Willemain v. Kivitz

• Decision Date: 20 June 1985
• Docket Number: No. 84-1919,84-1919
• Citation: 764 F.2d 1019
• Parties: 12 Collier Bankr.Cas.2d 1387, 13 Bankr.Ct.Dec. 415, Bankr. L. Rep. P 70,602 David Grant WILLEMAIN, Plaintiff, and Bernard M. Willemain, Appellant, v. Marc KIVITZ, Trustee and Hampshire Associates, Appellees. In the Matter of Bernard Maurice WILLEMAIN, d/b/a Bernard M. Willemain & Associates a/k/a Barnard M. Willemain, Debtor.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1019

764 F.2d 1019

12 Collier Bankr.Cas.2d 1387, 13 Bankr.Ct.Dec. 415,

Bankr. L. Rep. P 70,602

David Grant WILLEMAIN, Plaintiff and Bernard M. Willemain, Appellant, v.Marc KIVITZ, Trustee and Hampshire Associates, AppelleesIn the Matter of Bernard Maurice WILLEMAIN, d/b/a Bernard M Willemain & Associates a/k/a Barnard M. Willemain, Debtor.

No. 84-1919.

United States Court of Appeals Fourth Circuit.

Argued April 2, 1985.

Decided June 20, 1985.

E. Stephen Derby, Baltimore, Md. (Karen L. Myers Zauner, Piper & Marbury, Baltimore, Md., on brief), for appellant.

Irving E. Walker, Baltimore, Md. (Shale D. Stiller, Frank, Bernstein, Conaway & Goldman, Marc R. Kivitz, Baltimore, Md., on brief), for appellees.

Before RUSSELL, MURNAGHAN and ERVIN, Circuit Judges.

DONALD RUSSELL, Circuit Judge:

This is a bankruptcy case in which appellant/debtor Bernard M. Willemain(Willemain) challenges the district court's decision, which affirmed the decision of the bankruptcy court, holding that Willemain lacks standing to challenge the sale of his primary asset and that his appeal was mooted by the sale of the asset to a good faith purchaser.Finding that Willemain has no pecuniary interest in to whom the asset is sold and that the asset was sold to a good faith purchaser, we affirm.

I

Willemain, a real estate entrepreneur, filed a voluntary Chapter 13 bankruptcy petition on May 6, 1980.Willemain's Chapter 13 petition was dismissed in January, 1981, because he failed to demonstrate that he received a regular income, a prerequisite to maintenance of an action under that chapter.On January 6, 1981, Willemain filed a voluntary Chapter 11 reorganization petition, and he submitted the requisite schedules revealing his liabilities and assets.Willemain's liabilities amounted to $546,893.66, and his assets were valued at $1,000,589.Of the assets scheduled, Willemain valued at $1,000,000 his 20% limited partnership interest (the interest) in Chapel Associates, a real estate partnership that owns only one 93.952 acre parcel of land in Baltimore County, Maryland.Finding that Willemain was unable to effectuate a plan and that Willemain had caused unreasonable delay, the bankruptcy court converted the reorganization proceeding into a Chapter 7 liquidation proceeding on February 10, 1982.¹Thereafter, Marc Kivitz(Kivitz) was appointed as trustee.

Kivitz privately solicited buyers for the 20% limited partnership interest, which, as an unregistered and restricted security, could not be publicly advertised for sale.Moreover, by agreement between Willemain and his general partners in Chapel Associates, the interest could not be transferred to anyone but one who had an ownership interest in Chapel Associates.After searching for over five months, Kivitz received an offer of $100,000 from Hampshire Associates(Hampshire).²Hampshire held a security interest of $92,985.61 in Willemain's interest; therefore, the estate would realize $7,014.39 from the sale of the interest to Hampshire.Kivitz and Hampshire entered into an "Agreement of Sale" on August 24, 1982, subject to bankruptcy court approval, and notice of the proposed sale was sent to all of Willemain's scheduled creditors.Willemain objected to the proposed sale, contending that his interest in Chapel Associates was worth in excess of $1,400,000.³

By order dated June 21, 1983, the bankruptcy court dismissed Willemain's objections to the proposed sale and approved the proposed sale.The bankruptcy court found that the best interests of the estate would be served by the sale to Hampshire.The court rejected an eleventh hour offer by Max Israelson to buy the interest for $200,000.The Israelson offer was conditioned upon successful litigation concerning the transferability of the interest to one not a partner in Chapel Associates.The court stated that Willemain's various bankruptcy petitions had engendered long delay that was prejudicial to the interests of both the creditors and the debtor, and that to sanction further delay to litigate the transferability of the interest, which might prove unsuccessful, "would be unthinkable."The bankruptcy court further approved the proposed sale despite an appraisal of the interest performed by C. Gordon Gilbert.Mr. Gilbert appraised the interest at $907,500.The court found that the "appraisal cannot be considered worthy of reliance," because the appraisal was over 18 months old, because the appraiser failed to consider the sale of a similar parcel of land in the vicinity of Chapel Associates' parcel, and because the appraiser "exhibited little experience in valuing minority interests in limited partnerships which are not readily marketable."In approving the proposed sale, the bankruptcy court found that the sales price of $100,000 was not unreasonable, that the Hampshire offer "was the best offer the trustee could expect,"⁴ that the proposed sale was in the best interest of the estate and that Hampshire had acted in good faith in making the offer.

Willemain then sought a stay of the proposed sale pending appeal to the district court.Both the bankruptcy court and the district court, however, denied Willemain's motion for a stay.The interest was thereafter sold to Hampshire and transferred to Hampshire's principals.

On appeal, the district court dismissed Willemain's appeal as moot and held that Willemain lacked standing to challenge the proposed sale.The district court found the appeal moot under section 363(m) of the Bankruptcy Code,11 U.S.C. Sec. 363(m)(1983), because the property was sold to a good faith purchaser, that is, a purchaser who acted in good faith, gave value, and had no knowledge of any adverse claims.The court stated that the bankruptcy court expressly found that Hampshire had acted in good faith and implicitly found that Hampshire had given value, because the bankruptcy court found Hampshire's $100,000 offer "not unreasonable."Since such findings were not clearly erroneous, the district court found that Hampshire was a good faith purchaser and therefore that the appeal was moot.The district court alternatively held that Willemain lacked standing to challenge the proposed sale, because "an insolvent debtor has no standing to object to the trustee's sale of property unless a successful appeal would create an estate with assets in excess of liabilities."Since Willemain's liabilities exceeded his assets (absent the interest) by more than the value of Israelson's $200,000 offer, ⁵ the estate would not regain solvency were Israelson's offer accepted in place of Hampshire's.Consequently, the district court held that Willemain's appeal was moot and that Willemain lacked standing to bring the appeal.The district court therefore did not reach the merits of the bankruptcy court's order approving the sale to Hampshire.

II

Initially, our standard of review of the bankruptcy court's findings of fact is the clearly erroneous standard set forth in Fed.R.Bankr.P. 8013.Since the present action involves a "core" or central bankruptcy proceeding, ⁶ approval of the sale of a debtor's asset, rather than a traditional state law matter, such as a contract claim, application of the clearly erroneous standard of review presents no constitutional difficulty under either the Supreme Court's decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598(1982) or our decision in 1616 Reminc Limited Partnership v. Atchison & Keller Co., 704 F.2d 1313(4th Cir.1983).

The district court correctly determined that Willemain lacks standing to prosecute this appeal.In the analogous setting of whether an insolvent debtor may object to the allowance of claims against the estate, the leading and authoritative bankruptcy treatise as well as numerous tribunals have held that an insolvent debtor is not a party in interest and thus lacks standing because he has no pecuniary interest in the distribution of his assets among his creditors.See3 J. Moore & L. King, Collier on Bankruptcyp 57.17[2.1], pp. 275-277 (14th ed. 1977);3 L. King, Collier on Bankruptcyp 502.01 (15th ed. 1985).The Eighth Circuit succinctly stated the general rule:

Thus, since the bankrupt is normally insolvent, he is considered to have no interest in how his assets are distributed among his creditors and is held not to be a party in interest.[citations omitted] However, when it appears that, if the contested claims are disallowed, there may be a surplus of assets to be returned to the bankrupt, the bankrupt is considered to have standing to contest the claims.

Kapp v. Naturelle, Inc., 611 F.2d 703, 706-707(8th Cir.1979).See alsoIn Re Woodmar Realty Co., 241 F.2d 768, 770-771(7th Cir.1957);In Re Silverman, 10 B.R. 734, 735(Bankr.S.D.N.Y.1981), aff'd, 37 B.R. 200, 201(S.D.N.Y.1982);In Re Roberts, 20 B.R. 914, 916-917(Bankr.E.D.N.Y.1982);In Re Lapointe, 39 B.R. 80(Bankr.W.D.Ky.1984).

Applying the above principles to the setting before us, that is, whether an insolvent Chapter 7 debtor has standing to challenge the proposed sale of his primary asset, it becomes apparent Willemain lacks a pecuniary interest in this litigation.Even were we to concede that Israelson's contingent offer is worth $200,000, that amount would neither return solvency to Willemain's estate nor provide Willemain with a surplus.Willemain, after filing his Chapter 11 petition, reported his liabilities at nearly $547,000, while his assets, absent the 20% limited partnership interest, were reportedly worth only $589.The $200,000 Israelson offer, the only offer presented to and considered by the...