# Kevin S. Moser

> United States Bankruptcy Court, W.D. Pennsylvania · May 11, 2021

URL: https://www.frixlaw.com/law-library/cases/10462014

## Case

- **Court:** United States Bankruptcy Court, W.D. Pennsylvania
- **Decided:** May 11, 2021
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA

IN RE: ) Bankruptcy No. 17-23960-JAD
)
KEVIN S. MOSER, ) Chapter 7
)
Debtor. ) Related to Doc. No. 163
X
)
INNOVATIVE BUILDING )
SOLUTIONS, LLC, )
)
Movant, )
)
-vs.- )
)
KEVIN MOSER, Debtor, and )
ERIC BONONI, Esq., Chapter 7 )
Trustee, )
)
Respondents. )
X

MEMORANDUM OPINION

The matter before the Court is the Motion to Dismiss Bankruptcy Pursuant
to Section 707 of the Bankruptcy Code (the “Motion to Dismiss,” ECF No. 163)
filed by creditor, Innovative Building Solutions, LLC (“IBS”). By its Motion, IBS
seeks to dismiss the Debtor’s bankruptcy case on account of the Debtor’s alleged
bad faith conduct.
I.
The Motion to Dismiss is a core proceeding over which this Court has the
requisite subject matter jurisdiction to enter final judgment pursuant to 28
U.S.C. §§ 157(b)(1) and 157(b)(2)(A). For the reasons set forth below, the Court
shall enter an order denying the Motion to Dismiss.
II.
By way of background, the Debtor, Kevin S. Moser, commenced his
bankruptcy case by filing a voluntary petition under chapter 13 of the United
States Bankruptcy Code (11 U.S.C. § 101 et seq.) on October 3, 2017.

IBS is a creditor of the Debtor. The relationship between the Debtor and
IBS is that the Debtor, a commercial contractor, performed work for IBS on
approximately twenty-five projects beginning in 2009. See Joint Stipulation of
Facts and Evidentiary Appendix (the “Joint Stipulation”) ¶¶ 1-2, ECF No. 169.
However, the relationship soured. On July 28, 2017, IBS brought suit against
the Debtor and a co-defendant in state court alleging negligence, breach of
contract, and unjust enrichment claims. See Joint Stipulation ¶¶ 3-4.
In his initial petition, the Debtor scheduled $438,000 in assets and

$59,000 in debts. See Joint Stipulation ¶ 15. Included in the total assets was
an entry for “Business Equipment” valued at $200,000 and an entry for
residential real property valued at $180,000. See Schedule A/B: Property, ECF
No. 13 at 3, ¶ 1.1, and 8, ¶ 40. The Debtor also listed IBS in his Schedule E/F:
Creditors Who Have Unsecured Claims as having a disputed claim valued at
$0.00 and the entry was designated for “Notice Only.” See ECF No. 13 at 14, ¶
4.2.
Along with his completed petition, the Debtor filed a chapter 13 plan

proposing to pay one hundred percent of the Debtor’s uncontested, unsecured
creditors (then totaling $16,052.23). See Chapter 13 Plan Dated November 5,
2017 4, ¶ 16, ECF No. 14. IBS objected to the plan. See Innovative Building
Solutions, LLC’s Objection to Confirmation of Debtor’s Chapter 13 Plan Dated
November 5, 2017, ECF No. 19. IBS later filed a proof of claim in the amount of
$324,248.00 on February 13, 2018. See Proof of Claim 4-1. The Debtor objected
to IBS’s claim, but the objection was ultimately overruled by the Court.!
On January 8, 2020, the Debtor’s case was converted to one under chapter
7 because of the Debtor’s inability to confirm a plan which satisfied the
liquidation alternative requirement imposed by 11 U.S.C. § 1325(a)(4).2 See
Transcript of hearing held January 8, 2020 (the “January 8, 2020 Tr.”), ECF No.
181. IBS’s Counsel, present at the January 8, 2020 hearing, agreed to the
conversion. See January 8, 2020 Tr. 3.
Thereafter an order was entered converting the case to chapter 7 and
setting deadlines to object to the good faith of the conversion. See Order dated
January 8, 2020 (the “Order Converting Case”), ECF No. 110. No objection was
timely filed by any party, including IBS.
Following conversion of the Debtor’s case to chapter 7, on February 13,
2020, the Debtor amended several schedules, including Schedule A/B to reflect
a downward adjustment in the value of both the Debtor’s residence to $75,000
and his business equipment to less than $20,000. See Joint Stipulation ¢ 34;

! The Debtor’s objection to IBS’s claim was overruled on account of its untimeliness and
the Debtor’s failure to sufficiently rebut the prima facie validity of IBS’s Proof of Claim.
See Transcript of hearing held December 12, 2018, ECF No. 178.
2 Section 1325 of Title 11 requires for chapter 13 plan confirmation that, “the value, as
of the effective date of the plan, of property to be distributed under the plan on account
of each allowed unsecured claim is not less than the amount that would be paid on such
claim if the estate of the debtor were liquidated under chapter 7 of [Title 11] on such
date[.]” See 11 U.S.C. § 1325(a)(4).

see also Amended Schedule A/B: Property, ECF No. 122 at 3, 4 1.1, and 8, 7 40.
The non-exempt property of the Debtor was thereafter liquidated by the Chapter
7 Trustee. The purchaser of the assets was IBS for a total of $15,500.00. See
Order dated June 2, 2020, ECF No. 148.
Following the sale, IBS was granted leave, without objection, to examine
the Debtor pursuant to Bankruptcy Rule 2004 on July 28, 2020. IBS then filed
the instant Motion to Dismiss on September 15, 2020, citing, in part, to the
Debtor’s testimony at the Rule 2004 exam.
Ill.
This case was originally filed under chapter 13 of the Bankruptcy Code.
Although by its Motion to Dismiss, IBS challenges the good faith of the Debtor’s
bankruptcy case since inception, the law provides that post-conversion the issue
of whether the Motion to Dismiss should be granted is governed by 11 U.S.C. §
707(a).2 See Blumenberg v. Yihye (In re Blumenberg), 263 B.R. 704, 712 (Bankr.
E.D.N.Y. 2001)(dismissal of case converted from chapter 11 to chapter 7 is
determined pursuant to 11 U.S.C. § 707).
Section 707(a) of Title 11 provides as follows:
(a) The court may dismiss a case under this chapter only after notice
and a hearing and only for cause, including--
(1) unreasonable delay by the debtor that is prejudicial to creditors;
(2) nonpayment of any fees or charges required under chapter 123
of title 28; and

3 Although the Motion to Dismiss identified 11 U.S.C. § 707 generally as the statutory
authority for relief, IBS later narrowed its basis for relief to § 707(a). See Motion to
Dismiss Jf 3, 41-42. To the extent IBS seeks relief under other subsections of 11 U.S.C.
§ 707, such requests are insufficiently set forth to merit consideration by the Court.

(3) failure of the debtor in a voluntary case to file, within fifteen days
or such additional time as the court may allow after the filing of the
petition commencing such case, the information required by
paragraph (1) of section 521(a), but only on a motion by the United
States trustee.
See 11 U.S.C. § 707(a).
Before wading into the merits of IBS’s Motion to Dismiss pursuant to 11
U.S.C. § 707(a), the Court must first address the timeliness of the Motion.
The Motion to Dismiss is Time Barred
Unlike a motion to dismiss brought pursuant to 11 U.S.C. §§ 707(b) or
707(c), the Bankruptcy Code and Rules provide no express, universal deadline
for commencing a motion under 11 U.S.C. § 707(a). See In re Champion, 600
B.R. 459, 464 (Bankr. S.D. Ga. 2019).4- However, this absence does not mean
that a movant’s time to seek dismissal is unlimited. See e.g. In re Dini, 566 B.R.
220 (Bankr. N.D. Ill. 2017)(despite lack of statutory deadline to assert 11 U.S.C.
§ 707(a) claim, movant barred from seeking dismissal pursuant to 11 U.S.C. §
707(a) by doctrine of laches due to unreasonable delay in asserting claim and
prejudice to debtor); In re Champion, 600 B.R. at 468-471 (United States

4 The issue of whether a motion to dismiss is effective or timely if filed after a debtor
becomes entitled to a discharge but before the discharge order is actually entered is an
area of law not widely written about. See Champion v. Morris Bank, CV 319-029, 2019
WL 3729558, at *3 (S.D. Ga. Aug. 7, 2019)(“The Court is unable to find any case that
specifically addresses whether a § 707(a) motion to dismiss filed after the objection
deadline but before discharge is entered prevents a bankruptcy court from entering
discharge.”). This Court notes that a motion to dismiss may become moot after a debtor’s
discharge is entered, unless the movant can successfully establish grounds for
revocation under 11 U.S.C. § 727(d). Thus, a movant seeking to dismiss should file its
motion before a debtor becomes entitled to entry of a discharge in accordance with Rule
4004(c).

Trustee’s time to seek dismissal under 11 U.S.C. § 707 was limited by the terms
of a consent order).
Sub judice, this Court expressly limited the time to challenge the good faith
conversion of the Debtor’s bankruptcy case from chapter 13 to chapter 7.

Specifically, included in the conversion order dated January 8, 2020, was the
following directive:
Any party-in-interest that challenges the good faith of the conversion
shall, on or before January 28, 2020, file a motion setting forth the
basis of the challenge and specifically identifying the relief requested
in the event conversion is found not to have been made in good faith.

Order Converting Case at ¶ 1.
No such motion was made by IBS, nor any other party by the deadline.
Although the mandate does not expressly reference 11 U.S.C. § 707(a), the
Court’s reference to “good faith” of the conversion was sufficient to put IBS on
notice of a need to bring any § 707(a) challenge to the conversion—as opposed
to dismissal outright—by the deadline. Thus, the Motion to Dismiss is untimely.
The Court acknowledges that in the Motion to Dismiss and at the
November 3, 2020 hearing, IBS highlighted that some of the bases for its “bad
faith” claim—i.e. the amended schedules and Debtor’s motivation for filing—were
not firmly discovered until after the January 28, 2020 deadline had passed. The
Court is not persuaded by this argument.
While it is true that the Debtor’s amended schedules were not filed of
record until February 13, 2020, IBS was previously made aware or should have
been aware that the assets were overvalued in the Debtor’s original schedules.
Indeed, at the hearing held November 13, 2019, Debtor’s Counsel represented to
the Court that the values assigned to the Debtor’s assets in his Schedule A/B
were likely overstated. Further, Debtor’s Counsel stated that if the case were
converted to a chapter 7, there would “probably [be] a minimal liquidation
distribution.” See Transcript of hearing held November 13, 2019 (the “November

13, 2019 Tr.”) 2, ECF No 180. In this regard, Debtor’s Counsel indicated that
Debtor’s real property, originally scheduled at $180,000 was appraised at
$75,000. See November 13, 2019 Tr. 5-6. Additionally, it was recognized that the
business assets originally scheduled at $200,000, were now estimated as being
worth “maybe $30,000.” See November 13, 2019 Tr. 13. Counsel further
explained that the Debtor had utilized a replacement value to estimate worth
when he originally filed his schedules as opposed to a fair market value. Id.
Counsel for IBS was in attendance for the November 13, 2019 hearing, and was

fully advised as much.
The inaccuracy of the Debtor’s schedules was further communicated to
IBS through the Debtor’s delivery of the real property appraisal to IBS on
November 19, 2019, and by the Debtor’s written discovery responses produced
on December 12, 2019. See Joint Stipulation ¶¶ 30-31.
Moreover, IBS itself acknowledged in its Pre-Hearing Statement filed
January 8, 2020 that the Debtor believed the asset valuations to be inflated. See
ECF No. 107 at 3 (“Recently, representations made by Debtor’s counsel call into

question the accuracy of Debtor’s schedules. Specifically, during a prior hearing
in this matter held on November [13], 2019, Debtor’s counsel acknowledged that
asset valuations contained within the Debtor’s bankruptcy schedules were
inflated.”)
With respect to the Debtor’s filing being motivated by the IBS lawsuit, the
Debtor’s timing of the bankruptcy petition in relation to the state court
proceedings was always known, as well as the Debtor’s income at the outset of
this bankruptcy case and his limited debts.°
In contrast to IBS’s position, the Debtor argues that IBS should be
estopped from obtaining the benefits of the liquidation that occurred under the
auspices of chapter 7 and then seeking dismissal. This Court agrees. IBS not
only did not object to the Debtor’s conversion to chapter 7, but outright
supported it. In converting to chapter 7—as opposed to having his case
dismissed—the Debtor submitted his non-exempt business equipment for
liquidation for the benefit of his creditors, including IBS, potentially hampering
the Debtor’s ability to generate income going forward. Now that the Debtor’s non-
exempt assets have been liquidated, IBS seeks dismissal. IBS clearly wants for
itself all the benefits of being a creditor in a chapter 7 case without the burden

5 Moreover, the Court notes that the Conciliation Conference Minutes for the July 25,
2019 meeting of creditors indicate that IBS believed grounds existed to support a finding
of bad faith prior to the January 28, 2020 deadline to object to conversion. The minutes
read that “Innovative Building Solutions requests the case be converted in lieu of
dismissal on the basis that it believes case filed in bad faith, a substantial delay that is
prejudicial to creditors, and because of material equity that is believed to exist in
Debtor’s [real estate] & business personalty that can fund distribution to [unsecured
creditors].” See Conciliation Conference Minutes, attached as Exhibit E, p. 4 to the Motion
to Dismiss. IBS also alleged in its Pre-Hearing Statement filed on January 8, 2020 that
the Debtor had engaged in a pattern of bad faith conduct in pursuing his chapter 13
bankruptcy case. See ECF No. 107 at 3-6. The Pre-Hearing Statement was filed just prior
to the hearing held that day at which IBS agreed to the Debtor’s conversion to chapter
7. See January 8, 2020 Tr. 3.

of the Debtor’s discharge, while at the same time seeking to impose all the
burdens of a chapter 7 on the Debtor (i.e. asset liquidation) without the benefit
of discharge. This is not within the intent and spirit of the Bankruptcy Code. For
this reason, the Court finds the Motion to Dismiss untimely.

Even if the Motion to Dismiss were deemed to be timely, the Court would
nonetheless deny the Motion to Dismiss on its merits.
Section 707(a) of the Bankruptcy Code permits a court to dismiss a
chapter 7 case for “cause.” See 11 U.S.C. § 707(a). Although not expressly
provided for in the non-exhaustive list of what constitutes “cause” thereunder,
the Third Circuit Court of Appeals has observed that § 707(a) permits dismissal
for lack of good faith in filing a bankruptcy case. See Tamecki v. Frank (In re
Tamecki), 229 F.3d 205, 207 (3d Cir. 2000). Adding, that “[a]lthough the Code

does not define ‘good faith,’ courts in this circuit have uniformly held that ‘[a]t
the very least, good faith requires a showing of honest intention.’ ” See id.
(quoting In re Marks, 174 B.R. 37, 40 (E.D. Pa. 1994)).
Whether to dismiss a case for lack of good faith is within the sound
discretion of the bankruptcy court. See In re Tamecki, 229 F.3d at 207.
Nonetheless,
[d]ismissal based on lack of good faith . . . should be confined
carefully and is generally utilized only in those egregious cases that
entail concealed or misrepresented assets and/or sources of income,
lavish lifestyles, and intention to avoid a large single debt based
upon conduct akin to fraud, misconduct or gross negligence.

Id. at 207 (quoting Indus. Ins. Servs., Inc. v. Zick (In re Zick), 931 F.2d 1124,
1129 (6th Cir. 1991)); see also Perlin v. Hitachi Capital Am. Corp. (In re Perlin),
497 F.3d 364, 373 & 375 (3d Cir. 2007)(citing Tamecki, and also finding that a
case was not filed in bad faith where there was no evidence that the debtors
schemed to conceal or misrepresent income, inflated expenses to hide income,
filed misleading statements or schedules as an effort to defraud creditors, unduly

interfered with the judicial process, or engaged in other misconduct); and In re
Marks, 174 B.R. at 40-41 (citing Zick, and also observing that most instances
of bad faith under § 707(a) involve “concealment, misrepresentation, or
unexplained transfers to place assets beyond the reach of creditors” and that in
the absence of those circumstances it is not an abuse of discretion to find a lack
of bad faith).
In evaluating good faith, the court “must decide whether the petitioner has
abused the provisions, purpose, or spirit of bankruptcy law.” In re Tamecki, 229

F.3d at 207. Once the good faith of the petitioner’s filing is placed in question,
the petitioner has the burden of showing it is a good faith filing. See In re Sky
Grp. Int’l, Inc., 108 B.R. 86, 90 (Bankr. W.D. Pa. 1989); see also In re Tamecki,
229 F.3d at 207.
Determinations of good faith are “ad hoc” assessments which take into
consideration all of the facts and circumstances surrounding a bankruptcy case
filing. See In re Perlin, 497 F.3d at 372 (citing NMSBPCSLDHB, L.P. v. Integrated
Telecom Express, Inc. (In re Integrated Telecom Express, Inc.), 384 F.3d 108,

118 (3d Cir. 2004)(the good faith analysis is a “fact intensive inquiry” in which
the court must examine “the totality of facts and circumstances” and determine
where a “petition falls along the spectrum ranging from the clearly acceptable to
the patently abusive”).
In assessing the totality of the circumstances, the court “may consider a
wide range of factors, including, ‘the nature of the debt . . .; the timing of the
petition; how the debt arose; the debtor’s motive in filing the petition; how the
debtor’s actions affected creditors; the debtor’s treatment of creditors both before
and after the petition was filed; and whether the debtor has been forthcoming
with the bankruptcy court and the creditors.’ ” In re Myers, 491 F.3d 120, 125
(3d Cir. 2007) (quoting In re Lilley, 91 F.3d 491, 496 (3d Cir. 1996)).®
As some of these factors are intertwined, the Court will examine related
factors together.
Timing of Petition & Motive for Filing Petition
IBS filed its state court lawsuit against the Debtor on July 28, 2017, and
the Debtor commenced his bankruptcy case roughly two months later on
October 3, 2017. See Joint Stipulation 9 3. In his Rule 2004 examination
testimony, the Debtor stated that his bankruptcy filing was due to the IBS
lawsuit. See Remote 2004 Examination of Kevin Moser (the “Rule 2004 Exam Tr.”)
75, attached as Exhibit B to the Joint Stipulation. IBS argues that this

6 In In re Myers, the Third Circuit observed in light of Mrs. Myers request to convert to
chapter 7, that “Chapter 7 cases are subject to the same requirement of good faith as
Chapter 13 cases.” 491 F.3d at 127 (citing In re Tamecki, 229 F.3d at 207). In Myers,
the bankruptcy court “concluded that the same factors that indicated that Mrs. Myers
filed her Chapter 13 cases in bad faith would apply with equal force to her Chapter 7
filing.” In re Myers, 491 F.3d at 127.
11

admission, along with the timing of the petition and general ability to pay bills
at the time of filing, is evidence of bad faith.
While the suspicious timing of a bankruptcy petition is a factor for the
court’s consideration of bad faith, the Third Circuit has observed that the

commencement of a bankruptcy case “during the pendency of related state court
litigation is not necessarily in bad faith.” In re Myers, 491 F.3d at 125. In such
circumstances, bankruptcy courts may find bad faith “where the purpose of the
bankruptcy filing is to defeat state court litigation without a reorganization [or
bankruptcy] purpose.” In re Myers, 491 F.3d at 125 (quoting In re Dami, 172
B.R. 6, 10 (Bankr. E.D. Pa. 1994)).
The Court finds that the Debtor has shown a valid reorganization and/or
bankruptcy purpose behind his filing for bankruptcy relief.

It is true that the Debtor proffered sworn testimony indicating that at the
time of case filing he was not “very delinquent” on his bills and was not
experiencing significant issues paying his bills. See Rule 2004 Exam Tr. 75.
However, the pending IBS lawsuit represented a significant financial obstacle for
the Debtor. Even though the Debtor believed the lawsuit lacked merit, he testified
that he could not afford to defend himself as IBS had “deeper pockets.” See Rule
2004 Exam Tr. 74-77. This inability to defend himself pushed the Debtor into
bankruptcy.
The record further reflects that unlike other cases where a debtor files
solely to forestall foreclosure or execution without an intention to reorganize,’
the Debtor testified that his plan was to pay his creditors back over a five-year
period in chapter 13. See Rule 2004 Exam Tr. 58, 78-79. Consistent with his
testimony, the Debtor’s subsequent actions evidence his intent to do so.
On November 7, 2017, the Debtor timely filed a proposed chapter 13 plan,
which initially proposed to pay off one hundred percent of the then uncontested
unsecured claims totaling $16,052.23 (the debt to IBS was listed as contested).
The Debtor faced several obstacles in his reorganization efforts, including an
injury which impacted his ability to generate income and an unsuccessful effort
to object to IBS’s claim, which ultimately thwarted his chapter 13 efforts.
However, failure to successfully complete a chapter 13 does not automatically
mean that the debtor did not intend to reorganize at the outset.

See e.g. In re Mondelli, 558 F.App’x 260 (3d Cir. Mar. 7, 2014)(finding the debtor’s case
was filed in bad faith where the debtor had previously sought and was denied multiple
stays of the sheriff's sale against commercial property, the co-owner’s bankruptcy case
was filed and dismissed as being in bad faith just prior to the debtor’s own filing, and
the debtor’s purported plan was illusory); In re Knauss, Nos. CA 13-01131-WY, BKY 12-
17482-SR, 2013 WL 5942391 (E.D. Pa. Nov. 5, 2013)(serial bankruptcy filer’s latest
chapter 13 petition was filed in bad faith when property subject of sheriff's sale was
transferred without meaningful consideration on eve of sheriffs sale and the debtor
commenced bankruptcy case the morning of the scheduled sale); In re Joobeen, 385
B.R. 599, 611 (E.D. Pa. 2008) (serial filer’s history of commencing bankruptcy cases
when creditors took adverse action against him in state court and ceasing prosecution
of his bankruptcies when state court threat was no longer imminent, in addition to other
issues of candor, supported finding of bad faith);and Ruth v. Swigert (In re Swigert), 601
B.R. 913 (Bankr. M.D. Pa. 2019) (debtors’ second chapter 13 filing, commenced during
the pendency of their first chapter 13 case after entry of an order in that first case
granting relief from stay as to certain collateral, was commenced in bad faith as debtors
sought to circumvent 11 U.S.C. § 109(g)(2) by filing second case prior to voluntarily
dismissing their first case in order to obtain further stay of actions against the
collateral).
13

Notably, at the time of the Debtor’s conversion, the chapter 13 trustee
represented that the Debtor was current on his then pending chapter 13 plan
payments—albeit the plan was insufficient to meet the liquidation alternative
requirement. See January 8, 2020 Tr. 2.

At that point the trustee requested conversion, which the Debtor did not
object to despite being aware that conversion to chapter 7 would open his assets
up to liquidation for the benefit of his creditors, including IBS. See January 8,
2020 Tr. 2-4. And, that is exactly what happened.
In view of these circumstances, the Court finds that the Debtor
commenced the case with a valid bankruptcy purpose and not simply as a means
to deprive the state court of jurisdiction and forestall creditor collection activity.
Here, the Debtor, a non-serial filer, took significant reorganizational steps

including filing a plan, objecting to IBS’s claim, making plan payments, and
when ultimately unsuccessful, agreeing to convert to a liquidation scenario for
the benefit of his creditors. Thus, the bankruptcy was not just a means to shield
his income or assets.
Accordingly, the factors of timing of the petition and motive for filing weigh
in favor of denying the Motion to Dismiss.
Nature of the Debt & How the Debt Arose
The Court next looks at the nature of the debt and how it arose. It has

been said that these factors look “at whether the incurring of a debt resulted
from bad acts or intentions of the debtor.” Hamm v. Manfredi (In re Manfredi),
434 B.R. 356, 359 (Bankr. M.D. Pa. 2010).
As stated above, the IBS debt arises from the professional relationship
between the Debtor and IBS. The Debtor performed work as a construction
contractor for IBS on approximately twenty-five projects beginning in 2009. See
Joint Stipulation ¶¶ 1-2. However, the relationship soured, and IBS ultimately

brought suit against the Debtor and a co-defendant, alleging negligence, breach
of contract, and unjust enrichment claims. See Joint Stipulation ¶ 4. Specifically,
IBS alleged that the Debtor “negligently performed construction activities below
the acceptable standard of care, negligently damaged equipment, refused to
complete work, and performed actions and activities outside the scope of his
work or intended work in a negligent manner which damaged property other
than his own work.” See Joint Stipulation ¶ 5. Also, that the Debtor “left existing
construction Projects for IBS in a dangerous condition for third parties; agreed

to perform actions on behalf of [Innovative] outside the scope of any agreements
with [Innovative]; performed negligent construction in an accelerated and
haphazard manner without regard to safety standards or manufacturer’s
direction; and created damage to property on Projects that did not involve his
work.” See Joint Stipulation ¶ 6.
In review of the claims asserted, including a reading of the state court
complaint, the Court is not of the view that the underlying debt is the product of
“conduct akin to fraud, misconduct or gross negligence” that would qualify the

matter as the type of “egregious case” to which a finding of bad faith should be
confined. See In re Myers, 491 F.3d at 126 (that the underlying debt was incurred
for fraudulent conveyance was properly considered in finding bad faith). See also
In re Manfredi, 434 B.R. at 360 (even if allegation was true that debt was due, in
part, to gambling, it would not support a finding of bad faith).
In assessing the alleged egregiousness of the conduct underlying the debt,
the Court finds influential IBS’s own decision not to pursue a denial of discharge
or determination of non-dischargeability under 11 U.S.C. 88 727 and/or 523.
See e.g. 11 U.S.C. § 523(a)(6)(which excepts from discharge debts incurred for
“willful and malicious injury”) or § 523(a)(4)(which excepts debts for “fraud”). The
Third Circuit Court of Appeals wrote in In re Myers, that the nature of the debt
and manner in which it arose are not solely relevant to dischargeability actions,
but also to good faith determinations. See 491 F.3d at 126. The fact that IBS did
not seek relief under 11 U.S.C. 88 523 and/or 727 is telling. Especially
considering that the deadline to file certain of those actions (April 14, 2020), fell
two months after the filing of the amended schedules and was approximately two
and a half months after the January 28, 2020 deadline to object to conversion.
See Notice of Chapter 7 Bankruptcy Case, ECF No. 113, 4 9. Thus, well after IBS
either knew or should have known that its claim would not be fully paid out of
the sale of estate assets.®

This Court acknowledges that at the November 3, 2020 hearing on the Motion to
Dismiss, Counsel for IBS explained that no action was taken to challenge the entry of
the Debtor’s discharge as to all or some of his debts because the full extent of the
Debtor’s alleged bad faith conduct was not apparent until the Rule 2004 examination.
In particular, IBS’s Counsel pointed to the Debtor’s testimony that his bankruptcy filing
was motivated by the state court lawsuit by IBS. See November 3, 2020 Hr’g at 10:47-
10:52. However, as set forth above, the timing of the Debtor’s bankruptcy filing was
always known. Additionally, IBS argued in its Pre-Hearing Statement that: “Thl[e]
disparity between identified assets and identified liabilities indicates that the primary
purpose of the Debtor's bankruptcy filing was to avoid a judgment being entered against
him concerning the harms he previously caused to Innovative.” See ECF No. 107 at 4.
While Counsel for IBS argues that the Rule 2004 examination testimony is more
16

Accordingly, the nature of the Debt and how it arose does not weigh in
favor of dismissal. In fact, the record of this case is that the Debtor is bona fide
in pursuing a bankruptcy discharge of his debts.
Lack of Candor
The next factor is whether the debtor has been forthcoming with the
bankruptcy court and creditors. The Court finds that this factor weighs in favor
of denial of the Motion to Dismiss.
IBS avers that the Debtor has not been forthcoming with the Court and
cites to the Debtor’s delay in amending schedules to reduce the value of certain
assets. What is unique about IBS’s argument is that IBS does not allege that
the Debtor has “conceal[ed] or misrepresent[ed] income, inflated [his] expenses
to hide income” or otherwise concealed, misrepresented, or inexplicably
transferred assets to “place [them] beyond the reach of creditors,” which is found
in most instances of bad faith. See Perlin, 497 F.3d at 375; Marks, 174 B.R. at
40-41. Instead, IBS alleges that it was the Debtor’s initial overvaluation of his
disclosed assets and alleged failure to timely correct them that demonstrate a
lack of candor. In this respect, IBS does allege that the Debtor knowingly misled
IBS as to the value of his assets, but such overvaluations did not conceal or
otherwise place the assets beyond the reach of creditors.

concrete and lessens the need for IBS to rely on circumstantial evidence to prove the
Debtor’s motivation for filing, the fact of the matter is that IBS was aware of the
circumstances surrounding the Debtor’s filing in relation to the IBS lawsuit prior to the
April 14, 2020 deadline to commence certain actions under 11 U.S.C. 8§ 523 and 727.
Moreover, that IBS was already confident enough in its argument to raise it in a court
filing.
17

As to the effect of the overvaluations, IBS argues that the improper
overvaluation caused IBS to pursue a course of litigation that it might otherwise
not have pursued; specifically, in objecting to the Debtor’s chapter 13 plans due
to failure to satisfy the liquidation alternative analysis. Also, that despite being

aware of the issues in October 2019, the Debtor sought conversion and permitted
the objection period to run before formally amending his schedules. The Court
is not persuaded by IBS’s argument.
The Debtor’s sworn testimony is that the valuation issues or mistakes were
not discovered until October 2019, and such issues were disclosed on the record
at the November 13, 2019 hearing. See Rule 2004 Exam Tr. 84-89. During the
November 13, 2019 hearing, it was explained that the Debtor incorrectly valued
his assets using a replacement value as opposed to a fair-market value. In his

Rule 2004 examination, the Debtor testified to his confusion and lack of
understanding about how he was to value his assets. See Rule 2004 Exam Tr.
89. Thus, these circumstances suggest a lack of bad faith intent. See Andrews
v. Kerschner (In re Kerschner), 246 B.R. 495, 499 (Bankr. M.D. Pa.
2000)(mistakes in debtor’s schedules were immaterial to finding of bad faith
where there is no evidence that mistakes were more than mere oversight).
Based on the timing of discovery in October 2019, the valuation issues
were not known to the Debtor at the time IBS filed its plan objections in

December 2017 and October 2018. And, although immediate formal amendment
of schedules would have been preferable, both the Court and the creditors either
were, or should have been aware, of the valuation issues prior to conversion and
expiration of the objection period. Thus, it could not be said that the Debtor
overstated the value of the assets as a means to defraud the Court and creditors.?
Supporting a lack of intent to defraud, the Court observes that the Debtor’s
mistaken overvaluation of assets hampered his own efforts to reorganize under
chapter 13 by erroneously inflating the amounts necessary to satisfy the
liquidation alternative analysis. Thus, forcing the Debtor into a chapter 7 case
in which his non-exempt assets were liquidated for the benefit of creditors. Of
course, the liquidated assets consisted of construction equipment the Debtor
used to generate income. To find that the Debtor intended to defraud creditors
by his overvaluations would be to find that the Debtor proverbially “cut off his
nose to spite his face.” While there is animosity between the parties, the Court
is not convinced that this is the case.
In addition to the mistaken overvaluation of assets, IBS also points to
several instances where the Debtor missed deadlines or failed to comply with
court orders throughout his case. Debtors undoubtedly have a duty to comply
with the applicable statutes, rules, and court orders, and such compliance is
important to the proper functioning of the bankruptcy process. See 11 U.S.C. §

° At the November 3, 2020 hearing on the Motion to Dismiss, IBS alleged that the
Debtor’s less than perfect efforts to timely or promptly answer discovery related to the
Chapter 13 Trustee’s discovery requests in connection with the confirmation dispute—
in that, the Debtor failed to supply all requested documents—evidences an intent to
hide the information and materially inflate his assets. See November 3, 2020 Hr’g at
10:10-10:13. The Court is unconvinced. The discovery requests were served on the
Debtor on September 17, 2019. Although the Debtor failed to respond timely, the Court
reset the deadline to respond at the November 13, 2019 hearing. See November 13, 2019
Tr. 18. It was also at this hearing that IBS was put on notice that the asset valuations
were overinflated. Thus, the Debtor’s subsequent failure to provide all requested
documents cannot be taken as the Debtor attempting to hide the overvaluations, as the
Debtor had already brought the overvaluations to the Court’s (and IBS’s) attention.
19

521 (setting forth the duties of a debtor in bankruptcy). However, if the Court
were to demand perfect adherence nary a debtor would successfully complete a
bankruptcy case. In review of the record of this case, while the Debtor has indeed
been imperfect, and this Court has at times expressed its frustration, the Court

does not view the Debtor’s conduct as rising to the level of egregiousness which
would support dismissal.
Debtor’s Actions & Treatment of Creditors
The final factors to consider are how the Debtor’s actions affected
creditors. “Generally, [the ‘treatment of creditors’] factor looks at actions taken
by the debtor to frustrate creditors.” See In re Manfredi, 434 B.R. at 361.
At the outset, and as stated above, there is no allegation that the Debtor
concealed or otherwise transferred assets in an effort to put them beyond the

reach of his creditors. See In re Myers, 491 F.3d at 126 (debtor acted in bad faith
by allowing withdraw of $6,000 from account in violation of court order); In re
Kerschner, 246 B.R. at 498-499 (debtor’s continued spending of decedent
estate’s assets in violation of court order while contemplating bankruptcy was
consistent with bad faith).
Instead, relevant to these factors, IBS raises issue with: the Debtor’s
treatment of IBS due to Debtor’s perceived failure to submit a claim to his
insurance carrier on account of the IBS lawsuit before filing for bankruptcy, the

Debtor’s failure to follow through with its stated intent to attempt to negotiate a
settlement, and the Debtor’s alleged furtive conduct relative to asset inspection
and sale.
Starting with the latter two, this Court does not find that the Debtor’s
failure to follow through with negotiations rises to the type of egregious conduct
that warrants dismissal. As for the Debtor’s conduct during the asset inspection
and sale process, the Court notes that the Chapter 7 Trustee, who was tasked
with such efforts, stated that he does not believe that the Debtor’s actions relative
thereto warrant a dismissal of the bankruptcy case. See Br. Resp. IBS’s Motion
to Dismiss 5-6, ECF No. 197. The Court puts much stock into the opinion of the
Chapter 7 Trustee who witnessed first-hand the Debtor’s behavior and who was
directly impacted by the Debtor’s conduct.
As for the final point, that the Debtor could have submitted a claim to his
insurance carrier which would have potentially compensated IBS for its claim,
IBS’s position presumes that the Debtor’s insurance coverage would have
provided for the claim. However, this conclusion is something that the Debtor
disputes on the theory that his insurance policy would not cover breach of
contract claims, which is how the Debtor categorizes IBS’s state court claims.
See Debtor’s Br. Opp’n Mot. Dismiss of Innov. Bldg. Sols. 15-16, ECF No. 201.!°
Nonetheless, even if IBS would have been compensated through the policy,
it is not evident that the Debtor acted with any animus or ill-intent in exercising
his statutory right to seek bankruptcy protection or that his filing was to

10 The Debtor raises the issue of whether IBS’s state court claims would be viewed as
breach of contract claims under Pennsylvania’s gist of the action doctrine and, in turn,
whether the insurance policy would cover those claims. The Court makes no findings
with respect to these issues as they are not necessary to resolve the pending Motion to
Dismiss.

21

frustrate IBS. In fact, the record reflects that the Debtor testified that he did not
believe that the lawsuit had merit. Thus, in exercising his statutory right to file
for bankruptcy, it does not appear that the Debtor was motivated by an intent to
“shirk” responsibility, as the Debtor did not believe there was anything to “shirk”
responsibility for.
In addition, IBS never petitioned this Court for relief from stay to pursue
a claim against insurance. See In re Glunk, 342 B.R. 717, 740 (Bankr. E.D. Pa.
2006) (noting that “[u]nder § 362(d)(1), bankruptcy courts have routinely granted
relief to permit personal injury plaintiffs to prosecute their claims in state court
and to limit their collection efforts to the available insurance benefits”). Nor has
any evidence been presented demonstrating that the Debtor hid or otherwise
obstructed IBS from the discovery of an insurance policy.!! To be clear, at the
November, 3, 2020 hearing on the Motion to Dismiss, IBS alleged that insurance
documents were requested pursuant to its Rule 2004 subpoena duces tecum and

“ The fact that an insured does not tender a claim, does not necessarily vitiate coverage
of a covered loss or erase a duty to defend. For example, if an insurer is put on notice
of the claim by the injured party, the insurer would be hard pressed to ignore the
claim. Despite third-party direct action limitations against insurers, see 40 Pa. Stat.
Ann. § 117, the general rule is that:
If the insurer has actual knowledge of the claim or suit, it may need to
establish more than simply lack of notice in order to be relieved of any
duty to defend the insured. Under the majority rule, an insurer is not
relieved of its defense or indemnity obligations because its insured failed
to provide it with demands or court papers unless a showing of prejudice
can be established.
4 Philip L Bruner & Patrick J. O’Connor, Jr., Bruner & O'Connor on Construction Law
§ 11:132 (2020) (citations omitted); see Brakeman v. Potomac Ins. Co., 371 A.2d 193,
196 (lack of notice only is not sufficient for insurer to escape liability, prejudice is also
required).

22

that the Debtor failed to comply with such request. See November 3, 2020 Hr’g
at 11:10. However, this Court’s review of the Notice of the Taking of Rule 2004
Examination of Debtor Kevin Moser and Request for the Production of Documents
does not reveal a request for insurance documents. See Joint Stipulation, Ex. C.
To the extent any of the requests therein could be interpreted to require the
Debtor to provide insurance information, the record reflects that the Debtor did
disclose his insurance provider to IBS during his Rule 2004 exam testimony. See
Rule 2004 Exam Tr. 79-80.
Moreover, the Court notes that IBS either had or should have had the
Debtor’s insurance information even prior to the filing of his bankruptcy case.
This is because certain of the purchase orders between IBS and the Debtor
(which are attached to IBS’s state court complaint) required the Debtor to provide
IBS with insurance certificates.!2 This appears to have been done as the state
court complaint enumerates the Debtor’s alleged breaches of contract and at no
time did IBS allege that the Debtor failed to provide the required insurance
certificates. Additionally, the Debtor testified at his Rule 2004 exam that
maintaining insurance coverage was a contractual requirement and he would
have let IBS know of his insurance coverage. See Rule 2004 Exam Tr. 79-80.
Further, the Debtor testified that he believes that IBS contacted his insurance

JB's state court complaint is filed on the docket as Exhibit A to the Joint Stipulation.
The referenced purchase orders are attached to the complaint as exhibits “D” and “E.”
Both cited purchase orders contain the following language: “Subcontractor shall submit
an insurance certificate for the said project, with adequate liability, automobile and wc
limits as IBS may request.” See Ex. D at 2, Ex. E at 3.

23

carrier directly, although he himself never put in a claim. See Rule 2004 Exam
Tr. 80-82.
So, IBS surely knew or should have known of the insurance coverage, but
never took any steps in the bankruptcy case to compel the Debtor or the Chapter
7 trustee to tender a claim.'%
Accordingly, the Court finds that these last factors also weigh in favor of
denying dismissal.
Other Factors
In setting forth its decision, this Court is mindful that other courts within
the Third Circuit have considered different and/or additional factors when
evaluating a motion to dismiss for lack of good faith. For example, in In re Glunk,
the Honorable Eric L. Frank of the United States Bankruptcy Court for the
Eastern District of Pennsylvania opined that considerations when deciding a
motion to dismiss under 11 U.S.C. § 707(a) could be distilled into the following
five categories: (1) “the debtor's (extravagant) lifestyle and ability to pay|;]” (2) the
disproportionate impact that bankruptcy relief would have on one particular
creditor, or only a few creditors, as compared to other creditors|;]” (3) forum
shopping or efforts to manipulate the judicial process to thwart the orderly
determination of a creditor claim pending in another court|;]” (4) prepetition

13TBS’s Counsel stated at the November 3, 2020 hearing that he believed, but could not
state for certain, that a demand for the Debtor to submit a claim to his insurance was
made by prior counsel before the bankruptcy filing. See November 3, 2020 Hr’g at 10:59-
11:01. The Debtor testified that he did not recall IBS’s counsel ever recommending that
he (the Debtor) send the state court complaint to his insurance. See Rule 2004 Exam
Tr. 80-81.
24

fraudulent conduct to place assets beyond the reach of creditors or less than full
and candid disclosure in the bankruptcy process itself[;]” and (5) an end result,
if bankruptcy relief is permitted, that is perceived to be fundamentally unfair or
excessive[.]” 342 B.R. at 734.

For purposes of completeness, this Court also considers these factors. In
doing so, the Court finds that dismissal is not warranted.
As to categories 3 and 4, the Court has already discussed these
considerations above—albeit under different labels—and found that neither
weigh in favor of dismissal. Specifically, the Court’s discussion regarding the
timing and motive for filing the petition also establishes a lack of forum shopping
or an effort to manipulate the judicial process (category 3). The Court has also
examined the Debtor’s candor, finding it does not weigh in favor of dismissal,

and noted that there is no allegation that the Debtor concealed or misrepresented
assets to place them beyond the reach of creditors (category 4). Notably, although
Judge Frank found that bad faith could be found on the basis of any one of the
categories, he also suggested that “certain factors may carry substantially more
weight than others.” In re Glunk, 342 B.R. at 735. Noting, “[i]t should be the
rare case that merits dismissal for lack of good faith in the absence of some
evidence indicative of categories 3 and 4, both of which involve some degree of
misconduct by the debtor.” Id. As stated, neither categories 3 nor 4 weigh in

favor of a finding of bad faith sub judice.
As for the remaining categories (1, 2, and 5), the Court also finds that these
do not support dismissal of the Debtor’s case. There is no allegation that the
Debtor is living a lavish lifestyle or has an ability to repay the debt. In fact, it was
the Debtor’s inability to confirm a repayment plan which spurred the Debtor’s
conversion to chapter 7.
With respect to whether the Debtor’s bankruptcy case will have a

disproportionate impact on IBS, the Court observes that the Debtor has other
creditors, both secured and unsecured. See Schedules D and E/F, ECF NO. 13,
12-17. However, even if IBS (as the Debtor’s largest creditor) were to be
considered the Debtor’s primary creditor, that alone is insufficient to merit a bad
faith finding. As Judge Frank wrote,
Frequently, the need for bankruptcy relief is caused by one
particular event that upsets the equilibrium in a debtor's pre-
bankruptcy economic life. For example, a catastrophic illness can
result in one staggering hospital bill. Or, one ruinous business
transaction can cause a previously successful small business to fail,
leaving the debtor-principal with liability on a very large guaranteed
debt. In both circumstances, the debtor may have little prospect of
generating sufficient income to repay the one, major debt. These
kinds of debtors invoke their rights under the Bankruptcy Code as
a means to obtain relief from burdensome debt and obtain a fresh
start—which are conventional, traditional and acceptable purposes.

These examples illustrate that simply because a debtor has
only one primary creditor, that fact by itself cannot ordinarily
establish that the debtor's desire to obtain a discharge is an abuse
of the purpose, spirit or provisions of the Bankruptcy Code and
therefore, may shed little light on the question whether a debtor's
filing is good faith. For a debtor's “debt structure” to take on bad
faith significance when there is only one primary creditor, ordinarily
there must be some other factor at play, such as prepetition
machinations to avoid payment, transfer of assets beyond the reach
of the main creditor or some undue interference with an orderly
judicial process for resolution of the primary debt

In re Glunk, 342 B.R. at 736.
No such “prepetition machinations,” transfers, or acts of interference are
present in the instant case before the Court.
Finally, as to the fundamental fairness of the Debtor obtaining bankruptcy
relief, the Court noted above that in pursuing this Motion to Dismiss IBS is
attempting to impose upon the Debtor all the detriments of a bankruptcy filing,
while denying him the benefit of a discharge. The record reflects that the Debtor
has subjected his unexempt assets to sale and they have been liquidated for the
benefit of his creditors. With the other factors weighing against a finding of bad
faith, it would be fundamentally unfair to deny the Debtor his discharge under
the circumstances.
Accordingly, the Glunk categories weigh against dismissal.
IV.
Based on the foregoing, the Court finds that IBS’s Motion to Dismiss is
untimely. However, to the extent that it could be viewed as timely, the Court
nonetheless denies the Motion to Dismiss on the merits. Although the Debtor’s
case has not been without its hiccups, the totality of the circumstances shows
that the Debtor has acted in good faith in both commencing his chapter 13 case
and through the subsequent conversion to chapter 7.
Accordingly, this Court shall enter an order denying the Motion to Dismiss.

Dated: May 11, 2021 A jlh
Hon. Jeffery A. Deller
FILED United States Bankruptcy Judge
5/11/21 12:02 pm
CLERK
U.S. BANKRUPTCY 27
COURT - WDPA

Case Administrator to Mail to:
Debtor
Paul W. McElrath, Jr., Esq.
John J. Berry, Esq.
Eric E. Bononi, Chapter 7 Trustee

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10462014. Public record. Not legal advice.