Etter v. LLC 1 07CH12487
Etter v. LLC 1 07CH12487
Opinion of the Court
Creditor-Appellant Kirk Etter appeals from the bankruptcy court's order dismissing a Chapter 7 bankruptcy proceeding filed by Debtor-Appellee, LLC 1 07CH12487 ("Debtor"). Debtor filed his Chapter 7 petition on December 31, 2013 and moved to dismiss it some three and a half years later. Over the objections of the Chapter 7 Trustee and the Creditor, the bankruptcy court granted that motion on October 11, 2017. As explained below, this court concludes that the bankruptcy court's findings are not sufficiently detailed to enable effective review, so the dismissal order is vacated and the case is remanded to the bankruptcy judge for further proceedings.
BACKGROUND
This case stems from a dispute between Kirk Etter and the Debtor LLC over a mortgage note executed by a member of Debtor's managing LLC in April 2009.
Debtor's voluntary Chapter 7 filing lists two Creditors: the City of Chicago Department of Revenue, and the City of Chicago Department of Water Management. (Chapter 7 Voluntary Petition [BD 1], Schedule D.) As reflected in later filings, it was the Village of Maywood, not the City of Chicago, that should have been named as a creditor. (Motion for Voluntary Dismissal [BD 49], at 6.) The Village moved for relief from the automatic stay in July 2015 (Motion for Relief from Automatic Stay [17] ), and the court granted that relief in November 2015 so that the Village could pursue a tax deed against Debtor in state court. (Order Granting Motion for Relief from Stay [BD 37] ). The Village of Maywood never filed a proof of claim with the bankruptcy court. Instead, Creditor Etter, who was not mentioned in the Chapter 7 filing, was the only party to file a proof of claim.
During the course of the bankruptcy proceeding, Creditor Etter and Chapter 7 Trustee N. Neville Reid learned that Debtor was collecting monthly rent on property in the bankruptcy estate without turning those funds over to the estate. (Motion of Trustee for Turnover of Property of the Estate [BD 28] ¶ 3.) The court ordered Debtor, "its agents, employees, managers, and members" to "turn over all payments, rents, and transfers received ... at any time after filing the petition for relief." (Order for Turnover [BD 30].)
Two things happened following the turnover order. First Creditor and Debtor appear to have struck a deal to dismiss the bankruptcy case. (See September Transcript [BD 228], 25:1-26:19.) Under that deal, the Debtor agreed, among other things, to (a) turn over half of the post-petition rent to Creditor Etter (Trustee's Reply in Support of Motion for and Order of Contempt [179], at 9; (b) seek an order directing the Trustee to abandon the Maywood property and permit the Debtor to address the tax deed issue; and (c) move for dismissal of the bankruptcy. (Response *318of Debtor to Trustee's Motion for an Order of Contempt [168], at 2.) That deal appears to have ultimately faltered; the Trustee did abandon the Maywood property, but Debtor failed to turn over the agreed portion of rents to Creditor Etter. (Trustee's Reply in Support of Motion for and Order of Contempt [179], at 9.) Trustee Reid's counsel explained to the court that he "tried very hard to get the debtor to comply with that deal" but was unsuccessful. (Id. at 26:20-21.) Thus, Trustee eventually moved the court for an order of contempt due to Debtor's failure to comply with the turnover order. (Trustee's Motion for an Order of Contempt [BD 163].)
Second, Creditor moved for, and the bankruptcy court granted, several Federal Rule of Bankruptcy 2004 Orders Authorizing Discovery of the Debtor. ( [BD 93], [BD 145], [BD 146], [BD 147], [BD 148], [BD 149], [BD 157], [BD 158].) The extent to which these orders have been complied with is debated by the parties, and the court ultimately terminated them as moot. (See September Transcript [BD 228], at 36:22; Order Mooting Motion to Compel [BD 199].)
Three and a half years after the voluntary bankruptcy was filed, and with no distributions ever made from the bankruptcy estate, Debtor asked the bankruptcy court to abstain from or dismiss the case. (Debtor's Motion to Dismiss [BD 159].) Debtor argued that the case is a two-party dispute not appropriate for bankruptcy court and that the court should therefore abstain from or dismiss the case pursuant to
At a September 6, 2016 hearing, the bankruptcy court conditionally granted Debtor's motion to dismiss. (September Transcript [BD 228], at 44:20.) The court determined that Creditor was the only party to file a proof of claim and that the bankruptcy was a single-creditor dispute. (Id. , at 38:16-23.) Therefore, the court reasoned, "there is no bankruptcy purpose behind this case." (Id. at 40:9-10.) The court noted that Creditor is "clearly capable of pursuing its rights" against debtor in a state proceeding (id. at 39:22-23) and that Creditor received "information [through the Rule 2004's] ... that he would not have been able to get under the more narrow authority of a pure lawsuit, perhaps." (Id. at 42:22-24.) The court terminated the pending motions to compel Debtor to turnover rent [BD 200] and to respond to pending 2004 discovery requests. ( [BD 199].) The court formally entered the dismissal order on October 11, 2017. (Order Granting Motion to Dismiss Debtor [BD 215].) This appeal followed.
DISCUSSION
This court has jurisdiction over Creditor's appeal pursuant to
That discretion is not boundless. To enable effective review, the bankruptcy court is expected to "make findings necessary to the proper exercise of its discretion." In re Spade ,
Section 305(a)(1) states that:
(a) The Court, after notice and a hearing, may dismiss a case under this Title, or may suspend all proceedings in a case under this title, at any time if
(1) the interests of creditors and the debtor would be better served by such dismissal or suspension.
Dismissal under this statute is "a discretionary decision to be made on a case-by-case basis" and "is considered 'an extraordinary remedy.' " In re Int'l Zinc Coatings & Chem. Corp. ,
In this case, as noted, the findings and conclusions relevant to the § 305(a)(1) analysis are scant. The court's principal conclusion-that this is a single-creditor case and therefore serves no bankruptcy purpose-relates to factors (2), (3), and (5)
*320laid out in In re Int'l Zinc . The court cited no authority that contemplates dismissal under § 305(a)(1) solely for lack of bankruptcy purpose, however, and offered no any additional analysis. See, for example , Spade II ,
In re Int'l Zinc ,
Nor did the court in this case engage in analysis of the question whether dismissal would be in the interest of both Debtor and Creditor. Cf. In re Int'l Zinc. ,
CONCLUSION
Dismissal of the bankruptcy proceeding is vacated, and this case is remanded for specific findings and conclusions permitting dismissal under the Bankruptcy Code, or for further proceedings.
The bankruptcy court made few findings of fact at its hearing on Debtor's motion to dismiss (Transcript of Hearing, September 6, 2017 ("September Transcript") [BD 228] ), and no findings accompany its order dismissing the case. ( [BD 215].) Therefore, this court describes the background of the case by looking to the motions and briefs of the parties.
The court will refer to the original bankruptcy docket ("BD") throughout this opinion. While Creditor Appellant's briefs provide references to a numbered Record on Appeal, the record filed with this court is not numbered. His briefs also refer to some documents that are not listed in his Statement of Issues on Appeal and Designation of Record on Appeal [4], its supplement [21], or otherwise in front of the court. (See, for example , Brief of Appellant Kirk Etter in Support of Appeal from Order of the United States Bankruptcy Court ("Creditor's Brief") [20], at 4 (referring to a judgment obtained by Creditor against Debtor).)
Debtor "vehemently" argues that Mr. Etter is "not a creditor." (September Transcript [BD 228], at 35:2). Trustee Reid initially objected to Etter's proof of claim at the request of Debtor because Etter "did not include a proof of disbursement of the $320,000 [loan principal] or proof that any disbursement was made to LLC 1 07CH12487." (Trustee's Objection to Claim Number 1 of Kirk Etter [BD 61] ¶ 5.) The bankruptcy never made any findings or determinations regarding this dispute, and the objection was later withdrawn following a settlement between the parties. (Order Withdrawing Objection to Claim 1 [BD 84]; Response of Debtor to Trustee's Motion for an Order of Contempt [168], at 2.)
The court's reliance on § 305(a)(1) is far from clear. One of the few cases to which the court cites-In re American Telecom Corp. ,
Indeed, it appears that In re Int'l Zinc is the only case that could possibly support the court's decision to dismiss. The transcript shows that the court cites "Tachnet (phonetic)," which this court is unable to locate, (September Transcript [BD 228], at 42:5), and In re American Telecom Corp. ,
Reference
- Full Case Name
- Kirk ETTER v. LLC 1 07CH12487, an Illinois Limited Liability Company
- Cited By
- 1 case
- Status
- Published