795 F.2d 727 (9th Cir. 1986), 84-2698, In re Rigden

Docket Nº:84-2698.
Citation:795 F.2d 727
Party Name:In re Ralph Jerome RIGDEN, Joyce Rigden, R N & S Development Corporation, et al., Debtors. UNITED STATES of America, for Use and Benefit of Leo BLOCK, a Secured Creditor, Plaintiff-Appellant, v. Gordon ALDRICH, Trustee, and Jane Doe Aldrich, his wife; Transamerica Insurance Company, a Surety, First American Title Insurance Agency of Mohave County,
Case Date:July 24, 1986
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 727

795 F.2d 727 (9th Cir. 1986)

In re Ralph Jerome RIGDEN, Joyce Rigden, R N & S Development

Corporation, et al., Debtors.

UNITED STATES of America, for Use and Benefit of Leo BLOCK,

a Secured Creditor, Plaintiff-Appellant,

v.

Gordon ALDRICH, Trustee, and Jane Doe Aldrich, his wife;

Transamerica Insurance Company, a Surety, First American

Title Insurance Agency of Mohave County, and Creighton W.

Anfinson, Defendants-Appellees.

No. 84-2698.

United States Court of Appeals, Ninth Circuit

July 24, 1986

Argued and Submitted June 12, 1985.

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Atmore L. Baggott, Phoenix, Ariz., for plaintiff-appellant.

Charles W. Lowe, Davis & Meyer, P.C., Phoenix, Ariz., for defendants-appellees.

Appeal from the United States District Court for the District of Arizona.

Before SKOPIL, REINHARDT, and HALL, Circuit Judges.

SKOPIL, Circuit Judge:

Block appeals the district court's affirmance of the bankruptcy court's summary judgment against him. This case arises out of an attempt by Gordon Aldrich, a trustee in bankruptcy, to sell the redemption rights to certain foreclosed property. Leo Block, a secured creditor, contends that Aldrich breached his fiduciary duty to him by failing to obtain the escrow funds paid for the property, to appraise the property, to use the funds in escrow to preserve the redemption rights, and by failing to bring the matter to the attention of the bankruptcy court. Block also contends that the bankruptcy court failed to give full faith and credit to a state foreclosure decree. We reverse and remand.

FACTS AND PROCEEDINGS BELOW

In 1979, Ralph and Joyce Rigden filed a petition for reorganization relief under Chapter 11 of the Bankruptcy Code. Aldrich was apointed trustee and the case was converted to a Chapter 7 liquidation. The debtors' estate included, inter alia, several

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parcels of land known as Big Bend Acres. That property was encumbered by first, second, and third deeds of trust.

On August 6, 1980 the bankruptcy court granted the first lienholders' motion to modify the automatic stay under 11 U.S.C. Sec. 362(a)(1) to allow them to foreclose their lien on the property known as Big Bend Acres. Thereafter, the first lienholders initiated foreclosure proceedings in Arizona Superior Court. All persons holding an interest in or claim to the subject property were named as defendants. Junior lienholders were represented in the proceeding. At a sheriff's sale on October 16, 1981 the property was sold to the first lienholders for $130,962.21. Block contends that the Mohave County Sheriff properly recorded the levy and notice of sale, although nothing in the record confirms this.

On July 31, 1981, before the state foreclosure proceedings, trustee Aldrich filed an application to permit him to sell debtors' interest in certain property, including the Big Bend Acre lots, free and clear of all judgment liens. On October 16, 1981 the bankruptcy court authorized the sale of all the debtors' real property, with judgment liens to attach to proceeds of the sale. Following the sheriff's sale, the trustee realized the debtor no longer held fee title to the Big Bend Acre lots. He stipulated to amending his notice of the impending public auction sale. The bankruptcy judge modified his order authorizing the sale of the debtors' property to provide that

The trustee ... can only auction whatever redemption rights that the trustee and estate may hold as a result of the Sheriff's sale of said property ... following the judicial foreclosure.

In re Rigden, No. 79-2561 PHX RGM (Bankr. Ariz. Nov. 2, 1981) (order modifying "Notice of Real Property Auction"). Pursuant to the order, a corrected notice of Real Property Auction was filed.

The trustee employed Arizona Auctioneers to sell the debtors' properties at a public auction on November 21, 1981. The debtors owned fee title to ten of the properties auctioned. As to the eleventh property, Big Bend Acres, the debtors owned only the right to redemption. Harold Mildenberger was the high bidder on Big Bend Acres. He executed a purchase contract to buy the lots for $167,000. An earnest money deposit of $25,000 was paid to First American Title Insurance of Mohave, Inc. ("First American"). The remainder of the purchase price was to be paid upon closing. Mildenberger immediately assigned his rights in the property to Creighton Anfinson who, on November 25, 1981, entered into a standard form of escrow agreement with the seller, trustee Aldrich. The contract failed to explicitly state the trustee-seller no longer had fee title. Because of the foreclosure, the sale was only for redemption rights. There are factual disputes surrounding representations, allegedly made by the auctioneer during the sale, concerning the status of the debtors' title in the subject property. Anfinson alleges that the auctioneer represented that Big Bend Acres was sold on the same basis as the other properties and the purchaser of the property would receive clear title.

Following the auction, the trustee petitioned the bankruptcy court for confirmation of all the real property sales. On January 25, 1982 the bankruptcy court confirmed all the sales. All sales were closed except the Big Bend Acres sale. From the sale proceeds, secured creditor Block received only partial satisfaction and an entitlement to the net proceeds from the Big Bend Acres sale.

A number of disputes exist concerning occurrences after the auction but before the expiration of the right of redemption. Anfinson apparently contacted the trustee on May 13, 1982 to inquire why the escrow had not closed. He was assured it would close and Anfinson would acquire title. On April 8, 1982 Anfinson received a title report from First American. He allegedly realized for the first time that he had purchased only redemption rights. The trustee denies making any representations about the sale of Big Bend Acres other than it was for redemption rights. Aldrich apparently believed that following the sale

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the right of redemption had passed to the buyer and First American, the escrow agent, would redeem the property. On April 16, 1982 the right of redemption expired, without being exercised.

On September 9, 1983 Block commenced this action against Aldrich alleging a breach of fiduciary duty. The bankruptcy court granted trustee Aldrich's motion for summary judgment and denied Block's cross-motion for summary judgment. The bankruptcy court concluded, inter alia, that while the purchaser believed he was purchasing clear title to Big Bend Acres, the trustee intended only to sell the redemption right. The court further concluded that the sale of clear title was impossible to consummate through no fault of the parties. Specifically, the court found that Big Bend Acres was subject to a first, second, and third deed of trust and that the amount needed to redeem and pay off the liens exceeded the amount bid for the property.

Block appealed the bankruptcy court decision to the district court. The district court affirmed. This appeal followed.

STANDARD OF REVIEW

This court reviews a grant of summary judgment de novo. Bower v. Bunker Hill Co., 725 F.2d 1221, 1223 (9th Cir.1984).

DISCUSSION

The principal issue on appeal is whether the trustee breached his duty to Block in failing to consummate the sale of redemption rights in Big Bend Acres, to close escrow, to appraise the property, to ensure the right of redemption was exercised before it lapsed, or to bring the matter to the bankruptcy court's attention. The bankruptcy court concluded that the trustee did not breach any duty with respect to the sale of redemption rights. Because of a mistaken understanding as to the status of the title to the property, the bankruptcy court found that the contract between Anfinson and Aldrich was not binding, and further, that a contract for the sale of clear title was impossible to perform because the contract price was insufficient to consummate the transaction.

The bankruptcy court's grant of summary judgment for the trustee was in error. The record is insufficiently developed concerning the enforceability of the contract for the sale of Big Bend Acres for a grant of summary judgment to be appropriate. Further, because the record is unclear as to the amount necessary to perform the contract, we must remand this case for further proceedings.

  1. Redemption Rights.

    Under Arizona law, property may be redeemed by

    The judgment debtor or his successor in interest in whole or in part ... [or by] ... A creditor having a lien by judgment or mortgage on the property sold....

    Ariz.Rev.Stat. Sec. 12-1281 (1982). The judgment debtor or his successor in interest may redeem at any time within six months after the date of sale. Id. at Sec. 12-1282 B. The Big Bend Acres property was sold subject to redemption on October 16, 1981. The debtor or his successor in interest had until April 16, 1982 to exercise the right of redemption.

  2. Breach of Fiduciary Duty.

    A bankruptcy or reorganization trustee has a duty to exercise that measure of care and diligence that an ordinary prudent person would exercise under similar circumstances. In re Cochise College Park, Inc., 703 F.2d 1339, 1357 (9th Cir.1983). The trustee also has a fiduciary obligation to conserve the assets of the estate and to maximize distribution to creditors. In re Benny, 29 Bankr. 754, 760 (N.D.Cal.1983); 2A Collier on Bankruptcy p 47.04 (14th ed. 1978). Although a trustee is not liable for mistakes in judgment where discretion is allowed, he or she is liable "for not only intentional but also negligent violations of duties imposed upon him by law." In re Cochise, 703 F.2d at 1357 (citing Mosser v. Darrow, 341 U.S.

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    267, 272, 71 S.Ct. 680, 682, 95...

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