Buchman, Matter of

• Citation: 600 F.2d 160
• Decision Date: 12 June 1979
• Docket Number: No. 78-1614,78-1614
• Parties: , Bankr. L. Rep. P 67,238 In the Matter of Ralph Alvin BUCHMAN, Bankrupt. SECOND NATIONAL BANK OF TAMPA, Appellant, v. J. Bruce BLAKE, Trustee, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

Page 160

600 F.2d 160

5 Bankr.Ct.Dec. 689, Bankr. L. Rep. P 67,238

In the Matter of Ralph Alvin BUCHMAN, Bankrupt.

SECOND NATIONAL BANK OF TAMPA, Appellant, v. J. Bruce BLAKE, Trustee, Appellee.

No. 78-1614.

United States Court of Appeals, Eighth Circuit.

Submitted June 7, 1979.

Decided June 12, 1979.

John C. Quaintance, Sioux Falls, S. D., and Carlton, Fields, Ward, Emmanuel, Smith & Cutler, Tampa, Fla., for appellant.

Appellee did not file a brief or an appearance form.

Before HEANEY, STEPHENSON and McMILLIAN, Circuit Judges.

PER CURIAM.

The Second National Bank of Tampa (hereinafter the Bank), a lien creditor of the bankrupt, appeals from the district court's affirmance of an order of the bankruptcy referee, confirming the sale of the trustee's equity in certain property of the bankrupt estate. More than four months before the date of bankruptcy, the Bank had brought a creditor's suit in state court to impose and enforce a lien on this property. In affirming the referee's order, the district court ¹ held that the Bank's lien had been obtained through legal proceedings within four months before bankruptcy, that the lien was voidable under section 67a(1) of the Bankruptcy Act, 11 U.S.C. § 107(a)(1), ² and that the bankruptcy court therefore had jurisdiction of the property and could sell it. This court has jurisdiction under section 24a of the Act, 11 U.S.C. § 47(a), and under 28 U.S.C. §§ 1291, 1334. For reasons hereinafter given, we affirm.

I.

In March, 1973, the Bank recovered two judgments in the Circuit Court for Hillsborough County, Florida, against Ralph Buchman, the bankrupt herein, who was then a resident of Florida. At the same time, writs of execution were issued thereon, and were returned nulla bona on February 25, 1975. On March 27, 1975 (more than four months before Buchman's bankruptcy), the Bank filed a creditor's suit and lis pendens in the Circuit Court for Pasco County, Florida, to enforce an equitable lien on Buchman's interest in certain real and personal property, located in Pasco County and held by Rex A. King as trustee under a joint venture agreement. ³ On April 7, 1975 (less than four months before bankruptcy), Buchman, who had moved to South Dakota, was personally served with process.

On August 1, 1975, Buchman filed a petition in bankruptcy in the District of South Dakota. The referee authorized the sale of all the bankrupt's assets, real or personal, and on January 11, 1977, after a report by the trustee, the referee confirmed the sale of the "trustee's equity, if any," in the real estate in Pasco County. ⁴ On February 14, 1977, counsel for the Bank filed an affidavit, informing the bankruptcy court of the creditor's suit in Florida and stating that the complaint in that suit had been filed "more than four months prior to" the date of bankruptcy. Claiming that the bankruptcy court lacked jurisdiction of the property, the Bank moved that the referee vacate his order of January 11, deny approval of the sale of the real estate interest, and also deny approval of the proposed sale of Buchman's interest in the partnership called "Rex A. King As Trustee." On the same day (February 14), the referee orally denied the Bank's motions and confirmed the sale of the "trustee's equity, if any," in Buchman's partnership interest. ⁵ One week later, a written denial of the Bank's motions was entered and the Bank appealed to the district court arguing that the bankruptcy court did not have jurisdiction of the property.

In the interval since the filing of the bankruptcy petition, the Bank had been proceeding with its creditor's suit in the Florida state court. On July 2, 1976, the state court granted the Bank's motion for summary judgment and subsequently scheduled a sale of Buchman's partnership interest for March 11, 1977. On March 4, 1977, the trustee in bankruptcy learned of this intended sale and obtained ex parte from the bankruptcy referee a stay of the sale. From the issuance of this stay, the Bank appealed to the district court, again challenging the bankruptcy court's jurisdiction over the property.

In addition, the Bank moved that the referee reconsider the issuance of his stay order. Full argument was had on May 24, 1977, and on May 27 the referee denied the Bank's motion. The Bank then took its third appeal to the district court, raising the same issue of jurisdiction.

On consolidation of the three appeals, the district court held as follows:

(1) that "(u)pon the filing of the petition in bankruptcy, all property of Buchman, including the equitable property in the joint venture with Rex King, vested in the bankruptcy court;" ⁶

(2) that under Florida law, the lien created by the commencement of a creditor's suit arises upon service of process, not upon mere filing of the suit;

(3) that the Bank's lien was therefore obtained within four months of bankruptcy, and did not "remove the assets from the bankruptcy court jurisdiction;" ⁷ and

(4) that the state court action to declare and enforce this lien was subject to the stay of Bankruptcy Rule 601. ⁸

Accordingly, the district court affirmed the referee's order confirming the sales of Buchman's interests in the real estate and joint venture. The referee's order staying the sale by the Florida court was upheld as a "reaffirmation" and "enforcement" of the automatic stay of Rule 601. ⁹ The Bank appeals only from the affirmance of the sale of Buchman's partnership interest. ¹⁰

II.

On appeal the Bank argues that the bankruptcy court lacked jurisdiction of the partnership interest for either of two reasons: (1) that the interest was subject to a lien enforcement proceeding begun in state court more than four months prior to bankruptcy; or (2) that the Bank had obtained a valid lien on the interest upon the Filing of its creditor's suit (more than four months before bankruptcy), rather than upon service of process, and that by virtue of the commencement before bankruptcy of the suit to enforce this lien, the state court acquired exclusive jurisdiction of the partnership interest. ¹¹ Implicit in appellant's argument were the assumptions that the bankruptcy court had to have jurisdiction of the partnership interest in order to sell it, and that the court's asserted lack of jurisdiction rendered the sale void.

It is, of course, fundamental that a court must have subject matter jurisdiction in order to take any action in the proceeding before it. Confusion in the present case has arisen, however, through appellant's failure to distinguish between the prerequisites of bankruptcy court jurisdiction in two different kinds of situations.

Generally, where there is a dispute between the trustee in bankruptcy and an adverse claimant about the ownership of property, or about the validity or amount of a lien thereon, the bankruptcy court has jurisdiction to resolve the dispute only if it has actual or constructive possession of the property, or consent to its jurisdiction by the adverse claimant. Magnolia Petroleum Co. v. Thompson, 106 F.2d 217, 222 (8th Cir. 1939), Rev'd on other grounds, 309 U.S. 478, 60 S.Ct. 628, 84 L.Ed. 876 (1940); Page v. Arkansas Natural Gas Corp., 53 F.2d 27, 33-34 (8th Cir. 1931), Aff'd, 286 U.S. 269, 52 S.Ct. 507, 76 L.Ed. 1096 (1932); 2 Collier P 23.04(2) (1974). It is this kind of jurisdiction that the Bank insists was a precondition of the sale in issue. The problem with this argument is that there was no dispute or controversy of the sort just mentioned, the determination of which would require the bankruptcy court to have possession of the property. ¹² All that occurred was the referee's confirmation of a sale of the bankrupt's property over the Bank's objection that the bankruptcy court lacked authority to sell. Because the disagreement directly concerned only the extent of the court's authority, and not the rights of the parties in any specific piece of property, the court's jurisdiction did not depend on possession of any given property.

The kind of subject matter jurisdiction that is relevant here is the power of a bankruptcy court to sell the property of the bankrupt estate. Section 2a(7) of the Act grants the court jurisdiction to "(c)ause the estates of bankrupts to be collected, reduced to money, and distributed . . . ." 11 U.S.C. § 11(a) (7) (1976). Under section 70a(5), the trustee is vested, as of the filing date, with the bankrupt's title to any property "which prior to the filing of the petition (the bankrupt) could by any means have transferred or which might have been levied upon and sold under judicial process against him . . . ." 11 U.S.C. § 110(a)(5) (1976). Florida law provides that a partnership interest is both "transferable" and "leviable;" ¹³ therefore, Buchman's partnership interest became part of the bankrupt estate, and the trustee acquired Buchman's title to it. The bankruptcy court clearly had general subject matter jurisdiction to sell the partnership interest. Provided that the court complied with any specific requirements relating to the kind of sale made, the sale was valid.

A bankruptcy sale may be either subject to all valid liens and incumbrances, or free and clear of all liens and incumbrances. Property may be sold subject to all valid ¹⁴ liens if the trustee has title to the property, regardless of whether the court has possession of it. Piedmont Coal Co. v. Hustead (In re Thompson), 294 F. 247, 250-51 (3d Cir. 1923), Cert. denied, 264 U.S. 582, 44 S.Ct. 331, 68 L.Ed. 860 (1924), Quoted in 5 H. Remington, A Treatise on the Bankruptcy Law of the United States § 2060 (5th ed. 1953); In re Little & Ives Co., 262 F.Supp. 719, 722 (S.D.N.Y.1966) (dictum), Cited in 6 H. Remington, Supra § 2533 (Supp.1978); In re Gutterson,136 F. 698 (D.Mass.1905); Bradley v. Williams, 304 Ky. 724, 730-32, 202 S.W.2d 149, 152-53 (1947); General Motors Acceptance Corp. v. Boddeker, 274 S.W. 1016, 1018 (Tex.Civ.App.1925). According to Collier :

Whatever property is transferred to the trustee...