In re Popp

• Decision Date: 24 February 2005
• Docket Number: Bankruptcy No. RS 01-27670 DN.,BAP No. CC-04-1071-MkMaMo.
• Citation: 323 B.R. 260
• Parties: In re Ronald Frederick POPP, Debtor. Rodney F. Darby, Appellant, v. P.J. Zimmerman, Chapter 7 Trustee, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

323 B.R. 260

In re Ronald Frederick POPP, Debtor Rodney F. Darby, Appellant, v. P.J. Zimmerman, Chapter 7 Trustee, Appellee.

BAP No. CC-04-1071-MkMaMo.

Bankruptcy No. RS 01-27670 DN.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted on November 18, 2004 at Pasadena, California.

Filed — February 24, 2005.

COPYRIGHT MATERIAL OMITTED

Elizabeth A. LaRocque, Goe & Forsythe, LLP, Newport Beach, CA, for Rodney Darby.

Wayne E. Johnson, Redlands, CA, for P.J. Zimmerman, Ch. 7 Trustee.

Before: MARKELL¹, MARLAR and MONTALI, Bankruptcy Judges.

OPINION

MARKELL, Bankruptcy Judge.

INTRODUCTION

Appellant Rodney Darby ("Darby") appeals from two bankruptcy court orders authorizing the sale of a 4.88 acre parcel of unimproved real property in Riverside County, California (the "Property"). The first order granted the Trustee's "Motion to Sell Real Property Under Section 363(f)" (the "Sale Motion"). The second denied Darby's "Motion for Reconsideration of the Sale Order" (the "Motion for Reconsideration").

Darby argues that both orders were error under Warnick v. Yassian (In re Rodeo Canon Dev. Corp.), 362 F.3d 603 (9th Cir.2004), because the trial court did not make sufficient findings that the estate had an interest in the Property that could be sold under Section 363.² Appellee P.J. Zimmerman, the chapter 7 trustee ("Trustee"), contends that the sale was proper under Rodeo. She also maintains that this Court does not have jurisdiction over Darby's appeal because Darby lacks standing, and that since the sale has already been consummated, the matter is moot.

We reverse.

FACTS

Darby holds a deed of trust on the Property recorded on October 4, 1995 (the "Deed of Trust"). The original debt secured by the Deed of Trust was stated as $20,000, which, with interest, had grown to $37,592.65 by the time the Trustee filed the Sale Motion.

The parties dispute title to the Property. Before the 1990s, the debtor in this case, Ronald Popp ("Popp"), had a 50% interest in the Property. From that point of seeming clarity, however, a chain of events and transactions began that has all the hallmarks of a crude, yet complex, shell game.³

The first relevant transfer occurred in May of 1995, when Popp and the other co-owners of the Property conveyed it to Investors Co-Op, a general partnership ("IC"). The partners in IC were Popp's father, Fred Popp (who died in February 1999), and Popp's girlfriend of 15 to 20 years, Deborah Turner ("Turner").

The next transfer occurred five months later, on October 2, 1995, when IC entered into a contract for deed to sell the Property to Darby⁴ for $40,000. Of this amount, Darby was to pay half at the time of contracting, with the remainder due "on or before" October 2, 1997. Darby's deposit was refundable if Darby did not complete the sale. To secure IC's contingent obligation to pay Darby an amount equal to the deposit, IC gave Darby a promissory note for $20,000, and secured it with the Deed of Trust.

Finally, on February 3, 1997, Darby signed yet another contract conveying his interest in the Property back to IC. This transfer was accomplished by quit claim deed subject to the Deed of Trust. The terms of this contract provided that interest would accrue on the amount secured by the Deed of Trust at an annual rate of 10%.⁵

Although Popp is not listed as a partner in IC's partnership agreement, that agreement gave him authority to sign binding contracts for IC. Indeed, Popp's signature purports to bind IC in all of the above transactions, except for the October, 1995 promissory note to Darby, which was executed by Turner on IC's behalf.⁶

In late 2001, Popp filed bankruptcy. On May 28, 2002, the Trustee filed an adversary proceeding seeking, among other remedies, a declaratory judgment that IC was an alter ego of Popp ("Alter Ego Adversary"). Popp, Turner, the estate of Popp's father, Popp's mother and IC were all named defendants.

The third cause of action in the Alter Ego Adversary sought a declaration that the Property was property of Popp's bankruptcy estate. It also sought an injunction against IC's further transfer of the Property. After a hearing, the court granted this request and entered a preliminary injunction against all defendants — including the record title holder, IC — prohibiting them from any sale or transfer of the Property.

In October 2003, before the Alter Ego Adversary was concluded, the Trustee filed the Sale Motion, which requested authority to sell the Property for $22,500. Essential to that motion was a finding that the Property belonged to Popp's bankruptcy estate. The Sale Motion thus constituted a proceeding parallel to, and in many respects duplicative of, the Alter Ego Adversary.

Darby, Popp, and Turner each opposed the Sale Motion. In particular, Darby objected on the grounds that the estate lacked title to the Property, and that the Property could not be sold free of his interest without paying him in full. The court overruled all objections and granted the Sale Motion on December 3, 2003 (the "Sale Order"). Although the court had before it the convoluted evidence sketched above, the full extent of the court's findings on ownership was that Popp's estate had "some interest in the property."⁷

Darby did not seek a stay of the Sale Order. The sale to the purchaser, Nancy R. Redding ("Redding"), was consummated, and the grant deed was recorded on December 23, 2003.⁸

On December 15, 2003, Darby filed the Motion for Reconsideration. The court heard this motion after recordation of the deed, and on January 26, 2004, the bankruptcy court denied it ("Reconsideration Order"). At that time, the bankruptcy court took evidence of Redding's good faith, and found that she was a good faith purchaser within the meaning of Section 363(m). Darby filed a Notice of Appeal from the Reconsideration Order on February 5, 2004.⁹ Redding is not a party to this appeal.

At oral argument, the parties informed the Panel that the Alter Ego Adversary was still pending, and that after the sale order was entered the trustee had added Darby to the list of defendants who she alleged were alter egos of Popp.

ISSUES

1. Does Darby lack standing to object to the sale because he is a lien holder and not an owner of the Property?

2. Was the maintenance of parallel proceedings, each seeking a determination that the estate had an interest in the Property, impermissible under Rodeo?

3. If the bankruptcy court improperly countenanced parallel proceedings, what, if any, remedy is appropriate and within this court's jurisdiction to grant?

STANDARD OF REVIEW

This court reviews "appeals from orders to sell property of the estate other than in the ordinary course of business pursuant to 11 U.S.C. § 363(b) for abuse of discretion." Rosenberg Real Estate Equity Fund III v. Air Beds, Inc. (In re Air Beds, Inc.), 92 B.R. 419, 422 (9th Cir.BAP1988) (citing Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1071 (2d Cir.1983); Big Shanty Land Corp. v. Comer Props., Inc., 61 B.R. 272, 277 (N.D.Ga.1985)). A court abuses its discretion if "`it does not apply the correct law or if it rests its decision on a clearly erroneous finding of material fact.'" United States v. Sprague, 135 F.3d 1301, 1304 (9th Cir.1998) (citation omitted). The reversal of an order for abuse of discretion requires "a definite and firm conviction that the court below committed clear error of judgment in the conclusion it reached upon weighing the relevant factors." Stine v. Flynn (In re Stine), 254 B.R. 244, 248 (9th Cir. BAP 2000) (citing In re Cortez, 191 B.R. 174, 177 (9th Cir. BAP 1995)). Similarly, this court will not reverse a finding of fact unless it is clearly erroneous. Sierra Steel, Inc. v. Totten Tubes, Inc. (In re Sierra Steel, Inc.), 96 B.R. 275, 277 (9th Cir. BAP 1989).

DISCUSSION

Standing

The Trustee claims that Darby, as a lien holder, does not have standing to appeal the Sale Order. Darby responds that the Sale Order had the type of direct and adverse pecuniary effect on him that is sufficient to give him standing. We agree with Darby.

"To have standing to appeal a decision of the bankruptcy court, an appellant must show that it is a `person aggrieved' who was `directly and adversely affected pecuniarily by an order of the bankruptcy court.'" McClellan Fed. Credit Union v. Parker (In re Parker), 139 F.3d 668, 670 (9th Cir.1998) (citing Fondiller v. Robertson (In re Fondiller), 707 F.2d 441, 442-43 (9th Cir.1983); Everex Sys., Inc. v. Cadtrak Corp. (In re CFLC, Inc.), 89 F.3d 673, 675 (9th Cir.1996)). A "person aggrieved" is someone whose interest is directly affected by the bankruptcy court's order, either by a diminution in property, an increase in the burdens on the property, or some other detrimental effect on the rights of ownership inherent in the property. In re Fondiller, 707 F.2d at 442-43.

Darby does not claim a fee interest or any residual ownership in the Property. Instead, he has a lien on the Property in the form of the Deed of Trust. The Trustee believes that this lesser property interest is insufficient to allow Darby to challenge the Trustee's proposed sale. We disagree.

It is instructive to examine the circumstances in which the Code and case law permit creditors and lien holders to object to a sale under Section 363 of the Code. With respect to creditors, case law permits any creditor to challenge transfers because of the estate's lack of the power to sell. Duckor Spradling & Metzger v. Baum Trust (In re P.R.T.C., Inc.), 177 F.3d 774, 778 (9th Cir.1999). With respect to lien holders, the Code supplements the list of challenges by allowing a secured creditor to object to a sale free and clear unless that secured creditor's claim is paid in full. 11 U.S.C. § 363(f)(3).

Darby's objection in the trial court included an objection that the Trustee did not own the Property, and that Darby's claim was not proposed to be paid in full. On...