Marino, In re

• Decision Date: 08 April 1987
• Docket Number: No. 86-1655,86-1655
• Citation: 813 F.2d 1562
• Parties: , Bankr. L. Rep. P 71,773 In re Gilbert John MARINO, Debtor. PLACER SAVINGS AND LOAN ASSOCIATION, Plaintiff-Appellant, v. Edward M. WALSH, as trustee in Bankruptcy of Gilbert John Marino, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1562

813 F.2d 1562

16 Bankr.Ct.Dec. 167, Bankr. L. Rep. P 71,773

In re Gilbert John MARINO, Debtor.

PLACER SAVINGS AND LOAN ASSOCIATION, Plaintiff-Appellant, v. Edward M. WALSH, as trustee in Bankruptcy of Gilbert John

Marino, Defendant-Appellee.

No. 86-1655.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 12, 1986.

Decided April 8, 1987.

John H. MacConaghy, Emeryville, Cal., for plaintiff-appellant.

Jeffrey J. Goodrich, San Francisco, Cal., for defendant-appellee.

Appeal from the United States District Court for the Northern District of California.

Before GOODWIN, PREGERSON and HALL, Circuit Judges.

PREGERSON, Circuit Judge:

Appellant Placer Savings and Loan Association appeals from a grant of summary judgment in favor of appellee Edward Walsh, Bankruptcy trustee for the debtor John Gilbert Marino. The district court granted Walsh's motion for summary judgment, holding that Walsh could assert 11 U.S.C. Sec. 544(a)(3) to avoid obligations arising out of the Waters' Edge Apartments of which Marino had been co-owner.

Placer now asserts: (1) that a partnership existed between the co-owners of the Waters' Edge Apartments and that Walsh cannot avoid those partnership liabilities by asserting section 544(a)(3); and (2) that Placer has an equitable lien against Marino's interest and that the lien is unavoidable under section 544(a)(3) because the leasehold upon which the Waters' Edge Apartments are built is personal property.

Placer's assertion that the leasehold portion of the apartment property is personal property and, therefore, not subject to section 544(a)(3), is correct. We hold that whatever part of Marino's interest is attributable to the leasehold cannot be protected under section 544(a)(3), and, therefore, may be subject to whatever liabilities Placer may legitimately assert against it. We also hold, as a matter of law, that Placer does not possess an equitable lien against that interest. We therefore remand to the

district court to determine what part of Marino's interest in the apartments was attributable to the leasehold and whether Placer has a legitimate partnership claim against it.

BACKGROUND

On January 15, 1979, John Gilbert Marino (debtor) and Anthony and Jeanette Xuereb purchased the Waters' Edge Apartments (apartments) in Foster City, California. The property consisted of a fifty-year ground lease and the buildings on it. On October 24, 1979, Marino transferred one-half of his interest to Leo Lugliani. Marino, Lugliani, and the Xuerebs held record title to the apartments as tenants-in-common. They testified, however, that they operated the apartments as a partnership and filed partnership tax returns. On June 20, 1980, the co-owners entered into "an option and joint venture agreement" with Devcon of California, Inc. to convert the apartments to condominiums. Devcon was to obtain permits and the required approval for the conversion. The costs the co-owners agreed to pay Devcon included legal fees, costs of permits, and architectural and engineering fees.

On February 26, 1982, Marino filed a voluntary petition for Chapter 11 bankruptcy. At the time bankruptcy was filed, Marino owned 18.35% of the apartments, Lugliani owned 18.35%, and the Xuerebs owned 63.3%. Placer Savings & Loan Assoc. v. Walsh (In re Marino), 49 B.R. 600, 601 (N.D.Cal.1985) (Marino ). On June 30, 1982, the co-owners executed a "termination and contingency fee agreement" with Devcon and its other creditors under the 1980 agreement (Devcon, et al.) (1) terminating the 1980 agreement, (2) providing that Devcon, et al. would continue to work on the conversion, and (3) providing that Devcon, et al. would receive $200,000 plus legal fees and costs upon sale of the property if the conversion approval was obtained. Ultimately, Devcon was successful in obtaining approval for the conversion.

On October 7, 1983, Marino commenced an action, Marino v. Xuereb, under 11 U.S.C. Sec. 363(h) as part of the ongoing bankruptcy, in order to sell 100% of the apartments. Appellant Placer Savings & Loan (Placer) purchased the Xuereb's share of the apartments, 63.3%. Placer also agreed to shoulder the Xuereb's liability to Devcon, et al. On December 21, 1983, Placer filed this action seeking (1) to determine the validity of Devcon's claims, and (2) a declaratory judgment that those claims be paid directly out of the proceeds of any sale of the property.

On January 10, 1984, Marino's bankruptcy was converted into a Chapter 7 liquidation proceeding. Appellee Edward Walsh was appointed bankruptcy trustee. On May 14, 1984, Placer exercised its right of first refusal under section 363(i) and purchased 100% of the apartments. In October 1984, Placer determined that the claims of Devcon, et al. were valid and agreed to pay them in full, reserving the right to seek contribution against Walsh and Lugliani.

The bankruptcy estate received 18.35% of the proceeds of the sale of the apartments to Placer to compensate the estate for the debtor's 18.35% ownership interest. Placer argued that, because the bankruptcy estate received 18.35% of the proceeds from the sale of the apartments, the bankruptcy estate was liable for a pro-rata 18.35% share of the debts owed to Devcon, et al. As bankruptcy trustee, Walsh invoked 11 U.S.C. Sec. 544(a)(3) to avoid Placer's claim. On March 27, 1985, the United States District Court granted Walsh's motion for summary judgment, holding that, as a matter of law, Walsh could use section 544(a)(3) to avoid Placer's claim that the bankruptcy estate pay 18.35% of the debt owed to Devcon, et al. Marino, 49 B.R. at 604.

STANDARD OF REVIEW

The district court granted Walsh's motion for summary judgment. A grant of a motion for summary judgment is reviewed de novo. Ashton v. Cory, 780 F.2d 816, 818 (9th Cir.1986). The appellate court must determine, viewing the evidence in the light most favorable to the non-moving party, whether there are any genuine issues

                of material fact and whether the district court correctly applied the relevant substantive law.   Lew v. Kona Hospital, 754 F.2d 1420, 1423 (9th Cir.1985)
                

ANALYSIS

Title 11 U.S.C. Sec. 544(a), "the strong arm clause," gives a bankruptcy trustee special powers to set aside transfers or liens against property in the bankruptcy estate. Section 544(a)(3) allows the trustee to avoid all obligations and transfers that would be avoidable by "a bona fide purchaser of real property ... that obtains the status of a bona fide purchaser ... at the time of the commencement of the [bankruptcy] case, whether or not such a purchaser exists." Section 544(a) grants the bankruptcy trustee this power "without regard to any knowledge of the trustee or of any creditor." The powers of a bona fide purchaser for purposes of section 544(a) are defined by state law. Maine Nat'l Bank v. Morse (In re Morse), 30 B.R. 52, 54 (Bankr. 1st Cir.1983); Saghi v. Walsh (In re Gurs), 27 B.R. 163, 164 (Bankr. 9th Cir.1983); C.R. Loup v. Great Plains W. Ranch Co. (In re Great Plains W. Ranch Co., 38 B.R. 899, 905 (Bankr.C.D.Cal.1984); see 4 Collier on Bankruptcy p 544.02 (L. King 15th ed. 1986).

I. Debtor's Partnership Liability

Placer asserts that the original business venture between Marino, Lugliani, and the Xuerebs was a partnership because it was an association of two or more persons to carry on as co-owners of a business for profit. Cal.Corp.Code Sec. 15006(1); Kaufman-Brown Potato Co. v. Long, 182 F.2d 594, 599 (9th Cir.1950), and because the co-owners filed partnership tax returns. The district court expressly did not determine whether a partnership existed. Marino, 49 B.R. 600, 603 n. 3. Because the question whether a partnership existed under California law is a question of intent, Kaufman-Brown Potato Co., 182 F.2d at 599, it is "essentially factual," and best resolved by the fact-finding tribunal. Pullman-Standard v. Swint, 456 U.S. 273, 288, 102 S.Ct. 1781, 1790, 72 L.Ed.2d 66 (1982); Commissioner v. Duberstein, 363 U.S. 278, 289, 80 S.Ct. 1190, 1198, 4 L.Ed.2d 1218 (1960); United States v. McConney, 728 F.2d 1195, 1203-04 (9th Cir.), cert. denied, 469 U.S. 824, 105 S.Ct. 101, 83 L.Ed.2d 46 (1984).

A. Debtor's Real Property Interest

Section 544(a)(3) gives Walsh, as bankruptcy trustee, the power to avoid liabilities that could be avoided by a hypothetical bona fide purchaser of real property. Nevertheless, Placer maintains that section 544(a)(3) will not protect the proceeds of the sale of the debtor's real property interest in the Waters' Edge Apartments because a bona fide purchaser under California law (1) cannot be assigned a partnership interest, and (2) cannot take a partnership interest free of partnership liabilities. However, Cal.Corp.Code section 15010(3) states:

Where title to real property is in the name of one or more of the partners, whether or not the record discloses the right of the partnership, the partners in whose name the title stands may convey title to such property, but the partnership may recover such property ... unless the property has been conveyed to a bona fide purchaser for value without knowledge that the partner in executing the conveyance has exceeded his authority.

Section 15010(3) provides for the situation at issue here. Walsh, by virtue of section 544(a)(3), has the rights of a hypothetical bona fide purchaser without notice. The language of the section renders the trustee's actual knowledge irrelevant. The Third Circuit, in McCannon v. Marston, 679 F.2d 13, 16-17 (3d Cir.1982), held that constructive notice or inquiry notice may limit the trustee's section 544(a)(3) avoidance power, but neither constructive notice nor inquiry notice are present in this case.

Moreover, in Barton v. Ludy, 11 Cal.2d 1, 76 P.2d 654 (1938), the California Supreme Court allowed an assignment of partnership real property when the assignee had no notice of the partnership. Although Barton was decided under a predecessor

to the present...