Augustine Pena, III v. Trudi Manfredo

MEMORANDUM

After filing a voluntary petition for Chapter 11 bankruptcy protection, Augustine Pena spent about $16,000 of cash collateral due, he claims, to his attorney’s ineffective assistance. Given an opportunity to account for the monies spent and to submit amended budgets, Pena missed court deadlines and failed to consult with his creditors to resolve the problem. As a result, the bankruptcy court converted his case to one under Chapter 7, finding that Pena had given it cause under 11 U.S.C. § 1112 (b), and appointed interim Chapter 7 Trustee Trudi Manfredo. The bankruptcy court also denied Pena’s subsequent motion for reconsideration, and the district court affirmed the conversion order. On appeal, Pena argues that (1) there was no cause to convert his case, either because he did not use cash collateral or because any such use was not substantially harmful to any creditor; (2) unusual circumstances existed preventing the bankruptcy court from converting the case; and (3) the bankruptcy court failed to follow the public policy favoring reorganization over liquidation.

Pena admitted at oral argument that the $16,000 he spent constituted cash collateral. In light of this…