Mann, In re
| Decision Date | 12 July 1990 |
| Docket Number | Nos. 88-6699,89-55497,s. 88-6699 |
| Citation | 907 F.2d 923 |
| Parties | 23 Collier Bankr.Cas.2d 608, Bankr. L. Rep. P 73,534 In re John R. MANN, aka John Russell Mann, aka Johnny Mann, Debtor. John R. MANN, Plaintiff-Appellant, v. ALEXANDER DAWSON INC., a Nevada Corporation; ADI Investments, Inc., Defendants-Appellees. John R. MANN, Plaintiff-Appellant, v. ADI INVESTMENTS, INC., Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
William J. Currer, Jr., Los Angeles, Cal., for plaintiff-appellant.
Lawrence Allen, Allen & Allen, Woodland Hills, Cal., Joseph Eisenberg, Leslie A. Cohen, Levine & Eisenberg, Los Angeles, Cal., for defendants-appellees.
Appeal from the United States District Court for the Central District of California.
Before CANBY, KOZINSKI and LEAVY, Circuit Judges.
Today we consider the sad story of John R. Mann, a Chapter 11 debtor in possession who lost his property while pursuing his dreams. He appeals the district court's affirmance of various bankruptcy court decisions that permitted the foreclosure sale of his home and his subsequent eviction.
John Mann is a music man: For more than forty years he has written, arranged and conducted music for a variety of businesses connected with commercials, recording and television. ER III, at 1-2. His long career has yielded many accomplishments, including production of a number of successful records and a hit television series.
But Mann had bigger dreams; he wanted to produce a singing competition called the "Great American Choral Festival." The Festival was to be more than just a business venture; it was going to be something special--"like the Olympics of singing." Id. at 5. Mann dreamed of a "friendly singing competition[ ]" open to singing groups from all over the nation, perhaps from all over the world, "bringing [together] all kinds of demographics of people, all kinds of music [and] all kinds of age brackets." Id. at 6, 9-10. And, if all went well, Mann envisioned a network television special. Id. at 10. Yes, indeed, Mann had dreams, Mann had vision; but, like many a budding entrepreneur, Mann had no money.
To finance the Festival, Mann sought out large corporate sponsors that might pay for the privilege of being associated with this event. At first he was successful, attracting industry giants like Hilton Hotels and Greyhound. Id. at 6. But for reasons unclear from the record, these sponsors turned sour on the idea, and Mann was forced to seek alternative financing. After an unsuccessful attempt to get Avon to sponsor the Festival, Mann decided to put up the necessary funds himself by mortgaging his home. That brought Mann to ADI Investments, Inc (ADI).
On February 17, 1983, Mann and ADI executed a "Loan Agreement" under which ADI was to lend Mann up to $1,350,000 for a term of three years at an interest rate equal to the average prime rate at Bank of America. 1 The loan was secured by a promissory note and deed of trust on three contiguous parcels of land Mann owned in Chatsworth, California: Two parcels contained a total of eleven and a half acres of unimproved land, while the third included Mann's residence and an additional six and a half acres. Mann used part of the loan proceeds to pay off other encumbrances, and used the balance to finance the Festival. Id. at 24-26. 2
As often happens in such circumstances, the Festival was not the great event Mann had dreamed it would be; indeed, it flopped. On the maturity date of the loan, April 1, 1986, Mann did not possess sufficient funds to make the required balloon payment. ER IA, at 41-42. Mann refused ADI's offer to defer the due date of the balloon payment on condition that the interest rate on the loan be raised to twelve percent. Id. at 42. Thus, on May 9, 1986, ADI recorded a notice of default and scheduled a foreclosure sale for September 10, 1986. Opinion (Sept. 2, 1988) at 4. Two days before the sale was to have taken place, Mann filed a voluntary petition under Chapter 11 of the Bankruptcy Code, which had the effect of automatically staying the sale. See 11 U.S.C. Sec. 362(a).
On October 21, 1987, after a trial, the bankruptcy court lifted the stay and permitted ADI to proceed with the sale of the property. In so doing, the court rejected Mann's claim that the loan agreement was, in fact, the purchase of an equity interest in the Festival, for which ADI had assumed the risk that the Festival would fail. The court also rejected Mann's claims of fraud, undue influence and interference with his equitable right of redemption.
Mann appealed the bankruptcy court's judgment. Interestingly, he did not appeal the lifting of the automatic stay. See Notice of Appeal (Oct. 30, 1987); 3 nor did he seek a stay of the foreclosure sale pending appeal. Although Mann convinced the bankruptcy court to extend the stay twice in the hope of finding a buyer, the property remained unsold. On December 10, 1987, at midnight, the stay expired for the last time. ADI purchased the property the next day with a credit bid of $1,500,050. Approximately nine months later, the district court affirmed the bankruptcy court's October 21, 1987, judgment in its entirety. See Opinion (Sept. 2, 1988) & Order (Oct. 19, 1988).
But Mann did not give up his home easily. While his appeal was still pending in the district court, he refused to leave the Chatsworth property, contending that the foreclosure sale was unlawful because, inter alia, it violated the automatic stay. In an attempt to resolve this matter, ADI returned to the bankruptcy court--not once, but twice--obtaining orders making it clear that the stay had expired and ADI had possessed the right to foreclose. See Order (Jan. 6, 1988); Order (April 15, 1988). Free from the automatic stay, ADI successfully prosecuted an unlawful detainer action in state court. However, because the state court judgment referred only to "John Mann" and not "John Mann, debtor in possession," Mann claimed that the judgment could not be enforced against him without violating the automatic stay. Rather than contest this issue, ADI returned to the bankruptcy court a third time for a modified order for relief from stay. The court granted ADI's request, ordering:
that it is unnecessary as far as this Court is concerned for John R. Mann to be named as "Debtor in Possession" in the Superior Court Unlawful Detainer action and/or judgment entered in connection therewith.
Order (Sept. 1, 1988). This order was affirmed by the district court. See Opinion (Mar. 30, 1989).
Mann appeals the district court's orders of September 2, 1988, and October 19, 1988, affirming the bankruptcy court's determination that the transaction between Mann and ADI was a bona fide loan transaction and that ADI could foreclose its deed of trust to recover money owed it. Mann also appeals the district court's March 30, 1989, affirmance of the bankruptcy court's clarification of its order lifting the automatic stay, permitting ADI to enforce its unlawful detainer judgment against Mann. Before we consider these contentions, we must determine the appropriate standard of review.
A. Mann contends that the district court erred in reviewing the bankruptcy court's findings of fact in the foreclosure action under the clear error standard. According to Mann, the district court should have reviewed the bankruptcy court's findings of fact de novo, because the foreclosure action was not a "core" proceeding under 28 U.S.C. Sec. 157(b)(2). See Rosner v. Worcester (In re Worcester), 811 F.2d 1224, 1229 n. 5 (9th Cir.1987) (). Likewise, Mann contends that we should give no deference to the bankruptcy court's findings.
We will assume without deciding that this was not a core proceeding. That does not mean, however, that the bankruptcy court's fact finding is entitled to little or no deference. In a related non-core proceeding such as this, 4 the bankruptcy judge generally must prepare proposed findings of fact and conclusions of law for the district court, who must then review the bankruptcy court's proposals de novo. 28 U.S.C. Sec. 157(c)(1). However, when all parties consent to the bankruptcy court's jurisdiction in a related non-core proceeding, the district court reviews the bankruptcy court's findings of fact for clear error. See id. Sec. 157(c)(2); Daniels-Head & Assocs. v. William M. Mercer, Inc. (In re Daniels-Head & Assocs.), 819 F.2d 914, 918 (9th Cir.1987); DuVoisin v. Foster (In re Southern Indus. Banking Corp.), 809 F.2d 329, 331 (6th Cir.1987).
Here, Mann chose to file this adversary proceeding in the bankruptcy court, and he never objected to the court's jurisdiction prior to the time it rendered judgment against him. Through this conduct, he consented to the court's jurisdiction. See Daniels-Head, 819 F.2d at 918-19; DuVoisin, 809 F.2d at 331; see generally, White v. McGinnis, 903 F.2d 699 (9th Cir.1990) (en banc). The district court therefore properly reviewed the bankruptcy court's factual findings for clear error, as will we.
B. Under 11 U.S.C. Sec. 363(m), an appeal of a bankruptcy court's ruling on a foreclosure action generally cannot affect the rights of a good faith purchaser of the foreclosed property, unless the debtor stays the foreclosure sale pending an appeal. See Onouli-Kona Land Co. v. Estate of Richards (In re Onouli-Kona Land Co.), 846 F.2d 1170, 1171-73 (9th Cir.1988); Algeran, Inc. v. Advance Ross Corp., 759 F.2d 1421, 1423-24 (9th Cir.1985). Accordingly, the debtor's failure to obtain a stay normally renders the appeal moot. Algeran, 759 F.2d at 1423. This is true even when the purchaser knows of the pendency of the appeal or, as in this case, is a party to the appeal. See id. at 1424.
There are, however, two situations in which failure to obtain a stay will not render an appeal moot: where real...
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