Hill v. Portillo (In re Kenneth C. Casey, Inc.)

• Docket Number: 15-20621 TBM,Adv. Pro. 21-1070 TBM
• Decision Date: 17 June 2022
• Parties: In re: KENNETH C. CASEY, INC. Debtor. v. LIBORIO LOYA PORTILLO, Defendant. JEFFREY L. HILL, Chapter 7 Trustee, Plaintiff,
• Court: U.S. Bankruptcy Court — District of Colorado

1

In re: KENNETH C. CASEY, INC. Debtor.

JEFFREY L. HILL, Chapter 7 Trustee, Plaintiff,
v.
LIBORIO LOYA PORTILLO, Defendant.

No. 15-20621 TBM

Adv. Pro. No. 21-1070 TBM

United States Bankruptcy Court, D. Colorado

June 17, 2022

MEMORANDUM OPINION AND ORDER AFTER TRIAL

Thomas B. McNamara, United States Bankruptcy Judge.

The Debtor, Kenneth C. Casey, Inc. (the "Debtor"), owned numerous parcels of real property located in Alamosa, Costilla, and Saguache counties in rural south-central Colorado. The Chapter 7 trustee assigned to liquidate the Debtor's estate, Jeffrey L. Hill (the "Trustee"), decided to sell some of the Debtor's real estate holdings. Such non-ordinary course sales can only be conducted "after notice and a hearing" under Section 363(b)(1) of the Bankruptcy Code.^[1]

Toward that end, in 2016, the Trustee filed a "Sale Motion" wherein he specifically identified all the real estate to be sold. With respect to Costilla County, Colorado, other than unitized lands not at issue in this dispute, the Trustee identified only three 40-acre parcels of real property (120 acres total) belonging to the Debtor. These parcels were located in Sections 11 and 12 of Township 32 South and Range 73 West as part of the Property to be sold (the "Authorized Sale Property"). The Trustee also prepared a "Sale Notice" identifying all the real estate to be sold, including the Authorized Sale Property. The Trustee sent the Sale Motion and Sale Notice to all creditors. No parties in interest objected. Thereafter, the Court entered a "Sale Order" whereby the Court authorized the Trustee to sell the Authorized Sale Property.

2

Unfortunately, the auctioneer conducted an auction in which it offered to sell only part of the Authorized Sale Property (80 acres instead of 120 acres) and then added to the auction an additional 240 acres of property in Costilla County which were owned by the Debtor, but which were not identified in the Sale Motion or Sale Notice and which the Court did not authorize the Trustee to sell (the "Unauthorized Sale Property"). The Defendant, Liborio Loya Portillo ("Mr. Portillo"), paid the auctioneer $23, 000.00 for it all: the 80 acres forming part the Authorized Sale Property and the 240 acres of Unauthorized Sale Property. Afterward, the Trustee (who did not compare the Sale Motion, Sale Notice, and Sale Order against the auction results) issued two trustee's deeds (together, the "Trustee's Deeds") purporting to transfer title to all 320 acres (including part of the Authorized Sale Property and the Unauthorized Sale Property) to Mr. Portillo. Later, the Trustee also sold a 40-acre parcel (which was part of the Unauthorized Sale Property subject to one of the Trustee's Deeds) to someone else: Daniel G. Webb ("Mr. Webb").

Years afterward, a dispute surfaced concerning whether Mr. Portillo owns the real estate identified in the two Trustee's Deeds (i.e., part of the Authorized Sale Property and the Unauthorized Sale Property). The Trustee now essentially claims there was a mistake. He filed this lawsuit against Mr. Portillo requesting a declaratory judgment that the two Trustee's Deeds he issued to Mr. Portillo "are void and that Mr. Portillo has no interest in the real estate described [in the two trustee's deed]" because most of the real estate listed in the two Trustee's Deeds was not identified in the Sale Motion and the Sale Notice nor authorized by the Court to be sold in the Sale Order. The Trustee also asked that the subsequent sale to Mr. Webb be determined to be valid and enforceable. Mr. Portillo contested the Trustee's claims. In addition, Mr. Portillo asserted a counterclaim against the Trustee seeking damages arising from the Trustee's "grossly negligent breach of fiduciary duty."

In the lead up to trial, the Trustee filed a "Motion for Summary Judgment" on the Trustee's declaratory judgment claim. Mr. Portillo contested such relief. On January 28, 2022, the Court entered its "Memorandum Opinion and Order Granting Trustee's Motion for Summary Judgment." Hill v. Portillo (In re Kenneth C. Casey, Inc.), 2022 WL 272630 (Bankr. D. Colo. Jan. 28, 2022). The Court ruled that the "two Trustee's Deeds are VOID." Although the Court resolved the main substantive issue through the summary judgment process, two issues remained: (1) "appropriate remedies" for Mr. Portillo; and (2) Mr. Portillo's "counterclaim against the Trustee for grossly negligent breach of fiduciary duty." The Court conducted a two-day trial on the remaining issues. Now, the Court determines that the Trustee must return $23, 000.00 (plus interest) to Mr. Portillo since the Trustee's Deeds have already been determined to be void. And, the Court rejects Mr. Portillo's counterclaim against the Trustee. Judgment will enter consistent with this Opinion and Order.

3

I. Jurisdiction and Venue.

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and (e) and 28 U.S.C § 157(b). This is a core proceeding under § 157(b)(2)(A) (a matter concerning administration of the Debtor's bankruptcy estate) and (O) a proceeding affecting the liquidation of the estate. In Casey, 2022 WL 272630, the Court granted summary judgment in favor of the Trustee and against Mr. Portillo on the declaratory judgment claim asserted by the Trustee. Thereafter, Mr. Portillo filed a "Motion for Leave to Appeal Interlocutory Order to District Court, "^[2] pursuant to 28 U.S.C. § 158(a)(3). The Motion for Leave to Appeal recently was denied.^[3] As such, the Court's jurisdiction to determine the matters raised in this dispute is clear. But even when the Motion for Leave to Appeal was pending, the Court retained complete jurisdiction to adjudicate this dispute. See Matter of U.S. Abatement Corp., 39 F.3d 563, 568 (5th Cir. 1994) ("While it is generally true that timely filing of a notice of appeal will divest a court of jurisdiction, this rule presupposes that there is a final judgment from which to appeal . . . . As there is no right to appeal an interlocutory order, the notice of appeal . . . was simply premature and of no effect."); Plotkin v. Pac. Tel. & Tel. Co., 688 F.2d 1291, 1293 (9th Cir. 1982) ("it is firmly established that an appeal from an interlocutory order does not divest the trial court of jurisdiction to continue with other phases of the case"); First Korean Christian Church of San Jose v. Kim (In re First Korean Christian Church of San Jose), 567 B.R. 575, 578 (Bankr. N.D. Cal. 2017) ("an appeal from an interlocutory order is premature and does not transfer jurisdiction to the appellate court absent leave of that court") (citing In re Rains, 428 F.3d 893, 904 (9th Cir. 2005)). Neither the Trustee nor Mr. Portillo has contested the Court's jurisdiction to adjudicate this Adversary Proceeding. Venue is proper in this Court under 28 U.S.C. §§ 1408 and 1409.

II. Procedural Background.

A. The Main Bankruptcy Case.

On September 22, 2015 (the "Petition Date"), the Debtor filed for relief under Chapter 7 of the Bankruptcy Code commencing In re Kenneth Casey, Inc., Case No. 15-20621 TBM (Bankr. D. Colo.) (the "Main Case").^[4] On September 23, 2015, Jeffrey L. Hill was appointed in the Main Case to serve as Trustee for the Debtor's estate.^[5]

4

B. The Adversary Proceeding.

The Trustee initiated this Adversary Proceeding on April 12, 2021, by filing a "Complaint"^[6] against Mr. Portillo, Mr. Webb, and Dickensheet & Associates, Inc. ("Dickensheet & Associates"), seeking declaratory relief pursuant to Fed.R.Bankr.P. 7001. Specifically, the Trustee requested that the Court issue an order declaring that two Trustee's Deeds issued to Mr. Portillo are void because most of the real estate listed in the two Trustee's Deeds was not identified in the Sale Motion and the Sale Notice, and because its sale was not authorized by the Court in the Sale Order. The Trustee also requested declaratory judgment that a trustee's deed issued to Mr. Webb is valid and enforceable. Mr. Webb and Dickensheet & Associates have been dismissed as defendants from this Adversary Proceeding.^[7] Mr. Portillo filed an "Answer" in which he denied that the two Trustee's Deeds are void and requested a jury trial.^[8]The Court struck Mr. Portillo's jury demand.^[9] Thereafter, Mr. Portillo submitted an "Amended Answer and Counterclaim," again denying that the two Trustee's Deeds are void and asserting a counterclaim against the Trustee for "grossly negligent breach of fiduciary duty."^[10] The Trustee answered the counterclaim.^[11]

On October 11, 2021, the Trustee filed the "Plaintiff's Motion for Summary Judgment and Memorandum of Law in Support Thereof, "^[12] wherein the Trustee requested summary judgment in his favor on his declaratory judgment claim. Mr. Portillo submitted the "Defendant's Response Opposing Plaintiff's Motion for Summary Judgment and Memorandum of Law in Support Thereof."^[13]

On January 28, 2022, the Court entered its "Memorandum Opinion and Order Granting Trustee's Motion for Summary Judgment, "^[14] wherein the Court granted summary judgment in favor of the Trustee on the main substantive issue. Casey, 2022 WL 272630. The Court concluded the Summary Judgment Order as follows:

In an effort to narrow the issues for trial, the Trustee has requested summary judgment determining that: (1) the two Trustee's Deeds void; and (2) the Webb Deed is valid and enforceable. The Trustee met his summary judgment burden Accordingly, for the reasons set forth above, the Court

GRANTS the Motion for Summary Judgment and, in connection therewith

5

DECLARES that the two Trustee's Deeds are VOID, and

FURTHER DECLARES that the Webb Deed is valid and enforceable

However, the foregoing disposition does not resolve all the issues in this adversary proceeding. Having determined that the Trustee's Deeds issued by the Trustee to Mr. Portillo are void, questions concerning the proper remedy remain. For example, two of

...