Petitioners Brief — Marrama v. Citizens Bank of Mass.

ud, U.S.

FILED

AUG 7 - 2006

(H) OFFICE OF THE CLERK

No. 05-996

IN THE

SUPREME COURT OF THE UNITED STATES

ROBERT LOUIS MARRAMA,

Petitioner

Vv.

CITIZENS BANK OF MASSACHUSETTS,

And MARK G. DeGIACOMO, CHAPTER 7 TRUSTEE

Respondents

On Wnit of Certiorari to the

United States Court of Appeals for the First Circuit

BRIEF FOR PETITIONER

Jeffrey A. Kitaeff, Esq. David G. Baker, Esq.

Jeffrey A. Kitaeff, P.C. Counsel of Record

Of Counsel Yu Jin Weng, Esq.

565 Turnpike Street 105 Union Wharf

North Andover, MA 01845 Boston, MA 02109

617-367-4260

Attorneys for Petitioner

QUESTION PRESENTED

The First Circuit Court of Appeals affirmed the

decision of the Bankruptcy Appellate Panel for the First

Circuit, which affirmed the decision of the Bankruptcy Court

for the District of Massachusetts denying the request of the

Petitioner, Robert Louis Marrama, to convert his bankruptcy

case from Chapter 7 to Chapter 13. The bankruptcy court did

so in derogation of the plain language of the statute and of the

legislative history. Nonetheless, the Bankruptcy Appellate

Panel and the First Circuit Court of Appeals determined that

the right to convert a case from one chapter to another, found

in 11 USC §706(a), can be denied in the bankruptcy court’s

discretion if the bankruptcy court determines that the request

was made in bad faith. The Bankruptcy Appellate Panel’s

decision focused on factual determinations, rather than the

language of the statute. The First Circuit Court of Appeals

focused on statutory construction and determined that

although the legislative history says that the right to convert

is “absolute”, the right can be denied in circumstances such

as those presented in this case.

The question presented, therefore, is whether the right

to convert a chapter 7 bankruptcy case to another chapter can

be denied notwithstanding the plain language of the statute

and the legislative history.

ul

TABLE OF CONTENTS

CR ee BING EP ccccecceccenssosceseresconcevcesteccescuesnsenanes il

TABLE OF AUTIBORIT IES .20:cesccrcsccscccersecesesoossessesecoseovesces iv

TI csinrrctieticsncitneinscbilemencinidaintsctesianiediaabnaiiies 1

STATEMENT OF JURISDICTION................cccccccsseseeseeeseees l

CONSTITUTIONAL AND STATUTORY PROVISIONS

FTE TTT siscidniteietatellaieciihdlehiininstaiaiahiasesibelpeinsiigienietniamianenit ]

STATEMENT OF THE CASEB........00.ccsevcscccsssssescsososescosssseeses 3

SUMMARY OF ARGUMENT ...........cccccecsecssessesseeeeeeeneees 6

ee cticitiainiddaneeiatiiniininaiiinicicibcilnisnsniiiinenisnusappainsiaeil 7

I. The Statutory Scheme of Bankruptcy...................0... 7

II. Statutory Construction and The Statute at Issue........ 9

Ill. The Decisions Below .....................c..cccscccssscsssseseesees 11

IV. The Bright-line Rule Created by Congress.............. 15

V. The policy underlying the night to convert. ............. 19

VI. A debtor’s due process rights and conversion ......... 23

SN vcdasincictriscsiaibendtienaiintidiinipihiciisdntadtinanidncttinainivnil 27

TABLE OF AUTHORITIES

Cases

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106

S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986) ......c.ccccccsecseseene 25

Anderson v. Yungkau, 329 U.S. 482, 67 S.Ct. 428, 91 L.Ed.

| REET SERRE ee oR 10

Barbosa v. Soloman, 235 F.3d 31 (1 Cir. 2000) ..........0:00-. 22

Barnhart v. Sigmon Coal Co., 534 U.S. 438, 452, 122 S.Ct.

941, 151 L.Ed.2d 908 (2002) ......:.scccessessessessecsesseesesseeveees 10

Calder v. Job et al, 973 F.2d 862 (10 Cir. 1992) ......ccsscese. 17

Central Virginia Community College v. Katz, 126 S.Ct. 990,

163 L.Ed. 2d 945 (2006) .......ecccsseccsscssessessessesseseesecsnesseenee 7

Connecticut Nat. Bank v. Germain 503 U.S. 249, 112 S.Ct.

1146, 117 L.Ed. 2d 391 (1992) ...ccccccccseccessessessessesessseseesven 9

In re Barbieri, 199 F.3d 616 (2 Cir. 1999) ooo... 10, 16, 18

In re Cabral, 285 B.R. 563 (1* Cir. BAP 2002)...........000000: 24

In re Calder, 93 B.R. 739 (Bkrtcy.D.Utah. 1988)................ 16

In re Copper, 314 B.R. 628 (6™ Cir. BAP 2004) ..........0000. 18

In re Copper, 426 F.3d 810 (6" Cir. 2005) .....c.scsssesceesseesees 14

In re Croston, 313 B.R. 447 (9" Cir. BAP 2004) .... 13, 19, 21

In re Hart, 328 F.3d 45 gg RSP 10

In re Marrama, 307 B.R. 332 (Bkrtcy.D.Mass. 2004)........... 4

In re Melendez-Colon, 265 B.R. 639 (1" Cir. BAP 2001)... 24

In re Miller, 113 B,R, 98 (Bkricy. D.Mass. 1990).............2.. 23

In re Miller, 303 8.R. 471 (10 Cir. BAP 2003)................. 13

In re Muessel, 292 B.R. 712 (1* Cir. BAP 2003).... 10, 13, 24

In re Noll, 172 B.R. 122 (Bkrtcy.M.D.Fla. 1994) ......... 16, 17

In re Ponzini, 277 B.R. 399 (Bkrtcy.D.Ar. 2002)................ 18

In re Snyder, 279 B.R. 1 (1" Cir. BAP 2002) ..0.......ccscessee0e- 24

In re Young, 237 F.3d 1168 (10" Cir. 2001) .........c.cccccsesees 17

In the Matter of Pequeno (Pequeno v. Schmidt, Trustee), 126

Fed. Appx. 158 (S™ Cir. 2005).............cccccseceeeeeeee 13, 14,17

Jacobellis v. Ohio, 378 U.S. 184, 84 S.Ct. 1676, 12 L.Ed.2d

FT a iitstiniiasanieacinntiiiinnadipuininiabhinipeimasunactepmuninnnias 16

iv

Jamo v. Katahdin Federal Credit Union (In re Jamo), 283

Fe Pg Ee CHE > ee icvccactstnseiiuiisinbeascintanianiddaiiis 16

Keach v. Boyajian (In re Keach), 243 B.R. 851 (1" Cir. BAP

DR cicedttcnnnthaa tatiana ete 10, 13, 16

Kuntz v. Shamban (In re Kuntz), 233 B.R. 580 (1" Cir. BAP

NRG ected nts add ceemase eaten tpcanactce Lane 19

Local Loan Co. v. Hunt, 292 US 234, 54 S.Ct. 695, 78 L.Ed.

(5 TE EROR LIS HEAR | = 7, 20

Marrama v. Citizens Bank of Massachusetts and DeGiacomo,

Trustee (In re Marrama), 313 B.R. 525 (1* Cir. BAP 2004)

seiaciimiaieidentiaadliadilttindh a ta die dai ase aa 1, 16

Marrama v. Citizens Bank of Massachusetts and DeGiacomo,

Trustee (In re Marrama), 430 F. 3d 474 (1* Cir. 2005).... 1,

11,19

Martin v. Martin (In re Martin), 880 F.2d 857, 859 (Sth

ETI seisnichisiacndaseinbiiiinetneninindstedestadionsishaniuistandedasiiiatnddiaails 14

Miller v. United States Trustee, et al, 303 B.R. 471 (10" Cir.

SU” NUIT stciibicicsidsniceeeisieaijeiileeitiindelinichautibdaiadiea munca 17

Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306,

314, 70 S.Ct. 652, 94 L.Ed. 865 (1950)... eeeeeeees 24

Norwest Bank Worthington vy. Ahlers, 485 US 197, 108 S.Ct.

963, 99 L.Ed.2d 169 (1998)...........cc-cccrsosccssevccosssssscesoreees 16

Owen v. Owen, 500 U.S. 305, 111 S.Ct. 1833, 114 L.Ed. 2d

Fe Biircsscisencsnininnsnncssiciidassaistadiiseamiamiainiiiiamitiastiial 8

Street v. Lawson (In re Street), 55 B.R. 763 (9" Cir. BAP

PID sccccninsendiessniitdinictasinailinchesasecsinnieeipiidiiniaimmasaiuaiad 21

Taylor v. Freeland and Kronz, 503 U.S. 638, 112 S. Ct. 1644,

DOG ©. BG, Be ee CO recetccscntccctasccsmmsesciitaeiaiinian 8, 19,24

U.S. v. Security Indus. Bank, 459 U.S. 70, 103 S.CT. 407, 74

LE 2d Ae 6 Pe nsscnsicinrstuvinsinesnsstiasensenisuiiiiaieaiiieiimaines 8

Williams v. U.S. Fidelity & Guaranty Co., 236 U.S. 549, 35

Tem § {RB ist, 7, 20

Statutes

OF TS BEI cnccccasccsscsccccssesecssnitestiantitisimaiuaniuaiianimanniaiie 13

BF BIS GI scccccscnsmnccsstcnsasssscanssontenbiitatecemioshiemaimimnaaalials 16

BD Rie Cee eiccecnevsienctiepeteaseisenseiaqeenvtadtuiniaeamamaiininiaaiiiaia 8,17

SESE 3

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EE passim

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EEE EET 19

ETE A 13

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Other Authorities

H.R.Rep. No. 95-595, at 380 (1977) ........ccccccccccceeeeeees 12, 20

S.Rep. No. 95-989, at 94 (1978) .......ccccccccccccccceeeeeeeees 12, 20

Rules

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OPINIONS BELOW

The bankruptcy court did not issue a written opinion.

The ewe of the nee Appellate steve is reported at

gd Det

eettendin to eee 313 BR. 525 a Cir BAP 2004).

The decision of the Bankruptcy Appellate Panel denying a

motion for rehearing was not reported. The opinion of the

First Circuit Court of Appeals is reported under the same title

at 430 F. 3d 474 (1* Cir. 2005).

STATEMENT OF JURISDICTION

This Court’s jurisdiction is invoked under 28 USC

§1254(1).

The opinion of the First Circuit Court of Appeals was

rendered on October 31, 2005. This Court granted the

Petition for Certiorari on June 12, 2006.

CONSTITUTIONAL AND STATUTORY PROVISIONS

INVOLVED

TITLE 11. BANKRUPTCY - UNITED STATES CODE

Chapter 7. Liquidation

Subchapter I. Officers and Administration

11 USC §706. Conversion

(a) 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 converted under section 1112, 1208, or 1307 of

this title. Any waiver of the right to convert a case under this

subsection is unenforceable.

(b) On request of a party in interest and after notice and a

hearing, the court may convert a case under this chapter to a

case under chapter 11 of this title at any time.

(c) The court may not convert a case under this chapter to a

case under chapter 12 or 13 of this title unless the debtor

requests such conversion.

(d) Notwithstanding any other provision of this section, a

case may not be converted to a case under another chapter of

this title unless the debtor may be a debtor under such

chapter.

STATEMENT OF THE CASE

Petitioner Robert Louis Marrama commenced a

bankruptcy case under Chapter 7 of Title 11, United States

Code, on March 11, 2003. Respondent Mark DeGiacomo

(hereinafter “DeGiacomo”) was appointed trustee, and

respondent Citizens Bank was listed as a creditor. The

Meeting of Creditors required by 11 USC §341 commenced

on April 24, 2003, and was continued several times, finally

concluding on November 18, 2003. At the first meeting,

DeGiacomo recommended certain amendments to the

schedules, which eventually were made.

The bankruptcy case resulted from the breakdown of

a business relationship that Marrama had with respondent

Citizens Bank, or its predecessors, for about 14 years.

Citizens had provided a line or lines of credit to Marrama’s

business, RLM Flooring, Inc. At some point, Marrama

requested an increase in his credit line to help him cope with

a temporary cash flow problem. In response, Citizens

refused the request and instead called in its note, demanding

immediate payment in full When payment was not

forthcoming, Citizens commenced litigation in_ the

Massachusetts Superior Court for Suffolk County. During

the course of pre-trial proceedings, Citizens obtained

permission of the Superior Court to take possession of all of

RLM’s assets, including accounts receivable, thereby

effectively shutting down the business. Having been

rendered unemployed, Marrama sought bankruptcy relief in

order to gain “breathing room” and develop a source of

income. Being then unemployed, Marrama did not qualify to

file under Chapter 13, as he did not have a regular income as

required by 11 USC §109(e). The state court litigation never

went to trial in the state court.

Among Marrama’s assets was a “summer home” in

York, Maine, and his permanent residence in Gloucester,

Massachusetts. Although the Maine property was owned in a

spendthrift trust, the bankruptcy court determined that the

trust was not valid or was revocabie’. Accordingly,

respondent DeGiacomo, as chapter 7 trustee, liquidated that

property. On the date of the bankruptcy petition, Marrama

was residing in the Maine property. Thus, Citizens took the

position that Marrama’s homestead exemption for the

Gloucester property, claimed pursuant to state law, was

invalid. In a published decision, In re Marrama, 307 B.R.

332 (Bkritcy.D.Mass. 2004), the bankruptcy court overruled

Citizens’ position. Thus Marrama presently is living in

Gloucester, Massachusetts, and that property is exempted

from the bankruptcy estate.

Once Marrama was able to find employment’, he

sought to convert the case to Chapter 13 so that he could cure

the arrears on his mortgages that arose due to the financial

problems that arose from the Citizens litigation, and thereby

keep his homes. Both respondents objected to the

conversion, claiming essentially that the request was made in

bad faith; there was no allegation that Marrama was not

qualified to be a debtor under chapter 13. The bankruptcy

court, alluding to one of its own published decisions, denied

conversion. On intermediate appeal, the Bankruptcy

Appellate Panel affirmed, and denied a motion for rehearing.

Fortunately, Marrama was able to resolve the mortgage

foreclosure issues outside of bankruptcy, and at the time the

' This statement results from the fact that the bankruptcy court allowed

DeGiacomo’s motion to revoke the trust. The motion was allowed

without a hearing, so the bankruptcy court’s reasoning is not known with

certainty, but that the bankruptcy court so determined is a reasonable

inference from allowance of the motion.

? His family has been in the flooring business for at least two

generations. Thus he was able to find employment with a brother’s

flooring company.

Petition for Certiorari was granted, he was still living in

Gloucester Massachusetts.

A timely appeal to the First Circuit followed. The

First Circuit affirmed. A timely Petition for Certiorari was

filed in this court, and was granted on June 12, 2006.

SUMMARY OF ARGUMENT

The Bankruptcy Code provides a comprehensive

scheme whereby persons, both natural and corporate, may

obtain a release, called a “discharge”, from the legal

obligation to pay most of their debt. Furthermore, it provides

an orderly, balanced and systematic method of providing a

return to creditors, where possible, while still permitting a

debtor to retain certain property in order to enhance the

debtor’s future prospects.

The Congressional scheme provides essentially two

types of bankruptcy: liquidation and reorganization. The

various chapters all permit, in essence, a debtor who has filed

under one chapter to convert to another chapter. These

provisions generally allow one such conversion as a matter of

right, subject to certain explicit conditions.

In the statutes that it enacts, Congress is presumed to

say what it means and mean what it says. While it cannot be

disputed that judges are charged with applying the law to the

cases before them — not always an easy task - where a result

is mandated by statute, the judge is bound to apply the statute

as written, without exception, however inappropriate or

distasteful a judge may find the result.

In this case, the bankruptcy judge decided that

Marrama had requested conversion from chapter 7 to chapter

13 in bad faith. The determination was made by the

bankruptcy judge summarily, i.e., without an evidentiary

hearing, based on claims of bad faith made by the chapter 7

trustee and Citizens Bank.

On appeal before the Bankruptcy Appellate Panel for

the First Circuit and again in the First Circuit Court of

Appeals, Marrama contended that the judge erred by

exercising a discretion he did not have, however both courts

disagreed and affirmed the bankruptcy court. A timely

Petition for Certiorari was filed and granted.

ARGUMENT

I. THE STATUTORY SCHEME OF BANKRUPTCY

In Title 11 of the United States Code, popularly

known as the Bankruptcy Code, Congress has set forth a

comprehensive scheme whereby persons, both natural and

corporate, may obtain a release, called a “discharge”, from

the legal obligation to pay most of their debt. Although the

United States Constitution authorizes Congress to establish

uniform laws respecting bankruptcy, Congress did not do so

until 1800. See Central Virginia Community College v. Katz,

126 S.Ct. 990, 163 L.Ed. 2d 945 (2006) (providing a brief but

comprehensive history of bankruptcy in the United States).

The law has been amended many times since then, including

major changes in 1994 and 2005. The law applicable to this

case is that adopted in 1994, as the petition was filed prior to

the 2005 amendments.

This scheme has biblical roots’, and reflects a public

policy that encourages those who have faltered economically,

and helps them to return to being productive and contributing

members of society to the best of their ability. This court has

stated that “[i]t is the purpose of the bankrupt act to convert

the assets of the bankrupt into cash for distribution among

creditors, and then to relieve the honest debtor from the

weight of oppressive indebtedness, and permit him to start

afresh free from the obligations and _ responsibilities

consequent upon business misfortunes.” Williams v. U.S.

Fidelity & Guaranty Co., 236 U.S. 549, 35 S.Ct. 289, 59

L.Ed. 713 (1915), cited in Local Loan Co. v. Hunt, 292 US

234, 54 S.Ct. 695, 78 L.Ed. 1230 (1934) and other cases too

numerous to list. In addition, it provides an orderly, balanced

and systematic method of providing a return to creditors,

* See, e.g., Deuteronomy 15.

where possible, while still permitting a debtor to retain

certain property in order to enhance the debtor’s future

prospects. See U.S. v. Security Indus. Bank, 459 U.S. 70,

103 S.Ct. 407, 74 L.Ed. 2d 235 (1982) (Blackmun, J,

‘concurring in the judgment)’. The system makes no

guarantees to anyone, but inherently gives hope to those who

come within its reaches. Congress has determined that

certain debts, such as for child support, alimony, and most

taxes, cannot be discharged’. In addition, for those who

abuse its provisions, the Bankruptcy Code provides for the

discharge to be denied®. In other parts of the United States

Code, certain acts in connection with a bankruptcy case are

defined as criminal’. Thus, Congress has determined when

and how a debtor (or, as the case may be, a creditor) should

be punished.

The Congressional scheme provides essentially two

types of bankruptcy: liquidation and reorganization. The

liquidation chapter is chapter 7; the reorganization chapters

are chapter 11 and chapter 13. Although natural persons can

be debtors® in chapter 11, the procedures and costs associated

with chapter 11 make it impractical for most natural persons.

In chapter 13, however, the reorganization procedures are

*« the purpose of the statute is salutary and is to give the debtor a fresh

start with a minimum for necessities ...”. The Bankruptcy Code permits

an individual (i.e., not a corporate debtor) to exempt certain property, see

11 USC §522. Property claimed as exempt is exempt unless a party in

interest timely objects to the exemption and the objection is sustained.

Taylor v. Freeland and Kronz, 503 U.S. 638, 112 S. Ct. 1644, 118 L. Ed.

2d 280 (1992). The exemption has the effect of removing the property

from the bankruptcy estate, Owen v. Owen, 500 U.S. 305, 111 S.Ct.

1833, 114 L.Ed. 2d 350 (1991), thus statutorily depriving the chapter 7

trustee the opportunity to administer the property.

* See 11 USC §523.

® See, e.g., 11 USC §727.

” See, e.g., 18 USC §156 et seq.

* Eligibility for the various chapters is set forth in 1] USC §109.

simpler and the cost significantly less. Corporations are not

permitted to be debtors in chapter 13”.

The various chapters all provide, in essence, that a

debtor who has filed under one chapter has discretion to

convert to another chapter once as a matter of right, subject to

certain explicit conditions. For example, a debtor in chapter

7 apparently may convert, as of right, to any other chapter so

long as that debtor is eligible to be a debtor in that chapter

and the case has not been converted previously. After the

first conversion, leave of the bankruptcy judge is required for

subsequent conversions.

II. STATUTORY CONSTRUCTION AND THE STATUTE AT

ISSUE

Section 706 of the Bankruptcy Code, quoted in full

beginning on page 1, may be summarized as follows: a

chapter 7 debtor may convert the case to one under chapter

11, 12, or 13 at any time so long as the case has not been

converted previously and the debtor is qualified to be a

debtor under that chapter; the right to convert a case cannot

be waived. If a party in interest (presumably other than the

debtor) requests conversion, the court may convert the case to

chapter 11 at any time. However, the court may not convert a

case to chapter 12'° or 13 unless the debtor requests such

conversion.

It is a fundamental canon of statutory construction

that in the statutes that it enacts, Congress is presumed to say

what it means and mean what it says, and if the words of a

statute are unambiguous, the judicial inquiry is complete.

See, e.g., Connecticut Nat. Bank v. Germain 503 U.S. 249,

112 S.Ct. 1146, 117 L.Ed. 2d 391 (1992). Because Congress

9

Id.

'° Chapter 12 is also a reorganization chapter but at all times relevant

hereto was limited to “family farmers” as defined by the statute.

does not always speak with crystalline clarity, however, and

because Congress cannot reasonably be expected to

anticipate every factual scenario that may arise in connection

with a statute, it is sometimes necessary to look to the

Legislative History. Id. Ultimately, judges are required to

interpret statutes in a way that avoids an absurd result, or a

result that is plainly contrary to Congressional purpose.

Nonetheless, where a statute is clear, and a rational,

reasonable interpretation and application of the statute is

possible based on the plain language of the statute, judges

should not be free to interpret the statute in a way that suits

their view of the parties before them. However inappropriate

or distasteful a judge may find a certain result, where that

result is mandated by statute, the judge is required to apply

the statute as written, without exception. Keach v. Boyajian

(In re Keach), 243 B.R. 851 (1* Cir. BAP 2000). As a result,

when Congress specifies the party to a bankruptcy case who

may do something, only that party may do it. In re Muessel,

292 B.R. 712 (1* Cir. BAP 2003).

It is generally held that the use of the word “may”

implies permission or discretion. See In re Barbieri, 199 F.3d

616 (2 Cir. 1999), citing Anderson v. Yungkau, 329 U.S.

482, 67 S.Ct. 428, 91 L.Ed. 436 (1947). "[I]t is a general

principle of statutory construction that when Congress

includes particular language in one section of a statute but

omits it in another section of the same Act, it is generally

presumed that Congress acts intentionally and purposely in

the disparate inclusion or exclusion.” In re Hart, 328 F.3d 45

(1" Cir. 2003) (quoting, in a bankruptcy case, Barnhart v.

Sigmon Coal Co., 534 U.S. 438, 452, 122 S.Ct. 941, 151

L.Ed.2d 908 (2002) (quotation marks and citation omitted).

Thus, where Congress says “the debtor” in one place and “the

court” (or some other actor) in another, it must be presumed

that Congress intentionally made the distinction.

10

Il. THE DECISIONS BELOW

In this case, the bankruptcy judge decided that

Marrama had requested conversion from chapter 7 to chapter

13 in bad faith, and decided to punish him by denying his

absolute right to convert. JA pg. 35a. No question was

raised as to his eligibility to be a debtor in chapter 13 based

on the statutory definition of eligibility''. The determination

was made by the bankruptcy judge summarily, i.e., without

an evidentiary hearing, based on claims of bad faith made by

the chapter 7 trustee and Citizens Bank. The bankruptcy

judge concluded (incorrectly'”) that Marrama had attempted

to conceal property from the trustee and that this constituted

bad faith, warranting denial of Marrama’s request for

conversion to chapter 13. See Id.

The Bankruptcy Appellate Panel for the First Circuit

did not engage in any extended analysis of the statute, but

merely assumed that its interpretation was correct, relying on

its own prior decisions and those of other courts that had

similarly held. Pet. at pg. 9. On further appeal to the First

Circuit Court of Appeals, the court performed the necessary

statutory analysis, and concluded that although the statute

was not ambiguous, the court nonetheless “would look to the

statute’s ‘historical context, its legislative history, and the

underlying policies that animate its provisions.” Marrama v.

Citizens Bank of Massaachusetts and DeGiacomo, Trustee,

430 F.3d 474 at 4; Pet. at pg. 29.

The court then examined the Legislative History,

which says:

Subsection (a) of this section gives the debtor the one-

'' See 11 USC §109%e).

'? It is surely a foregone conclusion that the Respondents will argue that

the facts warranted the bankruptcy judge’s decision, so the Petitioner

reserves the right to argue the point as well.

1]

time absolute right of conversion of a liquidation case

to a reorganization or individual repayment plan case.

If the case has already once been converted from

chapter 11 or 13 to chapter 7, then the debtor does not

have that right. The policy of the provisions is that the

debtor should always be given the opportunity to

repay his debts.

H.R.Rep. No. 95-595, at 380 (1977); S.Rep. No. 95-989, at

94 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5880.

Finding the term “absolute” to be “problematic, if taken out

of context, in that it implies that the debtor’s conversion right

is unconditional”, the court noted that the statute, itself,

contained “numerous” conditions that might defeat a debtor’s

motion to convert. Pet. at pg. 37. The court only pointed to

one, however, that being that the right is limited to one

conversion “as a matter of right”. Notwithstanding the

finding that the statute is not ambiguous and disregarding the

crystal-clear language of the Legislative History, the court

then proceeded to create a judicial exception to the right, and

to limit the exercise of that nght to debtors that the courts

deemed to be “honest” in order to prevent debtors from

abusing or manipulating the bankruptcy process. Pet. at pg.

38.

Marrama respectfully suggests that the term

“absolute” does not imply anything. Instead, it is a

particularly crystal clear statement of Congressional intent

and purpose. It gives discretion to a debtor — and only to a

debtor — voluntarily to convert a case from Chapter 7 to

either Chapter 11, 12, or 13 one time, for any reason, and

permits judicial inquiry into the conversion only for a

determination of whether the debtor has previously converted

the case from one chapter to another and whether the debtor

is qualified to be a debtor in that chapter. There is nothing in

the statute or the Legislative History which affords discretion

12

to a judge to refuse conversion on any other basis. In the

f Pequ no v. Schmidt, Trustee), 126 Fed.

Appx. 158 (5" Cir. 2005); In re Croston, 313 B.R. 447 (9"

Cir. BAP 2004); In re Miller, 303 B.R. 471 (10" Cir. BAP

2003).

There is nothing irrational or absurd about Congress

giving discretion to a debtor to decide how to proceed in a

bankruptcy case. For example, in a chapter 7 case, the debtor

must choose whether to redeem or surrender property subject

to security interest, or to reaffirm the debt. 11 USC §521!. In

a chapter 13 case, only the debtor can file a plan; creditors

and the court are not among the universe of parties who may

file a plan. 11 USC 1321; In re Muessel, 292 B.R. 712 (1*

Cir. BAP 2003). While a plan must have certain provisions,

the debtor has discretion to decide what other provisions the

plan will contain. Id.

There is also nothing irrational or absurd about

Congress dictating a certain result or denying a judge

discretion. If a chapter 13 plan contains the mandatory

provisions and otherwise complies with the Bankruptcy

Code, the bankruptcy judge must confirm the plan'®. The

only issue the bankruptcy judge decides is whether the plan

complies with the statute; she may not alter the plan terms to

suit her opinion regarding the debtor’s conduct. Keach v.

Boyajian (In re Keach), 243 B.R. 851 (1st Cir. BAP 2000).

Similarly, in section 706(c), Congress stated that “the

court may not convert a case ... unless the debtor requests

such conversion.” (Emphasis added.) Congress has stated

that the phrase “may not” is “prohibitive, and not

permissive”. 11 USC §102(4). Clearly Congress has

'? 11 USC §1325 provides that “the court shall confirm a plan if” it

complies with the statute. (Emphasis added.) As noted above, the use of

the word “shall” implies a command leaving no room for discretion. The

judge’s function is limited to determining whether the plan complies. See

Muessel, infra.

13

dictated the result that obtains when a party other than the

debtor seeks to convert a chapter 7 case to chapter 13, and

denied the bankruptcy judge discretion to allow an

involuntary conversion to chapter 13'*.

Notwithstanding the seemingly crystal clear

Congressional directive, whether found in the statute or the

Legislative History, some courts have applied a “judicial

gloss” to the statute. In _4r s, 188 BR 375

(Bkricy.W.D.Tx 1995) (holding that the right to convert from

Chapter 7 to Chapter 11 is absolute; collecting cases). The

Sixth Circuit, for example, disagreed with both the Fifth

Circuit Court of Appeals and the Tenth Circuit Bankruptcy

Appellate Panel. In re Copper, 426 F.3d 810 (6" Cir. 2005).

The Sixth Circuit expressly recognized the split of authority

and that “fair arguments can be made for either position.”

Nonetheless, the Sixth Circuit concluded that conversion may

be denied in the absence of good faith.

Most cases — on both sides of the question — rely on a

decision from the Fifth Circuit. Martin v. Martin (In re

Martin), 880 F.2d 857, 859 (Sth Cir,1989). That court was

regrettably imprecise in that it concluded that the right to

convert, as indicated by the statute and its legislative history,

is absolute, but in the very next sentence, seemed to give

courts discretion to deny conversion because it notes that “the

courts refuse to interfere with that right in the absence of

extreme circumstances.”

Recently, however, the Fifth Circuit had occasion to

revisit the issue and to clarify the Martin decision. In the

Matter of Pequ P v. Schmi tee), 126 Fed.

Appx. 158 (S" Cir. 2005). Although this appears to be an

otherwise unpublished decision, it is directly on point and

highly material to the present petition, and should be

'* The 2005 amendments to the Bankruptcy Code modified this such that

a debtor may consent to conversion requested by another party, but still

denies judges discretion to allow involuntary conversion to chapter 13.

14

considered by this Court. In this decision, the Fifth Circuit

recognized that there is dicta in the Martin decision that

could be interpreted otherwise, but the court nonetheless

clarified its view that “(t]he statutory language makes it clear

that the right to convert is absolute and unqualified.” The

court thereby joined what appears to be a slight majority of

courts holding that the right is absolute and unfettered.

This majority, however slim, adheres to the plain

language of the statute, which provides only two bases for

denying conversion, and to the Legislative History, which

explicitly says that the one-time right to convert is absolute.

The First Circuit was wrong to impose an additional

judicially-created exception which would deny conversion

based on a bankruptcy judge’s perception of the debtor’s

motivation, i.e., to punish the debtor for perceived abuses.

Congress has mandated that when a debtor requests

conversion from chapter 7 to another chapter, the case must

be converted if the debtor is qualified for relief under that

chapter and has not previously requested conversion.

The decisions below erred in creating judicial

exceptions to the Congressional mandate. As other circuits

have determined, the right to convert once is absolute and

may not be abrogated except by Congress in the two

circumstances expressly stated by Congress in the statute.

IV. THE BRIGHT-LINE RULE CREATED BY CONGRESS

In creating that mandate, Congress has established a

bright-line rule that must be obeyed. The chaos that results

when that bright-line rule is not obeyed — i.e., when courts

create their own subjective exceptions to the rule made by

Congress — is made evident by the extraordinary disparity in

application of the exception to the facts in reported cases. It

is a seemingly innocent and well intentioned rule; if a debtor

requests conversion in bad faith, then the court may deny

15

conversion. Like pornography, however, “bad faith” is easier

to identify than to define’.

That the absolute right to convert from chapter 7 to

another chapter may be denied in “extreme circumstances”

appears to have its genesis in a case from the bankruptcy

court for the District of Utah. In re Calder, 93 B.R. 739

(Bkrtcy.D.Utah. 1988). In that case, the debtor was an

attorney who had filed several cases and, in the view of the

bankruptcy court, was abusing the system solely to gain an

advantage against his creditors and did not have a sincere

desire to pay his creditors. The bankruptcy court invoked its

power under 11 USC §105'° to deny conversion in order to

'S “Bad faith” is presumably the opposite of “good faith”. Keach v.

Boyajian (In re Keach), 243 B.R. 851 (ist Cir. BAP 2000), supra. “The

term “good faith” is not easily defined and the requirement is not capable

of pragmatic and mechanical application. In the last analysis it is the

same as pornography, one cannot define it but will readily recognize it

when one sees it.” In re Noll, 172 B.R. 122 (Bkrtcy.M.D.Fla. 1994).

citing Jacobellis v. Ohio, 378 U.S. 184, 84 S.Ct. 1676, 12 L.Ed.2d 793

(1964) (Stewart, J.)

'€ Section 105 of the Bankruptcy Code gives bankruptcy courts authority,

in essence, to issue any writ or order “necessary or appropriate to carry

out the provisions of this title.” However, that section is not a “roving

writ, much less a free hand.” Jamo v. Katahdin Federal Credit Union (In

re Jamo), 283 F.3d 392, 403 (ist Cir. 2002); see also In re Barbieri, 199

F.3d 616 (2™ Cir. 1999) (court may not disregard the plain language of a

statute and exercise discretion where none is afforded); cf Norwest Bank

Worthington v. Ahlers, 485 US 197, 108 S.Ct. 963, 99 L.Ed.2d 169

(1998) (not mentioning §105 but stating that whatever equitable powers

the bankruptcy courts have can only be exercised within the confines of

the Bankruptcy Code). In the present case, the Bankruptcy Appellate

Panel for the First Circuit properly and soundly rejected the use of §105

in this context, Pet. at pg. 22, fn. 6, but nonetheless held that the “totality

of the circumstances” can justify denial of the absolute right to convert.

Marrama v. Citizens Bank of Massachusetts and DeGiacomo, Trustee,

313 B.R. at 533 (1* Cir. BAP 2004). The First Circuit was less forceful

about rejecting the use of §105, but nonetheless did not rely on it, Pet. at

32.

16

prevent further abuse of the system. About four years later,

in considering an appeal in the same case but on a different

issue, the Tenth Circuit disclosed that the debtor had

appealed the denial of conversion to the district court, and the

district court had reversed in an unpublished decision. Calder

v. Job et al, 973 F.2d 862 (10" Cir. 1992). While it may be

dicta, the Tenth Circuit did agree with Calder “that the

Bankruptcy Rules cannot override the absolute right to

convert pursuant to §706(a).” Thus it seems clear that the

bankruptcy court’s decision in Calder is neither good

precedent nor a proper foundation for the myriad of decisions

that followed it. More recently, the Tenth Circuit Court of

Appeals in In re Young, 237 F.3d 1168 (10" Cir. 2001), and

the Bankruptcy Appellate Panel for the Tenth Circuit in

Miller v. United States Trustee, et al, 303 B.R. 471 (10" Cir.

BAP 2003), both confirmed that the law in that circuit is that

the right to convert is absolute’’, thus joining the Fifth

Circuit, see In the Matter of Pequeno (Pequeno v. Schmidt,

Trustee), 126 Fed. Appx. 158 (5° Cir. 2005).

What constitutes “extreme circumstances” is not

“capable of pragmatic and mechanical application.”'® The

“extreme circumstances” standard leaves debtors and their

counsel with no reliable guide as to how the law will be

applied. Accordingly, bankruptcy courts should be required

to follow the bright-line rule that Congress has established;

conversion should only be denied if the debtor is not

qualified for relief under the chapter to which conversion is

' The Tenth Circuit stated that conversion could occur even after the

discharge had entered, thus following the plain language of the statute

which says that a debtor may convert “at any time”.

'8 See Noll, note 15, supra.

17

sought, as defined in 11 USC §109, or if the case has already

been converted once’’.

Failure to follow that bright-line rule, combined with

other mis-readings of the statute, has caused much damage to

debtors, and, by extension, to creditors, as well”. In one

decision, In re Ponzini, 277 B.R. 399 (Bkrtcy.D.Ar. 2002),

cited by the Bankruptcy Appellate Panel for the First Circuit

in this case, Pet. at pg. 23, fn.7, the bankruptcy court initially

correctly quoted the statute: “The debtor may convert a case

under this chapter to a case under chapter 11, 12, or 13 of this

title at any time, ...” but then proceeded to change the

statute’s language: “Moreover, and most importantly,

§706(a) states that the court ‘may’ convert a case at any

time.” (emphasis added.) Id. at 404. Section 706(a) does not

say any such thing; it says that the debtor may convert a case

at any time. Thus the statute gives the debtor discretion, not

the court. See In re Barbieri, 199 F.3d 616 (2 Cir. 1999)

(court may not disregard the plain language of a statute and

exercise discretion where none is afforded). This flawed

reading of the statute unfortunately was persuasive in the

present case to the Bankruptcy Appellate Panel for the First

Circuit. In denying Marrama’s motion for rehearing on that

and other points, the Panel held, in essence, that the

distinction is irrelevant. Marrama respectfully disagrees; the

distinction is important because it is a distinction made by

Congress in its choice of language.

More recently, the Bankruptcy Appellate Panel for the

Sixth Circuit recited a litany of alleged sins by a debtor, and

'? If the case has already been converted once but the debtor qualifies for

relief under the chapter to which conversion is sought, conversion

becomes discretionary with the bankruptcy court.

0 In order to be confirmed, a chapter 13 plan must propose to pay

creditors at least as much as they would receive in a chapter 7 liquidation.

Thus, courts which deny conversion deny creditors the opportunity to

receive more than they otherwise would have received.

18

noted that the bankruptcy court had found that the desire to

convert to chapter 13 was “motivated solely by a desire to

avoid a determination that the Debtor was not entitled to a

discharge (or that his obligations to Ms. Copper are

nondischargeable) and not by a desire to repay his creditors,

and that the motion thus represented an improper attempt to

‘manipulate the Bankruptcy Code.’" In re Copper, 314 B.R.

628 (6" Cir. BAP 2004). Given that the ultimate goal of all

individual debtors is to obtain a discharge”', Marrama fails to

see anything wrong with “a desire to avoid a determination

that the Debtor was not entitled to a discharge” under chapter

7, or that certain obligations are nondischargeable, especially

since it is Congress that stated that some debts that may not

be discharged in chapter 7 nonetheless can be discharged in

chapter 13. Furthermore, to the extent that there is improper

manipulation of the Bankruptcy Code, it can be remedied

without denying the debtor a right granted by Congress”.

V. THE POLICY UNDERLYING THE RIGHT TO CONVERT.

In reaching its conclusion, the First Circuit Court of

Appeals analyzed the statute and concluded that although the

statute was not ambiguous, the court nonetheless “would look

to the statute’s ‘historical context, its legislative history, and

the underlying policies that animate its provisions.’”

*! Corporate debtors are not entitled to a discharge in chapter 7. See 11

USC §727(a)(1).

” See, e.g., In re Croston, 313 B.R. 447 (9" Cir. BAP 2004) (“We are not

persuaded by decisions that deny §706(a) motions in order to foil

perceived dysfunction,” citing as non-persuasive, inter alia Kuntz y.

Shamban (In re Kuntz), 233 B.R. 580 (1* Cir. BAP 1999). Cf Taylor v.

Freeland and Kronz, 503 U.S. 638, 112 S. Ct. 1644, 118 L. Ed. 2d 280

(1992) (remedy for a debtor claiming an exemption to which he is not

entitled is not denial of the exemption where the objection to the

exemption was untimely, as there are remedies that do not require

violating the plain language of the rule).

19

Marrama__v. Citizens Bank of Massaachusetts and

DeGiacomo, Trustee, 430 F.3d at 4; Pet. at pg. 36. The court

then quoted from the Legislative History:

Subsection (a) of this section gives the debtor the one-

time absolute right of conversion of a liquidation case

to a reorganization or individuai repayment plan case.

If the case has already once been converted from

Chapter 11 or 13 to Chapter 7, then the debtor does

not have that right. The policy of the provisions is that

the debtor should always be given the opportunity to

repay his debts.

citing H.R.Rep. No. 95-595, at 380 (1977); S.Rep. No. 95-

989, at 94 (1978), reprinted in 1978 U.S.C.C.A.N. 5787,

5880. The court then observed that

It is the pronounced policy of subsection 706(a) “that

the debtor should always be given the opportunity to

repay his debts," H.R.Rep. No. 95-595, at 380, thus

should be given one chance to effectuate a viable

chapter 13 plan. It is plainly implicit in this

legislative observation, however, that such an

opportunity is to be accorded only to honest debtors.

The implication is not so plain to Marrama, or to

those courts that find the right absolute, as it is to the First

Circuit. The persistent reference to “honest” debtors,

especially in cases which deny that the right is absolute, no

doubt take their cue from this court’s oft-repeated statement

in Williams v. U.S. Fidelity & Guaranty Co., 236 U.S. 549,

35 S.Ct. 289, 59 L.Ed. 713 (1915), cited in Local Loan Co. v.

Hunt, 292 US 234, 54 S.Ct. 695, 78 L.Ed. 1230 (1934) and

other cases too numerous to list, that bankruptcy relief is

intended to afford the “honest but unfortunate debtor” a fresh

start on her financial life.

20

It is perhaps too easy for bankruptcy courts to take the

word “honest” in that quotation and mis-apply it to justify

whatever result seems appropriate. Literal application would

cause plainly absurd results because, for example, it is

Congress that decides what type of debts may be discharged.

See, e.g., 11 USC §727 and 11 USC §1328. Under chapter

13, even actual fraud may be discharged**. A debtor that

committed actual fraud prior to filing a bankruptcy petition

does not fit within the conventional understanding of

“honest”. Thus bankruptcy courts are abusing their

discretion when they refuse to permit conversion from

chapter 7 to chapter 13 based on the fact that the debtor is

seeking a remedy in chapter 13 that would not be available in

chapter 7; it is not bad faith to seek a remedy that the law

allows. See In re Croston, 313 B.R. 447 (9" Cir. BAP 2004),

citing Street v. Lawson (In re Street), 55 B.R. 763 (9™ Cir.

BAP 1985) (“neither conduct nor motive vitiates the absolute

nature of the right to convert;” conversion after a judgment of

non-dischargeability is not “manipulation of the Bankruptcy

Code”’).

Nonetheless, the First Circuit felt that the

Congressional policy as stated in the Legislative History

could be overridden:

A legislative policy aimed at encouraging able

debtors to undertake the voluntary repayment of their

lawful credit obligations plainly is not served where

the bankruptcy court has determined, as a threshold

finding of fact, that the debtor is utilizing his

subsection 706(a) conversion rights to advance an

*> The discharge under chapter 13 frequently has been referred to as a

“super-discharge” since a broader range of debts could be discharged in

chapter 13. The 2005 amendments to the Bankruptcy Code eliminated

many, but not all, of the differences in discharges between the chapters,

but these amendments are not applicable in this case.

21

ongoing scheme to retain his non-exempt assets from

bona fide creditors.

430 F.3d at 481; Pet. at pg. 39. It appears to be the alleged

“scheme” that concerned the First Circuit, as a few

paragraphs later, the court observed that “the instant

conversion ... would divest the chapter 7 trustee of any

authority to act in behalf of the estate to safeguard its assets.

See Bankruptcy Code § 348(e), 11 U.S.C. § 348(e). Thus, in

the event the debtor were to succeed in securing confirmation

of a chapter 13 plan, he could reacquire his interest in

‘property of the estate,’ as well as the concealed property.”

(Emphasis in the original.)

Leaving aside the fact that there is absolutely no proof

in the record whatsoever that Marrama concealed any

property and that concealment was not the true issue before

the bankruptcy court”, the result which the First Circuit

found so unpalatable is precisely the result which Congress

dictates. 11 USC §348(e) states that “conversion

terminates the service of a trustee or examiner that is serving

in the case before such conversion.” If Congress wanted the

same trustee to continue to serve as trustee, it would have

said so. Similarly, if Congress wanted chapter 13 trustees to

have exactly the same powers as chapter 7 trustees, it would

have said so. Compare, e.g., 11 USC §704 with 11 USC

§1302. The reference to reacquiring “his interest in ‘property

of the estate’” is also meaningless since that is precisely the

result Congress intended; 11 USC §1327(b) provides that

property of the estate revests in the debtor except as set forth

in the plan or the order confirming the plan’’. Furthermore,

4 That being the omission of the transfer from the Statement of

Financial Affairs, which was a mere scrivener's error. Somehow this

issue transmogrified into concealment, which is clear error.

25 There is a debate about what it means for property to “vest in the

debtor”, at least in the First Circuit. See Barbosa v. Soloman, 235 F.3d 31

22

since an explicit requirement for confirmation is that general

unsecured creditors receive at least as much in chapter 13 as

they would in chapter 7 (and usually more), there is no harm

to creditors in a chapter 13 plan being confirmed; ideally,

they benefit, especially if the case would otherwise result in

no payments to creditors. See 11 USC §1325(a)(4).

None of the First Circuit’s allegedly policy-based

reasons for disregarding the plain language of the statute and

the Legislative History have any basis in law. Ultimately,

there is nothing wrong with wanting to convert to chapter 13

in order to retain an asset, as that is exactly what Congress

has permitted in chapter 13°. Congress plainly stated that

the policy of 11 USC §706 is that a debtor should always be

given the opportunity to repay his debts and, by extension, to

retain his non-exempt assets. Denying debtors that

opportunity for subjective reasons, or to punish the debtor,

plainly offends Congressional purpose; finding that the right

to convert is absolute puts that policy into effect.

Vi. A DEBTOR’S DUE PROCESS RIGHTS AND CONVERSION

In justifying its conclusion that the right to convert is

not absolute, the First Circuit noted, correctly, that pursuant

to 11 USC §1307, the bankruptcy court has discretion to

(1" Cir. 2000) (affirming the district court’s holding that vesting in the

debtor does not mean that such property is no longer property of the

estate). In that case, the bankruptcy court held that vesting means,

essentially, that the property is removed from the estate, a position that

would lend some support to the First Circuit’s concern in this case.

However, the district court held that position to be an error of law and the

First Circuit affirmed the district court. Thus the First Circuit’s concern

here is contradictory to its prior holding in Barbosa.

*° Cf In re Miller, 113 B,R, 98 (Bkrtcy.D.Mass. 1990) (In Massachusetts,

declaring a homestead exemption is not a fraudulent transfer because it is

not a “transfer” at all and is expressly permitted by statute; it is not “bad

faith” to do what the law allows.)

23

reconvert or dismiss a chapter 13 case “for cause”. Pet. at pg.

39. The circuit court saw no reason to require the “technical

formality” that the case actually be converted to chapter 13

before considering allegations of bad faith, and that “cause”

includes a failure to propose a plan in “good faith” as

required by 11 USC §1325(a)(3). Pet. at pg. 39. In

Marrama’s view, that requirement is engrained in the statute

and the bankruptcy rules, and short-circuiting the statutory

procedure violates a debtor’s due process rights.

The elements of due process were firmly established

by this court’s decision in Mullane v. Central Hanover Bank

& Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 94 L.Ed. 865

(1950). Due process requires notice and an opportunity to be

heard, Id., and has both procedural and substantive aspects.

See In re Melendez-Colon, 265 B.R. 639 (1“ Cir. BAP 2001).

It is a violation of due process for a bankruptcy court to

decide issues not presented or to make factual determinations

where no evidence was presented”’. Id; In re Muessel, 292

B.R. 712 (1* Cir. BAP 2003). When seeking conversion

from chapter 7 to chapter 13, there is no requirement that a

chapter 13 plan be filed before conversion can be allowed. In

fact, Fed.R.Bankr.P. 3015(b) provides that when a case is

converted, the debtor has fifteen days to file a plan; in other

words, the obligation to file a plan does not arise until the

case actually is converted. The time can be extended, but can

not be reduced. Fed.R.Bankr.P. 9006(c)(2). Cf Taylor v.

Freeland and Kronz, 503 U.S. 638, 112 S. Ct. 1644, 118 L.

Ed. 2d 280 (1992) (holding that an objection to a claim of

exemption, or a request for an extension of time to object,

must be filed within the time allowed and pursuant to

27 Such as the determination by the BAP in this case that Marrama had

improperly claimed a homestead exemption. While the BAP had this

case under advisement, the bankruptcy court, itself, determined that the

homestead exemption was properly claimed. In re Marrama, 307 B.R.

332 (Bkrtcy.D.Mass. 2004).

24

Fed.R.Bankr.P. 9006, the time cannot be enlarged; good faith

in claiming the exemption is not relevant’). Thus,

determinations of good faith based solely on a request for

conversion lack any evidentiary support, especially where, as

here, no plan was filed, and violate due process because good

faith is not a condition to conversion.

The procedure apparently followed by the bankruptcy

court in In re Cabral, 285 B.R. 563 (1" Cir. BAP 2002),

would seem to be the correct procedure. According to the

BAP, the bankruptcy court converted that case to chapter 13

“as of right” when the request was made, and thereafter

treated the chapter 7 trustee’s objection to conversion as a

motion to reconvert. The bankruptcy court held a non-

evidentiary hearing and concluded that the plan was not filed

in good faith as required by 11 USC §1325 and was

otherwise unconfirmable, and converted the case back to

chapter 7. It is clear that the bankruptcy court was

conducting the appropriate analysis under chapter 13, with

evidence properly before her, and not good faith in requesting

the conversion. Due process was observed.

It is also clear that in that case, a chapter 13 plan had

been filed, even though the Rule does not require it until after

conversion. In the present case, no plan had been filed, so

the bankruptcy court had no evidence before it from which it

could make findings concerning Marrama’s good faith in

filing a plan or the confirmability of the plan’’. Although a

non-evidentiary hearing was held, the only “evidence”

presented to the bankruptcy court was the representations of

** In the same way, good faith is not an issue on a motion to avoid a

creditor’s non-consensual judicial lien; the statute only requires the court

to conduct an arithmetic test and the court cannot use its discretion in

ay plying the statute. In re Snyder, 279 B.R. 1 (1" Cir. BAP 2002).

** For the same reason, the Chapter 13 Trustee’s remarks at the hearing in

the bankruptcy court, JA pg. 34a, were utterly meritless, especially as the

Chapter 13 Trustee had no standing to be heard at the time.

25

counsel, which are not evidence at all. Both the BAP and the

First Circuit, however, held that this procedure was

appropriate because no evidentiary hearing had been

requested. Since it is a fundamental requirement that

summary judgment be denied when material facts are in

dispute, see Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

247-48, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986), it is

error to require that an evidentiary hearing be requested when

there is no evidence properly before the court which would

justify summary judgment; it is incumbent on the court to

recognize the factual dispute and set the matter for trial.

This means that the procedure required by the Rules

reinforces the view that the right to convert is absolute. Ifa

request for conversion could be denied based upon the

provisions of a proposed plan or for other reasons, the Rule

would require that a plan be filed with the request so that the

bankruptcy court could have the plan before it. That is not

what the Rule says, however; it says that the plan must be

filed within 15 days affer conversion. Similarly, nothing in

Fed.R.Bankr.P. 1017(f)(2) permits a bankruptcy court to take

evidence when considering a motion to convert a chapter 7

case, except regarding the two conditions in the statute. In re

Porras, 188 BR 375 (Bkrtcy.W.D.Tx 1995). If the right were

not absolute, conversion would be defined by the Rules as a

contested matter, subject to Fed.R.Bankr.P. 9014. Id.

Nothing in the Bankruptcy Code or rules permits

bankruptcy courts to impose their own _ subjective

requirements for conversion of a case from chapter 7 to

another chapter or to consider evidence on any question other

than the explicit statutory restrictions on conversion. Doing

so viOlates the due process rights of debtors because it

imposes requirements and restrictions not contemplated by

Congress. Procedural due process requires that when a

statute or rule establishes the procedure to be followed, that

procedure must be followed.

26

CONCLUSION

The plain language of 11 USC §706 states that a

debtor may convert a chapter 7 case to another chapter, so

long as the debtor is qualified to be a debtor in the chapter to

which conversion is sought and the case has not been

previously converted. In those circumstances, the statute

gives the debtor discretion to convert. Nothing in the statute,

however, gives the bankruptcy court discretion to deny the

absolute right for subjective reasons not found in the statute.

Courts which add other requirements or restrictions, or seek

to punish a debtor because of perceived abuses, err because

they violate the Congressional policy clearly set forth in the

Legislative History, which unambiguously states that the one-

time right of conversion is absolute.

For all of the foregoing reasons, the petitioner

requests that the First Circuit Court of Appeals be reversed,

and that this case be remanded to the bankruptcy court for the

District of Massachusetts for further proceedings consistent

with this Court’s opinion.

Dated: August 2, 2006

Respectfully submitted,

Robert L. Marrama

By his attorney,

David G. Baker

David G. Baker, Esq.

105 Union Wharf

Boston, MA 02109

(617) 367-2460

27