WELLFORD, Senior Circuit Judge.
This suit is based on a principal creditor's motion to dismiss a Chapter 11 bankruptcy petition under 11 U.S.C. § 707(a). David Zick, a former employee of Industrial Insurance Services (IIS), signed a nonsolicitation agreement with IIS which provided that he would not take IIS' trade secrets or solicit customers of the company for himself upon termination or separation. The following year, Zick left IIS voluntarily, started his own company in competition, and solicited its former customers. A court-induced mediation award of $600,000 was rendered to IIS on its claim of deliberate
Zick then requested a stay from the district court which also denied the request. The district court entered a memorandum opinion and order affirming the decision of the bankruptcy court to dismiss Zick's Chapter 7 petition, from which this appeal was taken.
A bankruptcy court decision to dismiss pursuant to 11 U.S.C. § 707(a) will be reversed only for abuse of discretion. In re Atlas Supply Corp., 857 F.2d 1061, 1063 (5th Cir.1988) ("Since equitable principles may be applied under the present Bankruptcy Code, the decision whether to grant a motion to dismiss a petition in bankruptcy lies within the discretion of the bankruptcy judge.").
(emphasis added). IIS argues that this statute allows the bankruptcy court to consider "good faith" as a basis for dismissal of a Chapter 7 petition, and that it was not an abuse of discretion for the bankruptcy court to conclude that good faith was lacking in this petition for Chapter 7 relief.
We are satisfied that the word "including" is not meant to be a limiting word. See 11 U.S.C. § 102(3); In Re Jones, Debtor, 114 B.R. 917, 924 (Bankr.N.D.Ohio 1990). A lack of good faith, furthermore, has been recognized in a number of bankruptcy cases as a valid cause of dismissal
Zick seeks to distinguish these cases and, in addition, relies upon In re Latimer, 82 B.R. 354 (Bankr.E.D.Pa.1988). Latimer concluded that "`cause' does not include a consideration of whether the debtor has `substantially abused' the provisions of Chapter 7 or has proceeded in `bad faith.'" Id. at 356.
Zick also cites In re Markizer, 66 B.R. 1014 (Bankr.S.D.Fla. 1986), to support his contention that good faith is not a valid basis for § 707(a) dismissals. Upon examination, we find that Markizer does not hold that the lack of good faith may not be grounds for dismissal under § 707(a). It merely notes that Chapter 7 of the Bankruptcy Code does not explicitly make good faith a requirement for voluntary liquidation petitions. Markizer noted, moreover, that good faith has evolved as a threshold requirement in all bankruptcy cases, although primarily under Chapters 11 and 13, and went on to consider good faith in the context of Chapter 7 cases.
Having been persuaded that lack of good faith is a basis for dismissal under § 707(a), we must examine Zick's claim that the bankruptcy court, nevertheless, abused its discretion under the circumstances of this case.
Zick's own statements submitted to the bankruptcy court indicated a continuing monthly income of at least $7,000 plus certain pension plan benefits. (His gross business income was approximately $361,000 annually).
886 F.2d at 126, 127-28.
A bankruptcy court's findings of fact may be set aside on appeal only if they are clearly erroneous. In re Rosinski, 759 F.2d 539, 541 (6th Cir.1985); Archer v. Macomb County Bank, 853 F.2d 497, 499 (6th Cir.1988). Zick alleges error since the bankruptcy court did not conduct a full-blown evidentiary hearing on the dismissal motion. Section 707(a) states that a "court may dismiss a case under this chapter only after notice and a hearing...." but it does not prescribe a particular type of hearing.
Zick argues that he "was not given the opportunity to present his defense to the motion to dismiss brought by Industrial." IIS counters that the factual findings of the bankruptcy court were supported by admissions and uncontested allegations on the record (as discerned by the district court). Zick replies that he had no opportunity to present further evidence as he
Zick's contention is not so much that the court erred in its factual findings but that the court did not give him an adequate opportunity to present the facts of his case. Yet, he did have the opportunity to present pleadings or an affidavit in opposition and to respond to the court through his counsel.
We hold, under these circumstances, that the formalities of a full-blown evidentiary hearing are not required. Zick was afforded adequate opportunity to tell the court why his petition should not be dismissed. Based on the facts and matters presented to the court, a dismissal was granted within the court's sound discretion. We cannot say that a failure to have an evidentiary hearing, although normally indicated, was prejudicial error under these circumstances.
Dismissal based on lack of good faith must be undertaken on an ad hoc basis. In re Brown, 88 B.R. at 284. It should be confined carefully and is generally utilized only in those 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. It was not abuse of discretion to conclude that the factors found in this case amounted to a lack of good faith on the part of Zick.
We believe that it was permissible on the record to attribute bad faith motivation to pre-petition activities of defendant Zick in a malicious breach of a noncompetition agreement situation. The reaffirming and arrangement of obligations owed by Zick were also evidently designed to provide payment and/or security to each, except for IIS. He listed as unsecured debts $14,000 to his mother, $33,000 to his wife, and $100,000 for legal fees
A recent bankruptcy case within this circuit discussed the requirement of good faith at some length in respect to §§ 707(a) and 707(b) of the Bankruptcy Code, citing many authorities. We agree with its conclusions that "[A]lthough the jurisdictional requirement of good faith is not explicitly stated in the statute, it is inherent in the purposes of bankruptcy relief." In Re Jones, 114 B.R. at 917 (citing Local Loan v. Hunt, 292 U.S. 234, 54 S.Ct. 695, 78 L.Ed. 1230 (1934), among many other cases).
Id. at 926.
Accordingly, we AFFIRM the decision of the district court.
[T]his case is dismissed for the following reasons.
Id. at 707-6 through 10 (citations omitted) (emphasis added).