IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 95-10327
In The Matter Of: T.F. Stone Company, Inc.,
Debtor.
T.F. STONE COMPANY, INC., Appellant,
versus
LUCY HARPER, County Treasurer of Bryan County, Oklahoma Appellee.
Appeal from the United States District Court for the Northern District of Texas
December 28, 1995
Before REAVLEY, HIGGINBOTHAM, and BARKSDALE, Circuit Judges.
HIGGINBOTHAM, Circuit Judge:
This appeal raises the question whether a peppercorn price
received in a noncollusive, lawfully conducted tax foreclosure sale
of the real property of a Chapter 11 debtor can constitute "present
fair equivalent value" within the meaning of § 549(c) of the
Bankruptcy Code, 11 U.S.C. § 549(c). T.F. Stone Companies, Inc.,
a reorganized debtor in possession, sought a money judgment in
bankruptcy court against the Treasurer of Bryan County, Oklahoma,
claiming that Bryan County's postpetition tax foreclosure sale of
Stone Companies' land was unauthorized and for insufficient value. The bankruptcy court granted summary judgment for the Treasurer,
and the district court affirmed. Stone Companies appeals. We
agree with the lower courts that because the tax sale was
noncollusive and complied with Oklahoma law, it was "for present
fair equivalent value" as required by § 549(c). We affirm.
I.
In July 1985, T.F. Stone Companies, Inc., acquired title to
approximately five acres of land in Bryan County, Oklahoma. On
July 3, 1989, Stone Companies petitioned for Chapter 11 bankruptcy,
listing the Oklahoma property in its schedule of assets at a value
of $65,000. Though Stone Companies failed to pay ad valorem taxes
on the Oklahoma property for 1989, it did not list Bryan County as
a creditor on its schedules and never filed notice of its
bankruptcy in Bryan County.
On October 1, 1990, the County Treasurer of Bryan County, Lucy
Harper, conducted a tax foreclosure sale of the Oklahoma property
in an attempt to satisfy Stone Companies' delinquent tax
obligation, as authorized under Oklahoma law. See Okla. St. Ann.
tit. 68 §§ 3105 & 3107. No bids were tendered at this tax sale, so
title to the Oklahoma property was deemed transferred to Bryan
County. See Okla. St. Ann. tit. 68 § 3108.1 During the two years
after Bryan County took title to the Oklahoma property, Stone
1 Under § 3108, a county treasurer may "bid off" property in the amount of taxes due, giving the county the legal and equitable rights of a purchaser. Bryan County's bid off memorialized a lien on the Oklahoma property for taxes due at that time.
2 Companies had a right to redeem the Oklahoma property by satisfying
its outstanding tax debt. See Okla. St. Ann. tit. 68 § 3113.
Stone Companies did not exercise this right, however, and did not
pay ad valorem taxes on the Oklahoma property for 1990, 1991, or
1992.
On June 14, 1993, Bryan County conducted a "Tax Resale" of the
Oklahoma property and sold it to Dickie and Carolyn Kidd for $325,
which was used to satisfy Stone Companies' delinquent tax debt.
See Okla. St. Ann. tit. 68 § 3125 (providing for resale of
unredeemed properties after two-year redemption period). This
resale to the Kidds extinguished Stone Companies' redemption right
and thereby eliminated Stone Companies' remaining equity in the
Oklahoma property. See Okla. St. Ann. tit. 68 § 3113.
On October 21, 1993, Stone Companies sued in bankruptcy court
under § 549 of the Bankruptcy Code, 11 U.S.C. § 549, seeking to
void the effects of Bryan County's acquisition of title to the
Oklahoma property and subsequent resale to the Kidds as an
unauthorized postpetition transfer. See In re T.F. Stone Cos., 170
B.R. 884 (Bankr. N.D. Tex. 1994). On January 6, 1994, however,
Stone Companies repurchased the Oklahoma property from the Kidds
for $39,500 and agreed to dismiss the Kidds from this litigation.
Since Bryan County's resale to the Kidds was a transfer to a
subsequent good faith purchaser, Stone Companies' repurchase of the
Oklahoma property in January meant that its only remedy under the
Bankruptcy Code was to pursue a money judgment from the "initial
transferee" for the value of property improperly transferred. See
3 11 U.S.C. §§ 549(c) & 550.2 Stone Companies amended its complaint
accordingly to seek recovery, under § 549 and § 550, of the value
of the Oklahoma property from the Treasurer of Bryan County.
The Treasurer raised several affirmative defenses, including
a claim that the deemed transfer to Bryan County and subsequent
resale to the Kidds could not be avoided under § 549(c) because
these transactions produced a transfer to a "good faith purchaser
without knowledge of" Stone Companies' bankruptcy and "for present
fair equivalent value." The bankruptcy court granted summary
judgment for the Treasurer on the basis of this § 549(c) defense,
denying recovery to Stone Companies. The district court affirmed.
II.
A trustee in bankruptcy — or, in a Chapter 11 case, a debtor
in possession — may avoid an unauthorized postpetition transfer
under § 549(a) of the Bankruptcy Code, 11 U.S.C. § 549(a), subject
to certain exceptions set forth in the Code. One such exception
provides: "The trustee [or debtor in possession] may not
avoid . . . a transfer of real property to a good faith purchaser
without knowledge of the commencement of the case and for present
2 Section 550(a) provides: "Except as otherwise provided in this section, to the extent that a transfer is avoided under section . . . 549 . . . of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from — (1) the initial transferee of such transfer or the entity for whose benefit such transfer was made . . . ." The bankruptcy court determined that Bryan County became the "initial transferee" when it acquired title to the Property at the original October 1990 tax foreclosure sale, prior to the resale to the Kidds. Bryan County has not challenged that determination on appeal.
4 fair equivalent value . . . ." § 549(c). The Treasurer concedes
that Bryan County's postpetition sale of the Oklahoma property to
the Kidds, in extinguishing Stone Companies' right under Oklahoma
law to redeem the Oklahoma property, effectuated an unauthorized
transfer of the Oklahoma property within the meaning of § 549(a).
Stone Companies in turn concedes that Bryan County and the Kidds
transacted in good faith and without knowledge of Stone Companies'
bankruptcy. The parties thus agree that the sole question in this
appeal is whether the transfer completed via Bryan County's initial
acquisition of the Oklahoma property in October 1990 and subsequent
resale to the Kidds for $325 in June 1993 was a transfer made "for
present fair equivalent value."
To answer this question, we must determine the applicability
of the Supreme Court's recent decision in BFP v. Resolution Trust
Corp., 114 S. Ct. 1757 (1994). The Court decided BFP on May 23,
1994, after Stone Companies filed this suit but before the
bankruptcy court disposed of Stone Companies' claims. BFP involved
a prepetition mortgage foreclosure sale of a home previously owned
by BFP, a Chapter 11 debtor in possession. BFP's mortgage creditor
had sold the home for $433,000 shortly before BFP's bankruptcy
petition. BFP sued to avoid the transfer under § 548 of the
Bankruptcy Code, 11 U.S.C. § 548, alleging that the property was
worth over $725,000 at the time of the foreclosure sale, and that
therefore the prepetition transfer was avoidable under § 548(a)
because BFP "received less than a reasonably equivalent value in
exchange for [the] transfer or obligation." § 548(a)(2)(A). The
5 issue before the Court was whether the $433,000 obtained at the
foreclosure sale satisfied this § 548 requirement that a transfer
be made for "reasonably equivalent value." The Court, per Justice
Scalia, held 5-4 "that a fair and proper price, or a `reasonably
equivalent value,' for foreclosed property, is the price in fact
received at the foreclosure sale, so long as all the requirements
of the State's foreclosure law have been complied with." BFP, 114
S. Ct. at 1765.
In the case before us, while the bankruptcy court acknowledged
that BFP addressed § 548's requirement of "reasonably equivalent
value" in the context of a prepetition mortgage foreclosure sale,
it relied on BFP in determining that Bryan County's postpetition
tax foreclosure sale of Stone's land satisfied the requirement
under § 549 that a transfer be "for present fair equivalent value."
The bankruptcy court concluded that "[t]he price obtained at a non-
collusive tax foreclosure sale, conducted in accordance with all
state laws, presumptively meets the `present fair equivalent value'
standard in § 549(c)." In re T.F. Stone, 170 B.R. at 892. The
district court agreed that "the reasoning of BFP should be applied
in the context of tax foreclosures," and concluded that "therefore,
BFP controls the issue presented in the case at hand."
On appeal, Stone Companies challenges the conclusions of the
lower courts on two grounds. First, Stone Companies contends that
the proceeds from Bryan County's sale of the Oklahoma property were
used to satisfy Stone Companies' antecedent tax debt and therefore
do not qualify as "present" value for purposes of § 549(c)'s
6 requirement of "present fair equivalent value." Second, Stone
Companies argues that BFP is distinguishable from this case and
thus ought not guide our § 549(c) analysis. We address each of
these arguments in turn.
III.
Stone Companies argues that because Bryan County used the $325
from the sale of the Oklahoma property as a credit against Stone
Companies' outstanding tax debt on the Oklahoma property, the sale
was in satisfaction of antecedent debt and therefore did not yield
"present fair equivalent value" as required by § 549(c).
"Antecedent" debt refers to debt incurred before the debtor's
insolvency. According to Stone Companies, federal courts have
historically viewed the bankruptcy laws' inclusion of the word
"present" in the phrase "present fair equivalent value" as
establishing that an amount used to satisfy antecedent debt cannot
qualify as "value" received. See, e.g., Kass v. Doyle, 275 F.2d
258, 262 (2d Cir. 1960) (holding that "liquidation of an antecedent
debt" cannot be used to satisfy requirement of "present fair
equivalent value" in § 70, sub. d of pre-Code Bankruptcy Act).
Stone Companies emphasizes that the bankruptcy courts have
consistently embraced this understanding of "present" value in
interpreting § 549(c)'s requirement of "present fair equivalent
value." See, e.g., Purnell v. Citicorp Homeowners Servs., Inc. (In
re Purnell), 92 B.R. 625, 630 (Bankr. E.D. Pa. 1988) (explaining
that "satisfaction of an antecedent debt has not been viewed as a
7 `present value'"); Anderson v. Briglevich (In re Briglevich), 147
B.R. 1015, 1021 (Bankr. N.D. Ga. 1992) (holding that satisfaction
of antecedent debt does not qualify as "present" fair value); Davis
v. Bank of Commerce (In re Wilson), 52 B.R. 637, 638 (Bankr. E.D.
Tenn. 1985) (same). Stone Companies urges that a construction of
§ 549(c)'s "present fair equivalent value" language that excludes
satisfaction of antecedent debt is essential to preserving the
bankruptcy estate existing at the time of the bankruptcy petition.
We need not resolve this issue at this time. Even assuming
that an amount used to satisfy antecedent debt cannot qualify as
"present" value for purposes of § 549(c), this claim is unavailing
to Stone Companies. Much of Stone Companies' tax debt arose from
its failure to pay ad valorem taxes on the Oklahoma property for
1990, 1991, and 1992 — after its 1989 bankruptcy petition.
Moreover, Tommy F. Stone himself suggested in an affidavit to the
bankruptcy court that even the 1989 tax debt was postpetition debt:
"In 1990 the Treasurer caused the Oklahoma property to be seized
for the purposes of satisfying its claim against the Debtor arising
from property taxes allegedly due on and secured by the Oklahoma
property for tax year 1989 (which would be taxes that accrued post
bankruptcy)." (emphasis added). In short, Bryan County used at
least some, if not all, of the $325 received from the Kidds to
liquidate Stone Companies' postpetition debt, not just its
antecedent debt. Stated more directly, some, if not all, of the
$325 tax credit conferred "present" value within the meaning of
§ 549(c).
8 Even if Stone Companies could show that Bryan County applied
the $325 only to Stone Companies' antecedent tax debt, we would
still have to consider whether BFP guides this case. As we will
explain, the BFP Court's analysis of § 548 expressly eschewed any
consideration of the substantive value received in a forced-sale
context and instead pinned the validity of the transfer on whether
the forced sale was noncollusive and conducted in compliance with
state law. In other words, if BFP controls this case, a finding
that Stone Companies received all its value as a credit against
antecedent debt does not bar us from concluding that the tax sale
satisfied § 549(c) on the ground that it was noncollusive and
conducted in conformity with Oklahoma law.
IV.
Stone Companies contends that the Court's decision in BFP
cannot govern this, a § 549 case, because BFP dealt with different
language in a different Bankruptcy Code provision, in the context
of a different kind of transfer. We disagree.
Our analysis starts with the statutory texts. While § 548
requires "reasonably equivalent value," § 549 demands "present fair
equivalent value." Stone Companies contends that BFP's reading of
"reasonably equivalent value" cannot control our construction of
"present fair equivalent value," highlighting the following
statement in BFP: "`[I]t is generally presumed that Congress acts
intentionally and purposely when it includes particular language in
one section of a statute but omits it in another,' and that
9 presumption is even stronger when the omission entails the
replacement of standard legal terminology with a neologism.'" 114
S. Ct. at 1761 (quoting Chicago v. Environmental Defense Fund, 114
S. Ct. 1588, 1593 (1994)). This textual argument has some force.
Though the Court invoked this proposition to explain why
"reasonably equivalent value" cannot always be measured against
"fair market value," we agree that Congress likely meant something
different in § 549 when it used the language "present fair" instead
of "reasonably."
We are unable, however, to perceive a meaningful difference
between "reasonably" and "present fair" as applied in the context
of this forced-sale case. Again, assuming that the word "present"
in § 549(c)'s requirement of "present fair equivalent value" is
intended to exclude satisfaction of antecedent debt, our
determination that Stone Companies did receive "present value" in
the form of a credit against its postpetition tax debt leaves us
with a necessary comparison of "reasonably equivalent value" and
"fair equivalent value." To be sure, the words "reasonably" and
"fair" are nominally distinct, and may in some circumstances have
divergent substantive meanings. Nevertheless, we think that in a
forced-sale context, a value that is "reasonably equivalent" is
also "fair equivalent," and vice versa. Indeed, the BFP Court used
the words "reasonably" and "fair" in tandem, in such a manner as to
belie the notion that they have different meanings. See 114 S. Ct.
at 1765 ("[A] fair or proper price, or a `reasonably equivalent
value,' for foreclosed property, is the price in fact received at
10 [a lawfully conducted] foreclosure sale . . . ."); id. at 1762
(expressing doubt as to whether courts can or should "judge there
to be such a thing as a `reasonable' or `fair' forced-sale price").
Moreover, the Court's decision in BFP relied on intermediate
principles that are directly applicable in determining whether a
forced sale is made "for present fair equivalent value" as required
by § 549. First, "reasonably equivalent value" in § 548 cannot be
measured by reference to "fair market value," since Congress could
have used the language of "fair market value" had it intended such
a benchmark. Id. at 1761. Second, reference to the fair market
value of real property is especially inappropriate in the context
of a forced sale. Id. at 1761-62 ("Market value cannot be the
criterion of equivalence in the foreclosure-sale context.").
Third, any effort to ascertain what constitutes a "reasonable" or
"fair" forced-sale price requires a policy judgment that courts
ought not attempt. Id. at 1762 ("[S]uch judgments represent policy
determinations which the Bankruptcy Code gives us no apparent
authority to make."). Fourth, judicial interpretation of § 548
implicates an "essential state interest" in that "`the general
welfare of society is involved in the security of the titles to
real estate,' and the power to ensure that security `inheres in the
very nature of [state] government.'" Id. at 1764-65 (quoting
American Land Co. v. Zeiss, 219 U.S. 47, 60 (1911)).
These four principles are instructive in deciding this case.
First, § 549(c)'s use of the phrase "present fair equivalent value"
and its corresponding exclusion of "fair market value" rhetoric
11 raises at least a "suspicion," as Justice Scalia put it, "that fair
market value cannot — or at least cannot always — be the benchmark"
under § 549. Id. at 1761. Second, Bryan County's sale of the
Oklahoma property to the Kidds was a forced sale — and "market
value, as it is commonly understood, has no applicability in the
forced-sale context; indeed, it is the very antithesis of a forced-
sale value." Id. That Bryan County's sale to the Kidds was a tax
sale rather than a mortgage foreclosure sale does not change the
reality that it was a forced sale.
Third, any judicial effort to determine the purported content
of "such a thing as a `reasonable' or `fair' forced-sale price,"
id. at 1762, would require policy judgments that are inappropriate
for courts and fraught with the same difficulties in the context of
both mortgage foreclosure sales and sales conducted to satisfy
delinquent tax obligations. Finally, the essential state interest
in ensuring "security of the titles to real estate" is equally
salient in both mortgage foreclosure sales and tax sales of real
property. A reading of § 549(c) that contemplated a substantive
benchmark such as fair market value, however, "would have a
profound effect upon that interest: the title of every piece of
realty purchased at foreclosure [or a tax sale] would be under a
federally created cloud." Id. at 1765. Given the presumption
against reading federal laws to impinge on traditional areas of
state regulation in the absence of a clear and manifest statutory
mandate, we find it inappropriate to adopt such an approach to our
interpretation of § 549(c).
12 This case is illustrative of the BFP Court's teachings about
the inappropriateness of using a fair-market-value benchmark as a
federally imposed constraint on the ability of states to permit
forced sales of real property. Bryan County itself was forced to
take title to the Oklahoma property at the original tax foreclosure
sale in October 1990 because there were no bids on the Oklahoma
property. Given that this initial forced-sale value was apparently
close to zero, it should not be astonishing that Bryan County was
later able to sell the Oklahoma property for only $325.
We conclude that the logic of BFP trumps the differences
between the relevant language of § 548(a)(2)(A) and § 549(c) and
the contexts of mortgage foreclosure sales and tax sales. The only
remaining distinction between § 548 and § 549 that mandates caution
in extending BFP's analysis to this case is the fact that § 548
addresses prepetition transfers while § 549 governs postpetition
transfers. Arguing against such an extension, Stone Companies
contends that Congress intended a stricter standard under § 549
than under § 548. Stone Companies urges that "[t]he preservation
of the bankruptcy estate is at the core of the `present fair
equivalent value' standard," and that "the purpose of the more
stringent statutory requirement in section 549 is to protect the
estate of the debtor from depletion during the pendency of the
petition."
That Congress intended stricter limitations on postpetition
transfers, however, does not mean that such stringency must take
shape in the "equivalent value" received by the bankruptcy estate.
13 In concluding that, under BFP, there is no meaningful difference
between respective "equivalent value" requirements of § 548 and
§ 549 in a forced-sale context, we do not render § 549 less strict
than § 548. Significantly, § 549(c) has requirements that are not
present in § 548 — requirements that address particular concerns in
the context of postpetition transfers. A postpetition transfer
must do more than garner "present fair equivalent value"; it must
also be made "to a [1] good faith purchaser [2] without knowledge
of the commencement of the case." § 549(c). For whatever reason,
Stone Companies declined to avail itself of a critical safeguard
under § 549 when it never informed Bryan County of its bankruptcy.
Stricter rules under § 549 exist — Stone Companies did not take
advantage of them.3
We are mindful of BFP's caveat as to the narrow scope of its
decision. Justice Scalia's majority opinion stated: "We emphasize
that our opinion today covers only mortgage foreclosures of real
estate. The considerations bearing upon other foreclosures and
forced sales (to satisfy tax liens, for example) may be different."
Id. at 1761 n.3. For the reasons discussed above, however, we find
that BFP's reasoning guides our reading of § 549(c)'s requirement
of "present fair equivalent value." The Court's disclaimer on the
breadth of its decision in BFP did not preclude extension of its
3 Also, to the extent that Stone is correct that "present" value excludes any amounts used to satisfy antecedent debt, that reading may offer another way in which § 549 is stricter than § 548, since, as Stone recognizes, satisfaction of antecedent debt can be used to meet § 548 requirement of "reasonably equivalent value."
14 reasoning to a case, such as this one, where traditional rules of
statutory construction and deference to state regulatory interests
support the same outcome.
In sum, we read BFP to say that, in the context of a forced
sale, (1) § 549(c)'s requirement of "present fair equivalent value"
ought not be measured against the property's "fair market value";
and (2) given the State's essential interest in maintaining clear
titles to real property, we should not attempt to ascertain the
substantive content of "present fair equivalent value."4 We hold,
in accordance with the logic of BFP, that the tax-sale transfer of
Stone Companies' land to the Kidds — which Stone Companies concedes
was noncollusive and conducted in conformity with Oklahoma law —
satisfied § 549(c)'s requirement that the sale be "for present fair
equivalent value."
AFFIRMED.
4 We decline to follow In re Shaw, 157 B.R. 151 (Bankr. 9th Cir. 1993), in which the bankruptcy court held that the different language in § 549(c) compelled closer adherence to fair market value than the language of § 548. Id. at 153-54. In re Shaw was decided before BFP, and the reasoning of BFP, which disapproves of a fair market value benchmark in a forced-sale context, casts doubt on the bankruptcy court's analysis in In re Shaw.