111 F.3d 1159 (4th Cir. 1997), 95-2564, In re Weiss

Docket Nº:95-2564, 95-2706, 95-2707 and 96-1879.
Citation:111 F.3d 1159
Party Name:In re C. Walter WEISS, d/b/a W & M Investment, d/b/a Weiss Development; In re Paulette H. Weiss, d/b/a Karmel Korn, d/b/a Connectables, Incorporated, Debtors. Johanna F. McGAHREN, as personal representative for the Estate of Francis J. McGahren, Creditor-Appellant, v. FIRST CITIZENS BANK & TRUST COMPANY; James Gary Rowe, Attorney for First Citizens
Case Date:April 24, 1997
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit
 
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Page 1159

111 F.3d 1159 (4th Cir. 1997)

In re C. Walter WEISS, d/b/a W & M Investment, d/b/a Weiss

Development; In re Paulette H. Weiss, d/b/a

Karmel Korn, d/b/a Connectables,

Incorporated, Debtors.

Johanna F. McGAHREN, as personal representative for the

Estate of Francis J. McGahren, Creditor-Appellant,

v.

FIRST CITIZENS BANK & TRUST COMPANY; James Gary Rowe,

Attorney for First Citizens Bank, Creditors-Appellees,

and

Barbara A. Heck, Trustee, Trustee-Appellee.

In re C. Walter WEISS, d/b/a Weiss Development, d/b/a W & M

Investment; In re Paulette H. Weiss, d/b/a Karmel

Korn, d/b/a Connectables, Incorporated, Debtors.

Johanna F. McGAHREN, as personal representative for the

Estate of Francis J. McGahren, Creditor-Appellant,

v.

Barbara A. HECK, Trustee for C. Walter & Paulette Weiss,

Trustee-Appellee.

In re C. Walter WEISS, d/b/a W & M Investment, d/b/a Weiss

Development; In re Paulette H. Weiss, d/b/a

Connectables, Incorporated, d/b/a Karmel

Korn, Debtors.

Johanna F. McGAHREN, as personal representative for the

Estate of Francis J. McGahren, Creditor-Appellant,

v.

David G. GRAY, Creditor-Appellee,

and

Barbara A. Heck, Trustee, Trustee-Appellee,

and

First Citizens Bank & Trust Company; James Gary Rowe,

Attorney for First Citizens Bank, Creditors.

In re C. Walter WEISS, d/b/a W & M Investment; Paulette H.

Weiss, d/b/a Connectables, Incorporated, d/b/a

Karmel Korn, Debtors.

ESTATE OF Francis J. McGAHREN, Creditor-Appellant,

v.

Barbara A. HECK, Trustee, Trustee-Appellee.

Nos. 95-2564, 95-2706, 95-2707 and 96-1879.

United States Court of Appeals, Fourth Circuit

April 24, 1997

Argued Dec. 2, 1996.

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ARGUED: Matthew Francis McGahren, Norcross, GA, for Appellants. David G. Gray, Jr., Asheville, NC, for Appellees.

Before WIDENER and MURNAGHAN, Circuit Judges, and PHILLIPS, Senior Circuit Judge.

Affirmed by published opinion. Judge MURNAGHAN wrote the opinion, in which Judge WIDENER and Senior Judge PHILLIPS joined.

OPINION

MURNAGHAN, Circuit Judge:

In 1985, C. Walter Weiss and Appellant Francis J. McGahren dissolved their partnership, and their attorney executed a multipleproperty deed that transferred several properties from the partnership to McGahren. In 1989, McGahren attempted to sell one of the properties, but he discovered that he could not pass good title to the property because the partners' attorney had inadvertently left the property out of the multiple-property deed.

In the meantime, Weiss had filed for bankruptcy. Thus, when McGahren discovered the defect in the deed, he turned the property over to Weiss's bankruptcy trustee, Appellee Barbara Heck. The bankruptcy court entered several orders adverse to McGahren, and the district court affirmed. For the reasons stated below, we also affirm.

I.

Weiss and McGahren formed a partnership, the W & M Investment Company ("W & M" or the "partnership"). In October 1984, W & M acquired the property at issue in the instant case, described as Lot 3, Ridgedale Subdivision, Buncombe County,

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North Carolina ("Lot 3" or the "property"), and it borrowed the purchase price from First Federal Bank. 1 In 1985, Weiss and McGahren dissolved their partnership. There is no evidence in the record, however, that Weiss or McGahren wound up the partnership affairs.

As part of the dissolution, the partners decided that McGahren would receive Lot 3 and other properties. The partners' attorney, George Saenger, accordingly executed a multiple-property deed to McGahren. The deed, however, erroneously failed to include Lot 3. As a result, the property remained titled in the name of W & M. Weiss and McGahren, however, were unaware of the title mistake, and they proceeded as if McGahren alone owned the property. McGahren rented the property as a duplex, kept all of the rental proceeds, and paid all of the maintenance costs, insurance, and taxes on the property. In late 1989, however, McGahren realized the mistake when he attempted to sell the property and discovered that he could not pass good title.

In July 1987, Weiss filed a Chapter 7 bankruptcy petition. Since Weiss was unaware of the title mistake at that time, he did not list Lot 3 as an asset of the bankruptcy estate. In late December 1989 or early January 1990, when McGahren discovered the error in the deed, he contacted the bankruptcy trustee, Appellee Barbara Heck. McGahren told Heck that Lot 3 belonged to him and that, but for a mistake in title, W & M would have deeded the property to him in 1985. Heck asked McGahren whether there was any equity in the property, and McGahren told her that he had a proposed sale contract for $68,000 (the "1989 offer"), which exceeded the mortgage payoff and other liens. According to McGahren, Heck then told him that he would have to pay the bankruptcy estate from the proceeds of the sale.

In February 1990, when Weiss learned of the error in the original deed, he executed a general warranty deed (the "February 1990 deed") that granted McGahren title to Lot 3. McGahren recorded the deed in March 1990. However, a question then arose as to whether the February 1990 deed was voidable because Weiss had already filed for bankruptcy.

In September 1991, Heck wrote to McGahren and offered to abandon the property in order to help him clear the title. By that time, however, McGahren was having financial difficulties. He had stopped making mortgage and insurance payments on the property, and First Citizens Bank had begun foreclosure proceedings. Thus, when Heck offered to abandon the property, McGahren abruptly changed his position. He no longer claimed that he owned the property, but instead claimed that the property belonged to the bankrupt estate.

In an effort to clarify the issues surrounding the property, Heck brought a motion to abandon the property in December 1991. Based upon realtor David Boyter's $55,000 appraisal of the property, 2 the motion asserted that no equity existed in the property. McGahren objected to the abandonment. He claimed that instead of abandoning the property, the trustee had a duty to sell the property, pay the bank, and distribute any remaining proceeds to the creditors. McGahren claimed that a private sale would net a greater profit than foreclosure and thus would reduce the deficit that he owed the bank.

After a hearing in March 1992, the bankruptcy court issued an order abandoning the property. McGahren appealed that order to the District Court for the Western District of North Carolina. In February 1993, the district court remanded the case to the bankruptcy court for additional proceedings to determine the value of the property. At the second abandonment hearing, First Citizens Bank presented detailed appraisal and valuation testimony by its expert, Ted Vish, regarding the value of Lot 3. Like the realtor at the first abandonment hearing, Vish valued

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the property at $55,000. The bankruptcy court again granted Heck's motion to abandon Lot 3, and the court lifted the automatic stay on the property. First Citizens Bank then scheduled the property for foreclosure and sale.

McGahren appealed again and moved for an order staying the foreclosure pending appeal. In July 1993, the district court denied the motion and found that McGahren had not produced sufficient evidence to prove that the foreclosure sale would realize a lower profit than a private sale. On June 30, 1995, the district court affirmed the bankruptcy court's order granting abandonment and relief from stay. McGahren now appeals that ruling.

In March 1992, McGahren filed a separate suit against Heck for negligence and intentional misconduct. He claimed that Heck should have discovered the bankrupt estate's interest in Lot 3 before the 1989 offer fell through and that she should have consummated the sale of the property. Heck answered the complaint and later moved for summary judgment. After a hearing, the bankruptcy court granted Heck's motion and dismissed the action. McGahren appealed, and the district court affirmed on July 25, 1995. McGahren now appeals the district court's order.

In July 1993, the bankruptcy court imposed sanctions on McGahren pursuant to Federal Rule of Bankruptcy Procedure 9011 and the inherent powers of the court. McGahren appealed. On July 11, 1995, the district court affirmed the bankruptcy court's decision to impose sanctions on McGahren. However, the district court reversed the bankruptcy court's order that McGahren pay the attorneys' fees that the trustee and First Citizens Bank incurred after the district court's February 1993 remand of the bankruptcy court's abandonment order. The district court remanded the sanctions order to the bankruptcy court for further proceedings to determine the amount and form of sanctions. McGahren now appeals the district court's order affirming the sanctions.

Pursuant to the district court's remand of the sanctions order, the bankruptcy court held a hearing on October 18, 1995. McGahren died in August 1995, and his widow, Johanna McGahren, filed a brief on his behalf. On November 2, 1995, the bankruptcy court reduced its prior award of attorney's fees and also awarded additional attorney's fees to David Gray, Heck's attorney, for McGahren's subsequent conduct.

On November 10, 1995, Johanna McGahren filed a timely notice of appeal of the second sanctions order. On March 1, 1996, the district court clerk mailed a briefing letter to Mrs. McGahren that advised her that the appeal had been docketed and that her brief was due within fifteen days of the date of...

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