In re: Global Reach Investment Corp. ( 2012 )


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  •                                                            FILED
    MAR 20 2012
    1                                                    SUSAN M SPRAUL, CLERK
    U.S. BKCY. APP. PANEL
    2                                                        OF THE NINTH CIRCUIT
    3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
    4                            OF THE NINTH CIRCUIT
    5   In re:                        )       BAP No. NC-11-1187-SaDH
    )
    6   Global Reach Investment Corp.,)      Bk. No. 10-32303
    )
    7                  Debtor.        )
    ______________________________)
    8                                 )
    Herman Kwai                   )
    9                                 )
    Appellant,     )
    10                                 )
    v.                            )       M E M O R A N D U M1
    11                                 )
    Andrea Wirum, Trustee         )
    12                                 )
    Appellee.      )
    13   ______________________________)
    14                        Submitted on January 19, 2012
    at San Francisco, California
    15
    Filed - March 20, 2012
    16
    Appeal from the United States Bankruptcy Court
    17                   for the Northern District of California
    18            Honorable Dennis Montali, Bankruptcy Judge, Presiding
    19
    Appearances:     Chinin Tana argued for Appellant; Charles Patrick
    20                    Maher of Luce, Forward, Hamilton & Scripps LLP,
    argued for Appellee.
    21
    22   Before: SALTZMAN,2 DUNN and HOLLOWELL, Bankruptcy Judges.
    23
    24
    1
    This disposition is not appropriate for publication.
    25   Although it may be cited for whatever persuasive value it may
    26   have (see Fed. R. App. P. 32.1), it has no precedential value.
    See 9th Cir. BAP Rule 8013-1.
    27
    2
    Hon. Deborah J. Saltzman, Bankruptcy Judge for the Central
    28   District of California, sitting by designation.
    1        This appeal arises from the bankruptcy court’s order
    2   granting the chapter 73 trustee’s motion to sell the debtor’s
    3   100% interest in stock of Starble International, Ltd. (“Starble”)
    4   to D. Chan Investment Co. (Cayman) Ltd. (“Chan Investment”) as
    5   designee of Burlingame Investment Corporation (“Burlingame”).
    6   For the reasons set forth below, we AFFIRM the bankruptcy court’s
    7   order authorizing the sale of the Starble stock to Chan
    8   Investment.
    9                               I.     FACTS
    10        On June 22, 2010, Global Reach Investment Corp. (the
    11   “Debtor”) filed a voluntary chapter 7 petition.      In its
    12   bankruptcy schedules, the Debtor listed 100% ownership of the
    13   Starble stock as an asset with a value of $4.7 million.       Before
    14   the Debtor’s bankruptcy filing, Herman Kwai (“Kwai”), the
    15   Debtor’s sole shareholder, and Burlingame, among other entities,
    16   were involved in litigation in at least three different courts
    17   regarding a variety of issues related to the Debtor and Starble,
    18   including matters that could impact the ownership rights to the
    19   Starble stock.
    20        During the bankruptcy, Andrea Wirum, the chapter 7 trustee
    21   (the “Trustee”), sought to sell the Debtor’s interest in the
    22   Starble stock under section 363.       After some negotiations,
    23
    24
    25
    26        3
    Unless otherwise specified, all chapter and section
    27   references are to the Bankruptcy Code, 
    11 U.S.C. §§ 101-1532
    , and
    all “Rule” references are to the Federal Rules of Bankruptcy
    28   Procedure, Rules 1001-9037.
    2
    1   Burlingame offered $20,0004 to purchase the Debtor’s interest in
    2   the Starble stock by quitclaim deed.   Kwai, among others,5 raised
    3   several objections to the sale, asserting that: (1) the
    4   bankruptcy court could not approve a sale where ownership of the
    5   Starble stock was in dispute based on this panel’s decision in
    6   Darby v. Zimmerman (In re Popp), 
    323 B.R. 260
    , 265 (9th Cir. BAP
    7   2005); and (2) Chan Investment was not a “good faith purchaser”
    8   under section 363(m).
    9        Over Kwai’s objections, the bankruptcy court approved the
    10   Trustee’s sale of the Debtor’s interest in the Starble stock to
    11   Chan Investment.   In approving the sale, the bankruptcy court
    12   concluded that In re Popp did not apply because the Trustee
    13   sought only to sell the Starble stock by quitclaim deed (i.e.,
    14   the dispute over ownership of the stock did not matter because
    15   the Trustee sought only to sell whatever interest the Debtor
    16   owned in the Starble stock, even if that interest was nothing).
    17   The bankruptcy court further concluded that Chan Investment was a
    18   good faith purchaser within the meaning of section 363(m) because
    19   it had negotiated a deal with the Trustee at arms’ length, did
    20
    21
    4
    22          Burlingame was a creditor of the Debtor and initially made
    a purchase offer of $20,000 plus a $50,000 reduction in its claim
    23   against the Debtor. Because the bankruptcy court expressed
    24   concerns that a $50,000 reduction in Burlingame’s claim was
    illusory, it was eliminated from the offer.
    25
    5
    In addition to Kwai, Jeffrey Chang, Michael Choy, Rafael
    26   Pacquing and Chinin Tana objected to the sale of the Starble
    27   stock. The bankruptcy court overruled the objections of all
    parties except Kwai because they lacked standing to object. Only
    28   Kwai appealed the bankruptcy court’s order approving the sale.
    3
    1   not engage in fraud and did not collude with the Trustee to
    2   purchase the Starble stock.
    3           Subsequently, the bankruptcy court denied both Kwai’s timely
    4   motion to reconsider the order approving the sale and Kwai’s
    5   timely motion for a stay pending appeal.           This appeal followed,
    6   and Kwai immediately moved this Panel for a stay pending appeal.
    7   By order entered April 28, 2011, this Panel denied Kwai’s motion
    8   for stay pending appeal for lack of evidence supporting a
    9   discretionary stay pending appeal under the factors outlined in
    10   Wymer v. Wymer (In re Wymer), 
    5 B.R. 802
    , 806 (9th Cir. BAP
    11   1980).
    12                                II.    JURISDICTION
    13           The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
    14   §§ 1334 and 157(b)(1) and (b)(2)(N).          This Panel has jurisdiction
    15   over appeals pursuant to 
    28 U.S.C. § 158
    .
    16                                      III.   ISSUE
    17           Whether the bankruptcy court erred in finding Chan
    18   Investment a “good faith purchaser” within the meaning of section
    19   363(m).
    20                          IV.    STANDARDS OF REVIEW
    21           This Panel reviews a bankruptcy court’s factual findings for
    22   clear error.    In re BCE West, L.P., 
    319 F.3d 1166
    , 1170 (9th Cir.
    23   2003) (citing Carillo v. Su (In re Su), 
    290 F.3d 1140
    , 1142 (9th
    24   Cir. 2002)).    Mixed questions of law and fact are reviewed de
    25   novo.    
    Id.
       A finding is clearly erroneous if it is “illogical,
    26   implausible, or without support in the record.”          Retz v. Samson
    27   (In re Retz), 
    606 F.3d 1189
    , 1196 (9th Cir. 2010) (citing United
    28   States v. Hinkson, 
    585 F.3d 1247
    , 1261-62 & n.21 (9th Cir. 2009)
    4
    1   (en banc)).
    2                             V.   DISCUSSION
    3   A.   Good Faith Finding
    4        Sales of estate property under section 363(b) and (c) are
    5   insulated from appeals by the safe harbor provision of section
    6   363(m).   Paulman v. Gateway Ventures Partners III, L.P. (In re
    7   Filtercorp, Inc.), 
    163 F.3d 570
    , 576 (9th Cir. 1998); In re
    8   Ewell, 
    958 F.2d 276
    , 280 (9th Cir. 1992); In re Onouli-Kona Land
    9   Co., 
    846 F.2d 1170
    , 1172-73 (9th Cir. 1988); see also Clear
    10   Channel Outdoor, Inc. v. Knupfer (In re PW, LLC), 
    391 B.R. 25
    , 35
    11   (9th Cir. BAP 2008).   Section 363(m) provides:
    12        The   reversal   or  modification   on   appeal   of   an
    authorization under subsection (b) or (c) of this section
    13        of a sale or lease of property does not affect the
    validity of a sale or lease under such authorization to
    14        an entity that purchased or leased such property in good
    faith, whether or not such entity knew of the pendency of
    15        the appeal, unless such authorization and such sale or
    lease were stayed pending appeal.
    16
    17   
    11 U.S.C. § 363
    (m).
    18        Where no stay pending appeal is obtained, an appellate court
    19   is precluded from reviewing issues other than the “good faith” of
    20   the purchaser.   See Ferrari N. Am., Inc. v. Sims (In re R.B.B.,
    21   Inc.), 
    211 F.3d 475
    , 478-80 (9th Cir. 2000); Ewell, 
    958 F.2d at
    22   281 (“As indicated in § 363(m), a stay is not required to
    23   challenge a sale on the grounds that an entity did not purchase
    24   in good faith . . . .”); see also Licensing by Paolo v. Sinatra
    25   (In re Gucci), 
    105 F.3d 837
     (2d Cir. 1997) (failure to obtain
    26   stay of order approving sale deprives appellate court of
    27   jurisdiction to determine any issue other than good faith of
    28   purchaser).   Phrased differently, “even though an appeal from an
    5
    1   order approving a sale is moot if the sale has not been stayed
    2   and is consummated, there are several exceptions.”      One such
    3   exception is “questioning whether the purchaser purchased the
    4   property in good faith.”      In re Fitzgerald, 
    428 B.R. 872
    , 880
    5   (9th Cir. BAP 2010) (citing Sw. Prods., Inc. v. Durkin (In re Sw.
    6   Prods.), 
    144 B.R. 100
    , 102-03 (9th Cir. BAP 1992)).
    7          Here, despite two attempts (one in bankruptcy court and one
    8   in this court), Kwai did not obtain a stay pending appeal.
    9   Because Kwai never successfully obtained a stay, we are precluded
    10   from reviewing anything other than the “good faith” of Chan
    11   Investment.
    12   B.     Good Faith Purchaser
    13          The Bankruptcy Code does not define “good faith purchaser,”
    14   but the Panel has found a “good faith purchaser” to be one who
    15   buys “in good faith” and “for value.”      T.C. Investors v. Joseph
    16   (In re M Capital Corp.), 
    290 B.R. 743
    , 746 (9th Cir. BAP 2003).
    17   “Typically, lack of good faith is shown by fraud, collusion
    18   between the purchaser and other bidders or the trustee, or an
    19   attempt to take grossly unfair advantage of other bidders.”
    20   Ewell, 
    958 F.2d at 279
    .       The burden of proof to show “good faith”
    21   is on the proponent of good faith.       M Capital Corp., 
    290 B.R. at
    22   747.
    23          Here, Kwai attacks the bankruptcy court’s factual finding
    24   that Chan Investment was a “good faith purchaser” by arguing that
    25   because Chan Investment had knowledge of adverse ownership claims
    26   to the Starble stock (i.e., as the designee of Burlingame, Chan
    27   Investment knew of the state court action regarding the ownership
    28   dispute), it could not have been a “good faith purchaser” under
    6
    1   the reasoning of In re Mark Bell Furniture Warehouse, Inc.,
    2   
    992 F.2d 7
    , 8 (1st Cir. 1993).6
    3        Conversely, the Trustee argues that Chan Investment was a
    4   good faith purchaser because it negotiated the purchase of the
    5   Starble stock for $20,000 at arms’ length, no fraud or collusion
    6   existed, and Chan Investment did not take grossly unfair
    7   advantage of any other potential purchasers.   The Trustee further
    8   contends that Mark Bell is unpersuasive because it does not
    9   sufficiently define what constitutes “knowledge of adverse
    10   claims.”
    11        The bankruptcy court did not err in finding Chan Investment
    12   a “good faith purchaser” within the meaning of section 363(m).
    13   The bankruptcy court relied on both written evidence (Mitchell
    14   Meyer’s declaration) and oral representations of the Trustee at
    15   the sale hearing to make its decision.   Kwai has not identified
    16   any factual basis to show that the bankruptcy court erred in
    17   making this determination.   Instead, Kwai attempts to persuade
    18   this Panel to adopt another circuit’s legal standard when the law
    19   in the Ninth Circuit is clear:7 a “good faith purchaser” is one
    20   who buys “in good faith” and “for value.”   M Capital Corp, 290
    21
    6
    22          A good faith purchaser is “one who buys property . . . for
    value, without knowledge of adverse claims.” In re Mark Bell
    23   Furniture Warehouse, Inc., 
    992 F.2d 7
    , 8 (1st Cir. 1993)
    24   (emphasis added).
    7
    25          Mark Bell, a First Circuit decision, is not binding
    precedent in the Ninth Circuit. See Hart v. Massanari, 
    266 F.3d 26
       1155, 1172-73 (9th Cir. 2001) (“[A]n opinion of our court is
    27   binding within our circuit, not elsewhere in the country. The
    courts of appeal, and even the lower courts of other circuits,
    28   may decline to follow the rule we announce . . .”).
    7
    1   B.R. at 746.   In the Ninth Circuit, the “good faith” inquiry
    2   centers on fraud, collusion between the purchaser and other
    3   bidders or the trustee or an attempt to take grossly unfair
    4   advantage of other bidders - not whether a buyer knows of adverse
    5   claims.   See Ewell, 
    958 F.2d at 279
    .
    6        Chan Investment’s knowledge of adverse ownership claims to
    7   the Starble stock is immaterial.       The bankruptcy court found that
    8   Chan Investment did not defraud other parties, did not collude
    9   with the Trustee, did not take grossly unfair advantage of other
    10   potential purchasers and paid $20,000 for the stock.      The
    11   bankruptcy court correctly applied Ninth Circuit law in finding
    12   Chan Investment a “good faith purchaser” and did not err in this
    13   determination.    To the extent Kwai challenges the merits of this
    14   appeal based on the applicability of In re Popp, 
    323 B.R. 260
    , we
    15   address this challenge below.
    16   C.   Applicability of In re Popp
    17        Kwai alternatively contends that the safe harbor protections
    18   of section 363(m) cannot apply to a sale to which section 363
    19   does not apply.   See In re Popp, 
    323 B.R. 260
     (reversing approval
    20   of a sale of real property under section 363 where the bankruptcy
    21   court made a determination that the estate was authorized to sell
    22   the property while litigation over ownership was pending).      Kwai
    23   asserts that because ownership of the Starble stock was in
    24   dispute, it was unclear whether the stock even constituted
    25   property of the estate to which section 363 could apply.8
    26
    8
    27          Section 363 provides that “[t]he trustee, after notice and
    a hearing, may use, sell, or lease, other than in the ordinary
    28                                                      (continued...)
    8
    1   Following In re Popp, Kwai argues that the bankruptcy court
    2   should have waited until ownership of the Starble stock was
    3   finally determined in the state court action before proceeding
    4   with a sale under section 363(b).
    5        In response, the Trustee asserts that In re Popp is
    6   inapplicable for two reasons: (1) the Trustee was selling only
    7   whatever interest the estate owned (i.e., quitclaiming the
    8   estate’s interest, if any, to the potential buyer); and (2) the
    9   Debtor specifically listed 100% ownership interest in the Starble
    10   stock on its bankruptcy schedules and never disclosed a dispute
    11   over ownership until the Trustee sought to sell the stock.
    12        The Trustee’s arguments are more persuasive.    This case is
    13   distinguishable from In re Popp.     In In re Popp, the chapter 7
    14   trustee sought to convey fee title in real property while title
    15   was held in a non-debtor third party’s name, and there was
    16   pending litigation as to whether the real property was property
    17   of the estate.   Here, the Trustee seeks only to sell whatever
    18   interest, if any, the Debtor may own in the Starble stock.
    19   Although several parties have sued the Debtor over ownership of
    20   the stock, the Debtor unambiguously listed in Schedule B under
    21   the subheading “Stock and interests in incorporated and
    22   unincorporated businesses” that it “owns 500 shares of common
    23   stock [in Starble International Ltd.], representing a 100%
    24   interest in Starble . . . .”
    25        Chan Investment knew of the pending ownership dispute, knew
    26
    8
    27         (...continued)
    course of business, property of the estate . . .”     11 U.S.C.
    28   § 363(b)(1) (emphasis added).
    9
    1   the sale terms, knew it would receive the Starble stock by
    2   quitclaim deed and knew the Debtor could possibly have no
    3   ownership interest in the stock.       The bankruptcy court’s order
    4   simply authorized the Trustee to sell whatever interest the
    5   estate had – even if that interest was nothing - to a buyer with
    6   full knowledge of the situation.       Nothing in In re Popp precludes
    7   such an order.9
    8                            VI.     CONCLUSION
    9        For the reasons set forth above, the bankruptcy court did
    10   not err in finding Chan Investment a good faith purchaser subject
    11   to the protections of section 363(m) and authorizing the sale of
    12   the Starble stock accordingly.    We AFFIRM.
    13
    14
    15
    16
    17
    18
    19
    20
    21
    22
    23
    9
    Further, In re Popp was primarily based on In re Rodeo
    24
    Canon Dev. Corp., 
    362 F.3d 603
     (9th Cir. 2005), which held that a
    25   bankruptcy court could not authorize a sale under section 363
    until the court determined whether the estate had an ownership
    26   interest in the property to be sold. However, the Ninth Circuit
    27   withdrew that opinion on March 8, 2005. See In re Rodeo Canon
    Dev. Corp., 
    2005 WL 663421
    , Nos. 02-56999, 02-57203 (9th Cir.
    28   March 8, 2005).
    10