Summary
holding § 549 actions are core proceedings
Summary of this case from Gugino v. Nelmap, LLC (In re Wallace)Opinion
NOT FOR PUBLICATION
Argued and Submitted at Orange, California: November 15, 2006
Appeal from the United States Bankruptcy Court for the Central District of California. Bk. No. RS 03-10070 MJ, Adv. Nos. RS 05-01260 MJ, RS 05-01261 MJ. Hon. Meredith A. Jury, Bankruptcy Judge, Presiding.
Before: MONTALI, BRANDT, and KLEIN, Bankruptcy Judges.
MEMORANDUM
The bankruptcy court held that two adversary proceedings to avoid post-petition transfers pursuant to 11 U.S.C. § 549were " core" proceedings under 28 U.S.C. § § 157. We AFFIRM.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1330, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036, as enacted and promulgated prior to the effective date of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, Apr. 20, 2005, 119 Stat. 23.
I. FACTS
Appellant Earl Jones (" Debtor") filed a voluntary chapter 7 petition on January 2, 2003. Appellee Karl T. Anderson (" Trustee") was appointed chapter 7 trustee. Debtor owned real property in Perris, California (the " Perris Property") and Moreno Valley, California (the " Moreno Valley Property").
On or about October 17, 2000, Debtor executed two deeds of trust against the Perris Property in favor of his family members. Likewise, on the same date, he executed a deed of trust against the Moreno Valley Property in favor of family members and others. As of the petition date, these deeds of trust had not been recorded.
On or about April 6, 2004, more than a year after the petition date, the deeds of trust against the Perris Property were recorded. On or about April 12, 2004, the deed of trust against the Moreno Valley Property was recorded.
On June 20, 2005, the bankruptcy court approved a motion of the Trustee to sell the Perris Property free and clear of liens and specifically ordered that the deeds of trust recorded postpetition without court authorization would " attach to the net sales proceeds to the same extent, validity and priority that existed as of the Petition Date." Similarly, on June 14, 2005, the bankruptcy court entered an order authorizing the Trustee to sell the Moreno Valley Property free and clear of liens. That order contained an identical provision whereby the Moreno Valley Property deed of trust recorded post-petition would attach to the proceeds " to the same extent, validity and priority that existed as of the Petition Date."
According to the bankruptcy court's electronic docket, no party filed a timely appeal of the orders approving the sales of the Perris Property and the Moreno Valley Property free and clear of liens. Those orders are final.
On June 24, 2005, Trustee commenced two adversary proceedings against Debtor and others to avoid the postpetition recordation of the deeds of trust. Trustee sought relief pursuant to sections 549 and 550. On September 13, 2005, Debtor filed a " Request for Judge Determination of Core/Noncore Jurisdiction for Trust Deed Avoidance Proceedings" in the Perris Property adversary proceeding. He filed a similar pleading in the Moreno Valley adversary proceeding on September 15, 2005.
In his adversary proceeding complaints, Trustee asserted that Debtor owned the subject properties. The complaints also named Debtor as a defendant in his capacity as trustee of a family trust which was the beneficiary of the deeds of trust recorded postpetition.
On March 9, 2006, the bankruptcy court entered orders in both adversary proceedings declaring them to be core (the " Core Orders"). On March 14, 2006, Debtor filed timely notices of appeal of the Core Orders. Thereafter, on June 7, 2006, the bankruptcy court entered summary judgments in favor of Trustee in both adversary proceedings. Debtor did not file a notice of appeal from either summary judgment and those judgments are final.
Trustee moved to dismiss both appeals as interlocutory. This panel entered orders denying the motions to dismiss, holding that entry of the summary judgments rendered the Core Orders final. See Cato v. Fresno City, 220 F.3d 1073, 1074-75 (9th Cir. 2000) (an appeal subject to a finality defect can be " cured" when a final judgment is entered); Gulf States Exploration Co. v. Manville Forest Prods. Corp. (In re Manville Forest Prods. Corp.), 896 F.2d 1384, 1388 (2d Cir. 1990) (the issue of whether a claim objection was core was preserved for subsequent appeal after the bankruptcy court conducted a bench trial and entered a final order sustaining the objection). In denying Trustee's motions to dismiss, the panel stated:
[Debtor] did not file a timely appeal from the bankruptcy court's final judgment[s; ] therefore, the issue on appeal is limited to whether the bankruptcy [court] correctly determined that [these were] core proceeding[s]. [These appeals are] not moot because if appellant were to prevail in [these appeals], final judgment would have to be rendered by the district court.
II. ISSUES
1. Are the appeals moot?
2. Did the bankruptcy court err in declaring the adversary proceedings to be " core" ?
III. STANDARD OF REVIEW
We review de novo the bankruptcy court's determination that the adversary proceedings were " core" under 28 U.S.C. § 157. Marshall v. Marshall (In re Marshall), 264 B.R. 609, 618 (C.D. Cal. 2001) (" The Court reviews the bankruptcy court's legal conclusions de novo. Both subject matter jurisdiction and whether a proceeding is core or non-core are legal questions over which the Court exercises de novo review."); Sedlachek v. Nat'l Bank of Long Beach ( In re Kold Kist Brands, Inc. ), 158 B.R. 175, 178 (C.D. Cal. 1993) (" Questions of bankruptcy court jurisdiction are reviewed de novo, including determinations that a proceeding is 'core' or 'non-core.'"); cf. Maitland v. Mitchell (In re Harris Pine Mills), 44 F.3d 1431, 1434 (9th Cir. 1995) (" We review de novo the court's acceptance of jurisdiction . . . .").
IV. DISCUSSION
A. Mootness Issues
Trustee argues that both appeals are moot because the bankruptcy court entered final summary judgments in both adversary proceedings, and Debtor did not file notices of appeal from either judgment. We disagree. As noted previously, an interlocutory appeal can be validated by subsequent events such as entry of a final judgment. Cato, 220 F.3d at 1074-75. If entry of a final order in and of itself rendered moot an appeal of a prior interlocutory order (as suggested by Trustee), the validation or " cure" of an appeal subject to a finality defect (see id.) would not be possible.
In addition, a case becomes moot when the issues presented are no longer live or the parties lack a legally cognizable interest in the outcome. Kescoli v. Babbitt, 101 F.3d 1304, 1308 (9th Cir. 1996). An appeal is moot if an event occurs during its pendency " that makes it impossible for the appellate court to grant 'any effectual relief whatever' to the prevailing party." United States v. Tanoue, 94 F.3d 1342, 1344 (9th Cir. 1996) (citations omitted).
Here, entry of the summary judgments does not make it impossible for the appellate court to grant effectual relief. If the matters were not core, the bankruptcy court would not have had authority to enter final judgment and, absent consent of the parties, the district court would have to enter the final judgments based on the bankruptcy court's proposed rulings. See 28 U.S.C. § 158(c); Dunmore v. United States, 358 F.3d 1107, 1114 (9th Cir. 2004) (" in 'non-core' proceedings, the bankruptcy court is limited to hearing the matter and submitting proposed findings of fact and conclusions of law to the district court"). Reversal of the court's determination that the adversary proceedings are core would provide effective relief to Debtor because the bankruptcy court's judgments would necessarily need to be vacated as having been entered without the requisite judicial authority.
Trustee also notes that he has already made distributions based on the summary judgments. Making such distributions does not render the appeals moot, because if the Core Orders were reversed and a district court ultimately entered final judgment in favor of Debtor, Trustee could recover the amount of those distributions necessary to satisfy the non-avoided liens. Nothing in the record reflects that such a recovery and redistribution would be impossible, as opposed to merely difficult.
B. Substantive Issues
Debtor contends that the bankruptcy court erred when it determined that the section 549 actions were core. Debtor's position, however, is contrary to clear statutory language as well as case law.
At oral argument, Debtor argued that the bankruptcy court in general lacked jurisdiction over the adversary proceeding to avoid the postpetition recordation of liens. Specifically, Debtor argued that the bankruptcy court somehow lacked jurisdiction because no one had objected to his voluntary petition and schedules and because no one had objected to claims. These facts are irrelevant to the bankruptcy court's jurisdiction. Debtor filed a voluntary petition, so the bankruptcy court had jurisdiction over the main bankruptcy case and adversary proceedings pursuant to 28 U.S.C. § 1334. Moreover, as discussed in the text, the adversary proceedings constitute core proceedings subject to the bankruptcy court's jurisdiction under 28 U.S.C. § 157(b).
In response to the Supreme Court's decision in Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), Congress provided bankruptcy courts with two tiers of judicial authority depending whether a proceeding is " core" or " non-core." 28 U.S.C. § 157. As the Ninth Circuit explained in Dunmore:
This [" core" versus " non-core" ] distinction forms the linchpin for bankruptcy court adjudication under the amended Act. In " core" proceedings, the bankruptcy court may hear, determine, and enter final orders and judgments. 28 U.S.C. § 157(b)(1). Acting as appellate courts, the district courts and the courts of appeal review the bankruptcy court's decisions in core matters. 28 U.S.C. § 158. In contrast, in " non-core" proceedings, the bankruptcy court is limited to hearing the matter and submitting proposed findings of fact and conclusions of law to the district court. The district court reviews de novo any finding or conclusion objected to and enters a final order and judgment. See 28 U.S.C. § 157(c)(1). If the parties consent, the district court may expand the bankruptcy court's power to adjudicate non-core proceedings to include the power to issue final orders and judgments. See 28 U.S.C. § 157(c)(2).
Dunmore, 358 F.3d at 1114. The Ninth Circuit further observed in Harris Pine Mills, 44 F.3d at 1436 (citations omitted), that " 'no exact definition of the term[s] [core and non-core] exists in the [B]ankruptcy [C]ode. Rather, section 157(b)(2) contains a laundry list of core proceedings along with the admonition that core proceedings include, but are not limited to, the items listed.'"
Congress specifically included in this laundry list actions to determine " the validity, extent or priority of liens" as well as " proceedings to determine, avoid or recover fraudulent conveyances" and actions " to turn over property of the estate." See 28 U.S.C. § 157(b)(2)(E), (H), and (K). Both the Perris Property adversary proceeding and the Moreno Valley Property adversary proceeding seek relief that would fall within all of these categories, particularly sub-category (K) pertaining to actions to determine the validity, extent or priority of liens. Consequently, the bankruptcy court did not err in concluding that the adversary proceedings were " core."
In addition, courts have consistently treated section 549 actions to avoid postpetition transfers as " core." See Gandara v. Bitterroot Rock Products (In re Gandara), 257 B.R. 549, 551 (Bankr. D. Mont. 2000) (" This is a core proceeding to avoid a post-petition transfer of property of the estate under § 549(a) and 28 U.S.C. § 157(b)(2)."); Commercial Fin. Servs., Inc. v. Brady (In re Commercial Fin. Servs., Inc.) 239 B.R. 586, 594 (Bankr. N.D. Okla. 1999) (claims " for relief under 11 U.S.C. § 549 and 550 (for recovery of unauthorized post-petition transfers or their value) . . . arise under title 11 and are therefore 'core' proceedings over which this Court has plenary jurisdiction"); N. Parent, Inc. v. Cotter & Co. (In re N. Parent, Inc.), 221 B.R. 609, 629 (Bankr. D. Mass. 1998) (section 549 causes of action arise " under title 11, could not exist but in bankruptcy, and [are] intended to remedy improper administration of the case and the estate" and are " core proceedings under 28 U.S.C. § 157(b)(2)") (multiple citations omitted).
In gratis dictum, the Ninth Circuit has acknowledged that section 549 actions are indeed core. Sasson v. Sokoloff (In re Sasson), 424 F.3d 864, 871 (9th Cir. 2005), cert. denied, 547 U.S. 1206, 126 S.Ct. 2890, 165 L.Ed.2d 917 (2006) (" In the exercise of federal bankruptcy power, bankruptcy courts may avoid [transfers] in core proceedings, see, e.g., 11 U.S.C. § § 544, 547, 548, 549 . . . ."); cf. Harris Pine Mills, 44 F.3d at 1437 (" state law claims asserted by or against a trustee in bankruptcy or the trustee's agent for conduct arising out of the sale of property belonging to the bankruptcy estate qualify as core proceedings").
As explained in Global Int'l Airways Corp. v. Azima (In re Global Int'l Airways Corp.), 76 B.R. 700, 705 (Bankr. W.D. Mo. 1987):
With respect to the action for turnover under section 549, however, there can be no question that actions for the recovery of assets of an estate which were transferred subsequent to the petition has always been considered within the " summary" or " core" jurisdiction of a bankruptcy court. Section 157(b)(2), Title 28, United States Code, provides that " orders to turn over property of the estate" are part of the " core" jurisdiction of the bankruptcy court. And, under the historical precedents, a bankruptcy court always had summary jurisdiction to recover assets of the estate which were transferred after bankruptcy. Any other rule would make it impossible for the court of bankruptcy to protect the assets of an estate in accordance with its assigned duty. This court therefore rejects the proposition that the section 549 claim is without the " core" or " summary" jurisdiction of the bankruptcy court.
Therefore, under statutory and case law, the Trustee's section 549 actions to avoid the postpetition recordation of liens are core. The bankruptcy court did not err.
Debtor raises two other arguments on appeal. Debtor argues that the adversary proceedings were not core because the Trustee had not filed a proof of interest. A trustee does not have to file a proof of claim to prosecute a section 549 or 550 action; those sections in their text confer standing on a trustee to pursue such actions. Moreover, as discussed above, an action to avoid a postpetition transfer is " core" as a matter of case and statutory law. A filing of a proof of interest by a trustee is simply irrelevant and unnecessary.
V. CONCLUSION
Because the Trustee's adversary proceedings to avoid the postpetition recordation of liens is a core proceeding, we AFFIRM the bankruptcy court's decision in the Core Orders.
Debtor also argues for the first time on appeal that the section 549 action was untimely. Debtor is incorrect. Section 549(d)(1) requires that an action to avoid a postpetition transfer be commenced within two years of the transfer sought to be avoided. The postpetition transfers here occurred in April 2004; Trustee filed the section 549 actions in June 2005. The actions were timely under section 549(d).