In re Cueva

• Decision Date: 19 May 2004
• Docket Number: No. 03-20608.,03-20608.
• Citation: 371 F.3d 232
• Parties: In the Matter of: Jose D. CUEVA, Debtor. Vincent Bustamante, Appellant-Cross-Appellee, v. Jose D. Cueva; et al., Jose D. Cueva; Ocwen Federal Bank, FSB; Norwest Bank Minnesota, Individually and as Trustee for the Amresco Residential Securities Mortgage Loan Trust 1998-3; Amresco Residential Securities Mortgage Loan Trust 1998-3, Appellees, Settle & Pou Professional Corporation, Appellee-Cross-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

371 F.3d 232

In the Matter of: Jose D. CUEVA, Debtor Vincent Bustamante, Appellant-Cross-Appellee, v. Jose D. Cueva; et al. Jose D. Cueva; Ocwen Federal Bank, FSB; Norwest Bank Minnesota, Individually and as Trustee for the Amresco Residential Securities Mortgage Loan Trust 1998-3; Amresco Residential Securities Mortgage Loan Trust 1998-3, Appellees Settle & Pou Professional Corporation, Appellee-Cross-Appellant.

No. 03-20608.

United States Court of Appeals, Fifth Circuit.

May 19, 2004.

Rehearing Denied June 14, 2004.

Richard Lucas Petronella (argued), Petronella & Yarborough, Houston, TX, for Bustamante.

Jeffrey Wells Oppel (argued), Oppel, Goldberg & Saenz, Houston, TX, for Cueva.

C. Ed Harrell (argued), Hughes, Watters & Askanase, Houston, TX, for Ocwen Federal Bank, FSB, Norwest Bank Minnesota and Amresco Residential Securities Mortg. Loan Trust 1998-3.

Charles Bennett Mitchell, Jr., Billy R. McGill (argued), Brown, Herman, Dean, Wiseman, Liser & Hart, Fort Worth, TX, for Settle & Pou Professional Corp.

Appeals from the United States District Court for the Southern District of Texas.

Before REAVLEY, DAVIS and DeMOSS, Circuit Judges.

DeMOSS, Circuit Judge:

This is an appeal of the district court's reversing in part, affirming in part, and remanding the case back to the bankruptcy court. There was a foreclosure sale of property owned by Cueva that was part of a bankruptcy proceeding and therefore subject to an automatic stay pursuant to 11 U.S.C. § 362. Bustamante purchased a one-half interest in that property at a foreclosure sale and then subsequently purchased the other one-half interest. In an adversary action brought by Bustamante, the bankruptcy court awarded him a one-half interest in the property and awarded Cueva the other one-half interest. The parties appealed. The district court reversed the portion of the bankruptcy court's award that granted Bustamante a one-half interest in the property. Bustamante, inter alia, now appeals.

BACKGROUND

This appeal arises from the district court's reversal in part of a judgment by the bankruptcy court. The following facts were found by the bankruptcy court in its Memorandum Opinion entered July 24, 2001, and are undisputed.

The real property that is the subject of this appeal is located at 6006 Memorial Drive in Houston, Texas (the "Property"). After Appellee Cueva defaulted on his note on the Property, Appellee-Cross-Appellant Settle & Pou, P.C., obtained an order for foreclosure.¹

Jonathan Campbell and Appellant-Cross-Appellee Bustamante often purchased property at foreclosure sales. On December 6, 1999, the day before the foreclosure sale at issue, Campbell visited the Property twice and spoke with a man on the Property. Cueva testified he spoke with Campbell on the evening of December 6, 1999. Cueva told Campbell that the Property would not be foreclosed because he had filed for bankruptcy. Bustamante did not speak with Cueva or visit the Property before the sale. Bustamante did not know about Campbell's visit until June 2000.

Cueva's bankruptcy proceeding actually was filed on December 7, 1999, sometime between 9:00 a.m. and 9:30 a.m. On December 7, 1999, Cueva's bankruptcy attorney faxed a notice of the bankruptcy to Appellee — Cross-Appellant Settle & Pou, which received the notice at 9:32 a.m. Settle & Pou were the attorneys and the authorized agents for Appellees Norwest, Amresco, and Ocwen (the "Lienholders"), and thus those parties were charged with notice of the bankruptcy three to four hours prior to the foreclosure. Settle & Pou did not notify the substitute trustee of the bankruptcy filing and the foreclosure sale went forward.

On the day of the sale, Bustamante and Campbell agreed they would each purchase an undivided one-half interest in the Property. Bustamante and Campbell were the successful bidders at the foreclosure sale. Bustamante and Campbell signed a "Purchaser's Acknowledgment" acknowledging, among other things, that the sale was subject to bankruptcy by the debtor. The Property was purportedly conveyed to Bustamante and Campbell by deed dated December 7, 1999, and recorded December 13, 1999. Ocwen received the proceeds of the sale on December 29, 1999. After learning of the bankruptcy case, Ocwen reinstated Cueva's debt and returned the funds to the foreclosing attorneys, Settle & Pou. Bustamante learned of Cueva's presale bankruptcy filing in March 2000. Nonetheless, Bustamante purchased Campbell's one-half interest on May 24, 2000.

Bustamante brought an adversarial proceeding in bankruptcy court. Bustamante sought a declaration from the bankruptcy court and relief from the automatic stay to the effect that his and Campbell's post-bankruptcy purchase of real property of the debtor, Cueva, at the foreclosure sale, was valid and was not voided by the automatic stay. Bustamante also alleged that the Lienholders caused the foreclosure sale to proceed despite receiving notice of Cueva's bankruptcy, and he sought damages from them under the Texas Deceptive Trade Practices Act ("DTPA"). Cueva counterclaimed against Bustamante seeking avoidance of the foreclosure sale under the bankruptcy code's automatic stay provision and alleged third-party damages against the Lienholders, Campbell, and Settle & Pou for violation of the automatic stay. The Lienholders counterclaimed against Cueva for judicial foreclosure of the lien against the Property.

On January 3, 2002, the bankruptcy court entered a Final Judgment in the adversarial proceeding based on its findings of fact and conclusions of law in its Memorandum Opinion entered July 24, 2001, and its Order Supplementing Memorandum Opinion entered December 5, 2001. The bankruptcy court awarded Bustamante an undivided one-half interest in the Property based on his status as a good faith purchaser without notice of the bankruptcy at the time of the foreclosure sale, together with judgment for one-half of the accrued rents on the Property. The court held that although the foreclosure sale violated § 362, the automatic stay provision of the bankruptcy code, under 11 U.S.C. § 549(c) of the bankruptcy code Bustamante did not have notice of the bankruptcy and therefore was a good faith purchaser, meaning his purchase of a one-half interest of the Property was valid. The bankruptcy court awarded the other one-half interest in the Property and the rents thereon to Cueva, holding that Campbell's purchase of a one-half interest at the foreclosure sale was void because he had notice of the bankruptcy at the time of the sale. The bankruptcy court held that because Campbell's purchase was void, Campbell transferred no interest in the Property to Bustamante. The bankruptcy court also determined that Bustamante was not entitled to damages under the Texas DTPA against the other defendants (the Lienholders). The bankruptcy court also concluded that Cueva could recover attorney's fees, rents, and damages from the Lienholders and Settle & Pou for the value of the undivided one-half interest in the Property that was sold to Bustamante; and that Ocwen could recover the proceeds from the foreclosure sale.

Bustamante appealed to the district court, contesting only the denial to him of the Property share awarded Cueva, rents on it and, alternatively, a lien on the Cueva share. Bustamante did not dispute or appeal the denial of damages on his DTPA claim.

Cueva also appealed. He contested the award to Bustamante of a one-half interest in the Property and rents associated with that interest. Neither Bustamante nor Cueva objected to or appealed the award of the foreclosure bid proceeds to Ocwen.

After the issuance of the judgment of the bankruptcy court and during the course of the district court appeal, the Property was sold with the approval of the bankruptcy court. The Lienholders received the sales proceeds of $191,962.00 in satisfaction of the lien, and Settle & Pou paid the money judgments without prejudice to any issues on appeal.

On March 3, 2003, the district court entered its Memorandum and Order, holding that the foreclosure sale violated the automatic stay imposed by § 362. Observing that no party had sought retroactive annulment of the automatic stay, the district court reversed the award to Bustamante of his share in the Property. The award to Cueva of his interest in the Property was affirmed, as was the denial of a lien against the Property. Because the district court reversed part of the bankruptcy court's judgment, it remanded the case to the bankruptcy court for further proceedings. Bustamante filed a motion for reconsideration that was denied.

Bustamante and Settle & Pou filed notice of appeal to this Court. Bustamante now appeals the district court's ruling in its entirety. He argues that he was entitled to both his one-half interest and Campbell's one-half interest in the Property. Settle & Pou appeals only the district court's reversal of the portion of the bankruptcy court's judgment awarding one-half of the Property and the rents thereon to Bustamante. It is Settle & Pou's contention on this appeal that the bankruptcy court reached the correct result in this case for the wrong reason, and that its judgment should have been affirmed by the district court, and should now be reinstated by this Court. The Lienholders argue in favor of affirming the district court. Cueva also argues for affirming the district court and makes some additional arguments that relate more to the disposition of the case on remand to the bankruptcy court.

DISCUSSION

Whether the district court erred in holding that Bustamante could not use 11 U.S.C. § 549(c) as an exception to the automatic stay imposed by 11 U.S.C. § 362.

The findings of fact of the bankruptcy court are not contested. This appeal concerns a challenge to the bankruptcy and district courts' legal conclusions, which this Court reviews de novo. In re Bradley, 960 F.2d 502, 507 (5th Cir.1992). This Court "may affirm if there are any...