Steve Veltman v. Dennis Whetzal ( 1996 )

___________
No. 96-1508
___________
Steve Veltman; Sue Veltman, *
*
Appellants, *
* Appeal from the United States
v. * District Court for the
* District of South Dakota.
Dennis Whetzal, Chapter 7 *
Trustee; Internal Revenue *
Service, *
*
Appellees. *
___________
Submitted: June 12, 1996
Filed: August 22, 1996
___________
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's1 order dismissing
their bankruptcy appeal for lack of subject matter jurisdiction for failure
to file a timely notice of appeal. We affirm.
1
The Honorable Richard H. Battey, Chief Judge, United States
District Court the District of South Dakota.
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:
-2-
"[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
2
Veltmans to execute. On October 3, 1995, the Trustee filed a motion to
confirm the sale of the real property
2
The Veltmans did not execute and deliver the deeds, however,
until ordered to do so by the district court in the spring of 1996.
-3-
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.
-4-
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.
. . . .
3
The Veltmans do not assert that the notice requirements set
out in the bankruptcy rules were violated. See Fed. R. Bankr. P.
2002.
-5-
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 order.
-6-
We also doubt that the October 26th orders are now reviewable because
the property has already been sold. See 11 U.S.C. § 363(m).4 Even if we
review the later bankruptcy court orders of
4
As argued by the IRS in its motion to dismiss for lack of
subject matter jurisdiction, which was submitted to us after oral
argument, once a sale becomes final and a stay is not entered the
sale cannot be reviewed on appeal. See 11 U.S.C. § 363(m); see
also In re CGI Indus., Inc., 27 F.3d 296, 299 (7th Cir. 1994)
(stating that two complementary policies support this conclusion:
(1) the importance of encouraging finality in bankruptcy sales by
protecting good-faith purchasers; and (2) the court's general
jurisdictional bar from deciding cases in which it cannot provide
a remedy). But see In re Moberg Trucking, Inc., 112 B.R. 362, 363
(Bankr. 9th Cir. 1990) (stating that subsection 363(m) does not
render an appeal unreviewable when the appellant seeks to attack
the section 363 sale on the grounds of improper notice). The IRS
also submitted an affidavit by the Trustee in which the Trustee
attested that the real property had been conveyed to each buyer by
trustee's deed, that the Veltmans had supplied the warranty deeds
as ordered by the district court, and that those deeds had been
filed.
-7-
October 26, the Veltmans have failed to establish that the bankruptcy court
erred in authorizing the sale of the property free and clear of the
Veltmans interest. Under the Code, a bankruptcy trustee may sell property
of the bankruptcy estate under subsection 363(b) "free and clear of any
interest in such property of an entity other than the estate" if "such
entity consents." 11 U.S.C. § 363(f)(2). In the stipulation, the Veltmans
consented to the sale of the property free and clear of their interest.
They also consented to the sale of their property interest in their letter
of September 29, 1995. Moreover, the Veltmans did not dispute their
obligation to execute and supply the deeds to the real property in their
objection to the bankruptcy court's October orders confirming the sale.
Instead, they objected to any sale in which they would receive an amount
different than the sum agreed to in the stipulation. Thus, the Veltmans
consented to the sale of the lots and have waived any objection to the
sale.5
The Veltmans contend that their consent to the sale was conditioned
upon the enforcement of the stipulation. The Veltmans
5
Because the Veltmans consented to the sale of the property,
we need not rely on a theory of implied consent. Some courts have
found implied consent, however, when a party with an interest in
the bankruptcy estate fails to object after receiving notice of the
sale under subsection 363(f)(2). See In re Tabone, Inc., 175 B.R.
855, 858 (Bankr. D.N.J. 1994); In re Elliot, 94 B.R. 343, 345 (E.D.
Pa. 1988).
-8-
understandably express concern about the amount they will receive for their
property interest without the protection of the stipulation. Because this
question is essentially one of valuation, however, it is best left to the
bankruptcy court to resolve. While we recognize that the stipulation was
entered into while the case was proceeding under Chapter 11, the terms of
the stipulation seem to provide a fair and equitable resolution to the
valuation dispute. Unlike other "creditors," the Veltmans had an ownership
interest in the property. Moreover, the stipulation was executed by the
parties and accepted by the bankruptcy court on several occasions. Lastly,
as the district court noted, the Trustee did not submit a proposed
distribution of sale proceeds to the bankruptcy court. Veltman, 192 B.R.
at 202-03. In any event, we leave it to the bankruptcy court to determine
the value of the Veltmans' property interest in the fund.
The Veltmans next contend that the bankruptcy court erred in
authorizing the sale of their property interest without first complying
with bankruptcy provisions that require an adversarial proceeding prior to
the sale of an innocent co-owner's interest in a bankruptcy estate. See
11 U.S.C. § 363(h); Fed. R. Bankr. P. 7001. As discussed above, we do not
have subject matter jurisdiction to review the September 8th order
authorizing the sale because the Veltmans failed to file a timely notice
of appeal from that order. Moreover, it is doubtful that any of the
bankruptcy court's orders are reviewable now that the sale of the property
has become final. See 11 U.S.C. § 363(m); see also supra note 4. In any
event, the Veltmans have waived this argument by failing to present it to
the bankruptcy court in a timely manner.
If we reviewed the Veltmans' contention, we would find it to be
without merit. As the Veltmans acknowledge in their brief, subsection
363(h) is inapplicable if the non-debtor property owner consented to the
sale. We have already concluded that the Veltmans consented to the sale
of the property free and clear of their
-9-
interest and thus neither the protection provided by subsection 363(h) nor
a hearing was necessary.6
III. CONCLUSION
For the reasons discussed above, we conclude that we lack subject
matter jurisdiction to review this appeal. Accordingly, we affirm the
district court's order and leave it to the bankruptcy court to resolve the
valuation question as to the amount the Veltmans should receive for their
ownership interest in the property that was sold. The parties may also
present their arguments for costs, damages, and sanctions to the bankruptcy
court for consideration along with the valuation issue. All pending
motions are denied.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
6
The Veltmans reliance on In re Wickham, 127 B.R. 9, 11
(Bankr. E.D. Va. 1990) is misplaced. In that case, the court held
that the trustee must comply with the requirements of subsection
363(h) as well as those in subsection 363(f) to sell a non-debtor,
co-owner's interest in tenancy by the entirety property in the
bankruptcy estate because the co-owner opposed the sale. The
Veltmans' consent to the sale makes this a different case.
-10-