United States District Court, M.D. Pennsylvania
William W. Caldwell, United States District Judge
before the court is an appeal from the United States
Bankruptcy Court for the Middle District of Pennsylvania
filed by appellant Richard Hackerman
(“Hackerman”), an unsecured creditor in the
underlying Chapter 13 bankruptcy case. (Doc. 1). The appellee
is the debtor, Donald Linwood Demeza (“Demeza”).
Hackerman has appealed the bankruptcy court's February
21, 2017 order (Doc. 1-1 at 11) denying his motion to convert
the bankruptcy case to Chapter 7, as well as the bankruptcy
court's February 23, 2017 amended order (Doc. 1-1 at 13)
confirming Demeza's Chapter 13 plan and overruling
Hackerman's objection to the plan. (Doc. 1 at 1).
For the following reasons, the court will vacate the February
23, 2017 order and remand this matter to the bankruptcy court
for further consideration in accordance with this opinion.
the debtor, resides at 500 Orrtanna Road, Orrtanna, Adams
County, Pennsylvania (the “Property”), which is
best described as a “farmette” or small farm.
Demeza is self-employed as a horse trainer, and agreed to
board Hackerman's pregnant mare at the Property. While in
Demeza's care, the broodmare began foaling, but due to
injuries sustained during the foaling process both the
broodmare and foal suffered significant injuries and had to
be euthanized. Hackerman asserts that Demeza is liable for
the death of the horses.
letter dated December 12, 2012, Hackerman's attorney
notified Demeza of Hackerman's intent to pursue a claim
for the deaths of the broodmare and her foal. (Designated
Record of Appellant, Doc. 2-1 [hereinafter “R.”]
at 96). Demeza responded to this letter via email on December
26, 2012, indicating that he was not insured and that he
intended to hire an attorney to defend against any claims.
(R. at 98-99). On January 7, 2013, Demeza provided his
attorney's contact information to Hackerman's counsel
via email. (R. at 98).
February 5, 2013, Demeza transferred a one-half interest in
the Property to his adult daughter, Ashley Demeza
(“Ashley”), to be held as joint tenants with the
right of survivorship. (R. at 103-05). This transfer of
ownership was undertaken so that Demeza could qualify for a
loan, secured by the Property, as Demeza had inadequate
income to qualify for the loan by himself and needed Ashley
as a joint obligor on the note and mortgage. On June 6, 2013,
Ashley executed a Power of Attorney, giving Demeza authority
to, among other things, mortgage the Property. (R. at
108-09). On June 17, 2013, Demeza took out a loan for
approximately $125, 000 secured by the Property. (R. at
111-24). Prior to this June 17, 2013 mortgage, the Property
was owned solely by Demeza and was unencumbered.
(See R. at 174-75; Tr. of Dec. 6, 2016 Hr'g on
Mot. to Convert Case to Chapter 7, at 29-30).
the proceeds from this loan, Demeza paid various debts
totaling $31, 000, including personal credit card debt and
$22, 500 of a student loan incurred for Ashley's
education. Three thousand dollars was also used to
pay down Ashley's credit card. Demeza used the remaining
funds to cover expenses related to the maintenance of several
of his horses, as well as to pay for legal and personal
expenses. As of December 6, 2016, the approximately $87, 000
cash payout Demeza received from the loan had been entirely
October 1, 2013, Hackerman's counsel sent a demand letter
to Demeza's attorney seeking $135, 000 “for the
mare and foal who died as a result of the gross negligence of
Mr. Demeza.” (R. at 126). Apparently, a settlement
could not be reached, and on November 26, 2013, Hackerman
filed suit in the district court, asserting a claim sounding
in tort against Demeza and his business. Hackerman v.
Demeza, No. 1:13-cv-02883 (M.D. Pa. Nov. 26, 2013), ECF
No. 1. The case was litigated until a suggestion of
bankruptcy was filed, and on July 11, 2016, the case was
stayed due to Demeza's bankruptcy filing. Id.,
ECF Nos. 104, 105.
filed a second lawsuit on June 15, 2016, alleging, among
other things, fraud, fraudulent conveyance under
Pennsylvania's Uniform Fraudulent Transfer Act,
conspiracy, and unjust enrichment. Hackerman v.
Demeza, No. 1:16-cv-01154 (M.D. Pa. June 15, 2016), ECF
No. 1. This lawsuit is based on the transfer of the one-half
interest in the Property to Ashley shortly after Demeza
received notice of Hackerman's claims. Id. This
case was also stayed in light of Demeza's bankruptcy
filing. Id., ECF No. 24.
April of 2016, Demeza contacted a bankruptcy attorney and,
several months later, filed a Chapter 13 petition and plan on
July 5, 2016. The Chapter 13 Trustee initially objected to
the plan, but subsequently withdrew his objection. Hackerman
also objected to the plan, arguing that the bankruptcy
petition was filed in bad faith, that the Chapter 13 plan was
proposed in bad faith in violation of 11 U.S.C. §
1325(a)(3), that the Chapter 13 plan fails to pay as much to
unsecured creditors as they would receive in a Chapter 7
liquidation in violation of 11 U.S.C. § 1325(a)(4), that
Demeza has failed to dedicate all of his disposable income to
his plan as required by 11 U.S.C. § 1322(a)(1), and that
the Chapter 13 plan is not feasible due to Demeza's lack
of income, ostensibly in contravention of 11 U.S.C. §
1325(a)(6). (R. at 80-89).
September 4, 2016, the same day Hackerman filed his
objection, he also filed a motion to covert the Chapter 13
case to Chapter 7 (“motion to convert”). In the
motion to convert, Hackerman's primary contentions were
that (1) the Chapter 13 petition was not filed in good faith;
(2) the Chapter 13 plan was not proposed in good faith; and
(3) the Chapter 13 plan fails to pay as much to unsecured
creditors as they would receive in a Chapter 7 liquidation in
violation of 11 U.S.C. § 1325(a)(4). In re
Demeza, No. 1:16-bk-02789 (Bankr. M.D. Pa. July 5,
2016), ECF Nos. 28, 74. An evidentiary hearing on the motion
was held on December 6, 2016, after which the parties
submitted further briefing. In his subsequent briefing,
Hackerman renewed the primary arguments contained in his
motion to convert. (R. at 976-89). In particular, Hackerman
asserted, in great detail, that a Chapter 7 liquidation would
result in a greater payout to unsecured creditors than the
proposed Chapter 13 plan, thus rendering the plan unfit for
confirmation under 11 U.S.C. § 1325(a)(4). (R. at
February 21, 2017, in a written opinion, the bankruptcy court
denied Hackerman's motion to convert. In re
Demeza, 567 B.R. 473, 480 (Bankr. M.D. Pa. 2017). After
a thorough analysis regarding good faith in Chapter 13
proceedings, the court held that Demeza's petition had
been filed in good faith. Id. at 476-80. The court
also found “that the record supports a finding that the
Chapter 13 plan was filed in good faith, ” but reserved
making a final determination on that issue,
“particularly in regard to [Demeza]'s ability to
fund the plan, until the hearing on confirmation.”
Id. at 480.
February 22, 2017, the bankruptcy court held the Chapter 13
confirmation hearing. In re Demeza, No.
1:16-bk-02789 (Bankr. M.D. Pa. July 5, 2016), ECF No. 92. At
that hearing, the court determined that Demeza would be given
an opportunity to make payments under the Chapter 13
plan-despite potential income issues-and confirmed the plan,
implicitly finding that the plan had been filed in good
faith. Id., ECF No. 109 at 2-8. On February 23,
2017, the court issued its order confirming the Chapter 13
plan and overruling Hackerman's objection. Id.,
ECF No. 94.
timely filed a notice of appeal on March 2, 2017,
id., ECF No. 98, and the appeal was docketed in this
court the following day, (Doc. 1). The parties have each
filed a designated record, and the appeal has been fully
briefed. Neither party has requested oral argument.
Standard of Review
court has jurisdiction to hear the instant appeal under 11
U.S.C. § 158(a)(1). On appeal, the district court will
“review the bankruptcy court's legal determinations
de novo, its factual findings for clear error[, ]
and its exercise of discretion for abuse thereof.”
In re Klaas, 858 F.3d 820, 827 (3d Cir. 2017)
(quoting In re Trans World Airlines, Inc., 143 F.3d
124, 131 (3d Cir. 1998)). Pursuant to Federal Rule of
Bankruptcy Procedure 8019(b)(3),  the court will issue a
decision without oral argument.
notice of appeal, Hackerman indicates that he is appealing
both the bankruptcy court's denial of his motion to
convert, as well as the confirmation of Demeza's Chapter
13 plan. He confines the issues on appeal, however, to
“[w]hether the Chapter 13 Plan proposed by [Demeza]
complies with the requirements [of] 11 USC [§] 1325(a)
which requires (3) the plan has been proposed in good faith
and not by any means forbidden by law and (4) the value, as
of the effective date of the plan, of property to be
distributed under the plan on account of each allowed
unsecured claim is not less than the amount that would be
paid on such claim if the estate of the debtor were
liquidated under chapter 7 of this title on such
date[.]” (Doc. 6 at 3).
briefing also fails to address the bankruptcy court's
denial of the motion to convert. Furthermore, the relief he
requests speaks only to the bankruptcy court's
confirmation of the Chapter 13 plan. Accordingly, because
Hackerman has waived any challenge to the denial of the
motion to convert by failing to address it in his briefing,
this court will not disturb the bankruptcy court's order
denying this motion. See infra Section IV.
A. (discussing waiver on appeal). Rather, the court will
address, in turn, the two issues regarding the Chapter 13
plan that Hackerman designates as the relevant issues for
Good Faith of the Plan Requirement Under 11 ...