Spenlinhauer v. O'Donell
| Decision Date | 04 October 2000 |
| Docket Number | No. 00-1427,00-1427 |
| Citation | 261 F.3d 113 |
| Parties | (1st Cir. 2001) ROBERT J. SPENLINHAUER, DEBTOR, Plaintiff, Appellant, v. JOSEPH V. O'DONNELL, TRUSTEE IN BANKRUPTCY, Defendant, Appellee. Heard |
| Court | U.S. Court of Appeals — First Circuit |
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MAINE
[Hon. Gene Carter, U.S. District Judge]
[Copyrighted Material Omitted] Anthony E. Perkins, with whom Michael A. Fagone and Bernstein, Shur, Sawyer & Nelson were on brief for appellant.
U. Charles Remmell, II, with whom Kelly, Remmell & Zimmerman, Stephen Morrell, and Eaton, Peabody, Bradford & Veague were on brief for appellee.
Before Boudin, Chief Judge, Cyr, Senior Circuit Judge, and Lipez, Circuit Judge.
Chapter 7 debtor Robert J. Spenlinhauer appeals from a district court order which affirmed a bankruptcy court ruling authorizing the chapter 7 trustee to sell certain property of the chapter 7 estate to the estranged siblings of the chapter 7 debtor. We dismiss the appeal due to lack of jurisdiction.
The chapter 7 debtor and his two brothers established the JRS Trust in 1979 for the purpose of leasing certain real estate situated in Wells, Maine.1 When Robert Spenlinhauer filed a voluntary chapter 11 petition in 1990, his one-third beneficial interest in the JRS Trust became property of the chapter 11 estate by operation of law. The case was converted to a chapter 7 liquidation proceeding in 1994, whereupon the appellee became the chapter 7 trustee. Beginning in 1995, the trustees of the JRS Trust -- viz., debtor's brothers, John and Stephen, and the chapter 7 trustee -- renegotiated the terms of a sublease which the JRS Trust had entered into with Spencer Press, a company controlled by the Spenlinhauer family.2
In 1998, the chapter 7 trustee filed a notice of sale with the bankruptcy court, see Bankruptcy Code § 363; 11 U.S.C. § 363, proposing to sell the chapter 7 estate's one-third beneficial interest in the JRS Trust to John and Stephen Spenlinhauer [hereinafter: "Purchasers"] for $500,000. The notice of sale did not expressly provide that the chapter 7 trustee would also release the Purchasers from any potential liability, either to the chapter 7 estate or to the chapter 7 debtor, arising from the Purchasers' pre-sale administration of the JRS Trust.
The chapter 7 debtor then brought suit in federal district court against Spencer Press and the JRS Trust trustees, claiming that their sublease renegotiations were conducted in violation of the automatic stay provisions. See Bankruptcy Code § 362(a)(3); 11 U.S.C. § 362(a)(3). Simultaneously, in the pending bankruptcy court proceeding, the chapter 7 debtor objected to the proposed sale, contending that the sublease renegotiations conducted by the Purchasers violated the automatic stay, breached their fiduciary duties as trustees of the JRS Trust, and seriously devalued the chapter 7 debtor's interest in the JRS Trust, thereby rendering the proposed $500,000 sale price inadequate.
On November 3, 1998, the bankruptcy court conducted a telephonic hearing on the chapter 7 trustee's section 363 notice of sale, during which the chapter 7 debtor contended that his causes of action against the Purchasers for allegedly violating the automatic stay and breaching their fiduciary duties should not be included in the sale proposed by the chapter 7 trustee, since these assets were distinct from his one-third beneficial interest in the JRS Trust. The chapter 7 trustee responded that these causes of action were of questionable merit and value, and, in any event, that his sale of the underlying trust interest to the Purchasers might, by necessary implication, release the Purchasers from the claims asserted by the chapter 7 debtor. The Purchasers informed the bankruptcy court that though they had not requested a release of claims from the chapter 7 trustee as part of the proposed sale, they nonetheless preferred a release, given the chapter 7 debtor's litigation posture. After observing that the notice of the proposed sale contained no release of claims, the bankruptcy court continued the telephonic hearing for one week in order to permit the chapter 7 trustee to reevaluate "all the facts and circumstances of the sale."
On November 10, the day the hearing resumed, the Purchasers submitted the affidavit of Gordon C. Ayer, Esq. ("Ayer Affidavit"), in-house-counsel to Spencer Press, describing in detail the sublease renegotiations conducted in 1995 between Spencer Press and the JRS Trust. During the reconvened hearing, counsel to the chapter 7 debtor informed the bankruptcy court that he was "at a bit of a disadvantage" because he had not yet received the Ayer Affidavit, thus it was "very difficult . . . to address it in any fashion or to have submitted countering affidavits." In addition, the Purchasers stated that a release of all claims must be part of the consideration for their purchase.
In light of the chapter 7 debtor's failure to adduce evidence that there had been any violation of the automatic stay or breach of fiduciary duty by the chapter 7 trustee, the bankruptcy court announced that it would approve the sale of the chapter 7 estate's interest in the JRS Trust, as well as the release of any potential causes of action against the Purchasers arising from their pre-sale administration of the JRS Trust. Thus, the court held that the Purchasers had purchased "in good faith," within the meaning of Bankruptcy Code § 363(m), 11 U.S.C. § 363(m).
Subsection 363(m) provides that "[t]he reversal or modification on appeal of a[] [bankruptcy court's] authorization . . . of a sale . . . does not affect the validity of a sale . . . to an entity that purchased . . . such property in good faith . . . unless such authorization and such sale . . . were stayed pending appeal."3 Prior to hearing from counsel to the chapter 7 debtor, the bankruptcy court announced its intention to deny any motion for stay. Whereupon counsel to the chapter 7 debtor interjected: "[B]y not asking for [a stay], we are not giving up our rights to appeal."
In due course, the chapter 7 debtor appealed to the district court. The district court upheld the determination that the Purchasers were purchasers "in good faith" under subsection 363(m), but remanded to the bankruptcy court to reevaluate whether the terms of the sale fairly encompassed a release of the chapter 7 debtor's putative causes of action against the Purchasers. In re Spenlinhauer, 231 B.R. 429 (D. Me. 1999).
Following the remand, after yet another hearing, the bankruptcy court ruled that it could not undertake further inquiry into the scope of the sale since the district court had upheld the Purchasers' "good faith" status on appeal, and consequently subsection 363(m) precluded any reassessment of the terms of the sale consummated on November 10, 1998. The chapter 7 debtor once again appealed to the district court, which adopted the bankruptcy court's rationale on remand, and affirmed. In re Spenlinhauer, No. 99-364, 2000 WL 760745 (D. Me. Feb. 18, 2000).
The chapter 7 debtor urges us to reverse the November 10, 1998, order confirming the sale, for the following reasons, among others: (1) the chapter 7 trustee concededly failed to follow the local bankruptcy court rule which requires the parties to submit their supporting affidavits not later than one business day prior to a hearing; thus, the bankruptcy court abused its discretion (i) by relying on the pivotal Ayer Affidavit as evidence of the Purchasers' "good faith," and (ii) by denying the chapter 7 debtor's requests for additional discovery or for an evidentiary hearing aimed at countering the deleterious evidence presented in the Ayer Affidavit; and (2) on remand from the district court, the bankruptcy court erroneously ruled that subsection 363(m) precluded its reassessment regarding whether the November 10, 1998, sale encompassed the release of claims, since the finality provisions in subsection 363(m) pertain strictly to sales of property (e.g., the chapter 7 estate's one-third interest in the JRS Trust), not to the chapter 7 estate's settlement or relinquishment of causes of action acquired by the chapter 7 estate.
On appeal from a district court decision reviewing a bankruptcy court order, we review the bankruptcy court order directly, disturbing its factual findings only if clearly erroneous, while according de novo review to its conclusions of law. In re Stoehr (Stoehr v. Mohamed), 244 F.3d 206, 207-08 (1st Cir. 2001) (per curiam). Moreover, we may affirm the bankruptcy court order on any ground apparent from the record on appeal. See In re Rauh (Noonan v. Rauh), 119 F.3d 46, 53-54 (1st Cir. 1997). Before we address the substantive claims advanced on appeal, however, we must determine our appellate jurisdiction.
Under the Bankruptcy Code, standing to appeal from a final bankruptcy court order is accorded only to a "person aggrieved." See In re Thompson (Kowal v. Malkemus), 965 F.2d 1136, 1142 n.9 (1st Cir. 1992). The "person aggrieved" paradigm, which delimits appellate jurisdiction even more stringently than the doctrine of Article III standing, see, e.g., In re Alpex Computer Corp. (Nintendo Co. v. Patten), 71 F.3d 353, 357 n.6 (10th Cir. 1995); In re H.K. Porter Co. (Travelers Ins. Co. v. H.K. Porter Co.), 45 F.3d 737, 741 (3d Cir. 1995),4 bestows standing only where the challenged order directly and adversely affects an appellant's pecuniary interests. In re Thompson, 965 F.2d at 1142 n.9.
The advent of the chapter 7 estate and the appointment of the chapter 7 trustee divest the chapter 7 debtor of all right, title and interest in nonexempt property of the estate at the commencement of the case. See Bankruptcy Code §§ 541(a), 704; 11 U.S.C. §§ 541(a), 704.5 Since title to property of the estate no longer resides in the chapter 7 debtor, the debtor typically lacks...
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