Pecan Groves of Arizona, In re

Citation951 F.2d 242
Decision Date16 December 1991
Docket NumberNo. 89-15815,89-15815
Parties25 Collier Bankr.Cas.2d 1728, Bankr. L. Rep. P 74,393 In re PECAN GROVES OF ARIZONA, Debtor. Clarence TILLEY, B & C Equities, Appellants, v. Robert VUCUREVICH, Trustee; Skousen; Jay Davis; Allen Eide; Ron Offutt; Mel Clayton; Gerie Clayton; Ralph Thomas, Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

Thomas M. Swift, Mesa, Ariz., for appellants.

James M. Marlar, Phoenix, Ariz., for appellees.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel.

Before CHOY, TANG and FLETCHER, Circuit Judges.

TANG, Circuit Judge:

OVERVIEW

In the third bankruptcy proceeding brought by or on behalf of Pecan Groves, the Chapter 7 Trustee sought to avoid a trustee's sale which took place in violation of the automatic stay under the first bankruptcy proceeding. Clarence Tilley and B & C Equities were allowed to intervene with the trustee. After the Trustee, Tilley, and B & C had presented their case, the bankruptcy court granted judgment for Skousen and the Clayton Group and against the trustee. Tilley and B & C appealed; the trustee did not. The Bankruptcy Appellate Panel ("BAP") affirmed. Tilley and B & C appeal. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

On October 6, 1978, Pecan Groves purchased a pecan grove located in Pinal County, Arizona from Pecan Centers of Arizona, Inc., a corporation in which Jerry Skousen was the sole or majority shareholder. As part of the purchase transaction, Pecan Groves executed a promissory note in the After Pecan Groves defaulted on the promissory note, Commonwealth Title of Arizona in connection with the Pecan Centers of Arizona, Inc. and Skousen deed of trust caused a Notice of Trustee's sale to be set for August 23, 1982. Ten days before the sale, on August 13, Pecan Groves filed a petition for relief under Chapter 11 of the Bankruptcy Code in the District of Utah. Despite the filing of the petition and Skousen's knowledge of the petition, the trustee's sale was held as scheduled. Skousen himself purchased the property with a credit bid of $650,000, and recorded a trustee's deed evidencing the sale in Pinal County on August 30, 1982. Skousen then transferred the property to a trust he created.

                amount of $1,030,000 payable to Skousen and Pecan Centers of Arizona.   The note was secured by a deed of trust on the property.   John Hancock Life Insurance Company held a senior lien on the property
                

Pecan Groves' responsible officers became aware of the trustee's sale shortly after the sale had been conducted, but were not aware that the trustee's deed had been recorded or that Skousen had transferred the property to a trust. At no time during the Utah Chapter 11 case did Pecan Groves make a demand for the return of the property sold at the trustee's sale or attempt to set aside the trustee's sale.

Nevertheless, during the Utah Chapter 11 case, Pecan Groves and Skousen acted as if Pecan Groves owned the property. Pecan Groves proposed a Chapter 11 plan that provided, in essence, that it would obtain a $2.2 million dollar loan secured by the property and that a portion of the property would be transferred free and clear of liens to Skousen. Skousen and his attorney, Forrest Gressley ("Gressley"), agreed to the terms of the proposed plan.

In the spring of 1983, Pecan Groves sought financing to provide irrigation and horticultural care for the property. Appellant Clarence Tilley ("Tilley") agreed to provide the financing. In April 1983, Gressley participated in a hearing regarding Pecan Groves' application to obtain secured credit from Tilley. The parties agreed at the hearing that, in return for providing financing, Tilley would receive a lien on the property junior only to that of John Hancock.

On April 27, 1983, the bankruptcy court entered an order authorizing Pecan Groves to obtain credit not to exceed $150,000 to be secured by a lien on the property senior to all secured claims except that of John Hancock. The order did not specify the lender, nor describe the property by legal description; it merely granted authority to obtain a loan.

Pursuant to the bankruptcy court's order, on April 29, 1983, Tilley and Pecan Groves executed an "Agreement to Provide Secured Line of Credit and Promissory Note (Secured)" under which Tilley agreed to extend a line of credit up to $150,000. The agreement provided that the parties "shall cause to be made and executed and recorded a Deed of Trust and Security Agreement evidencing the security granted by this loan in conformance with the Order of the Court." No such deed of trust or security agreement was executed. The agreement did not specify the exact loan amount, nor did it contain a legal description of the property that was to provide the security. On April 29, 1983, the agreement was recorded in Pinal County, Arizona. Tilley advanced the principal sum of $144,922.46 to Pecan Groves under the agreement and undertook an active role in managing the property.

Pecan Groves' bankruptcy case in Utah was dismissed on June 28, 1983. Tilley continued to manage the property after the dismissal. The order of dismissal was recorded in Pinal County on July 13, 1983. A notice of order of dismissal which contained an incomplete legal description of the property was recorded on July 15, 1983. On August 2, 1983, the trust to which Skousen had transferred the property deeded it back to him.

Following the dismissal, John Hancock caused another trustee's sale, under its deed of trust on the property, to be scheduled for November 10, 1983. On November 9, 1983, Tilley filed an involuntary Chapter 7 petition against Pecan Groves.

                During the pendency of the involuntary case, neither Pecan Groves, its trustee, nor Tilley took any action to contest Skousen's purchase of the property under the trustee's sale of August 23, 1982.   The involuntary case was dismissed on September 4, 1984
                

On December 29, 1983, in an arms-length negotiated transaction, Skousen sold the property to Jay Davis, Allen Eide, Ron Offutt, Mel Clayton, Gerie Clayton and Ralph Thomas, (collectively, the "Clayton Group") for $3,660,000.

Following the dismissal of the involuntary petition, Pecan Groves agreed with Tilley that it would file a voluntary petition under Chapter 7 in the District of Arizona. On December 14, 1984, Pecan Groves filed a voluntary petition, commencing the present bankruptcy case. The present trustee was appointed soon thereafter, but no action to challenge the title to the property was taken until the trustee filed this proceeding on November 21, 1985. The complaint initiating this proceeding was filed against Skousen and the Clayton Group and sought to re-obtain the property for the estate. It asserted four causes of action:

(1) For declaratory relief that Skousen's trustee's sale of August 23, 1982, was void;

(2) That the purported transfer to the Clayton Group was a fraudulent transfer under 11 U.S.C. § 548;

(3) That the trustee's sale to Skousen was a voidable post-petition transfer under 11 U.S.C. § 549; and

(4) That the title to the property should be quieted in the estate of the debtor.

Since 1984, Tilley and B & C Equities ("B & C") have obtained assignments of claims against Pecan Groves. B & C is a partnership between Tilley and Morton "Bud" Selzer that was formed to purchase the property. B & C has offered to purchase the property if the bankruptcy estate recovers the property in this action. B & C and Tilley paid nothing for the claims but promised to give the original claimant fifty percent of whatever dividend they received on the assigned claim and to finance the litigation to re-obtain the property for the bankruptcy estate.

On February 14, 1986, Tilley and B & C intervened as plaintiffs and alleged the same causes of action asserted by the trustee. Tilley further prayed for a declaration that he has a valid lien upon the property, prior and superior to any interest of the Clayton Group and Skousen. Until he intervened, Tilley had never sought to enforce his lien against the property and had never communicated with the Clayton Group.

At the conclusion of the trustee's case, the bankruptcy court granted Skousen's and the Clayton Group's oral motion for a directed verdict. The bankruptcy court entered a final judgment dismissing the complaint with prejudice and quieting title to the Clayton Group.

The bankruptcy court held that the trustee, B & C, and Tilley could not prevail because the Clayton Group was a good faith purchaser of the pecan groves for value. Additionally, the bankruptcy court held that laches precluded the claims of the trustee, Tilley, and B & C.

On November 12, 1987, B & C and Tilley, but not the trustee, appealed to the BAP. The BAP affirmed the bankruptcy court's ruling and held that B & C and Tilley did not have...

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