FILED DEC 17 2014 1 NOT FOR PUBLICATION 2 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. NC-13-1299-PaJuKu ) 6 THE ZUERCHER TRUST OF 1999, ) Bankr. No. 12-32747-HLB ) 7 Debtor. ) ______________________________) 8 ) THE ZUERCHER TRUST OF 1999, ) 9 ) Appellant, ) 10 ) v. ) M E M O R A N D U M1 11 ) PETER S. KRAVITZ, Chapter 11 ) 12 Trustee; WIN WIN ALEXANDRIA ) UNION, LLC, ) 13 ) Appellees. ) 14 ______________________________) 15 Argued and Submitted on October 23, 2014, at San Francisco, CA 16 Filed - December 17, 2014 17 Appeal from the United States Bankruptcy Court 18 for the Northern District of California 19 Honorable Hannah L. Blumenstiel, Bankruptcy Judge, Presiding 20 Appearances: Bradley Kass of Kass & Kass Law Offices argued for 21 appellant The Zuercher Trust of 1999; Reagan Elizabeth Boyce of Ezra Brutkus Gubner LLP argued 22 for appellee Peter S. Kravitz; Elsa Horowitz of Wolf, Rifkin, Shapiro, Schulman & Rabkin, LLP 23 argued for appellee Win Win Alexander Union, LLC. 24 Before: PAPPAS, JURY, and KURTZ, Bankruptcy Judges. 25 26 1 This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8013-1. 1 Chapter 112 debtor The Zuercher Trust of 1999 (“Debtor”) 2 appeals the order of the bankruptcy court approving the trustee’s 3 sale of two real properties under § 363. We conclude that the 4 bankruptcy court did not err in finding in the sale order that 5 creditor Win Win Alexandria Union, LLC (“Win Win”) at the time of 6 the sale order was a good faith purchaser for purposes of 7 § 363(m). However, consistent with our precedent, we must REMAND 8 this matter to the bankruptcy court to decide whether it should 9 reconsider its good faith finding based upon events and facts 10 occurring after entry of the sale order. 11 I. FACTS 12 A. Background 13 Debtor, a business trust, owns and develops real estate in 14 California. Its managing member is Monica Hujazi (“Hujazi”). At 15 issue in this appeal is the bankruptcy court’s approval of the 16 sale of two Los Angeles properties owned by Debtor, one located 17 on Alexandria Avenue (the “Alexandria Property”), and the other 18 on Union Avenue (the “Union Property” and, together, the 19 “Properties”). 20 On June 24, 2005, East West Bank loaned $4,250,000 to Debtor 21 and co-borrower Hujazi (the “Alexandria Note”) secured by a deed 22 of trust against the Alexandria Property. The same day, East 23 West Bank loaned Debtor and Hujazi $2,254,000 (the “Union Note”) 24 25 2 Unless otherwise indicated, all chapter and section 26 references are to the Bankruptcy Code, 11 U.S.C. §§ 101–1532, all 27 Rule references are to the Federal Rules of Bankruptcy Procedure, Rules 1001–9037, and all Civil Rule references are to the Federal 28 Rules of Civil Procedure 1–86.
-2- 1 secured by a deed of trust against the Union Property. 2 Debtors operated the Properties as apartment complexes. On 3 November 15, 2010, Debtor and Hujazi defaulted under the terms of 4 the Alexandria and Union Notes by failing to pay the amounts due. 5 In February of 2011, East West Bank assigned the Notes and the 6 trust deeds securing them to Win Win. By that time, the 7 Properties had been placed involuntarily into the Rent Escrow 8 Account Program (“REAP”) by the Los Angeles Housing Department. 9 See L.A., CAL. HOUSING CODE § 162.00 et seq. REAP is an 10 enforcement tool used to ensure that landlords adequately 11 maintain rental properties and to bring improperly maintained 12 properties with building and safety code violations into 13 compliance. While a property is enrolled in REAP, rents from 14 tenants are not paid to the landlord/owner but, instead, into a 15 city trust fund. 16 Win Win filed a complaint in state court for, inter alia, 17 judicial foreclosure of the trust deeds on the Properties and the 18 appointment of a receiver, alleging that, in addition to the 19 default on its loan obligations, Debtor was not taking the 20 necessary steps to maintain the Properties and that there was a 21 need to remedy building and safety code violations in order to 22 remove the Properties from the REAP program. Win Win Alexandria 23 Union, LLC v. Hujazi, case no. BC 456257 (Los Angeles Super. Ct. 24 March 1, 2011). After a contested hearing, on March 16, 2011, 25 the state court granted Win Win’s request to appoint a receiver 26 and entered an order appointing Kevin Singer (“Receiver”). Win 27 Win was ordered by the state court to pay all costs of the 28 receivership as well as the costs of the required repairs and
-3- 1 corrections to bring the Properties into compliance so they could 2 be removed from REAP. Win Win alleges that, since March 1, 2011, 3 it has advanced all fees and costs associated with the 4 receivership and with the rehabilitation of the Properties. On 5 July 26, 2012, the Alexandria Property was released from REAP; 6 the Union Property was released from REAP in March 2013. 7 On September 24, 2012, the state court denied Debtor’s 8 request for a stay of the foreclosure proceedings. The 9 Alexandria Property, now out of REAP, was scheduled for a deed of 10 trust sale to occur on September 26, 2012. 11 B. The Bankruptcy Case 12 Debtor filed a petition under chapter 11 of the Bankruptcy 13 Code the day of the trustee’s sale. At that time, approximately 14 $7,459,000 was owed on the Alexandria Note and $5,595,000 on the 15 Union Note. 16 On October 5, 2012, Win Win filed a motion in the bankruptcy 17 court for relief from the automatic stay to continue with its 18 foreclosures, arguing that the Alexandria and Union Properties 19 were over-encumbered; Win Win also sought dismissal of the 20 bankruptcy case. In support of its motion, Win Win provided an 21 accounting of amounts owed under the Notes together with the 22 amounts it had paid to the Receiver and to obtain appraisals of 23 the Properties. According to a declaration of appraiser 24 D. Michael Mason, he valued the Alexandria Property at 25 approximately $5,300,000 and the Union Property at approximately 26 $3,300,000, demonstrating that Debtor lacked equity in both 27 Properties. 28 Also on October 5, Win Win moved for an order to excuse the
-4- 1 Receiver’s compliance with § 543(d) to turn over the Properties 2 to Debtor and to allow the Receiver to retain control of them. 3 Debtors opposed the motions, arguing that Win Win had inflated 4 the amounts owed under the Notes, that the alleged values for the 5 Properties were too low, and that Debtor should be allowed to 6 recover and rehabilitate the Properties under its reorganization 7 plan which proposed to remodel and convert them to assisted 8 living facilities. 9 The bankruptcy court conducted a hearing on the Win Win 10 motions on November 27, 2012. After hearing from the parties, 11 the court ruled that Debtor had “grossly mismanaged” the 12 Properties by allowing them to be placed in REAP and then taking 13 no action to cure the violations. The court ordered that the 14 Receiver need not turn over the Properties to Debtor pending 15 further order. In connection with the stay relief motion, as to 16 Debtor’s proposal to convert the Properties into assisted living 17 facilities, the court found that Debtor’s proposed plan did not 18 appear feasible in light of its lack of the required capital, 19 inability to obtain funding, and Debtor’s proposed lack of debt 20 repayment to Win Win during the refinance/renovation period. The 21 court continued the stay relief hearing and directed Debtor to 22 submit certified appraisals for each property if it wished to 23 contest the appraisals offered by Win Win. 24 On January 10, 2013, the United States Trustee filed a 25 motion to appoint a chapter 11 trustee in the bankruptcy case 26 because Debtor was not meeting its fiduciary obligations, had 27 incomplete schedules, and had grossly mismanaged the bankruptcy 28 estate. At a status conference and continued stay relief hearing
-5- 1 on September 14, 2013, the bankruptcy court granted the 2 U.S. Trustee’s request and indicated that, upon appointment, the 3 chapter 11 trustee would have thirty days to investigate and 4 report to the court whether it should grant relief from stay or 5 whether the trustee should proceed with a sale of the Properties. 6 Acting on the court’s order, the U.S. Trustee appointed Peter S. 7 Kravitz chapter 11 trustee (“Trustee”) on January 31, 2013.3 8 § 1104(d). 9 C. The Sale of the Properties 10 Trustee submitted his report to the bankruptcy court on 11 February 14, 2013. Trustee’s investigation included, among 12 others, obtaining two brokers opinions on the value of the 13 Properties, as well as a review of Win Win’s certified 14 appraisals, a request to Debtor to provide the details for its 15 plan for capitalizing its proposed conversion of the Properties. 16 In his report, Trustee noted that Debtor had not provided any 17 certified appraisals, did not submit a plan for capitalization of 18 the conversion to assisted living units, and that brokers who 19 were contacted by Trustee at Debtor’s request would not submit 20 offers for the Properties for various reasons and, in particular, 21 because the Properties were not ADA compliant. The report 22 concluded, based on the Win Win appraisals, the brokers’ opinions 23 obtained by Trustee, and other information available to him, 24 “that, as the Properties stand today, there is no equity 25 available to the estate . . . [and that] Debtor has not responded 26 27 3 The order directing appointment of a trustee was not 28 appealed.
-6- 1 to the Trustee’s request for a viable plan that will provide a 2 feasible means to effect conversion for [Debtor’s proposed 3 uses.]” Trustee noted that, while the bankruptcy court could 4 grant Win Win stay relief so that it could foreclose, such would 5 provide no benefit to the estate. Rather than lose the 6 Properties to foreclosure, Trustee opined that a sale of the 7 Properties could provide some benefit to all concerned, if 8 additional concessions could be obtained from Win Win. 9 On March 28, 2013, with Win Win’s support, Trustee filed a 10 “Motion for Entry of an Order: (a) Approving Sale Procedures and 11 Bid Protections; and (b) Scheduling an Auction and Hearing to 12 Approve the Sale.” Debtor promptly objected to any sale of the 13 Properties, contending that Trustee’s sale prices were too low 14 and his figures regarding the debt on the Properties were 15 inflated. After a contested hearing on April 11, 2013, the 16 bankruptcy court, on April 25, 2013, entered an “Order Setting 17 Sale and Bid Procedures” (the “Procedures Order”). The salient 18 portions of that order provided that: (A) The Properties would be 19 sold at auction free and clear of all liens, claims, and 20 encumbrances; (B) Win Win would submit opening credit bids of 21 $4,500,000 for the Alexandria Property and $2,700,000 for the 22 Union Property, and could thereafter offer additional credit bids 23 up to $8,000,000 for the Alexandria Property, and $7,100,000 for 24 the Union Property; (C) All auction bidders must submit a 25 “qualified bid,” which required that a bid be made no later than 26 one week before the auction, at least $150,000 above the minimum 27 bids for each of the Properties, be accompanied by a deposit of 28 $250,000 for each bid, and provide readily verifiable proof of
-7- 1 funds for the full amount of the bids; (D) The highest offer at 2 auction will be the final sale price, subject to bankruptcy court 3 approval; (E) If the successful bidder is a party other than Win 4 Win, and the successful bid is less than Win Win’s total secured 5 claim on either Property, Win Win will release its liens on both 6 Properties; and (F) Win Win would pay Trustee $50,000 for each 7 Property, which deposit would be nonrefundable unless Win Win was 8 the successful bidder for the full value of its claim on that 9 Property. 10 On May 2, 2013, Trustee filed a “Motion for Entry of an 11 Order Authorizing and Approving the Sale of the Properties” (the 12 “Sale Motion”). The Sale Motion generally incorporated the terms 13 of the Procedures Order and provided additional information on 14 the purported administrative claims of Win Win, and specified 15 that if the motion was approved, regardless of who was the 16 successful bidder at the auction, Win Win would agree to cap its 17 administrative claims at $50,000. 18 On May 30, 2013, the hearing on the Win Win stay relief 19 motion and the Sale Motion was held, which was followed by the 20 auction. Because it intended to approve a sale of the 21 Properties, the bankruptcy court deemed the Win Win motion for 22 stay relief or dismissal as moot. The court granted the Sale 23 Motion: 24 I find the [Trustee’s proposed] sale to be in the estate’s best interests, given the savings of 25 litigation costs, [and] the waiver of satisfaction of substantial claims against the estate that would result 26 from the sale. I further find that the trustee’s efforts to market the properties was sufficient, given 27 the length of time the properties have been on the market, the estate’s resources, and the simple fact 28 that these properties are property of a bankruptcy
-8- 1 estate. 2 Hr’g Tr. 30:12-20. 3 The bankruptcy judge then left the courtroom, whereupon the 4 Trustee conducted the auction. There were no offers other than 5 the Win Win opening offer of $2,700,000 for the Union Property. 6 However, Jonathan Barach, president of Vista Investment Group, 7 LLC (“Vista”), submitted a qualified bid of $6,800,000 for the 8 Alexandria Property, the only bid in excess of the Win Win offer. 9 After the auction concluded, the bankruptcy judge returned 10 to the courtroom and, after hearing from the parties, directed 11 Trustee to prepare an order approving the sales, which order 12 should recite its conclusions that the successful bidders were 13 good faith purchasers for purposes of § 363(m), that the sale was 14 free and clear of all liens, claims, and encumbrances, and that 15 the usual fourteen-day stay of the order under Rule 6004(h) would 16 be waived. 17 The bankruptcy court entered the order approving the sale on 18 June 10, 2013 (the “Sale Order”). The Sale Order provided, in 19 relevant part: 20 3. The Trustee is authorized to sell and transfer to Win Win . . . the Union Property[.] 21 4. [Vista] is confirmed as the successful bidder for 22 the Alexandria Property. The Trustee is authorized to sell and transfer to Vista or its 23 designee the Alexandria Property [for] $6,800,000[.] 24 5. Win Win is confirmed as the backup purchaser of 25 the Alexandria Property in the event that the sale of the Alexandria Property to Vista fails to 26 close. In such event, Win Win or its designee is confirmed as the purchaser, and the Trustee is 27 authorized to sell and transfer to Win Win the Alexandria Property [for] $4,500,000. 28
-9- 1 7. Win Win and Vista are deemed to be good faith purchasers as that term is used in and for the 2 purposes of 11 U.S.C. § 363(m). 3 9. Pursuant to 11 U.S.C. § 363(f), effective upon closing, the sale of each and both of the 4 Properties will vest in the respective purchaser all right, title and interest of the Debtor and 5 the bankruptcy estate in the Properties free and clear of all liens, claims, encumbrances or 6 interests[.] 7 12. This order shall be effective upon its entry, and any stay provided by application of Bankruptcy 8 Rule 6004(h) is waived. 9 13. Win Win may not assert an administrative claim in the Case for more than $50,000. 10 11 Debtor filed a timely notice of appeal of the Sale Order on 12 June 21, 2013. Debtor did not seek a stay pending appeal from 13 either the bankruptcy court or this Panel. 14 D. Subsequent Events 15 The parties strenuously dispute the facts and events 16 following the entry, and Debtor’s appeal, of the Sale Order. 17 Because these contentions appear in their appellate pleadings, we 18 acknowledge them here as assertions, but not for their truth. 19 The parties agree that Trustee was apparently unable to 20 complete the sale of the Alexandria Property to Vista, ostensibly 21 because a tax lien and other issues rendered Trustee unable to 22 obtain insurable title for Vista. As a result, Trustee did not 23 close the sale with Vista and, instead, completed the sale of the 24 Alexandria Property to Win Win as the backup purchaser under the 25 Sale Order. 26 At some time before July 30, 2013, Win Win apparently sold 27 the Alexandria Property to Alex Court Apartments, LLC (“Alex 28 Court”), which is alleged to be a subsidiary and “designee” of
-10- 1 Vista, for $6,800,000, the same price as under the Sale Order, 2 and Win Win agreed to pay certain costs and assume the risks 3 related to this appeal. On July 30, 2013, the Sale Order and 4 grant deeds transferring ownership of both Properties to Win Win 5 free and clear of all liens, claims, interests and encumbrances, 6 were recorded. The same day, a grant deed transferring the 7 Alexandria Property from Win Win to Alex Court was recorded. 8 On August 12, 2013, Trustee filed a motion with this Panel 9 to dismiss this appeal as moot. Debtor opposed the motion. A 10 motions panel ruled that “All relief requested in [Win Win’s] 11 motion to dismiss is hereby ORDERED DENIED. The appeal is not 12 moot at this time.” 13 II. JURISDICTION 14 The bankruptcy court had jurisdiction under 28 U.S.C. 15 §§ 1334 and 157(b)(2)(N). The Panel has jurisdiction under 16 28 U.S.C. § 158. 17 III. ISSUES 18 Whether this appeal is equitably moot. 19 Whether the bankruptcy court clearly erred in finding the 20 sales were to good faith purchasers for purposes of § 363(m). 21 Whether the bankruptcy court abused its discretion in 22 approving the sale of the Properties under § 363(b).4 23 24 4 By listing this issue, we acknowledge that Debtor raised 25 it in this appeal. However, because the Sale Order included a § 363(m) finding as to the purchasers, as an appellate court we 26 are precluded from reviewing any issues other than the "good 27 faith" of the purchasers. Ferrari N. Am., Inc. v. Sims (In re R.B.B., Inc.), 211 F.3d 475, 478-80 (9th Cir. 2000); see 28 (continued...)
-11- 1 IV. STANDARDS OF REVIEW 2 Mootness is a question of law reviewed de novo. Nelson v. 3 George Wong Pension Trust (In re Nelson), 391 B.R. 437, 442 (9th 4 Cir. BAP 2008). 5 A bankruptcy court’s determination of whether a purchaser of 6 property acted in good faith under § 363(m) is a finding of fact 7 reviewed for clear error. Thomas v. Namba (In re Thomas), 8 287 B.R. 782, 785 (9th Cir. BAP 2002). A finding of fact is 9 clearly erroneous if it is illogical, implausible, or without 10 support from evidence in the record. United States v. Hinkson, 11 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc). 12 A bankruptcy court’s decision to approve a sale of estate 13 property under § 363 is reviewed for abuse of discretion. Moldo 14 v. Clark (In re Clark), 266 B.R. 163, 168 (9th Cir. BAP 2001). 15 In determining whether the bankruptcy court abused its discretion 16 we first determine de novo whether the trial court identified the 17 correct legal rule to apply to the relief requested and, if so, 18 we then determine whether the bankruptcy court’s application of 19 that standard was “(1) illogical, (2) implausible, or (3) without 20 support in inferences that may be drawn from the facts in the 21 record.” United States v. Loew, 593 F.3d 1136, 1139 (9th Cir. 22 2010). 23 24 4 25 (...continued) also In re River-W. Plaza Chicago, LLC, 664 F.3d 668, 672 (7th 26 Cir. 2011) ("Our appellate jurisdiction over an unstayed sale 27 order issued by a bankruptcy court is statutorily limited to the narrow issue of whether the property was sold to a good faith 28 purchaser.").
-12- 1 V. DISCUSSION 2 A. This appeal is not equitably moot. 3 1. 4 Win Win argues that this appeal is equitably moot because 5 Debtor did not seek a stay pending appeal and Win Win would be 6 financially harmed by a reversal of the Sale Order. We disagree. 7 Equitable mootness prevents an appellate court from reaching 8 the merits when appellants have "‘failed and neglected diligently 9 to pursue their available remedies to obtain a stay'" and changes 10 in circumstances "‘render it inequitable to consider the merits 11 of the appeal.'" Darby v. Zimmerman (In re Popp), 323 B.R. 260, 12 271 (9th Cir. BAP 2005) (quoting Focus Media, Inc. v. Nat'l 13 Broad. Co., Inc. (In re Focus Media, Inc.), 378 F.3d 916, 923 14 (9th Cir. 2004)). In other words, equitable principles may 15 require dismissal of the appeal when the appellant neglects to 16 obtain a stay pending appeal and the rights of third parties 17 intervene. Spirtos v. Moreno (In re Spirtos), 992 F.2d 1004, 18 1006 (9th Cir. 1993); In re Popp, 323 B.R. at 271. 19 The party asserting equitable mootness must demonstrate that 20 the case involves transactions "so complex or difficult to 21 unwind" that equitable mootness applies. Lowenschuss v. Selnick 22 (In re Lowenschuss), 170 F.3d 923, 933 (9th Cir. 1999). The 23 Ninth Circuit recently provided additional guidelines for our 24 inquiry into equitable mootness: 25 We endorse a test similar to those framed by the circuits that have expressed a standard: We will look 26 first at whether a stay was sought, for absent that a party has not fully pursued its rights. If a stay was 27 sought and not gained, we then will look to whether substantial consummation of the plan has occurred. 28 Next, we will look to the effect a remedy may have on
-13- 1 third parties not before the court. Finally, we will look at whether the bankruptcy court can fashion 2 effective and equitable relief without completely knocking the props out from under the plan and thereby 3 creating an uncontrollable situation for the bankruptcy court. 4 5 Motor Vehicle Cas. Co. v. Thorpe Insulation Ins. Co. (In re 6 Thorpe Insulation Ins. Co.), 677 F.3d 869, 881 (9th Cir. 2012). 7 Win Win argues that this appeal is equitably moot because: 8 (1) Debtor failed to obtain, or even request, a stay of the Sale 9 Order pending appeal; (2) in reliance on the Sale Order, Win Win 10 subsequently sold the Alexandria Property to a Vista subsidiary, 11 a third party; and (3) reversal of the Sale Order at this time 12 would be detrimental to Win Win and Vista. 13 Win Win is correct that Debtor failed to request or obtain a 14 stay pending appeal. The Thorpe Insulation court expresses 15 considerable concern about cases in which an appellant fails to 16 "pursue with diligence all available remedies to obtain a stay of 17 execution of the objectionable order." In re Thorpe Insulation 18 Ins. Co., 677 F.3d at 881. More recent cases from the Ninth 19 Circuit have explained the equitable mootness rules discussed in 20 Thorpe Insulation, and in particular the consequences of an 21 appellant’s failure to seek a stay pending appeal. Rev Op Grp. 22 v. ML Manager (In re Mortgages Ltd.), 771 F.3d 1211 (9th Cir. 23 2014) (all cites below are to this opinion as "In re Mortgages, 24 Ltd.” at ); Rev Op Grp. v. ML Manager (In re Mortgages 25 Ltd.), 771 F.3d 623 (9th Cir. 2014); Rev Op Grp. v. ML Manager 26 (In re Mortgages Ltd.), ___ Fed. Appx. ___, 2014 WL 5840462 (9th 27 Cir. 2014). 28 Reviewing the history of Ninth Circuit and BAP decisions
-14- 1 discussing an appellant's failure to seek a stay and equitable 2 mootness, the In re Mortgages, Ltd. court cited to Trone v. 3 Roberts Farms, Inc. (In re Roberts Farms, Inc.), 652 F.2d 793 4 (9th Cir. 1981): "It is obligatory upon appellant . . . to pursue 5 with diligence all available remedies to obtain a stay of 6 execution of the objectionable order . . . if failure to do so 7 creates a situation rendering it inequitable to reverse the 8 orders appealed from." Id. at 798 (quoted in In re Mortgages, 9 Ltd., at 1215). Commenting on Roberts Farms and Thorpe 10 Insulation, the In re Mortgages, Ltd. court observed: "While we 11 recognized in Thorpe that an appeal should not be automatically 12 dismissed for failure to obtain a stay, we reiterated our warning 13 from Roberts Farms that an appellant must seek a stay. 14 Otherwise, we stated the appellant has by definition ‘not fully 15 pursued its rights,' [quoting Thorpe Insulation, 677 F.3d at 881] 16 and thus the appeal is subject to dismissal." In re Mortgages, 17 Ltd., at 1216. Based upon the rules articulated in Roberts Farms 18 and repeated in Thorpe Insulation, the In re Mortgages, Ltd. 19 court reasoned that failure to seek a stay pending appeal, at 20 least without an adequate excuse, requires dismissal of an 21 appeal. "This is a clear bright-line rule that all litigants can 22 understand." In re Mortgages, Ltd., at 1217. 23 Here, not only did Debtor not seek a stay pending appeal, 24 but also rather than offer an acceptable excuse for not doing so, 25 it made the troubling assumption that it was under no obligation 26 to do so because the bankruptcy court allegedly erred in its good 27 faith finding in the Sale Order and, thus, § 363(m) would not 28 apply. Debtor seemingly did not contemplate that its failure to
-15- 1 seek a stay might raise equitable mootness problems. 2 But while Debtor did not seek a stay pending appeal, and 3 provided no good excuse for its failure to do so, under the case 4 law our inquiry does not end there. The rule discussed in 5 In re Mortgages, Ltd. is subject to the same condition explained 6 in Roberts Farms, Inc., Lowenschuss, and Thorpe Insulation, that 7 there must also be some subsequent event that would render 8 consideration of the issues on appeal inequitable, and thereby 9 trigger an equitable mootness analysis. In re Robert Farms, 10 Inc., 652 F.2d at 798 ("Appellants have failed and neglected 11 diligently to pursue their available remedies to obtain a stay of 12 the objectionable orders of the Bankruptcy Court and have 13 permitted such a comprehensive change of circumstances to occur 14 as to render it inequitable for this court to consider the merits 15 of the appeal."); Lowenschuss v. Selnick (In re Lowenschuss), 16 170 F.3d 923, 933 (9th Cir. 1989) ("a claim is not equitably moot 17 because th[e] case does not present transactions that are so 18 complex or difficult to unwind that the doctrine of equitable 19 mootness would apply"); In re Thorpe Insulation Co., Inc., 20 677 F.3d at 883 ("most importantly, we look to whether the 21 bankruptcy court on remand may be able to devise an equitable 22 remedy."). Indeed, the In re Mortgages, Ltd. court observed that 23 "[a] party can move to dismiss an appeal as equitably moot if 24 ‘great changes in the status quo occurred after the district 25 court rendered the orders appealed from[.]'" In re Mortgages, 26 Ltd., at 1214 (quoting Algeran, Inc. v. Advance Ross Corp., 27 759 F.2d 1421, 1423 (9th Cir.1985)). 28 In sum, while in this appeal Debtor did not seek a stay of
-16- 1 the Sale Order pending appeal and has provided no satisfactory 2 explanation for the failure to do so, to complete our equitable 3 mootness analysis we must consider whether Debtor's failure to 4 seek a stay "creates a situation rendering it inequitable to 5 reverse the orders appealed from." In re Mortgages, Ltd., at 6 1216, (quoting In re Roberts Farms, Inc., 652 F.2d. at 798). We 7 conclude that equity does not require that this appeal be 8 dismissed. 9 Here, relying upon the Sale Order, Trustee sold the 10 Alexandria Property to Win Win, and Win Win almost immediately 11 resold it to Vista's subsidiary. There is case law to support 12 the argument that a sale of property to a third party may moot an 13 appeal because it precludes effective relief. Baker & Drake v. 14 Pub. Serv. Comm'n of Nev. (In re Baker & Drake), 35 F.3d 1348, 15 1351 (9th Cir. 1994). And in its analysis of the equitable 16 mootness doctrine in bankruptcy cases, Thorpe Insulation 17 expresses concern for third parties whose rights may be impacted 18 on appeal but who are not "before the court." 677 F.3d at 881. 19 But in this case, it is not at all clear that Vista (or its 20 designee, Alex Court) is the sort of "third party" entitled to 21 benefit from the equitable mootness doctrine. Vista was approved 22 as a bidder in the Sale Order and its chief executive appeared 23 before the bankruptcy court and submitted the bid. Vista has 24 also participated in this appeal by filing a declaration in 25 support of Win Win's appellate brief. In short, in our view, 26 Win Win, Vista, and its subsidiary are "before the court" both in 27 the bankruptcy court and in this appeal. 28 Another critical question is whether reversal of the Sale
-17- 1 Order involves transactions "so complex or difficult to unwind" 2 that equitable mootness applies. In re Lowenschuss, 170 F.3d at 3 933. Surprisingly, we think this question is answered by Win Win 4 in its appellate brief. According to Win Win, it entered into an 5 agreement with Vista which specifies the consequences and 6 respective rights and responsibilities of those parties if the 7 Sale Order were to be unwound by this Panel: 8 Win Win and [Vista] agreed that if the Sale Order is reversed: Win Win must return [] the entire $6,800,000 9 plus interest at 10% per annum; the portion of the purchase not used to pay off the existing loan Win Win 10 secured in connection with the purchase of the Properties is [to] be held in escrow pending resolution 11 of the appeal; [Vista] shall not be reimbursed for any improvements or liable for completion of any 12 improvements at the Alexandria Property[;] however if required by the Trustee, Win Win is responsible to 13 return the Alexandria Property to its pre-possession condition; and [Vista] is to retain all rental income 14 received during its ownership. 15 Win Win Br. at 12-13. 16 In light of the parties' contract, none of the transactions 17 involved in this appeal are "so complex or difficult to unwind" 18 that equitable mootness would prevent our reversal of the Sale 19 Order. Indeed, Win Win and Vista bargained for these 20 transactions in anticipation of a possible reversal of the Sale 21 Order in this Panel. 22 Although Debtor's decision to forego any effort to obtain a 23 stay pending appeal was a risky one, we conclude that, even now, 24 the Sale Order could be effectively unwound without inequity. 25 This appeal is not equitably moot. 26 2. 27 Additionally, Debtor argues that the mootness of this appeal 28 has already been “fully adjudicated” because the motions panel
-18- 1 denied Trustee’s motion to dismiss. Debtor’s Reply Br. at 12. 2 Because of this, Debtor has apparently declined to address Win 3 Win’s argument that our review of the Sale Order is prohibited 4 based on the bankruptcy court’s § 363(m) finding and the fact 5 that Debtor did not obtain a stay of the sales pending appeal. 6 Debtor was mistaken to have forfeited its opportunity to 7 address the merits of the § 363(m) issue. In this circuit, a 8 merits panel is always free to review the decisions made in an 9 appeal by a motions panel. See United States v. Houser, 804 F.2d 10 565, 567 (9th Cir. 1986); In re Crystal Sands Props., 84 B.R. 665 11 (9th Cir. BAP 1988). Moreover, contrary to Debtor’s position, 12 the motions panel did not “fully adjudicate” the question of 13 mootness; instead, the motions panel denied the motion to dismiss 14 because the “appeal is not moot at this time." In employing this 15 language in its order, the motions panel implicitly acknowledged 16 that the mootness issue may be revisited by this Panel. We have 17 done so above. 18 B. The bankruptcy court did not clearly err in determining that Win Win was a good faith purchaser in the Sale 19 Order. 20 1. 21 We first address a preliminary matter. Debtor requests in 22 its reply brief that the Panel strike four volumes of Trustee’s 23 excerpts of record because Trustee failed to designate them 24 within the fourteen day period required by Rule 8006.5 Debtor 25 26 5 The Federal Rules of Bankruptcy Procedure were modified 27 effective December 1, 2014. This discussion refers to the Rules which were in effect at the time this appeal was filed. Rule 28 (continued...)
-19- 1 Reply Br. at 1. But we are also mindful of the provision in Rule 2 8001(a) which instructs that: 3 An appellant’s failure to take any step other than timely filing a notice of appeal does not affect the 4 validity of the appeal, but is ground for only such action as the district court or bankruptcy appellate 5 panel deems appropriate[.] 6 Debtor has given us no reason, other than the Rule 8006 time 7 requirement for designating the record on appeal, for rejecting 8 the “supplemental” documents offered by Trustee in the four 9 volumes. With a few minor exceptions that do not affect our 10 analysis, these are all documents appearing in the docket of the 11 bankruptcy court, and known to the bankruptcy court at the time 12 of entry of the Sale Order. We therefore exercise our discretion 13 and have considered Trustee’s supplementary excerpts.6 14 2. 15 There is also a misconception in Debtor’s arguments in this 16 17 5 (...continued) 18 8006 was modified and renumbered as Rule 8009 and Rule 8001 was 19 modified and renumbered as Rule 8003 as of December 1, 2014. The salient provisions of each rule remain unchanged. 20 6 Debtor also requests that we strike two declarations filed 21 by the President of Vista and the Managing Member of Win Win, and 22 attached to Win Win’s appellate brief, relating to the actions of those purchasers after entry of the Sale Order. To the extent 23 that these declarations attempt to explain disputed facts, such as the reason why Trustee did not complete the sale of the 24 Alexandria Property to Vista, the Panel will not try to resolve 25 those disputes. However, to the extent that the declarations discuss undisputed facts, such as the existence and terms of the 26 agreement between Vista and Win Win to take certain actions in 27 the event this Panel overturns the Sale Order, we considered those facts in our discussion of equitable mootness in the 28 Jurisdiction section above.
-20- 1 appeal which we must dispel. Several times in its appellate
2 briefs Debtor argues that “[t]he burden of proof is on the
3 proponent of good faith, i.e., the Appellee [Trustee and Win Win]
4 herein.” For support, Debtor cites to this Panel’s opinion in
5 T.C. Investors v. Joseph (In re M Capital Corp.), 290 B.R. 743,
6 747 (9th Cir. BAP 2003) (“the proponent of section 363(m) good
7 faith has the burden of proof.”). However, the Ninth Circuit
8 explicitly rejected the BAP’s In re M Capital Corp. holding
9 concerning the burden of proof on good faith under § 363(m)
10 because, according to the court, it was inconsistent with Ninth
11 Circuit precedent.7 Weinstein, Eisen & Weiss, LLP v. Gill
12 (In re Cooper Commons, LLP), 424 F.3d 963, 970 (9th Cir. 2005).
13 In Cooper Commons, the court noted that, as explained in
14 In re Adams Apple, 829 F.2d 1484, 1489 (9th Cir. 1987), in
15 connection with a sale to a creditor under § 363(m),8 “we presume
16 the [creditor’s] good faith and then inquire to see whether the
17 18 19 7 In Fitzgerald v. Nunn Worx SR, Inc. (In re Fitzgerald), 20 428 B.R. 872, 880-81 (9th Cir. BAP 2010), the BAP relied on In re M Capital Corp. in ruling against the proponent of good 21 faith. In that case, however, the ruling was that the proponent 22 had not prayed for a good faith finding and the court made no good faith determination at all, and thus it was not a question 23 of the shifting burden of proof. 24 8 In Cooper Commons, the court acknowledged that, in 25 In re Adams Apple, the court examined good faith under § 364(e), while the M Capital Corp. BAP panel was reviewing a buyer’s good 26 faith under §363(m). In re Cooper Commons, LLP, 424 F.3d at 970. 27 The Cooper Commons court noted that there was no difference in the determination of good faith under those statutes. Id. at 970 28 n.2.
-21- 1 presumption can be overcome.” Id. at 969-70.9 2 Under the facts of this case, however, we do not find it 3 necessary to reconcile In re M Capital with In re Adams Apple. 4 Under In re Adams Apple, Win Win is presumptively a good faith 5 purchaser; as discussed below, consistent with In re M Capital, 6 Trustee has presented good and sufficient evidence that Win Win 7 was a good faith purchaser at the time of the Sale Order. Thus, 8 a burden of proof analysis in this case is unnecessary. 9 3. 10 Debtor argues that the bankruptcy court failed to make 11 adequate findings of fact regarding the good faith of purchaser 12 Win Win in connection with entry of the Sale Order. We disagree 13 and conclude the court’s findings satisfy the requirements of the 14 statute and case law. 15 Section 363(m) provides that: 16 The reversal or modification on appeal of an authorization under subsection (b) or (c) of this 17 section of a sale or lease of property does not affect the validity of a sale or lease under such 18 authorization to an entity that purchased or leased such property in good faith, whether or not such entity 19 knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed 20 pending appeal. 21 Under § 363(m), the first requirement of a "good faith" 22 purchaser is that there be an identifiable purchaser. 23 In re R.B.B., Inc., 211 F.3d at 478-80. That element is 24 satisfied in this case; it is not disputed that Win Win was 25 clearly identified as a potential purchaser in connection with 26 27 9 The BAP decision in In re M Capital Corp. did not 28 acknowledge this presumption.
-22- 1 both sales. 2 A second requirement for good faith under § 363(m) is that 3 all parties have adequate notice of the sale. United States v. 4 Moberg Trucking Co. (In re Moberg Trucking Co.), 112 B.R. 362, 5 366 (9th Cir. BAP 1990). Here, all parties in interest received 6 ample notice of the hearings held to approve the Bid Procedures 7 and the Sale Motions and of the sale itself. 8 The Bankruptcy Code does not provide a definition of a good 9 faith purchaser under § 363(m). Beyond the requirements 10 identified above, the Ninth Circuit has traditionally held that 11 “a good faith purchaser is one who buys ‘in good faith’ and ‘for 12 value.’” In re Ewell, 958 F.2d. 276, 281 (9th Cir. 1992) (citing 13 In re Abbotts Dairies of Pa., Inc., 788 F.2d 143, 147 (3d Cir. 14 1986)). Good faith under § 363(m), in turn, is defined 15 negatively, that is, “a lack of good faith is shown by ‘fraud, 16 collusion between the purchaser and other bidders or the trustee, 17 or an attempt to take grossly unfair advantage of other 18 bidders.’” Community Thrift & Loan v. Suchy (In re Suchy), 19 786 F.2d 900, 902 (9th Cir. 1985). 20 Therefore, in addition to requirements that there was 21 adequate notice of the sale and bidding procedures and that the 22 winning bidder was identifiable, the criteria for a good faith 23 purchaser under § 363(m) are that the winning bid provided value 24 to the estate and the winning bidder did not engage in fraud, 25 collusion, or attempt to take unfair advantage of other bidders. 26 In this case, the bankruptcy court made a finding that Win 27 Win’s bid, which in addition to its secured credit bid offered to 28 pay cash to the estate, along with its willingness to limit the
-23- 1 amount of any potential administrative expense claims, 2 represented considerable value to the creditors of the bankruptcy 3 estate: 4 I find the sale to be in the estate’s best interests, given the savings of litigation costs [and] the waiver 5 of satisfaction of substantial claims against the estate that would result from the sale. 6 7 Hr’g Tr. 30:11-15, May 30, 2013. 8 The bankruptcy court also noted that the “only evidence of 9 the [Alexandria Property’s] value before the court is an 10 appraisal prepared by Win Win which reflects the value of the 11 property at $5.3 million.” Hr’g Tr. 31:10-12. Similarly, the 12 only formal appraisal of the Union Property was also the Win Win 13 appraisal of $3,300,000. Of course, the bankruptcy court had 14 indicated that Debtor could challenge the accuracy of the Win Win 15 appraisals through submission of its own appraisals. Hr’g 16 Tr. 33:12-13, November 27, 2012. Debtor informed the bankruptcy 17 court that it would need forty-five days to prepare the 18 appraisals. Hr’g Tr. 33:20-23. While it was afforded time to do 19 so, Debtor never submitted any appraisal for either property, nor 20 did it ever provide an explanation for its failure to comply with 21 the bankruptcy court’s instructions if it intended to dispute the 22 value of the Properties. 23 Appraisals can assist the bankruptcy court in determining 24 the good faith of a proposed purchaser. While the Ninth Circuit 25 has not done so expressly, four other circuits have held that a 26 purchaser who pays at least 75 percent of the appraised value of 27 a property has purchased for value. Kabro Assocs., LLC v. Colony 28 Hill Associates (In re Colony Hill Associates), 111 F.3d 269, 276
-24- 1 (2d Cir. 1997) (“Courts have held that a purchaser who pays ‘75% 2 of the appraised value of the assets’ has tendered value, as that 3 term is used for purposes of § 363(m).”); In re Abbotts Dairies 4 of Pennsylvania, Inc., 788 F.2d at 149; In re Bel Air Assocs., 5 Ltd., 706 F.2d 301, 305 n.12 (10th Cir. 1983); In re Rock Indus. 6 Mach. Corp., 572 F.2d 1195, 1197 n.1 (7th Cir. 1978). Here, the 7 minimum credit bids to be made by Win Win at the sales, 8 $4,500,000 for the Alexandria Property, and $2,700,000 for the 9 Union Property, were more than 80% of the appraised values of the 10 Properties. In other words, on this record, the bankruptcy court 11 had an ample basis to conclude that Win Win’s minimum credit 12 bids, together with its other concessions, would yield sales of 13 benefit and value to the estate. 14 Additionally, the bankruptcy court had evidence in the 15 record that the tenants’ association for the Properties was 16 preparing litigation against the Receiver, Win Win, and Debtor as 17 a result of the various code violations that resulted in the REAP 18 placement. Further, the bankruptcy court had voluminous records 19 from Trustee and Receiver relating to the significant 20 postpetition expenses incurred and paid by Win Win for the 21 maintenance and rehabilitation of the Properties. Debtor 22 objected in the bankruptcy case, and in this appeal, that these 23 costs were inflated, and that the bankruptcy court had not 24 formally decided that Win Win’s expenditures would be allowed as 25 administrative claims. Of course, allowance of any 26 administrative claims would require bankruptcy court review, 27 giving Debtor the additional opportunity to object. However, 28 Debtor never submitted any argument or evidence that any specific
-25- 1 items in the billings submitted by Win Win were excessive. 2 Moreover, it cannot reasonably be disputed that substantial 3 expenses were continuing to be incurred as a result of the 4 estate’s ownership of the Properties. Avoiding accruing expenses 5 was therefore an additional benefit to a prompt sale of the 6 Properties. 7 Finally, it is important to note that an auction occurred. 8 No parties other than Vista submitted bids in excess of the Win 9 Win bid on the Alexandria Property and there were no bids besides 10 Win Win’s minimum bid for the Union Property. The absence of any 11 other interested bidders was also evidence that Win Win’s offers 12 were made in good faith. 13 4. 14 In contesting the bankruptcy court’s good faith finding, 15 Debtor makes two arguments. The first is that Trustee 16 “unilaterally decided” not to complete the sale as authorized by 17 the Sale Order to Vista, and instead “allowed his preferred 18 purchaser” (i.e., Win Win) to acquire the Alexandria Property “by 19 default.” Debtor’s Op. Br. at 12. In Debtor’s opinion, the 20 later sale of the Alexandria Property by Win Win to a Vista 21 subsidiary within weeks of entry of the Sale Order on the same 22 terms Vista originally bid renders the entire sale process 23 inherently suspicious. We examine the import of this argument in 24 the next section. 25 Debtor’s second argument is that, at the time of the entry 26 of the Sale Order, “as a further indication of fraud, collusion 27 and unfair advantage . . . the Trustee and/or his counsel 28 thwarted attempts by prospective third party purchasers from
-26- 1 making any bids on the property or engaging in the bankruptcy 2 process.” Debtor’s Op. Br. at 14. Debtor’s allegations were 3 discussed in the bankruptcy court at length at the hearings on 4 the Bid Motion and Sale Motion. 5 In opposition to this suggestion, Trustee represented that 6 he, or his office staff, had responded to every request for 7 information and to view the Properties made to him, including 8 ten-to-fifteen referrals from Debtor. He also noted that access 9 to the Properties was controlled by the Receiver as authorized by 10 the bankruptcy court and Trustee should not be blamed for the 11 difficulties some parties may have encountered accessing the 12 Properties. 13 Before the auction took place, the bankruptcy court 14 admonished Debtor's counsel for engaging in "gamesmanship," 15 specifically, by providing a bid from Gangi Development of 16 $9,800,000 for the Alexandria Property the night before the 17 auction, and objecting at the last minute to Trustee's marketing 18 efforts on the Properties. Nevertheless, the court recessed to 19 allow the parties and the court to examine the late-filed bid. 20 The court concluded the bid was inappropriate because it did not 21 conform to the Procedures Order: the offered deposit of $100,000 22 was less than the required deposit of $250,000; the bid was 23 untimely filed on May 30, 2013, whereas the Procedures Order 24 required submission no later than May 23, 2013; and the 25 submission included no proof that the bidder had readily 26 available funds to complete a sale. 27 Fairly viewed, Debtor’s argument on appeal that Trustee 28 allegedly discouraged bids is a continuation of its position in
-27- 1 the bankruptcy court that Trustee failed to properly market the 2 Properties. Despite the various allegations of Debtor, the court 3 found that Trustee had properly marketed the Properties: 4 I further find that the trustee’s efforts to market the Union Street and Alexandria Avenue Properties was 5 sufficient, given the length of time the properties have been on the market, the estate’s resources, and 6 the simple fact that these properties are property of a bankruptcy debtor. 7 8 Hr’g Tr. 30:16-20. Here, the bankruptcy court had been presented 9 with two views of the evidence, one that Trustee had failed to 10 market the Properties by discouraging bidding, and one that 11 Trustee had not discouraged bidding but actively responded to 12 inquiries. Where there are two views of the evidence, the 13 bankruptcy court’s choice between them cannot be clearly 14 erroneous. Lehtinen v. Lehtinen (In re Lehtinen), 332 B.R. 404, 15 411 (9th Cir. BAP 2005). 16 We are also persuaded by Trustee’s arguments that, at the 17 time of entry of the Sale Order, the bankruptcy court had no 18 reason to believe that Trustee and Win Win were engaged in fraud, 19 collusion, or seeking to take unfair advantage of the sale 20 process. Contrary to its current position, at the hearing on the 21 bidding procedures, counsel for Debtor assured the court that it 22 was not asserting that Trustee had colluded with Win Win: “The 23 Debtor is not arguing there’s been any collusion between the 24 trustee [and Win Win].” Hr’g Tr. 18:6-8, April 11, 2013. As to 25 Debtor’s various allegations that Trustee and Win Win had 26 significant contacts before the Sale Order, this is not evidence 27 of any unfair advantage. Trustee was charged by the bankruptcy 28 court with responsibility for evaluating Win Win’s secured claim,
-28- 1 and to do so, Trustee would presumably have contacts with Win 2 Win. 3 5. 4 The bankruptcy court relied upon sufficient, competent 5 evidence in finding that the proposed sales to Win Win were for 6 value and benefitted the bankruptcy estate. At the time the Sale 7 Order was entered, the bankruptcy court had been offered no 8 credible evidence to show that Trustee or Win Win were engaged in 9 fraud, collusion, or unfair advantage. Therefore, we conclude 10 that the bankruptcy court did not clearly err in finding that, at 11 the time of entry of the Sale Order, Win Win was a good faith 12 purchaser. 13 C. Because the Panel may not engage in fact-finding concerning events that occurred after entry of the Sale 14 Order, this matter must be remanded to the bankruptcy court to consider whether any basis exists to 15 reconsider its good faith finding in the Sale Order. 16 While we find no error in the bankruptcy court’s fact 17 finding that, based upon the record before it at the time of the 18 Sale Order, Win Win was a good faith purchaser entitled to the 19 protections of § 363(m), Debtor has directed the Panel’s 20 attention to certain facts occurring after entry of the Sale 21 Order that could plausibly support an inference of collusion 22 between Trustee and Win Win. In light of these developments, 23 under our case law, we must remand this matter to the bankruptcy 24 court for further proceedings. 25 As explained above, a determination of good faith in a sale 26 order under § 363(m) is a finding of fact to be reviewed on 27 appeal for clear error. In re Thomas, 287 B.R. at 785. Based 28 upon the evidence and record, a bankruptcy court may, but is not
-29- 1 required to, make a § 363(m) finding in connection with the 2 initial sale process. Id. (explaining that the “choice of 3 whether to make a finding of ‘good faith’ as part of the initial 4 sale process belongs, in this circuit, to the bankruptcy 5 court.”). However, all the facts necessary to a good faith 6 determination may not be available to the bankruptcy court at the 7 time it initially approves a sale: 8 The difficulty with the [§ 363(m)]factual determination is that evidence genuinely probative of "good faith" is 9 not commonly introduced, or even reasonably available, at the time a bankruptcy court approves a sale. To the 10 contrary, the fact-intensive evidence regarding the buyer and relations with parties in interest that may 11 indicate fraud, collusion, or unfair advantage — i.e. evidence suggesting lack of "good faith" — tends to 12 emerge after the sale. 13 Id. 14 Central to Debtor’s position on appeal is its allegation 15 that Trustee acted inappropriately in connection with the sales 16 and, thus, the bankruptcy court clearly erred in finding that Win 17 Win was a good faith purchaser. While we reject that notion 18 based upon the bankruptcy court’s findings made at the time of 19 the entry of the Sale Order, Debtor argues on appeal that the 20 actions of Trustee after entry of the Sale Order support its 21 contention. In particular, Debtor points to the events resulting 22 in Trustee’s apparent inability to close the sale of the 23 Alexandria Property to Vista, Trustee’s decision to sell the 24 Alexandria Property via a credit bid to Win Win as the “back up 25 bidder” under the Sale Order, and Win Win’s subsequent sale of 26 the Alexandria Property to a Vista subsidiary for the same price 27 as it originally offered Trustee. 28 Of course, Trustee and Win Win dispute the existence of any
-30- 1 irregularities after entry of the Sale Order. However, the facts 2 identified by Debtor justify additional inquiry, something the 3 Panel may not undertake because “an appellate court is ill- 4 equipped to take evidence and make findings on such a fact- 5 intensive question as ‘good faith’ . . . .” Id. at 786. Whether 6 facts exist which could, conceivably, alter the bankruptcy 7 court’s good faith finding is a question that, as the fact- 8 finder, only the bankruptcy court, and not the Panel, can decide: 9 If an issue regarding “good faith” arises after the § 363(b) sale order is entered, regardless of whether 10 the court initially made a “good faith” finding, the appropriate procedure for addressing the issue is 11 provided by Federal Rules of Civil Procedure 59 and 60, which apply in bankruptcy by virtue of Federal Rules of 12 Bankruptcy Procedure 9023 and 9024. . . . In deciding Rule 59 and 60 motions, the bankruptcy court will make 13 findings of fact regarding “good faith” (either for the first time or supplementing prior findings), which 14 findings may then be reviewed on appeal for clear error. 15 16 Id. at 785-86;10 see also First State Operating Co. v. Holbrook 17 (In re Lotspeich), 328 B.R. 209, 218 (10th Cir. BAP 2005) 18 (acknowledging that, in the absence of the fact findings 19 20 10 After the limited remand in In re Thomas, the bankruptcy 21 court entered detailed findings to support its conclusion that 22 the buyer in that case was indeed a good faith purchaser of the property. Thomas again appealed the bankruptcy court's order, 23 and the Panel consolidated that appeal with the original appeal. In an unpublished decision, the Panel determined that the 24 bankruptcy court's finding of good faith was not clearly 25 erroneous and affirmed the bankruptcy court’s good faith finding and the order approving the sale. Thomas v. Namba 26 (In re Thomas), BAP No. CC-02-1307/1237 (Memorandum, January 9, 27 2004). Thomas appealed the Panel's decisions to the Ninth Circuit, which affirmed. Thomas v. Namba (In re Thomas), 28 154 Fed. Appx. 673 (9th Cir. 2005).
-31- 1 necessary to show a purchaser is acting in good faith, a remand 2 to the bankruptcy court is required). 3 The essence of Debtor’s argument here is that two events 4 occurring after entry of the Sale Order evidence its contention 5 that there was some sort of fraud, collusion, or seeking unfair 6 advantage between Trustee and Win Win, and possibly between Win 7 Win and Vista, in completing the sales. First, as Trustee 8 concedes, Trustee did not complete the sale of the Alexandria 9 Property to the winning bidder, Vista, as ordered by the 10 bankruptcy court and, instead, sold the Property to Win Win as 11 the backup bidder. The record is disputed as to why the sale to 12 Vista by Trustee was not completed. Trustee and Win Win suggest 13 in their appellate briefs that an unresolved tax lien and 14 inability to obtain title insurance prevented the sale from 15 closing. Trustee, however, provides little information about 16 what tax lien was involved, why a title company would not insure 17 clear title, and why this predicament prevented the sale to 18 Vista, but allowed a sale to Win Win and later the Win Win-to- 19 Vista transfer. Debtor disputes that these circumstances 20 justified Trustee’s decision to sell to Win Win instead of Vista. 21 The other significant post-Sale Order event targeted by 22 Debtor concerns Win Win’s almost simultaneous sale of the 23 Alexandria Property to Vista for the same price that Vista 24 originally bid in the bankruptcy court. Win Win alleges in its 25 appellate brief that it was under water in its investment in this 26 property in excess of $2,000,000, and that it did not want to 27 hold on to the asset. Debtor, however, argues that this 28 transaction suggests there was fraud, collusion, and unfair
-32- 1 dealing among Trustee, Win Win, and Vista, insofar as there is no 2 adequate explanation why, within weeks of the sale, Vista would 3 decline to pay Trustee and the estate $6,800,000 absent title 4 insurance, but was nonetheless willing to pay Win Win the same 5 amount. 6 While we are skeptical of Debtor’s allegations of 7 impropriety in concluding the sales, we cannot properly resolve 8 these issues. We are bound by In re Thomas which instructs that, 9 under these circumstances, the bankruptcy court, not the Panel, 10 should decide whether to reexamine its original § 363(m) good 11 faith determination. Since this appeal divested the bankruptcy 12 court of jurisdiction to alter the status quo of the appeal, the 13 Panel concludes its should grant a “limited remand to the trial 14 court for the purpose of determining the factual question of 15 ‘good faith.’” In re Thomas, 287 B.R. at 786 (citing Chas. A. 16 Wright et al., FEDERAL PRACTICE & PROCEDURE § 3937.1 at n.29 (2d ed. 17 1996)). 18 VI. CONCLUSION 19 While this Panel concludes that the bankruptcy court did not 20 err in ruling that Win Win was a § 363(m) good faith purchaser 21 based upon the record before it at the time it entered the Sale 22 Order, we REMAND this matter to the bankruptcy court with 23 instructions that it conduct such further proceedings as it deems 24 appropriate to decide whether it should reconsider its § 363(m) 25 good faith finding concerning the purchasers based upon any 26 events and facts occurring after entry of the Sale Order. 27 28
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