Appeal from the United States Bankruptcy Court for the District of Puerto Rico (Hon. Enrique S. Lamoutte, U.S. Bankruptcy Judge) Bankruptcy Case No. 07-05871-ESL
Before Boroff, Deasy, and Bailey, U.S. Bankruptcy Appellate Panel Judges.
Ridel Alegre Fernandez Rosado (the "Debtor") appeals from a judgment issued by the United States Bankruptcy Court for the District of Puerto Rico dismissing his case (the "Judgment"). The Debtor contends that the bankruptcy court erred in ruling on the motion to dismiss brought under § 707(a) as it had become moot due to his intervening discharge.*fn1 Alternatively, the Debtor argues that the bankruptcy court erred because bad faith does not constitute cause for dismissal under § 707(a). As the Panel concludes both that the appellees lacked standing to pursue dismissal and the motion to dismiss was moot, we REVERSE the Judgment and REMAND the matter to the bankruptcy court for proceedings consistent with this opinion.
The Debtor filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code on October 9, 2007.*fn2 Thereafter, creditors Juan Botello ("Botello"), Pablo Lopez Baez ("Lopez"), Dr. Osiris Delgado ("Delgado"), Emma Teresa Benitez ("Benitez") and Celedonio Corredera Pablos ("Corredera") (all but Botello will be collectively referred to as the "Appellees") filed complaints seeking to except their claims from discharge pursuant to § 523. The bankruptcy court ultimately ruled that the adversary proceedings were time-barred. No party, including the Appellees, timely filed a complaint seeking denial of the Debtor's discharge under § 727.
On January 8, 2009, the chapter 7 trustee filed a report of no distribution in which he explained that there was no property available for distribution to creditors and certified that he had fully administered the estate (the "Report"). On April 9, 2009, the Debtor filed both a certification that he completed a personal financial management instructional course and a motion requesting the entry of his discharge.
On April 28, 2009, before the bankruptcy court ruled on the Debtor's motion, the Appellees filed a motion to dismiss the Debtor's case pursuant to § 707(a) on the ground that the Debtor had filed his petition in bad faith (the "Dismissal Motion"). On May 16, 2009, the Debtor filed a second motion requesting entry of the discharge. On May 29, 2009, the bankruptcy court entered orders denying both of the Debtor's motions for entry of the discharge and granting the Dismissal Motion.
On June 1, 2009, the Debtor sought reconsideration of the case dismissal and the court subsequently held an evidentiary hearing on the Dismissal Motion. On December 1, 2010, the bankruptcy court issued its Opinion and Order (the "First Bankruptcy Court Opinion"), reinstating the case dismissal on the grounds that the Debtor had filed his bankruptcy petition in bad faith under § 707(a). The Debtor appealed, and on August 10, 2011, the Panel issued a Judgment reversing the order denying the Debtor's requests for entry of discharge and remanding the matter for the entry of the Debtor's discharge (the "First BAP Opinion"). As neither the Appellees nor the bankruptcy court had the benefit of the First BAP Opinion when proposing or ruling on the Dismissal Motion, respectively, the Panel vacated the order dismissing the case and remanded the Dismissal Motion for a redetermination in light of the First BAP Opinion.
On August 25, 2011, the Debtor filed a new request for entry of the
discharge and the bankruptcy court entered the discharge on August 26,
2011. On August 29, 2011, the Debtor filed a motion seeking that the
court deny the Dismissal Motion which had been remanded by the
Panel.*fn3 In support of his Opposition, the Debtor
asserted that, pursuant to Bankruptcy Rule 5009(a) and § 350(a),*fn4
his case was presumed to be fully administered and should
be closed because more than two years had lapsed since the chapter 7
trustee filed the unopposed Report. He further argued that the
Dismissal Motion was moot under applicable case law. The Appellees
did not file a response to the Opposition.
At the September 30, 2011 hearing on the Dismissal Motion and the Debtor's Opposition, the bankruptcy judge first explained that he was not going to revoke the newly entered discharge order of August 26. He then engaged the parties in a colloquy regarding whether the case should be dismissed for the reasons set forth in the First Bankruptcy Court Opinion. The Debtor offered that, pursuant to case law, the entry of the discharge effectively mooted the Dismissal Motion. Although the Appellees agreed that the Dismissal Motion had become moot,*fn5 they were unwilling to withdraw the Dismissal Motion. The bankruptcy court then issued the following Minutes of Proceeding:*fn6
1) Court thinks and concludes that the discharge order does not moot the motion to dismiss before this court, irrespective of whether 11 U.S.C. § 349(b) renders or not ineffective a discharge order entered prior to dismissal.
2) The Court reaffirms its opinion and order entered on December 1, 2010 (dct # 125 [First Bankruptcy Court Opinion]). Judgment will be entered accordingly . . . .
The Debtor timely filed an appeal of the Judgment dismissing the case. In his brief, he argued that the entry of his discharge mooted the Dismissal Motion or alternatively, that the bankruptcy court erred in concluding that bad faith constitutes cause under § 707(a). At oral argument, he explained that there was no basis to dismiss the case once the discharge had entered and that a dismissal after discharge would prejudice the Debtor because it lends uncertainty to the validity of his discharge. He also explained that dismissing the case could adversely affect ...