In re Berg
| Decision Date | 24 May 1984 |
| Docket Number | Adv. No. 1-82-0235.,Bankruptcy No. 1-81-01211,BAP No. NC-82-1353-AsVE |
| Parties | In re Raymond H. BERG, Debtor. James E. BATEMAN, Plaintiff/Appellant, v. William G. GROVER, Defendant/Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Richard H. Travis, Jr., Travis & Travis, So. Lake Tahoe, Cal., for plaintiff/appellant.
Lynn Anderson Koller, Koller, MacConaghy & Owens, Emeryville, Cal., for defendant/appellee.
Before ASHLAND, VOLINN and ELLIOTT, Bankruptcy Judges.
The Chapter 7 trustee brought suit against the appellant James E. Bateman and other individuals to quiet title to a particular piece of real property. The bankruptcy court issued an order granting summary judgment in favor of the trustee and denying Bateman's cross motion for summary judgment. The court also issued a judgment which stated that Bateman had no right, title or interest in the particular real property. Bateman now contests the order and judgment of the bankruptcy court.
We vacate and remand.
At the outset of this appeal, a preliminary issue was raised as to whether the appellant had timely filed his notice of appeal from the bankruptcy court's judgment. After reviewing supplemental briefs on the issue, this Panel concluded that Rule 54(b) of the Federal Rules of Civil Procedure was applicable, and held that the appellant's notice of appeal was timely. That issue is fully discussed in a separate Memorandum and Order issued by this Panel in November, 1983. We now proceed with the merits of the case.
Appellant's interest in the property
In January, 1975 Daryl R. Berg and Natalie Jennifer Berg were the apparent owners of the parcel in question. On January 24, 1975 the Bergs executed a deed of trust in favor of T.D. Arnold. The deed of trust was apparently to secure an indebtedness of $40,000, and was recorded February 28, 1975.
On February 22, 1978 a Notice of Default under the terms of the deed of trust was recorded. Then on May 8, 1979 an instrument was recorded which substituted M.W. Burton as trustee under the deed of trust. On June 8, 1979 Bateman purchased the property from M.W. Burton at a trustee's sale, apparently as a result of the Berg's default under the deed of trust. Bateman did not record his deed at this time. It should be noted that no Notice of Trustee's Sale was recorded, although such notice was published.
The debtor's interest in the property
In September, 1980 Gordon T. Chestnut and Nellie O. Bell were judgment creditors of the bankruptcy debtor Raymond H. Berg. They instituted an action in state court against Daryl and Natalie Berg, Raymond Berg, T.D. Arnold, M.W. Burton and others. They alleged that this piece of real property was really owned by Raymond Berg, their judgment-debtor. They contended that through fraudulent conveyances Raymond Berg had arranged for title to the property to be held in the name of others to keep it out of the reach of Raymond Berg's creditors. The Superior Court of California issued a judgment on March 26, 1981 which held that Raymond Berg was the true owner of the fee interest in the real property. The judgment also declared that Raymond Berg was the true owner of the beneficial interest granted to T.D. Arnold under the deed of trust. The judgment further allowed the plaintiffs Gordon T. Chestnut and Nellie O. Bell to levy against the interest of Raymond Berg. It should be noted that Bateman was not a party to this action, presumably because his deed was not reflected in the title reports prepared in September, 1980.
The trustee's interest in the property
Raymond Berg had previously filed bankruptcy on June 11, 1975 in the Northern District of California. That case was closed on July 31, 1977. The property in question here was not involved in his previous bankruptcy because, at that time, title stood in the name of Daryl and Natalie Berg. On June 4, 1981, Raymond Berg applied to the bankruptcy court to reopen his case. An order was issued the same day reopening the estate. Nevertheless, on August 27, 1981 Raymond Berg filed a bankruptcy petition in the Eastern District of California. In September, 1981 the newly initiated case was transferred to the Northern District and consolidated with the now reopened case. It appears from the record that the trial court treated this case as one under the Bankruptcy Code.
On November 21, 1981 Bateman recorded his trustee's deed to the property.
On April 26, 1982 the bankruptcy trustee of the debtor's estate instituted a quiet title action against Bateman, Daryl and Natalie Berg, and T.D. Arnold in the bankruptcy court. The complaint alleged that the debtor's estate was the owner of the parcel, by operation of law, as a result of the Superior Court judgment. In July, 1982 the trustee brought a motion for summary judgment alleging, as against Bateman, that the trustee could avoid Bateman's interest in the property under § 544(a)(3). Bateman filed a cross motion for summary judgment. The bankruptcy court granted the trustee's motion, denied Bateman's motion, and issued a judgment to the effect that Bateman had no interest in the property. Bateman filed his Notice of Appeal to this Panel.
While this appeal was pending, the trustee obtained an order from the court authorizing the sale of the subject property. That sale has been consummated, and the proceeds have been disbursed by the trustee for payment of administrative expenses. A chronology of events is attached as an Appendix.
1. Is this appeal moot since the property has been sold and the proceeds distributed?
2. Was the trial court incorrect in its application of § 544(a)(3)?
3. Does California state law require a ruling in the trustee's favor?
The trustee contends that the subsequent sale of the property makes this appeal moot. He contends that Bateman failed to obtain a stay pending appeal and thereby foreclosed his remedy. The trustee points to former Rule 805 and its successor Rule 8005 for the proposition that an appellate court cannot set aside an order authorizing the sale of property if the appellant failed to obtain a stay pending appeal. The problem with this argument is that Bateman is not appealing the order authorizing sale of the property. He is appealing the order of the court quieting title in the trustee. Thus, Rule 805 or 8005, is inapplicable by a literal reading of its terms.
The trustee also argues that this appeal should be dismissed as moot because it would be inequitable to undo the sale at this late date. Appellant rejects this, stating that the court can require the trustee to pay a sum which would represent his share of the proceeds derived from the sale.
We conclude that this appeal is not rendered moot by the subsequent sale of the property. The appellant's failure to obtain a stay pending appeal may preclude a revesting of title to the property, but it does not preclude an award of damages to the appellant. See, Foreman & Clark Corp. v. Fallon, 3 Cal.3d 875, 479 P.2d 362, 367, 92 Cal.Rptr. 162, 167 (1971).
There seems to be no question that Bateman held good title to the property even though the title of his grantor was later voided. Bateman argues that he is a bona fide purchaser under California laws, and the trustee does not dispute that. The trustee contends that Bateman's interest is avoidable under § 544(a)(3).
Section 544(a)(3) provides that, upon the filing of the case, the trustee attains the status of a hypothetical bona fide purchaser and can avoid any transfer of the debtor's property that is unperfected on the date of filing. The trustee contends that Superior Court judgment had the effect, by operation of law, of making this property of the debtor's estate. He further argues that since Bateman's deed was unrecorded at the time of the bankruptcy filing, he can avoid the transfer of the property to Bateman.
Bateman argues that, while his deed was unrecorded, the trustee was still on constructive notice (and a bona fide purchaser would also be on such notice) that someone may have an interest in the property. He points to the Notice of Default and Substitution of Trustee which were reflected in the title report and suggests that these items would put a bona fide purchaser on notice of a possible conveyance of the property.
The trial court impliedly found that the trustee was not put on constructive notice of Bateman's interest. At the outset, we note an issue which was not raised by the parties, i.e., whether the trial court erred in treating this piece of real property as an asset of the debtor's estate in the Bankruptcy Code case.
In June, 1975 Raymond Berg filed bankruptcy under the Bankruptcy Act of 1898. His case was closed in July, 1977. The property in question here was not administered in his Act bankruptcy because title stood in the name of Daryl and Natalie Berg. Daryl and Natalie acquired record title to the property in January, 1975. In March, 1981 the California Superior Court determined that Daryl and Natalie acquired title to the property via a fraudulent conveyance from Raymond Berg. The date on which Daryl and Natalie acquired title is presumably the date of the fraudulent conveyance. It appears, therefore, that this piece of property should have been administered through Raymond Berg's Act bankruptcy, and presumably would have been administered had its existence been disclosed.
"When new assets are discovered following the close of a bankruptcy case the proper procedure is to apply to the bankruptcy court to reopen the case pursuant to Bankruptcy Rule 515, for...
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