Heredia v. Preuss

ADDITIONAL CASES: Inette D. Heredia, Appellant v. Krista M. Preuss, Appellee OPINION & ORDER Debtor Inette D. Heredia (“Appellant”) appeals from the December 30, 2022 Order (the “Order”) of the Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”), dismissing her voluntary bankruptcy case under Chapter 13 of the Bankruptcy Code (“Chapter 13″) for cause pursuant to 11 U.S.C. §1307(c) (“§1307(c)”). (See Not. of Appeal 1 (Dkt. No. 1).)¹ For the reasons stated below, this appeal is dismissed without prejudice, the Order is vacated, and the case is remanded to the Bankruptcy Court. I. Background A. Proceedings Before the Bankruptcy Court On February 7, 2018, Appellant, through counsel, filed a voluntary Chapter 13 bankruptcy petition in the Bankruptcy Court. (See Appellant’s App’x A1 (Dkt. No. 12-1); Appellee’s Suppl. App’x (“Appellee’s App’x”) R1-52 (Dkt. No. 16-1).)² Thereafter, Krista M. Preuss (“Appellee”) was assigned to be the Chapter 13 Standing Trustee in Appellant’s bankruptcy case. (See Appellant’s App’x A1.)³ On April 26, 2018, Appellant filed an amended bankruptcy plan (the “Plan”), (see Appellee’s App’x R53-59), which the Bankruptcy Court confirmed on June 25, 2018, (id. at R60). Pursuant to the Plan, Appellant was required to make 60 monthly payments to Appellee in the amount of $134.24. (See id. at R54.) The Plan also required that, for the duration of the Plan, all of Appellant’s tax refunds in excess of $1,500.00 be paid to Appellee. (See id.)⁴ On October 17, 2022, Appellee moved to amend the Plan under 11 U.S.C. §1329 (“§1329″) or, in the alternative, to dismiss the case under §1307(c). (Appellant’s App’x A3-11.) In connection with this motion (the “Motion”), Appellee asserted that, upon review of Appellant’s “2018, 2019, 2020[,] and 2021 Federal and New York State income tax returns,” the Appellee determined that Appellant’s “adjusted gross household income for tax year 2021 was $155,520.00.” (Id. at A6.) According to Appellee: This is an increase in annual income of $37,731.00 from the filing of the 2020 tax returns (where the adjusted gross income was $117,789.00), an increase in annual income of $36,174.00 from the filing of the 2019 tax returns (where the adjusted gross income was $119,346.00), and an increase in annual income of $76,820.00 from the filing of 2018 tax returns (where the adjusted gross income was $78,700.00)[.] The Debtor’s substantial increase in income has not [] previously been disclosed to the [Bankruptcy] Court. (Id. (emphasis added).) Based on this allegedly undisclosed increase in income, Appellee argued that Appellant “should have paid approximately $73,542.24″ to her under the Plan. (Id.) Accordingly, Appellee urged the Bankruptcy Court to modify the Plan “to increase the [] [P]lan payments to pay all [Appellant's] disposable income [or] the payment of all claims in full….” (Id. at A9.) Alternatively, Appellee asserted that “if the [Bankruptcy] Court finds modification of the Plan insufficient under these facts, [it] may dismiss a case for cause [pursuant to §1307(c)], including lack of good faith in filing the petition….” (Id. at A8.) Appellant filed an opposition to Appellee’s Motion on December 2, 2022. (See id. at A12-14; see also Opp’n (Dkt. No. 29, 18-22230 Dkt.).) In her opposition, Appellant argued that “[t]here [was] no basis for dismissal” because she had “faithfully complied with each and every requirement of her Plan, which [was then] in its 58th month of a 60-month term, ha[d] made all Plan payments to date, and ha[d] provided the [Appellee] with her tax returns on an annual basis.” (Appellant’s App’x A12.) In addition, Appellant argued, inter alia, that modification would be inappropriate because, although she had had an increase in income, she also had a commensurate increase in expenses “necessitated by her move to Manhattan and the incurring of additional obligations over what she had in 2018.” (Id. at A12-13.) Along with her opposition, Appellant filed updated budget forms (“Schedules I and J”) reflecting her new income and purportedly increased expenses. (Amended Schedules I and J (Dkt. No. 29-1, 18-22230 Dkt.).)⁵ The Bankruptcy Court held oral argument via videoconference on Appellee’s Motion on December 7, 2022. (See Appellant’s App’x A22-28.) Appellee began by noting that Appellant had filed amended Schedules I and J and taking issue with certain expenses listed therein. (Id. at A23-24.)⁶ Appellee concluded that Appellant earned “significantly more income that was not contemplated at the time of [the Plan's] confirmation” and that her amended Schedules I and J “exemplif[y] that [she] is spending all of that extra income on items that are not reasonably necessary.” (Id. at A24.) In response, Appellant reiterated that her expenses had increased “a lot” because “she got a new job, she moved to Manhattan, and she[ was] taking care of some other family member.” (Id.) Additionally, Appellant pointed out that there were only around two payments remaining under the Plan, such that this proceeding was occurring “very, very late in the game.” (Id. at A24-25.) In response to Appellant’s late-in-the-game argument, the Bankruptcy Court interjected, seemingly to suggest that the timing of Appellee’s Motion was attributable to Appellant’s belated provision of her tax returns to Appellee. (Id. at A25.) After the Bankruptcy Court asked, “when [Appellant's] tax returns [were] given to [Appellee,]” Appellee represented that Appellant had provided her tax returns from 2018 through 2021 and that “ [t]hey were received at the end of August [2022.]” (Id.)⁷ At that point, the Bankruptcy Court stated, with no further explanation, that Appellant “must pay all of the $73,542.24 of disposable income back to [Appellee] or the case will be dismissed.” (Id.)⁸ Perhaps in an effort to justify the Bankruptcy Court’s determination, Appellee stated, “[a]nd again, in [the Motion],…it does indicate that…an increase in [Appellant's] income does put [her] out of compliance with [her] [P]lan [under 11 U.S.C. §] 1322(a)(1),” to which the Bankruptcy Court responded, “[t]hat’s right.” (Id. at A26.) In light of the Bankruptcy Court’s apparent ruling, Appellant asked whether she was “foreclosed from presenting any evidence of her [expenses.]” (Id. at A27 (“ [I]f I understand the case law correctly, any decision based on a motion like this has to take into consideration both the increased income and the increased expenses.”).) The Bankruptcy Court stated, “those expenses were not put out until [the Motion] was filed,” and that “[b]oth [Schedules I and J were not] even filed until [the Motion] was filed,…so you didn’t change it before you had to have a motion. You should’ve amended [Schedules] I and J.” (Id.) Then, the Bankruptcy Court changed tack, stating that Appellant “should’ve amended the plan” and that it was “going to go ahead and dismiss [the case.]” (Id. at A28 (“ If you didn’t go ahead and amend the [Schedules] I and J to show that there were more expenses, that’s on [Appellant].”).) Insofar as it explained its ruling of dismissal, the Bankruptcy Court stated, “[t]his is based on the tax returns. [Schedules] I and J [were not] amended until such time as this [M]otion.” (Id.) On December 30, 2022, the Bankruptcy Court issued its Order dismissing the case for cause pursuant to §1307(c) “for the reasons stated on the record at the December 7, 2022 hearing.” (Id. at A19.) B. Procedural History The Court describes the procedural history of this Action only as relevant to deciding the instant Appeal. Appellant filed her Notice of Appeal on January 17, 2023. (See Not. of Appeal.) On March 30, 2023, Appellant filed her brief and accompanying papers. (Appellant’s Br. (Dkt. No. 12); Appellant’s App’x.)⁹ After requesting and receiving an extension of time to file her brief, (see Dkt. Nos. 14-15), Appellee filed her brief in opposition and accompanying papers on May 16, 2023, (Appellee’s Br. (Dkt. No. 16); Appellee’s App’x). Appellant did not file a reply brief. (See generally Dkt.) II. Discussion A. Standard of Review District courts have jurisdiction to review final bankruptcy orders. See 28 U.S.C. §158(a)(1) (“The district courts of the United States shall have jurisdiction to hear appeals…from final judgments, orders, and decrees…of bankruptcy judges….” (footnote omitted)); In re DBSD N. Am., Inc., 634 F.3d 79, 88 (2d Cir. 2011) (noting that district courts have jurisdiction to “review all final judgments, orders, and decrees of the bankruptcy courts” (citation omitted)). “[A] bankruptcy judge’s order is final if it completely resolve[s] all of the issues pertaining to a discrete claim, including issues as to the proper relief.” Pegasus Agency, Inc. v. Grammatikakis (In re Pegasus Agency, Inc.), 101 F.3d 882, 885 (2d Cir. 1996) (quotation marks omitted). The Bankruptcy Court’s Order, which dismissed Appellant’s Chapter 13 bankruptcy case, is unquestionably a reviewable final order. See Procel v. U.S. Tr. (In re Procel), 467 B.R. 297, 300 (S.D.N.Y. 2012) (“District courts have jurisdiction to review…orders to dismiss or convert Chapter 13 bankruptcy cases[] under 28 U.S.C. §158(a)(1).”) (collecting cases). Although district courts typically review a bankruptcy court’s findings of fact for clear error and conclusions of law de novo, see, e.g., Am. Home Assurance Co. v. Enron Nat. Gas Mktg. Corp. (In re Enron Corp.), 307 B.R. 372, 378 (S.D.N.Y. 2004), “[a] [b]ankruptcy [c]ourt’s order dismissing a case is reviewed under an abuse of discretion standard,” Holt v. JPMorgan Chase Bank, N.A., No. 18-CV-3073, 2019 WL 452056, at *1 (S.D.N.Y. Feb. 5, 2019) (quoting Lippman v. 340 E. 93rd St. Corp., No. 98-CV-6988, 1999 WL 97903, at *2 (S.D.N.Y. Feb. 24, 1999)); accord Blaise v. Wolinsky (In re Blaise), 219 B.R. 946, 949-50 (B.A.P. 2d Cir. 1998) (“Use of the word ‘may’ [in §1307(c) ] indicates that the decision to dismiss…is committed to the discretion of the bankruptcy court.”); In re Murray, 565 B.R. 527, 530 (S.D.N.Y. 2017) (“Because a bankruptcy court’s decision to dismiss for cause is guided by equitable principles, it is reviewed for abuse of discretion.” (citing In re Smith, 507 F.3d 64, 73 (2d Cir. 2007))). “A bankruptcy court exceeds its allowable discretion where its decision (1) ‘rests on an error of law (such as application of the wrong legal principle) or a clearly erroneous factual finding,’ or (2) ‘cannot be located within the range of permissible decisions,’ even if it is ‘not necessarily the product of a legal error or a clearly erroneous factual finding.’” In re Smith, 507 F.3d at 73 (alteration adopted) (quoting Schwartz v. Aquatic Dev. Grp., Inc., 352 F.3d 671, 678 (2d Cir. 2003)). “As to the factual findings that underlie that decision, an abuse of discretion is deemed to occur only when such findings are clearly erroneous,” In re Blaise, 219 B.R. at 950, that is, where there is a “definite and firm conviction that a mistake has been committed,” Anderson v. Bessemer City, 470 U.S. 564, 573, (1985).¹⁰ B. Analysis “This Court may affirm, modify, or reverse a bankruptcy judge’s judgment, order, or decree or remand with instructions for further proceedings.” Hyde Park v. DeFlora Lake Dev. Assocs., Inc. (In re DeFlora Lake Dev. Assocs., Inc.), 629 B.R. 354, 358 (S.D.N.Y. 2021) (quotation marks omitted) (quoting In re Bernard L. Madoff Inv. Sec., LLC, No. 15-CV-1151, 2016 WL 183492, at *8 (S.D.N.Y. Jan. 14, 2016)).¹¹ For example, “[w]here the record does not reflect ‘the reasoning for the bankruptcy court’s decision,’ the Court may remand for further proceedings.” Id. (quoting In re Kaye, No. 11-CV-1674, 2011 WL 5024345, at *3 (E.D. La. Oct. 20, 2011)); accord Found. Cap. Res., Inc. v. Mount Moriah Afr. Methodist Episcopal Church, Inc., No. 20-CV-2497, 2022 WL 1749193, at *5 (E.D.N.Y. May 31, 2022) (“It may well be that the [b]ankruptcy [c]ourt appropriately considered the relevant factors and applied the law correctly, but the record does not contain sufficient information to permit this [c]ourt to make that determination.”); Ridgewood Savings Bank v. Depietto (In re Depietto), 20-CV-8043, 2021 WL 3287416, at *9 (S.D.N.Y. Aug. 2, 2021) (similar); see also Wickam v. Ivar (In re Werner), No. 08-BK-11153, 2015 WL 5048151, at *6 (B.A.P. 9th Cir. Aug. 25, 2015) (holding that “[a]dditional findings are necessary here” and noting “the requirement to make specific findings”); Matrix IV, Inc. v. Am. Nat’l Bank (In re S.M. Acquisition Co.), No. 03-CV-7072, 2004 WL 1151575, at *4 (N.D. Ill. Apr. 29, 2004) (remanding “to the [b]ankruptcy [c]ourt for further evidentiary proceedings, if necessary, and for a more specific statement of its reasons”); cf. Madison Nat’l Bank v. Chiapelli, 131 B.R. 354, 358 (E.D. Mich. 1991) (remanding “for sufficient explanation of the form of the order entered”). The Court finds that the Bankruptcy Court did not adequately explain its ruling dismissing Appellant’s case for cause and that the record does not permit it to determine whether or not the Bankruptcy Court abused its discretion. Therefore, the Court remands this case for further proceedings. As an initial matter, the Court notes that Appellant’s arguments on appeal — which mirror her arguments in opposition to Appellee’s Motion below, (see Appellant’s App’x A12-14) — are misplaced because they focus entirely on the question of modification under §1329, rather than the actual basis for the Order under review — dismissal under §1307(c). (Appellant’s Br. 11-15; see also Appellant’s App’x A19 (Order dismissing “the case for cause pursuant to” §1307(c)).) Indeed, Appellant does not discuss or even cite §1307(c) once in her appellate brief. (See Appellant’s Br. at 5.)¹² Nevertheless, the Court declines to affirm the Bankruptcy Court’s Order on the record before it. Aside from pointing to deficiencies in Appellant’s arguments, (see Appellee’s Br. 19-21), Appellee’s arguments on appeal — which amount to a post hoc attempt to rehabilitate the Bankruptcy Court’s insufficient explanation for its decision to dismiss Appellant’s case — focus on the fact that the Bankruptcy Court did not abuse its discretion when dismissing Appellant’s case for cause “due to [her] delay in providing the 2021 tax returns to [Appellee,]” (id. at 13-17.)¹³ To be sure, Chapter 13 provides that “on request of a party in interest or the United States trustee and after notice and a hearing, the court may…dismiss a case under this chapter…for cause.” 11 U.S.C. §1307(c). Section 1307(c) further provides a non-exhaustive list of 11 grounds for “for cause” dismissal, including, as relevant here, “unreasonable delay by the debtor that is prejudicial to creditors” and “material default by the debtor with respect to a term of a confirmed plan.” Id. §1307(c)(1), (6). In Appellee’s view, Appellant’s “delay in providing [her] 2021 tax returns was certainly an unreasonable delay prejudicial to creditors…and was a material default under the terms of the confirmed plan,” such that dismissal for cause was proper under §1307(c)(1) and §1307(c)(6), respectively. (Appellee’s Br. 15.) Although this Court “may affirm on any ground that finds support in the record,” Wenegieme v. Macco, 580 B.R. 17, 21 (E.D.N.Y. 2018) (citation omitted), the record simply does not permit the Court to affirm on the basis that Appellee urges or, indeed, any basis. With respect to the allegedly delayed provision of Appellant’s 2021 tax returns, Appellee appears to have first raised that issue during the December 7, 2022 oral argument. (See Appellant’s App’x A25.)¹⁴ However, the record reflects nothing beyond Appellee’s say-so in support of this issue. (See id. (Appellee’s representation to the Bankruptcy Court that the 2021 tax returns were “received at the end of August [2022]“); see also Appellee’s Br. 10 (Appellee’s representation to this Court that Appellant “was untimely in providing her 2021 tax returns to [Appellee] on or about August 28, 2022″).) In other words, there is no evidence in the record tending to reveal when, in fact, Appellee received Appellant’s 2021 tax returns and moreover, it is unclear to the Court whether Appellant disputes the timing of Appellee’s receipt of those tax returns.¹⁵ More generally, although the Order dismissing Appellant’s case incorporates by reference “the reasons stated on the record [on] December 7, 2022,” (Appellant’s App’x A19), the Bankruptcy Court’s reasoning during that hearing is not a model of clarity. Specifically, after purporting to modify the Plan to require Appellant to pay “the $73,542.24 of disposable income,” (id. at A25), the Bankruptcy Court changed course, ruling instead that “I’m going to go ahead and dismiss [the case,]” (id. at A28). The Bankruptcy Court then had the following exchange: [The Court:] That was in January of 2021. If you didn’t go ahead and amend the [Schedules] I and J to show that there were more expenses, that’s on [Appellant.] [Appellant's Counsel:] Based on what? Based on the tax returns that she provided? [The Court:] Absolutely. This is based on the tax returns. [Schedules] I and J [were]‘t amended until such time as th[e] [M]otion was filed. [Appellant's Counsel:] That’s because that was the first time it came to my attention. [The Court:] No. You should’ve done it when you filed those tax returns and shown what you had, so no. (Id.)¹⁶ That exchange appears to reflect the entirety of the Bankruptcy Court’s rationale for its decision to dismiss Appellant’s case for cause. In short, the Bankruptcy Court’s decision to dismiss Appellant’s Chapter 13 bankruptcy case for cause may have been an appropriate exercise of its discretion, but the Court can neither discern the Bankruptcy Court’s reasoning behind its December 30, 2022 Order, nor affirm it anyway based on the record as it stands. Thus, remand is proper here. See Found. Cap. Res., Inc, 2022 WL 1749193, at *5 (coming to a similar conclusion before remanding a case to the bankruptcy court); In re Kaye, 2011 WL 5024345, at *2-3 (remanding to the bankruptcy court “for an illumination of th[at] court’s analysis through some formal or informal statement of reasons”). III. Conclusion For the reasons stated above, this appeal is dismissed without prejudice, the Bankruptcy Court’s December 30, 2022 Order is vacated, and the case is remanded to the Bankruptcy Court for further proceedings, if necessary, and for further explanation of its reasoning with respect to is decision to dismiss this case for cause pursuant to §1307(c). The Clerk of the Court is respectfully requested to close this case. SO ORDERED. Dated: February 20, 2024