Veltman v. Whetzal, 96-1508

• Decision Date: 22 August 1996
• Docket Number: No. 96-1508,96-1508
• Parties: 36 Collier Bankr.Cas.2d 853, 29 Bankr.Ct.Dec. 746 Steve VELTMAN; Sue Veltman, Appellants, v. Dennis WHETZAL, Chapter 7 Trustee; Internal Revenue Service, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 517

93 F.3d 517

36 Collier Bankr.Cas.2d 853, 29 Bankr.Ct.Dec. 746

Steve VELTMAN; Sue Veltman, Appellants, v. Dennis WHETZAL, Chapter 7 Trustee; Internal Revenue Service, Appellees.

No. 96-1508.

United States Court of Appeals Eighth Circuit.

Submitted June 12, 1996.

Decided Aug. 22, 1996.

Harlan A. Schmidt, argued, Spearfish, SD, for Appellants.

Craig P. Gaumer, Asst. U.S. Atty., argued, Sioux Falls, SD (J. Crisman Palmer and Dennis C. Whetzal, on the brief), for Appellees.

Before BOWMAN, HEANEY, and BEAM, Circuit Judges.

BEAM, Circuit Judge.

Steve and Sue Veltman (the Veltmans), co-owners of property in the bankruptcy estate of Troy and Connzella Ray (the debtors), appealed to the district court from ten bankruptcy court orders confirming the sale of fifteen lots. The Veltmans alleged that they did not receive adequate notice that the lots were to be sold free and clear of their ownership interest. The Veltmans now appeal the district court's ¹ order dismissing their bankruptcy appeal for lack of subject matter jurisdiction for failure to file a timely notice of appeal. We affirm.

I. BACKGROUND

In January 1993, the debtors filed a petition under Chapter 11 of the Bankruptcy Code (Code). The bankruptcy estate included fifteen undeveloped lots located in Oak Mountain Estates, Lawrence County, South Dakota. The debtors owned an undivided twenty-five percent interest in the property with the Veltmans. In July 1993, the Veltmans filed a motion in bankruptcy court to partition their interest in the property. The bankruptcy court entered an interim order authorizing the Chapter 11 debtors to sell the lots free and clear of liens and encumbrances with the proceeds to be held in escrow until the final hearing on the motion to partition. The Internal Revenue Service (IRS)--a creditor with a lien on the property--objected to this order because it had not received sufficient notice. In February 1994, the bankruptcy court entered an amended interim order on the Veltmans' motion to partition. This order again authorized the debtors to sell the property free and clear of liens and encumbrances with the proceeds to be held in escrow until the final hearing on the motion to partition. All liens and encumbrances, including the IRS lien, were to attach to the proceeds.

Subsequently, the Veltmans, the debtors, and Norwest Bank of South Dakota (Norwest) (a creditor claiming an interest in the property) negotiated and entered into a stipulation whereby Norwest would receive sixty percent of all net proceeds of sales up to $63,000 plus interest. Under the stipulation, the Veltmans would not receive their twenty-five percent interest; rather, they would receive the remaining forty percent of all net proceeds of sales up to $77,177.03 plus interest. The IRS opposed this stipulation because the government was not included in the division of the proceeds. Nevertheless, on August 5, 1994, the bankruptcy court approved the stipulation over the objection of the IRS, with the condition that the stipulation would be subject to the terms of the amended interim order. One such term provided:

"[T]hat the Debtors are authorized to sell lots free and clear of all liens and encumbrances with the sales proceeds remaining after payment and settlement of the authorized expenditures to be escrowed in an interest-bearing account, with all liens and encumbrances on the real estate to attach to the proceeds of the sale in the order of their priority, including any liens of the United States of America, acting through the Internal Revenue Service, with such priority and distribution of proceeds to be determined by this [bankruptcy court] at a future hearing in this case."

Veltman v. Whetzal, 192 B.R. 201, 202 (D.S.D.1996) (quoting the Order Approving Stipulation, dated August 5, 1994, at 1-2).

In January 1995, the debtors' Chapter 11 case was converted to a Chapter 7 proceeding. In August, the Chapter 7 trustee, Dennis Whetzal (Trustee), filed a motion requesting the bankruptcy court to authorize the sale of the real property "free and clear of all liens, encumbrances and interests." Id. (emphasis added by district court). Interested parties, including the Veltmans, received notice of the motion. No objections to this motion were filed and on September 8, 1995, the bankruptcy court entered an order approving the sale. In this order, the bankruptcy court stated that the sale of the real property was subject to the terms and conditions set forth in the Trustee's motion. The Veltmans did not appeal this decision.

Prior to the sale, the Trustee asked the Veltmans to commit to selling their interest at the auction and delivering their deeds at closing. The Veltmans agreed in a letter dated September 29, 1995, in which they also referenced the stipulation. The property was sold at an auction for approximately $273,000. The Trustee prepared deeds for the Veltmans to execute. ² On October 3, 1995, the Trustee filed a motion to confirm the sale of the real property free of all liens, encumbrances, and interests in the property. The Veltmans filed an objection to the Trustee's motion, stating that: (1) they were willing to comply with the stipulation and the bankruptcy court order dated August 5, 1994; (2) they had no objection to the sale of their interest in the property on the terms and conditions of the stipulation; (3) they had no objection to the results of the auction sale; and (4) they did not want their proceeds to be commingled with the funds of the bankruptcy estate. The Veltmans then filed a motion to release the proceeds of the sale according to the terms of the stipulation. The bankruptcy court denied the Veltmans' motion and confirmed the sale in ten separate orders dated October 26, 1995. On November 2, 1995, the Veltmans filed a notice of appeal from those orders and a motion to stay action pending appeal, which the bankruptcy court denied on November 6, 1995.

The Veltmans appealed to the district court, which found that it lacked subject matter jurisdiction to decide the case because the Veltmans had failed to appeal the September 8th bankruptcy court order authorizing the sale of the real property within ten days of the date of the entry of judgment as required. See Fed. R. Bankr.P. 8002(a). Rejecting the Veltmans' contention that the order of September 8, 1995, failed to provide them with adequate notice of any intent to sell the property free and clear of their ownership interest, the district court dismissed the Veltmans' appeal. The Veltmans now appeal from the district court's order.

On appeal, the Veltmans contend that their notice of appeal filed on November 2, 1995, was timely. They argue that the bankruptcy court's October 26th orders confirming the sale notified them for the first time that the property was sold free and clear of their interest. They also assert that the bankruptcy court could not transfer their fee interest in the property without first conducting an adversarial proceeding.

II. DISCUSSION

We must first determine which bankruptcy court order authorized the sale of the property free and clear of the Veltmans' interest. The Veltmans contend that the September 8th order did not so authorize the sale of the property because: (1) that order failed to provide them with adequate notice; and (2) the bankruptcy court failed to comply with provisions in the Code that require an adversarial proceeding and specific determinations prior to selling the interest of a non-debtor co-owner.

Turning first to the question of adequate notice, we agree with the district court that the September 8th order provided the Veltmans with sufficient notice that the property was to be sold free and clear of their interest. ³ Under the Code, a Chapter 7 trustee has the authority to sell the real property in the bankruptcy estate after notice and a hearing. 11 U.S.C. § 363(b)(1). The notice and hearing required prior to sale of the real property are defined in the Code as follows:

(1) "after notice and a hearing", or a similar phrase--

(A) means after such notice as is appropriate in the particular circumstances, and such opportunity for a hearing as is appropriate in the particular circumstances; but

(B) authorizes an act without an actual hearing if such notice is given properly and if--

(i) such a hearing is not requested timely by a party in interest.

....

11 U.S.C. § 102(1). The bankruptcy court's September 8th order approved the sale of the property subject to the terms and conditions set out in the Trustee's motion. One such condition was that the court authorize the sale of the real property free and clear of all liens, encumbrances and interests. This language provided the Veltmans with adequate notice that the property was to be sold free and clear of their ownership interest. They filed no objection to the Trustee's motion and did not appeal the bankruptcy court's September 8th order. Therefore, the Veltmans received adequate notice and waived their request for a hearing.

The Veltmans first filed a notice of appeal on November 2, 1995, after the bankruptcy court entered several orders confirming the sale of the property on October 26, 1995. In general, failure to file a timely notice of appeal from a bankruptcy court's order deprives the district court of jurisdiction to review that order. See, e.g., Jacobson v. Nielsen, 932 F.2d 1272 (8th Cir.1991) (per curiam). An appeal from a bankruptcy court order to a district court must be made by filing a notice of appeal with the clerk within ten days of the entry of that order. Fed. R. Bankr.P. 8001(a) & 8002(a). We agree with the district court that the Veltmans should have filed their notice of appeal within ten days of September 8, 1995. See Fed. R. Bankr.P. 9006(a) (setting out the method to calculate the ten-day period). Therefore, the district court correctly concluded that it lacked subject matter jurisdiction to review the bankruptcy court's September 8th...