Opinion
NOT FOR PUBLICATION
ORDER ON ORDER TO SHOW CAUSE RE: DISMISSAL OR CONVERSION
PETER W. BOWIE, CHIEF JUDGE
This matter came on for hearing on the Second Order to Show Cause the Court concluded should issue because of recurring non-compliance with the Court's instructions, coupled with non-compliance with national and local bankruptcy rules and required procedures, which occasioned unnecessary delays.
BACKGROUND
This individual Chapter 11 case was filed November 17, 2010. The petition stated debtor is an actor who depends on rental income for much of his monthly revenue. Debtor's Schedule A listed 6 properties, one of which is vacant land, and asserted there were no secured claims on any of the properties. Despite that Debtor's response to question 3 in the Statement of Financial Affairs showed payments made- and balances owing to two real property lenders.
The Court set the case for initial status conference, then after the hearing continued it again. At the April 4, 2011 status conference, the Court advised debtor's counsel of some of the issues of particular concern to the Court. No applications had been filed and served seeking authorization for insider compensation, for employment of counsel, or for use of the cash collateral from each of the subject properties. The status conference was continued to May 31, and was continued again to July 6 after a telephonic appearance by a relative of debtor's counsel.
On July 5, 2011, debtor's counsel filed a motion to avoid lien and a purported plan. The next day at the status conference the Court concluded that an Order to Show Cause why the Case Should Not be Converted or Dismissed should issue, for multiple reasons. The OSC was issued the same day and cited as grounds:
1) Failure to advance the case;
2) Failure to file adequate operating reports;
3) Failure to file cash collateral agreements or otherwise obtain authorization to use it;
4) Failure of counsel to seek employment of his own firm or of an accountant;
5) Title issues on the real property because they were held in the name of a revocable trust;
6) Insufficient information regarding insurance on the real property, -
7) Possible mismanagement of estate assets;
8) Unreasonable delay prejudicial to others.
Two days after issuance of the OSC, debtor filed a motion to employ the law firm. On August 16, counsel filed a version of a plan and disclosure statement. At the hearing on the OSC on August 22, the matter was continued for a week while counsel filed motions for use of cash collateral or stipulations for its use, and to seek employment of a bookkeeper. Counsel did file an amended application to employ his firm, nunc pro tunc, on August 24, and on September 1 motions to use cash collateral were filed.
The October 6 hearing on the cash collateral motions had to be continued for further documents. On October 31 they had to be continued again, and counsel was instructed:
By 11/28 debtor is to file revised operating reports, an order authorizing employment of counsel, and application to employ a CPA, and a breakdown of paid and unpaid revenue & expenses per property including the status of property taxes.
On November 28, counsel filed an application to employ an accountant. Pending matters had to be continued again from December 15 and debtor was required to file revised and current operating reports through November 2 011 by January 17, 2 012. -Amended operating reports were filed on January 17. On January 30, the Court continued the cash collateral motions yet again, and required a revised plan to be filed by March 19. One was filed March 19. Following the April 9 hearing, the Court directed debtor to file an amended plan and disclosure statement by April 30, and ruled that cash collateral could be used only with the express consent of the affected lender. No amended plan and disclosure statement was filed by April 30. The May 21 status conference was continued yet again, and debtor was directed that a revised plan and disclosure statement was to be filed by June 22. One was filed on June 22. On July 23 the matter was continued again, and another date set for filing of a newer version, this time August 29. It was filed August 29.
Then came the status conference of September 17, 2012, at which both counsel for the U.S. Trustee and the Court addressed at length the continuing concerns of both about the proposed plan and disclosure statement. Most of those concerns had been raised previously, and were still not rectified in continuing iterations of the disclosure statement and plan. The substantial concerns of both the U.S. Trustee's office and the Court were discussed at length on the record, as the hearing transcript makes clear.
At the conclusion of the September 17 hearing, the Court continued it yet again, requiring application to set a claims bar date promptly, and requiring the revised documents to be filed two weeks prior to the continued date of November 19. The Court elaborated on what it expected debtor's counsel to do in preparing those documents.
Nothing was filed -by debtor by November 5, as required. On November 7 counsel filed operating reports for July, August and September. Finally, on November 8 counsel filed a purported Fourth Amended Plan and Disclosure Statement, which did virtually none of the things the U.S. Trustee's office or the Court asked for. Again both counsel for the U.S. Trustee and the Court prepared for the November 19 hearing. On Friday, November 16, counsel for debtor finally applied for a claims bar date, which was promptly granted.
On November 19, counsel for debtor did not appear, instead employing appearance counsel who acknowledged he was unaware of the history of the proceedings, unaware of what was supposed to be done after the September 17 hearing, unaware of what was supposed to have been filed by November 5, and was appropriately apologetic, even embarrassed. In the Court's view, the failure of debtor's counsel to comply with the Court's instructions after a series of largely ignored directions over a protracted period of time, capped by a nonappearance at a critical hearing on debtor's latest proposed plan and disclosure statement required explanation. So, for the first time in well over 20 years on the bench, the Court issued a Second Order to Show Cause Why the Case Should Not be Dismissed or Converted. The Court listed six grounds, some of which were bases for the first OSC. The grounds listed on the Second are:
1) Failure to advance the case;
2) Failure to comply with Bankruptcy Local Rules regarding redline revisions to draft disclosure statement and plan;
3) Failure to make multiple corrections directed by Court at prior hearing;
4) Failure to explain why vacant land is being retained by estate at expense of creditors;
5) Failure to adequately demonstrate feasibility of proposed plan after case has been pending approximately two years; and
6) Unreasonable delay prejudicial to others.
The OSC advised debtor and debtor's counsel that any opposition to the OSC was to be filed within 14 days of service of the OSC.
On December 7, counsel filed an opposition. In it, counsel asserted:
5. Debtor has requested transcripts of the status conference held on September 17, 2012 wherein the Court listed several required revisions to the Debtor's plan and disclosure statement.
6. After reviewing of transcripts, Debtor will complete all requested revisions and refile his amended plan and disclosure statement with the Court. Debtor intends to re-file his amended plan and disclosure statement on or before December 21, 2012.
The Hearing on the OSC had been continued for Court reasons from January 6 to February 11. On February 6, debtor's counsel filed a supplemental opposition to the Second OSC. In it, he asserted:
Although Debtor has made good faith attempts to correct. the errors within his disclosure statement and plan and comply with the Court's requirements, a fundamental miscommunication has occurred between the Court and Debtor.
There is no elaboration on what the nature of that "miscommunication" was or is. The debtor also filed his Fifth Amended Plan and Amended Disclosure Statement.
At the conclusion of the hearing on the Second OSC, debtor was directed to file a supplemental declaration "and any supporting documents with respect to compliance with the Court's Order to Show Cause." The matter would thereafter be taken under submission.
in the Supplemental, counsel stated, in part:
4. In an effort to rectify the issues raised by the Court regarding the proposed disclosure statement and chapter 11 plan previously filed in the Bankruptcy case, I through my office staff, contacted and requested a hearing transcript initially on October 5, 2012. The relevant transcript (transcript from Court's hearing on September 17, 2012) alluded to numerous deficiencies in Debtor's proposed disclosure statement and chapter 11 plan.
5. I, for the second time requested the necessary transcripts on December 6, 2 012 via voicemail to Lynette Alves, Court Reporter. Per Ms. Alves' request, my law clerk requested the transcripts in writing via email....
6. I was told that the expedited processing would take 7 business days for transcripts to be sent. After remitting payment for the expedited processing, Counsel's office was notified that due to the intervening holidays, processing of the transcripts would not be completed until December 31, 2012....
7. On behalf of Debtor, I filed a timely objection to the Court's second order to show cause on December 7, 2012.... Debtor's objection stated that an amended disclosure statement and chapter 11 plan was intended to be filed on or before December 21, 2012 in lieu [?] of the receipt of the transcripts. At time of filing his objection Counsel believed that his office would be in receipt of the transcript by December 18 or 19, 2012 and not December 31, 2 012.
Attached to counsel's declaration were copies of some of the communications concerning the ordering of the transcript of the September 17 hearing, which set November 5 as the deadline for filing the revised documents.
Debtor's counsel referenced a communication of some sort on or about October 5, requesting a copy of the transcript. That may have occurred because subsequent emails reference a prior communication. In any event, on October 17, 2012 counsel's law clerk emailed the court reporter requesting the transcript and asking what the cost would be, and whether it was available in audio. The court reporter responded that same date, saying:
I gave you all the cost information and where to send the cashiers check or m/o before transcript could be started and then sent to you. I am now out of the office until 10/23. There is no audio available.
The law clerk sent a follow-up email, saying simply "Thanks."
According to the declaration of debtor's counsel, and the attachments to it, there was no further communication with the court reporter until December 11, five weeks after the revised documents were to be filed. Nor has counsel showed that any of the conditions of payment had been met prior to then.
The December 11 email to the court reporter from counsel's law clerk requested the September 17 hearing transcript and noted: " I have inquired about this previously; however, did not complete request." The next paragraph read:
Please re-state the cost for expedited transcript sent to our office at the address below. Is it possible to have transcript emailed? Please let me know where to send the check or money order?
The Court reporter responded the next day, according to debtor's counsel's attachments. She advised of the terms of the transcript, expedited and otherwise, as well as where to send the payment. She specified: "I would require payment by cashiers check or money order first and then receipt of that starts the clock." She also included a PS: "the intervening holidays do not count in the timeline." The law clerk responded the same day, saying "Thank you... we will send payment out immediately."
On Monday, December 17 the court reporter wrote saying she had received the check and deposited it that day. She said she would get them a copy of the transcript by the end of the year. The law clerk responded the next day. He wrote:
Again, thank you for your best efforts in getting the pdf transcripts to us. If at all possible, please send pdf by 12/21 because we have a deadline of 12/28/12 to file our amended disclosures. We would appreciate any assistance you can offer in this regard. Some days later the court reporter wrote back, saying: I'm sorry you're up against due dates that you didn't inform me of until after sending payment. If you read the email chain, I told you the 7 business days did not include the intervening holidays and would have it to you by the end of the year. If you had given me your due dates prior, we could've possibly arranged something else at a higher rate. Unfortunately, at this point, my timeline is still as promised. You might want to look into an extension?? Sorry.
The law clerk responded, asked if they would have the transcript no later than December 31. The court reporter's response came two days later, on Saturday evening at 7:33 p.m., forwarding an email copy of the transcript. Receipt was acknowledged by the law clerk the following Monday.
Substantial time has elapsed since the Second OSC was heard, largely on the Court's end. It is to be expected that much may have changed in the interim. So, despite the recurring deficiencies in the handling of this case, the Court will continue the hearing one more time to see if the debtor can propose a disclosure statement and plan that can be conditionally approved to submit to creditors for a vote.
The debtor shall have until May 5, 2014 to file a revised disclosure statement and plan, and serve it on the U.S. Trustee's office and any creditor who's prior objection has not been formally resolved. Thereafter, a hearing on the adequacy of the disclosure statement will be held on June 16, 2014 at 2 p.m. in this Court. If debtor is unable to timely file and obtain conditional approval of the disclosure statement as set out above, the Court will grant the pending Second OSC and order the case converted to one under Chapter 7, unless the Court is persuaded otherwise.
IT IS SO ORDERED.