United States Court of Appeals Fifth Circuit F I L E D IN THE UNITED STATES COURT OF APPEALS January 29, 2004
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III Clerk
No. 03-20347 Summary Calendar
In The Matter Of: STEPHANIE R PIERCE
Debtor
-------------------------
ELBAR INVESTMENTS INC
Appellant v.
STEPHANIE R PIERCE; PAMELA J FRANKLIN; GLEN CHEEK, Constable; DAVID G PEAKE, Trustee; HARRIS COUNTY; ALIEF INDEPENDENT SCHOOL DISTRICT; BEECHNUT MUNICIPAL UTILITY DISTRICT; FAIRBANKS CAPITAL CORP; CONTI MORTGAGE, Conti Mortgage Corporation
Appellees
-------------------- Appeal from the United States District Court for the Southern District of Texas No. H-02-CV-220 --------------------
Before KING, Chief Judge, and DAVIS and BARKSDALE, Circuit Judges.
PER CURIAM:*
Appellant Elbar Investments, Inc. appeals the district
court’s decision affirming the bankruptcy court’s judgment, which
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4. No. 03-20347 -2-
found, inter alia, that Elbar did not acquire any interest in the
real property purportedly auctioned at a constable’s tax sale
because the sale violated the automatic stay provision of 11
U.S.C. § 362. For the following reasons, we AFFIRM.
I. FACTUAL AND PROCEDURAL BACKGROUND
In 1998 and 1999, Debtor-Appellee Stephanie Pierce failed
to pay the property taxes assessed against her homestead. On
March 10, 2000, the local taxing authorities obtained a default
judgment against the Debtor1 and began proceedings to sell the
property at a constable’s sale. After learning of the tax
judgment, the mortgagee threatened to foreclose its mortgage for
nonpayment of taxes. In response, the Debtor entered into an
agreement with the mortgagee to pay the tax deficiency. The
mortgagee then forwarded a check to satisfy the tax judgment to
the Constable but, due to an inadequate description of the
property involved, it was returned. On August 1, 2000, the
Constable sold the property to the highest bidder, Elbar, for
$31,000. Elbar promptly paid the promised sum to the Constable.
Two days later––before issuing a deed or disbursing the
proceeds of the sale––the Constable received written notification
that the Debtor had filed for Chapter 13 bankruptcy protection
less than thirty minutes before the tax sale had taken place.
1 The Debtor’s mortgagee, Conti Mortgage Corp., was also listed as an in rem defendant in the tax suit. However, Fairbanks Capital Corp., Conti Mortgage’s successor in interest, is the current mortgagee of the Debtor’s homestead property. No. 03-20347 -3-
Both sides concede that, on the date of the tax sale, neither the
Constable nor Elbar had actual or constructive notice of the
Debtor’s bankruptcy filing. After receiving the bankruptcy
petition notice on August 3, however, the Constable informed the
parties that he would not take any further action regarding the
tax sale until directed by court order.
On August 15, 2000, Elbar filed a petition for relief from
the automatic stay under 11 U.S.C. § 362(d), asking the United
States Bankruptcy Court for the Southern District of Texas to
validate the tax sale retroactively. In addition, Elbar filed an
adversary proceeding in the bankruptcy court, seeking an
adjudication of the transfer of title. Elbar argued that, even
if the bankruptcy court refused to modify the automatic stay to
validate the Constable’s sale of the Debtor’s interest in the
real property, the stay did not prevent Elbar from acquiring the
mortagee’s interest in the property. Importantly, Elbar
explained that the mortgagee was listed as the Debtor’s co-
defendant in the tax suit; however, the automatic stay does not
protect co-defendants from the enforcement of pre-petition
judgments. Thus, under this logic, by placing the highest bid at
the tax sale and tendering payment, Elbar acquired at least the
mortgagee’s interest in the Debtor’s real property.
After holding a series of hearings, the bankruptcy court
rendered judgment on November 26, 2001. The court first noted
that 11 U.S.C. § 362(a) automatically stays the enforcement of No. 03-20347 -4-
pre-petition judgments against the Debtor’s property upon the
filing of a bankruptcy petition, regardless of whether creditors
have knowledge of the stay’s applicability. The court therefore
concluded that the tax sale was invalid and without legal effect
because it was conducted minutes after the Debtor petitioned for
bankruptcy protection. Second, the bankruptcy court agreed with
Elbar that it had discretionary authority to annul the stay
retroactively under 11 U.S.C. § 362(d) and could, therefore,
validate the tax sale. Nevertheless, the court declined to
exercise its power after concluding that the Debtor had filed her
bankruptcy petition in good faith, believing that she had already
resolved her tax delinquency. Finally, the court concluded that
because the tax sale was void under § 362, the sale was
ineffective to transfer any interest in the Debtor’s real
property––including the mortgagee’s interest––to Elbar. The
court therefore ordered the Constable both to return the $31,000
to Elbar and to terminate the tax sale proceedings.
Elbar appealed the bankruptcy court’s judgment to the United
States District Court for the Southern District of Texas. The
district court agreed with the bankruptcy court that, because the
tax sale violated the automatic stay provision of § 362, it was
invalid and incapable of transferring the mortgagee’s lien
interest in the property to Elbar.2
2 Before both the bankruptcy court and the district court, Elbar further argued that 11 U.S.C. § 549(c) carves-out an exception to the automatic stay provision for good-faith No. 03-20347 -5- II. DISCUSSION
Like the district court, we review the bankruptcy court’s
factual findings for clear error and its legal conclusions de
novo. Universal Seismic Assocs., Inc. v. Harris County (In re
Universal Seismic Assocs., Inc.), 288 F.3d 205, 207 (5th Cir.
2002).
On appeal, Elbar reasserts its position that it purchased
the mortgagee’s interest in the debtor’s homestead property at
the August 1, 2000, tax sale. Elbar correctly states that, in
many instances, the automatic stay provision does not bar
creditors from enforcing a pre-petition judgment against a
Debtor’s co-defendants. See, e.g., Wedgeworth v. Fibreboard
Corp., 706 F.2d 541 (5th Cir. 1983). Nevertheless, Elbar cites
no authority that even remotely supports its novel theory that
the highest bidder at an invalid tax sale obtains the mortgagee’s
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United States Court of Appeals Fifth Circuit F I L E D IN THE UNITED STATES COURT OF APPEALS January 29, 2004
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III Clerk
No. 03-20347 Summary Calendar
In The Matter Of: STEPHANIE R PIERCE
Debtor
-------------------------
ELBAR INVESTMENTS INC
Appellant v.
STEPHANIE R PIERCE; PAMELA J FRANKLIN; GLEN CHEEK, Constable; DAVID G PEAKE, Trustee; HARRIS COUNTY; ALIEF INDEPENDENT SCHOOL DISTRICT; BEECHNUT MUNICIPAL UTILITY DISTRICT; FAIRBANKS CAPITAL CORP; CONTI MORTGAGE, Conti Mortgage Corporation
Appellees
-------------------- Appeal from the United States District Court for the Southern District of Texas No. H-02-CV-220 --------------------
Before KING, Chief Judge, and DAVIS and BARKSDALE, Circuit Judges.
PER CURIAM:*
Appellant Elbar Investments, Inc. appeals the district
court’s decision affirming the bankruptcy court’s judgment, which
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4. No. 03-20347 -2-
found, inter alia, that Elbar did not acquire any interest in the
real property purportedly auctioned at a constable’s tax sale
because the sale violated the automatic stay provision of 11
U.S.C. § 362. For the following reasons, we AFFIRM.
I. FACTUAL AND PROCEDURAL BACKGROUND
In 1998 and 1999, Debtor-Appellee Stephanie Pierce failed
to pay the property taxes assessed against her homestead. On
March 10, 2000, the local taxing authorities obtained a default
judgment against the Debtor1 and began proceedings to sell the
property at a constable’s sale. After learning of the tax
judgment, the mortgagee threatened to foreclose its mortgage for
nonpayment of taxes. In response, the Debtor entered into an
agreement with the mortgagee to pay the tax deficiency. The
mortgagee then forwarded a check to satisfy the tax judgment to
the Constable but, due to an inadequate description of the
property involved, it was returned. On August 1, 2000, the
Constable sold the property to the highest bidder, Elbar, for
$31,000. Elbar promptly paid the promised sum to the Constable.
Two days later––before issuing a deed or disbursing the
proceeds of the sale––the Constable received written notification
that the Debtor had filed for Chapter 13 bankruptcy protection
less than thirty minutes before the tax sale had taken place.
1 The Debtor’s mortgagee, Conti Mortgage Corp., was also listed as an in rem defendant in the tax suit. However, Fairbanks Capital Corp., Conti Mortgage’s successor in interest, is the current mortgagee of the Debtor’s homestead property. No. 03-20347 -3-
Both sides concede that, on the date of the tax sale, neither the
Constable nor Elbar had actual or constructive notice of the
Debtor’s bankruptcy filing. After receiving the bankruptcy
petition notice on August 3, however, the Constable informed the
parties that he would not take any further action regarding the
tax sale until directed by court order.
On August 15, 2000, Elbar filed a petition for relief from
the automatic stay under 11 U.S.C. § 362(d), asking the United
States Bankruptcy Court for the Southern District of Texas to
validate the tax sale retroactively. In addition, Elbar filed an
adversary proceeding in the bankruptcy court, seeking an
adjudication of the transfer of title. Elbar argued that, even
if the bankruptcy court refused to modify the automatic stay to
validate the Constable’s sale of the Debtor’s interest in the
real property, the stay did not prevent Elbar from acquiring the
mortagee’s interest in the property. Importantly, Elbar
explained that the mortgagee was listed as the Debtor’s co-
defendant in the tax suit; however, the automatic stay does not
protect co-defendants from the enforcement of pre-petition
judgments. Thus, under this logic, by placing the highest bid at
the tax sale and tendering payment, Elbar acquired at least the
mortgagee’s interest in the Debtor’s real property.
After holding a series of hearings, the bankruptcy court
rendered judgment on November 26, 2001. The court first noted
that 11 U.S.C. § 362(a) automatically stays the enforcement of No. 03-20347 -4-
pre-petition judgments against the Debtor’s property upon the
filing of a bankruptcy petition, regardless of whether creditors
have knowledge of the stay’s applicability. The court therefore
concluded that the tax sale was invalid and without legal effect
because it was conducted minutes after the Debtor petitioned for
bankruptcy protection. Second, the bankruptcy court agreed with
Elbar that it had discretionary authority to annul the stay
retroactively under 11 U.S.C. § 362(d) and could, therefore,
validate the tax sale. Nevertheless, the court declined to
exercise its power after concluding that the Debtor had filed her
bankruptcy petition in good faith, believing that she had already
resolved her tax delinquency. Finally, the court concluded that
because the tax sale was void under § 362, the sale was
ineffective to transfer any interest in the Debtor’s real
property––including the mortgagee’s interest––to Elbar. The
court therefore ordered the Constable both to return the $31,000
to Elbar and to terminate the tax sale proceedings.
Elbar appealed the bankruptcy court’s judgment to the United
States District Court for the Southern District of Texas. The
district court agreed with the bankruptcy court that, because the
tax sale violated the automatic stay provision of § 362, it was
invalid and incapable of transferring the mortgagee’s lien
interest in the property to Elbar.2
2 Before both the bankruptcy court and the district court, Elbar further argued that 11 U.S.C. § 549(c) carves-out an exception to the automatic stay provision for good-faith No. 03-20347 -5- II. DISCUSSION
Like the district court, we review the bankruptcy court’s
factual findings for clear error and its legal conclusions de
novo. Universal Seismic Assocs., Inc. v. Harris County (In re
Universal Seismic Assocs., Inc.), 288 F.3d 205, 207 (5th Cir.
2002).
On appeal, Elbar reasserts its position that it purchased
the mortgagee’s interest in the debtor’s homestead property at
the August 1, 2000, tax sale. Elbar correctly states that, in
many instances, the automatic stay provision does not bar
creditors from enforcing a pre-petition judgment against a
Debtor’s co-defendants. See, e.g., Wedgeworth v. Fibreboard
Corp., 706 F.2d 541 (5th Cir. 1983). Nevertheless, Elbar cites
no authority that even remotely supports its novel theory that
the highest bidder at an invalid tax sale obtains the mortgagee’s
security interest in the property, simply because the mortgagee
was an in rem co-defendant in the Debtor’s tax deficiency
purchasers of a Debtor’s real property who lack notice of the Debtor’s pending bankruptcy. The bankruptcy court and the district court disagreed, however, and held that a post-petition foreclosure sale of the Debtor’s property is invalid under § 362 automatically, unless the bankruptcy court chooses to exercise its discretion to annul the stay retroactively. Since the bankruptcy court did not exercise its discretion in this case, both courts concluded that Elbar’s attempt to purchase the Debtor’s property at the tax sale was not salvaged by § 549(c). In its brief on appeal, Elbar neither raises this issue nor argues that § 549(c) creates an exception to § 362. Therefore, this argument has been waived and will not be considered by this court. United Paperworkers Int’l Union v. Champion Int’l Corp., 908 F.2d 1252, 1255 (5th Cir. 1990). No. 03-20347 -6- judgment.3 Critically, 11 U.S.C. § 362(a) automatically stayed
the tax sale proceedings; thus, the bankruptcy court correctly
held that the tax sale conducted on August 15, 2000, was null and
without legal effect. We therefore agree with the bankruptcy and
district courts that Elbar did not acquire any interest in the
Debtor’s property on August 15, 2000.
III. CONCLUSION
Accordingly, we AFFIRM the district court’s judgment
affirming the decision of the bankruptcy court.
3 In Texas, “a lien holder must be joined as a party in a suit to enforce a tax lien,” Murphee Prop. Holdings, Ltd. v. Sunbelt Sav. Ass’n, 817 S.W.2d 850, 852 (Tex. App.—Houston [1st Dist.] 1991, no writ), because its lien will be “subject to preemption by the tax lien[]” once a tax deficiency judgment is rendered against the owner of the real property, BW Village, Ltd. v. Tricorn Enters., Inc., 879 S.W.2d 205, 207 (Tex. App.—Houston [14th Dist.] 1994, writ denied). But the lien holder is merely an in rem defendant, and is “not jointly and severally liable . . . for the [tax] judgment”; rather, it is “joined as a party solely in its capacity as a lienholder.” Id. at 206-07. Thus, Elbar’s analogy between the mortgagee in this case and the co-defendants in Wedgeworth fails to persuade. See 706 F.2d at 542-46 (holding that the automatic stay does not prevent suits against a Debtor’s joint tortfeasors).