Malcolm McFall Babb

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
WILMINGTON DIVISION
IN RE: CASE NO.
MALCOMB MCFALL BABB 06-03003-8-JRL
DEBTOR
ORDER ALLOWING MOTION TO COVERT CASE TO CHAPTER 7
A hearing to consider objections to confirmation of the
chapter 13 plan filed by the debtor, Malcolm McFall Babb, was
held in Wilmington, North Carolina on February 21, 2007. The
objections to confirmation were filed by the Estate of Charles
L. Watson, CLW Investments, Inc. and Wilbur M. McLamb, who are
plaintiffs in litigation against the debtor pending in a South
Carolina state court. An objection to confirmation was also
filed by a judgment creditor, Carolina First Bank. The court
also heard motions filed by the South Carolina plaintiffs and by
Carolina First Bank to convert the debtor’s chapter 13 case to
chapter 7. The motions to convert to chapter 7 will be allowed.
Mr. Babb filed a petition for relief under chapter 13 of the
Bankruptcy Code on September 22, 2006. At the beginning of the
SO ORDERED.
SIGNED this 26 day of February, 2007.
________________________________________
A. Thomas Small
United States Bankruptcy Judge
____________________________________________________________
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case, Mr. Babb was represented by an attorney, Peter Gemborys,
but Mr. Gemborys was subsequently suspended, effective November
30, 2006, from practicing law before this court. In re Mugno,
No 05-09231-8-JRL (Bankr. E.D.N.C. Oct. 20, 2006). Mr. Babb
stated at the hearing that he intended to retain counsel and
wanted the hearings continued. He also stated that he needed
more time to prepare, because he had not been given adequate
notice of the hearings.
The record reflects that notice of the hearing to consider
Carolina First Bank’s objection to confirmation and its motion
to convert the case to chapter 7 was sent to Mr. Babb on January
18, 2007. Notice of the hearing to consider the South Carolina
plaintiffs’ objection to confirmation was sent on January 14,
and notice of the plaintiffs' motion to convert to chapter 7 was
sent on February 9,2007. The South Carolina plaintiffs also
filed a motion to dismiss the case. That motion had been
scheduled to be heard on February 21, and notice of that
hearing, which involved some of the same issues raised by the
motion to convert, was sent to the debtor on January 14, 2007.
The debtor has had more than two months to find another lawyer,
but has not done so. Furthermore, the notices given to Mr. Babb
of the hearings to be held were adequate, and his request for a
continuance was denied at the hearing.
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The parties are well known to each other and have a history
of litigation. The pending lawsuit in South Carolina that was
brought by the plaintiffs against Mr. Babb for malicious
prosecution and abuse of process ended in a mistrial and a new
trial has not been scheduled. Carolina First Bank has had a
judgment against Mr. Babb since 1999 that it has been unable to
collect.
The basis of the objections to confirmation of the plan and
the motions to convert to chapter 7 are essentially the same.
It is alleged that Mr. Babb intentionally misstated the location
of his residence on his petition, omitted valuable assets from
schedules, and undervalued assets that were listed.
Specifically, it is alleged that the debtor is not a resident of
875 Calabash Road, Calabash, North Carolina, as he contends in
his petition, that he intentionally omitted from his schedules
real property located at 4668 River Road, Little River, South
Carolina, and in Charlotte, North Carolina, that he omitted a
judgment he holds against Thomas Crowley in the amount of
$28,700, and that he substantially undervalued property located
in Foxwood Hills, in Oconee County, South Carolina.
For the past several years Mr. Babb has, for some purposes,
claimed that his residence is 875 Calabash Road, Calabash, North
Carolina. However, the Calabash address is clearly not his
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residence, and his testimony in support of his claim of
residency is so unbelievable that it casts doubt on the
veracity of his schedules and statements of affairs. Mr. Babb’s
untruthful testimony by itself would constitute grounds for
conversion of this case to chapter 7.
According to Mr. Babb, he has a room at 875 Calabash Road,
and he went by the house around the Christmas holidays.
However, the owner of the property, Mr. Faulk, a friend of the
debtor subpoenaed to testify by the objecting parties, testified
quite credibly that not only did Mr. Babb not have a room at the
property, but he had never been inside the house.
There are also serious questions regarding the debtor’s
ownership of real property in Little River, South Carolina and
in Charlotte, North Carolina. The property at 4668 River Road,
Little River, South Carolina is titled in the name of M. McFall
Babb. The debtor maintains that the owner is his son, Mitchell
McFall Babb. The ownership of the property is not before the
court, but the evidence presented by the movants casts doubt on
the assertion by the debtor that he is not the owner of the
Little River property.
Mr. Babb contends that all of the actions he has taken with
respect to the Little River property were done on behalf of his
son Mitchell under a power of attorney. However, his actions do
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1 Carolina First Bank presented a statement (IRS Form 1099),
purportedly prepared by the closing attorney in connection with
the sale of the Little River property, that included the
debtor’s social security number, not the social security number
for Mitchell McFall Babb. The statement was not identified by
Mr. Babb and was not admitted into evidence.
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not indicate that he was proceeding under a power of attorney or
that he was proceeding on behalf of his son. What is clear is
that when the property was purchased in 1987, part of the
purchase price, $52,325, was paid by a check drawn on the
debtor’s bank account.1
There are also significant concerns raised about the
ownership of the real property in Charlotte, North Carolina.
The property is 10.3 acres owned one half by M. McFall Babb, who
the debtor contends is his son Mitchell, and by two sisters,
Susan S. Shaw and Cynthia Hattersly. Again, Mr. Babb maintains
that his actions have been taken on behalf of his son Mitchell
under a power of attorney, but Mrs. Hattersly testified that in
all her dealings with the debtor, he appeared to be acting
solely for himself. The issue of ownership of the Charlotte
property is not before the court, but the evidence presented by
the movants casts substantial doubt, as it did with respect to
the Little River property, on the debtor’s claim that he does
not own the Charlotte property.
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The chapter 13 trustee initially recommended that Mr. Babb’s
plan be confirmed, but at the conclusion of the hearing, the
trustee recommended that the plan not be confirmed and that the
case should be converted to chapter 7. The court agrees with
the trustee.
Mr. Babb’s testimony is not believable, and the court finds
that he intentionally misstated his residence in his petition.
Furthermore, there are serious questions as to the ownership of
the 4668 River Road property and the Charlotte, North Carolina
property that should be investigated by a chapter 7 trustee.
Mr. Babb contends that rather than converting the case to
chapter 7, the case should be dismissed. Generally, a chapter
13 debtor, pursuant to 11 U.S.C. § 1307(b), does have the right
to dismiss the debtor’s case. However, a debtor does not have
a right to dismiss the case where there has been a motion to
convert to chapter 7 and cause exists to convert the case to
chapter 7 pursuant to § 1307(b). In this case, there were two
motions to convert the case to chapter 7, and cause exists to
convert the case.
The debtor’s listing of his incorrect address, his
untruthful testimony with respect to his residence, and the
substantial questions regarding his ownership of property not
listed on his schedules constitute cause for conversion of this
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chapter 13 case to chapter 7 pursuant to § 1307(b). Because of
the substantial assets that appear to have been omitted from the
debtor’s schedules, conversion to chapter 7, rather than
dismissal, is in the best interest of creditors and the estate.
Based on the forgoing, confirmation of the debtor’s chapter
13 plan is DENIED, and the debtor’s chapter 13 case is CONVERTED
to chapter 7.
SO ORDERED.
END OF DOCUMENT
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