Opposition Brief — Marrama v. Citizens Bank of Mass.

No. 05-996

|

In The

Supreme Court of the Gnited States

°

ROBERT LOUIS MARRAMA,

Petitioner,

v.

CITIZENS BANK OF MASSACHUSETTS;

MARK G. DEGIACOMO, CHAPTER 7 TRUSTEE,

Respondents.

°

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The First Circuit

S

RESPONSE TO PETITION

FOR WRIT OF CERTIORARI

@

MARK G. DEGIACOMO, Es@Q.*

OLGA L. BOGDANOV

MURTHA CULLINA LLP

99 High Street

Boston, MA 02110

617-457-4000 Telephone

617-482-3868 Facsimile

May 9, 2006

Attorneys for Respondent,

Mark G. DeGiacomo,

Chapter 7 Trustee

*Counsel of Record

OCKLE LAW BRIEF PRINTING CO (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTIONS PRESENTED

The question to be resolved in this Appeal is whether

the Bankruptcy Court erred, as a matter of law, in denying

the Debtor’s Verified Notice of Conversion to Chapter 13.

The Bankruptcy Court’s decision was affirmed by the

Bankruptcy Appellate Panel for the First Circuit and the

First Circuit Court of Appeals.

TABLE OF CONTENTS

TABLE OF AUTHORITIEG......................sscscccosssssoeees

BASIS OF APPELLATE JURISDICTION .................

STATEMENT OF THE CASE ..................--ccssessseeeeees

ALLOWANCE OF THE PETITION...........................

CONCLUSION

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TABLE OF AUTHORITIES

Page

CASES

Cabral v. Shamban (In re Cabral), 285 B.R. 563

Ce Se Sintec ticiccaccndaneeicniiadeninb cians tenciengesasiitndsndindes 7

In re Carrow, 315 B.R. 8 (N.D. N.Y. 2004)...0....0.......e cee eee 7

Copper, et al. v. Copper (In re Copper) 426 F.3d 810

gt ee perree ae [ica siidaaaind esti 6

Croston v. Davis (In re Croston), 313 B “. 447 (9th

eg | RPT eRe IRR Re ae ie 7

In re Finney, 992 F.2d 43 (4th Cir. 1993) ......00.... eee 6

In re Gallagher, 283 B.R. 604 (Bankr. M.D. Fla.

Pi BCT Behe ar nen EN ae 8

In re Lesniak, 208 B.R. 902 (Bankr. N.D. [ll]. 1997)............ 7

Marrama v. Citizens Bank of Massachusetts (In re

Marrama), 2006 U.S. App. LEXIS 9883 (1st Cir.

Fae RR ERE KDE BORE SB fea MOD we BOF TO ae 2

In re Martin, 880 F.2d 857 (5th Cir. 1989).............00....... 6, 7

Miller v. United States Trustee, et al. (In re Miller),

303 B.R. 471 (10th Cir. BAP 2008).................c0cccccccoccseees 8

In re Pakuris, 262 B.R. 330 (E.D. Pa. 2001)...............2....... 7

Pequeno v. Schmidt (In re Pequeno), 126 Fed. Appx.

BEE GI TEIEDY TIIN cx in da cisnidistcettncniesiiedanapiademspictiliminenetbiinte 7

In re Ponzini, 277 B.R. 399 (Bankr. E.D. Ark. 2002).......... 5

In re Wampler, 302 B.R. 601 (Bankr. S.D. Ind. 2003)......... 7

1

BASIS OF APPELLATE JURISDICTION

This is an appeal from an order of the United States

Bankruptcy Court for the District of Massachusetts,

Eastern Division, denying the Debtor’s Verified Notice of

Conversion to Chapter 13. The Bankruptcy Court had

jurisdiction over the Debtor’s Case pursuant to 28 U.S.C.

§1334. The Debtor appealed the Bankruptcy Court’s order

to the Bankruptcy Appellate Panel for the First Circuit

(the “BAP”) pursuant to 28 U.S.C §157(b). On September

9, 2004, the BAP issued a decision affirming the Bank-

ruptcy Court’s order denying the Debtor’s Verified Notice

of Conversion (the “BAP Decision”). On September 13,

2004, the Debtor filed a Motion for Rehearing pursuant to

Fed. R. Bankr. P. 8015. On October 21, 2004 the BAP

denied the Debtor’s Motion for Rehearing. On November 1,

2004, the Debtor filed a Notice of Appeal of the BAP

Decision pursuant to 11 U.S.C. §158(d) (the “Notice of

Appeal”). The Notice of Appeal was filed under Fed. R. of

App. P. 4(a) and 6(b)(2)(A)(1). On October 31, 2005, the

First Circuit Court of Appeals affirmed the Bankruptcy

Court’s order. This Court’s jurisdiction is invoked under 28

U.S.C. §1254(1).

¢

STATEMENT OF THE CASE

Mark G. DeGiacomo, the duly appointed Chapter 7

Trustee (the “Trustee” or “Respondent”) of the bankruptcy

estate of Robert Louis Marrama (the “Debtor” or “Peti-

tioner”), hereby submits this response to the Petition for a

2

Writ of Certiorari, which was filed by the Petitioner on

January 30, 2006."

On March 11, 2003, the Debtor filed a voluntary

petition pursuant to Chapter 7 of the Bankruptcy Code

(the “Petition Date”). On March 11, 2003, the Respondent

was appointed as the Interim Chapter 7 Trustee for this

bankruptcy estate.’ On April 24, 2003, the Trustee com-

menced the meeting of creditors required by 11 U.S.C.

§341(a) (the “Section 341 Meeting”). The Section 341

Meeting was continued several times at the request of the

Debtor’s counsel. The Debtor twice failed to attend contin-

ued sessions of the Section 341 Meeting.

As a result of the Debtor’s testimony during the

Section 341 Meeting, as well as the Trustee’s review of

certain documents, the Trustee determined that the

Debtor had failed to disclose in his bankruptcy filings

certain information that would lead the Trustee to assets

of the bankruptcy estate.”

* On March 6, 2006, the Respondent filed a Waiver of Response. On

April 11, 2006, the Clerk of this Court wrote to the Respondent and

requested that the Respondent file a response by May 11, 2006.

* In accordance with 11 U.S.C. §701, the Respondent became the

permanent Chapter 7 Trustee of this bankruptcy estate when the

meeting of creditors conducted pursuant to 11 U.S.C. §341(a) was

concluded without a request for an election.

* These acts by the Debtor, in addition to other actions which came

to light after the Bankruptcy Court hearing, formed the basis for the

denial of the Debtor’s discharge on April 28, 2004. Judge Hillman’s

denial of the Debtor’s discharge was recently affirmed by the United

States Court of Appeals for the First Circuit. Marrama v. Citizens Bank

of Massachusetts (In re Marrama), 2006 U.S. App. LEXIS 9883 (1st Cir.

2006).

3

The Debtor failed to disclose the fact that approxi-

mately seven months prior to the Petition Date, he had

transferred real estate he owned in York, Maine (the

“Maine Property”), for no consideration, to the Bo-Mar

Realty Trust (the “Trust”). The Declaration of Trust for the

Trust indicated that (a) the Debtor was the holder of 100%

of the beneficial interest of the Trust; (b) the Debtor’s

girlfriend, Josephine Bollettiero, was the sole trustee of

the Trust; and (c) the Trust was revocable. Question 10 of

the Statement of Financial Affairs asks the Debtor to:

“list all other property, other than property

transferred in the ordinary course of business or

financial affairs of the debtor, transferred either

absolutely or as security within one year imme-

diately preceding the commencement of this

case.”

The Debtor’s response to Question 10 was “none,” and

nowhere else in the Statement of Financial Affairs did the

Debtor disclose his transfer of the Maine Property.

The Debtor also failed to disclose the existence cf an

anticipated tax refund. On or about August 20, 2003, the

Trustee was contacted by the Internal Revenue Service

(the “IRS”) and informed that the Debtor had filed an

amended tax return during July of 2002 which asserted

the Debtor’s right to a tax refund in the amount of

$11,194.00. Item 17 on Schedule B to the bankruptcy

petition directs the Debtor to:

“identify other liquidated debts owing debtor includ-

ing tax refunds.” The Debtor’s response to Item 17 on

Schedule B was “none,” and nowhere else did the Debtor

disclose his entitlement to a tax refund. On September 5,

4

2003, the Trustee received a tax refund in the amount of

$8,745.86 from the IRS (the “Tax Refund”).

At the initial session of the Section 341 Meeting which

was held on April 24, 2003, the Trustee indicated to the

Debtor’s counsel that the Trustee questioned the validity

of the transfer of the Maine Property into the Trust, and in

subsequent conversations with Debtor’s counsel, the

Trustee indicated that it was his opinion that the Maine

Property was property of the bankruptcy estate recover-

able by the Trustee for the benefit of the bankruptcy

estate. Having been so advised the Debtor filed the Veri-

fied Notice of Conversion to Chapter 13 on June 23, 2003.*

On July 1, 2003, the Respondent filed his Chapter 7

Trustee’s Opposition to Debtor’s Verified Notice of Conver-

sion to Chapter 13. On August 27, 2003, Judge Hillman

conducted a hearing concerning the Debtor’s Verified

Notice of Conversion (the “Hearing”). During the Hearing,

Judge Hillman was presented with the above failures to

disclose’ as well as the statement by Doreen Solomon, the

standing Chapter 13 Trustee for the Eastern Division of

the District of Massachusetts, that the Debtor would not

be able to confirm a Chapter 13 Plan. After considering all

* It is the Respondent's contention that the Debtor attempted to

convert his case solely because the Trustee had indicated he would

pursue the Maine Property for the bankruptcy estate not, as the Debtor

contends, because he was suddenly employed by his brother.

* The failure to disclose the transfer of the Maine Property and the

failure to disclose the existence of the Tax Refund were the primary

issues raised by the Respondent during the Hearing. Since the Hearing,

several other acts and omissions of the Debtor have come to light which

would have provided further support for the denial of the Verified

Notice of Conversion to Chapter 13.

5

of the facts presented, the Bankruptcy Court entered an

Order denying the Debtor’s Verified Notice of Conversion.

S

ALLOWANCE OF THE PETITION

Although the Respondent is of the opinion that the

First Circuit correctly upheid Judge Hillman’s decision

that a Debtor’s request to convert a case from Chapter 7 to

Chapter 13 may be denied due to the bad faith conduct of

the Debtor, the Respondent cannot disagree with the

Petitioner's position that there is a split of authority

among courts which have considered this issue.*

11 U.S.C. §706(a) provides: “The debtor may convert a

case under this chapter to a case under chapter 11, 12 or

13 of this title at any time, if the case has not been con-

verted under section 1112, 1208 or 1307 of this title.” The

Debtor asserts that the plain language of this statute as

well as its legislative history compels the finding that the

statute requires a court to allow a debtor to convert his

case from Chapter 7 to Chapter 13 regardless of the

debtor’s conduct. The Trustee asserts, and the First

* The BAP Decision cites the following comment by the Honorable

David S. Kennedy “[i]t is somewhat difficult to determine at this time in

the development of the decisional law which view actually represents

the majority or minority of courts, especially considering the fact that

conflicting reported opinions substantiating the statutory right as an

absolute one or qualified right seemingly appear in almost every new

bankruptcy advance sheet.” David S. Kennedy, “Current Controversies

Centering Around a Debtor’s Statutory and Procedural Right to

Convert an Originally Filed Chapter 7 Code and Related Matters,” 18th

Annual Current Developments in Hot & Emerging Areas, Commercial

Law League of America, October 16, 2003 (citing Jn re Ponzini, 277 B.R.

399, 404 n. 3 (Bankr. E.D. Ark. 2002).

6

Circuit held, that the plain language of the statute pro-

vides the bankruptcy court with discretion when deciding

whether to convert a case to Chapter 13 and that the bad

faith conduct of a debtor can justify denial of a conversion

request. Despite the disagreement of the parties on the

proper outcome of this case, the parties agree that a

debtor’s ability to convert his or her Chapter 7 case to

Chapter 13 is an important question that implicates the

rights of both debtors and creditors in the bankruptcy

courts.’ The recent enactment of the Bankruptcy Abuse

Prevention and Consumer Protection Act of 2005 does not

impact or resolve this question.

The Circuit Courts appear to be split on the issue of

conversion. In addition to the First Circuit in this case,

two other Circuit Courts of Appeals have held that a

debtor’s right to convert under 11 U.S.C. §706(a) is not

absolute. The Fourth Circuit in Jn re Finney, 992 F.2d 43

(4th Cir. 1993), held that a debtor’s right to convert under

11 U.S.C. §706(a) can be denied if the debtor’s conduct

during the Chapter 7 proceedings is egregious. The Sixth

Circuit Court of Appeals in Copper, et al. v. Copper (In re

Copper), 426 F.3d 810 (6th Cir. 2005), held that in light of

the permissive language of the statute and common sense,

conversion may be denied based on the debtor’s lack of

good faith.

The decision in Jn re Martin, 880 F.2d 857 (5th Cir.

1989) has been cited as authority for both sides of the

* The importance of this issue is evidenced by the fact that amicus

curiae briefs were filed with the First Circuit by the National Associa-

tion of Bankruptcy Trustees (in support of the Respondent) and the

National Association of Consumer Bankruptcy Attorneys (in support of

the Petitioner).

7

issue. See In re Carrow, 315 B.R. 8 (N.D. N.Y. 2004) (cited

for the proposition that a debtor’s right to convert is

absolute) and Jn re Lesniak, 208 B.R. 902 (Bankr. N.D. Il.

1997) (indicating that a careful reading of Martin suggests

that the debtor’s right to convert is only absolute in the

absence of extreme circumstances). However, last year the

Fifth Circuit Court of Appeals had an opportunity to

revisit its Martin decision, and in an unpublished decision

stated that “the statutory language makes it clear that the

right to convert is absolute and unqualified.” Pequeno v.

Schmidt (In re Pequeno), 126 Fed. Appx. 158, 162 (5th Cir.

2005).

The Bankruptcy Appellate Panels and District Courts

have also reached divergent conclusions with respect to

the issue of a debtor’s right to convert from Chapter 7 to

Chapter 13. These decisions include Cabral v. Shamban

(In re Cabral), 285 B.R. 563 (1st Cir. BAP 2000) (denial of

conversion is warranted in extreme circumstances); Jn re

Carrow, 315 B.R. 8 (the right to convert under 11 U.S.C.

§706(a) is absolute based on the plain language in the

statute and legislative history, and issues of bad faith are

more properly addressed subsequent to the conversion at

the confirmation stage); Jn re Pakuris, 262 B.R. 330 (E.D.

Pa. 2001) (in deciding a motion to convert under 11 U.S.C.

§706(a), the “totality of the circumstances” should be

considered); In re Wampler, 302 B.R. 601 (Bankr. S.D. Ind.

2003) (a bankruptcy court has the discretion to deny a

motion to convert under 11 U.S.C. §706(a) upon a showing

of bad faith or where conversion is sought for an illegiti-

mate purpose); Croston v. Davis (In re Croston), 313 B.R.

447 (9th Cir. BAP 2004) (debtor cannot be barred from

one-time right to convert for reasons other than as stated

in 11 U.S.C. §706, a prior disqualifying conversion or

8

ineligibility for relief under the particular chapter); Miller

v. United States Trustee, et al. (In re Miller), 303 B.R. 471

(10th Cir. BAP 2003) (plain meaning of statute supports

debtor’s right to convert); In re Gallagher, 283 B.R. 604

(Bankr. M.D. Fla. 2002) (in determining whether to deny a

debtor’s motion to convert, courts should consider the

basic policy aim of a Chapter 13 case; the debtor’s motiva-

tion to seek conversion; and the reason why the debtor did

not initially seek relief under Chapter 13).

¢

CONCLUSION

While the Respondent believes that the First Circuit

Court of Appeals correctly ruled that the plain meaning of

11 U.S.C. §706 gives the bankruptcy court discretion to

deny a debtor’s request to convert a Chapter 7 case to

Chapter 13, the Respondent cannot disagree with the

Petitioner’s contention that there is a split of authority on

this matter and that conversion from Chapter 7 to Chapter

13 is an important issue of bankruptcy law.

Respectfully submitted,

MARK G. DEGIACOMO, Chapter 7

Trustee of the Estate of

Robert Louis Marrama

By his attorneys,

MARK G. DEGIACOMO, ESQ.

OLGA L. BOGDANOV, Esq.

MURTHA CULLINA LLP

99 High Street

Boston, MA 02110

617-457-4000 Telephone

617-482-3868 Facsimile

Dated: May 9, 2006