In re BFP

• Decision Date: 05 November 1991
• Docket Number: BAP No. CC-90-1712-JVP,Adv. No. SA-89-0977-JR.,Bankruptcy No. SA-89-06771-JR
• Citation: 132 BR 748
• Parties: In re BFP, a Partnership, Debtor. BFP, a Partnership, Appellant/Plaintiff, v. IMPERIAL SAVINGS & LOAN ASSOCIATION, a California corporation, Appellee/Defendant.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

132 B.R. 748 (1991)

In re BFP, a Partnership, Debtor BFP, a Partnership, Appellant/Plaintiff, v. IMPERIAL SAVINGS & LOAN ASSOCIATION, a California corporation, Appellee/Defendant.

BAP No. CC-90-1712-JVP, Bankruptcy No. SA-89-06771-JR, Adv. No. SA-89-0977-JR.

United States Bankruptcy Appellate Panel, for the Ninth Circuit.

Argued and Submitted March 20, 1991.

Decided November 5, 1991.

Roy Woolsey, Newport Beach, Cal., for appellant/plaintiff.

Edward G. Schloss, Los Angeles, Cal., for appellee/defendant.

Before JONES, VOLINN and PERRIS, Bankruptcy Judges.

OPINION

JONES, Bankruptcy Judge:

Appellee/Defendant Imperial Savings & Loan Association ("Imperial") sold real property at a foreclosure sale. Thereafter Appellant/Plaintiff BFP filed its Chapter 11 petition and brought an adversary suit to avoid the sale as a § 548(a)(2) transfer for less than reasonably equivalent value. Imperial moved for and was granted summary judgment. BFP appealed. We AFFIRM.

BACKGROUND

In 1987 several parties got together to buy the home of Sheldon and Ann Foreman in Newport Beach, California, planning to remodel and sell it. Wayne Pedersen was to be the purchaser, but after the property entered escrow the agreement was orally changed. Instead of Wayne Pedersen being the sole buyer, a partnership, BFP, was formed.¹ On August 27, 1987, the Foremans deeded the property to Wayne and Marlene Pedersen, who on the same day deeded the property to BFP. Wayne Pedersen borrowed $356,250² from Imperial and BFP borrowed $200,000³ from the Foremans to make the purchase — both loans were secured by deeds of trust.

Despite the fact that the Pedersens had conveyed the property to BFP, they subsequently conveyed the property to another entity, Off-Road Vehicles — Recreation & Family Campground, Inc. ("Off-Road"). BFP and the Foremans brought suit against Off-Road in state court to quiet title.

Before the state court could decide the case, Imperial entered a notice of default under the first deed of trust and scheduled a properly noticed foreclosure sale. Off-Road prevented the sale by filing an involuntary Chapter 11 petition against BFP. BFP moved to dismiss the involuntary petition, and Imperial moved to lift stay. Both motions were granted on or about June 14, 1989, and the subject property was sold to third parties at a foreclosure sale, apparently without further notice, on July 12, 1989.

Three months later the state court ruled on the quiet title action, rescinding the conveyance between the Foremans and the Pedersens. Thereafter BFP filed a voluntary Chapter 11 petition and brought the instant adversary suit seeking to nullify the foreclosure sale as a transfer for less than reasonably equivalent value under § 548(a)(2).

Imperial moved for summary judgment. The bankruptcy court granted the motion, holding that reasonably equivalent value was received at the foreclosure sale and that the foreclosure sale was "regularly conducted."⁴

ISSUE

Whether the bankruptcy court erred in granting Imperial's motion for summary judgment, holding that reasonably equivalent value was received at the foreclosure sale.

STANDARD OF REVIEW

We review the granting of a motion for summary judgment de novo. E.g., In re Kirkland, 915 F.2d 1236, 1238 (9th Cir. 1990). We review issues of fact for clear error, and conclusions of law de novo. Pullman-Standard v. Swint, 456 U.S. 273, 277, 102 S.Ct. 1781, 1784, 72 L.Ed.2d 66 (1982); Vesey v. United States, 626 F.2d 627, 629 (9th Cir.1980).

DISCUSSION

Reasonably Equivalent Value

BFP argues that the foreclosure sale should be invalidated or damages awarded pursuant to § 548(a)(2). BFP argues that the subject property was worth in excess of $700,000, and that the sale price of $433,000 was not reasonably equivalent value.

The BAP has previously held:

A non-collusive and regularly conducted nonjudicial foreclosure sale prior to the filing of a bankruptcy case cannot be challenged as a fraudulent conveyance because the consideration received in such a sale establishes "reasonably equivalent value" as a matter of law.

In re Madrid, 21 B.R. 424 (9th Cir.BAP 1982), aff'd, 725 F.2d 1197 (9th Cir.1984), cert. denied, 469 U.S. 833, 105 S.Ct. 125, 83 L.Ed.2d 66 (1984).⁵ In other words, the price received at the foreclosure sale is, by definition, reasonably equivalent value unless the foreclosure sale is not "regularly conducted," or unless there is collusion.

Regularly Conducted Foreclosure Sale

BFP argues that it did not receive proper notice of the foreclosure sale.⁶ Since the bankruptcy case had been dismissed, proper notice is determined by looking to California law.

The bankruptcy court made the following findings of fact with respect to the foreclosure sale:

A Notice of Default was recorded on July 29, 1988. A Trustee\'s sale was originally scheduled for December 29, 1988. Notice of the Sale was published for three consecutive weeks as required by the laws of the State of California.

* * * * * *

Imperial did not have any business relationship with the third party purchasers at any time prior to the Trustee\'s Sale of the subject property, nor did Imperial receive any benefit by virtue of the fact that the property was purchased by a third party at the Trustee\'s Sale.

Appellant's Excerpts at 244-45. BFP does not challenge these findings, but merely states that it received no notice. Pursuant to California law, publication for three consecutive weeks is sufficient notice, even under the facts of this case where the sale was postponed due to bankruptcy, and not renoticed after bankruptcy. See Lupertino v. Carbahal, 35 Cal.App.3d 742, 746-747, 111 Cal.Rptr. 112, 115 (1973).

BFP next argues a kind of estoppel, stating that it was misled by Imperial into believing that the foreclosure sale would not be held until the state court proceedings had concluded:

Russell Barton\'s declaration showed that after the hearing on the involuntary petition (the prior petition) filed by Off-Road, he heard the attorney for appellee Imperial say that they would not have the foreclosure sale until after the hearing in the pending quiet title action set for July 17, 1989. . . .

Appellant's Opening Brief at 11. Such an argument does not state a claim for estoppel. Furthermore, Imperial denies that there was a verbal agreement, and further argues that a verbal agreement to continue a trustee's sale is unenforceable under California law. Appellee's Opening Brief at 22-23. (quoting Karlsen v. American Sav. & Loan Ass'n, 15 Cal.App.3d 112, 121, 92 Cal.Rptr. 851, 856 (1971)).

BFP has failed to show that the bankruptcy court erred in concluding that reasonably equivalent value was given for the subject property. Therefore, the bankruptcy court order granting summary judgment is AFFIRMED.

VOLINN, Bankruptcy Judge, dissenting:

Relying on the majority ruling in In re Madrid, 21 B.R. 424 (9th Cir.BAP 1982), aff'd on other grounds, 725 F.2d 1197 (9th Cir.1984), cert. denied, 469 U.S. 833, 105 S.Ct. 125, 83 L.Ed.2d 66 (1984), the majority here restates the view that a non-collusive and regularly conducted nonjudicial foreclosure sale creates in effect an irrebuttable presumption that the consideration received at such a sale is "reasonably equivalent value" for purposes of Bankruptcy Code § 548(a)(2).¹ While stare decisis does not require us to follow the BAP ruling in Madrid since that ruling was not adopted by the Circuit on appeal, it is appropriate that the reasoning of that ruling be considered, as evidenced by the majority in the matter before us.²

Since the issuance of this Court's 1982 opinion in Madrid, a substantial body of case law has developed in relation to the meaning of the term "reasonably equivalent value" under Code § 548(a)(2). There have emerged three approaches. The first is that articulated by the Bankruptcy Appellate Panel's Madrid majority in its 1982 decision. A number of bankruptcy courts and one circuit court have followed the BAP's approach on the § 548(a)(2) question. In the Matter of Winshall Settlor's Trust, 758 F.2d 1136 (6th Cir.1985); In re Verna, 58 B.R. 246 (Bankr.C.D.Cal.1986); In re Upham, 48 B.R. 695 (Bankr. W.D.N.Y.1985); and In re Strauser, 40 B.R. 868 (Bankr.N.D.Ohio 1984).³

The second line of cases follows the Fifth Circuit's decision in Durrett v. Washington Nat'l Ins. Co., 621 F.2d 201 (5th Cir. 1980), a case decided under § 67(d) of the prior Bankruptcy Act. This superseded section held that a fraudulent transfer was one where the debtor did not receive "fair consideration," as opposed to the Code's use of the term "reasonably equivalent value." The trial court had found no fraudulent conveyance in a foreclosure sale price which was 57.7% of fair market value. The Fifth Circuit reversed and noted that it found no case in which a court had approved a transaction where property sold for less than 70% of fair market value. This reasoning has come to stand for a somewhat mechanical analysis of determining whether the price paid at a foreclosure sale is "an acceptable percentage of the fair market value of the property." In re Bundles, 856 F.2d 815, 820 (7th Cir.1988). The Durrett court's approach has been followed by courts outside the Fifth Circuit. E.g., In re Thrifty Dutchman, Inc., 97 B.R. 101 (Bankr.S.D.Fla.1988); In re Cole, 81 B.R. 326 (Bankr.E.D.Pa.1988); Matter of IPI Liberty Village Assoc., 92 B.R. 882 (Bankr.W.D.Mo.1987).

The third line of cases may now be described as the majority position. The leading case is In re Bundles, 856 F.2d 815 (7th Cir.1988). That case reflects, in my view, what should be the law the in this area. The Seventh Circuit held:

In our view, in defining reasonably equivalent value, the court should neither grant a conclusive presumption in favor of a purchaser at a regularly conducted, non-collusive foreclosure sale, nor limit its inquiry to a simple comparison of the sale price to the fair market value. Reasonable equivalence should depend on all the

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