SAGAMORE PARK CENTRE ASSOCIATES LTD. v. Sagamore Park Properties, 4:96cv001 AS.
| Decision Date | 13 September 1996 |
| Docket Number | No. 4:96cv001 AS.,4:96cv001 AS. |
| Parties | SAGAMORE PARK CENTRE ASSOCIATES LIMITED PARTNERSHIP, Appellant, v. SAGAMORE PARK PROPERTIES, Debtor-Appellee. Kenneth Meeker, United States Trustee. |
| Court | U.S. District Court — Northern District of Indiana |
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John Huffaker, Gibson Ochnser and Adkins, Amarillo, TX, for appellant.
David A. Rosenthal, Rosenthal Greives and O'Bryan, Lafayette, IN, Fred Ringel, Robinson Brog Leinwand Reich Genovese and Gluck, New York City, for appellee.
Sagamore Park Centre Associates Limited Partnership ("Sagamore Associates") appeals from an order of the United States Bankruptcy Court sustaining the debtor's objection and disallowing Sagamore Associates' claim. The appellant specifically challenges the bankruptcy court's conclusion that Sagamore Park Properties ("the debtor"), is entitled to avoid Sagamore Associates' second mortgage on the subject property pursuant to § 544(a)(3) of the Bankruptcy Code ("the Code").
Although there is continuing action in the underlying bankruptcy court proceeding, this court has jurisdiction under 28 U.S.C. § 158(a) to hear Sagamore Associates' appeal. A bankruptcy order is considered "final" for purposes of § 158(a) when, as here, it "finally determines" one creditor's position. See In re Morse Elec. Co., Inc., 805 F.2d 262, 264-65 (7th Cir.1986).
The debtor's sole asset in this Chapter 11 bankruptcy proceeding is a commercial property in West Lafayette, Indiana, known as the Sagamore Park Shopping Centre. The shopping center was originally developed by the appellant with financing from the Lincoln National Life Insurance Company ("Lincoln"), which took a first mortgage on the property as security for the loan. The mortgage was recorded in the Tippecanoe County recorder's office on September 13, 1983.
Sagamore Associates transferred the shopping center to the debtor by warranty deed in December 1983, in return for which the debtor gave the appellant a wraparound note1 secured by a second mortgage on the property. This second mortgage, which was expressly subordinate to the first mortgage held by Lincoln, was recorded in the Tippecanoe County recorder's office on December 27, 1983. The note constituted a non-recourse obligation, meaning that, in the event of default, Sagamore Associates could seek recovery only from the mortgaged property and not through a debt judgment against the debtor.
Simultaneous with its transfer of the shopping center to the debtor, Sagamore Associates executed a collateral transfer of the debtor's note in favor of the First National Bank of Amarillo ("FNBA"), as further security for the appellant's own independent obligations to that bank. The collateral transfer of note, also recorded in Tippecanoe County on December 27, 1983, granted the bank an irrevocable power of attorney, as well as the authority to, inter alia, execute and deliver releases of all liens and security interests constituting a portion of the collateral.
Although Sagamore Associates had repaid its debt to FNBA prior to the September 1, 1993, maturity date of the wraparound note, FNBA initially failed to record a release of the appellant's collateral assignment. However, when a suit to foreclose a mechanic's lien on the property named Sagamore Associates and FNBA as defendants — the second lien still showed in the chain of title — FNBA executed a release of lien on October 25, 1993, which was recorded in the Tippecanoe County recorder's office on November 13, 1993. The validity, purpose, and effect of this release is the subject of the present appeal.
After the debtor failed to make the balloon payment due under the wraparound note on September 1, 1993, both the wraparound note and the underlying note were in default. The debtor filed its Chapter 11 petition in the United States Bankruptcy Court for the Northern District of Indiana, Hammond Division at Lafayette, on February 25, 1994. Thereafter, Sagamore Associates filed a proof of secured claim in the amount of $5.7 million. The debtor's objection was submitted for trial before the bankruptcy court on May 9, 1995. Following the submission of post-trial briefs, the bankruptcy court disallowed Sagamore Associates' claim in its order of December 4, 1995. The appellant filed its timely notice of appeal on December 14, 1995, and this court heard oral argument on May 30, 1996.
This appeal presents two issues for review: (1) whether the bankruptcy court erred in holding that the release of lien recorded on November 13, 1993, conferred "bona fide purchaser" status on the debtor pursuant to 11 U.S.C. § 544(a)(3); and (2) whether the bankruptcy court erred in refusing to admit opinion testimony at trial pursuant to Rules 702 and 704(a) of the Federal Rules of Evidence. Sagamore Associates asks the court to reinstate its claim for payment under the debtor's Chapter 11 plan or, in the alternative, to remand the matter for consideration of the opinion testimony excluded by the bankruptcy court.
A district court sitting as an appellate tribunal pursuant to 28 U.S.C. § 158(a) must accept the bankruptcy court's factual findings unless they are clearly erroneous. Fed. R.Bankr.P. 8013; see In re Tolona Pizza Prods. Corp., 3 F.3d 1029, 1033 (7th Cir. 1993); Calder v. Camp Grove State Bank, 892 F.2d 629, 631 (7th Cir.1990). If the bankruptcy court's account of the evidence is plausible in view of the record in its entirety, the district court may not reverse even though convinced that as trier of fact it would have weighed the evidence differently. In re Love, 957 F.2d 1350, 1354 (7th Cir. 1992); see Anderson v. City of Bessemer City, 470 U.S. 564, 574, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985) ().
"A finding of fact is `clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." In re Thirtyacre, 36 F.3d 697, 700 (7th Cir.1994) (citations omitted) (alteration supplied). Mixed questions of law and fact are similarly reviewed for clear error when they involve fact-specific applications of law. Williams v. Commissioner of Internal Revenue, 1 F.3d 502, 505 (7th Cir.1993); Schiro v. Clark, 963 F.2d 962, 974 (7th Cir.1992), aff'd sub nom. Schiro v. Farley, 510 U.S. 222, 114 S.Ct. 783, 127 L.Ed.2d 47 (1994); United States v. Levy, 955 F.2d 1098, 1103 n. 5 (7th Cir.), cert. denied, 506 U.S. 833, 113 S.Ct. 102, 121 L.Ed.2d 62 (1992).
By contrast, a bankruptcy court's conclusions of law are subject to de novo review by the district court. In re Sheridan, 57 F.3d 627, 633 (7th Cir.1995); Meyer v. Rigdon, 36 F.3d 1375, 1378 (7th Cir.1994); Magill v. Newman (In re Newman), 903 F.2d 1150, 1152 (7th Cir.1990); Calder, 892 F.2d at 631. De novo review requires the district court to make an independent examination of the bankruptcy court's judgment without giving deference to that court's analysis or conclusions. See Moody v. Amoco Oil Co., 734 F.2d 1200, 1210 (7th Cir.), cert. denied, 469 U.S. 982, 105 S.Ct. 386, 83 L.Ed.2d 321 (1984).
A district court reviews the bankruptcy court's evidentiary rulings for abuse of discretion. See Hill v. Porter Memorial Hosp., 90 F.3d 220, 222 (7th Cir.1996); Richardson v. Consolidated Rail Corp., 17 F.3d 213, 216 (7th Cir.1994). The district court must determine, therefore, not whether it would have ruled differently had it tried the case, but whether the bankruptcy judge's decisions were reasonable. See Hill, 90 F.3d at 222; Antevski v. Volkswagenwerk Aktiengesellschaft, 4 F.3d 537, 540-41 (7th Cir. 1993).
It is undisputed that absent the release of lien recorded on November 13, 1993, Sagamore Associates' mortgage would constitute a second lien on the shopping center. The bankruptcy court found, however, that the release of lien discharged the second mortgage lien on the shopping center pursuant to 11 U.S.C. § 544(a)(3) and, due to the non-recourse nature of the wraparound note given to Sagamore Associates, deprived the appellant of even an unsecured claim.
Section 544(a)(3) of the Bankruptcy Code, the "strong arm clause," permits a Chapter 11 trustee2 to avoid hypothetical transfers of property by the debtor, or obligations incurred by the debtor, that would be voidable under applicable state law by a bona fide purchaser of the property.3 11 U.S.C. § 544(a)(3) (1994). Put another way, the "strong arm" provision of § 544(a)(3) allows a trustee to pull back into the debtor's estate not only property actually owned by the debtor, but also property that the debtor could have conveyed under applicable state law. Belisle v. Plunkett, 877 F.2d 512, 516 (7th Cir.), cert. denied sub nom. Belisle v. Anzivino, 493 U.S. 893, 110 S.Ct. 241, 107 L.Ed.2d 191 (1989). Thus, "the statute mentions `transfer' only in the sense of the hypothetical transfer that measures the trustee's rights: if a hypothetical bona fide transferee from the debtor would come ahead of the `true' owner's rights, then the trustee takes ahead of the true owner." Id. at 515 (emphasis in original).
Appellant Sagamore Associates, the holder of the second mortgage, argues that the release of lien recorded by FNBA did not clear the title record of the mortgage and, thus, would not confer bona fide purchaser ("BFP") status under Indiana law. More precisely, the appellant claims that the release operated only as to its collateral transfer of the lien to FNBA; once Sagamore Associates fulfilled its independent obligations to FNBA, the lien on the shopping center property was reassigned to Sagamore Associates. The appellant contends that the release of lien, when read in conjunction with the...
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