United States District Court, W.D. Washington, Seattle
In re JAMES ALLEN ANGELO, Debtor.
TOUCH WORLDWIDE HOLDINGS LIMITED, and TOUCH WORLDWIDE LLC, Appellees / Cross-Appellants. JAMES ALLEN ANGELO, Appellant / Cross-Appellee,
ORDER AFFIRMING BANKRUPTCY COURT
C. COUGHENOUR UNITED STATES DISTRICT JUDGE
matter comes before the Court on Appellant / Cross-Appellee
James Angelo's Opening Brief, Response Brief, and Reply
Brief (Dkt. Nos. 9, 11, 14) and Appellees / Cross-Appellant
Touch Worldwide Holdings Limited's and Touch Worldwide
LLC's (“Touch”) Opening Brief, Response
Brief, and Reply Brief (Dkt. Nos. 10, 13, 15). Having
considered the briefs and exhibits submitted by the parties,
the Court AFFIRMS the decision of the bankruptcy court
dismissing Angelo's Chapter 13 bankruptcy petition.
Chapter 13 bankruptcy petition followed an arbitration
proceeding between Touch and Angelo, Touch's former CEO.
(Dkt. No. 9 at 8.) Angelo received a merits judgment in that
proceeding. (Id.) But following the judgment, the
arbitrator learned that Angelo violated a protective order
entered during the proceeding. (Dkt. No. 13 at 8-9.) Angelo
used proprietary information attained during discovery and in
violation of the protective order to compete with Touch and
acquire a multi-year services contract with Microsoft.
(Id.) The arbitrator concluded that under
controlling law, the misconduct was not a basis to reverse
the merits judgment, but warranted sanctions. (Dkt. No. 10-1
at 125.) During a resulting sanctions hearing, Angelo
actively concealed evidence of the violations, perjured
himself, and manufactured and presented false evidence in an
effort to avoid sanctions. (Id.) The arbitrator
learned of this misconduct and levied sanctions against
Angelo including payment of Touch's attorney fees and a
five year disgorgement of a percentage of the profits
attributable to the business Angelo acquired through his
violation of the protective order. (Id. at 137-142.)
midst of the sanctions proceedings, Angelo filed for Chapter
13 bankruptcy relief. (Id. at 6.) Angelo made his
initial bankruptcy filing less than a month before a
scheduled hearing before the arbitrator. (Id. at
310.) The purpose of the hearing was for the arbitrator to
rule on a method to estimate the amount of profits subject to
disgorgement, to consider the reasonableness of attorney fees
and costs awarded to Touch, and to finally determine how much
Touch owed Angelo under the merits judgment. (Id. at
253-55, 310.) The bankruptcy filing was also days before
Angelo was to appear in a deposition in preparation for the
arbitration hearing. (Id. at 258.) Angelo's
bankruptcy filing effectively stayed the arbitration. (Dkt.
No. 10-2 at 315.)
initial bankruptcy filing was a bare bones petition followed
by a full filing approximately two weeks later. (Dkt. No.
10-1 at 6, 14, 63.) Angelo disclosed assets of approximately
$2.75 million, liabilities of approximately $1 million, and
current monthly income of $23, 772. (Id. at 14.)
Angelo initially scheduled the following
liquidated unsecured claims: $13, 225 to the
arbitrator, $75, 000 to his business partner as a debt owed
by his company, $75, 000 to his spouse as a loan to the
marital estate from her separate property, $67, 220 to the
attorney who rendered services in his arbitration proceeding,
and an “unknown” amount to Touch. (Id.
at 29-31.) He later amended the filing to include $7, 000 of
credit card debt and to increase the debt to his spouse to
$85, 163. (Dkt. No. 9-9 at 4.) Angelo's full filing was
accompanied by a Chapter 13 plan. But the plan was
unconfirmable. (Id. at 97.) The bankruptcy court
directed Angelo to file an amended plan by a date certain.
(Id.) Before that date arrived, Touch moved to
dismiss Angelo's petition. (Id. at 99.)
motion to dismiss, Touch asserted that the $484, 226 in
attorney fees Angelo owed it as a result of the arbitration
sanctions was not “unknown, ” and on this basis
his noncontingent liquidated unsecured debts exceeded the
statutory cap for a Chapter 13 filing of $394,
(Id. at 110). Therefore, according to Touch, Angelo
did not qualify as a Chapter 13 debtor. (Id. at
111.) Touch further alleged that even if Angelo did qualify,
his bankruptcy filing was in bad faith and should be
dismissed for cause because of Angelo's admitted
pre-petition conduct, along with allegations that Angelo
filed his petition to impede, delay, and forum shop his
arbitration dispute, and that Angelo misrepresented facts in
his petition. (Id. at 106-09.)
filed an amended bankruptcy plan following Touch's motion
to dismiss but before argument was heard on the motion.
(Id. at 187.) Angelo's amended plan proposed
monthly payments of $2, 000 against an asserted liquidated
value for the bankruptcy estate of $564, 807. (Id.
at 187, 190.) The plan identified no other mechanism to repay
the estate, save the $2, 000 monthly payments and 50% of the
net proceeds from any legal malpractice suit between Angelo
and his arbitration attorney. (Id. at 191.)
bankruptcy court took briefing and heard lengthy oral
argument on the motion to dismiss. (Dkt. No. 10-2 at 304.) It
requested additional briefing from both parties and
documentation from Angelo that the debt he claimed the
marital estate owed to his spouse arose from her separate
property. (Id. at 343-45, 349.) In an oral ruling
granting Touch's motion to dismiss, the bankruptcy court
found that the attorney fees owing to Touch were not
liquidated and, therefore, Angelo qualified as a Chapter 13
debtor because his noncontingent liquidated unsecured debts
amounted to less than the statutory cap of $394, 725. (Dkt.
No. 10-1 at 382). But the court ruled that Angelo's
filing was in bad faith and dismissed the matter for cause.
(Id.) Angelo appeals the bankruptcy court's
dismissal. (Dkt. No. 9.) Touch cross-appeals the court's
determination that Angelo qualified as a Chapter 13 debtor.
(Dkt. No. 10)
Standard of Review
Court may review the bankruptcy court's decision. 9
U.S.C. § 16(a)(1)(A)-(B); 28 U.S.C. § 158(a)(1).
The standard of review is “abuse of discretion.”
In re Leavitt, 171 F.3d 1219, 1223 (9th Cir. 1999).
Whether the bankruptcy court applied the correct legal
standard is reviewed de novo. United States v.
Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc).
Factual findings are reviewed for clear error. Id.
Clearly erroneous factual findings are illogical,
implausible, or without support in the record. Id.
Dismissal for Cause
motion of an interested party, a petitioner's Chapter 13
bankruptcy case can be dismissed for cause. 11 U.S.C. §
1307(c). A “bad faith” filing is sufficient to
dismiss for cause. Leavitt, 171 F.3d at 1224. Bad
faith is determined based upon the “totality of the
circumstances.” In re Tucker, 989 F.2d 328,
330 (9th Cir. 1993). While not an exhaustive list, relevant
factors include (1) “whether the debtor misrepresented
facts in his [petition or] plan, unfairly manipulated the
Bankruptcy Code, or otherwise [filed] his Chapter 13
[petition or] plan in an inequitable manner; (2) the
debtor's history of filings and dismissals; (3) whether