TENTATIVE RULING ISSUED BY JUDGE LAURA S. TAYLOR

E.DIGITAL CORPORATION, A DELAWARE CORPORATION

17-04075-LT7

10:00 AM Thursday, October 5, 2017

MOTION TO DISMISS BANKRUPTCY CASE FILED ON BEHALF OF CHRISTOPHER BARCLAY (fr 9/21/17)

Hear. The Court is inclined either to grant this Motion or to implement procedures to allow the Trustee to quickly liquidate the only saleable assets of the estate and to close this case with a minimum of expense, including avoidance of the task of corporate dissolution.

Section 707(a) authorizes a bankruptcy court to dismiss a chapter 7 case "for cause." The statute lists three examples of cause; none are applicable here.

That fact, however, is not fatal; the list is illustrative not exhaustive. The Ninth Circuit has explained that if "the asserted 'cause' is not contemplated by a specific Code provision, then we must further consider whether the circumstances asserted otherwise meet the criteria for "cause" for [dismissal] under § 707(a)." In re Sherman, 491 F.3d 948, 970 (9th Cir. 2007 (citing Neary v. Padilla (In re Padilla), 222 F.3d 1184, 1193–94 (9th Cir.2000)).

The "cause" alleged by the Trustee is that there is no legitimate or achievable bankruptcy purpose to be served sufficient to warrant administration of the case. Here there is no opportunity for discharge, minimal if any assets for liquidation exist, and no prepetition creditors require payment. All that exists is the requirement that the Trustee incur expenses beyond the estate's ability to pay them.

The parties both addressed the unpublished BAP opinion in In re M.P. Const. Co., Inc., 2013 WL 829117 (B.A.P. 9th Cir. Mar. 4, 2013). While clearly not binding, the Court finds the reasoning persuasive. That case involved a debtor that was not entitled to discharge and an administratively insolvent estate. The Panel explained:

As articulated by the bankruptcy court, it is fundamental that bankruptcy relief is available for two overriding reasons: to provide the "honest but unfortunate" debtor a fresh start through the discharge provisions of the Bankruptcy Code, and to provide for the fair and equitable distribution of a debtor's assets to his creditors. It is undisputed that MP Construction was not eligible for a bankruptcy discharge. Further, the record establishes with absolute certainty that MP Construction had no assets to distribute to its creditors. Accordingly, the bankruptcy court did not err when it determined that "cause" existed to dismiss MP Construction's case pursuant to § 707(a). The bankruptcy case was filed not for the purpose of securing bankruptcy relief for MP Construction, but for the purpose of protecting and benefitting MP Construction's principals. On this record, the bankruptcy court did not abuse its discretion when it dismissed MP Construction's bankruptcy case.

2013 WL 829117 * 5 (citations omitted). Though the facts in the case at hand are somewhat different, the bankruptcy result is the same: this case will not result in discharge, as Debtor is not entitled to one, and will not result in a distribution to creditors, as there are none.

The Court understands that Debtor's directors want the case to remain in chapter 7, but the directors qua directors are neither creditors nor shareholders whose interest the Court must consider when considering dismissal under § 704. And if the equities are considered, such factors appear to support dismissal. The directors seek to protect their own pocketbooks; they pay no heed to the economic burden they place on the Trustee.

Thus, the Court is inclined to dismiss as there appears to be no legitimate bankruptcy purpose to be served. As a possible alternative, the parties should be prepared to discuss procedures for streamlining this case and hastening completion as quickly and inexpensively as possible.