Ewell, In re, 90-16498
| Decision Date | 03 March 1992 |
| Docket Number | No. 90-16498,90-16498 |
| Citation | 958 F.2d 276 |
| Parties | 26 Collier Bankr.Cas.2d 857, 22 Fed.R.Serv.3d 225, 22 Bankr.Ct.Dec. 1185, Bankr. L. Rep. P 74,490 In re Kristine Ballantyne EWELL, Debtor. Kristine Ballantyne EWELL, Debtor-Appellant, v. Steven D. DIEBERT, Trustee-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Andrew D. Craig, and Richard A. Harris, Wild, Carter, Tipton & Oliver, Fresno, Cal., for debtor-appellant.
Albert J. Berryman, Lerrigo, Nibler, Berryman, Coleman & Bennett, Fresno, Cal., for trustee-appellee.
Appeal from the United States District Court for the Eastern District of California.
Before GOODWIN, FLETCHER and BRUNETTI, Circuit Judges.
Kristine Ewell, a chapter 11 debtor, appeals the district court's dismissal as moot of her consolidated appeals of two bankruptcy court rulings: (1) the bankruptcy court's order authorizing the sale of two real properties belonging to the bankruptcy estate and (2) the bankruptcy court's denial of Ewell's motion to set aside the close of escrow and to stay the order authorizing the sale. We affirm the district court.
This appeal involves the February 1990 sale by the chapter 11 trustee of two parcels of real property located in Fresno County, California, which constitute the principal assets of the bankruptcy estate. The parcels consist of approximately 406 acres commonly referred to as "the New Town property" and 538 acres commonly referred to as "the Auberry property."
Appellant Ewell (the Debtor) filed a voluntary chapter 11 petition on July 1, 1988. Appellee Steven D. Diebert (the Trustee) was appointed trustee on August 23, 1988. Between 1973 and 1975, Diebert had been employed by Pacific Agricultural Services, of which Dan Ewell was the president and principal shareholder. Dan Ewell is the brother of Ben Ewell, the Debtor's former husband. Ben Ewell is the chief executive officer of Millerton New Town Development Company, the purchaser of the properties that are the subject of this appeal.
In November 1989, the bankruptcy court authorized the sale of the New Town and Auberry properties to New Cities Development Group (New Cities) for a purchase price of $5,100,000 and $2,959,000, respectively, subject to a number of contingencies including the purchaser's review and approval of all water contracts affecting the properties. The New Town property was to be paid for in cash at the close of escrow and the Auberry property was to be paid for with a combination of cash and a five year promissory note secured by a deed of trust. As the end of the 30-day escrow period approached, New Cities requested an additional 120-day "due diligence" period so that it could negotiate a water reservation agreement with the county. The bankruptcy court denied New Cities' motion, and the deal fell through.
Millerton New Town Development Company (the Buyer) then offered to purchase the properties for a total price of $4,509,800. In contrast to New Cities' offer, the Buyer's offer contained no contingencies and provided for an 11-day escrow period. The price was considerably lower. In contrast to New Cities' offer of $12,500 per acre for the New Town property and $5,500 per acre for the Auberry property, the Buyer offered $7,000 and $3,100 per acre respectively. The Buyer agreed to a nonrefundable cash deposit of $250,000 and a total down payment of $500,000, with the balance consisting of debt assumption and a secured promissory note. The Debtor objected to the offer on various grounds, including inadequacy of the price. She submitted a declaration to the bankruptcy court that included two appraisals which valued the properties at $17,500 per acre.
The bankruptcy court approved the sale to the Buyer at a hearing on January 22, 1990. The Agreement of Sale provided that escrow would close 11 days after bankruptcy court confirmation of the sale. The bankruptcy court order authorizing the sale was filed on January 25 and entered on January 30. Escrow closed on February 2, 1990, eleven days after the hearing, and the Debtor filed a notice of appeal of the authorization order the same day. The Debtor made no effort to obtain a temporary stay or expedited hearing or otherwise to block the consummation of the sale prior to the close of escrow. On February 9, the Debtor filed a motion to set aside the close of escrow and for a stay of the order authorizing the sale pending appeal of that order. No stay issued, and the Trustee recorded the grant deed again on February 22, 1990. On March 12, the bankruptcy court denied the Debtor's motion. The Debtor filed her notice of appeal of these rulings on March 15, and on June 20 the district court ordered that appeal consolidated with the Debtor's earlier appeal of the authorization order.
On September 6, 1990, the district court entered a memorandum decision dismissing the appeals as moot. The Debtor timely appealed.
We consider two issues on appeal: (1) whether the district court erred in dismissing the Debtor's appeals as moot because of her failure to obtain a stay of the authorization of sale, as required by the statutory mootness rule, 11 U.S.C. § 363(m); and (2) whether the sale was nevertheless invalid and outside the protection of section 363(m) because the Buyer was not a good faith purchaser.
The Debtor contends that, by operation of Bankruptcy Rules 7062 1 and 9014, the automatic 10-day stay of execution on judgments provided by Fed.R.Civ.P. 62(a) applies to bankruptcy sales and that such a stay was in effect at the time escrow closed on February 2, 1990. The Debtor proceeds to argue that even though she never obtained a stay pending appeal, the sale has effectively been stayed because escrow closed in violation of the Rule 62(a) automatic 10-day stay. We disagree. It is highly questionable whether the Rule 62(a) stay on execution of judgments had any application to the judicially authorized sale of estate property in a bankruptcy proceeding. Even if we assume that Rule 62(a) applied to the sale at issue, the Debtor's appeals nevertheless are rendered moot by her failure to obtain a stay pending appeal pursuant to Bankruptcy Rule 8005.
The Debtor also contends that her appeals are not moot because the Buyer was not a good faith purchaser. Again we disagree. The bankruptcy court found there was no evidence that the Trustee colluded with the buyer and further found that the sale was fair and reasonable and in the best interests of creditors. These findings were not clearly erroneous.
We review the district court's decision de novo. In re Arizona Appetito's Stores, Inc., 893 F.2d 216, 218 (9th Cir.1990). The factual findings of the bankruptcy court are reviewed for clear error, and its conclusions of law are reviewed de novo. Id.
The Trustee moved for authorization to sell the properties pursuant to 11 U.S.C. § 363(b)(1), which provides that "the Trustee, after notice and hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate." The property rights of good faith purchasers participating in such sales are protected by section 363(m), which provides that
the reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal.
11 U.S.C. § 363(m).
The Debtor could have made a timely motion for a stay pending appeal. Bankruptcy Rule 8005 provides that "[a] motion for a stay of the judgment, order or decree of a bankruptcy judge ... pending appeal must ordinarily be presented to the bankruptcy judge in the first instance." Rule 8005 also authorizes the bankruptcy judge to issue stays sua sponte and provides for application to the district court or bankruptcy appellate panel for a stay pending appeal if such relief cannot be obtained from the bankruptcy judge. The Debtor did not seek a stay under Rule 8005 until February 9, 1990, a week after the close of escrow and ten days after entry of the order authorizing sale.
Rule 62(a) provides that, except for circumstances not relevant here, "no execution shall issue upon a judgment nor shall proceedings be taken for its enforcement until the expiration of ten days after its entry." Bankruptcy Rule 7062 makes Rule 62(a) applicable in adversary proceedings in bankruptcy, and Bankruptcy Rule 9014 makes Rule 7062 applicable in contested matters raised by motion, such as the court-authorized sale at issue here. See L. King, 9 Collier on Bankruptcy p 7062.02, at 7062-4 (15th ed. 1991). The 10-day stay begins when the judgment is entered and expires at the end of the tenth day after entry. Id. p 7062.04, at 7062-4. Because the authorization order was entered on January 30 and escrow closed on February 2, the Debtor maintains that the sale is invalid because it occurred in violation of the automatic 10-day stay.
We have not previously considered the application of Rule 62(a) to bankruptcy sales. In In re Combined Metals Reduction Co., 557 F.2d 179 (9th Cir.1977), we dismissed as moot a minor creditor's appeals of various sales and leases of estate property by the trustee pursuant to bankruptcy court orders. One of the sales had occurred within 10 days of entry of an order authorizing sale. The appellant argued that this sale violated the 10-day automatic stay of Rule 62(a). We did not reach the issue, however, and instead held that we were powerless to void the sale because the purchaser had not been made a party to the appeal and that therefore the appeal was moot:
Given the trial court's...
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