2021 Grand Corp.

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
2021 GRAND CORP.,
Debtor.
NOT FOR PUBLICATION
Case No. 17-12516 (MG)
Chapter 7
MEMORANDUM OPINION AND ORDER GRANTING MOTION TO CONVERT
CHAPTER 7 CASE TO ONE UNDER CHAPTER 11
A P P E A R A N C E S:
DAVID J. BRODERICK, P.C.
Attorney for Debtor 2021 Grand Corp.
70-20 Austin Street, Suite 111
Forest Hills, NY 11375
By: 	David J. Broderick, Esq.
MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
Pending before the Court is 2021 Grand Corp.’s (the “Debtor”) Motion to Convert
Chapter 7 Case to One Under Chapter 11 Pursuant to 11 U.S.C § 706(a) (the “Motion,” ECF
Doc. # 4). The Motion is accompanied by the declaration of Eddie Sachar in Support of
Debtor’s Motion, as President for 2021 Grand Corp (“Sachar Declaration,” ECF Doc. # 4-2). No
objections to the Motion have been filed.
For the reasons set forth below, the Motion is GRANTED.
I. 	BACKGROUND
The Debtor is a New York corporation. (Motion ¶ 2.) The Debtor is in the business of
purchasing and renovating distressed properties for the purpose of leasing or selling those
properties. (Id. ¶ 4.) As a purchaser of a distressed property, the Debtor is liable for NYC
Environmental Control Board (“ECB”) judgments entered against the buildings for violations.
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(Id. ¶ 4.) On August 29, 2017, a NYC Marshal presented the Debtor with three levy executions
totaling $50,208.28 which permitted the NYC Marshal to sell at public auction “all assets on
premises belonging to the [Debtor]” to satisfy the amount of the executions. (See Sachar
Declaration, Exs. 1–3.) The Debtor claims the judgments were improperly taken on default due
to deficient service of process. (Motion ¶ 5; Sachar Declaration ¶ 4.) The Debtor has been
informed that the total amount due to the City of New York (the “City”) is in excess of $250,000.
(Sachar Declaration ¶ 6.) The public auction was scheduled to take place on September 12,
2017. (See Sachar Declaration, Exs. 1–3.)
On September 7, 2017, Debtor’s counsel, David J. Broderick, P.C. (“Broderick”), filed a
voluntary bankruptcy petition with this Court for protection under Chapter 7. (Motion ¶ 3.)
Broderick claims this petition was mistakenly filed under Chapter 7, rather than Chapter 11 as
was discussed with the Debtor. (Id. ¶ 3; Sachar Declaration ¶ 3.) Broderick attributes this error
to being rushed to fly to Orlando, Florida to take his eighty-four year old father away from
danger presented by Hurricane Irma. (Motion ¶ 9.) Broderick realized his error and informed
the appointed trustee of his intent to file the Motion. (Id. ¶ 13.) Since the petition date, Debtor
has hired a negotiator to work out all the outstanding debts and judgments, as well as other
violations filed by the City against the Debtor. (Id. ¶ 15; Sachar Declaration ¶ 7.)
II. 	LEGAL STANDARD
Pursuant to 11 U.S.C. § 706(a), “the debtor may convert a case under this chapter to a
case under chapter 11, 12, or 13 of this title at any time, if the case has not been converted under
section 1112, 1208, or 1307 of this title.” 11 U.S.C. § 706(a). Further, under section 706(d),
“[n]otwithstanding any other provision of this section, a case may not be converted to a case
under another chapter of this title unless the debtor may be a debtor under such chapter.” 11
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U.S.C. § 706(d). Legislative history indicates that “the policy of the provision is that the debtor
should always be given the opportunity to repay his debts, and a waiver of the right to convert a
case is unenforceable.” In re Carrow, 315 B.R. 8, 14 (Bankr. N.D.N.Y. 2004). In Kuntz, the
court also noted there is a “clear Congressional preference for allowance of conversion by a
debtor for debt repayment.” In re Kuntz, 233 B.R. 580, 582 (B.A.P. 1st Cir. 1999) (citing Martin
v. Martin (In re Martin), 880 F.2d 857, 859 (5th Cir. 1989)); see also Marrama v. Citizens Bank
of Mass., 549 U.S. 365, 374 (2007).
There is considerable debate whether a debtor has the “absolute” right to convert a
Chapter 7 case to a case under another chapter. See Carrow, 315 B.R. at 12. The first view
gives the court no authority to deny conversion based on any other factors other than those
explicitly stated in section 706, specifically that the debtor has not previously converted the case
and the debtor would qualify as a debtor under the new chapter. Id. The second view, which the
Second Circuit seems to favor, is that while debtor’s right to convert is presumptive and nearly
absolute, a bankruptcy court must still determine whether conversion is appropriate pursuant to
the overall purpose and policy of the Bankruptcy Code, and that the decision remains within the
court’s discretion. See In re Krishnaya, 263 B.R. 63, 69 (Bankr. S.D.N.Y. 2001); In re
Marcakis, 254 B.R. 77, 82 (Bankr. E.D.N.Y. 2000).
However, the power to deny conversion should be used sparingly, and the court should
deny the right to convert only for lack of statutory qualification or extreme circumstances.
Krishnaya, 263 B.R. at 69; Kuntz, 233 B.R. at 583 (citing Martin, 880 F.2d at 859). “Extreme
circumstances” may include abuse of the bankruptcy process, bad faith, or other gross inequity.
In re Young, 269 B.R. 816, 824 (Bankr. W.D. Mo. 2001). Denial of a motion to convert is also
warranted when there is no purpose to be served by the conversion and it is demonstrably clear
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that the debtor will not be able to propose a feasible plan and conversion would thus be an
“exercise in futility,” or the debtor will not obtain any relief as a result of the order. Id. (citing In
re Lilley, 29 B.R. 442, 443 (B.A.P. 1st Cir. 1983); In re Safley, 132 B.R. 397, 399–400 (Bankr.
E.D. Ark. 1991)). The third view is a “totality of the circumstances test.” Carrow, 315 B.R. at
12. Bankruptcy courts have enumerated a number of factors that may be considered in
determining whether to allow conversion of a Chapter 7 case to a case under Chapter 13, which
factors are also applicable to conversion to a case under Chapter 11:
(1) Whether the conversion is sought in good faith;
(2) Whether the debtor can propose a confirmable plan;
(3) The impact on the debtor of denying conversion weighed against the prejudice to
creditors caused by allowing conversion;
(4) The effect of conversion on the efficient administration of the bankruptcy estate,
including the likelihood of reconversion to Chapter 7;
(5) Whether conversion would further abuses of the bankruptcy process and would serve
to pervert, rather than implement, congressional policy.
Young, 269 B.R. at 825 (citing In re Pakuris, 262 B.R. 330, 335–36 (Bankr. E.D. Pa. 2001)).
Ultimately, the court has discretion to deny the motion to convert. Krishnaya, 263 B.R.
at 64.
III. 	ANALYSIS
Here, the Debtor satisfies the statutory qualifications under section 706(a) and 706(d).
This is Debtor’s first request to convert the case, and the Debtor would qualify as a debtor under
Chapter 11. The Debtor has admitted in his papers to filing the bankruptcy petition in an effort
to prevent the sale of his assets at auction. (Motion ¶ 7; Sachar Declaration ¶ 5.) However, the
Debtor also asserts that the purpose of his filing and subsequent request to convert the case to a
case under Chapter 11 is to allow the Debtor to negotiate with the City, the creditor in this case,
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regarding repayment of the Debtor’s debts and judgments. (Motion ¶ 15; Sachar Declaration ¶
7.) A conversion of the case would not be an exercise in futility, as the Debtor’s efforts to
negotiate with the City suggests an effort to reach a consensual repayment plan. No objections
to the Motion have been filed.
Accordingly, the Motion to convert the case to a case under Chapter 11 is GRANTED.
IT IS SO ORDERED.
Dated: 	November 16, 2017
New York, New York
_____Martin Glenn____________
MARTIN GLENN
United States Bankruptcy Judge
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