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UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

11-53376

Case No.
Chapter 13
Hon. Steven W. Rhodes

In re
MARILYN FESSLER

Debtor.

________________________________________________________________

BELFOR USA GROUP, INC.’S MOTION TO DISMISS DEBTOR’S BANKRUPTCY

CASE PURSUANT TO 11 U.S.C. § 1307

Belfor USA Group, Inc. (“Belfor”), by and through its attorneys, Jaffe Raitt Heuer &

Weiss, P.C., submits its Motion to Dismiss Debtor’s Bankruptcy Case Pursuant to 11 U.S.C. §

1307(c) and states as follows:

FACTUAL BACKGROUND

THE PARTIES

On or about February 21, 2007, Belfor and Creative Steps Learning Centers, Inc.

A.

1.

d/b/a English Oaks Montessori and School of Protocol (“Creative Steps”) entered into a written

agreement whereby Belfor agreed to perform certain repairs to a building used by Creative Steps

and Creative Steps agreed to pay for the repairs. Specifically, Creative Steps agreed to tender

any proceeds it received from its insurance company for repairs to the building directly to Belfor.

See Exhibit 1. Debtor Marilyn Fessler (“Debtor”) is the sole shareholder of Creative Steps.

2.

Though Belfor fully performed its obligations under the terms and conditions of

the Agreement, and despite Belfor’s repeated requests, Creative Steps, vis-à-vis the Debtor,

failed to turn over, endorse and otherwise tender all insurance drafts as produced to Belfor (the

“Insurance Proceeds”) leaving an unpaid balance of $43,601.08. Indeed, the Debtor admitted

during her 341 Meeting of Creditors that she used the Insurance Proceeds for other purposes than

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to pay Belfor.

B.

3.

STATE COURT PROCEEDINGS AND JUDGMENT FOR CONVERSION

On July 21, 2008, Belfor filed its Complaint against Creative Steps for breach of

contract, implied contract, unjust enrichment, lien foreclosure and conversion in the Oakland

County Circuit Court, Case No. 2008-093170-CK (“State Court Action”).

4.

On March 18, 2010, after granting summary disposition in Belfor’s favor for

breach of contract, implied contract, unjust enrichment, conversion and lien foreclosure, the State

Court entered judgment against Creative Steps in the amount of $142,800.00 plus interest and

attorneys fees (the “Judgment”).1 See Exhibit 2.

C.

5.

DEBTOR’S CONDUCT POST-JUDGMENT

On May 20, 2010, the Court entered a Writ/Request and Order to Seize Property

to satisfy the Judgment (the “May 20 Order”). See Exhibit 3.

6.

On June 2, 2010, a court officer served the May 20 Order on the Debtor and

obtained a small payment of $1,850.00 towards the Judgment. See Exhibit 4.

7.

On June 4, 2010, the Debtor formed a new for-profit corporation, Cedar Bank

Investments, Inc. (“Cedar”) just two days after being contacted by the court officer and less than

two months after Creative Steps filed its annual report and renewal. See Exhibit 5.

8.

On June 9, 2010, the Debtor filed an assumed name certificate to transact business

on Cedar’s behalf in the name of “English Oaks Christian Montessori Academy.” Notably, this

new d/b/a is nearly the same as Creative Steps’ previous d/b/a, “English Oaks Montessori and

School of Protocol.” See Exhibit 6.

9.

The Debtor continued operation of the business uninterrupted using the same


1 Having ruled in Belfor’s favor that Creative Steps committed acts of conversion by using the Insurance Proceeds
for other purposes than to pay Belfor, the State Court awarded Belfor treble damages.

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building, the same employees, the same furniture and other assets, and serving the same students.

The present website for English Oaks Montessori Christian Academy states that:

English Oaks Montessori has been located in White Lake, Michigan since 2005
and has been in the area since 1995. English Oaks is owned by Marilyn Meissner
who holds certification in Montessori credentials.

Exhibit 7 (material from http://englishoaksmontessori.com).

10.

The school continued to operate under Creative Steps’ state-issued license, issued

to Creative Steps Learning Centers, Inc. See Exhibit 8.

11.

Continuing its attempts to collect on the Judgment, on March 2, 2011, the State

Court issued a new Request and Order to Seize Property, which was substantively the same as

the previous Order (“March 2nd Order”). See Exhibit 9.

12.

On March 23, 2011, court officers arrived at the building used by Creative Steps

(and now Cedar) to enforce the Order. See Exhibit 10 (Affidavit of Michael Gazzarato).

13.

An employee of the school came to the locked door, but refused to grant the court

officers entry, stating that the Debtor instructed her not to let any court officers into the building,

regardless of the State Court’s March 2nd Order. Id. A few minutes later, the Debtor arrived

and stated that the officers could not enter because she had “changed the name” of her business.

She also said she had just spoken with the Chief of Police, who told her to inform the court

officers that if they entered the building they would be arrested for trespassing because the legal

name of the business had changed. Id.

14.

Police officers arrived on the scene, first an officer, then a sergeant, and finally

the Chief of Police. Id. The Chief told the Debtor that she could be held in contempt of court

for non-compliance, but the Debtor said she “did not care” and the officers “were not getting into

the building.” Id. at p. 4. During this time, the Debtor made several calls to people she claimed

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were her lawyers, and to others whom she told to “come and get their property before it was

seized.” She also threatened to call the news and generally created a scene. Id. at p. 3-4.

15.

On April 20, 2011, Belfor filed its Ex Parte Motion and Brief for Order that

Defendant’s Principal, Marilyn Meissner, a/k/a Marilyn Fessler Show Cause Why She Should

Not Be Held In Contempt of Court and Why a Preliminary Injunction Should Not Issue

(“Contempt Motion”) in the State Court Action. Specifically, Belfor sought to amend the

Judgment to add the Debtor as a party as a judicial sanction for her contempt. A hearing on the

Contempt Motion was scheduled for May 11, 2011.

16.

On May 10, 2011, one day before the hearing on the Contempt Motion, Creative

Steps filed its voluntary Chapter 7 petition with the Bankruptcy Court. See Case No. 11-53366

(Shefferly).

17.

On May 24, 2011, Creative Steps filed its Schedules and Statement of Financial

Affairs (“Schedules”). [Doc. No. 7]. Notably, the Schedules identify zero dollars in assets and

Belfor as the one and only creditor of the estate. Id.

D.

18.

DEBTOR’S CHAPTER 13 PETITION AND 341 MEETING.

On May 10, 2011, the day before the hearing on the Contempt Motion, the Debtor

also filed her voluntary Chapter 13 petition (“Petition”) with the Bankruptcy Court.

19.

On May 24, 2011, the Debtor filed her Summary of Schedules and Statement of

Financial Affairs (“Schedules”). [Doc. No. 11].

20.

Pursuant to her Schedules, the Debtor owns no real property, has one secured

creditor and a total of seven unsecured creditors. Specifically, the Debtor identified the

following unsecured creditors:

Belfor USA Group, Inc.

$142,800

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Comerica Bank

Don Chadwick

Elizabeth Smith (relative)

Ford Credit

Kohl’s

PNC Bank

Unknown

$300

$7,500

$450

$364

Unknown

See Schedule F [Doc. No. 11]. Notably, Belfor’s unsecured claim amounts to 94% of the

Debtor’s unsecured claims.

21.

During her section 341 meeting, the Debtor indicated that the primary reason for

filing her Chapter 13 petition was because of Belfor’s attempts to add her as a party defendant to

the Judgment pursuant to the Contempt Motion. Indeed, the Debtor stated that she was current

on all her other debts.

ARGUMENT

A.

DEBTOR’S BANKRUPTCY CASE SHOULD BE DISMISSED “FOR
CAUSE”

22.

“A bankruptcy court has the power to dismiss a Chapter 13 petition upon a

finding that the debtor did not bring it in good faith.” In re Alt, 305 F.3d 413, 418 (6th Cir.

2002); see also In re Banks, 267 F.3d 875, 876 (8th Cir. 2001); In re Lilley, 91 F.3d 491, 496 (3d.

Cir. 1996). “Most courts ascribe the basis for such a dismissal to 11 U.S.C. § 1307(c), which-

although it does not expressly address good faith- does permit a bankruptcy court to dismiss a

Chapter 13 petition “for cause.” In re Alt, 305 F.3d at 418-19; 8 COLLIER ON BANKRUPTCY ¶

1307.04[10] (16th ed.) (“Section 1307(c) states that the court may dismiss or convert a case for

cause, “including” the 10 types of cause enumerated in the section. Because the word

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“including” is not exhaustive, the court may dismiss for causes other than those enumerated.

Most courts have held that lack of good faith can be cause for dismissal or conversion of a

chapter 13 case.”).

23.

The Sixth Circuit has adopted the “totality of the circumstances” test for

determining whether a Chapter 13 petition was filed in good faith and set forth a

“nonexhaustive” list of factors, which include: (1) the nature of the debt, including the question

of whether the debt would be nondischargeable in a Chapter 7 proceeding; (2) the timing of the

petition; (3) how the debt arose; (4) the debtor’s motive in filing the petition; (5) how the

debtor’s actions affected creditors; (6) the debtor’s treatment of creditors both before and after

the petition was filed; and (7) whether the debtor has been forthcoming with the bankruptcy

court and the creditors. Alt, 305 F.3d at 419-20; citing In re Love, 957 F.2d 1350, 1357 (7th Cir.

1992).

24. Moreover, “[i]t is important to note that in the context of a Motion to Dismiss a

Chapter 13 case, the courts consistently held that once the debtor’s good faith has been

challenged, the debtor has the burden of proving that the petition for relief was filed in good

faith.” In re Newsome, 92 B.R. 941, 943-44 (M.D. Fla. 1988) (citations omitted).

“Unmistakeable manifestations of bad faith need not be based upon a finding of actual fraud,

requiring proof of malice, scienter or an intent to defraud. We simply require that the bankruptcy

courts preserve the integrity of the bankruptcy process by refusing to condone its abuse.” In re

Waldron, 785 F.2d 936, 941 (11th Cir. 1986) (reversing lower court’s decision with instructions

to dismiss the debtor’s petition).

25.

Furthermore, “[t]wo-party disputes…simply have no place in bankruptcy.... Many

courts have found that such filings violate the ‘good faith’ prerequisite to invoking the

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bankruptcy court's equitable jurisdiction.” See In re Shead, 2008 WL 1995373, *3 (S.D. Tex.

2008) (quoting In re Anderson Oaks L.P., 77 B.R. 108, 112 (Bankr.W.D.Tex.1987)). At its

plainest, the Debtor’s admission that she only brought the petition to impede the collection

efforts of Belfor, particularly the Contempt Motion, and the fact that the Debtor admitted she is

current with her other creditors is a petition filed in bad faith.

1.

26.

The Judgment Would be Non-Dischargeable under Section 523(a)(6).

Belfor obtained a judgment for conversion against Creative Steps of which the

Debtor was the sole shareholder. Pursuant to the Contempt Motion, Belfor sought, as a judicial

sanction, an order amending the Judgment to add the Debtor has a party. See Electrical Workers

Pension Trust Fund of Local Union #58 v. Gary’s Electric Service Co., 340 F.3d 373, 382 (6th

Cir. 2003) (holding that a corporate defendant’s non-party owner can be subject to contempt

proceedings and judicial sanctions).

27.

11 U.S.C. § 523(a)(6) provides for the following exception to discharge:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this
debt—
title…does

discharge

not

from

any

(6) for willful and malicious injury by the debtor to another entity or to the
property of another entity.

an
*

individual
*

*

28.

Under 11 U.S.C. § 523(a)(6) an injury is “willful” if the debtor desired to cause

the consequences of his act or if the injury was substantially certain to result. Mich. Web Press,

Inc. v. Wilcox (In re Wilcox), 310 B.R. 689, 698 (Bankr. E.D. Mich. 2004) (citing Kawaauhau v.

Geiger, 523 U.S. 57, 61 (1998); Markowitz v. Campbell (In re Markowitz), 190 F.3d 455, 466

(6th Cir. 1999)). There does not need to be a specific intent on behalf of the debtor to injure the

creditor. Monsanto Co. v. Trantham (In re Trantham), 304 B.R. 298 (6th Cir. 2004). Where the

debtor must have known, and therefore believed, that economic damage to the creditor was

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substantially certain to result from his actions, it is a willful injury. Id.

29.

Under 11 U.S.C. § 523(a)(6) “malicious means in conscious disregard of one’s

duties or without just cause or excuse; it does not require ill-will or specific intent .” Trantham,

304 B.R. at 308 (quoting Wheeler v. Laudani, 783 F.2d 610, 615 (6th Cir. 1986)). “Malice ” for

purposes of 11 U.S.C. § 523(a)(6) is not only “a wrongful act, done intentionally, without just

cause or excuse ” but is also where a debtor acts “in conscious disregard of one’s duties.” In re

Stollman, 4074 B.R. 244, 265 (Bankr. E.D. Mich. 2009).

30.

In In re Penning, 22 B.R. 616 (Bankr. E.D. Mich. 1982), the debtor was the

president and managing member of a family owned business. The business, through the debtor,

entered into an agreement to sell snowmobiles. Under the terms of a security agreement, the

business was to hold the proceeds in trust for a secured party. Id. at 618. Thereafter, the

business defaulted on its obligations. The business, through the debtor, disposed of collateral in

express violation of the security agreement with plaintiff. The Court held that the individual

debtor was “guilty of a willful and malicious conversion” of the plaintiff’s property because the

“debtor actively participated in the conversion”. The debtor made the decision to dispose of the

collateral, and the decision not to turn over the funds derived from their disposition to plaintiff.

The Court determined that this debt was nondischargeable by virtue of section 523(a)(6). Id. at

219.

31.

In the case at bar, there can be no dispute that, pursuant to the resulting Judgment

in the State Court Action, the Insurance Proceeds were a property right belonging to Belfor.

Additionally, as in In re Penning, the Debtor’s use of the Insurance Proceeds without Belfor’s

consent and without turning the proceeds over to Belfor constitutes conversion of Belfor’s

property.

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32.

Therefore, it follows that the Debtor’s debt to Belfor would be nondischargeable

by virtue of 11 U.S.C. § 523(a)(6) had the Debtor filed her petition under Chapter 7 instead of

Chapter 13.

2.

33.

The Timing of the Petition is Indicative of Bad Faith.

The Debtor filed her voluntary petition the day before the hearing on the

Contempt Motion was scheduled. That fact alone is indicative of the Debtor’s bad faith.

3.

34.

The Debt Arose from the Debtor’s Acts of Conversion and Contempt of Court

As discussed above, the debt arose as a result of the Judgment in the State Court

Action finding in favor of Belfor on, among others, its claims for conversion. The State Court

awarded Belfor treble damages for Creative Steps’ acts of conversion. Since the Debtor was

Creative Steps’ sole shareholder, the acts of conversion were taken by the Debtor.

35. Moreover, the Debtor, in her own personal capacity, attempted to thwart

collection of the Judgment by creating a new entity (Cedar Bank Investments) and operating a

substantially similar business as Creative Steps (even using a similar English Oaks name) using

the new entity. The Debtor took these actions within a few days of Belfor’s attempts to collect

on its Judgment. The Debtor’s acts of contempt were the basis of the Contempt Motion in the

State Court Action. As discussed above, the Debtor filed her Petition the day before the hearing

on the Contempt Motion.

4.

The Debtor’s Motives in Filing Her Petition Were to Avoid Answering the
Contempt Motion in the State Court Action and to Prevent Belfor from
asserting a Section 523(a)(6) Claim.

36.

This is a two-party dispute that has no place in the Bankruptcy Court. See In re

Shead, 2008 WL 1995373, *3 (S.D. Tex. 2008). The fact that Belfor is essentially the only

unsecured creditor that the Debtor is attempting to restructure and/or avoid makes this action a

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two-party dispute, which is already being litigated in a non-bankruptcy forum. The facts of this

case are similar to those of In re Newsome, 92 B.R. 941 (M.D. Fla. 1988), where the court found

the debtor acted in bad faith in filing a chapter 13 petition when the debtor had only one

unsecured creditor. In Newsome, the debtor filed his voluntary petition under Chapter 13 with a

single creditor holding a general unsecured claim. The creditor moved to dismiss the debtor’s

bankruptcy case on the grounds that the debtor filed his petition in bad faith. In support of his

motion, the creditor argued that he was the only unsecured creditor of the debtor; that there were

no other bona fide unsecured creditors whose claim the debtor sought to adjust; and the plan

submitted by the debtor is merely an attempt by the debtor to get out of his contractual

obligation. Id. at 942. The court agreed:

This Chapter was designed to enable a financially distressed individual Debtor
with a regular income to obtain adjustment of debts. Under the scheme of this
Chapter, the debtor may achieve this by proposing a plan which deals with the
Debtor’s debts in general including even secured obligations with the exceptions
set forth in Section 1322(a) which is not relevant here. A plan proposed by a
Debtor which is designed to deal with the debt of one creditor only, and designed
to restructure and scale down the contractual obligation of a Debtor, which is
exactly what is involved in this case, is deemed suspect at least and may not have
been filed in good faith, unless the debtor is able to establish that the petition was
filed for a legitimate purpose consistent with the provisions of this Chapter.

*

*

*

As noted this is nothing more than a two-party dispute which is already being
litigated in a non-bankruptcy forum. For these reasons, it is appropriate to deny
confirmation of the Debtor’s plan on the basis that the plan was not filed in good
faith.

Id. at 943. Similarly, in In re Waldron, 785 F.2d 936 (11th Cir. 1986), the court reversed the

district court’s decision and instructed the district court to dismiss the debtor’s petition. The

court reasoned that the debtors’ petition listed one single unsecured creditor and they were

otherwise completely solvent. The court found that the debtors abused Chapter 13 by filing their

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petition in order to reject a contract with the creditor. The court concluded that the debtors’

purpose was an “abuse of Chapter 13 for a greedy and unworthy purpose.” Id. at 941. See also

In re Cedar Shore Resort, Inc., 235 F.3d 375 (8th Cir. 2000) (finding that debtor’s purpose in

filing bankruptcy was to thwart a shareholder lawsuit, “not to attempt to reorganize on solid

ground and try again. Because the ‘powerful equitable weapons’ of the bankruptcy court should

be ‘available only to those debtors ... with ‘clean hands’ and not to those debtors ‘whose

overriding motive is to delay creditors without benefitting them in any way or to achieve

reprehensible purposes,’ the bankruptcy court did not abuse its discretion in dismissing the

case.”) (citations omitted).

37.

The facts involved in this case are more egregious than Newsome. Here, the

Debtor aided in the conversion of Insurance Proceeds and thwarted Belfor’s attempts at

collecting on its Judgment. Newsome was filed for the purpose of getting out of a contractual

agreement with a single creditor. The Debtor’s Petition in this case was to avoid appearing

before the State Court and answering the Contempt Motion filed by Belfor.

38.

The Debtor identifies six other unsecured creditors whose claims amount to

roughly 6% of the Debtor’s total unsecured debts while Belfor accounts for 94%. Moreover,

during the Debtor’s meeting of creditors, the Debtor indicated that her primary reason in filing

her Chapter 13 petition was in response to Belfor’s Contempt Motion. By selecting to file under

Chapter 13, the Debtor precluded Belfor from bringing an action under 11 U.S.C. § 523(a)(6).

However, the Debtor is not permitted to use Chapter 13 has a sword. Newsome, 785 F.2d at 940

(“The Bankruptcy laws are intended as a shield, not as a sword.”) (citations omitted). Clearly,

the Debtor’s motives in bringing her Chapter 13 Petition was to avoid answering for her

misconduct in the State Court Action and to preclude Belfor from bringing a Section 523(a)(6)

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claim that would be available to Belfor in a Chapter 7 proceeding. The Debtor has abused the

bankruptcy process by using it as a sword to protect her own bad faith conduct and to thwart

Belfor’s attempts to hold the Debtor accountable for her judicial contempt. Accordingly,

Belfor’s Motion to Dismiss should be granted.

5.

39.

Debtor’s Treatment of Creditors Pre-Petition was Egregious.

As discussed above, the Debtor took the following actions to impede Belfor’s

attempts to collect on the Judgment:

(a)

On June 4, 2010, the Debtor formed a new for-profit corporation, Cedar Bank

Investments, Inc. just two days after being contacted by the court officer and less than

two months after Creative Steps filed its annual report and renewal. See Exhibit 5.

(b)

On June 9, 2010, the Debtor filed an assumed name certificate to transact business

on Cedar’s behalf in the name of “English Oaks Christian Montessori Academy.”

Notably, this new d/b/a is nearly the same as Creative Steps’ previous d/b/a, “English

Oaks Montessori and School of Protocol.” See Exhibit 6.

(c)

The Debtor continued operation of the business uninterrupted using the same

building, the same employees, the same furniture and other assets, and serving the same

students.

(d)

The school continued to operate under Creative Steps’ state-issued license, issued

to Creative Steps Learning Centers, Inc. See Exhibit 8.

(e)

On March 23, 2011, the Debtor refused to allow court officers to enter the

building and told the court officers that she had “changed the name” of her business and

that if they entered the building they would be arrested for trespassing because the legal

name of the business had changed.

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(f)

On May 10, 2011, one day before the hearing on the Contempt Motion, Creative

Steps filed its voluntary Chapter 7 petition with the Bankruptcy Court identifying zero

dollars in assets and Belfor has the one and only creditor of the estate.

(g)

On May 10, 2011, one day before the hearing on the Contempt Motion, the

Debtor filed her voluntary Chapter 13 petition listing Belfor as holding 94% of her

unsecured debts.

(h)

On June 24, 2011, Belfor attended the Debtor’s Meeting of Creditors and the

Debtor identified her primary reason for filing her Chapter 13 Petition was because of

Belfor’s Contempt Motion and that she was current on her other debts.

40.

Clearly, the Debtor’s treatment of Belfor was in bad faith and in contempt of the

State Court’s orders. The Debtor furthered her bad faith actions by using the Bankruptcy Court

to avoid having to answer for her egregious misconduct in the State Court Action. Accordingly,

the Debtor’s Chapter 13 Petition should be dismissed.

CONCLUSION

41.

For the reasons discussed above, Belfor USA Group, Inc. respectfully requests

that this Court grant its Motion to Dismiss pursuant to 11 U.S.C. §1307(c) and dismiss the

Debtor’s bankruptcy case.

Dated: July 20, 2011

By:

JAFFE, RAITT, HEUER & WEISS, P.C.

/s/ Jonathan C. Myers
Jonathan C. Myers (P69972)
Alicia S. Schehr (P54236)
Counsel to Belfor USA Group, Inc.
27777 Franklin Road, Suite 2500
Southfield, Michigan 48034-8214
(248) 351-3000
[email protected]
[email protected]

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