K & L Ltd., In re

• Decision Date: 16 August 1984
• Docket Number: No. 83-1428,83-1428
• Citation: 741 F.2d 1023
• Parties: 11 Collier Bankr.Cas.2d 303, 12 Bankr.Ct.Dec. 313, Bankr. L. Rep. P 69,984 In re K & L LIMITED, Debtor. Scott WENG and Universal Hospitality Management, Inc., Defendants-Appellants, v. Albert FARB, Trustee For K & L Limited, Plaintiff-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1023

741 F.2d 1023

11 Collier Bankr.Cas.2d 303, 12 Bankr.Ct.Dec. 313,

Bankr. L. Rep. P 69,984

In re K & L LIMITED, Debtor.

Scott WENG and Universal Hospitality Management, Inc., Defendants-Appellants, v. Albert FARB, Trustee For K & L Limited, Plaintiff-Appellee.

No. 83-1428.

United States Court of Appeals, Seventh Circuit.

Argued May 21, 1984.

Decided Aug. 16, 1984.

James J. Muench, Muench & Muench, Chicago, Ill., for defendants-appellants.

Barry Beldin, Dann, Pecar, Newman, Talesnick & Kleiman, Indianapolis, Ind., for plaintiff-appellee.

Before WOOD, ESCHBACH, Circuit Judges, and CAMPBELL, Senior District Judge. ^*

HARLINGTON WOOD, Jr., Circuit Judge.

The principal issue is whether a motel in Danville, Illinois, is the property of a partnership which is currently the debtor in a bankruptcy case in Indiana, or is the individual property of the general partners of the debtor and thus outside the jurisdiction of the bankruptcy court. The underlying issue, however, is whether this Court has jurisdiction over the appeal because the appellant did not file a notice of appeal in the bankruptcy court within ten days of the entry of that court's proposed findings of fact and conclusions of law. We hold that, in a "related proceeding" such as this, where the district court must conduct a de novo review of the bankruptcy court's proposed order of judgment, a notice of appeal need not be filed in the bankruptcy court, and we therefore have jurisdiction over this appeal. We also hold that the motel property is an asset of the debtor partnership, and thus we affirm the order of the district court.

I.

The debtor in the case is a California partnership which at one time owned the "Olde Danville Inn" (Olde Danville Inn, motel, or motel property) in Danville, Illinois; the debtor's petition was filed in the Bankruptcy Court of the Southern District of Indiana. On September 30, 1982, the Danville Motel Corporation filed a complaint asking the bankruptcy court to modify the automatic stay and to grant its petition for a use and occupancy order with respect to the Olde Danville Inn. The appellant ¹ in this appeal and the trustee subsequently moved to intervene; both motions were granted. The trustee then filed a third-party complaint against the appellant on November 18, 1982; it is this third-party complaint which is the subject matter of this appeal.

The third-party complaint alleges that Tibor Kahan and Bella Lakatos, general partners in the debtor, entered into an agreement on behalf of the debtor with the appellant for the sale of the Olde Danville Inn; the agreement was in essence an installment contract for the sale of real estate (land contract). The complaint also alleges that the appellant Weng subsequently assigned the land contract to the appellant Universal (Illinois). The complaint further alleges that while Kahan, Lakatos, and the debtor performed their obligations under the land contract the appellant failed to perform his obligations; the third-party complaint specifically alleges that the appellant failed to make monthly payments required by the land contract, failed to make interest payments on a note given by the appellant pursuant to the contract, and failed to pay for inventory transferred with the motel property. Finally, the complaint alleges that the motel, the land contract, and the payments due under the land contract are all assets of the debtor's estate. The third-party complaint requests, inter alia, a judgment for approximately one and one-half million dollars, a decree foreclosing the appellant's rights to the motel, including possession, and an accounting of rents and profits from the real estate.

The appellant moved to dismiss the third-party complaint on the ground that it failed to state a claim upon which relief could be granted because the land contract attached to the complaint showed that the motel was not property of the debtor's estate; the appellant's argument was based on the fact that the land contract was signed by Kahan and Lakatos individually, with no indication that they were signing on behalf of the debtor. From this fact the appellant argues that the motel and land contract were the property of Kahan and Lakatos individually, and not property of the debtor.

A hearing on the appellant's motion to dismiss and trial on the merits of the third-party complaint were consolidated in a single proceeding before the bankruptcy court on December 27, 1982, and January 4, 1983. Tibor Kahan testified on direct examination that the Olde Danville Inn had originally been purchased with funds from the partnership and that the motel had been purchased for the benefit of the partnership. Kahan also testified that payments from the appellant had been deposited in the partnership's account. Kahan further testified that he and Lakatos had taken title in the motel as joint tenants with right of survivorship on the advice of their attorney, and that neither he nor Lakatos had any interest in the motel other than their interests as general partners in the debtor.

During Kahan's testimony the attorney for the trustee introduced a document marked as Trustee's Exhibit 5. The document purported to list the items of inventory at the time the appellant took possession of the motel and the value of that inventory. Kahan testified that the document was prepared by his attorney from an inventory performed by Kahan and the appellant; he also testified that the dollar amounts listed on the document were provided by the appellant. The appellant objected to admission of the document on the grounds that the document was hearsay, unsigned, and irrelevant. Upon the court's request the appellant stated that he was unable to produce his original of the inventory report. The court then asked the appellant's attorney whether he objected to the document solely because it was unsigned. The attorney replied that that was the sole ground for his objection; the court overruled the objection and admitted the document.

At the continuation of the hearing on January 4, 1983, the appellant notified the court that Universal (California) had the day before filed a petition for reorganization under Chapter 11 in California. The court determined that appellant Weng had not personally filed a petition and therefore refused to stay the proceedings. Appellant Weng testified that the stock of Universal (Illinois) had been transferred to Universal (California) sometime between October and December 1982. Apparently, Universal (California) did not pay for the stock.

On January 20, 1983, the bankruptcy court issued a document entitled "Recommended Findings of Fact, Conclusions of Law and Entry on Third Party Complaint." The proposed findings included findings that Kahan and Lakatos were the only general partners in the debtor, that they purchased the motel on behalf of the debtor, and that the motel, the note, and the land contract were assets of the debtor's estate. The bankruptcy court also proposed finding that appellant Weng assigned the contract to appellant Universal (Illinois), that Universal (Illinois) was Weng's alter ego, and that the appellant had defaulted on the note and land contract. The court further proposed a finding that the appellant owed the debtor $12,734.93 for liquor and food inventories. The proposed conclusions of law included conclusions that the appellant's interest in the motel had been forfeited and that the trustee was entitled to possession of the motel. The court also recommended awarding the trustee $1,468,426.45 on the land contract; this award would be satisfied once the trustee took possession of the motel. The court also recommended awarding the trustee $106,816.33 on the note and inventory.

These proposed findings of fact and conclusions of law were, apparently on the bankruptcy court's own motion, transmitted to the district court, which approved the findings and conclusions on February 3, 1983. The appellant filed a notice of appeal to this Court on March 4, 1983.

II.

The appellees have moved to dismiss the appeal for lack of appellate jurisdiction on the ground that the appellant violated Bankruptcy Rule 802 by failing to file a notice of appeal in the bankruptcy court within ten days after that court's decision.

It is clear that no notice of appeal was filed with the bankruptcy court. It is also clear, however, that it would be pointless under the circumstances to file such a notice. In the wake of Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), this Court, acting pursuant to 28 U.S.C. Sec. 332(d)(1), directed the district courts of this circuit to adopt interim rules concerning administration of the bankruptcy laws. See 1 Collier on Bankruptcy, insert preceding ch. 3 (15th Ed. 1983) (draft rule). The United States District Court for the Southern District of Indiana adopted a rule which allowed bankruptcy judges to hear cases arising under Title 11, U.S.C., by reference from the district courts. An exception, however, was made for "related proceedings," which were defined as:

... those civil proceedings that, in the absence of a petition in bankruptcy, could have been brought in a district court or a state court. Related proceedings include, but are not limited to, claims brought by the estate against parties who have not filed claims against the estate. Related proceedings do not include: contested and uncontested matters concerning the administration of the estate; allowance of and objection to claims against the estate; counterclaims by the estate in whatever amount against persons filing claims against the estate; orders in respect to obtaining credit; orders to turn over property of the estate; proceedings to set aside preferences and fraudulent conveyances; proceedings in respect to lifting of the automatic stay; proceedings to determine dischargeability of particular debts; proceedings to object to the...