Opinion
Case No.: 02-07139-BGC-7.
September 5, 2006
Order Approving Sale
I. Findings of Fact
On January 4, 2006, the Trustee filed a Motion for Authority to Sell Assets by Auction and Notice of Sale. The assets proposed to be sold were identified in the Trustee's motion as 40 acres, more or less, of real estate in Pickens County Alabama.
In a related pleading, the Trustee described the complicated circumstances surrounding the ownership of the 40 acres proposed to be sold. He wrote:
At the time of the filing of the bankruptcy case, the Debtors Marie Dudley and her husband Albert Dudley were the owners of real property located in Pickens County, Alabama more particularly described as follows: "The NW 1/4 of the NE 1/4 Section 16, Township 20 South, Range 14 West, in Pickens County, Alabama, containing 40 acres more or less" (the "Dudley Property").
The Dudley Property consists of 40 acres, and is part of a larger parcel of a total 200 acre real property located in Pickens County, Alabama, which 200 acre property is represented by the deed attached hereto as Exhibit 2 (the "Original Deed").
According to the Original Deed, W.K. Jones and his wife Catherine Elizabeth Jones transferred "one hundred sixty acres, more or less" of real property located in Pickens County, Alabama (the "Pickens County Property") to their son Wesley Dawson Jones "for and during his natural life and upon his death during the natural life of his wife, if she survive him, and after his death and after the death of his wife, the title in fee to said property to vest in his children, now living or hereafter born or to the heirs of his children who may have died, such heirs to receive only the deceased child's portion."
While the Original Deed does not identify the wife and children of Wesley Dawson Jones,FN 1 the wife of Wesley Dawson Jones is Defendant Loveada Jones. The children of Wesley Dawson Jones and Loveada Jones are Defendants Geneva Jones Newburn, Elizabeth Jones Payne, Helen Sue Jones White, Marie Dudley (one of the Debtors) and Dawson Kenneth JonesFN 2 (collectively, "the Jones Children"). Defendants Ben Newburn, David Payne, Bill White, Joe Jewis and Trudie Jones are the current or former spouses of the Jones Children.
Defendant Helen Sue Jones White is the sister of the Debtor Jane Marie Dudley. Defendant Bill White is the current husband of Defendant Helen Sue Jones White. Defendant Joe Jewis is the ex-husband of Defendant Helen Sue Jones White, and was married to Defendant Helen Sue Jones White at the time of the transfer of real property.
On December 1, 1978, after the death of Wesley Dawson Jones, Defendant Loveada Jones executed and delivered 5 deeds transferring equal portions of the Pickens County Property to her children as follows: 40 acres to Marie Dudley and her husband Albert Dudley, 40 acres to Geneva Jones Newburn and her husband Ben Newburn; 50 acres to Elizabeth Jones Payne and her husband David Payne; 40 acres to Helen Sue Jones White and then husband Joe Jewis; and 40 acres to Dawson Kenneth Jones (deceased).
FN 1. Wesley Dawson Jones died in August of 1977.
FN 2. Dawson Kenneth Jones died in June of 2000; he is survived by his wife Defendant Trudy Jones and four adult children. The only other child born to Wesley and Loveada Jones died at the age of six prior to the transfers of property by Loveada Jones.
Motion to Approve Compromise of Controversy with Defendants Helen Sue Jones White, Bill White and Joe Jewis, December 8, 2004, Proceeding No. 30.
The Trustee proposed for the sale to be, "by public auction . . ." to be held on, "Tuesday, February 7, 2006 at 10:00 a.m. at the United States Federal Courthouse, 118 Greensboro, Avenue, Room 126, Tuscaloosa, Alabama." Motion for Authority to Sell Assets by Auction and Notice of Sale, January 4, 2006, Proceeding No. 40.
On January 6, 2006, and pursuant to the Trustee's motion, this Court entered an Order on Service and Notice of Motion for Authority to Sell Assets by Auction Free and Clear of all Liens and Other Interests; and Setting Date, Time and Place of Hearing and Time Within Which Answers and Objections May be Filed and Served. In that order, the Court set a hearing for January 31, 2006, to consider the Trustee's motion and any timely filed objections to the sale. For an objection to be heard, the Court's order required that the objection be written and filed with the Court no later than January 26, 2006.
Based on the Court's January 6, 2006, Order, the Clerk of Court gave notice of the sale as required by Rule 6004 of the Federal Rules of Bankruptcy Procedure. That notice included a copy of the Trustee's motion, which motion included the date, place, and time of the sale.
Rule 6004 reads in pertinent part:
(a) Notice of proposed use, sale, or lease of property
Notice of a proposed use, sale, or lease of property, other than cash collateral, not in the ordinary course of business shall be given pursuant to Rule 2002(a)(2), (c)(1), (i), and (k) and, if applicable, in accordance with § 363(b)(2) of the Code.
(b) Objection to proposal
Except as provided in subdivisions (c) and (d) of this rule, an objection to a proposed use, sale, or lease of property shall be filed and served not less than five days before the date set for the proposed action or within the time fixed by the court. An objection to the proposed use, sale, or lease of property is governed by Rule 9014.
Rule 2002 reads in pertinent part:
(a) Twenty-day notices to parties in interest
Except as provided in subdivisions (h), (i), and (l) of this rule, the clerk, or some other person as the court may direct, shall give the debtor, the trustee, all creditors and indenture trustees at least 20 days' notice by mail of:
(2) a proposed use, sale, or lease of property of the estate other than in the ordinary course of business, unless the court for cause shown shortens the time or directs another method of giving notice;
. . . . . . . . . .
(c) Content of notice
(1) Proposed use, sale, or lease of property
Subject to Rule 6004 the notice of a proposed use, sale, or lease of property required by subdivision (a)(2) of this rule shall include the time and place of any public sale, the terms and conditions of any private sale and the time fixed for filing objections. The notice of a proposed use, sale, or lease of property, including real estate, is sufficient if it generally describes the property.
Joan Dudley Salers and Cheryl D. Burchfield, two of the debtors' children, filed written, timely objections.
Ms. Salers' letter reads:
Dear Sir or Madam:
In the case of my parents we ask that you do not sell or take charge of any and all of their personal, or property that belongs to them. This has been a hard and long life for my parents in regards to my father health, mental and physical long battles of mental illness and now physical health. There is no way they can ever pay all there medical bills and therefore that is why most of these bills were accure.
Thank you for your attention.
Letter, January 20, 2006, Proceeding No. 44.
Ms. Burchfield's letter reads:
To Whom It May Concern:
I am the second daughter of Albert and Marie Dudley and I am writing in regards to the Gordo property. My father has had schizophrenia for about 47 years and emphysema for about 15 and my mother has struggled for years to keep her family and this property going. She has often worked 2 or more jobs to keep things together and here lately it has been a little more than she can handle. Us kids are helping out, I give her money when I can and I pay her cell bill. My father gets a little check every month but with medication and doctor bills it doesn't go very far. I just think it would be a shame for my mother to lose that land after all the struggling she has done to keep it for all these years. That land is her only inheritance and I would like to protest it being sold and would like you to seek other options that might be available to help prevent her from losing it. I would greatly appreciate any help you could offer. Thank you.
Letter, January 23, 2006, Proceeding No. 46.
The hearing on the Trustee's motion and the two objections was held on January 31, 2006, as scheduled. Appearing were Thomas Reynolds, the Trustee; Jane Dudley, one of the debtors; and all four of the debtors' children: Joan Salers, Cheryl Burchfield, Karen Hardin and Albert Dudley, Jr.
The Court confirmed on the record at the hearing that Joan Salers, Cheryl Burchfield and Albert Dudley, Jr. are children of the debtors. The Court assumes that Karen Hardin is also a child of the debtors.
All of the debtors' children opposed the sale. While none of them had a legal interest in the property, each had a personal and family interest. All appearing explained to the Court that the property proposed to be sold was important financially to Mr. and Mrs. Dudley and represented the only inheritance Mrs. Dudley could expect. They explained some of the severe medical problems Mr. Dudley suffered and the financial and personal costs that those problems have been for all of them. They also explained that unfortunately neither they nor other family members would be able to purchase the property at the trustee's sale. They asked the Court to consider other alternatives to a sale.
At the hearing on April 11, 2006, it was represented that a cousin was interested in buying the property.
The Court took the matter under submission based on arguments and the pleadings.
On February 7, 2006, before the Court ruled on the Trustee's motion, the Trustee conducted the sale he proposed in his Motion for Authority to Sell Assets by Auction and Notice of Sale. See Trustee's Report of Sale filed on March 20, 2006.
On March 6, 2006, the Court entered an Order granting the Trustee's Motion for Authority to Sell Assets by Auction and Notice of Sale.
Also on March 20, 2006, the Court received a letter from Ms. Salers stating that she received the Court's order dated March 6, 2006, granting the Trustee permission to sell the property, but that she had information indicating that the Trustee sold the property around the first of February before the Court entered its order. A hearing was scheduled for April 11, 2006, on Ms. Salers' correspondence to the Court.
Ms. Salers' letter reads:
Dear Judge Cohen,
This is a plea to you on behalf of the property this is located in Pickens Co. We were in Court with you on the 31st of January and you stated in Court that you would investigate this matter. You mailed me a letter on March 6, 2006 that said you could find no reason not to sell the property, and I find out this property was sold back around the 1st of February, and my question is how did they sell this property so quick when we just went to Court and had it in newspapers to be sold. Did you change your mind after Court that day or what? Please let me know if there is any problem with this matter. Did they get ok thru you to go ahead and sell?
Thank you for your consideration.
Letter, March 20, 2006, Proceeding No. 54.
And finally on March 20, 2006, the Trustee filed a Report of Sale of the subject property.
The Report of Sale reads:
On or about January 5, 2006, the Trustee filed a Motion for Authority to Sell Assets by Auction and Notice of Sale. A hearing was held on January 31, 2006. The Court entered its Order dated March 6, 2006 approving the sale.
The Property located in Pickens County, Alabama (40 acres) was auctioned on February 7, 2006. The highest bidder was Ronald Alan Knight and Mary Anne Knight for a total purchase price of $31,200.00. The closing was held on March 20, 2006. A copy of the closing statement is attached hereto.
Report of Sale, March 22, 2006, Proceeding No. 56.
The April 11 hearing was held. Appearing were: Laura Dunning for the Trustee; Thomas Huseman for the debtors; Ms. Salers; and Ms. Hardin. The Court took the questions raised by Ms. Saylers under advisement.
While the Court was deliberating on those questions, it discovered that Ronald Knight and Mary Knight, the purchasers of the property at the February 7, 2006, auction, did not receive notice of the April 11, hearing and had not been given an opportunity to participate in that hearing.
To correct this deficiency, the Court entered an order advising the Knights of the contest of the sale and inviting them to participate in a hearing on August 23, 2006, if they desired. The Knights responded that they wanted to participate in a hearing and filed a written argument.
The hearing was held on August 23, 2006. Appearing were, Mr. Reynolds, the trustee; Mrs. Dudley and Ms. Saylers; Mike Acton, the sale's auctioneer; and Mr. and Mrs. Knight and their daughter.
At that hearing Mr. Knight made oral arguments as to why he wanted the sale to be approved. He also testified at the trustee's calling. In that testimony, he explained the conduct of the sale and the circumstances surrounding it, all of which were quite normal. Mr. Knight also testified about the improvements that he had made to the property, and other actions he had taken, in reliance on having purchased the property. The improvements he testified about are the same as those listed in the written argument he filed with the Court.
II. Contentions A. The Trustee's Position
The trustee argues that the auction on February 7, 2006, was not a sale. The trustee argues that the February 7 auction was held solely for the purpose of determining a high bidder for the property, if and when the property was sold. The trustee explained that at the February 7 auction, an offer was made by the highest bidder who then paid the trustee earnest money. The trustee contends that the sale did not occur until a closing on March 20, after the Court entered its March 6 order approving the sale. The trustee concludes that the sale is valid as approved.
B. The Movant's Positions
Those asking the Court to reconsider the approval assumed that the purpose of the trustee's motion, their objections, and the hearing on those matters was to determine whether the sale proposed for February 7, 2006, would go forward. They also assumed that the Court's approval was necessary for the sale to go forward. They make the practical argument that they were waiting on a decision from this Court as to whether the sale would go forward, and if it were allowed to go forward, they expected an auction to be held where someone could bid on the property in their favor.
III. Issues
There are three issues. First, is the individual seeking to have the sale set aside in the legal position to do so. Or in other words, does she have standing to challenge the sale. Second, was the sale valid. And third, should the sale be approved.
IV. Conclusions of Law A. Does the Movant Have Standing?
The focus of the standing inquiry is "whether the plaintiff is the proper party to bring this suit." Bochese v. Town of Ponce Inlet, 405 F.3d 964, 976 (11th Cir. 2005) (quoting Raines v. Byrd, 521 U.S. 811, 818 (1997). As the discussion below explains, that question is not a technical one that may be ignored.
Jurisdiction is a, "court's power to decide a case." Black's Law Dictionary 855 (7th ed. 1999). Without jurisdiction, a Court cannot act. And if a party bringing an action before a court does not have standing to bring the action, then that court would not have jurisdiction over the matter brought and therefore could not then decide that matter. This is as basic as the law can get.
Standing is a jurisdictional requirement. That is, a trial court acquires no subject-matter jurisdiction over a suit instituted by one who lacks standing and must dismiss the same.State v. Property at 2018 Rainbow Drive, 740 So.2d 1025, 1028 (Ala. 1999).
Writing for the court in Wilson v. Minor, 220 F.3d 1297 (11th Cir. 2000), Circuit Judge Stanley Marcus explained:
Of course, a federal court has an independent obligation to ensure that it has jurisdiction over any claim brought before it even if jurisdictional questions are not raised by either party. See United States v. Hays, 515 U.S. 737, 742, 115 S.Ct. 2431, 2435, 132 L.Ed.2d 635 (1995) (noting that "[t]he question of standing is not subject to waiverAAAA `The federal courts are under an independent obligation to examine their own jurisdiction, and standing is perhaps the most important of [the jurisdictional] doctrines.'") (quoting FW/PBS, Inc. v. Dallas, 493 U.S. 215, 230-31, 110 S.Ct. 596, 607-08, 107 L.Ed.2d 603 (1990)) (internal quotation marks omitted); University of South Alabama v. American Tobacco Co., 168 F.3d 405, 410 (11th Cir. 1999) (emphasizing that "it is well settled that a federal court is obligated to inquire into subject matter jurisdiction sua sponte whenever it may be lacking").
Id. at 1302 n. 11.
And, writing for the United States Supreme Court in FW/PBS, Inc. v. City of Dallas, 493 U.S. 215 (1990), Justice Sandra Day O'Connor explained, "The federal courts are under an independent obligation to examine their own jurisdiction, and standing "is perhaps the most important of [the jurisdictional] doctrines."Id. at 231 (quoting Allen v. Wright, 468 U.S. 737, 750 (1984) (emphasis added)).
The evidence here is that none of the individuals objecting to the sale (and particularly the one filing the objection) is a creditor of this bankruptcy estate and, other than the debtors, none has a legal interest in the actual property. And finally, none is a potential bidder. At the hearing on January 31, 2006, the debtors' family explained that they could not afford to bid on the property and told the Court on April 11 that they still could not, but that they had a cousin that might. Without any more interest than this speculative interest, they do not have standing to challenge the sale.
An unsuccessful bidder whose interest is speculative does not have standing to challenge a sale. Kabro v. Colony Hills Associates, (In re Colony Hill Associates), 111 F3d 269 (2nd Cir. 1997). The sale of this property was properly noticed. It was held on the day and at the time noticed. The successful bidder was not the only bidder. Unfortunately for the debtors' family, they did not expect the sale to be held until afer this Court entered its order approving the sale. And as the Court noted at the hearing on April 11, 2006, that was the Court's impression, although there was no suggestion by anyone at the hearing on January 31, 2006, that the sale would be delayed. The Court and the debtors' family just suspected that it would. But neither what the Court nor the debtors' family expected, nor what were the impressions of either, is the law. The law supports approval of this sale. There is no evidence that the debtors' family has standing to challenge the sale. And there is simply no evidence to set it aside.
Based on the above, the Court finds that the one objecting to the sale does not have standing to bring the pending objection.
B. Is the Sale Valid? 1. A Trustee's Duties and Authority
This Court has on numerous occasions recognized this trustee's diligent work in this case in securing the approval of the sale from everyone with a legal interest in the property. That has been a difficult and time consuming task for which the trustee should again be commended. The trustee has in all regards fulfilled his duties and responsibilities in liquidating the assets of this Chapter 7 bankruptcy estate.
The court in In re Kay, 223 B.R. 816 (Bankr. M.D. Fla. 1998) offers this description of those duties. The court wrote:
The Trustee owes a complex set of obligations and fiduciary duties to the bankruptcy estate. In re WHET, 750 F.2d 149 (1st Cir. 1984) (stating a trustee is a "representative of the estate . . . and as such he owes a fiduciary duty to debtor and creditors alike to act fairly and protect their interests."). The Bankruptcy Code sets forth the duties of the Chapter 7 Trustee to the Debtor under 11 U.S.C. § 704(1), which provides, in relevant part: "The trustee shall — (1) collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interests of parties in interest. . . ." Id.
* * * *
A Chapter 7 Trustee has the duty to preserve estate assets for the benefit of creditors who will share in distribution of the estate and is obligated to gather and liquidate assets in an efficient manner in performing this duty to creditors. The Trustee's duties to the Debtor are not on the same plateau as estate creditors, even though there are mutual obligations to estate creditors and Chapter 7 Debtor. See e.g. In re Davis, 899 F.2d 1136, 1143 n. 15 (11th Cir. 1990) ("[t]he bankruptcy trustee does not represent the interests of the debtor alone; rather he owes a complex set of obligations and fiduciary duties to the court, the debtor . . . and, most importantly, the creditor.") (citations omitted).
Id. at 82.
This Court agrees. A "Chapter 7 trustee's duty is to reduce to money the legal or equitable interests owned by the debtor in these various assets so that the proceeds may be distributed to unsecured creditors in accordance with Section 726." In re Talbert, 268 B.R. 811, 819 (Bankr. W.D. Mich. 2001).
The Court finds that this trustee has satisfied all of these duties in this case.
2. Parameters of a Trustee's Sale
In addition to these general duties, a trustee has specific duties in regard to the sale of property. The court's explanation of the parameters of a trustee's sale in In re Performance Materials, Inc., 309 B.R. 819, (Bankr. M.D. Fla. 2004) is instructive. It reads:
To understand the Order, one needs to understand the underlying mechanics of the liquidation process of a bankruptcy estate. First, the Court is not the party selling the asset because it is not the representative of the estate under section 323 of the Bankruptcy Code. The actual party is the bankruptcy trustee, who has that function and is the party with power to sell assets of the bankruptcy estate. 11 U.S.C. §§ 323, 363. The trustee's right arises from section 363 of the Bankruptcy Code. Where a sale is not in the ordinary course of business, as was the situation here, court approval is necessary. Armed with court authority, the trustee then sells or liquidates the assets. In the ordinary case, the trustee obtains the authority (which can be broad) from the Court to conduct a private sale or an auction. The order granting such authority may not even be very specific and may only generally describe the assets for sale at an auction. While the order granting the authority under which the trustee acts may be very broad, the Bankruptcy Rules have very specific requirements for conducting such sales. For example, Bankruptcy Rule 6004(f) requires that a notice be filed with the court that provides a statement of the specific property sold and the name of each purchaser. Additionally, Bankruptcy Rule 2002(c)(1) also requires that parties in interest receive notice of the proposed sale, and that notice must generally describe the property to be sold.
Id. at 823 (emphasis added).
As the above explains, there are certain requirements that must be met before a trustee may sell assets of an estate. As the discussion below explains, this Court finds that those requirements were satisfied here.
3. The February 7, 2006, "Auction"
The trustee's position is that while the notice of the "sale" to all interested parties was for a proposed sale on February 7, 2006, the auction that occurred on that date was an act only to solicit bids for a sale to be concluded later. The actual "sale," according to the trustee, was conducted at a closing on March 20, 2006.
As to the general notice required for a sale, Rule 6004 of the Federal Rules of Bankruptcy Procedure requires, "Notice of a proposed use, sale, or lease of property, other than cash collateral, not in the ordinary course of business shall be given pursuant to Rule 2002(a)(2), (c)(1), (i), and (k) and, if applicable, in accordance with § 363(b)(2) of the Code." Fed.R.Bankr.P. 6004(a).
As to that specific notice, Rule 2002 requires that the content of a notice for a proposed sale include the following:
Subject to Rule 6004 the notice of a proposed use, sale, or lease of property required by subdivision (a)(2) of this rule shall include the time and place of any public sale, the terms and conditions of any private sale and the time fixed for filing objections. The notice of a proposed use, sale, or lease of property, including real estate, is sufficient if it generally describes the property.
The Clerk of this Court gave the notice required by Rule 6004 and in the form required by Rule 2002. That notice, pursuant to the request by the trustee in his motion to sell, referenced a proposed sale for February 7, 2006. That notice did not reference, and no notice was given for, a sale to be held at a closing on March 20, 2006, or at any other time. No notice was given that the February 7 auction would be held only for the purpose of soliciting bids on property that would be sold on March 20, 2006, at closing. Therefore, the only notice of any sale proposed by the trustee was for the proposed sale described by the trustee in his motion as, "The Property is proposed to be sold by public auction on Tuesday, February 7, 2006 at 10:00 a.m. at the United States Federal Courthouse, 118 Greensboro Avenue, Room, 126, Tuscaloosa Alabama." Motion for Authority to Sell Assets by Auction and Notice of Sale, January 4, 2006, Proceeding No. 40.
Pursuant to the notice given, the trustee conducted an auction of the subject property. The legal consequences of that auction are quite clear under Alabama law. The court in In re Moton, 1995 WL 17017771, Case No. 95-11773-MAM-13, (Bkrtcy. S.D. Ala. 1995) explains:
According to Alabama law the clear, identifiable point in an auction when the sale is complete is the moment when the auctioneer so states, the hammer falls, or some other customary manner indicating finality. Bradford v. Northwest Alabama Livestock Ass'n, 379 So.2d 609 (Ala.Civ.App. 1980); citing, ALA. CODE § 7-2-328(2) (1975). It is at this point a new contract is created. In part, § 7-2-106(1) of the Code of Alabama states:
"Contract for sale" includes both a present sale of goods and a contract to sell goods at a future time. A "sale" consists in the passing of title from the seller to the buyer for a price (§ 7-2-401). A "present sale" means a sale which is accomplished by the making of the contract. Id. "Auction" is a public sale of property to the highest bidder, conducted by one who is authorized for that purpose. Adair v. Alabama Real Estate Commission, 303 So.2d 119 (Ala.Civ.App. 1974). The Debtor's property was sold in the same way. A properly noticed foreclosure sale occurred, a third party was the highest bidder, this bid was accepted, and a "present sale" was completed. A recent decision described a similar situation this way:
There is no surprise. There need be no race to the courthouses. A foreclosure action must be prosecuted, a judgment must be obtained, and the sale must be set and advertised. The mortgagor has a considerable amount of time to seek refinancing, negotiate, defend the foreclosure, and decide whether or not to seek the protections of bankruptcy. In re Jaar, 186 B.R. at 154.
Also see Bradford v. Northwest Alabama Livestock Ass'n, 379 So.2d 609, 611 (Ala.Civ.App. 1980), which includes, "In Alabama a sale by auction is complete when the auctioneer so announces by fall of the hammer or in any other customary manner. Section 7-2-328(2), Code of Alabama 1975." Id.
This Court agrees with the above and also agrees with the court in In re Baker, 339 B.R. 298, (Bankr. E.D.N.Y. 2005), which stated, "The critical step is approval by the bankruptcy court, not closing. See, e.g., In re Stadium Management Corp., 895 F.2d at 849; In re Vetter Corp., 724 F.2d at 55-56." Id at 304.
Did the gavel fall on February 7? The only evidence on this point is the trustee's Report of Sale which reads, "The property . . . was auctioned on February 7, 2006. The highest bidder was Roland Alan Knight and Mary Anne Knight. . . ." Consequently, the Court must assume that the gavel fell on February 7, 2006.
Therefore, the Court finds that the trustee's auction on February 7, 2006, was not just a solicitation for bids, it was the "sale" identified in the Court's notice of January 6, 2006. But, as explained above, that sale had not been approved. There were two pending objections to the February 7, 2006, sale, and the Court had the trustee's motion to conduct that sale and those objections under advisement. The Court did not issue its approval of the sale until March 6, 2006, after the fact.
Based on the above therefore, the Court must find that the sale was completed at the auction on February 7, 2006, and was a valid sale. But because that sale had not been approved when completed, should the Court approve it now?
Is actual court approval of a sale required? The answer in this case is yes. As the court in In re Performance Materials, Inc., 309 B.R. 819 (Bankr. M.D. Fla. 2004) stated, "Where a sale is not in the ordinary course of business, as was the situation here, court approval is necessary." Id. at 823.
Section 363 of the bankruptcy code reads in part, "The trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate. . . ." 11 U.S.C. § 363(b)(1). The argument can be made that section 363 does not, in and of itself, require specific court approval of a trustee's motion to sell. And it may be argued that if there is no objection filed to a motion to sell that an order of approval may not be necessary. That of course is not the situation here.
Two objections to the sale were timely filed. As noted above, Rule 6004(b) reads in part, "An objection to the proposed use, sale, or lease of property is governed by Rule 9014." Id. Therefore, pursuant to Rule 9014, an objection to a sale is treated as a "contested matter" and therefore requires a specific ruling from the Court. Consequently, before the proposed sale of this property could be held, a ruling by this Court was required. Presumably, that order would either allow or not allow that sale to go forward or provide under what conditions the sale could or could not be held. Therefore, in that sense, approval is required. And in this case, such an order was not entered until after the trustee's auction.
C. Should the Sale be Approved?
A court may set aside a sale under limited circumstances. Is the fact that the trustee conducted the sale before the Court approved the sale, but where the Court approved the sale afterwards, one of those limited circumstances?
Writing for the court in In re WPRV-TV, Inc., 983 F.2d 336 (1st Cir. 1993) Circuit Judge Norman H. Stahl explains:
[T]he court may vacate a prior order confirming a sale only in very limited circumstances in the exercise of its powers as a court of equity. Id. Following confirmation, a court may set aside the sale if "there was fraud, unfairness, or mistake in the conduct of the sale. . . ." M.R.R. Traders, Inc. v. Cave Atlantique, Inc., 788 F.2d 816, 818 (1st Cir. 1986) (citation omitted); see also Chung King, 753 F.2d at 549-550 ("the existence of fraud, mistake or a like infirmity" would be necessary to vacate a confirmed sale)
(citing Bankruptcy Rule 9024, which applies Fed.R.Civ.P. 60 to bankruptcy cases, allowing judgments to be set aside for, inter alia, mistake, inadvertence, surprise, excusable neglect, fraud, misrepresentation or any reason justifying relief).
Such limited discretion is necessary, because "`[i]f parties are to be encouraged to bid at judicial sales there must be stability and a time must come when a fair bid is accepted and the proceedings are ended.'" Id. (quoting In re Webcor, 392 F.2d 893, 899 (7th Cir.), cert. denied, 393 U.S. 837, 89 S.Ct. 113, 21 L.Ed.2d 107 (1968)). "This policy of finality protects confirmed sales unless compelling equities outweigh the interests in finality." Id. (citations and internal quotes omitted); In re F.A. Potts and Co., Inc., 86 B.R. 853 (Bankr. E.D.Pa.), aff'd 93 B.R. 62 (E.D.Pa. 1988), and aff'd without opinion, 891 F.2d 280 (3rd Cir. 1989) (finding of fraud or mistake not necessary when "compelling equities," including events subsequent to confirmation, outweigh finality goal).
Id. at 340-41.
The terms mistake, inadvertence, surprise, excusable neglect, fraud, or misrepresentation, as used above, do not carry their common meanings. Each has a specific legal meaning that must be considered in this context. Considering those meanings, the Court finds that there is no evidence before this Court of mistake, inadvertence, surprise, excusable neglect, fraud, misrepresentation or any reason justifying relief.
For the same reasons the Court approved the sale in its March 6, 2006, order, it finds that it should approve the sale now. There is simply no legal reason why the sale should not be approved. The trustee has a duty to marshal and liquidate the assets of this estate and this sale is one way to satisfy that duty.
In addition, as one of the cases cited above demonstrates, to have standing to object to a sale, a party must be a potential bidder. At the hearing on January 31, 2006, in response to the Court's inquiry if anyone of the debtors' children would be able to bid on the property or if they could bid together, the unanimous response was, no. While some of those individuals later told the Court that a relative might bid, or intended to bid, on the property, that individual is not before the Court.
It is very unfortunate for everyone, and especially those that have such a personal interest in this property, that the sale was conducted before the Court entered its approval order on March 6, 2006. As noted above, even this Court mentioned at the hearing on April 11, 2006, that it had the impression that another auction would have been held. That impression is of course not the law. The law is quite clear. Unless there is some "compelling" equity that outweighs the interest in the finality of the sale, the sale should not be set aside.
The family of the debtors certainly could argue that it was unfair to not have a second auction. That of course is an equitable reason for this Court to consider setting aside the sale. Which is exactly what this Court has done. It has considered that issue. But the Court must find, based on the law, that the unfairness that is felt about this situation, does not support setting aside the sale. Neither this Court's impression, nor the impressions or expectations of those opposed to the sale, are "compelling" equities that would support the Court setting aside this sale.
There is still no evidence that the debtor's children could purchase the property. None of them are creditors of this estate. And none have a legal interest in the property.
The Court is reminded that at the January 31, 2006, hearing, Mrs. Dudley and others expressed concern that she and her husband would not have filed their Chapter 7 bankruptcy case if they had know that they might lose the property they are now losing. That is very unfortunate. But the law is quite clear on this point also. As stated above, a "Chapter 7 trustee's duty is to reduce to money the legal or equitable interests owned by the debtor in these various assets so that the proceeds may be distributed to unsecured creditors in accordance with Section 726." In re Talbert, 268 B.R. 811, 819 (Bankr. W.D. Mich. 2001). The fact that the Dudleys may not have been aware that such a consequence was probable, makes the current circumstances even more difficult for them. But that does not change the law. When the debtors decided to file this case, certain events were inevitable. Whether they made the correct choice, is something they should discuss with their attorney.
This Court wishes that the trustee had waited to sell the property until the Court had approved the sale, or that the trustee had conducted another auction after the approval. If that wish had been fulfilled, maybe the debtors and members of their family would leave this Court with a little less bitter taste in their mouths than the one the Court expects they have now. But that is no reason for the Court to disapprove the sale now. In contrast, the Court believes that the legal rights of every person interested in this case have been addressed. Whether the results are as those persons believe they should be, is a question that this Court cannot answer.
And finally, at the hearing on August 23, 2006, Ms. Saylers asked the question of who gave the trustee permission to sell the property before this Court entered its order. There is no direct, or simple, answer to that question. In this order the Court has attempted to explain that many factors contribute to the final result that the sale of it should be approved. That may be of little comfort to the Dudleys and their family, but this Court is convinced that it is the correct legal result.
V. Order
Based on the above, it is therefore ORDERED, ADJUDGED and DECREED that:
1. The Order granting the Trustee's Motion for Authority to Sell Assets by Auction and Notice of Sale is CONFIRMED;
2. The sale of the subject property conducted by the trustee on February 7, 2006, is APPROVED;
3. A separate order will be entered contemporaneously with this Order approving the Application for Compensation to Auctioneer/Sales Agent; and
4. This order is a written opinion for purposes of the E-Government Act, Pub.L. No. 107-347.