examination of the Debtor, the Debtor filed a Verified Motion to Convert
to Chapter 13 (the “Motion to Convert”). See Opposition, { 25; Response, 1 25. The Trustee
filed an Opposition to the Motion to Convert on May 17, 2004, The Debtor then filed a
Response in which she admitted many of the facts alleged by the Trustee in his Opposition. The
Bankruptcy Court held a hearing to address the Debtor’s Motion to Convert on June 16, 2004.
At the hearing, the Bankruptcy Court denied the Debtor’s motion to convert. This appeal
followed.
2. Facts Relevant To The Issues Presented On Appeal
Ten months before she filed her Chapter 7 petition, the Debtor sold her primary residence
in Brookline for the sum of $725,000.00. See Oppesition, | 8; Response, [ 8. During the two
week period that followed the sale of the Brookline residence, the Debtor disbursed more than
$260,000.00 of the sale proceeds to fifteen different individuals via bank checks and personal
checks. See Opposition, | 9; Response, 9. The Debtor failed to disclose in her initial filings
with the Bankruptcy Court that the she had sold the Brookline residence and further failed to
disclose that she had dissipated more than $260,000.00 in sale proceeds shortly thereafter. SeePage 7 Case 1:04-cv-12107-NG Document5 Filed 11/17/2004 Page /7 of 13
Opposition, J 14; Response J 14. In fact, when asked to list “all other property, other than
property transferred in the ordinary course of the business of financial affairs of the debtor,
transferred either absolutely or as security within one year immediately preceding the
commencement of this case,” the Debtor responded with the word “None.” See Opposition,
i6; Response, { 16.
The Debtor asserted that she used the more than $260,000 to satisfy long outstanding
debts. See Opposition, J 10; Response, | 10. However, in connection with a Chapter 13
proceeding which she filed six months before the sale of the Brookline residence, the Debtor
failed to disclose the existence of any debts owed to the individuals who received the money.’
See Opposition, JJ 3, 10; Response {Jj 3, 10. When asked about this omission, the Debtor
confirmed that she intentionally omitted these creditors from the Schedules, Statement of Affairs,
and other documents filed in connection with her Chapter 13 proceeding. See Opposition, 11,
Response J 11. The Debtor also admitted that she destroyed certain original promissory notes
evidencing these alleged debts. See Opposition, 4 20-22; Response, {| 20-22.
The Trustee conducted an examination of the Debtor concerning these matters on April
29, 2004 for the purpose of, among other things, investigating whether sufficient grounds existed
to support an objection to the discharge of debts sought by the Debtor. See Opposition, Tf 16,
18; Response, [| 16, 18. In response to that examination, on May 11, 2004, the Debtor filed
amended Schedules and an amended Statement of Financial Affairs which disclosed her sale of
the Brookline property and her payment of an unspecified portion of the proceeds to satisfy
' If the Debtor had disclosed these alleged debts at the time of her Chapter 13 filing, her case would have been
dismissed because she would not have been eligible to become a Chapter 13 debtor. See 11 U.S.C. $ 109{e) and
comment entitled “Adjustment of Dollar Amounts” (establishing jurisdictional maximum of $269,250.00 in
unsecured debt at that time).Page 8 Case 1:04-cv-12107-NG Document5 Filed 11/17/2004 Page 8of13
unnamed creditors. See Opposition, at 44, fn. 2; Response, ] 4. At the same time, the Debtor
also filed the Motion to Convert. See Opposition, J 25; Response, J 25.
ARGUMENT AND AUTHORITIES
1. A Chapter 7 Debtor’s Right to Convert to a Chapter 13 Proceeding is Not Absolute.
The Bankruptcy Appellate Panel for the First Circuit has consistently held that, where the
debtor has exhibited bad faith, a Chapter 7 debtor’s right to convert to a Chapter 13 proceeding is
not absolute. See In re Marrama, 313 B.R. at 530-32: Cabral v. Shamban (In re Cabral}, 285
B.R. 563, 574-75 (B.ALP. 1 Cir, 2002); In re Kuntz, 233 B.R. at 582-85. Most recently, the
Bankruptcy Appellate Panel has stated that the Bankruptcy Code “does not grant a debtor an
absolute right to convert a case from Chapter 7 to Chapter 13; rather the right to convert is
presumptive and should be granted unless there are extreme circumstances showing that the
debtor is abusing the jurisdiction of the bankruptcy court.” Jn re Marrama, 313 B.R. at 532-33.”
Like other courts, the Bankruptcy Appellate Panel for the First Circuit has held that
evidence of bad faith is sufficient to constitute the “extreme circumstances” warranting the
denial of a motion to convert. See, e.g., In re Marrama, 313 BUR. at 531 (the First Circuit
B.A.P. recognizes that a debtor may be refused a right to convert to a chapter 13 in extreme
circumstances constituting bad faith’). See also In re Martin, 880 F.2d at 859-60 (affirming
district court’s reversal of the bankruptcy court’s denial of debtor’s motion to convert, but
acknowledging that “extreme circumstances” could warrant a denial of a motion to convert); In
re Spencer, 137 B.R. 506, 512 (Bankr, N.D.Okla. 1992) (holding that, “[i]n the presence of
extreme circumstances, debtor’s right to convert can be conditioned or denied as necessary to
? The Marraina decision is currently on appeal before the Court of Appeals for the First Circuit, Docket No. 04-
9009. The Debtor is surely aware of this fact as her counsel in this appeal is also counsel to the Debtor/Appeliant in
Marrama. See In re Marrama, 313 B.R. at 525. As of November 17, 2004, no briefing schedule appears to have
been set by the Court of Appeals.Page 9 Case 1:04-cv-12107-NG Document5 Filed 11/17/2004 Page9of13
prevent injustice to other parties and imposition on the Court.”); In re Calder, 93 BR. 739, 739-
40 (D.Utah 1988) (finding that bankruptcy courts have the authority to deny a motion to convert
to Chapter 13 to prevent an abuse of process or preserve the integrity of the court). Limiting the
Debtor’s conversion rights is consistent with the overall! purpose of the Bankruptcy Code “to
make certain that those who seck its shelter do not play fast and loose with their assets or with
the reality of their affairs.” See Jn re Tully, 818 F.2d 106, 110 (1* Cir. 1987). “The Code is
designed to msure that complete, truthful, and reliable information is put forward at the outset of
the case.” Id. As one recent decision explained, “Debtors who desire the full benefits of
bankruptcy relief must fully comply with their duties under the Bankruptcy Code, Failure to do
so justifies denying them benefits they might otherwise enjoy ....” In re Porter, 276 B.R. 32, 39
(Bankr. D. Mass. 2002), citing In re Tully, 818 F.2d at 110.
The existence of “extreme circumstances” and “bad faith” may be demonstrated in a
variety of ways. The Bankruptcy Appellate Panel for the First Circuit has held that the debtor's
false or misleading statements and the omission of critical information from bankruptcy
schedules and other filings warrant a finding of bad faith. See In re Marrama, 313 B.R. at 527-
28, 531-35 (where debtor had concealed the transfer of his residence). See also In re Porter, 276
B.R. at 37 (where debtor falsely answered “None” on the portion of his Statement of Financial
Affairs concerning the disclosure of property transferred within one year of his bankruptcy
filing). Other factors include whether the request to convert “amounts to an attempt to escape
debts rather than to repay them” or whether the debtor has “committed acts justifying denial of
discharge.” In re Spencer, 137 B.R. at 511-15; see also In re Calder, 93 B.R. 739, 740 (Bank. D.
Utah 1988) (where bad faith was established, debtor’s conduct warranted a denial of his
discharge). A court may also consider “whether disclosure was prompted by an investigation byPage 10 Case 1:04-cv-12107-NG Document5 Filed 11/17/2004 Page 10 of 13
the trustee of the filing of dischargeability litigation . . . as well as the timing of the motion to
convert.” In re Marrama, 313 B.R. at 531-32.
2. The Debtor’s Bad Faith Justified the Bankruptcy Court’s Denial of the Motion to
Convert.
Ten months before she filed her Chapter 7 petition, the Debtor received net cash proceeds
exceeding $260,000 from the sale of her Brookline residence. See Opposition, { 8; Response, {|
8. These proceeds clearly could have been used to satisfy the claims of her unsecured creditors.
Within days of receiving these proceeds, however, the Debtor transferred alt of this money to a
variety of individuals whom she claims to have been indebted. See Opposition, Tf 9, 10;
Response, Jf 9, 10. While the Debtor claims that several of these individuals required her to sign
promissory notes evidencing these debts, the Debtor also claims to have destroyed those
promissory notes. See Opposition, | 20-22; Response, {J 20-22. The dubious nature of these
debts is highlighted by the fact that the Debtor failed to list these creditors in the Schedules she
prepared in connection with a previous Chapter 13 bankruptcy filing. See Opposition, (11;
Response § 11.
When the Debtor subsequently filed for relief under Chapter 7 of the Bankruptcy Code,
she concealed both the sale of the Brookline residence and her dissipation of the sale proceeds.
See Opposition, J 14, Response J 14. In her Schedules and Statement of Financial Affairs, the
Debtor falsely stated that she had transferred no property, money, or other asset outside of the
ordinary course of business during the one year period prior to her bankruptcy filing. See
Opposition, { 16; Response, [ 16. The Debtor did not correct these misrepresentations and
omissions until after the Trustee had discovered them during his investigation into whether
sufficient grounds existed under 11 U.S.C. § 727(a) to object to the discharge of debts. See
Opposition, Jf, 16-18, 25; Response [| 16-18, 25.Page 11 Case 1:04-cv-12107-NG Document5 Filed 11/17/2004 Page 11 of 13
These undisputed facts have caused the United States Trustee to initiate an adversary
proceeding against the Debtor seeking to deny her the discharge of debts she would have
otherwise obtained in this bankruptcy proceeding. To the extent that the Debtor is denied a
discharge, her unsecured creditors will be entitled to pursue full satisfaction of their claims. In
contrast, a Chapter 13 proceeding would preclude any denial of discharge and allow the Debtor
to pay her creditors a small percentage of what they are owed.
3. An Evidentiary Hearing Was Neither Requested Nor Required.
While a substantial showing of bad faith is required to justify a denial of a motion to
convert, an evidentiary hearing is not mandated. See In re Cabral, 285 B.R. at 575-77. Instead,
a bankruptcy court is entitled to rely upon undisputed facts and unchallenged allegations in
rendering a decision on a motion to convert. See id. at 577 (the appellant had the opportunity to
contest the conversion motion at the hearing but he essentially left undisputed the creditor's core
allegations. Therefore, an evidentiary hearing was not required.”); In re Kuntz, 233 B.R. at 585
(where court relied on “several facts not challenged by the trustee”). This is particularly true
where a party fails to request an evidentiary hearing. See In re Cabral, 285 B.R. at 577 (where
she had failed to request an evidentiary hearing, “the debtor could not complain about the lack of
an evidentiary hearing on appeal”).
All of the facts pertaining to the Debtor’s false statements and omissions, as well as the
events and transactions underlying those statements and omissions, were not disputed by the
Debtor. See Opposition, {¥ 1-4, 8-11, 14, 16-18, 20-22, 25; Response, FY 1-4, 8-11, 14, 16-18,
20-22, 25. Thus, even if an evidentiary hearing would normally be required, there was no need
for one in this case. While the Debtor asserts that the Bankruptcy Court's failure to hold an
evidentiary hearing on the Motion to Convert was an error of law, she fails to cite to any case
law mandating such a hearing. Moreover, the Debtor failed to request an evidentiary hearingPage 12 Case 1:04-cv-12107-NG Document5 Filed 11/17/2004 Page 12 of 13
and, thus, waived any right she may have had to claim on appeal that the failure to conduct such
a hearing was error.
CONCLUSION
For the foregoing reasons, the Trustee, Joseph Braunstein, requests this Court to affirm
the judgment of the Bankruptcy Court.
Respectfully submitted,
JOSEPH BRAUNSTEIN, TRUSTEE FOR
BANKRUPTCY ESTATE OF THE
CHAPTER 7 DEBTOR,
DANH T. NGUYEN
By his Attorneys,
RIEMER & BRAUNSTEIN LLP
Dated: November 17, 2004 /s/ Jeffrey D, Ganz
Jeffrey D. Ganz
BBO #564374
Riemer & Braunstein LLP
Three Center Plaza
Boston, Massachusetts 02108
(617) 523-9000Page 13 Case 1:04-cv-12107-NG Document5 Filed 11/17/2004 Page 13 of 13
CERTIFICATE OF SERVICE
1, Jeffrey D. Ganz, hereby certify that T caused to be served on this 17th day of November
2004, a true and correct copy of the foregoing Brief for the Appellee upon the following parties
in the manner indicated:
Office of the U.S. Trustee
Thomas P. O’ Neill Federal Building
10 Causeway Street
Boston, Massachusetts 02222
(ELECTRONICALLY)
David G. Baker, Esquire
105 Union Wharf
Boston, Massachusetts 02109
(ELECTRONICALLY and FIRST CLASS MAIL)
‘sf Jeffrey D. Ganz
Jeffrey D. Ganz
10
PDF Page 1
PlainSite Cover Page
PDF Page 2
Case 1:04-cv-12107-NG Document5 Filed 11/17/2004 Page 1 of 13
UNITED STATES DISTRICT COURT FOR THE
DISTRICT OP MASSACHUSETTS
Docket No. 04-12107-NG
IN RE: DANH T. NGUYEN
Debtor
DANH T. NGUYEN
Debtor - Appellant
JOSEPH BRAUNSTEIN, TRUSTEE FOR THE BANKRUPTCY ESTATE OF THE
CHAPTER 7 DEBTOR, DANH T. NGUYEN
Appellee
APPEAL FROM THE UNITED STATES BANKRUPTCY COURT
(Hon. William C. Hillman, U.S. Bankruptcy Court)
BRIEF FOR THE APPELLEE
RIEMER & BRAUNSTEIN LLP
Jeffrey D. Ganz
BBO No. 564375
Three Center Plaza
Boston, Massachusetts 02108
(617) 523-9000
Counsel for the Appellee
PDF Page 3
Case 1:04-cv-12107-NG Document5 Filed 11/17/2004 Page2of13
TABLE OF CONTENTS
INTRODUCTION ooo ccc sce ceceee ce enerssceeseneeseanesesseeeseeesseeeceesseeeeseesseaseeseeseaseescasenessnecseseeeas ]
STATEMENT OF THE BASIS OF APPELLATE JURISDICTION |... sce cere eceeteteeee 2
STATEMENT OF THE ISSUES PRESENTED AND STANDARD OF APPELLATE
REVIEW ooocccccccecccsccsecceescesecececescesceaceeeeceetenesuseeenaeeennrevseeneeneeresnesenseessesisescessacsaseeceseenecessesseresisenses 2
STATEMENT OF THE CASE ooo. ccecccceecececeeceeeree cree riterecevesesytiagesecaasceeeaesssaseeeneeeessessssegseatens 2
1. Nature Of The Case, Course Of Proceedings, And Dispositions... ccc ee ceeerstessreereeeeeteees 2
2. Facts Relevant To The Issues Presented On Appeal ......0.cccccecescscseseeseneeeneesenensenneestteeeeeeee 3
ARGUMENT AND AUTHORITIES wu. cece eeesnence tere cece reece seetnener ee reenr ernest edeeeenasenaecaeneea 5
1. A Chapter 7 Debtor’s Right to Convert to a Chapter 13 Proceeding is Not Absolute. ........... 5
2. The Debtor’s Bad Faith Justified the Bankmiptcy Court’s Denial of the Motion to
CONVENE. oooceccccccecesccssecaseecesceeescaeecueeeceseesece serene ceaeeseseeseeseesuaecnae stent cnsraesbesecnseseasusegesssseaeeeneeseaeeaeees 7
3. An Evidentiary Hearing Was Neither Requested Nor Required, ............:ccccseeesereeeeee veces
CONCLUSION (oc. ccccccecccesececsecesecneeneeeseeeceaeeseeseeesesesessesaecsesussnasersevasasentversaseeaeagasesseeseneeenseenesens 9
PDF Page 4
Case 1:04-cv-12107-NG Document5 Filed 11/17/2004 Page3of 13
CASES
Cabral v. Shamban (In re Cabral), 285 B.R. 563 (B.A-P. 1" Cir. 2002) cece 8
tn re Calder, 93 B.R. 739 (Bankr, D.Utah 1988) oe ccecenseeesesneetesenreeeenuaeeennseneseneeeease 6
In re Porter, 276 B.R. 32 (Bankr. D. Mass. 2002)... eee cece tree eee eannea etna 6
In re Spencer, 137 B.R. 506 (Bankr. N.D.OKia. 1992) occ cece cee seer ene e teste tree eeeeeeeeseeneenies 5, 6
Inve Tully, 818 F.2d 106 1" Cir, 1987). cc ccsceenereceen eens reneneeeseeesienenesessereieninrerseenttasecseseesed 6
Kuntz v. Shamban Un re Kuntz), 233 B.R. 580 (BLA.P. 1! Cir, 1999). eccccsseceeeseeneeseeceee 2,5,8
Marrama v. Citizens Bank of Massachusetts (In re. Marrama), 313 B.R. 525 (B.A.P. "
Cir. 2004) oo ciccccccescseccescecescceceeneetcsecsteeeecnaceessesarenaeseasestevsserea¢paasessseesecorseneteserenesedseseetene 2,5,6,7
Martin y. Martin Un re Martin), 880 F.2d 857 (5° Cir, 1989) ..eecececccccececeeeceeseseceseceesecnseseeseseees 2,5
OTHER AUTHORITIES
EL USC. SYO9(C6) viii cecccccnseceseeceseessseeeceeeeeseeeeeseeccaaeeeaetasesusenenaeseranensniegsenassenseeseteseceeseeeees 4
Fed. R.Bank.P. 8013 occ ciccccssscecscccescceeeseeesceseeeeees:eecteaseseaeessuneeraeeesaeneaeeesnase ha ceseneesueeeeeecseceeesaeeesseeees 2
(ii)
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Case 1:04-cv-12107-NG Document5 Filed 11/17/2004 Page4of13
INTRODUCTION
When she sought relief under Chapter 7 of the Bankruptcy Code, the Debtor/Appellant
failed to inform the Bankruptcy Court and her creditors that she had received and disbursed more
than $260,000.00 in proceeds from the sale of her residence within one year of filing her
bankruptcy petition. Instead, she filed false staternents with the Bankruptcy Court which
concealed the sale of that real property and the disposition of the resulting proceeds. After the
Trustee/Appellee began an investigation into the facts and circumstances underlying the transfer
of these assets and the subsequent misrepresentations, the Debtor amended her disclosures and
sought to avoid further investigation and a challenge to her discharge of debts by moving to
convert her Chapter 7 bankruptcy to a proceeding under Chapter 13. That motion was denied
because the admitted, unchallenged, and undisputed facts presented by the Trustee in opposition
to the motion were sufficient to establish the Debtor’s bad faith and, thereby, prevent conversion
of the bankruptcy proceeding. The Bankruptcy Court’s actions were consistent with the well-
settled authority of the Bankruptcy Appellate Panel within this Circuit. Nevertheless, the Debtor
continues her strategy of evasion with this appeal by seeking to create a conflict between the
Bankruptcy Appellate Panel and the District Court. Where the Bankruptcy Code is designed to
provide the honest and forthright debtor with a fresh start, this Debtor’s tactics of evasion and
misrepresentation should not be rewarded and the decision of the Bankruptcy Court should be
affirmed.
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Case 1:04-cv-12107-NG Document5 Filed 11/17/2004 Page5of13
STATEMENT OF THE BASIS OF APPELLATE JURISDICTION
Appellee, Joseph Braunstein, Trustee for the Bankruptcy Estate of the Chapter 7 Debtor,
Danh T. Nguyen (the “Trustee”) is satisfied with the statement of the basis of appellate
jurisdiction submitted by the Appellant, Danh T. Nguyen (the “Debtor”).
STATEMENT OF THE ISSUES PRESENTED AND STANDARD OF
APPELLATE REVIEW
The Debtor presents two issues in this appeal. First, where a Chapter 7 debtor has
exhibited bad faith, does the Bankruptcy Court have the authority to deny that debtor’s motion to
convert to a Chapter 13 proceeding? Second, assuming the Bankruptcy Court does have the
authority to deny a debtor’s motion to convert to a Chapter 13 proceeding, was the Bankruptcy
Court’s decision to deny this Debtor’s motion sufficiently supported by the undisputed facts on
the record?
“Whether a bankruptcy court properiy denied a debtor’s request for conversion is a
question of Jaw requirmg de nove review on appeal.” Marrama v. Citizens Bank of
Massachusetts (In re. Marrama), 313 B.R. 525, 529-30 (B.A.P. 1" Cir. 2004) (citing, Kuntz v.
Shamban (in re Kuntz), 233 B.R. 580, 582 (B.ALP. 1* Cir. 1999)); see also Martin v. Martin (in
re Martin), 880 F.2d 857, 858 (5" Cir. 1989). Although the Bankruptcy Court’s findings of fact
“shall not be set aside unless clearly erroneous,” the Bankruptcy Court made no findings of fact
in connection with the Debtor’s Motion to Convert and thus, that standard is not applicable to
this appeal. See Fed.R.Bank.P. 8013.
STATEMENT OF THE CASE
1. Nature Of The Case, Course Of Proceedings, And Disposition
On April 8, 2003, the Debtor filed a Voluntary Petition for Relief pursuant to Chapter 7
of the United States Bankruptcy Code (the “Code”). See Trustee’s Opposition to Debtor's
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Motion to Convert to Chapter 13,4 1 (hereinafter, “Opposition, 4 __"), Debtor’s Response to
Trustee’s Opposition to Verified Motion to Convert to Chapter 13,4 1 (hereinafter, “Response, {|
__”). Thereafter, the Trustee was appointed to administer the affairs of the Debtor’s bankruptcy
estate. See Opposition, | 2; Response, (2. In the course of his duties, the Trustee conducted an
investigation of the Debtor to determine whether sufficient grounds existed under 11 U.S.C. §
727 to object to the discharge of debts sought by the Debtor in her bankruptcy proceeding. See
Opposition, J 16; Response J 16. During that investigation, the Debtor produced a number of
documents and appeared for an examination under oath in accordance with Fed.R.Bank.P. 2004.
See Opposition, Tf 17, 18; Response, J 17, 18. On May 12, 2004, less than two weeks after the
Trustee conducted his examination of the Debtor, the Debtor filed a Verified Motion to Convert
to Chapter 13 (the “Motion to Convert”). See Opposition, { 25; Response, 1 25. The Trustee
filed an Opposition to the Motion to Convert on May 17, 2004, The Debtor then filed a
Response in which she admitted many of the facts alleged by the Trustee in his Opposition. The
Bankruptcy Court held a hearing to address the Debtor’s Motion to Convert on June 16, 2004.
At the hearing, the Bankruptcy Court denied the Debtor’s motion to convert. This appeal
followed.
2. Facts Relevant To The Issues Presented On Appeal
Ten months before she filed her Chapter 7 petition, the Debtor sold her primary residence
in Brookline for the sum of $725,000.00. See Oppesition, | 8; Response, [ 8. During the two
week period that followed the sale of the Brookline residence, the Debtor disbursed more than
$260,000.00 of the sale proceeds to fifteen different individuals via bank checks and personal
checks. See Opposition, | 9; Response, 9. The Debtor failed to disclose in her initial filings
with the Bankruptcy Court that the she had sold the Brookline residence and further failed to
disclose that she had dissipated more than $260,000.00 in sale proceeds shortly thereafter. See
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Opposition, J 14; Response J 14. In fact, when asked to list “all other property, other than
property transferred in the ordinary course of the business of financial affairs of the debtor,
transferred either absolutely or as security within one year immediately preceding the
commencement of this case,” the Debtor responded with the word “None.” See Opposition,
i6; Response, { 16.
The Debtor asserted that she used the more than $260,000 to satisfy long outstanding
debts. See Opposition, J 10; Response, | 10. However, in connection with a Chapter 13
proceeding which she filed six months before the sale of the Brookline residence, the Debtor
failed to disclose the existence of any debts owed to the individuals who received the money.’
See Opposition, JJ 3, 10; Response {Jj 3, 10. When asked about this omission, the Debtor
confirmed that she intentionally omitted these creditors from the Schedules, Statement of Affairs,
and other documents filed in connection with her Chapter 13 proceeding. See Opposition, 11,
Response J 11. The Debtor also admitted that she destroyed certain original promissory notes
evidencing these alleged debts. See Opposition, 4 20-22; Response, {| 20-22.
The Trustee conducted an examination of the Debtor concerning these matters on April
29, 2004 for the purpose of, among other things, investigating whether sufficient grounds existed
to support an objection to the discharge of debts sought by the Debtor. See Opposition, Tf 16,
18; Response, [| 16, 18. In response to that examination, on May 11, 2004, the Debtor filed
amended Schedules and an amended Statement of Financial Affairs which disclosed her sale of
the Brookline property and her payment of an unspecified portion of the proceeds to satisfy
' If the Debtor had disclosed these alleged debts at the time of her Chapter 13 filing, her case would have been
dismissed because she would not have been eligible to become a Chapter 13 debtor. See 11 U.S.C. $ 109{e) and
comment entitled “Adjustment of Dollar Amounts” (establishing jurisdictional maximum of $269,250.00 in
unsecured debt at that time).
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unnamed creditors. See Opposition, at 44, fn. 2; Response, ] 4. At the same time, the Debtor
also filed the Motion to Convert. See Opposition, J 25; Response, J 25.
ARGUMENT AND AUTHORITIES
1. A Chapter 7 Debtor’s Right to Convert to a Chapter 13 Proceeding is Not Absolute.
The Bankruptcy Appellate Panel for the First Circuit has consistently held that, where the
debtor has exhibited bad faith, a Chapter 7 debtor’s right to convert to a Chapter 13 proceeding is
not absolute. See In re Marrama, 313 B.R. at 530-32: Cabral v. Shamban (In re Cabral}, 285
B.R. 563, 574-75 (B.ALP. 1 Cir, 2002); In re Kuntz, 233 B.R. at 582-85. Most recently, the
Bankruptcy Appellate Panel has stated that the Bankruptcy Code “does not grant a debtor an
absolute right to convert a case from Chapter 7 to Chapter 13; rather the right to convert is
presumptive and should be granted unless there are extreme circumstances showing that the
debtor is abusing the jurisdiction of the bankruptcy court.” Jn re Marrama, 313 B.R. at 532-33.”
Like other courts, the Bankruptcy Appellate Panel for the First Circuit has held that
evidence of bad faith is sufficient to constitute the “extreme circumstances” warranting the
denial of a motion to convert. See, e.g., In re Marrama, 313 BUR. at 531 (the First Circuit
B.A.P. recognizes that a debtor may be refused a right to convert to a chapter 13 in extreme
circumstances constituting bad faith’). See also In re Martin, 880 F.2d at 859-60 (affirming
district court’s reversal of the bankruptcy court’s denial of debtor’s motion to convert, but
acknowledging that “extreme circumstances” could warrant a denial of a motion to convert); In
re Spencer, 137 B.R. 506, 512 (Bankr, N.D.Okla. 1992) (holding that, “[i]n the presence of
extreme circumstances, debtor’s right to convert can be conditioned or denied as necessary to
? The Marraina decision is currently on appeal before the Court of Appeals for the First Circuit, Docket No. 04-
9009. The Debtor is surely aware of this fact as her counsel in this appeal is also counsel to the Debtor/Appeliant in
Marrama. See In re Marrama, 313 B.R. at 525. As of November 17, 2004, no briefing schedule appears to have
been set by the Court of Appeals.
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prevent injustice to other parties and imposition on the Court.”); In re Calder, 93 BR. 739, 739-
40 (D.Utah 1988) (finding that bankruptcy courts have the authority to deny a motion to convert
to Chapter 13 to prevent an abuse of process or preserve the integrity of the court). Limiting the
Debtor’s conversion rights is consistent with the overall! purpose of the Bankruptcy Code “to
make certain that those who seck its shelter do not play fast and loose with their assets or with
the reality of their affairs.” See Jn re Tully, 818 F.2d 106, 110 (1* Cir. 1987). “The Code is
designed to msure that complete, truthful, and reliable information is put forward at the outset of
the case.” Id. As one recent decision explained, “Debtors who desire the full benefits of
bankruptcy relief must fully comply with their duties under the Bankruptcy Code, Failure to do
so justifies denying them benefits they might otherwise enjoy ....” In re Porter, 276 B.R. 32, 39
(Bankr. D. Mass. 2002), citing In re Tully, 818 F.2d at 110.
The existence of “extreme circumstances” and “bad faith” may be demonstrated in a
variety of ways. The Bankruptcy Appellate Panel for the First Circuit has held that the debtor's
false or misleading statements and the omission of critical information from bankruptcy
schedules and other filings warrant a finding of bad faith. See In re Marrama, 313 B.R. at 527-
28, 531-35 (where debtor had concealed the transfer of his residence). See also In re Porter, 276
B.R. at 37 (where debtor falsely answered “None” on the portion of his Statement of Financial
Affairs concerning the disclosure of property transferred within one year of his bankruptcy
filing). Other factors include whether the request to convert “amounts to an attempt to escape
debts rather than to repay them” or whether the debtor has “committed acts justifying denial of
discharge.” In re Spencer, 137 B.R. at 511-15; see also In re Calder, 93 B.R. 739, 740 (Bank. D.
Utah 1988) (where bad faith was established, debtor’s conduct warranted a denial of his
discharge). A court may also consider “whether disclosure was prompted by an investigation by
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the trustee of the filing of dischargeability litigation . . . as well as the timing of the motion to
convert.” In re Marrama, 313 B.R. at 531-32.
2. The Debtor’s Bad Faith Justified the Bankruptcy Court’s Denial of the Motion to
Convert.
Ten months before she filed her Chapter 7 petition, the Debtor received net cash proceeds
exceeding $260,000 from the sale of her Brookline residence. See Opposition, { 8; Response, {|
8. These proceeds clearly could have been used to satisfy the claims of her unsecured creditors.
Within days of receiving these proceeds, however, the Debtor transferred alt of this money to a
variety of individuals whom she claims to have been indebted. See Opposition, Tf 9, 10;
Response, Jf 9, 10. While the Debtor claims that several of these individuals required her to sign
promissory notes evidencing these debts, the Debtor also claims to have destroyed those
promissory notes. See Opposition, | 20-22; Response, {J 20-22. The dubious nature of these
debts is highlighted by the fact that the Debtor failed to list these creditors in the Schedules she
prepared in connection with a previous Chapter 13 bankruptcy filing. See Opposition, (11;
Response § 11.
When the Debtor subsequently filed for relief under Chapter 7 of the Bankruptcy Code,
she concealed both the sale of the Brookline residence and her dissipation of the sale proceeds.
See Opposition, J 14, Response J 14. In her Schedules and Statement of Financial Affairs, the
Debtor falsely stated that she had transferred no property, money, or other asset outside of the
ordinary course of business during the one year period prior to her bankruptcy filing. See
Opposition, { 16; Response, [ 16. The Debtor did not correct these misrepresentations and
omissions until after the Trustee had discovered them during his investigation into whether
sufficient grounds existed under 11 U.S.C. § 727(a) to object to the discharge of debts. See
Opposition, Jf, 16-18, 25; Response [| 16-18, 25.
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These undisputed facts have caused the United States Trustee to initiate an adversary
proceeding against the Debtor seeking to deny her the discharge of debts she would have
otherwise obtained in this bankruptcy proceeding. To the extent that the Debtor is denied a
discharge, her unsecured creditors will be entitled to pursue full satisfaction of their claims. In
contrast, a Chapter 13 proceeding would preclude any denial of discharge and allow the Debtor
to pay her creditors a small percentage of what they are owed.
3. An Evidentiary Hearing Was Neither Requested Nor Required.
While a substantial showing of bad faith is required to justify a denial of a motion to
convert, an evidentiary hearing is not mandated. See In re Cabral, 285 B.R. at 575-77. Instead,
a bankruptcy court is entitled to rely upon undisputed facts and unchallenged allegations in
rendering a decision on a motion to convert. See id. at 577 (the appellant had the opportunity to
contest the conversion motion at the hearing but he essentially left undisputed the creditor's core
allegations. Therefore, an evidentiary hearing was not required.”); In re Kuntz, 233 B.R. at 585
(where court relied on “several facts not challenged by the trustee”). This is particularly true
where a party fails to request an evidentiary hearing. See In re Cabral, 285 B.R. at 577 (where
she had failed to request an evidentiary hearing, “the debtor could not complain about the lack of
an evidentiary hearing on appeal”).
All of the facts pertaining to the Debtor’s false statements and omissions, as well as the
events and transactions underlying those statements and omissions, were not disputed by the
Debtor. See Opposition, {¥ 1-4, 8-11, 14, 16-18, 20-22, 25; Response, FY 1-4, 8-11, 14, 16-18,
20-22, 25. Thus, even if an evidentiary hearing would normally be required, there was no need
for one in this case. While the Debtor asserts that the Bankruptcy Court's failure to hold an
evidentiary hearing on the Motion to Convert was an error of law, she fails to cite to any case
law mandating such a hearing. Moreover, the Debtor failed to request an evidentiary hearing
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and, thus, waived any right she may have had to claim on appeal that the failure to conduct such
a hearing was error.
CONCLUSION
For the foregoing reasons, the Trustee, Joseph Braunstein, requests this Court to affirm
the judgment of the Bankruptcy Court.
Respectfully submitted,
JOSEPH BRAUNSTEIN, TRUSTEE FOR
BANKRUPTCY ESTATE OF THE
CHAPTER 7 DEBTOR,
DANH T. NGUYEN
By his Attorneys,
RIEMER & BRAUNSTEIN LLP
Dated: November 17, 2004 /s/ Jeffrey D, Ganz
Jeffrey D. Ganz
BBO #564374
Riemer & Braunstein LLP
Three Center Plaza
Boston, Massachusetts 02108
(617) 523-9000
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CERTIFICATE OF SERVICE
1, Jeffrey D. Ganz, hereby certify that T caused to be served on this 17th day of November
2004, a true and correct copy of the foregoing Brief for the Appellee upon the following parties
in the manner indicated:
Office of the U.S. Trustee
Thomas P. O’ Neill Federal Building
10 Causeway Street
Boston, Massachusetts 02222
(ELECTRONICALLY)
David G. Baker, Esquire
105 Union Wharf
Boston, Massachusetts 02109
(ELECTRONICALLY and FIRST CLASS MAIL)
‘sf Jeffrey D. Ganz
Jeffrey D. Ganz
10
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