Irvin, Matter of

• Decision Date: 20 December 1991
• Docket Number: No. 90-2619,90-2619
• Parties: 26 Collier Bankr.Cas.2d 152, Bankr. L. Rep. P 74,371 In the Matter of Gary J. IRVIN and Brenda Irvin, Debtors. Gary J. IRVIN, Appellant, v. LINCOLN HERITAGE LIFE INSURANCE COMPANY, Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1318

950 F.2d 1318

26 Collier Bankr.Cas.2d 152, Bankr. L. Rep. P 74,371

In the Matter of Gary J. IRVIN and Brenda Irvin, Debtors Gary J. IRVIN, Appellant, v. LINCOLN HERITAGE LIFE INSURANCE COMPANY, Appellee.

No. 90-2619.

United States Court of Appeals Seventh Circuit.

Argued April 17, 1991.

Decided Dec. 20, 1991.

Stephen A. Tagge and David A. Rolf (argued), Sorling, Northrup, Hanna, Cullen & Cochran, Springfield, Ill., for Lincoln Heritage Life Ins. Co., appellee.

Gordon W. Gates (argued), Londrigan, Potter & Randle, Springfield, Ill., for Gary J. Irvin, debtor-appellant and Brenda L. Irvin, debtor.

Before BAUER, Chief Judge, WOOD, Jr., and POSNER, Circuit Judges.

HARLINGTON WOOD, Jr., Circuit Judge.

Gary and Brenda Irvin filed their joint petition for bankruptcy on December 31, 1980, seeking Chapter 13 relief; in 1987 it became a Chapter 7 proceeding. The bankruptcy court, Judge Coutrakon, entered an order approving the final accounting on April 8, 1988, and entered a final judgment concluding the proceeding on July 18, 1988. In the interim, Mr. Irvin, the appellant here, offered to purchase from the bankruptcy estate his state court suit against Lincoln Heritage Life Insurance Co. ("Lincoln

                Heritage"), 1 the appellee here.   Mr. Irvin's suit, along with a counter-suit by Lincoln Heritage, had languished in the state trial court since it was filed July 18, 1980.   It was viewed by the trustee Gary Krueger and his attorney John Germeraad as well as Judge Coutrakon as of little value;  thus, the bankruptcy court approved its sale to Mr. Irvin for $250.   Mr. Irvin then began to pursue his action against Lincoln Heritage with new vigor.   Lincoln Heritage reacted by petitioning the bankruptcy court to reopen the bankruptcy proceeding and set aside the sale, claiming it had not received notice of the sale and had previously offered $7,500 to settle or purchase the suit.   The bankruptcy court ordered the proceeding reopened and set aside the sale without stating its reasons.   Mr. Irvin appealed to the district court which affirmed, and this appeal followed
                

JURISDICTION

The district court has "jurisdiction to hear appeals from final judgments, orders and decrees" of the bankruptcy court under 28 U.S.C. § 158(a), and this court in turn has "jurisdiction of appeals from all final decisions, judgments, orders, and decrees [of the district court] entered under" § 158(a). 28 U.S.C. § 158(a), (d). Initially, both parties relied exclusively on these two sections for appellate jurisdiction. At oral argument we questioned the finality of the order reopening the bankruptcy proceeding, although the parties did not.

The decision appealed must be final, but "the finality requirement is read much more flexibly in bankruptcy proceedings." In re Klein, 940 F.2d 1075, 1077 (7th Cir.1991) (citations omitted). In re Joslyn's Estate, 171 F.2d 159 (7th Cir.1948), is informative. There a bankruptcy judge granted a petition to reopen the proceeding and subsequently entered orders disposing of most matters. The case was then reassigned to a different judge who dismissed the original petition to reopen. On review, we found "the re-opening order was judicial, final and binding upon all parties." Id. at 164.

Here the bankruptcy court decided the substantive issue of whether to reopen the proceeding and set aside the confirmed sale. Were the order reopening the sale not reviewable at this juncture, any resale of the asset would be in considerable doubt. The district court would likely be asked not only to review the resale itself, but also to consider again whether the proceeding should have been reopened and the original sale set aside. We might then expect to be asked again to review the questions that are before us now. All the while the sale of the asset and the concomitant distribution of proceeds would remain uncertain. We find the order reopening the bankruptcy proceeding and setting aside the sale to be a final order in these circumstances, and, accordingly, we have jurisdiction.

BACKGROUND

Six months before filing for bankruptcy, Mr. Irvin initiated a state-court suit for damages against Lincoln Heritage, his former employer. That suit then became an asset of the bankruptcy estate. Because it had filed a counter-suit against Mr. Irvin, Lincoln Heritage was considered a contingent creditor and was included in the debtors' mailing matrix. Thus, on December 1, 1983, Lincoln Heritage, among others, was mailed the court's Order-Notice Fixing Time For Filing Claims. Lincoln Heritage did not respond and has not subsequently advanced the proposition that it was or is a claimant.

On October 15, 1987, Mr. Irvin's attorney wrote the trustee's attorney, extending an offer to purchase the pending state-court suit, and enclosed Mr. Irvin's money order for $250. The attorney wrote:

As you and I have discussed, Mr. Irvin has always had faith in this litigation but it is speculative and, most importantly, expensive since a great deal of discovery will be required on insurance company Apparently the trustee agreed; on October 22nd the trustee's attorney petitioned the bankruptcy court to approve the sale to Mr. Irvin of his own law suit. The court approved the sale the same day.

                records located in Arizona, and industry experts will undoubtedly be a necessary part of the litigation.   With that in mind, its value to the bankruptcy estate may be nil, and it is for all of these reasons that this offer is published
                

The bankruptcy proceeded toward its conclusion. The Notice of Hearing on Final Account of Trustee was mailed March 7, 1988; the final meeting of creditors took place April 7th; and the Order Approving Final Account and For Distribution was entered April 8th. The final decree was entered July 18, 1988, and the proceeding was closed.

Seven months later, however, Lincoln Heritage petitioned the bankruptcy court to reopen the estate and set aside the sale of the state-court law suit to Mr. Irvin. Paragraphs 5 and 6 of that motion state the two prongs of its complaint:

5. Lincoln Heritage Life Insurance Company, though a creditor of the estate and the defendant in the cause of action which was the subject of said sale, received no notice of the offer to purchase the asset or of the Petition for Approval of Sale, as required by section 363(b) of the Bankruptcy Code, 11 U.S.C. § 101 et. [sic ] seq., nor did Lincoln Heritage Life Insurance Company's attorney, R. Gerald Barris.

6. Prior to the time of the aforementioned Petition for Approval of Sale, negotiations for the settlement of the claim pending in Sangamon County Circuit Court occurred between Gary Krueger, as trustee for the bankrupt estate, and Lincoln Heritage Life Insurance Company, during which negotiations, Lincoln Heritage Life Insurance Company did offer $7,500.00 in settlement of said claim.

At the conclusion of a hearing on May 4th, the bankruptcy court granted Lincoln Heritage's motion without explanation. It reopened the proceeding and set aside the sale of the state-court suit. The record does not disclose what transpired at that hearing.

In his appeal to the district court Mr. Irvin claimed (1) Lincoln Heritage lacked standing to move either to reopen the estate or to set aside the sale, (2) there was insufficient evidence either to reopen the estate or to set aside the sale, (3) the motion was not timely, and (4) Lincoln Heritage was barred by laches. Lincoln Heritage disputed those contentions. The district court affirmed the bankruptcy court, finding that Lincoln Heritage was a party in interest, had standing, and was entitled to notice. The district court further held that the bankruptcy court could reopen the estate on its own motion, Lincoln Heritage was not barred by laches or want of timeliness, the evidence was sufficient, and, consequently, the bankruptcy court had not abused its discretion.

Except for laches, Mr. Irvin raises the same issues on appeal.

ANALYSIS

Having once confirmed the sale of an estate asset, a bankruptcy court has less discretion to set that order aside than it originally had in granting or denying the order. In re Chung King, Inc., 753 F.2d 547, 549 (7th Cir.1985). In both instances the standard of appellate review is whether there was an abuse of discretion, but the abuse threshold is higher for the original order. "The bankruptcy court's confirmation or refusal to confirm a sale only will be overturned in extreme cases if there has been an abuse of discretion...." Id. at 549. There is, as the court noted, a strong policy of finality that "protects confirmed sales unless 'compelling equities' outweigh the interests in finality." Id. at 550 (citations omitted). Consequently, "[a] bankruptcy court may vacate a prior order confirming a sale ... only in very limited circumstances in the exercise of its powers as a court of equity." Id. at 549 (citations omitted; emphasis added). That equitable determination is largely for the bankruptcy court to make, but "the court's range of discretion on this matter is quite Here the district court affirmed the order of the bankruptcy court reopening the estate and setting aside the confirmed sale of an estate asset. The bankruptcy court acted nearly 10 months after entering the final decree closing the proceeding and nearly 19 months after confirming the now-challenged sale. The actions of both courts are reviewed on the basis of an abuse of discretion.

narrow." Id. at 550 (citing In re Webcor, 392 F.2d 893 (7th Cir.1968)).

STANDING

Bankruptcy Rule 5010 identifies the parties who may move to reopen a bankruptcy estate under 11 U.S.C. § 350(b). "A case may be reopened on motion of the debtor or other party in interest pursuant to § 350(b) of the Code." Bankr.Rule 5010, 11 U.S.C.A. Lincoln Heritage is not the debtor and acknowledges it is not a claimant. It cannot claim status as a creditor for two reasons. First, Lincoln Heritage asserts no right to a distribution. Second,...