Timothy Edwin Groscost

OCR transcription for search; preserved printed pages are authoritative

The court incorporates by reference in this paragraph and adopts as the findings and orders
of this court the document set forth below.

Russ Kendig
United States Bankruptcy Judge

"UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

CHAPTER 7
CASE NO. 11-60502
JUDGE RUSS KENDIG

IN RE:
TIMOTHY EDWIN GROSCOST,
Debtor.

MEMORANDUM OF OPINION
(NOT INTENDED FOR
PUBLICATION)

Ne Nae Nee ase” see nee eee” nee” Sona” eee

The United States Trustee (“UST”) moved to dismiss Debtor’s case under 11 U.S.C.
§ 707(b)(3)(A),' contending the petition was filed in bad faith. Debtor disagreed. The
motion was tried on August 23, 2011. The following Memorandum of Opinion constitutes
the Court’s findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy
Procedure 7052. In rendering its decision, the Court has considered the testimony of
witnesses and the exhibits admitted into evidence during the hearing.

Jurisdiction is premised in 28 U.S.C. § 1334 and the general order of reference
entered in this district on July 16, 1984. In accordance with 28 U.S.C. § 1409, venue in this
district and division is proper. This is a core proceeding pursuant to 28 U.S.C.

§ 157(b)(2)).

This opinion is not intended for publication or citation. The availability of this
opinion, in electronic or printed form, is not the result of a direct submission by the court.

FACTS

On June 28, 2008, at the age of 50, Debtor voluntarily quit his thirty-two year
employment with Kroger. He cited the institution of a new system, called Key Retail, as

' Although the UST’s motion also references 11 U.S.C. § 707(b)(3)(B), the UST
abandoned this argument and focused on the bad faith argument.

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the catalyst for his exit. The Key Retail changes were stressful because Debtor believed
they resulted in a deterioration of the store image, which led to his breaking point as head
grocery clerk. Previous store managers had sufficient corporate power to skirt the issue,
but those managers had moved on. Basically, he claimed fighting against Key Retail was

a battle he knew he couldn’t win and he quit.

At the time, he was a divorced homeowner with a mortgage and approximately
$60,000.00 to $70,000.00 in credit card debt. He had a Kroger 401(k) savings plan,
worth in the neighborhood of $53,000.00, and his retirement. His pension plan appears to

be a defined benefit plan.

After he quit his job in June 2008, Debtor cashed out the Kroger savings plan,
netting approximately $43,024.59. His intent was to live on this money until he could
draw his pension at age 55. If money ran short, he said he would build picnic tables or do

home remodelling.

He also believed that he would win the lottery. For the past seven years, he has
played the same six numbers in the Classic Lotto. He spends $3.00 per week and is
thoroughly convinced that he will win. On the day of the trial, he said he had checked the
numbers before coming to court because he thought it would be a good day to win.

Following his exodus from Kroger, Debtor did not seek employment. He lived on
the savings plan money and continued to use his credit cards. In 2008, he took a
$15,000.00 cash advance to purchase a vehicle and a motorcycle. He also used a credit
card check to install a new furnace and air-conditioning system in his home, at a cost of

approximately $8,000.00.

For approximately two months in early 2009, Debtor went to California and lived
on a friend’s boat, which may qualify as a yacht. He insisted his expenses were less in
California than if he’d remained in Ohio. There, he only paid for cable and his daily
needs. His Ohio utility expenses were at the bare minimum and he continued to make his
mortgage payment. While in California, Debtor took some day trips, including a trip to
Tijuana. He said he did not live extravagantly and that much of his time was spent
walking on the beach, taking in sunsets, and meeting interesting people. It was “play” in
the sense that it was not structured or organized.

Debtor ran out of money far short of receiving his monthly pension benefit. He
began experiencing financial problems in 2009. He maxed out his Discover card and
Bank of America card in June 2009. He stopped paying his mortgage in approximately
July 2009. Yet Debtor did not look for work. Instead, he continued to play the lottery
and began selling personal items, including the truck and the motorcycle he had
purchased with the cash advance. Debtor was, when credit was available, using one card
to pay another. He admitted that his financial situation continued to deteriorate.

In July 2010, Debtor was “at the lake” and received a call that someone broke in
to his house and was removing his property. The reality was that a writ of possession had
issued following foreclosure of his home. On his return trip from the lake, he saw a
billboard advertising his attorney’s bankruptcy services, which ultimately led to this
bankruptcy. In September 2010, he obtained work at CVS Pharmacy. He was hired by
one of his former Kroger managers. He remains employed with CVS in a position that is
far less attractive than the one at Kroger. He filed a bankruptcy case on February 23,
2011, owing over $100,000 in general unsecured debt with pitifully small non-exempt

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assets.
LAW AND ANALYSIS

Bankruptcy courts have authority to dismiss abusive cases for debtors with
primarily consumer debts. 11 U.S.C. § 707(b)(1). The parties stipulated that the debts in
this case are primarily consumer. (Doc. 24). Explaining the foundation of § 707(b)
dismissals, the Sixth Circuit Court of Appeals stated:

[Section] 707(b) allows a bankruptcy court to deal equitably
with the unusual situation where an unscrupulous debtor seeks
to enlist the court’s assistance in a scheme to take unfair advan-
tage of his creditors; it serves notice upon those tempted by un-
principled accumulation of consumer debt that they will be held
to at least a rudimentary standard of fair play and honorable

dealing.

In re Krohn, 886 F.2d 123, 126 (6" Cir. 1989). Under 11 U.S.C. § 707(b)(3)(A), cases
filed in bad faith are considered abusive and subject to dismissal. UST argues that Debtor
filed this case in bad faith as evidenced by his “reckless” accumulation of debt and
voluntary reduction of income, which Debtor denies.

Although various culminations of factors have been approved in reviewing for bad
faith, there is no clearly articulated standard for a bad faith analysis because, as the Sixth
Circuit noted, the ‘facts required to mandate dismissal based on a lack of good faith are as
varied as the number of cases.’ Indus. Ins. Serv., Inc. v. Zick (In re Zick), 931 F.2d 1124,
1127 (6" Cir. 1991) (citing In re Bingham, 68 B.R. 933, 935 (Bankr. M.D. Pa. 1987))
(other citations omitted)).” “[G]ood faith is an amorphous notion, largely defined by
factual inquiry. In a good faith analysis, the infinite variety of factors facing any
particular debtor must be weighed carefully. We cannot here promulgate any precise
formulae or measurements to be deployed in a mechanical good faith equation.” Metro
Emp. Credit Union v. Okoreeh-Baah (In re Okoreeh-Baah), 836 F.2d 1030, 1033 (6" Cir.
1988) (discussing good faith in a chapter 13 context). Consequently, each case must be
reviewed on an “ad hoc” basis. Zick, 931 F.2d at 1129 (citing In re Brown, 88 B.R. 280,
284 (Bankr. D. Haw. 1988)). A case must pass the smell test to avoid dismissal. Merritt
v. Franklin Bank, N.A. (In re Merritt), 211 F.3d 1269 (6" Cir. 2000) (citing Morgan
Fiduciary. Ltd. v. Citizens & S. Int’] Bank, 95 B.R. 232 (S.D. Fla. 1988)).

A hallmark of good faith is the existence of an honest intention in filing
bankruptcy. Tamecki v. Frank (In re Tamecki), 229 F.3d 205 (3%. Cir. 2000) (citation
omitted). Conversely, a lack of honesty can underpin bad faith. See, e.g., Krohn, 886
F.2d 123; In re Seeburger, 392 B.R. 735 (Bankr. N.D. Ohio 2008). Key considerations
for divining a debtor’s honesty include whether bad faith is evident in debtor’s filings
with the court, the existence of eve of bankruptcy purchases, and whether the filing was
caused by “unforeseen or catastrophic events.” Seeburger at 740 (citing Krohn, 886 F.2d

at 126).

2 As quoted in Zick, the bankruptcy judge’s opinion stated “there is no cook book
analysis that you can give. It really comes down to a sense of what is fair and just.” Zick,

931 F.2d at 1126, fn. 1.

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There is no palpable evidence of dishonesty in this case. There is no suggestion
that Debtor lacked candor or has not been forthcoming. Debtor is not continuing a
pattern of excess or lavishness. Debtor’s filing, however, was not precipitated by
calamity, but was caused by his poor judgment. Debtor engaged in a series of markedly
poor decisions before this filing. However, in this regard, Debtor has the companionship
of many debtors whose cases are not dismissed under bad faith. And the court cannot
locate one case where a debtor’s bad judgment, standing alone, warrants dismissal.

Many courts refer to a subjective review for § 707(b)(3) but this is most often in
comparison to the standard employed under § 707(b)(2). See, ¢.g., Inre Stimmel, 440
B.R. 782 (Bankr. N.D. Ohio 2010); In re Lavin, 424 B.R. 558 (Bankr. M.D. Fla. 2010); In
re Lorenca, 422 B.R. 665 (Bankr. N.D. Ill. 2010). Clearly, the latter, which focuses
strictly on the means test, is an objective standard. In a previous decision, this court
explored Sixth Circuit case law and determined that a bad faith review is not strictly
limited to subjective considerations. In re Baum, 386 B.R. 649 (Bankr. N.D. Ohio 2008),
Id. at 652-53 (citing Indus. Ins. Serv., Inc. v. Zick (In re Zick), 931 F.2d 1124, 1128 (6"
Cir. 1991); In re Bingham, 68 B.R. 933 (Bankr. M.D. Pa. 1987)). The court pointed out
that the list of factors outlined in Bingham encompassed both objective and subjective
considerations and concluded a court is not relegated to an entirely subjective review.

Baum, 386 B.R. at 653.

The court is convinced that, subjectively, Debtor did not file this case in bad faith.
However, the court is equally convinced that Debtor was objectively unreasonable.
Unquestionably, Debtor acted without due care when he quit his job, cashed in his 401(k)
savings plan, and did not look for alternate work. It was unrealistic for him to expect the
$43,000.00 savings to last four years until he became eligible for his pension benefit.
Although it is not clear how much Debtor made while employed with Kroger, it was in
excess of $10,000.00 per year. And, lottery odds being what they are, an expectation of a
lottery win to save the day is unrealistic. After hearing his testimony, the court is
convinced that Debtor honestly believed in the viability of his post-Kroger plan and
honestly believed his most outrageous statements. If a § 707(b)(3) review requires
objective reasonableness, the court cannot conclude this case was filed in good faith. The
court must therefore determine which standard prevails: debtor’s subjective standard or

an objective reasonableness standard.

Neither Zick, the leading case on chapter § 707(b) bad faith in this circuit, or
Bingham, the case upon which it relies, are particularly useful because they provide little
direction. No congruence of facts exists between the cases. Additionally, the factors
cited in Zick and Bingham are more easily measured than those in this case. For
example, in Zick, the debtor was a former employee of IIS. Id. at 1125. He signed a no
compete agreement upon leaving IIS, which he subsequently violated. Id. at 1125.
Within two weeks of a $600,000 mediation award in favor of IIS, debtor filed bankruptcy.
Id. at 1125-26. The court affirmed dismissal, concluding that the bankruptcy’s findings
that debtor had reduced his case down to a single creditor, IIS; failed to make any lifestyle
changes; made no attempt to pay IIS; and filed nine days after the award were not an
abuse of discretion. Id. at 1128. The unpure motivation was key to the dismissal.

Bingham, in turn, involved a debtor who had caused an accident while driving
drunk. 68 B.R. 934. One of his victims died, another was injured. Id. at 934-35.
Approximately one year after a lawsuit was filed against him, he filed bankruptcy, and a
motion to dismiss was filed by one of the victims. Id. She argued that debtor had
intentionally reduced his assets by disclaiming interests to which he was entitled during

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his divorce and closing his business. Id. at 935-36. The court rejected both arguments,
finding the debtor’s motivation with the former was to provide for care of his children.

Id. The court also found that dilapidation of the business premises was the catalyst for
closing the business. Id. Additionally, debtor was responsible for a separate, sizeable
unliquidated claim. Id. These factors all contributed to the bankruptcy filing and the court
found debtor had filed in good faith, rejecting movant’s claim of bad faith. Relying on
the surrounding facts, the court refused to impute an anti-creditor motivation to debtor.

Cases in this circuit focusing exclusively on a debtor’s subjectivity are not
plentiful. One case of some utility is Alt v. U.S. (In re Alt), 305 F.3d 413, 418-19 (6"
Cir. 2002). In Alt, the Sixth Circuit affirmed dismissal of a chapter 13 case, finding the
case was filed in bad faith. Id. Prior to filing, the debtor received an IRS statement that
showed she owed taxes in excess of the chapter 13 debt ceiling. She never brought this to
her attorney’s attention. After filing, she sat for a deposition. The bankruptcy court
found her deposition testimony to be wholly incredible: * [s]he doesn’t know her address,
her phone number, where she lives, has never seen any checks being written.’ Id. at 417.
The Sixth Circuit also highlighted the unbelievable testimony and concluded that the
bankruptcy court could consider whether the debtor was forthcoming. Id. Neither court
believed the debtor. Unlike this case, it is clear that the courts found debtor to be both
subjectively and objectively unreasonable, resulting in dismissal. That is only one half of

the equation in this case.

A debtor’s subjectivity is also referenced in In re Wallace, 2007 WL 3270765
(Bankr. E.D. Ky. 2007). The case bears some factual similarity to the present case.

The court agrees with the U.S. Trustee that significant debts
were incurred prior to the bankruptcy filing, and that the abi-
lity of the Debtors to ever repay all of those debts would have
seemed very unlikely to a prudent person in their position.
However, the following facts militate against a finding of
abuse: Debtors have a history of mostly large income, Debtors
refinanced their house and withdrew retirement savings to pay
debt, and Debtors paid approximately $77,000.00 on revolving

debt in 2006.

Id. at *2. Although the debtors’ prepetition conduct was unreasonable, the
unreasonableness was tempered by their attempts to pay the debt. Consequently, the
court did not find bad faith in the bankruptcy filing. An assumption from this result is
that, barring the attempts to pay, their unreasonableness in accruing the debt would not

pass the smell test.

The debtor’s intent was a key factor in this court’s decision in Baum. There, the
debtor incurred significant debt in a short period of time through online gambling.
Regardless of her ability to pay, the court found she had an intent to repay her creditors.
This, coupled with her “epiphany” about her gambling habit, led the court to find that she
had not acted in bad faith in filing her bankruptcy. Although objectively the debtor could
not have repaid the debt she incurred, her objective unreasonableness was mitigated by

other factors.

The sum of the cited cases leads the court to conclude the following. First, there
is no single litmus test for bad faith. Any amalgamation of facts can either demonstrate
bad faith or exonerate a debtor from a bad faith finding. Second, the court does not solely

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need to rely on a debtor’s subjectivity in determining bad faith. It is but one
consideration. Third, the cases suggest that courts weigh a debtor’s subjective intent
against other facts, including objective reasonableness. With these conclusions, and
mindful that bad faith dismissals are reserved for “egregious cases that entail concealed or
misrepresented assets and/or sources of income, and excessive and continued
expenditures, lavish lifestyle, and intention to avoid a large single debt based on conduct
akin to fraud, misconduct or gross negligence,” Zick, 931 F.2d at 1129, the court turns to

the facts of this case.

In 2008, after thirty-two years of employment with Kroger, Debtor quit his job
with no intention of finding alternate employment. He cashed out his 401 (k) savings
plan, an exempt asset, and determined to live on it the five years until retirement. It
amounted to approximately $43,000.00, an amount that was clearly insufficient to allow

Debtor to maintain an even minimal existence.

After terminating his employment, he continued to accumulate more credit card
debt. Within months of quitting, he accumulated an additional $23,000.00 purchasing
three items: a vehicle, a motorcycle and a furnace and air-conditioning system for his
home. This is the bulk of the additional debt incurred after he left his job. As his
financial situation worsened, he used credit, generally in the form of cash advances, to

pay bills, including other credit cards.

One of the most disturbing facts in this case is Debtor’s failure to seek
employment in the face of his deteriorating financial condition. He admits he depleted
his savings in approximately one year. He admits maxing out two cards in early summer
2009. He admits that he stopped paying his mortgage in July 2009. Yet he did not seek
employment until more than one full year later. Meanwhile, he was still using his other
credit cards. Clearly, there was no effort to repay the debt he had accumulated or to stem
the accumulation of more debt during this period, nor was there any effort made to

increase his income.

Debtor incurred at least one-third of the unsecured debt within two years of filing
bankruptcy. In June 2008, when Debtor quit his job, he owed nothing on his Discover
card. Just over two years later, when he filed his bankruptcy case, he owed over
$14,000.00. The Bank of America statements show a similar pattern. The July 2008
statement shows no prior balance on the account. On July 1, 2008, he incurred
$15,000.00 on the card by using a credit card check. Within one year, he had reached his
maximum credit limit, missed a payment, and was incurring late fees and over the limit
fees. When he filed bankruptcy, he owed Bank of America more than $16,000.00.

The pattern of irrational thought that permeated Debtor’s behavior is troubling. In
the worst employment market since the Great Depression, he left a j ob where he had been
employed for thirty-two years, nearly five years shy of his eligibility for retirement under
what appears to be a defined benefit plan. (341 Meeting Transcript 8:15-17). He cashed
out an exempt 401(k) retirement fund. He inexplicably calculated that the $43,000.00
savings would last nearly four years, until he was entitled to draw his pension. In the off
chance it did not, he put his faith in the Ohio Lottery Commission. He used a credit card
to buy a car and a motorcycle. He used another card to purchase a new furnace and air-
conditioning system for his house. As he depleted the savings, he headed to California to
hang out on a boat for a couple of months in the sunshine. When he got back, he ran out
of money. He sold things, including the car and motorcycle he purchased using credit.
He maxed out two credit cards. He used one credit card to pay another. He could not

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make his mortgage payments. During this time, there is not one suggestion he was
building picnic tables or remodelling houses, doing any other kind of odd jobs, or seeking
employment. What is plainly evident is overt evasion of reality. Only when his
belongings were sitting on the curb did he take action.

The court finds that this is one of the egregious cases that falls in the rubric of bad
faith. The bankruptcy system is intended to benefit the honest but unfortunate debtor.
Here, Debtor created his own misfortune. The gross indifference Debtor exhibited cannot
be condoned. This is not a single instance of poor judgment, it is a pattern of persistently
inexplicable judgment with the cumulative effect of willful blindness. While Debtor
might not have been dishonest in the sense of inaccuracy or concealment, he was not
dealing with creditors candidly. He was not even candid with himself. Rewarding him

with a discharge would be an abuse of the bankruptcy system.

Additionally, Debtor has an opportunity for reorganization in the future. No one
argues that a chapter 13 reorganization plan is an option for Debtor at the present time.
He works at CVS and brings home approximately $1,500.00 per month. He cannot
support a repayment plan. However, next year he is eligible for his Kroger pension,
which will give him $1,800.00 in additional income. That amount, combined with his
current earnings, would provide a basis for repayment of some of the debt he owes.

Debtor’s insurmountable obstacle was the absence of any law indicating that the
bad faith test is solely subjective. The court finds Debtor to be entirely credible,
including matters which are confoundingly odd. These included quitting a stable, good
paying job of thirty-two years nearly five years before retirement eligibility because he
could not bear to see service quality decline; cashing in his largest exempt, accessible
asset; believing that he would win the lottery; ignoring foreclosure until his personal
property was sitting on the sidewalk; rationalizing multiple signs of impending financial
ruin; and numerous other credibly incredible actions and inactions, not all of which have
been set forth herein. He was utterly believable in his sincere belief in his poor choices.’

If the matter was solely subjective, Debtor would win. As outlined above, it is
not.

CONCLUSION

The court finds that allowing Debtor to discharge his debts would be an abuse of
the bankruptcy process because debtor filed this case in bad faith. The UST’s motion to
dismiss under 11 U.S.C. § 707(b)(3)(A) will be granted and the case dismissed.

An appropriate order will be entered reflecting the decision of the Court.

# # Ff

3 Debtor has not argued that he suffers from any mental illness. Compelling evidence of
his poor judgment in non-financial matters was also presented. Debtor engaged in a
protracted slugfest in a CVS store rather than turn over a cash drawer which contained
limited funds. He continued to chase the thief outside the store after the robbery attempt
was abandoned in the face of his “Men of Harlech” defense. Store policy is to hand over

the money.

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SERVICE LIST

William C Fithian, HI
111 N Main St
Mansfield, OH 44902

Dean Wyman

Office of the US Trustee

Howard M. Metzenbaum U.S. Court House
201 Superior Avenue, Suite 441

Cleveland, OH 44114-1240

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