In re Jenkins
| Decision Date | 03 June 1987 |
| Docket Number | Adv. No. 85-0025G.,Bankruptcy No. 82-00261G,82-00262G |
| Parties | In re B. Cleo JENKINS, Wauka, Inc., Debtors. B. Cleo JENKINS and Wauka, Inc., Plaintiffs, v. Donald SOSEBEE and Counte Cooley, Defendants. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia |
Troy R. Millikan, Gainesville, Ga., for debtors/plaintiffs.
Richard N. Hubert, Atlanta, Ga., for Counte Cooley.
Jack M. Carey, Sartain & Carey, Gainesville, Ga., for Donald Sosebee.
This matter is before the court upon the complaint of plaintiff-debtors against defendants Donald Sosebee and Counte Cooley to compel Donald Sosebee to turn over funds to complete the purchase of certain real property and to terminate Counte Cooley's alleged interest in that property. Debtor subsequently amended the complaint and added Wauka Communications, Inc. as a party defendant. Based upon the evidence and argument presented at trial January 30, 1987, and pursuant to Bankruptcy Rule 7052, the court's findings of fact and conclusions of law are as follows.
Debtors, B. Cleo Jenkins, d/b/a Jenkins and Associates, d/b/a Paradise Homes and d/b/a Freedom Homes, and June R. Jenkins, filed a Chapter 11 petition in this court on September 7, 1982 (Case No. 82-00261G). A Chapter 11 petition was also filed on behalf of debtor, Wauka, Inc. also on the same date (Case No. 82-00262G). At the time that the Chapter 11 petitions were filed, Lot 15, Wauka Mountain Subdivision, was titled in the name of the debtor, Wauka, Inc., as evidenced by a quitclaim deed from June R. Jenkins to Wauka, Inc., bearing a date of December 18, 1981 and recorded in the Hall County, Georgia, records on that date and in the White County, Georgia, records on October 5, 1983. Plaintiffs' Exhibit 2. At the bankruptcy filing, Lot 15 had passed into the exclusive jurisdiction of this court for administration pursuant to provisions of Chapter 11 of the Bankruptcy Code. Debtors filed plans of reorganization which, as ultimately amended, were duly confirmed by orders of the court entered March 10, 1983, in each respective case. Pursuant to the provisions of the amended plans, the debtor, Wauka, Inc., offered to sell certain properties including Lot 15, Wauka Mountain subdivision.
At public auction on September 24, 1983, Lot 15 was offered for sale and sold free and clear of any liens or restrictions, except those restrictions which were of record at filing, to defendant Donald Sosebee for a bid price of $44,000. Subsequent to the auction sale, defendant Counte Cooley learned for the first time that this property had been offered for sale. Due to a lack of notice, Cooley had not been accorded an opportunity to assert any claims, to exercise any rights or to take any action with regard to Lot 15 in the context of the sale pursuant to the confirmed plan.
On December 29, 1983, Cooley filed a response, in Case No. 82-00261G, to debtors' applications for approval of sale and for direction as to whom debtors were to convey Lot 15 in Wauka Mountain subdivision. The substance of the response was a challenge to the jurisdiction of the court, an assertion of a failure to state a claim, and a claimed right of first refusal relative to Lot 15, alleged to have been granted to Cooley in a deed and separate sales contract on Lot 16, Wauka Mountain Subdivision, between June Jenkins and Cooley. See Plaintiffs' Exhibit 14 (warranty deed — Lot 16); Defendant's Exhibit 1, page 2, paragraph 8 (sales contract — Lot 16). Although the deed to Lot 16 was filed of record July 28, 1981, in White County, Georgia, the sales contract, executed July 2, 1981, was not recorded. The contract remained unrecorded until December 3, 1985, some four years later and approximately 1 year and 3 months after commencement of the Chapter 11 cases. The Cooley response did not make any assertions of claims or interests relating to restrictions subsequently asserted herein. The court also notes that the Cooley response was filed in the individual Chapter 11 Case No. 82-00261G, but his brief bears the case style of both the individual and the corporate case of Wauka, Inc., Case No. 82-00262G.
After hearings and the submission of briefs, Bankruptcy Judge William L. Norton, Jr., the sitting bankruptcy judge at the time, entered an Order dated March 15, 1984, which bears a signed date of March 12, 1984, in which he recognized defendant Cooley's right of first refusal as a personal right. He ordered a new sale of Lot 15 and established a procedure that permitted Sosebee to make a further bid on Lot 15, and thereafter, afford Cooley an opportunity to exercise his right of first refusal. By Order entered March 30, 1984, which bears a signed date of March 23, 1984, Judge Norton entered a further Order modifying the Order of March 15, 1984, setting forth the procedures to be followed with regard to the further bidding and affording Cooley opportunity to exercise his right of first refusal. Judge Norton's Orders of March 15 and 30, 1984 bear the case styles of both cases and are applicable in both cases. 39 B.R. 734.
On March 30, 1984, the debtor filed a new application for leave to sell, seeking authorization of the court to sell the property to either Cooley or Sosebee, depending upon who was the successful bidder, with the sale to be approved and closed on April 27, 1984. Pursuant to the orders of Judge Norton, Sosebee made another, substantially increased, offer for Lot 15 in the sum of $100,000 dollars. Sosebee, in making his further bid upon Lot 15, did so upon the same terms and conditions as had been bid at the public auction, i.e., his bid was to purchase Lot 15 free and clear of liens and restrictions, except those restrictions of record. Upon receipt of that bid, counsel for the debtors communicated the bid to defendant Cooley for the purpose of affording him the opportunity to exercise his right of first refusal as provided by the orders of Judge Norton. Defendant Cooley did not exercise the right of first refusal.
Cooley filed a notice of appeal of Judge Norton's Order on April 5, 1984. Thereafter, on April 23, 1984, Cooley filed objections to confirmation of sale and an application to set aside sale. For the first time in this case, Cooley raised the issue of alleged restrictive covenants running with the land which he alleged would constitute further unrecorded restrictions upon Lot 15. These covenants were contained in the then unrecorded sales contract for Lot 16, executed July 2, 1981. See Defendant's Exhibit 1, page 3, paragraph 11. Cooley contended that he owned certain rights affecting the use of Lot 15 in that it is encumbered with a limitation and restriction on its use as it relates to certain specified commercial and telecommunications purposes. Further, Cooley alleged that certain bidders for Lot 15 intended to use the property for the installation of telecommunications equipment, contrary to the terms of the restrictive covenant by which he alleged they were duly bound. Cooley sought from the court a denial of confirmation of the sale of Lot 15 unless the present bidders specifically recognized the limitations contained in the subject covenant.
In considering and ruling upon the appeal of Judge Norton's Order, U.S. District Judge William C. O'Kelley, by order of August 21, 1984, affirmed the bankruptcy court's ruling on the validity of the right of first refusal. The Order of Judge Norton mentioned the restrictions that are the subject matter of the instant dispute, but no findings or conclusions were reached by the court regarding the restrictive covenant. In fact, his order makes no comment on the provision. Judge O'Kelley concluded that the matter was not properly before him because it had not been presented to the bankruptcy court, and declined to consider it.
Following the entry of Judge O'Kelley's Order of August 21, 1984, debtors, on September 4, 1984, filed a further application to sell Lot 15 to Donald Sosebee free and clear of unrecorded restrictions for the sale price of $100,000. This was the first pleading filed by debtors which specifically sought an order authorizing them to sell and convey Lot 15 free and clear of any unrecorded restrictions asserted by Cooley as contained in the sales contract. Defendant's Exhibit 1. Unfortunately, this matter was not heard and determined by Judge Norton before he resigned from the bench.
Thereafter, these cases were transferred to Bankruptcy Judge Hugh Robinson, who entered an Order on September 6, 1985, in which he dismissed the debtor's September 4, 1984 application to sell to Donald Sosebee. Judge Robinson essentially found that the successful bidder at a bankruptcy sale is bound by the doctrine of caveat emptor and his bid is subject to whatever restrictions exist. For that and other reasons stated in the order, including Sosebee's actual knowledge at the time of his second bid, Judge Robinson declined to interpret the Jenkins-Cooley contract or address debtors' application. This case was subsequently transferred to the undersigned on or after January 1, 1986.
This court finds that the September 4, 1984 application, in the first instance, was an attempt to obtain an adjudication on the merits of the claims of the objecting party, in this case Cooley, without the necessity of complying with applicable rules and procedure of this court. To the extent the application sought adjudication of the validity, priority or extent of a lien or "other interest in property" it is an adversary proceeding governed by "Part V. Adversary Proceedings" of the Bankruptcy Rules. See Rule 7001. However, this issue does not appear to have been raised before Judge Robinson. In his Order, Judge Robinson did not address the application filed by debtors on March 30, 1984, nor the objection to the sale and application to set aside the sale, filed by Cooley on April 23, 1984. Those issues have now been...
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