In re Fjeldsted

• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit
• Writing for the Court: Marlar
• Citation: In re Fjeldsted, 293 B.R. 12 (B.A.P. 9th Cir. 2003)
• Decision Date: 30 April 2003
• Docket Number: BAP No. CC-02-1191-MaPK.,Bankruptcy No. LA 01-44532 ES.
• Parties: In re Nancy M. FJELDSTED, Debtor. Nancy M. Fjeldsted; Damon Lamont Hobdy, Appellants, v. Peter Lien; Nancy Curry, Chapter 13 Trustee; United States Trustee, Appellees.

Page 12

293 B.R. 12

In re Nancy M. FJELDSTED, Debtor Nancy M. Fjeldsted; Damon Lamont Hobdy, Appellants, v. Peter Lien; Nancy Curry, Chapter 13 Trustee; United States Trustee, Appellees.

BAP No. CC-02-1191-MaPK.

Bankruptcy No. LA 01-44532 ES.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted on January 23, 2003.

Filed April 30, 2003.

COPYRIGHT MATERIAL OMITTED

Damon L. Hobdy, Law Offices of Damon Lamont Hobdy, Pasadena, CA, for Nancy M. Fjeldsted.

Before: MARLAR, PERRIS and KLEIN, Bankruptcy Judges.

OPINION

MARLAR, Bankruptcy Judge.

INTRODUCTION

The chapter 13¹ debtor has appealed the court's decision to annul the automatic stay retroactively for "cause" under § 362(d)(1),² in order to validate an otherwise void, postpetition foreclosure sale of the debtor's residence to a good faith purchaser for value and without notice of the bankruptcy ("bona fide purchaser"). The debtor's attorney, Damon Lamont Hobdy ("Hobdy"), has also appealed a $600 sanction.

We conclude that a determination of whether or not to annul the automatic stay and thereby grant retroactive relief requires the court to balance the equities, and that bona fide purchaser status alone is not cause to validate a sale. We are also bound by Value T Sales, Inc. v. Mitchell (In re Mitchell), 279 B.R. 839 (9th Cir. BAP 2002), an opinion decided after entry of the bankruptcy court's judgment, which held that bona fide purchaser status under § 549(c) is not an exception to the automatic stay.

We also clarify that a Ninth Circuit court "balances the equities in order to determine whether retroactive annulment is justified" — the test set forth in Nat'l Envtl. Waste Corp. v. City of Riverside (In re Nat'l Envtl. Waste Corp.), 129 F.3d 1052, 1055 (9th Cir.1997), cert. denied, 524 U.S. 952, 118 S.Ct. 2368, 141 L.Ed.2d 736 (1998), and that the standard is not "extreme circumstances," which is at odds with the court's broad exercise of its discretion.

Therefore, we REVERSE and REMAND the stay relief order. We also REVERSE and REMAND the sanction order, as the sanction was imposed without adequate due process.

FACTS

Before she filed her instant chapter 13 case, Nancy M. Fjeldsted's ("Debtor") prior chapter 13 case was dismissed, without a bar to refiling, on November 7, 2001. A foreclosure sale of Debtor's home was then noticed by Bank of America ("Bank") for November 19, 2001, at 11:00 a.m. At 10:11 a.m. that morning, Debtor filed a new chapter 13 petition. It was undisputed that Hobdy informed the Bank's foreclosure trustee of Debtor's bankruptcy filing prior to the scheduled sale.

The foreclosure trustee then gave notice to Trustee Assistance Corporation ("TAC"), which was conducting the sale, advising it to postpone the sale due to a new bankruptcy filing. Consistent with protocol, the auctioneer then announced to all persons present, sometime between 11:05 a.m. and 11:30 a.m., that the sale was being postponed until 1:00 p.m. that afternoon due to a bankruptcy filing.

Peter Lien ("Lien"), who purchases foreclosed properties, and his broker Eric Yu ("Yu") testified that they arrived at the sale about 11:30 a.m. Yu asked the auctioneer about the sale and was told simply that it had been postponed until 1:00 p.m. that day. Lien and Yu then went to lunch and returned at 1:00 p.m. Lien and Yu further testified that they were not present for the announcement and did not know, prior to the sale, about Debtor's bankruptcy.

Notwithstanding the bankruptcy filing, the sale went forward at 1:00 p.m. on November 19, 2001, and Lien was the successful purchaser, paying $307,000 for the property. Lien then recorded the trustee's deed eight days later, on November 27, 2001.

A few weeks later, Debtor filed a complaint against the Bank, TAC, Lien, and others to set aside the trustee's sale, for cancellation of the trustee's deed, and for other relief. Debtor alleged that the sale violated the automatic stay and was void.

Believing himself to be the rightful owner, Lien moved for stay relief. He also alleged bad faith on the part of Debtor in filing the petition.

Debtor opposed the motion. She filed the auctioneer's declaration in which he stated: "I recall a Mr. Peter Lien being present at the time I announced the reasons for the postponement, because in selling the property to Mr. Lien at approximately 1:00 p.m., I recall him also being present at approximately 11:00 a.m." Decl. of Garth Russell (Jan. 17, 2002), ¶ 4, at 1. The question whether Lien was a bona fide purchaser therefore became a disputed issue.

At an initial hearing on the stay relief motion, the court announced its tentative ruling to annul the stay on the grounds that Lien was a bona fide purchaser.³ The court cited § 549(c), which provides, in pertinent part, that a bankruptcy trustee may not avoid a postpetition transfer of real property "to a good faith purchaser without knowledge of the commencement of the case and for present fair equivalent value ...." 11 U.S.C. § 549(c).⁴ However, the court found there was a factual dispute concerning whether Lien had knowledge of Debtor's bankruptcy filing prior to his purchase of the property. The court then set an evidentiary hearing on the issue of Lien's bona fide purchaser status.

At the same initial hearing, Hobdy and the bankruptcy judge discussed some of Hobdy's allegations. The court warned Hobdy that his opposition papers were "full of wild allegations that don't have any support" and that he was "walking a fine line ... in terms of sanctions." Tr. of Proceedings (Jan. 15, 2002), at 20.

At the later evidentiary hearing, the auctioneer changed his testimony and stated that he was unsure whether Lien was present at the time of the postponement announcement, emphasizing that he only recalled Lien being present at "approximately" 11:00 a.m. Tr. of Proceedings (Feb. 8, 2002), at 81, 87. Therefore, the auctioneer's testimony no longer contradicted Lien's.

Lien then testified that he had attended hundreds of auctions in the past five years, and that it was not unusual for a sale to be postponed or cancelled. He further testified that he did not think it was necessary or important to inquire of the auctioneer as to why the sale of Debtor's property had been postponed until 1:00 p.m. Yu, who had also attended about a hundred auctions, corroborated Lien's testimony that postponement was a common occurrence and that it was not important to ascertain the reason for the postponement of this sale.

The court ultimately found that (1) neither Lien nor Yu were present for the postponement announcement, (2) they learned about the two-hour postponement when they arrived but were not told the reason for such postponement, and therefore, (3) they had no actual notice or knowledge of Debtor's bankruptcy filing before Lien's purchase. Nevertheless, the court asked the parties to brief whether the postponement of the foreclosure sale had put Lien on inquiry notice.

At the continued evidentiary hearing, Debtor argued that Lien was not a bona fide purchaser because he learned about the bankruptcy before he recorded the trustee's deed. However, the court ruled that only Lien's knowledge at the time of the foreclosure sale was relevant. The court also ruled that Lien perfected his title because, under California law, the deed was deemed recorded on the day of the foreclosure sale because it had been recorded within 15 days thereafter. See Cal. Civ.Code § 2924h(c).⁵

Concerning the issue of Lien's inquiry notice, the court found that a two-hour delay of a trustee's sale would not reasonably be considered to be caused by a bankruptcy filing. The court concluded that Lien's bona fide purchaser status justified annulment of the stay and validation of the sale as to Lien.⁶ Before entering judgment, however, the court asked for briefing on the issue of compensation to Lien for his loss of use of the property.

Also prior to the entry of judgment, Debtor moved for reconsideration of the court's ruling. At the hearing thereon, on March 25, 2002, the court denied the motion as frivolous and stated that she believed it misstated the court's ruling. The hearing then took an unfortunate turn for Hobdy: when he attempted to explain his pleading to the court, the court lost patience with him, and sanctioned him $500. When he attempted once more to speak, the court imposed another $100, for a total sanction of $600.

The orders annulling the stay and imposing sanctions were entered on March 25 and 26, 2002, respectively, and were timely appealed.

ISSUES

1. Whether we have jurisdiction over the order annulling the stay, when a separate order denying the premature motion for reconsideration was not entered.

2. Whether the finding that Lien was a bona fide purchaser was clearly erroneous.

3. Whether bona fide purchaser status, standing alone, constitutes either an exception to the stay, under § 549(c), or "cause" to annul the automatic stay pursuant to § 362(d)(1).

4. Whether the court abused its discretion in imposing sanctions against Hobdy.

STANDARDS OF REVIEW

The court's decision to grant retroactive relief from the automatic stay is reviewed for an abuse of discretion. Nat'l Envtl. Waste Corp., 129 F.3d at 1054. The reviewing court must give due regard to the opportunity of the bankruptcy court to judge the credibility of the witnesses. Fed. R. Bankr.P. 8013. Under this standard, the bankruptcy court will be reversed only if it based its ruling upon an erroneous view of the law or a clearly erroneous assessment of the evidence. See Jewett v. Shabahangi (In re Jewett), 146 B.R. 250, 251 (9th Cir. BAP 1992).

To the extent the court interpreted the Bankruptcy Code, its legal conclusions are subject to the de novo standard of review. See Taylor v. Tsafaroff (In re Taylor), 884 F.2d 478, 480 (9th Cir.1989).

The bankruptcy court's imposition of sanctions pursuant to Fed. R. Bankr.P. 9011 or under its inherent authority is also...