Greylock Glen Corp. v. Community Sav. Bank

• Decision Date: 12 August 1981
• Docket Number: Nos. 80-1759,s. 80-1759
• Citation: 656 F.2d 1
• Parties: GREYLOCK GLEN CORPORATION, Plaintiff, Appellant, v. COMMUNITY SAVINGS BANK, Defendant, Appellee. Alan S. CANTER, Plaintiff, Appellant, v. COMMUNITY SAVINGS BANK, Defendant, Appellee. ELCO RESORT DEVELOPERS, INC., Plaintiff, Appellant, v. COMMUNITY SAVINGS BANK, Defendant, Appellee. to 80-1761.
• Court: U.S. Court of Appeals — First Circuit

Page 1

656 F.2d 1

8 Bankr.Ct.Dec. 597

GREYLOCK GLEN CORPORATION, Plaintiff, Appellant, v. COMMUNITY SAVINGS BANK, Defendant, Appellee.

Alan S. CANTER, Plaintiff, Appellant, v. COMMUNITY SAVINGS BANK, Defendant, Appellee.

ELCO RESORT DEVELOPERS, INC., Plaintiff, Appellant, v. COMMUNITY SAVINGS BANK, Defendant, Appellee.

Nos. 80-1759 to 80-1761.

United States Court of Appeals, First Circuit.

Argued April 7, 1981.

Decided Aug. 12, 1981.

Angelo M. Torrisi, New York City, for appellants.

Gregory A. Schmidt, Springfield, Mass., with whom Ely, King, Corcoran, Milstein & Beaudry, Springfield, Mass., was on brief, for appellee.

Before COFFIN, Chief Judge, and ALDRICH and BOWNES, Circuit Judges.

ALDRICH, Senior Circuit Judge.

Alan S. Canter, Elco Resort Developers, Inc. and Greylock Glen Corporation (appellants) seek ultimately to regain possession of 1,162 acres of land situated in northwestern Massachusetts in the town of Adams. They appeal three judgments of the district court, dismissing as moot their appeals from an order of the bankruptcy court that allowed appellee Community Savings Bank to foreclose mortgages on the property. We affirm.

Each appellant owned a portion of the 1,162 acres, and together they were building on the land the Greylock Glen project, a 550 room hotel and convention center featuring a ski resort and a golf course. Community Savings Bank provided the primary funding for the project. From May, 1973 until October, 1974 the bank made seventeen loans to appellants totaling $3.8 million in principal. The loans were secured by mortgages which, cumulatively, encumbered the entire project site. In October funding by the bank ceased, appellants were unable to secure adequate financing elsewhere, and all work on the project halted. The golf course and ski resort had already neared completion, but only the gradings and foundation had been installed for the hotel and convention center. Since then appellants have made no payments on account of interest or taxes, and the bank has been obliged even to incur expenditures to maintain the golf course. In 1978 it commenced foreclosure proceedings. Appellants responded with petitions seeking protection under the reorganization provisions of the bankruptcy laws, the corporate debtors filing under Chapter XI and Canter under Chapter XII. As a result, the bank was automatically stayed from proceeding with the foreclosures. Rules Bankr.Proc. 11-44(a); 12-43(a).

A month later, the bank instituted adversary proceedings against each of the debtors, seeking to lift the automatic stays and to foreclose the mortgages. See Rules Bankr.Proc. 11-44(d); 12-43(d). Appellants again responded, this time by filing counterclaims to extinguish and recoup the mortgages, advancing what the bank has termed "the meritless but now fashionable" argument that the bank breached an oral promise to loan appellants $32 million. In 1979 appellants attempted to withdraw the counterclaims from the bankruptcy court and to assert them in state court. The bankruptcy court enjoined them from doing so and retained summary jurisdiction over the counterclaims. Appellants failed timely to appeal the jurisdictional issue.

Trial was held before the bankruptcy court in September, 1979, but only on the issue of lifting the automatic stays, and not on the counterclaims. On January 16, 1980 the court issued findings of fact and conclusions of law, accompanied by orders lifting the stays. The court found that the mortgaged property had a value of approximately.$2.5 million, that encumbrances on the property totaled $7.5 million, and that appellants lacked any realistic chances of perfecting an arrangement. In addition, it found that the bank had been forced to spend over $230,000 to maintain the mortgaged property. The decision to lift the stays did "not preclude the debtor(s) from continuing their action for damages for breach on the alleged contract."

Appellants appealed to the district court, claiming that the bankruptcy court should have offset their counterclaims against their debt, and that the court's valuation of the Greylock Glen property at.$2.5 million was clearly erroneous. Contemporaneously, appellants filed a motion in the bankruptcy court for a stay of the January 16 order pending appeal to the district court. On February 11, 1980, the bankruptcy court denied this motion. Four days later the district court did likewise, being "not persuaded that equities lie with Appellants."

Free at last from injunctive restraint, the bank quickly consummated the foreclosure process. A foreclosure sale was duly advertised for and held on February 20, 1980. Numerous prospective bidders attended the sale, but the bank was the only actual bidder. Through three separate purchases, the bank acquired the entire tract of land for.$2.7 million against an aggregate debt, including interest, of over $6 million. The sale was approved by the Massachusetts Land Court.

The appeals from the January 16th order remained pending in the district court. Following the foreclosure sale, however, the bank moved their dismissal as moot, relying upon Rule 805 of the Rules of Bankruptcy Procedure which states in relevant part:

"Unless an order approving a sale of property ... is stayed pending appeal, the sale to a good faith purchaser ... shall not be affected by the reversal or modification of such order on appeal, whether or not the purchaser ... knows of the pendency of the appeal."

After oral argument and two rounds of briefs, the district court concluded that the bank was a good faith purchaser within the meaning of Rule 805. Accordingly, on September 26, 1980, it issued a memorandum and the orders dismissing as moot the appeals of the January 16th order.

Appellants attack, on statutory and due process grounds, the procedure employed by the district court to decide the mootness issue. Contending that the court lacked authority under the Bankruptcy Act and its rules even to entertain the bank's motion to dismiss, they label the motion an independent plenary action to clear title to the Greylock Glen property, and claim the bank should have sought a state court declaratory judgment as to its status as a good faith purchaser. These contentions are meritless. Any court necessarily has jurisdiction to inquire into its own jurisdiction, United States v. United Mine Workers, 1947, 330 U.S. 258, 289-92, 67 S.Ct. 677, 693-95, 91 L.Ed. 884, and mootness of an appeal, viz., the absence of a live controversy, is just such a case. DeFunis v. Odegaard, 1974, 416 U.S. 312, 94 S.Ct. 1704, 40 L.Ed.2d 164 (per curiam).

Next, appellants complain that the district court deprived them of due process by relying upon briefs and oral argument to determine whether the bank was a good faith purchaser. According to appellants, the court should have conducted a full evidentiary hearing on the issue. Appellants forget, however, that there already was a record; the burden was on them to supplement it, if they wished. The district court decided the issue of ultimate fact the bank's good faith on the basis of underlying facts that were not in dispute. Both parties agreed that the bank had conducted a public sale of the Greylock Glen property on February 20, 1980, that the bank had purchased the property for.$2.7 million, and that the Massachusetts Land Court approved the sale. In their briefs, appellants were able to raise a number of supposed irregularities in the advertising and conduct of the sale. The bank responded not by contesting appellants' facts, but by explaining them. As the court stated in In re Bleaufontaine, Inc., 5 Cir., 1981, 634 F.2d 1383, 1388, in response...