Frantz v. Idaho Indep. Bank (In re Frantz)
| Decision Date | 25 March 2020 |
| Docket Number | Case No. 2:18-cv-00190-DCN,Case No. 2:18-cv-00348-DCN,Case No. 2:18-cv-00189-DCN,Case No. 2:18-cv-00188-DCN |
| Parties | In re: MARTIN D. FRANTZ and CYNTHIA M. FRANTZ, Debtors. MARTIN D. FRANTZ and CYNTHIA M. FRANTZ, Appellants, v. IDAHO INDEPENDENT BANK, and DAVID P. GARDNER, Chapter 7 Trustee, Appellees. |
| Court | U.S. District Court — District of Idaho |
On March 26, 2018, Debtors Martin Frantz and Cynthia Frantz ("Appellants" or "Frantz"1) filed a Notice of Appeal with the Ninth Circuit Bankruptcy Appellate Panel("BAP"). Dkt. 1-1, at 2-4.2 Because Appellants appealed three separate orders generated by three separate motions in their underlying bankruptcy case,3 the BAP divided the appeal into three separate cases. Dkt. 1-9, at 1. On April 12, 2018, Idaho Independent Bank ("IIB") sent notice to the BAP that it was exercising its right to have the appeals heard by the District Court rather than the BAP. Dkt. 1-8, at 11-16. On April 19, 2018, the BAP transferred all three cases back to the District of Idaho. Dkt. 1-9, at 2-3.
In the interest of judicial economy, the Court consolidated the three cases into one case on May 31, 2018. Dkt. 7.
On July 1, 2018, Appellants appealed two other orders from the bankruptcy case to the BAP. On July 13, 2018, IIB again sent notice to the BAP that it was exercising its right to have the appeals heard by the District Court rather than the BAP. Case No. 2:18-cv-00348, Dkt. 1-2. On August 3, 2018, the BAP transferred the cases back to the District of Idaho.4 Case No. 2:18-cv-00348, Dkt. 1-9, at 2-3. Because the subject matter of this appeal related to the underlying bankruptcy case—and consequentially the consolidated cases—the Court consolidate this case with the previously consolidated appeals. Case No. 2:18-cv-00348, Dkt. 3. The parties briefed all issues simultaneously in Case 2:18-cv-00188.
On November 5, 2018, Appellants filed their opening brief. Dkt. 21. On January 9, 2019, Appellee IIB filed its brief. Dkt. 23. Appellee, Chapter 7 Trustee, David P. Gardner, joined in IIB's brief. Dkt. 24. On Feb 28, 2019, Appellants filed their reply. Dkt. 29.
Having fully reviewed the record herein, the Court finds the parties have adequately presented the facts and legal arguments in the briefs and record. Accordingly, in the interest of avoiding further delay, and because the Court finds that the decisional process would not be significantly aided by oral argument, the Court decides this appeal without oral argument. Dist. Idaho Loc. Civ. R. 7.1(d)(1)(B). For the reasons set forth below, the Court hereby AFFIRMS the bankruptcy court in all material respects.
The underlying dispute between Appellants and IIB relates to a state court action filed by IIB in 2010. While Frantz argues at length in his briefs of the wrongs done to him prior, and during, the state court proceedings, those facts are of marginal relevance to the bankruptcy case or this appeal—other than the obvious fact that they form the foundation for everything that has followed.
Broadly speaking, IIB provided loans to Appellants and their business entities overthe course of many years. Following the 2008 financial crisis, Appellants defaulted on certain loans and IIB filed suit. In that lawsuit, Appellants admitted the material allegations against them, but asserted affirmative defense and counterclaims against IIB. More detailed facts concerning the state court action are set forth in Idaho Indep. Bank v. Frantz, 399 P.3d 836, 837 (Idaho 2017).
In October 2011—while the state court action was in its preliminary stages—Appellants filed a Chapter 11 bankruptcy petition. Accordingly, the state court action was stayed. On April 23, 2013, Appellants converted their bankruptcy case from a Chapter 11 reorganization to a Chapter 7 liquidation, and a bankruptcy trustee ("Trustee") was appointed to represent the bankruptcy estate.
Appellants initially sought to discharge the debt they owed to IIB, but on August 23, 2013, IIB filed an adversary complaint in the bankruptcy case wherein it argued that the Appellants' debt to IIB was non-dischargeable because it was fraudulently obtained. Idaho Indep. Bank, 399 P.3d at 837.
Less than two weeks before trial was to commence on IIB's fraud action, Appellants filed a voluntary waiver of discharge, which was approved by the bankruptcy court. As a result, the Appellants' debt to IIB became non-dischargeable and the fraud action was rendered moot. In dismissing the fraud action, the bankruptcy court awarded $49,477.46 in sanctions against Frantz and his attorney for misusing "litigation tactics to cause economic injury to an opponent and its counsel in the form of increased litigation costs." Id. at 837-38.
In light of the Appellants' voluntary waiver of discharge, the bankruptcy stay in thestate court action was no longer applicable. Accordingly, the state court action resumed, and on September 21, 2015, IIB filed a motion for summary judgment. In this motion, IIB argued that it was entitled to judgment because: (1) the Appellants unconditionally guaranteed the debt to IIB by signing several commercial guaranties; (2) there was no merit to the Appellants' affirmative defenses; and (3) the Counterclaim was owned by the bankruptcy Trustee. On January 8, 2016, the district court granted IIB's motion, and issued judgment in the amount of $9,193,546.50. Appellants appealed, and on July 17, 2017, the Idaho Supreme Court affirmed the judgment and awarded costs and attorney's fees on appeal to IIB. Id. at 844. The bankruptcy case proceeded throughout the Appellants' appeal of the state court action.
The appeals at hand here relate to primarily four orders—as well as related rulings, and/or determinations—issued by Chief Bankruptcy Judge Terry L. Myers, who presided over Appellants underlying bankruptcy case—Case No. 2:11-Bk-21337 ("Bk. Case"). To understand the Court's decision, it is helpful to review the underlying bankruptcy proceedings in some detail.
On November 18, 2016, the bankruptcy court issued an order under 11 U.S.C. § 363(m) authorizing the sale of some of Appellants' personal property, which included certain business interests. Bk. Case, Dkt. 668. Over a year later, on December 29, 2017, Appellants filed a motion to unwind that particular sale ("Motion to Unwind"). Bk. Case, Dkt. 805. Judge Myers denied the motion as untimely ("Personal Property Sale Order").Bk. Case, Dkt. 880, 881. Appellants appeal this order.
On February 5, 2018, the bankruptcy court issued a second § 363(m) order approving the sale of some of Appellants real property ("Real Property Sale Order"). Bk. Case, Dkt. 852. Appellants challenged this order by filing a motion for a new trial ("Motion for New Trial"). Bk. Case, Dkt. 868. Judge Myers denied this motion. Bk. Case, Dkt. 876. Appellants appeal this order.
On June 28, 2018, the bankruptcy court issued a third § 363(m) order approving the sale of the counterclaims from the underlying state court action to IIB ("Counterclaims Sale Order"). (Bk. Case, Dkt. 956), as well as an order approving the Trustee's motion for interim distribution ("Interim Distribution Order"). (Bk. Case, Dkt. 957). Appellants appealed both orders.
The Court will now provide a more detailed background relative to the individual appeals, i.e., the motions, hearings, orders, and actions taken by Appellants and the bankruptcy court.
On September 27, 2016, the Trustee filed a motion seeking court approval to sell some of Appellants' personal property—including their business interests—to Appellants' children. Bk. Case, Dkt. 630. IIB submitted a higher offer, and after several competing bids, Appellants' children withdrew their opposition to IIB's purchase of the Personal Property. Bk. Case, Dkt. 653.
On November 18, 2016, the bankruptcy court issued the Personal Property Sale Order, which included a finding that the sale was "negotiated and undertaken . . . at arm'slength without collusion or fraud, and in good faith within the meaning of Section 363(m) of the Bankruptcy Code." Bk. Case, Dkt. 668, at 8.
Throughout the bidding process and even after the order had been issued, Appellants did not object to the sale of these assets. However, on December 29, 2017—more than one year after the Order was issued—Appellants filed a Motion to Unwind Sale pursuant to Federal Rule of Civil Procedure 60(b). Bk. Case, Dkt. 805. In their motion, Appellants argued that the sale created adverse tax consequences for the Estate—namely a net loss.
On January 12, 2018, the bankruptcy court entered an order setting a deadline of January 22, 2018, for objections and responses related to Appellants' Motion to Unwind. Bk. Case, Dkt. 816. The bankruptcy court also set a hearing date for January 30, 2018. Id.
On January 22, 2018, IIB filed an objection to Appellants' Motion arguing that, in addition to being time-barred, the Motion to Unwind lacked any legal or factual basis. Bk. Case, Dkt. 829. Later that same day, Frantz filed an amended motion wherein he raised new arguments related to the alleged tax consequences of the Personal Property Sale Order and requested that the bankruptcy court authorize a $30,000 tax-related distribution from the Estate. Bk. Case, Dkt. 831.
On January 29, 2018—the day before the hearing and seven days after the deadline established by the bankruptcy court—Appellants responded to IIB's objection. Bk. Case, Dkt. 839. Appellants argued their Motion to Unwind was not time-barred by the one-year limitation because it was filed within one year of the Trustee executing transfer documents for some of the personal property. Id.
On January 29, 2018, two of Appellants' children who had obtained a transfer ofsome of the personal property at IIB's direction, filed a response to Appellants' Motion to Unwind essentially...
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