Tudor Associates, Ltd., II, In re, s. 92-2201
| Citation | 20 F.3d 115 |
| Decision Date | 28 March 1994 |
| Docket Number | Nos. 92-2201,92-2204 and 92-2274,s. 92-2201 |
| Parties | In re TUDOR ASSOCIATES, LTD., II, a Nebraska limited partnership, Debtor. Nicholas C. CHMIL, Jr.; James H. Markley; Gerald Nissman; Leonard Weiss; Robert J. Zullo; Tudor Associates, Ltd., II, Plaintiffs-Appellants, v. RULISA OPERATING COMPANY, a New Jersey limited partnership; New British Woods Associates, a New Jersey limited partnership; New Yorktowne Associates, a New Jersey limited partnership; AJ & AJ Servicing, Incorporated, a New Jersey corporation; Johnson Matthey Bankers, Limited of London, Defendants-Appellees, and A.T. Parsons, Jr.; Import Export Management Corporation, a New Jersey corporation; Paul Garfinkle; O.C.G. Enterprises, Incorporated, a Massachusetts corporation; Executive Management Trustees, Incorporated, an Ohio corporation; Executive Management Trustees, Incorporated, a Nevada corporation; Berolina Handels, A.G., a Swiss corporation, Defendants. In re TUDOR ASSOCIATES, LTD., II, a Nebraska limited partnership, Debtor. Nicholas C. CHMIL, Jr.; James H. Markley; Gerald Nissman; Leonard Weiss; Robert J. Zullo; Tudor Associates, Ltd., II, Plaintiffs-Appellees, v. JOHNSON MATTHEY BANKERS, LIMITED OF LONDON, Defendant-Appellant, Rulisa Operating Company, a New Jersey limited partnership; New British Woods Associates, a New Jersey limited partnership; New Yorktowne Associates, a New Jersey limited partnership; AJ & AJ Servicing, Incorporated, a New Jersey corporation; Executive Management Trustees, Incorporated, an Ohio corporation, Defendants-Appellees, and A.T. Parsons, Jr.; Import Export Management Corporation, a New Jersey corporation; Paul Garfinkle; O.C.G. Enterprises, Incorporated, a Massachusetts corporation; Executive Management Trustees, Incorporated, a Nevada corporation; Siby Land Corporation, a New Jersey corporation; Berolina Handels, A.G., a Swiss corporation, Defendants. In re TUDOR ASSOCIATES, LTD., II, a Nebraska limited partnership, Debtor. Nicholas C. CHMIL, Jr.; James H. Markley; Gerald Nissman; Leonard Weiss; Robert J. Zullo; T |
| Court | United States Courts of Appeals. United States Court of Appeals (4th Circuit) |
ARGUED: R. Stuart Huff, Coral Gables, Florida, for appellants. Cecil W. Harrison Before PHILLIPS and MURNAGHAN, Circuit Judges, and BUTZNER, Senior Circuit Judge.
Jr., Poyner & Spruill, Raleigh, NC, for appellees. ON BRIEF: Mark L. Mallios, Coral Gables, Florida, for appellants. Richard N. Cook, Maupin, Taylor, Ellis & Adams, P.A., Raleigh, NC, for appellee AJ & AJ Servicing; Daniel Wallen, Anthony M. Piccione, Otterbourg, Steindler, Houston & Rosen, P.C., New York City; Michael E. Weddington, Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, Raleigh, NC, for appellee Johnson Matthey Bankers.
The primary issue in this appeal pertains to the appellees' contention that the appellants lost their right to appeal the bankruptcy court's judgment to the district court by accepting the benefit of the judgment. The district court properly denied the appellees' motion to dismiss. Nor did it err in deciding other issues that can be best understood in the context of the facts of this bankruptcy proceeding.
The appellants are Tudor Associates Ltd. II and five of its limited partners. The appellees are limited partnerships that hold fee title to three properties in North Carolina and have a leasehold interest in a third. For convenience, the appellees will be called the owners, and the real estate will be designated as the properties. Johnson Matthey Bankers Ltd., a former appellee, settled its differences with Tudor and the trustee of Tudor's bankruptcy estate pending this appeal.
Stripped of details, the evidence discloses that OCG, a George Osserman company, acquired the properties, which were heavily mortgaged. Osserman then organized Tudor as a tax shelter and named Zan Galloway, his confidant, general partner. OCG transferred the properties to Tudor, receiving in payment a note secured by a wraparound deed of trust.
In 1977, Tudor filed a petition in bankruptcy and remained as debtor in possession represented by Galloway. Without objection the bankruptcy court allowed OCG's claim. In 1979, Tudor sought permission to sell the properties to Executive Management Trustees, Inc., an Ohio corporation (EMT-O). In the meantime, EMT-O had acquired Tudor's note from OCG's assignee. EMT-O proposed to pay for the properties by assuming the underlying indebtedness and canceling the note and OCG's claim against Tudor. EMT-O advised the court that neither OCG nor Osserman had any business connections or association with EMT-O. It also advised the court that it intended simultaneously to sell the properties to four limited partnerships for notes secured by deeds of trust. AJ & AJ Servicing, Inc., another appellee, organized the limited partnerships. After the court gave notice of the proposed sale to all creditors and Tudor's limited partners, it approved the sale without objection. At the time of the sale, all of Tudor's trade creditors had been paid and payments on the underlying encumbrances were current. Simultaneously, EMT-O conveyed the properties to the AJ limited partnerships in exchange for notes.
EMT-O assigned a one-half interest in the notes to an Osserman company, Executive Management Trustees, Inc., a Nevada corporation (EMT-N). EMT-O assigned the other one-half interest to AJ as a finder's fee, for forming the limited partnerships that purchased the properties, and for AJ's work as servicing agent for all the notes. All the notes and deeds of trust were delivered to AJ.
In 1983, Tudor's limited partners learned that Osserman, who was their attorney-in-fact, owned EMT-O through other corporations that he controlled. The limited partners brought this adversary proceeding seeking to set aside the 1979 sale of Tudor's property on the ground of fraud and to quiet title to the properties in the name of Tudor.
The bankruptcy court held that the limitations contained in Section 511 of the Bankruptcy Act of 1898 and Federal Rule of Civil Procedure 60(b)(3) barred the limited partners' claim of fraud. No statutory limitation, however, bars relief for fraud upon the court.
The bankruptcy court found that Galloway and Osserman entered into a scheme to benefit themselves and deprive Tudor's limited partners of their equity in the property in the amount of $11,600,000. To accomplish their fraud, Galloway arranged the private sale to EMT-O, knowing that EMT-O's representation that Osserman had no connection with EMT-O was false. The court relied on this misrepresentation; it would not have approved the sale if it had known the truth.
The bankruptcy court concluded that Galloway deliberately used the bankruptcy proceedings to benefit Osserman and herself while she was acting as an officer of the court. Her conduct, the court ruled, breached her obligation to deal truthfully and honestly with the court and constituted fraud on the court. The bankruptcy court removed Galloway from her position as representative of Tudor and appointed a trustee of Tudor's bankruptcy estate.
The bankruptcy court awarded judgment to Tudor against EMT-O for compensatory damages in the amount of $11,600,000. It voided EMT-O's transfer of one-half interest in the notes to EMT-N and all subsequent transfers. It impressed this interest with an equitable lien for Tudor in the amount of $11,600,000. It found that the owners were bona fide purchasers for value and that the transfer of the one-half interest in the notes to AJ was supported by consideration. Consequently, it declined to award the properties to Tudor.
The district court affirmed the bankruptcy court's judgment with a modification of the interest of Johnson Matthey Bankers, which is no longer pertinent to this appeal.
We first address the district court's denial of the property owners' motion to dismiss Tudor's appeal from the bankruptcy court to the district court.
After Tudor and its partners filed their appeal in the district court, counsel for the trustee wrote the lawyer who represented the owners:
I am formally declaring an acceleration of the balance due on the notes and mortgages [that are subject to Tudor's equitable lien] ... On behalf of the plaintiffs and as coun...
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