Opinion
No. C 03-0312 SI
September 29, 2003
JUDGMENT
Appellant's bankruptcy appeal is dismissed with prejudice. Accordingly, judgment is entered in favor of appellee and against appellant.
IT IS SO ORDERED AND ADJUDGED.
ORDER OF DISMISSAL WITH PREJUDICE
On July 17, 2003, this Court ordered that the United States Trustee's ("Trustee") motion to dismiss Appellant Alfred J. Antonini's bankruptcy appeal with prejudice be decided based on the papers submitted to the Court. Having carefully considered the papers submitted, the Court hereby GRANTS the Trustee's motion to dismiss for the reasons set forth below.
BACKGROUND
Appellant has filed more than a dozen bankruptcy petitions in federal courts as the principal of several Debtor companies, including the petition underlying this appeal filed in the Oakland Division on June 28, 2002. In November 1999, a district judge in the Southern District of Texas issued a pre-petition screening order ("Bar Order") barring Appellant from filing further bankruptcy petitions without leave of court. See Decl. of Velez-Rivera at Ex. A. Since the Bar Order was issued, Appellant has filed four bankruptcy petitions without leave, all of which have been dismissed. See id. at 2-3. Two of the four dismissals were with prejudice, including the petition presently on appeal before the court, and one was accompanied by an order imposing sanctions of $10,000 on Appellant See id. at Ex. B. Appellant has filed the four petitions from Federal prison, where he has been incarcerated since June 1, 2001, after pleading guilty to conspiracy and check kiting. See id. at 2.
U.S. Bankruptcy Judge Leslie Tchaikovsky dismissed the petition underlying this appeal on September 25, 2002. She held that the November 1999 Bar Order barred Appellant from filing the petition at issue, along with all other bankruptcy cases, and issued an order further barring Appellant and all entities related to him from filing bankruptcy petitions for a five-year period. See id. at Ex. A, D. Appellant timely filed an appeal with the Bankruptcy Appellate Panel for the Ninth Circuit ("Panel") on October 2, 2002, and thereafter moved for an extension of the ten-day deadline to designate the record, file a statement of issues, and request a transcript of the bankruptcy court hearing on appellee's motion to dismiss, as required by Federal Rule of Bankruptcy Procedure 8006. See id. at Ex. F. The Panel has never ruled on that motion, and Appellant has not since complied with the requirements of Bankruptcy Rule 8006 or otherwise filed any papers to perfect the appeal.
After the Trustee filed a Notice of Non-Consent and Objection to Referral to Bankruptcy Appellate Panel on January 23, 2003, the Panel transferred the case to the District Court. On May 27, 2003, the Trustee moved to dismiss the appeal with prejudice, and the Court ordered a status conference for July 18, 2003. Pursuant to Civil Local Rule 7-3(a), Appellant had until June 20, 2003 to respond. Appellant did not respond until June 27, 2003, when, without leave of the Court for late filing, he moved to vacate the scheduling order and replace it with a superceding scheduling order. In consideration of `the practical difficulties caused by Appellant's incarceration, the Court gave Appellant until July 31, 2003 to respond to the Trustee's motion to dismiss, and ordered the matter to be decided based on papers submitted to the Court.See Scheduling Order, July 17, 2003. On July 29, 2003, Appellant filed his response. Trustee's motion to dismiss is presently before the court. At issue is whether the appeal should be dismissed for bad faith and failure to prosecute.
LEGAL STANDARD
Federal Rule of Bankruptcy Procedure 8006 requires an appellant, within ten days of filing the notice of appeal from an adverse decision by the U.S. Bankruptcy Court, to file with the bankruptcy court clerk and serve on the appellee:
a designation of the items to be included in the record on appeal and a statement of the issues to be presented. . . . If the record designated by any party includes a transcript of any proceeding or a part thereof, the party shall, immediately after filing the designation, deliver to the reporter and file with the clerk a written request for the transcript and make satisfactory arrangements for payment of its cost.
If an appellant fails to prosecute the appeal as required by Rule 8006, he or she is subject to "such action as the district or bankruptcy court deems appropriate, which may include dismissal of the appeal." F.R.Bankr.P. 8001.
In addition to Bankruptcy Rule 8001, the District Court also has the authority to dismiss a case for lack of prosecution pursuant to its inherent authority, in order to prevent "undue delays in the disposition of pending cases, docket congestion, and, the possibility of harassment of a defendant." Medeiros v. U.S., 621 F.2d 468, 470 (1st Cir. 1980). Additionally, Federal Rule of Civil Procedure 41(b) states: "For failure of the plaintiff to prosecute or to comply with these rules or any order of court, a defendant may move for dismissal of an action or of any claim against the defendant." Moreover, even where the opposing party has not shown actual prejudice, "the failure to prosecute diligently is sufficient by itself to justify a dismissal." 9 Wright Miller, Federal Practice and Procedure § 2370 at 199; see also Moore v. Telfon Communications Corp., 589 F.2d 959, 967 (9th Cir. 1978) (prejudice presumed from undue delay).
A procedural violation of a Bankruptcy Rule alone is an insufficient basis for granting a motion `to dismiss. See In re Fitzsimmons, 920 F.2d 1468, 1472 (9th Cir. 1989). However, "in egregious circumstances, a court may dismiss a case for noncompliance with procedural rules." Id at 1473. Bad faith behavior is an "egregious circumstance" that justifies dismissal because bad faith "poses such a serious threat to the authority of the district court." Id. at 1474: see also In re Turner, 186B.R. 108, 113 (Bankr. 9th Cir. 1995) (bad faith is dispositive when ruling on a motion to dismiss based on a party's failure to comply with Bankruptcy Rule 8006). Examples of bad faith behavior include: (1) transferring distressed property for no consideration to a single-asset "new" debtor, (2) abusive repeat-filing, and (3) violation of court orders. See, respectively, In re Yukon Enterprises, Inc., 39 B.R. 919, 921 (C.D. Cal. 1984);Walker v. Stanley, 231 B.R. 343, 348 (N.D. Cal. 1999); In re Kern 908 F.2d 400, 404 (8th Cir. 1990).
DISCUSSION
The Trustee argues that the appeal should be involuntarily dismissed because: (1) the Bankruptcy Judge did not commit clear error in finding Appellant's petition barred by the November 1999 Bar Order; (2) Appellant has failed to prosecute his appeal; and (3) Appellant has otherwise acted in bad faith. Appellant contends that his appeal should not be dismissed because: (1) the Bankruptcy Judge erred in interpreting the scope of the Bar Order to apply to a Debtor other than the company named in the Bar Order (Bissonnet Investments, Inc.); and (2) he has not acted in bad faith, but has failed to prosecute his appeal due to administrative problems at the correctional facility where he is housed.
I. November 1999 Bar Order
Appellant argues that the Bankruptcy judge erred in concluding that the Bar Order applied to the Debtor in the present case (Gelso Investments V, LLC), because the Debtor named in the Bar Order is not the present Debtor. See Mot. to Vacate Sched. Order at 2. Rather, the Debtor named in the Bar Order is Bissonnet Investments, Inc., another of Appellant's companies. See id. The Court disagrees. Despite the fact that Gelso Investments was not a party to the Bar Order, the Bankruptcy Judge held that the Bar Order "constructively barred" the petition, because Appellant transferred his own property to Gelso without consideration. Decl. of Velez-Rivera at Ex. D. Moreover, the Bar Order applies not only to Bissonnet, but also to Appellant as an individual.See id. at Ex. A. The Trustee properly characterizes this as "an attempt to end-run the Bar Order." Mot. to Dismiss at 7. The Bankruptcy Judge did not err in applying the Bar Order to Gelso Investments.
II. Failure to Prosecute
The Trustee contends that Appellant failed to prosecute his appeal by not designating the record and filing a statement of issues within the ten day deadline imposed by Bankruptcy Rule 8006. See Mot. to Dismiss at 9. More than eleven months have transpired since the filing of the notice of appeal, and Appellant has made none of the required subsequent filings. This failure to prosecute, argues the Trustee, warrants involuntary dismissal of the appeal pursuant to Bankruptcy Rule 8001(a). See id. Courts have found a delay in complying with Bankruptcy Rule 8006 as short as one month to be extreme and in bad faith. See In re Fitzsimmons. 920 F.2d at 1470; see also In re Patin, 199 B.R. 728, 731 (N.D.Cal. 1996) (eight month delay in complying with Bankruptcy Rule 8006 found to be evidence of bad faith).
However, Appellant argues that he has not been able to prosecute his claim due to administrative problems at his correctional facility with regard to document storage and mail handling. He states that he has had "very limited access to his legal files" due to his transfer from one correctional facility to another, including a period of no access between December 19, 2002 and March 3, 2003. Mot. to Vacate Sched. Order at 2-3. Appellant further states that since March 2003, his written requests to prison wardens for access to his documents pertaining to this petition have been repeatedly denied, despite his understanding that "it clearly states in [Bureau of Prisons] policy that I can possess all legal material needed for active litigation." See Appellant's Resp. at 4, Ex. 1-4. Following his transfer in December 2002, Appellant asserts, the Trustee has continued to serve all papers on him at his old location, resulting in a delay of several weeks. See id. at 3. Lastly, Appellant states that he did not designate the record or file a statement of issues because "the inmate attorney" told him to wait until the Bankruptcy court ruled on the extension request. Id. at 3.
The Trustee responds that Appellant's inconveniences notwithstanding, "as the orchestrating principal behind many bankruptcy debtors in violation of the Bar Order, Mr. Antonini's incarceration has presented no barriers whatsoever to his continued manipulation of the bankruptcy system." Mot. to Dismiss at 8. As to Appellant's contention that he would have perfected the appeal had he received a ruling on his motion for an extension, the Trustee points to In re Patin, where Judge Walker, in dismissing the appeal, rejected the appellant's argument that
the appellant, in good faith, believed that it had complied with FRBrP 8006 in light of the fact that . . . nothing happened in the appeal for 8 months after appellant received the clerk's notice. . . . it simply defies belief to say that appellant reasonably could have believed that its appeal was proceeding normally when almost a year passed after the filing of the notice of appeal without a briefing schedule being established.199 B.R. at 731. Additionally, the Trustee would have the Court infer from Appellant's timely filing of both the notice of appeal and the motion for an extension that the Appellant had sufficient time, access to materials, and understanding of the bankruptcy appeal process to comply with Bankruptcy Rule 8006 within the past eleven months. See Mot. to Dismiss at 9.
Although Appellant has been inconvenienced in accessing his legal materials in the correctional facility, the Court finds that he has not shown sufficient deprivation of access to excuse his failure to comply with Bankruptcy Rule 8006. Aside from his statement that he had no access to his documents between December 19, 2002 and March 3, 2003, and "very limited access" otherwise, he has not demonstrated why he could not designate the record and file a statement of issues between his request for an extension filed October 20, 2002 and his transfer to a new facility on December 19, 2002. Nor has he demonstrated why he was unable to comply after he regained access to his documents on or around March 3, 2003. He has not alleged that his access to the legal documents that he used in October 2002 to file the notice of appeal and request for extension was interrupted at any time before December 19, 2002. Furthermore, in Exhibits 2 and 3 of his response to the Trustee's motion to dismiss, Appellant admits that he had access to his legal documents six times in an eighty-two day period ending July 11, 2003. The Court has already made allowances for Appellant's incarceration circumstances once, sua sponte, by extending the deadline for Appellant to file a response to the Trustee's motion to dismiss. See Scheduling Order, July 17, 2003. Accordingly, Appellant has not shown good cause for his failure to comply with Bankruptcy Rule 8006 or otherwise prosecute the appeal.
III. Bad Faith
Although a procedural violation of a Bankruptcy Rule alone is an insufficient basis to dismiss, in the context of other "egregious circumstances," it can comprise evidence of bad faith warranting dismissal See In re Fitzsimmons, 920 F.2d at 1473. The Trustee urges the Court not to examine Appellant's conduct during the current appeal in isolation, but to view his failure to prosecute as a small part of a larger pattern of bad faith behavior. See Mot. to Dismiss at 2-3. Specifically, the Trustee argues that the appeal is without merit because the Appellant: (1) transferred distressed property for no consideration to a single-asset "new" debtor in order to evade the Bar Order; (2) is an abusive repeat-filer; and (3) has repeatedly violated court orders.
A. Appellant's Transfer of Assets to Gelso Investments As a "New" Debtor
"New debtor syndrome" is the term used to describe the bad faith transfer of distressed assets to a corporation chartered for the sole purpose of trying to obtain a bankruptcy discharge otherwise unavailable to the asset holder. In In re Yukon Enterprises, Inc., the court identified seven "badges" of new debtor syndrome:
(1) The transfer of distressed real property into a newly created' or dormant entity, usually a partnership or corporation;
(2) The transfer occurring within close proximity to the filing of the bankruptcy case;
(3) No consideration being paid for the transferred property other than stock in the debtor;
(4) The debtor having no assets other than the recently transferred, distressed property;
(5) The debtor having no or minimal unsecured debts;
(6) The debtor having no employees and no ongoing business; and
(7) The debtor having no means, other than the transferred property, to service the debt on the property.39 B.R. at 921.
Each of the seven bad faith elements is present here. Gelso Investments is a limited liability corporation whose sole members are Appellant and his wife. See Decl. of Velez-Rivera at Ex. D. Appellant transferred the commercial property at issue to the Debtor three weeks before he turned himself in for incarceration, apparently without consideration. See id. at Ex. C. The Trustee asserts that Appellant made the transfer knowing he would not be able to manage the property at issue or negotiate with the mortgagee from prison, and that he has not made a single payment on the relevant note in more than a year. See id. The Trustee also states that the property at issue is the sole asset of the Debtor, and that the Debtor has no unsecured debt and "no money, no bank accounts, no employees, no inventory, and operates no business." Id.
Appellant protests the characterization of the Debtor as a single-asset corporation, but offers no evidence to the contrary. See Appellant's Resp. at 7. Absent any meaningful rebuttal from Appellant, it appears plainly that he transferred the property to Gelso Investments for no other purpose than to evade the Bar Order and to prolong his possession of the property during his incarceration. Accordingly, the Court finds that Gelso Investments was established as a "new debtor" in bad faith.
B. Appellant's Serial Bankruptcy Filings
In evaluating whether Appellant's history of filings and dismissals amounts to a willful abuse of the bankruptcy system, the Court considers five factors:
(1) the time between the prior case and the present one; (2) whether the second case was filed to obtain the favorable treatment afforded by the automatic stay; (3) the effort made to comply with the prior case plan; (4) the fact that Congress intended the debtor to achieve its goals in a single case; (5) any other facts the court finds relevant.Walker, 231 B.R. at 349, citing In re Huerta, 137 B.R. 356, 366-67 (C.D. Cal. 1992).
In Walker, as here, "the large number of bankruptcy petitions initiated by the Debtors suggests that the Debtors are abusing the bankruptcy system without gumption." Id at 350. The Debtors inWalker were found to be "vexatious litigants" after their ninth successive bankruptcy filing, id.: the claim underlying this appeal is Appellant's twelfth filing. Like Appellant, the Walker Debtors failed to fully prosecute their appeals, and did not appear for hearings and status conferences as required by the Court. See id. The Walker Court also found dispositive the Debtor's dismal dismissal record and the length of time between filings, which was as short as forty-nine days. See id. at 349. Here, all five petitions before the Oakland Bankruptcy Judge have been dismissed, including successive filings less than one month apart. See Mot. to Dismiss at 4. Moreover, Appellant has set forth no substantiated evidence that he has attempted to comply with his prior case plans. In consideration of these factors as a whole, the Court finds that Appellant's serial bankruptcy filings amount to a willful abuse of the bankruptcy system.
C. Appellant's Violation of the Bar Order and Order to Pay Sanctions
Evasion or violation of a bankruptcy court order can be evidence of an "improper motive" by which a bankruptcy petition can be dismissed for bad faith. See In re Kern 908 F.2d at 404. As discussed above, the petition underlying this appeal was filed in violation of the November 1999 Bar Order, along with three other petitions filed in the Oakland Division after the Bar Order. The Court agrees with the Trustee's suggestion that Appellant filed the petitions here rather than in the Southern District of Texas so as to evade the Bar Order. See Mot. to Dismiss at 7. Moreover, Appellant has not complied with Bankruptcy Judge Tchaikovsky's ruling in an earlier case imposing sanctions upon him in the amount of $10,000, nor shown cause why he cannot. See Decl. of Velez-Rivera at Ex. D. Appellant's disregard for these Court orders evinces a bad faith motive for engaging the bankruptcy system.
Therefore, this Court finds that Appellant's: (1) failure to comply with Bankruptcy Rule 8006, (2) bad faith transfer of distressed assets to Gelso Investments as a "new" debtor in an attempt to evade the Bar Order, (3) abusive pattern of repeat-filing, (4) violation of the Bar Order, and (5) failure to pay sanctions levied by the Bankruptcy court, establish a pattern of bad faith and egregious circumstances warranting the involuntary dismissal of his appeal.
CONCLUSION
For the foregoing reasons, the Court GRANTS the Trustee's motion to dismiss. This action is hereby DISMISSED WITH PREJUDICE.
IT IS SO ORDERED.