Opinion
Bankruptcy No. 03-33604bif.
June 5, 2007
MEMORANDUM
Former chapter 13 debtor Bryant Lee has filed a motion seeking leave to file another chapter 13 bankruptcy case. Mr. Lee had previously signed a consent decree in the above-captioned 2003 case barring him from further bankruptcy filings without obtaining court approval. Ex. D-1. He now seeks permission to file a seventh chapter 13 petition since 1994.
This is Mr. Lee's second motion for leave to refile since his last case was dismissed on July 18, 2006. The first motion seeking such relief was filed on September 20, 2006, and was opposed by EMC Mortgage Corp. After an evidentiary hearing on October 24, 2006, and after consideration of post-hearing memoranda, Mr. Lee's motion was denied for reasons stated in a memorandum and order dated November 8, 2006. Thereupon, Mr. Lee filed a notice of appeal which was docketed in the District Court for the Eastern District of Pennsylvania on December 15, 2006.
While that appeal was still pending, on March 6, 2007, Mr. Lee filed this second motion for permission to commence another chapter 13 bankruptcy case. EMC Mortgage Corp. once again opposes Mr. Lee's request. This secured creditor has scheduled a sheriff sale of Mr. Lee's residence, located at 85 Bartram Avenue, Lansdowne, Pennsylvania, and desires to go forward with that sale. The standing chapter 13 trustee, William C. Miller, Esq., who entered into the aforementioned consent decree with Mr. Lee, neither opposes nor supports the requested relief.
Initially, EMC contended that this bankruptcy court had no jurisdiction to hear Mr. Lee's latest motion due to the pendency of his appeal from this court's denial of his earlier motion. However, on May 2, 2007, the District Court granted Mr. Lee's request to dismiss his appeal. In light of that dismissal, EMC withdrew its jurisdictional challenge. Instead, it now asserts that this instant motion is precluded by res judicata. EMC argues that Mr. Lee, having had his earlier motion for leave to refile denied, is precluded from relitigating that same issue.
Whether that challenge would have been successful, I need not now decide. See generally United States v. Contents of Accounts Nos. 3034504504 and 14407143, 971 F.2d 974, 988 (3d Cir. 1992):
The filing of a notice of appeal does not divest a district court of jurisdiction to entertain a Rule 60(b) motion. See Main Line Fed. Savs. Loan Assoc. v. Tri-Kell, Inc., 721 F.2d 904, 906 (3d Cir. 1983). . . . Thus, the district court retained the power to deny it, see Venen, 758 F.2d at 123, or to notify Friko that it would, if given the power, grant the motion. In the latter case, Friko could have asked this Court to remand the case to the district court for the purpose of considering the motion, see Main Line, 721 F.2d at 906; see also Hancock Indus., 811 F.2d at 239-40 (discussing Venen and Main Line).
Mr. Lee counters that res judicata is not applicable to motions seeking leave to refile bankruptcy petitions. Alternatively, if claim preclusion is applicable, he maintains that additional, material, evidence has been presented that was not before this court in October 2006, thereby justifying relief.
Mr. Lee also unpersuasively asserts that EMC never raised the issue of res judicata in its answer to his motion, and so the issue should be treated as waived. This assertion overlooks that when EMC filed its answer, Mr. Lee's appeal was still pending. Moreover, EMC later posed its res judicata defense prior to the hearing on this motion, and so Mr. Lee was not surprised and had sufficient opportunity to address that issue and prepare for his hearing. I also note that Mr. Lee, and not just EMC, has adjusted his legal position since his motion was filed in March 2007 by withdrawing his appeal.
Res judicata, or claim preclusion, "applies to claims that `were or could have been raised' in a prior action involving the `parties or their privies' when the prior action had been resolved by `a final judgment on the merits.'" In re Graham, 973 F.2d 1089, 1093 (3d Cir. 1992) (quoting Allen v. McCurry, 449 U.S. 90, 94 (1980)); see also Lubrizol Corp. v. Exxon Corp., 929 F.2d 960, 963 (3d Cir. 1991) ("Federal law of claim preclusion requires a defendant to demonstrate that there has been (1) a final judgment on the merits in a prior suit involving (2) the same parties or their privies and (3) a subsequent suit based on the same cause of action."). "Claim preclusion thus bars relitigation of any claim that could have been raised in the prior action even if it was not so raised." In re Graham, 973 F.2d at 1093.
Although application of this preclusion principle in bankruptcy cases most often involves prepetition state court judgments, see generally In re Genesys Data Technologies, Inc., 245 F.3d 312 (4th Cir. 2001), it also applies to all bankruptcy court rulings that are final orders. See In re Fulton Bellows Components, Inc., 301 B.R. 723 (Bankr. E.D. Tenn. 2003) (denial of debtor's motion to reject union contract, pursuant to 11 U.S.C. § 1113, precluded a second motion for the same relief, even though new proposals had been offered to the union). For example, an order granting debtor's counsel's application for an allowance of fees may preclude a later malpractice claim against that attorney, if the claim is based upon the quality of the bankruptcy representation. See,e.g., Grausz v. Englander, 321 F.3d 467 (4th Cir. 2003); In re Iannochino, 242 F.3d 36 (1st Cir. 2001).
My order dated November 8, 2006, sustaining EMC's objection and denying Mr. Lee's motion for leave to refile another bankruptcy case, was a final order. The present motion involves the same parties and seeks the same relief. Nonetheless, for the following reasons, I conclude that application of res judicata does not preclude my consideration of Mr. Lee's present motion, given the evidence presented.
I. A.
Decisions such as In re Narod, 138 B.R. 478, 484 (E.D. Pa. 1992), observed that bankruptcy courts, like all federal courts, have the power to restrict future filings in order to prevent abuse. See generally In re Demos, 500 U.S. 16 (1991); Coando v. Westport Resources, 85 Fed. Appx. 59, 62 (10th Cir. 2003) ("We note that this court regularly upholds — and enters — orders imposing filing restrictions on plaintiffs with a demonstrated history of filing frivolous lawsuits."). After Narod, the Third Circuit Court of Appeals instructed that bankruptcy courts have the power to dismiss a chapter 13 petition that has not been filed in good faith. In re Lilley, 91 F.3d 491, 496 (3d Cir. 1996). In addition to dismissing cases that are filed in bad faith, bankruptcy courts have the power to dismiss a bankruptcy case with a bar against further refilings by that debtor:
This circuit does not appear to have considered previously the Bankruptcy Code's statutory scheme for dealing with serial filers and their bad faith abuse of the bankruptcy process. We take this opportunity to ally ourselves with the Fourth Circuit and the great majority of lower courts which derive from §§ 105(a) and 349(a) of the Code a bankruptcy court's power, in an appropriate case, to prohibit a serial filer from filing petitions for periods of time exceeding 180 days. We join those courts in concluding that § 109(g) does not impose a temporal limitation upon those other sections.
In re Casse, 198 F.3d 327, 339 (2d Cir. 1999); accord, e.g., In re Sweet, 2006 WL 1548622 (D.R.I. 2006); Haines v. Miller, 2004 WL 1987218, at *2 (E.D. Pa. 2004); see also In re Callahan, 2004 WL 350753, at *4 (E.D. Pa. 2004); In re Hamer, 2000 WL 1230496 (E.D. Pa. 2000).
When Mr. Lee (and Juanita Lee, who purported to be his wife, but is not) filed the above-captioned chapter 13 case on September 15, 2003, it was their sixth bankruptcy filing. The chapter 13 trustee then moved to dismiss that case as filed in bad faith. The trustee's motion was settled by consent order signed by the trustee and Juanita and Bryant Lee, as well as by the debtors' attorney (the same attorney who now represents them in this present motion). This consent order, approved by the court on January 18, 2005, essentially provided that the trustee would withdraw his request to dismiss, and thus the debtors would have the opportunity to try to reorganize under chapter 13; in return though, the debtors agreed that, if they were unable to reorganize, they would be barred from further bankruptcy filings without obtaining prior leave of court.
I find Mr. Lee's testimony that he did not understand the terms of the consent order he was signing not credible. The language of the consent order is quite clear. And he was represented by counsel, who would have explained the terms of the settlement with the trustee.
I also find wholly unpersuasive Mr. Lee's present legal contention — that these consent orders resolving motions to dismiss bankruptcy cases as bad faith filings are unenforceable.See, e.g., In re Brose, 242 B.R. 531, 531-32 (Bankr. M.D. Fla. 1999).
In Narod, the district court opined:
A bankruptcy court order limiting future filings might properly contain a proviso subjecting the filing restraint to the authority of the bankruptcy judge to permit, on motion of the debtor, a proposed filing within the restricted period.
Id. at 484 n. 14. This suggestion of a proviso (which was followed by the parties here) served to emphasize the inherent power that federal judges possess to modify their own orders in appropriate circumstances:
We are not doubtful of the power of a court of equity to modify an injunction in adaptation to changed conditions, though it was entered by consent. The power is conceded by the government, and is challenged by the interveners only. We do not go into the question whether the intervention was so limited in scope and purpose as to withdraw this ground of challenge, if otherwise available. Standing to make the objection may be assumed, and the result will not be changed. Power to modify the decree was reserved by its very terms, and so from the beginning went hand in hand with its restraints. If the reservation had been omitted, power there still would be by force of principles inherent in the jurisdiction of the chancery. A continuing decree of injunction directed to events to come is subject always to adaptation as events may shape the need. . . . The distinction is between restraints that give protection to rights fully accrued upon facts so nearly permanent as to be substantially impervious to change, and those that involve the supervision of changing conduct or conditions and are thus provisional and tentative. . . . The result is all one whether the decree has been entered after litigation or by consent. . . . In either event, a court does not abdicate its power to revoke or modify its mandate, if satisfied that what it has been doing has been turned through changing circumstances into an instrument of wrong.
U.S. v. Swift Co., 286 U.S. 106, 114-115 (1932) (citations omitted).
The Supreme Court in Swift, in 1932, imposed a difficult standard for modifying an injunction entered by consent: "Nothing less than a clear showing of grievous wrong evoked by new and unforeseen conditions should lead us to change what was decreed after years of litigation with the consent of all concerned." Id. at 119. That standard has been tempered, however, by the enactment of Fed.R.Civ.P. 60, incorporated into bankruptcy cases by Fed.R.Bankr.P. 9024.
Rule 60(b)(5) provides:
On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding for the following reasons:
* * *
(5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application[.]
(emphasis added).
In 1992, the Supreme Court held that the Swift common-law standard was not incorporated into Rule 60(b)(5):
There is thus little basis for concluding that Rule 60(b) misread the Swift opinion and intended that modifications of consent decrees in all cases were to be governed by the standard actually applied in Swift. That Rule, in providing that, on such terms as are just, a party may be relieved from a final judgment or decree where it is no longer equitable that the judgment have prospective application, permits a less stringent, more flexible standard.
Rufo v. Inmates of Suffolk County Jail, 502 U.S. 367, 380 (1992). The Court set out the following flexible standard for Rule 60(b)(5):
Although we hold that a district court should exercise flexibility in considering requests for modification of an institutional reform consent decree, it does not follow that a modification will be warranted in all circumstances. Rule 60(b)(5) provides that a party may obtain relief from a court order when "it is no longer equitable that the judgment should have prospective application," not when it is no longer convenient to live with the terms of a consent decree. Accordingly, a party seeking modification of a consent decree bears the burden of establishing that a significant change in circumstances warrants revision of the decree. If the moving party meets this standard, the court should consider whether the proposed modification is suitably tailored to the changed circumstance.
Id. at 383 (emphasis added). "A party seeking modification of a consent decree may meet its initial burden by showing a significant change either in factual conditions or in law." Id. at 384.
The Third Circuit Court of Appeals then gave guidance to trial courts in applying the flexible standard enunciated in Rufo:
We believe that the generally applicable rule for modifying a previously issued judgment is that set forth in Rule 60(b)(5), i.e., "that it is no longer equitable that the judgment should have prospective application." It would be a mistake to view either Rufo or Swift as encapsulating a universal formula for deciding when that point has been reached. Instead, each of those cases represents a response to a particular set of circumstances. A court of equity cannot rely on a simple formula but must evaluate a number of potentially competing considerations to determine whether to modify or vacate an injunction entered by consent or otherwise.
Accordingly, the standard for modifying an injunction cannot depend on whether the case is characterized as an institutional reform case, a commercial dispute, or private or public litigation. Different considerations may have greater or lesser prominence in different cases, not because the cases are characterized one way rather than another but because equity demands a flexible response to the unique conditions of each case.
We abjure establishing a rigid, pervasively applicable rule, although it may be helpful to set forth the factors that generally should be considered in deciding whether to modify an injunction. These include the circumstances leading to entry of the injunction and the nature of the conduct sought to be prevented; the length of time since entry of the injunction; whether the party subject to its terms has complied or attempted to comply in good faith with the injunction; and the likelihood that the conduct or conditions sought to be prevented will recur absent the injunction. Central to the court's consideration will be whether the modification is sought because changed conditions unforeseen by the parties have made compliance substantially more onerous or have made the decree unworkable. Courts which have faced similar issues also have identified as a relevant factor whether the conduct previously enjoined has become legal due to a change in the law. . . . On the other hand, the fact that the party is now subject to a contempt sanction for violation of the decree in addition to the statutory punishment is not generally a factor to be considered. . . . Nor is the mere fact that the injunction is in prohibitory language rather than "mandatory" language in itself a factor that makes it resistant to modification, as the NLRB urges. . . .
Inasmuch as it is unlikely that all of the factors will tilt in one direction, the court must balance the hardship to the party subject to the injunction against the benefits to be obtained from maintaining the injunction. Cf. 7 James W. Moore, Moore's Federal Practice ¶ 60.26[4], at 60-258 to 60-260 (2d ed. 1995) ("A continuing injunction may be modified when the modification would work no harm to the one for whom the injunction ran and would serve a beneficial purpose for the movant. A subsequent change in the controlling facts on which the injunction rested . . . may warrant a modification or vacation of the continuing restraint."). Finally, the court should determine whether the objective of the decree has been achieved and whether continued enforcement would be detrimental to the public interest. In this connection, cases such as Rufo which deal with institutional reform, particularly in the context of federal courts' supervision over state institutions, require that the federal courts be sensitive to the unique federalism issues presented. . . . It follows that the interest in finality of judgments may assume greater or lesser prominence according to the nature of the case and the private and public interests implicated, but should not be either deprecated or ignored.
Building and Const. Trades Council v. N.L.R.B., 64 F.3d 880, 888 (3d Cir. 1995) (citations omitted).
B.
Juanita and Bryant Lee entered into a consent decree in January 2005 which enjoined them from filing further bankruptcy cases without first obtaining court approval to do so. Although this decree contained within its terms the ability to be freed from injunction barring further filings — and thus, Mr. Lee is not seeking to modify its provisions — no standard to do so was specified. In essence, bankruptcy courts faced with this issue have applied the approach noted in Rufo: "that a significant change in circumstances warrants revision of the decree."
The purpose of the consent injunction was to prevent Mr. Lee from filing bankruptcy petitions that were not in good faith. See In re Lilley, 91 F.3d at 496. He had filed six bankruptcy cases since 1994 and had not been capable of reorganizing under chapter 13. In determining whether yet another chapter 13 case would be filed in good faith, a court must evaluate whether circumstances have substantially changed so that Mr. Lee has a likelihood of reorganizing. A bankruptcy reorganization petition filed without any legitimate prospect of reorganization is done in bad faith, in that it only delays action under state law by creditors.
Indeed, while the Bankruptcy Code does not contain any express limitation on refiling a bankruptcy case after another is dismissed, many courts have recognized that it is inappropriate for a debtor to file another bankruptcy reorganization case (under chapters 11, 12 or 13) after dismissal of an earlier one for non-performance, unless there has been a material change of circumstances which demonstrates that the second (or later) reorganization attempt now has a possibility of success after the first had failed. See Haines v. Miller, 2004 WL 1987218, at *3;see generally, e.g., Matter of Elmwood Development Co., 964 F.2d 508 (5th Cir. 1992); In re Chisum, 847 F.2d 597 (9th Cir.), cert. denied sub nom., Mortgage Mart, Inc. v. Rechnitzer, 488 U.S. 892 (1988); In re Johnson, 708 F.2d 865 (2d Cir. 1983); In re Oglesby, 158 B.R. 602, 606 (Bankr. E.D. Pa. 1993) ("A genuine change in circumstances may justify a debtor's multiple filings"); In re McKissie, 103 B.R. 189, 192 (Bankr. N.D. Ill. 1989). Therefore, when there are successive reorganization bankruptcy filings without any material changes in circumstances, the repeat filing is generally viewed to be in "bad faith." E.g.,Matter of Elmwood Development Co., 964 F.2d at 511-12; Haines v. Miller, 2004 WL 1987218, at *3; compare In re Barrett, 964 F.2d 588, 592 (6th Cir. 1992) (change in circumstances made the debtor's successful reorganization extremely likely and the filing undertaken in good faith). Since the first filing has been unsuccessful, there is little reason for a debtor to believe that the second will yield any different result. See In re Oglesby, 158 B.R. at 606 ("The bankruptcy court must concern itself with whether the debtor is merely trying to frustrate the statutory requirements through a strategy of successive filings in an attempt to abuse the bankruptcy process.").
Indeed, serial or successive bankruptcy filings may be evidence of misuse of the bankruptcy process, intended only to forestall the foreclosure efforts of a secured creditor, and, therefore, not filed in good faith. See, e.g., In re Huerta, 137 B.R. 356, 367 (Bankr. C.D. Cal. 1992). The "kind of `changed circumstances' required to justify a successive filing must be positive changes" reflecting on the debtor's ability to successfully reorganize under chapter 13. Id. at 368. Moreover, when an individual has filed many failed reorganization cases, as in this instance, the evidence needed to demonstrate a material change in circumstances supporting a reasonable possibility of reorganization grows heavier. See In re LeGree, 285 B.R. 615, 620 (Bankr. E.D. Pa. 2002). Typically, the mortgage delinquency — threatened foreclosure is the typical reason for the chapter 13 bankruptcy filings — has increased with each unsuccessful effort, due to continued missed payments and additional execution costs and fees. Moreover, the serial filer may have abused the system with prior bad-faith filings and that conduct must be considered as part of the totality of the circumstances. See id.
In determining whether bad faith filing exists, the bankruptcy court has the discretion to reach the appropriate result in a particular case based upon all of the circumstances. See In re Lilley, 91 F.3d at 496; Matter of Love, 957 F.2d 1350, 1354 (7th Cir. 1992); Haines v. Miller, 2004 WL 1987218, at *3; In re Mazzocone, 180 B.R. 782 (E.D. Pa. 1995). Similarly, the decision whether to grant relief under Rule 60(b)(5) is also committed to court discretion. See generally Agostini v. Felton, 521 U.S. 203, 238 (1997); Prudential Ins. Co. of America v. National Park Medical Center, Inc., 413 F.3d 897, 903 (8th Cir. 2005).
C.
Although a bankruptcy court has the general power to modify previously issued injunctions, and although this consent decree expressly so noted, the exercise of that equitable power must also give consideration to interests of finality embodied in res judicata. See generally In re Crofford, 277 B.R. 109, 113 (B.A.P. 8th Cir. 2002) (" Rule 60 is not available to rehash matters already decided nor to advance new legal theories which could have been raised in the original motion; rather it is available only where one of the grounds set forth in the rule is established."). This is accomplished by recognizing that the party seeking relief has the burden of persuasion, and that there has been a substantial change in circumstances, either factually or legally, that justifies relief.
If Mr. Lee's financial circumstances are materially unchanged since the January 2005 consent order, relief from the injunction should not be granted because the Rule 60(b)(5) standard has not been met. Moreover, for purposes of res judicata, if his circumstances have not materially changed since October 2006 — when his first motion was heard — relief from the injunction should not be granted. And I agree with EMC that in determining whether there has been such a change, the "newly discovered evidence" standard found in Rule 60(b)(2), should be applied.
There has been no change in legal principles since January 2005 that altered the requirement that bankruptcy cases be filed in good faith.
Newly discovered evidence can justify a new trial "only if such evidence (1) is material and not merely cumulative, (2) could not have been discovered prior to trial through the exercise of reasonable diligence, and (3) would probably have changed the outcome of the trial." Bohus v. Beloff, 950 F.2d 919, 930 (3d Cir. 1991). The party seeking a new trial "bears a heavy burden" since relief "should be granted only where extraordinary justifying circumstances are present." Id. We review the district court's denial of a new trial for abuse of discretion. . . .
"Newly discovered evidence [is] evidence of facts in existence at the time of trial of which the aggrieved party was excusably ignorant." Bohus, 950 F.2d at 930 (emphasis added).
Colyer v. Consolidated Rail Corp., 114 Fed. Appx. 473, 480-81 (3d Cir. 2004) (not precedential).
In other words, Mr. Lee's second motion for leave to refile should be analyzed against the following principles: First, he must meet a substantial burden to demonstrate that a seventh chapter 13 filing would be in good faith — meaning that there is a likelihood of reorganizing under chapter 13. See Haines v. Miller. Second, the evidence offered must reflect a material change in circumstances from those existing in January 2005, when he entered into a consent injunction not to file further bankruptcy cases. Third, since a final order denying his motion for leave to refile was entered in November 2006, the evidence offered by Mr. Lee in support of this current ability to reorganize must meet either the standard for "newly discovered evidence" or be evidence that did not exist in October 2006, when the hearing on his earlier motion took place.
Finally, in deciding whether to exercise my discretion and lift the injunction against Mr. Lee, see generally In re Sweet, I must consider the potential for harm to the legitimate interests of parties who were being protected by the injunction: Mr. Lee's creditors and the chapter 13 trustee.
Although a chapter 13 trustee acts as a representative of creditors, he can suffer prejudice when a chapter 13 petition is not filed in good faith. Courts have held that a chapter 13 trustee may not receive a commission under 28 U.S.C. § 586(e) for his services if the case is dismissed prior to confirmation of a plan. See, e.g., In re Miranda, 285 B.R. 344 (Table), 2001 WL 1538003 (B.A.P. 10th Cir. 2001); In re Rivera, 268 B.R. 292 (Bankr. D.N.M. 2001). Thus, a chapter 13 case filed in bad faith may require the trustee to expend services to administer the case for which he may not be compensated.
II.
Since I write primarily for the parties, and as the parties are familiar with my November 2006 decision, I shall not repeat the factual recitation provided therein. I will though briefly summarize it.
Mr. Lee first filed for chapter 13 relief in June 1994. During his second case, filed in April 1997, EMC obtained relief from the bankruptcy stay in order to prosecute a foreclosure action in state court. Subsequent bankruptcy filings re-triggered the automatic stay and prevented a foreclosure sale. During some of those cases, EMC and the debtors reached agreements to continue the bankruptcy stay upon promise of payments. Moreover, during his latest bankruptcy filing, the petition filed in 2003, Mr. Lee filed an adversary proceeding against EMC, seeking to bifurcate that creditor's claim into secured and unsecured components, under 11 U.S.C. § 506(a), (d). The parties settled that lawsuit, which settlement provided that it became void upon dismissal of the 2003 case. Ex. R-1.
All of Mr. Lee's cases appeared to be filed jointly with Juanita Lee. Under section 302(a), only a husband and wife can file a joint petition. During the 2003 case, Mr. Lee acknowledged that while he and Juanita lived together for many years and had children, they were not legally married. Only Mr. Lee seeks leave to file another bankruptcy petition.
As EMC observes, in many aspects the evidence offered by Mr. Lee in connection with his latest motion to refile is similar or identical to that offered in October 2006. For example: he was unemployed then and he remains unemployed; he lives with Juanita, two disabled daughters and a grandson; his daughters and grandson receive governmental benefits; Juanita receives compensation, in the exact same amount and from the same source as before, to care for one of the daughters. Compare Ex. D-6 (Oct. 24, 2006) with Ex. D-4. Further unchanged from the last hearing is Mr. Lee's proposal to fund his reorganization plan using income paid to Juanita, his daughters and grandson, plus rental income from property he owns located at 6205-07 Market Street, Philadelphia. In addition, an important component of Mr. Lee's intended reorganization plan is to once again move to bifurcate EMC's secured claim under section 506.
Although Mr. Lee has now offered in evidence a copy of a one-year lease for $500 per month with Mr. Bjorn Watson, which document is proffered to corroborate Mr. Lee's testimony that one of the apartments at his Market Street property has been rented, that lease is dated August 10, 2006. Ex. D-9. As EMC observed, Mr. Lee could have offered this same document in evidence at the October 2006 hearing.
In certain respects, however, Mr. Lee's circumstances are materially changed from October 2006 (and from January 2005). First, one daughter became eligible to receive Supplemental Security Income in December 2006, Ex. D-6, which income is an increase above her former welfare payments. Second, although Mr. Lee testified in October 2006 of his intention to lease a portion of his Market Street property to a relative for operation as day-care center, at the present hearing Mr. Lee offered in evidence a copy of a lease with Kenneth DeShields (his cousin) dated March 1, 2007. Ex. D-10. This lease, for a five-year term, calls for monthly rent of $1,700, beginning April 1, 2007. Third, although Mr. Lee in October 2006, testified about his intention to resolve his outstanding real estate tax obligations concerning his residence, he has now offered in evidence an agreement with the Delaware County Tax Claim Bureau, dated April 17, 2007, to repay this delinquency in the amount of $500 per month. Ex. D-15.
Based upon these changes, Mr. Lee now states that he has $5,033 in monthly family income, $3,615 in monthly family expenses and can afford to pay the chapter 13 trustee $1,400 per month as part of his reorganization plan. Ex. D-4. In October 2006, his family monthly income was reported at $3,206. Ex. D-6 (October 24, 2006).
EMC argues that since Mr. Lee testified in October 2006 of his intention to enter into the day-care center lease and the agreement to repay his delinquent taxes, neither agreement represents a change in circumstances. This argument, however, overlooks a distinction between an intention to contract in the future and actually having entered into a contract. The latter requires the consent of another party, may require the occurrence of certain pre-conditions, and produces a binding agreement.
Even with these changes in circumstances, the issue posed by the instant motion is very close. A key component to any successful reorganization by Mr. Lee are the rental payments due from his cousin under the terms of the March 1st lease. Only one payment had been received as of the date of the hearing; and so no payment history for this tenant was available. The agreement with the Tax Claim Bureau was also new. If Mr. Lee fails to tender all required payments, his property can be listed for a tax sale.
I need also consider the effect of a further bankruptcy filing upon EMC. Mr. Lee seems to have long been in default on his mortgage, and this creditor has attempted for some time to execute upon its security agreement. Its claim has likely increased and it has some risk that the secured claim will be bifurcated and not paid in full.
Upon consideration of the evidence and the applicable standard to the instant motion, as well as the neutrality of the standing chapter 13 trustee (who is a party to the consent order), I hesitantly conclude that the better exercise of discretion is to grant the motion and to permit Mr. Lee to file what is likely to be his last bankruptcy reorganization effort. The bankruptcy legislation enacted in 2005 — which would be applicable to Mr. Lee's intended refiling — has a number of provisions that, if raised, can protect the legitimate interests of EMC and the trustee. I can also insure that the new case is administered quickly for the benefit of creditors.
An appropriate order shall be entered.
AND NOW, this 5th day of June 2007, for the reasons stated in the accompanying memorandum, it is hereby ordered that leave is granted for Mr. Bryant Lee to file a chapter 13 bankruptcy petition.
The chapter 13 trustee is requested to administer expeditiously any newly filed case by Mr. Lee.