# Petitioners Brief — Marrama v. Citizens Bank of Mass.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petitioners Brief
- **Published:** January 1, 2007
- **Citation:** 549 U.S. 365

## Text

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 EE ee 23
a ceercecnenen 13, 25
a 23
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EE 20
EEE 3
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EEE 13
EEE re 8
EEE 22
EE passim
EEE a 20
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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Fed. EE 26

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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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0241%3A06. Public record. Not legal advice.