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This weeks case update:


Mullin, Chapter 11, (Pappas), Dismissal
Case no. 18-60691
Debtor and Twete have been engaged in non-stop, contentious, expensive litigation in state and federal bankruptcy courts since February 19, 2015.With the appeal pending in the North Dakota Supreme Court, Debtor commenced this bankruptcy case under Chapter 12 of the Bankruptcy Code. It quickly became obvious to the Court from subsequent proceedings, that Debtor, even if Debtor could come up with a feasible plan, he was not eligible to reorganize under Chapter 12. Following a hearing, and frankly, against the Court’s better judgment, but at the urging of all parties, including Twete, the Court granted a motion to convert filed by Debtor, thereby converting this case to a Chapter 11 case under the Bankruptcy Code. Debtor filed a Notice indicating his inability to file an amended disclosure statement. Presumably because, based upon Debtor’s lack of success in the North Dakota litigation, Debtor’s Notice was followed by the UST Motion seeking dismissal, and shortly thereafter by Twete’s Motion seeking conversion to Chapter 7.

The parties agreed that good cause had been shown for the Court to dismiss or convert this case to a Chapter 7 case, but they disagreed as to the appropriate relief. Debtor and the UST seek dismissal; Twete insists that conversion to Chapter 7 is best. While there are arguments for either course, after review of the facts, record and arguments of the parties, in the exercise of its discretion, the Court confidently agrees with Debtor and the UST.

Section 1112(b)(1) provides, in relevant part, that "the court shall convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause . . . ." If cause is established, the decision whether to convert or dismiss the case falls within the sound discretion of the court. And, if the bankruptcy court determines that cause exists to convert or dismiss, it must also: (1) decide whether dismissal, conversion, or the appointment of a trustee or examiner is in the best interests of creditors and the estate; and (2) identify whether there are unusual circumstances that establish that dismissal or conversion is not in the best interests of creditors and the estate.

If this case is converted, a Chapter 7 trustee will be tasked with administering what is at this time, an uncertain estate, largely for Twete’s benefit. Twete will undoubtedly “volunteer” to act on the trustee’s behalf, while continuing his efforts to deny Debtor a discharge. In short, it appears Debtor will not receive a “fresh start” in a converted case, and it is highly debatable whether there will be any significant benefits to flow to creditors, other than perhaps to Twete, whose monetary claims dwarf those of other unsecured creditors. What is not subject to debate, though, is that any Chapter 7 case will surely be a slow and expensive one, characterized by complicated, costly litigation with Debtor’s related entities. Secured creditors will liquidate their collaterals; unsecured creditors other than Twete will wait in the wings, justifiably doubtful they will enjoy any distributions ever. Indeed, Twete and his counsel, if allowed to proceed on the estate’s behalf, may be the sole and ultimate beneficiaries of any recoveries. That outcome is not what bankruptcy is designed to accomplish.

On the other hand, if the case is dismissed, Debtor will not receive a discharge. Twete has a variety of remedies available to recover avoidable transfers and to challenge Debtor’s conduct under applicable state law. Secured creditors can foreclose their liens, and unsecured creditors can, based upon their individual circumstances, decide if further efforts to collect from Debtor are worth the effort and expense. Looking back, the Court regrets that it did not dismiss this case when it became apparent that Debtor could not achieve relief under Chapter 12. However, the parties, including Twete, the major secured creditors, and Debtor all represented that, if the case proceeded under Chapter 11, they could craft a consensual plan for liquidation of Debtor’s assets. Because conversion of this case to Chapter 7 will not promote basic bankruptcy goals or significantly enhance any of the parties’ interests, the Court will not bypass another opportunity to dismiss this case and redirect the parties to their other options under these dismal facts.

In re Mullin, November 27, 2019, Gary S. Deschenes, Katherine A. Sharp for Mullin, Jeffrey Hunnes, Joseph A Soueidi for Twete, Brett R. Cahoon for United States Trustees

In re Mulln, 2019 Mont. B.R. 394 (November 27, 2019)



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