Oaks of Woodlake Phase III, Ltd. v. Hall, Bayoutree Associates, Ltd. (In re Hall, Bayoutree Associates, Ltd.)

The district court determined that venue was improper and dismissed a bankruptcy case with prejudice because the case had been filed in bad faith. The debtor appeals the dismissal on the ground that the district court reached issues not before it, incorrectly found facts rather than remanding to the bankruptcy court, erred in finding bad faith, and abused its discretion in dismissing the case with prejudice. We affirm the district court’s decision to dismiss the case rather than transfer it, but we reverse the dismissal with prejudice.

I

On March 5, 1990, Hall Bayoutree Associates, Ltd. (Bayoutree) filed a voluntary Chapter 11 petition in the District of Arizona, Tucson division. Bayoutree’s principal asset is an apartment complex located in Houston, Texas. Two lien creditors, The Oaks of Woodlake Phase III, Ltd. (the Oaks) and the Resolution Trust Corporation as conservator for Brookside Federal Savings and Loan Association (RTC) moved the bankruptcy court to transfer venue or in the alternative to dismiss for improper venue. The Oaks and RTC also moved the bankruptcy court to dismiss for bad faith filing.

A hearing was held July 5, 1990, and the motions were taken under…

concurring and dissenting:

I concur in the dismissal of this case, but dissent as to the reversal of dismissal with prejudice. The longer the case goes on the more Bayoutree profits from its tactics. These tactics deserve penalties, not a reward.

Bayoutree owns a single asset, an apartment complex located in Houston, Texas. Bayoutree has no equity in the apartments and acknowledges secured claims exceeding $17.3 million on a property valued by the bankruptcy court at $12,6 million.

Just before Bayoutree’s note to the Oaks in the principal amount of $3.2 million matured in November 1989, Bayoutree sued the Oaks in a Texas state court contending that the note had been orally modified. A jury trial began on February 26, 1990 in this case. The verdict was against Bayou-tree. The Oaks was then free to enforce its lien. Four days later Bayoutree filed this bankruptcy case in Tucson, Arizona. Bayoutree picked a filing site where it knew in advance who the bankruptcy judge would be, as there was only one bankruptcy judge in Tucson.

That this plan to circumvent the Oaks had been prearranged by Bayoutree is shown not only by its prompt filing, but by the fact that inadvertently…