In re: George Young v. ( 2006 )

United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
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No. 05-6013WM
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In re: George L. Young and Professional *
Business Services, Inc., *
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Debtors. *
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U.S. Bank N.A., Alan Messinger, * Appeal from the United States
Grauf Cattle Farms, Inc., Jeffry T. Grauf, * Bankruptcy Court for the
Mary Grauf, Jimmy Hammond, Dorothy * Western District of Missouri
Hammond and United Producers, Inc. *
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Plaintiffs-Appellees *
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v. *
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George L. Young, *
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Defendant-Appellant *
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Submitted: December 20, 2005
Filed: January 12, 2006
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Before SCHERMER, MAHONEY, and McDONALD, Bankruptcy Judges
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McDONALD, Bankruptcy Judge.
Debtor George L. Young (“Young”) appeals from the order of the bankruptcy
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court granting several of Young’s creditors (collectively “Creditors”) motions for
summary judgment. We affirm.
I
Young owned and operated Professional Business Services, Inc. (“PBS)
(collectively “Debtors”). Several of Debtors’ creditors filed an involuntary action
against Debtors. Both Debtors filed an answer to the involuntary petitions stating that
although they both were farmers, they consented to the bankruptcy court entering an
order of relief. The bankruptcy court, therefore, entered an order of relief on August
21, 2001.
Debtors then attempted to convert the involuntary Chapter 7 cases to a
proceeding under Chapter 11 pursuant to 11 U.S.C. § 706(a). One of the theories
Debtors advanced in support of their motions to convert was that because they were
both farmers, the bankruptcy court did not have subject-matter jurisdiction over the
involuntary Chapter 7 cases under 11 U.S.C. § 303(a). The bankruptcy court rejected
Debtors’ argument and denied the motions to convert on November 15, 2001.
While Debtors’ bankruptcy cases were proceeding, Young entered a plea of
guilty in the United States District Court for Western District of Missouri to several
counts of fraud relating to his management of PBS (the “Plea Agreement”). Young
conceded in the Plea Agreement that he obtained credit from the Creditors by fraud.
Creditors then filed several adversary proceedings against Young, arguing that
Young’s obligations to them were excepted from discharge under 11 U.S.C. §§
523(a)(2)(A), (a)(2)(B), (a)(4), and (a)(6).
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The Honorable Jerry W. Venters, Chief Judge for United States
Bankruptcy Court for the Western District of Missouri.
Creditors eventually filed motions for summary judgment, asserting that Young
was collaterally estopped by the Guilty Plea from arguing that he did not incur his
obligations to them by way of fraud. Young responded to Creditors’ motions by once
again contending that because the bankruptcy court did not have subject-matter
jurisdiction over the underlying involuntary case, it did not have jurisdiction over the
adversary cases. Young did not argue in his response to the motions for summary
judgment that he was not collaterally estopped by the Plea Agreement from asserting
that his debts to Creditors were excepted from discharge under 11 U.S.C. §§
523(a)(2)(A), (a)(2)(B), (a)(4), and (a)(6).
The bankruptcy court once again rejected Young’s jurisdictional argument and
granted Creditors’ motions for summary judgment. This appeal follows.
II
Young identifies the following three orders in his notice of appeal: (1) the
August 21, 2001 order of relief; (2) the November 11, 2001 order denying Debtors’
motion to convert; and (3) the April 1, 2005 order granting Creditors’ motions for
summary on the their various adversary complaints. The first two orders are final
orders in that they are a full adjudication of discrete issues within the bankruptcy case.
In re McGinnis, 296 F.3d 730, 731 (8th Cir. 2002) (en banc) (involuntary order for
relief); In re Cooper, 314 B.R. 628, 630 (6th Cir. B.A.P. 2004) (order denying a
motion to convert from a Chapter 7 proceeding). Thus, Young was required to file his
notice of appeal with respect to those order within ten days after they were entered.
Bankr. R. 8002(a). This requirement is jurisdictional and if the appellant fails to
timely file his notice of appeal, the appellate court lacks subject-matter jurisdiction
over the appeal. In re Delta Eng’r Int’l., 270 F.3d 584, 586 (8th Cir. 2001).
Young contends that this rule is inapplicable here because he is challenging the
bankruptcy court’s subject-matter jurisdiction over the adversary complaints. It is true
that as a general matter, an appellant may raise the issue of whether the trial court had
subject-matter jurisdiction over a case at any point, even on appeal. Harmon
Industries, Inc. v. Browner, 191 F.3d 894, 903 (8th Cir. 1999). The appellate court,
however, must first have subject-matter jurisdiction over the appeal before it can
review any claim, including the issue of whether the trial court had subject-matter
jurisdiction over the underlying case. Lang v. Lang (In re Lang), 414 F.3d 1191,
1195-96 (10th Cir. 2005). Thus, an appellate court does not have subject-matter
jurisdiction over an untimely appeal claiming that the trial court lacked subject-matter
jurisdiction over the underlying case. Id.
Because Young failed to timely file his notice of appeal under Bankr. R. 8002
(a) with respect to the order entering relief and the order denying Young’s motion to
convert, this Court does not have subject-matter jurisdiction to review those orders.
Accordingly, this Court only has subject-matter jurisdiction to review the bankruptcy
court’s order granting Creditors’ motions for summary judgment.
III
This court will affirm the bankruptcy court’s order granting Creditors’ motions
for summary judgment if, after viewing the record in the light most favorable to
Young, there are no genuine issues of material fact in dispute so that Creditors are
entitled to judgment as a matter of law. Maxfield v. Cintas Corp. No. 2, 427 F.3d 544,
549-50 (8th Cir. 2005). We will review the bankruptcy court’s grant of the Creditors’
motions for summary judgment de novo. U.S. Fidelity & Guarantee Ins. Co. v.
Commercial Union Midwest Inc., 430 F.3d 929, 933 (8th Cir. 2005).
IV
The sole basis for Young’s challenge to the bankruptcy court’s order granting
Creditors’ motion for summary judgment is that the court lacked subject- matter
jurisdiction over the underling involuntary Chapter 7 case. Young argues that because
he was a farmer, 11 U.S.C. § 303(a) deprived the bankruptcy court of subject-matter
jurisdiction over the underlying Chapter 7 case. This argument misconstrues the
nature of section 303(a).
Section 303(a) recites in relevant part that “An involuntary case may be
commenced . . . only against a person, except a farmer . . .”. The Eighth Circuit has
recently addressed the exact issue on appeal and has held that section 303(a) is not a
grant of subject-matter jurisdiction to the bankruptcy court. Marlar v. Williams (In
re Marlar), No. 052015 slip op. at 2. (8th Cir. filed Dec. 22, 2005). Rather, the
bankruptcy court’s subject-matter jurisdiction over any case under the Code is
conferred by 28 U.S.C. §§ 157 & 1334. Id. Section 303(a) simply defines the parties’
substantive rights. Id. An alleged debtor’s status as a farmer, therefore, is an
affirmative defense to an involuntary petition under section 303(a). Id.
If the alleged debtor fails to assert his status as a farmers as a defense to an
involuntary petition prior to the bankruptcy court entering an order for relief, then he
waives that defense. Id.; 11 U.S.C. § 303(h). Accordingly, if an alleged debtor
believes he is a farmer but nonetheless consents to bankruptcy court entering an order
of relief on the involuntary petition, he waives his farmer defense to the involuntary
petition. In re McCloy, 296 F.3d 370, 376 (5th Cir. 2002).
Here, the record reveals that although Young stated that he was a farmer in his
answers to the involuntary petition, he expressly consented to bankruptcy court
issuing an order of relief. Young did not raise his farmer status as a defense to the
involuntary petition until he filed his motion to convert his cases to a Chapter 11.
Accordingly, after reviewing the record in the light most favorable to Young, there are
no material facts in dispute that the bankruptcy court had subject- matter jurisdiction
over the Creditors’ adversary complaints. The bankruptcy court, therefore, did not err
in granting Creditors’ motions for summary judgment.
V
Young additionally contends that the bankruptcy court somehow violated his
rights under the Fourth and Fifth Amendments. Young does not cite any specific
action or order of the bankruptcy court that deprived him of his constitutional rights.
The Court surmises that Young’s argument is premised on the fact that once the
bankruptcy court entered the order for relief, he was required to turnover his business
records to the trustee. Therefore, Young appears to maintain that because the trustee
turned those records over to the United States Attorney, the entire bankruptcy process
deprived him of his rights against illegal searches and seizures and self-incrimination.
Young failed to present this issue to bankruptcy court. Young also did not
advance this position at oral argument. Accordingly, Young failed to preserve this
argument for appellate review and this Court will not review that argument in the first
instance on appeal. First Bank Investors’ Trust v. Tarkio College (In re Tarkio
College), 129 F.3d 471, 476-77 (8th Cir. 1997).
VI
After reviewing the record in the light most favorable to Young, it is clear that
Young explicitly consented to the bankruptcy court entering an order for relief on the
involuntary petition. The bankruptcy court, therefore, had subject-matter jurisdiction
over Young’s involuntary Chapter 7 case and the Creditors’ adversary complaints.
Accordingly, there are no material facts in dispute so that the Creditors were entitled
to judgment as a matter of law. Thus, the bankruptcy court did not err in granting the
Creditors’ motion for summary judgment.
Young additionally failed to preserve his constitutional argument for appellate
review. Young also failed to timely appeal the bankruptcy court’s order of relief on
the involuntary petition and the order denying Young’s motion to convert his case to
a proceeding under Chapter 11. Accordingly, the judgment of the bankruptcy court
is affirmed.
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