The Court issued a Show Cause for Sanctions against law firm and attorneys in these two cases after hearing on United States Trustee’s Motion for Review of Attorney’s Fees filed in the cases.  Federal court has inherent power to control admission to its bar and to discipline attorneys who appear before it.  The Court imposed sanctions against attorneys and law firm pursuant to that inherent power and authority granted to it under 11 U.S.C. Section 105(a).  The Court found that the parties violated Bankruptcy Rule 9011(b) and transgressed duty of disclosure required by Bankruptcy Rule 2016(b).  The attorneys and law firm were each sanctioned and fined by the Court.

Debtor filed a motion to sell real estate that was objected to by the property owners association and other creditors. The primary objection was that a boat slip and access easement that were also to be sold were located on property owned by the POA.  The Court denied the motion without prejudice and abstained pursuant to 28 U.S.C. § 1334(c)(1) from determining the Debtor's rights in the boat slip and access easement to allow litigation to proceed in state court to determine those rights, and potentially the rights of other parties not before the Court. The Court also expressed concern that the matter should have been brought as an adversary proceeding given that the parties sought a determination of an interest in property within the scope of FRBP 7001(2).

A secured lender of the Chapter 12 debtor and the Chapter 12 Trustee filed objections to confirmation of the Debtor's Chapter 12 plan.  Additionally, the creditor filed a motion to dismiss the case for abuse.   The Court considered the fact that the Debtor, a tree farming operation, most recently filed a Chapter 12 case in 2013 that was dismissed without leave to amend after four failed attempts to confirm a plan.  The Court did not believe that a viable plan could be confirmed in this case, despite the Debtor making progress since the last case including changes in leadership and its bookkeeping staff, as well as the liquidation of some of its real estate which proceeds paid down a significant portion of its secured debt.  The Court held that the Chapter 12 plan was not feasible pursuant to Section 1225(a)(6), denied leave to amend under Section 1208(c)(5) as the Debtor failed to show any reasonable likelihood of reorganization, and dismissed the case for abuse under Section 1208(c) as a result of the Debtor’s unreasonable delay and gross mismanagement with a bar on refiling for 365 days.

The United States Trustee filed a motion to dismiss the case either as presumptively abusive under Section 707(b)(2) or as the granting of a Chapter 7 discharge to the Debtor is abusive when viewed in the totality of the circumstances under Section 707(b)(3).  The Court granted the United States Trustee’s motion, but gave the Debtor an opportunity to convert his case to a case under Chapter 13.

The above-median Debtor listed a negative monthly disposable income on his means test form, asserting that the presumption of abuse under Section 707(b)(2) does not apply.  The Debtor did not list any special circumstances on his means test form.  However, when the Debtor's actual income and expenses were taken into account, a presumption of abuse arises.  The Debtor overstated the additional health care expenses deduction and the health savings account deduction.  Thus, the burden was on the Debtor to rebut the presumption of abuse.  The Debtor failed to prove that any special circumstances exist.  The Court allowed a vehicle operation expense for two vehicles, and allowed an additional deduction for a prescription to treat hypersomnia as an unusual circumstance, however the presumption of abuse still arises and the Debtor did not sufficiently rebut the presumption.