Joseph H. Badami v. Brian Wayne Burgess ( 2000 )

UNITED STATES BANKRUPTCY APPELLATE PANEL
FOR THE EIGHTH CIRCUIT
No. 99-6080 NE
In re: *
*
Brian Wayne Burgess, *
*
Debtor. *
*
Joseph H. Badami, Trustee * Appeal from the United States
* Bankruptcy Court for the
Plaintiff - Appellee, * District of Nebraska
*
v. *
*
Brian Wayne Burgess, *
*
Defendant - Appellant *
*
Tyne O’Keefe Burgess, *
fka Barbara I. Breshahan, *
*
Defendant - Appellee. *
Submitted: February 17, 2000
Filed: March 28, 2000
Before WILLIAM A. HILL, SCHERMER and DREHER, Bankruptcy Judges
SCHERMER, Bankruptcy Judge
The debtor, Brian Wayne Burgess (“Debtor”), appeals the order of the bankruptcy
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court approving the sale by Joseph H. Badami (“Trustee”) of the bankruptcy estate’s
interest in his residence to Tyne Burgess. The Debtor failed to obtain a stay of the sale
order pending appeal. The Trustee completed the sale of the estate’s interest in the
residence to Tyne Burgess and thereafter filed a motion to dismiss the appeal as moot.
We have jurisdiction over this appeal from the final order of the bankruptcy court. See
28 U.S.C. § 158(b). For the reasons set forth below, we grant the Trustee’s motion and
dismiss the appeal as moot.
ISSUE
The issue before this Court is whether the Debtor’s failure to obtain a stay pending
appeal of the order approving the sale combined with the Trustee’s sale of the estate’s
interest in the Debtor’s residence render the Debtor’s appeal of the order approving such
sale moot. In order to answer that question, we must determine whether Tyne Burgess is
a good faith purchaser entitled to the protection afforded by Section 363(m) of the
Bankruptcy Code.
BACKGROUND
The facts are not in dispute. This appeal arises out of an adversary proceeding
regarding certain real estate. On January 29, 1989, the Debtor and Tyne Burgess jointly
purchased a residence for approximately $136,000. Tyne Burgess contributed
$113,165.73 toward the purchase price of the residence. The Debtor and Tyne Burgess
borrowed $24,000 for the balance of the purchase price. On August 26, 1992, Tyne
Burgess signed a warranty deed transferring her entire interest in the residence to the
Debtor. Thereafter, Tyne Burgess filed a Chapter 7 bankruptcy petition in which she
listed no interest in the residence and indicated that she had transferred the residence to
her ex-boyfriend, the Debtor in the present case. On November 6, 1995, the Debtor
conveyed the residence by joint tenancy warranty deed to himself and Tyne Burgess.
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The Honorable John C. Minahan, United States Bankruptcy Judge for the District of
Nebraska.
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On July 24, 1998, the Debtor filed his Chapter 7 petition. Thereafter, the Trustee
filed a complaint to set aside the deed to the Debtor and Tyne Burgess as a fraudulent
transfer. The Debtor admitted each of the allegations in the Trustee’s complaint.
On September 14, 1999, the Trustee and Tyne Burgess entered into a settlement
agreement pursuant to which the Trustee agreed to sell the bankruptcy estate’s interest in
the residence to Tyne Burgess for $30,000. That same day, the Trustee filed a motion to
approve the sale of the residence to Tyne Burgess and to approve the settlement
agreement. The Debtor objected to the motion. After a hearing on October 29, 1999, the
bankruptcy court overruled the debtor’s objection and approved the motion.
On November 8, 1999, the Debtor filed a notice of appeal and on November 11,
1999, the Debtor filed a motion for stay of order pending appeal. The bankruptcy court
denied the motion for stay pending appeal on November 23, 1999. The Debtor took no
additional action to obtain a stay pending appeal. Thereafter the Trustee sold the
residence to Tyne Burgess in accordance with the order approving the sale. The Trustee
filed a motion to dismiss this appeal as moot in light of the consummation of the sale.
STANDARD OF REVIEW
Whether an appellant’s failure to obtain a stay of a sale under Section 363(m) of
the Bankruptcy Code renders the appeal moot is a question of law which we consider de
novo. Prasil v. Dietz (In re Prasil), 215 B.R. 582, 584 (8th Cir. B.A.P. 1998). Whether
Tyne Burgess is a good faith purchaser is a mixed question of fact and law. We review
the bankruptcy court’s findings of fact on a clearly erroneous standard and review its
legal conclusions de novo. In re Abbotts Dairies of Penn, Inc., 788 F.2d 143, 147 (3rd
Cir. 1986); In re Tempo Tech. Corp., 202 B.R. 363, 367 (D. Del. 1996).
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DISCUSSION
Section 363(m) of the Bankruptcy Code provides as follows:
The reversal or modification on appeal of an authorization
under . . . this section of a sale or lease of property does not
affect the validity of a sale or lease under such authorization
to an entity that purchased or leased such property in good
faith, whether or not such entity knew of the pendency of the
appeal, unless such authorization and such sale or lease were
stayed pending appeal.
11 U.S.C. § 363(m). An appellant must first seek a stay pending appeal from the
bankruptcy court which authorized the sale. In the event the bankruptcy court denies the
request for a stay pending appeal, the aggrieved party must then seek a stay pending
appeal from the district court or the bankruptcy appellate panel. Fed. Rule Bankr. P.
8005. In this case, the bankruptcy court denied the Debtor’s request for a stay pending
appeal. The Debtor then failed to further pursue a stay of the sale pending appeal with
either the district court or this court. The Trustee subsequently completed the sale in
accordance with the sale order. Therefore, the Debtor’s appeal must now be denied as
moot. Wintz v. Am. Freightways, Inc. (In re Wintz Co.), 230 B.R. 840, 845 (8th Cir.
B.A.P. 1999); Ross v. Strauss (In re Ross), 223 B.R. 702, 703-04 (8th Cir. B.A.P. 1998);
Prasil v. Dietz (In re Prasil), 215 B.R. 582, 584-85 (8th Cir. B.A.P. 1998).
The finality rule of Section 363(m) incorporates the judicial doctrine of mootness
which provides that where an appellate court cannot grant effective relief, the appeal
becomes moot. In addition, this rule serves the vital role of encouraging finality in
bankruptcy sales and protecting the rights of good faith purchasers. U.S. v. Fitzgerald,
109 F.3d 1339, 1342-43 (8th Cir. 1997); Veltman v. Whetzal, 93 F.3d 517, 521 n.4 (8th
Cir. 1996); Van Iperen v. Prod. Credit Ass’n of Worthington-Slayton Branch (In re Van
Iperen), 819 F.2d 189, 191 (8th Cir. 1987); Wintz v. Am. Freightways, Inc. (In re Wintz
Co.), 230 B.R. 840, 845 (8th Cir. B.A.P. 1999); Prasil v. Dietz (In re Prasil), 215 B.R.
582, 584 (8th Cir. B.A.P. 1998).
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The Debtor argues that Section 363(m) of the Bankruptcy Code does not apply to
this sale because Tyne Burgess was not a good faith purchaser. The relevant test is
twofold: a good faith purchaser is one who buys in good faith and for value. Ewell v.
Diebert (In re Ewell), 958 F.2d 276, 281 (9th Cir. 1992); In re Abbotts Dairies of Penn,
Inc., 788 F.2d 143 (3rd Cir. 1986).
Lack of good faith is shown by misconduct surrounding the sale. Typically, the
requisite misconduct necessary to establish a lack of good faith involves “fraud, collusion
between the purchaser and other bidders or the trustee, or an attempt to take grossly
unfair advantage of other bidders.” In re Rock Indus. Mach. Corp., 572 F.2d 1195, 1198
(7th Cir. 1978), quoted in Ewell v. Diebert (In re Ewell), 958 F.2d 276, 281 (9th Cir.
1992), In re Abbotts Dairies of Penn, Inc., 788 F.2d 143, 147 (3rd Cir. 1986), and In re
Tempo Tech. Corp., 202 B.R. 363, 367 (D. Del. 1996). The Debtor has not alleged any
such misconduct by Tyne Burgess, nor does any evidence of such misconduct appear in
the record on appeal.
The Debtor asserts that Tyne Burgess did not pay fair value and that therefore she
cannot be a good faith purchaser under Section 363(m). The relevant standard is whether
the purchaser paid value. Ewell v. Diebert (In re Ewell), 958 F.2d 276, 281 (9th Cir.
1992); In re Abbotts Dairies of Penn, Inc., 788 F.2d 143 (3rd Cir. 1986). Tyne Burgess
delivered $30,000 to the Trustee to purchase the estate’s interest in the residence. The
Debtor argues that his share of the residence was worth well in excess of that amount.
The Debtor claims that under Nebraska law, the interests of joint tenants in property are
presumed to be equal. Jindra v. Clayton, 529 N.W.2d 523, 528 (Neb. 1995); Anania v.
Anania, 576 N.W.2d 830, 836 (Neb. Ct. App. 1998). The Debtor contends that the
bankruptcy court erred when it gave Tyne Burgess credit for her contribution of the
$113,000 down payment toward the purchase of the residence when determining the
value of the estate’s interest therein. While Nebraska courts recognize a presumption of
equality of interest of joint tenants, they also recognize the possibility that the
presumption can be rebutted. See Anania v. Anania, 576 N.W.2d 830, 836-37 (Neb. Ct.
App. 1998). The bankruptcy court considered the relevant contributions of the two
parties toward the acquisition of the residence and the reasonableness of the purchase
price for the estate’s interest and determined the price was fair and reasonable under the
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circumstances. The bankruptcy court’s finding is supported by the evidence and is not
clearly erroneous. Consequently, the Debtor’s assertion that Tyne Burgess was not a
good faith purchaser is unsupported and therefore his argument that Section 363(m) of the
Bankruptcy Code does not apply to the Trustee’s sale to Tyne Burgess is without merit.
CONCLUSION
Section 363(m) of the Bankruptcy Code protects Tyne Burgess as a good faith
purchaser. In light of the Debtor’s failure to obtain a stay pending appeal and the
subsequent consummation of the sale, the Trustee’s motion to dismiss appeal as moot is
granted.
A true copy.
Attest:
CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE
EIGHTH CIRCUIT
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