                                                                                                                           Opinions of the United
2000 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


9-27-2000

In Re Ronald Tamecki
Precedential or Non-Precedential:

Docket 99-4061




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Recommended Citation
"In Re Ronald Tamecki" (2000). 2000 Decisions. Paper 206.
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Filed September 27, 2000

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 99-4061

IN RE: RONALD M. TAMECKI, SR.,

       Debtor

RONALD M. TAMECKI, SR.,

       Appellant

v.

LAWRENCE G. FRANK

ON APPEAL FROM THE
UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

(Dist. Court No. 99-cv-01240)
District Court Judge: James F. McClure, Jr.

Argued: May 25, 2000

Before: ALITO, RENDELL and DUHE,* Circuit Judges.

(Filed September 27, 2000)

       FRANK E. GARRIGAN (Argued)
       Garrigan & Rosini
       112 East Independence Street
       Shamokin, Pennsylvania 17872

       Attorney for Appellant
_________________________________________________________________

* Honorable John M. Duhe Jr., United States Circuit Judge for the
United States Court of Appeals for the Fifth Circuit, sitting by
designation.
       LAWRENCE G. FRANK (Argued)
       Law Office of Lawrence G. Frank
       2023 North Second Street
       Harrisburg, Pennsylvania 17102

       Attorney for Appellee

OPINION OF THE COURT

DUHE, Circuit Judge:

We AFFIRM the decision of the district court affirming the
bankruptcy court's dismissal of Ronald M. Tamecki's
("Debtor") Chapter 7 petition.

BACKGROUND

Debtor filed for Chapter 7 protection seeking discharge of
an approximately $35,000 credit card debt owed to MBNA
America. He possesses only one substantial asset, his share
of a tenancy by the entirety in his home, which he holds
with his estranged wife. Debtor and his wife have accrued
over $100,000 of equity in the home.

The Tameckis had been separated for approximatelyfive
years at the time Debtor filed for bankruptcy, and they
have now been separated for more than seven years. Debtor
and his wife live in different towns, and each lives with a
significant other. Mrs. Tamecki filed for divorce in July
1993 but, for unknown reasons, the action is still pending.
The most recent trial date was continued either on joint
motion of the parties or without objection by the Debtor.

In his petition Debtor claimed an exemption under
Section 522(b)(2)(B) of the Bankruptcy Code on his share of
the home equity. See 11 U.S.C. S 522(b)(2)(B). The trustee
in bankruptcy ("Trustee") challenged this election and
sought dismissal of Debtor's petition for "lack of good faith"
under Section 707(a) of the Code. See 11 U.S.C. S 707(a).
According to Trustee, Debtor's divorce is "right around the
corner"; and, thus, Debtor will soon be entitled to his
unencumbered share of the dissolved tenancy by the
entirety. The Trustee estimates that this would be

                                2
approximately $50,000, an amount sufficient to cover
Debtor's obligations and still leave him with enough money
for a "fresh start." Accordingly, the Trustee reasoned that
Debtor acted in bad faith in filing his petition knowing that
he would soon be in a position to repay his debts. The
bankruptcy court found that Debtor had failed to prove his
good faith in filing for bankruptcy and dismissed the
Debtor's petition under Section 707(a). The district court
affirmed.

DISCUSSION

Section 707(a) allows a bankruptcy court to dismiss a
petition for cause if the petitioner fails to demonstrate his
good faith in filing. See In re Zick, 931 F.2d 1124, 1126-27
(6th Cir. 1991), In re Marks, 174 B.R. 37, 40 (E.D. Pa.
1994). Although the Code does not define "good faith,"
courts in this circuit have uniformly held that"[a]t the very
least, good faith requires a showing of honest intention."
See Marks, 174 B.R. at 40. Courts have cautioned,
however, that:

       Dismissal based on lack of good faith . . . should be
       confined carefully and is generally utilized only in
       those egregious cases that entail concealed or
       misrepresented assets and/or sources of income, lavish
       lifestyles, and intention to avoid a large single debt
       based upon conduct akin to fraud, misconduct or gross
       negligence.

Zick, 931 F.2d at 1129. Courts can determine good faith
only on an ad hoc basis and must decide whether the
petitioner has abused the provisions, purpose, or spirit of
bankruptcy law. See Marks, 174 B.R. at 40. The parties
agree that the decision to dismiss a petition for lack of good
faith rests within the sound discretion of the bankruptcy
court. See Zick, 931 F.2d at 1126, In re Atlas Supply Corp.,
857 F.2d 1061, 1063 (5th Cir. 1988).

Once a party calls into question a petitioner's good faith,
the burden shifts to the petitioner to prove his good faith.
See Marks, 174 B.R. at 40 citing In re Sky Group Int'l, Inc.,
108 B.R. 86, 90 (Bankr. W.D. Pa. 1989) ("Once the good
faith issue is placed in question, the party bringing the

                               3
petition has the burden of proving that the petition was
brought in good faith."). The bankruptcy court found that
Debtor failed to meet this burden. We agree.

Debtor testified that he accrued over $35,000 in debt at
a time when he was earning less than one-tenth this
amount. Debtor could point to no marked calamity or
sudden loss of income that precipitated his need to accrue
such a comparatively large consumer debt. Moreover,
Debtor's testimony concerning the state of his marriage
confirmed the Trustee's assertion that divorce and
dissolution of the tenancy by the entirety were"right
around the corner.1" The district court did not abuse its
discretion in determining that together these facts are
sufficient to shift the burden to Debtor to prove his good
faith.2

Debtor's response was three-fold: first, that the Trustee
must prove "extreme misconduct"; second, that ability to
repay is not, in and of itself, evidence of bad faith, see
Marks, 174 B.R. at 41 and third; that he did no more than
avail himself of a proper exception under the Code. While
we agree with Debtor and the court in Zick that we should
not lightly infer bad faith, Debtor's response is insufficient
to carry his burden of proving good faith. Debtor proffered
no evidence of good faith other than his testimony that he
_________________________________________________________________

1. Tamecki's testimony confirms that he and his wife are estranged. They
have been separated for seven years. They live in separate towns, each
with a new significant other. A divorce proceeding has been pending
since 1993. They have not sought counseling, nor is there any indication
that either party has made overtures toward a reconciliation. No
explanation for the delay in finalizing the divorce has been provided.
Accordingly, we see no error in the bankruptcy court's apparent
discounting of Tamecki's self-serving testimony that he would take his
wife back "in a heartbeat." That may be true, but there is no evidence
that her return is either imminent or likely.

2. We do not suggest, as the Dissent indicates, that "consumer debtors
[must] affirmatively demonstrate good faith absent any challenge," or
that "dismissal is appropriate anytime the debtor fails to affirmatively
demonstrate his good faith." We hold merely that in this case where the
trustee has called into question debtor's good faith, and put on evidence
sufficient to impugn that good faith, the burden then shifts to the debtor
to prove his good faith.

                                4
accrued his debt for subsistence purposes, intended to
repay the debt, and that he loved his wife and would take
her back "in a heartbeat." The bankruptcy court chose to
discount this self-serving testimony and instead relied upon
evidence that Debtor acquired a comparatively large
consumer debt just prior to filing for bankruptcy and
during the pendency of his divorce. While Debtor is correct
that ability to repay is not in and of itself sufficient proof of
bad faith, both the reasonableness of his accrual of the
debt and the timing of his filing, particularly in relation to
the curious and unexplained circumstances relating to the
divorce proceeding, were sufficiently questionable to
warrant good faith scrutiny. Debtor's assertion that the
Code permits him to take the entireties exemption simply
begs the question and does not address whether he availed
himself of that provision in good faith. Ultimately, we find
no error in the bankruptcy court's ruling that Debtor failed
to prove his good faith.

AFFIRMED.

                               5
ALITO, Circuit Judge, concurring:

I join the opinion of the Court, but I add a few words to
clarify the narrow point of disagreement between the
majority and the dissent. As I understand the position of
our dissenting colleague, she agrees (a) that a Chapter 7
consumer case may be dismissed for "bad faith" and (b)
that, once a debtor's good faith is appropriately put at
issue, it is the burden of the debtor to produce evidence of
good faith. I do not understand the dissent to argue that in
this case the debtor produced evidence of good faith, and
thus the only apparent point of disagreement concerns the
question whether, on the particular facts of this case, the
debtor's good faith was sufficiently put at issue to require
him to demonstrate good faith.

The dissent apparently believes that, in order to put
Tamecki's good faith at issue, it was incumbent upon the
trustee to produce evidence that, among other things, there
is no good reason for the unusual delay in the completion
of the Tameckis' divorce proceeding. See Dissenting Opinion
at 9 ("[T]he trustee offered no evidence that put Tamecki's
good faith at issue. He only made bald allegations, without
proffering any evidence about the timing of Tamecki's still
unconsummated divorce. . . ."). But the trustee, who is
obviously not a party to the divorce proceeding, is in a
comparatively poor position to show the reason for the
delay. The known facts about the divorce proceeding are
sufficient to place upon the debtor the burden of explaining
the reason for the delay, which has now reached seven
years. It may be that there are entirely legitimate reasons
for the delay. If so, it should have been easy for Tamecki to
show what they were. But he made no effort to do so.

Under the particular circumstances of this case-- which,
contrary to the implication of the dissent, is not the average
consumer bankruptcy case -- the bankruptcy judge did not
commit an abuse of discretion is dismissing the petition.

                               6
RENDELL, Circuit Judge, dissenting:

Some background is necessary to understand the
framework in which we analyze this dispute and why I
strenuously disagree with the outcome in this case, the
reasoning, and the rule implicitly set forth by the majority.
The Bankruptcy Code contains no explicit good faithfiling
requirement.1 It does, however, permit the court to dismiss
cases, including chapter 7 consumer cases, "for cause." See
11 U.S.C. SS 707(a), 930(a), 1112(b), 1208(c), 1307(c). We
have not previously addressed the question of whether lack
of good faith is grounds for dismissal of chapter 7
consumer bankruptcy cases under section 707(a), nor have
we established how to go about determining bad faith in
such a context.2 Only two other courts of appeals have
squarely confronted the question of bad faith dismissal of a
consumer bankruptcy case under section 707(a). Both have
held that bad faith may be grounds for dismissal under
that provision, but have narrowly construed bad faith,
finding that cases should be dismissed under only very
limited circumstances in which the bankruptcy court has
made specific findings of egregious behavior or misconduct.
See Huckfeldt v. Huckfeldt (In re Huckfeldt), 39 F.3d 829,
832 (8th Cir. 1994); Industrial Ins. Servs., Inc. v. Zick (In re
Zick), 931 F.2d 1124, 1129 (6th Cir. 1991). Both in and
outside of these two circuits, bankruptcy and district courts
_________________________________________________________________

1. The one exception is in chapter 9, which governs bankruptcies by
municipalities and contains an express good faithfiling requirement. See
11 U.S.C. S 921(c). The Bankruptcy Code does require that repayment or
reorganization plans -- as opposed to bankruptcy cases themselves -- be
proposed in good faith. See 11 U.S.C. SS 1129(a)(3), 1225(a)(3),
1325(a)(3).

2. Although we have not ruled on the use of section 707(a) to dismiss
cases "for cause" on account of bad faith, we recently have held, in the
context of a sophisticated corporate debtor in chapter 11, that lack of
good faith can be grounds for dismissal "for cause" under section 1112.
See In re SGL Carbon Corp., 200 F.3d 154, 161 (3d Cir. 1999). We also
stated in a footnote in SGL that "once at issue, the burden falls upon the
bankruptcy petitioner to establish that the petition has been filed in
`good faith.' " Id. at n.10. However, even if this statement were to be
extended to chapter 7 consumer cases, as we discuss later, and as
distinguished from the situation in SGL, nothing in the record of this
case puts Tamecki's good faith "at issue."

                               7
have reserved bad faith dismissal for the truly egregious
case, often involving individuals with substantial means
who have flaunted their wealth, have continued their lavish
lifestyles, and are engaging in creative, elaborate schemes
to conceal their assets and cheat their creditors or to
otherwise inflict harm on third parties.3 Indeed, because the
standards for finding bad faith have been set so high by the
federal courts, cases involving conduct that might appear
questionable are nonetheless not dismissed due to the lack
of actual evidence of bad faith or misconduct. See, e.g., In
re Marks, 174 B.R. 37, 40 (E.D. Pa. 1994) (explaining, in
upholding the bankruptcy court's decision not to dismiss
the case, that "[t]he bankruptcy court stated that the record
did not establish any unexplained transfer of assets,
multiple case filings, extraordinary procedural gymnastics,
or lack of candor and completeness in the debtor's
statements and schedules.").4 With that background, I now
turn to the facts of this case.

In nearly all respects, Tamecki fits the profile of the
average consumer debtor. He has marital problems, health
problems, and employment problems. He has a large credit
card debt that he incurred for subsistence purposes by
using unsolicited "live checks" that MBNA sent to him while
he was experiencing a lull in income and ability to perform
_________________________________________________________________

3. See, e.g., In re Lacrosse , 244 B.R. 583, 588-589 (Bankr. M.D. Pa.
1999) (dismissing case of debtor with 58 credit cards and over $500,000
of consumer debt, who lived a lavish lifestyle and drove luxury cars, and
who also falsely enticed clients to give him money by saying that he
intended to make tax-free investments); In re Brown, 88 B.R. 280, 284-
285 (Bankr. D. Hawaii 1988) (dismissing case of successful
ophthalmologist who engaged in prebankruptcy asset planning to remove
more than $700,000 from the reach of creditors and who sought to avoid
an obligation to a recipient of cataract surgery who lost all vision in
her
right eye).

4. The Court in Marks continued by explaining that "[m]ost instances of
dismissal for bad faith under S 707(a) involve concealment,
misrepresentation, or unexplained transfers to place assets beyond the
reach of creditors." Id. at 41. Thus, even the cases of debtors that
appear
not to need bankruptcy relief have not been dismissed for bad faith in
the absence of evidence of misconduct. See, e.g., In re Josey, 169 B.R.
138, 140 (Bankr. S.D. Ohio 1994); In re Bridges , 135 B.R. 36, 38 (Bankr.
E.D. Ky. 1991).

                               8
construction work due to his health and employment
problems. He has an even lower income (under $4,000 per
year in 1996 and 1997) than most debtors. He also has
equity in a home held in tenancy by the entirety with his
estranged wife that, under Pennsylvania law, cannot be
touched by his creditors, either in or out of bankruptcy
unless or until the tenancy is broken. However, far from the
anecdotes of debtors who buy real estate to convert cash
into exempt home equity in contemplation of bankruptcy,
Tamecki and his wife have owned the house for many
years; indeed, Tamecki built the house himself. Tamecki
therefore has none of the obvious badges of bad faith as
gleaned from the other cases.

One would expect, therefore, that this case was
dismissed for bad faith because the trustee put forth
evidence of some type of misconduct or fraud. However, the
trustee offered no evidence that put Tamecki's good faith at
issue. He only made bald allegations, without proffering any
evidence, about the timing of Tamecki's still-
unconsummated divorce and his accrual of debt to MBNA,
to which Tamecki provided responses that were not
discredited by the Bankruptcy Court. The trustee, who is
the primary advocate of dismissing Tamecki's case,
conceded at oral argument that even after conducting
considerable research, he knows of no case with an
analogous fact pattern or remotely on point; he could not
name one. Having canvassed the landscape, I have not
found a case bearing any resemblance to this one in which
bad faith was found to exist. Simply put, our ruling breaks
new ground in the law regarding good faith filing.

In dismissing Tamecki's case, the Bankruptcy Court
made no specific findings of bad faith. However, in
upholding the dismissal of Tamecki's case, the majority
focuses on Tamecki's accrual of debt to MBNA and his
pending divorce, both of which I will discuss in turn.

Tamecki accrued most of his debt to MBNA within the
two years prior to filing for bankruptcy. In addressing this
accrual of debt, the Bankruptcy Court made no finding that
Tamecki ran up his debts in contemplation of bankruptcy
or made extravagant purchases in reckless disregard of his
financial situation. To the contrary, the Bankruptcy Court

                               9
credited Tamecki's testimony that he incurred this debt to
supplement his paltry income for food and other
necessities. It is difficult to contemplate what more Tamecki
could have done to refute any inference of bad faith from
his use of the unsolicited live checks for subsistence at a
time when he had nominal income. If the existence of a
large credit card debt, unaccompanied by any evidence that
the debtor incurred the debt without the intent to repay,5 is
sufficient for bad faith dismissal, the bankruptcy courts
and the majority of debtors in our circuit should be
prepared for an onslaught of good faith challenges.

The majority ruling also relies on Tamecki's still-
unconsummated divorce proceedings. Tamecki's wifefiled
for divorce more than five years prior to the bankruptcy
filing, but the proceedings have been dormant for much of
that time. Tamecki claims he would never divorce his wife
of his own accord; he testified that he wants to remain
married to her. The trustee opined, with no evidence, that
Tamecki's divorce is "right around the corner," in which
event he could be forced to sell his home, break the
tenancy by the entirety protected by Pennsylvania law, and
pay MBNA what he owes. I might find this contention
persuasive if the trustee had offered any specific evidence,
and the Bankruptcy Court had specifically found, that
Tamecki had timed his bankruptcy and divorce to defraud
his creditors. However, the Bankruptcy Court made no
such finding, nor did it indicate that the possibility of
Tamecki's divorce played any role in its ruling. In fact, the
Court never shared its view on this issue; it did not
explicitly accept the trustee's argument in this regard, nor
did it discredit Tamecki's assertion that he did not want to
be divorced from his wife (and therefore had no intention to
break the tenancy by the entirety on his own accord).6 The
majority takes a quantum and unprecedented leap by
_________________________________________________________________

5. The Bankruptcy Code contains a provision, section 523(a), under
which creditors can challenge the dischargeability of specific debts. If
there was any question that Tamecki incurred the debt without the
intent to pay it, MBNA could have pursued its rights under that
provision.
6. The majority's reference to the Bankruptcy Court's assessment of the
testimony regarding the marital status as "apparent discounting of
Tamecki's self-serving testimony" is curious in light of the Bankruptcy
Court's lack of any reference whatsoever to any concern regarding the
marital situation. As noted above, the Bankruptcy Court does not even
refer to the timing of the divorce as having any bearing on its decision
or the outcome.

                               10
crediting the trustee's argument and using it as a basis for
upholding the dismissal of Tamecki's case.

A closer look at the trustee's argument reveals its
slippery slope. Failing to put forth any evidence that
Tamecki has schemed with his wife to postpone the divorce
for their mutual benefit, the trustee's position on the
divorce issue, as clarified in oral argument, is that Tamecki
had an obligation "to move his divorce along" before filing
for bankruptcy so that the state-law-protected tenancy by
the entirety would be broken to make his home equity
available for creditors, regardless of whether Tamecki
actually wants to save his marriage.7 In addition to being
concerned about the result in the case before us, I am
concerned that by endorsing this argument, the majority is
announcing an unprecedented rule that insolvent
individuals must refrain from filing for bankruptcy if they
may have more assets in the future, such that filing before
realization of such assets, even absent proof of bad intent,
is grounds for dismissal of one's bankruptcy case. For
example, is an insolvent individual barred fromfiling for
bankruptcy if his wealthy parent is ill, absent any evidence
that he is timing his filing so as to deprive creditors of his
potential inheritance? I submit that there is no such
restriction in the Bankruptcy Code, and the courts should
not create one.

I will refrain from refuting a variety of specific statements
made by the majority, with one exception, namely, its
assertion that a court may dismiss a chapter 7 case for
cause if the debtor fails to demonstrate good faith in filing,
citing the Zick decision. Zick does not require consumer
debtors to affirmatively demonstrate good faith absent any
challenge. Zick says that lack of good faith may be a valid
basis for dismissing a bankruptcy case for cause under
section 707(a), see Zick, 931 F.2d at 1126, not that
dismissal is appropriate anytime the debtor fails to
_________________________________________________________________

7. The trustee's alternative position at oral argument was that if Tamecki
and his wife get back together, they should be required to take a second
mortgage on their home to pay the MBNA debt. Regardless of the relative
merits of this argument as a policy matter, it has no foundation in
current bankruptcy law.

                               11
affirmatively demonstrate his good faith.8 Even if the
burden shifts to a consumer chapter 7 debtor to defend his
good faith after good faith has been put "at issue," I would
submit that placing good faith at issue requires more than
an unsupported hypothesis about the state of Tamecki's
relationship with his estranged wife and pointing to a
specific credit card debt in the bankruptcy schedules. I
frankly find it untenable that an entirely unsupported
assertion can trigger an obligation on the part of a debtor
to affirmatively prove his good faith or lose all entitlement
to bankruptcy relief. Such a procedure would be contrary to
that employed by our sister courts of appeals, and
constitutes an unwarranted departure from existing law.

I respectfully dissent.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit
_________________________________________________________________

8. The Huckfeldt decision from the Court of Appeals for the Eighth
Circuit also makes no mention of placing the burden of proving good
faith on the debtor, taking only the cautious step that a specific finding
of bad faith may be grounds for section 707(a) dismissal.

                               12
