In re Rafter Seven Ranches L.P.
| Citation | 414 B.R. 722 |
| Decision Date | 17 September 2009 |
| Docket Number | Bankruptcy No. 05-40483.,BAP No. KS-08-070.,BAP No. KS-08-071. |
| Parties | In re RAFTER SEVEN RANCHES L.P., Debtor. Rafter Seven Ranches L.P., Appellant, v. WNL Investments L.L.C. and Duane Koster, Appellees. In re Rafter Seven Ranches L.P., Debtor. Rafter Seven Ranches L.P., Appellant, v. WNL Investments, L.L.C. and Duane Koster, Appellees. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Tenth Circuit |
William E. Metcalf, Topeka, KS, for Appellant.
Timothy H. Girard, Woner, Glenn, Reeder, Girard & Riordan, P.A., Topeka, KS, for Appellee WNL Investments, L.L.C.
Robert L. Baer, Cosgrove, Webb and Oman, Topeka, KS, for Appellee Duane Koster.
Before BROWN, THURMAN, and ROMERO, Bankruptcy Judges.
Debtor-Appellant, Rafter Seven Ranches L.P. ("Debtor") appeals two orders of the bankruptcy court. First, Debtor appeals the court's refusal to award Debtor damages for alleged violations of the automatic stay by Appellees WNL Investment, L.L.C. ("WNL") and Duane Koster ("Koster"). For the reasons set forth below, we affirm the bankruptcy court's ruling that Debtor is not entitled to damages under either 11 U.S.C. § 362 or § 105. Debtor also appeals the bankruptcy court's grant of WNL's motion to enforce a settlement agreement between the parties. We dismiss Debtor's appeal of that order as moot.
This is the second appeal before this Court involving a court-approved settlement agreement between Debtor and WNL. That settlement agreement concerns three tracts of farmland located in Finney County, Kansas, referred to as "Tracts 1, 2 and 3." The land was formerly owned by Debtor and two trusts controlled by Debtor's majority owner and general partner, Michael Friesen. When Debtor and the trusts failed to pay real property taxes on the Tracts, tax foreclosure proceedings were initiated. WNL stepped in and purchased the Tracts and then leased them back to Debtor and the trusts, with an option to repurchase. When Debtor and the trusts failed to make the required lease payments, WNL issued a notice of default. To counter this move, the Debtor and the trusts filed Declarations of Equitable Interest with the Finney County recorder. WNL brought suit to quiet title. In response, the trusts abandoned their claims of interest in the properties, but Debtor filed a Chapter 12 petition on March 7, 2005.1 WNL moved for relief from the automatic stay to proceed against the properties.
The parties ultimately reached a settlement agreement. In general terms, their agreement provided that WNL would be deemed the "absolute owner" of all three Tracts, and Debtor would pay WNL $240,000 on or before July 15, 2006. If WNL received timely payment in full, it would deed all three Tracts back to Debtor, free and clear of any claims. If the Debtor defaulted on the settlement obligation, then WNL was authorized to sell as much of the property as necessary to recoup full payment. The agreement was embodied in a Stipulated and Agreed Order Approving Settlement Involving Rafter Seven Ranches, LP and WNL Investments, L.L.C. (the "Stipulated Order"), and a separate settlement agreement (collectively referred to as the "Agreement"). The bankruptcy court approved the Agreement. At that time, Judge Somers presided over Debtor's bankruptcy case.
As relevant to this appeal, the Agreement provided that:
[t]he parties acknowledge and agree as of the date of their stipulation and agreement, January 10, 2006, that WNL is and shall be the absolute owner of all legal and equitable title and interest in [the three Tracts]. The debtor, the trusts, and Friesen shall not do anything to cause any lien or encumbrance on the Real Estate.2
The Agreement also stated in paragraph 5(e) (hereinafter "¶ 5(e)") that if WNL ended up selling the Tracts, "[a]ll farm income generated from the Real Estate from and after January 11, 2006 shall be and is the sole and exclusive property of the debtor."3 When Debtor failed to meet its payment obligation by July 15, 2006, WNL proceeded to advertise Tract 1 for sale. In September 2006, Koster purchased Tract 1 at auction for $113,600. WNL then placed advertisements announcing the auction of the other two Tracts, to be held on October 31, 2006.
On October 23, 2006, Debtor filed a "Motion to Interpret the Agreement," which objected to WNL's proposed auction of Tracts 2 and 3 on the same day. Two days later, the bankruptcy court conducted an emergency hearing, during which the court orally denied Debtor's motion on the record. Debtor did not immediately appeal the bankruptcy court's oral ruling and so the auction proceeded as advertised on October 31. Koster was the successful bidder on both Tracts 2 and 3. The sale of Tract 2 eventually closed, but the sale of Tract 3 did not, for reasons discussed below. After the sale of Tracts 1 and 2, the Debtor still owed WNL approximately $48,000 toward the agreed settlement amount.
Immediately following the auction, Koster requested permission from WNL to commence farming operations on Tract 3, even though the sale had not officially closed. WNL granted permission and Koster, through Southwest Agriculture ("Southwest Ag"), a partnership in which Koster holds a one-seventh partnership interest, began farming Tract 3. Southwest Ag completed planting a wheat crop on Tract 3 in November 2006 (to be harvested in summer of 2007). Friesen was aware at the time that Tract 3 had been planted, but did not object at that time.4
On November 14, 2006, nearly three weeks after its oral ruling, the bankruptcy court entered a written order denying the Debtor's Motion to Interpret the Agreement. Debtor timely filed a motion to reconsider, which both WNL and Koster opposed. The bankruptcy court denied Debtor's reconsideration motion as well, and on December 27, 2006, Debtor filed its first notice of appeal to this Court. No party obtained a stay pending appeal. Nevertheless, WNL and Koster chose not to close the sale of Tract 3 due to the appeal. In the summer of 2007, while the first appeal was pending, Southwestern Ag proceeded to harvest the 2007 wheat crop on Tract 3. Again, Friesen was aware of the harvest, and even investigated who was working on Tract 3 because he believed Debtor had a right to the crop income, but voiced no objection at that time.5 Debtor contends it withheld comment at that time because this Court had not yet issued an opinion as to whether the Agreement permitted a stacked sale of Tracts 2 and 3 on the same day.
This Court issued its opinion in the first appeal on September 12, 2007. The opinion held that the sales of Tracts 2 and 3 should have occurred at least one day apart. Shortly after issuance of this Court's opinion, the bankruptcy court set a status conference for October 22, 2007, to determine the impact of this Court's opinion and ordered the parties to meet and confer concerning any remaining issues. Neither Debtor nor its counsel conferred with WNL or Koster concerning an alleged stay violation. Instead, on the Sunday night before the scheduled status conference, Debtor filed its Motion for Actual Damages, Attorney Fees, Costs and Punitive Damages Against Respondents for Violation of the Stay (as later amended, "Motion for Damages").6 The Motion for Damages asserted, for the first time, that WNL and Koster violated the stay by harvesting and selling the 2007 wheat crop from Tract 3, which Debtor claimed to be property of the estate. As a remedy, Debtor sought turnover of 100% of the gross income from the wheat crop, as well as attendant actual and punitive damages, attorney's fees and costs. In the alternative, Debtor sought an equitable order imposing sanctions under § 105. Debtor represented to the bankruptcy court that Debtor intended to use any damages awarded "to fund the purchase of Tract 3, and to then farm Tract 3 to fund a plan."7
The next day, October 22, 2007, Friesen sent a letter directly to Judge Somers, later docketed, asking Judge Somers to recuse himself from both the Debtor's and Mr. Friesen's bankruptcy cases, due to alleged bias.8 Judge Somers subsequently issued an order which found the letter procedurally deficient as a motion to disqualify and unlikely to succeed on the merits, but nevertheless returned the case to the clerk for reassignment to avoid further delays in the case.9 The court clerk assigned Judge Karlin to Debtor's case shortly thereafter.
A week later, on October 29, 2007, Friesen, on behalf of Debtor, filed a Notice of Suit Re: [Tract 3] with the Register of Deeds of Finney County. The Notice of Suit stated that 10 Mr. Friesen testified in his deposition that he filed the Notice of Suit essentially to cloud title on Tract 3,11 although Debtor now disputes such intent in this appeal. In response, WNL filed its Motion to Enforce Settlement Agreement, arguing Debtor's filing of the Notice of Suit violated the Agreement.12
After the parties filed cross-motions for summary judgment seeking resolution of the Motion for Damages, the bankruptcy court determined that an evidentiary hearing was necessary on two very limited issues about which there was a possible genuine issue of material fact: (1) the meaning of ¶ 5(e) concerning Debtor's right to income from the Tracts, and (2) whether there was any net income received from the 2007 crop on Tract 3. Prior to holding the hearing, the parties agreed to a scheduling order and conducted discovery. Disputes arose at the pretrial conference concerning Debtor's request to extend discovery deadlines and to amen...
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