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    Bell v. Reid Associates, 1st Cir. (1993)

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    This document is a court opinion from the United States Court of Appeals for the First Circuit regarding an appeal from a bankruptcy case. The court is considering whether an appeal of a bankruptcy sale is moot because the appellant did not obtain a stay of the sale pending appeal. The court finds that the appeal is moot because the sale was consummated without a stay, and the purchaser was a good faith purchaser protected under the Bankruptcy Code. Additionally, the court finds that the appellant did not properly preserve objections to the sale for appeal. Therefore, the court dismisses the appeal.

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    Bell v. Reid Associates, 1st Cir. (1993)

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    This document is a court opinion from the United States Court of Appeals for the First Circuit regarding an appeal from a bankruptcy case. The court is considering whether an appeal of a bankruptcy sale is moot because the appellant did not obtain a stay of the sale pending appeal. The court finds that the appeal is moot because the sale was consummated without a stay, and the purchaser was a good faith purchaser protected under the Bankruptcy Code. Additionally, the court finds that the appellant did not properly preserve objections to the sale for appeal. Therefore, the court dismisses the appeal.

    Original Description:

    Filed: 1993-05-04 Precedential Status: Precedential Docket: 92-2045

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    This document is a court opinion from the United States Court of Appeals for the First Circuit regarding an appeal from a bankruptcy case. The court is considering whether an appeal of a bankruptcy sale is moot because the appellant did not obtain a stay of the sale pending appeal. The court finds that the appeal is moot because the sale was consummated without a stay, and the purchaser was a good faith purchaser protected under the Bankruptcy Code. Additionally, the court finds that the appellant did not properly preserve objections to the sale for appeal. Therefore, the court dismisses the appeal.

    Copyright:

    Public Domain
    Download as PDF or read online from Scribd
    Download as pdf
    52 views12 pages

    Bell v. Reid Associates, 1st Cir. (1993)

    Uploaded by

    Scribd Government Docs
    This document is a court opinion from the United States Court of Appeals for the First Circuit regarding an appeal from a bankruptcy case. The court is considering whether an appeal of a bankruptcy sale is moot because the appellant did not obtain a stay of the sale pending appeal. The court finds that the appeal is moot because the sale was consummated without a stay, and the purchaser was a good faith purchaser protected under the Bankruptcy Code. Additionally, the court finds that the appellant did not properly preserve objections to the sale for appeal. Therefore, the court dismisses the appeal.

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    of 12

    USCA1 Opinion

    UNITED STATES COURT OF APPEALS


    FOR THE FIRST CIRCUIT
    ____________________
    No. 92-2045
    IN RE MARK BELL FURNITURE WAREHOUSE, INCORPORATED,
    Debtor,
    ________
    MARK BELL FURNITURE WAREHOUSE, INCORPORATED,
    Plaintiff, Appellant,
    v.
    D. M. REID ASSOCIATES, LTD.,
    Defendant, Appellee.
    ____________________
    APPEAL FROM THE UNITED STATES DISTRICT COURT
    FOR THE DISTRICT OF MASSACHUSETTS
    [Hon. Douglas P. Woodlock, U.S. District Judge]
    ___________________
    ____________________
    Before
    Selya, Circuit Judge,
    _____________
    Coffin, Senior Circuit Judge,
    ____________________
    and Cyr, Circuit Judge.
    _____________

    ____________________

    Leon Aronson for appellant.


    ____________
    Gordon P. Katz with whom Donald R. Lassman and Widett, Slate
    _______________
    __________________
    _____________
    Goldman, P.C. were on brief for appellee.
    _____________
    ____________________
    May 4, 1993
    ____________________

    CYR, Circuit Judge.


    CYR, Circuit Judge.
    _____________
    was filed against Mark
    in 1988.

    Mark

    the trustee

    purchase

    the cause

    the chapter 7 estate

    included a pre-

    action against D. M. Reid Associates ("Reid").

    Bell ("Bell"),

    urged the chapter 7


    When

    Bell Furniture Warehouse, Inc. ("Debtor")

    The property of

    petition cause of

    An involuntary chapter 7 petition

    Debtor's

    president and

    sole

    trustee to litigate the claim


    failed to
    of action

    pursue the
    from the

    shareholder,

    against Reid.

    claim, Bell
    estate for

    offered to
    $250.

    The

    notice of the proposed private sale to Bell invited upset bids in


    excess of $500, subject to the condition that qualifying

    bidders

    would be asked to submit competing sealed

    bids at auction.

    Reid

    submitted an upset bid in the amount of $501.


    At the

    auction sale

    conducted

    before the

    bankruptcy

    court on March 9, 1992, Bell submitted a sealed bid for $1000 and
    Reid
    the

    bid "$1000 plus the amount of [Bell's bid]."


    trustee and the bankruptcy

    propriety

    of Reid's

    counsel objected.
    did

    Although both

    judge voiced concerns

    "relative" bid,

    neither Bell

    as to the

    nor Debtor's

    The trustee accepted Reid's $2000 bid.

    not seek to stay the sale.

    Debtor

    Three days later, Reid tendered

    $2000 to the trustee, and the trustee delivered a bill of sale.


    Debtor appealed

    to the district court, contending that

    Reid's

    relative bid should be declared void and that the trustee

    should

    be directed

    to accept

    Bell's lower

    bid.

    The district

    court

    dismissed the appeal as moot, based on Debtor's failure to

    obtain a stay of the sale pending appeal.1


    Absent a stay pending

    appeal, Bankruptcy Code

    363(m)

    precludes appellate relief


    purchaser.

    invalidating a sale to a "good faith"

    See In re Onouli-Kona Land Co., 846 F.2d 1170, 1171___ ___________________________

    72 (9th Cir. 1988).

    On the theory that "[t]he finality and reli-

    ability of judicial

    sales enhance

    the value of

    bankruptcy,"

    In re Tri-Cran, Inc.,
    ____________________

    Mass. 1989),

    section 363(m)

    bidder's "good faith"


    Sax,
    ___

    faith"

    98 B.R. 609,

    ensures protection of

    (7th Cir. 1986);


    B.R. 666,

    B.R. at
    Bank, 656
    ____

    a successful

    615-19 (citing

    667 (D. Mass.

    question of law and fact.


    Inc., 788 F.2d 143, 147
    ____

    A "good

    In re Tri-Cran, 98
    _______________

    Greylock Glen Corp.


    ____________________
    1981)).

    1988).

    in good faith and for

    adverse claims.

    F.2d 1, 4 (1st Cir.

    See In re
    ___ _____

    International Union v.
    ___________________

    purchaser is one who buys property

    value, without knowledge of

    in

    617 (Bankr. D.

    reliance on a consummated sale.

    796 F.2d 994, 998

    Morse Tool, Inc., 85


    _________________

    assets sold

    v. Community Sav.
    _______________

    "Good faith"

    is a mixed

    In re Abbotts Dairies of Pennsylvania,


    ______________________________________
    (3d Cir. 1986).

    "Good

    faith" purchaser

    ____________________
    1The district court
    which provides:

    relied

    on Bankruptcy

    Code

    The reversal or modification on appeal of an


    authorization under subsection (b) or (c) of
    this section of a sale or lease of property
    does not affect the validity of a sale or
    lease under such authorization to an entity
    that purchased or leased such property in
    good faith, whether or not such entity knew
    of the pendency of the appeal, unless such

    363(m),

    authorization and such sale


    stayed pending appeal.
    11 U.S.C.

    or

    lease were

    363(m).
    3

    status

    is precluded

    by, inter alia,


    _____ ____

    trustee, and taking "grossly

    with the

    unfair advantage" of other bidders.

    In re Andy Frain Servs., Inc.,


    _______________________________
    1986);

    fraud, collusion

    798 F.2d

    1113, 1125

    (7th Cir.

    Willemain v. Kivitz, 764 F.2d 1019, 1023 (4th Cir. 1985);


    _________
    ______

    In re Bel Air Assocs., Ltd., 706 F.2d 301, 305 (10th Cir. 1983).
    ___________________________
    In its

    appeal to the district

    court, Debtor contended

    that "relative" or "sharp" bids are illegal per se, hence grossly
    ___ __
    unfair,

    see, e.g., Holliday v.


    ___ ____ ________

    Cir. 1949);

    Higbee, 172 F.2d


    ______

    Trump v. Mason, 190 F.


    _____
    _____

    316, 318 (10th

    Supp. 887, 888 (D.D.C. 1961)

    (noting that relative bids "destroy the integrity of the [sealed]


    bidding

    system").2

    faith" purchaser
    bid.3
    the

    The
    "bad

    Thus,

    Debtor argued,

    merely by submitting

    Reid

    became a

    the unannounced

    "bad

    relative

    district court recognized the "problematic" nature of


    faith" claim

    urged by

    Debtor,

    but decided

    that the

    presumed "evil"

    of relative bidding

    that a relative

    bid had prevailed.

    "bad faith"

    lay in concealing
    The court

    the fact

    concluded that no

    was shown on the part of Reid since all auction par-

    ticipants (and bystanders) were

    informed of Reid's relative bid,

    ____________________
    2The notices of

    appeal filed in

    the bankruptcy court,

    see
    ___
    Fed. R. Bankr. P. 8002(a), 9001(1),(3), 9002(2),(3), and in the
    district court, see Fed. R. App. P. 4(a)(1), 6(a), 6(b)(1),
    ___
    designate Debtor as the only appellant. Accordingly, Bell is not
    a party to the present appeal. Pontarelli v. Stone, 930 F.2d
    __________
    _____
    104, 108 (1st Cir. 1991) (holding that court of appeals lacks
    jurisdiction of appeal by party not designated in notice of
    appeal as required under Fed. R. App. P. 3(c)).

    3"Relative" or "sharp" bidding is highly unusual in bankruptcy cases. Although we do not condone its unannounced use, we
    leave for another day whether relative bidding is ever appropriate or practicable in the context of a judicial sale.
    4

    were afforded

    an opportunity

    to

    object to

    it, and

    acquiesced

    until well after the bid was accepted and the sale consummated.

    Debtor again argues on appeal that the relative bidding


    which

    took place in this case amounted

    not decide this claim,

    to "bad faith."

    however, because it was not

    We need

    preserved in

    the bankruptcy

    court.

    See
    ___

    In re LaRoche,
    _____________

    (1st Cir. 1992) (arguments not raised


    be raised

    had ample

    submitted by

    opportunity

    to

    Reid, the trustee's

    bankruptcy

    discussion
    Although

    in bankruptcy court cannot

    F.2d 1332,

    the consummation of the sale.


    the

    1299, 1305

    for the first time on appeal) (citing In re 604 Colum________________

    bus Ave. Realty Trust, 968


    _______________________
    Debtor

    969 F.2d

    as

    judge and
    to

    both Bell

    challenged the

    the

    the bankruptcy

    trustee engaged

    appropriateness

    of

    counsel were

    the bid

    or the

    In sum, at no time did

    court to the

    relative

    bid

    bid, and

    After the sealed bids were opened,

    the

    propriety of

    to the

    Cir. 1992)).

    acceptance of Reid's

    and Debtor's

    Debtor request a stay.

    object

    1343 (1st

    in

    an extended

    relative

    bidding.

    present, neither
    bidding.

    Nor did

    the Debtor alert

    "unfairness" claim later

    raised in

    its appeal to the district court.4

    ____________________

    4At oral argument, Debtor disclaimed any contention whatever


    that relative bidding, per se, violates public policy, or that it
    ___ __
    contravenes the policy favoring maximization of liquidation
    recoveries in bankruptcy proceedings.
    Debtor's retreat to its
    "unfair surprise" claim completely undermined its earlier contention that Reid's relative bid was void ab initio. See Short v.
    __ ______
    ___ _____
    Sun Newspapers, Inc., 300 N.W.2d 781 (Minn. 1980). Accordingly,
    ____________________
    Debtor's remaining claim
    that Bell was unfairly surprised by
    Reid's relative bid
    might portend, at most, that Reid's bid
    was voidable upon timely objection by an unsuccessful bidder.
    ________
    5

    Appellate claim preclusion is especially appropriate in


    these circumstances,
    ruptcy court
    nonrelative
    ___
    least, it

    might well have


    bids by

    would

    findings of

    where a

    timely objection before


    enabled the

    the assembled

    have permitted

    fact and conclusions

    At

    bankruptcy court

    of law as to

    nizable unfairness occurred in this case.


    Way, Inc., ___
    _________

    prompt submission

    participants.

    the

    the bank-

    of

    the very
    to

    make

    whether any cog-

    See Poliquin v. Garden


    ___ ________
    ______

    F.2d ___, ___ (1st Cir. 1993)

    [Nos. 92-1115, 92-

    1116, slip op. at 8 (1st Cir. Mar. 24, 1993)]

    (explaining impor-

    tance

    of

    process,"

    "raise or
    as it

    waive"

    rule in

    enables courts

    the

    litigation "winnowing

    to "narrow

    what remains

    to be

    decided[;] [i]f lawyers could pursue on appeal issues not properly raised below, there

    would be little incentive to get it right

    the first time and no end of retrials").


    Even
    however, Debtor

    assuming its

    "unfairness" claim

    would lack "standing" to

    Dein Host, Inc., 835 F.2d


    ________________

    402, 404

    appeals

    undertake

    "duty

    bound"

    to

    were preserved,

    assert it.

    (1st Cir.

    See
    ___

    In re
    _____

    1987) (court

    preliminary

    inquiry

    of

    into

    "standing").
    person,"

    Debtor

    nor

    "standing."
    Providence,
    __________

    does the

    allege that it

    record

    indicate

    is an

    970

    F.2d

    996,

    1001 (1st

    alia, "personal
    ____

    unlawful conduct");

    "aggrieved

    that Debtor

    See, e.g., Rumford Pharmacy, Inc. v.


    ___ ____ _______________________

    requires, inter
    _____
    allegedly

    does not

    Cir.

    possesses

    City of East
    ____________

    1992)

    ("standing"

    injury fairly traceable


    see also
    ___ ____

    In re Lovitt,
    ____________

    to the

    757 F.2d

    1035, 1039 (9th Cir.), cert. denied, 474 U.S. 849 (1985).
    ____ ______

    First, all the Debtor's property became property of the


    chapter

    7 estate long before

    Code
    not

    303, 541; 11 U.S.C.


    the

    chapter 7

    303, 541.

    The

    chapter 7 trustee,

    collecting all

    property of the estate and reducing

    it to money.

    See Bankruptcy
    ___

    Code

    cf. Fed. R.
    ___

    U.S.C.

    is responsible

    See Bankruptcy
    ___

    for

    704(1); 11

    debtor,

    the auction sale.

    704(1);

    Bankr. P.

    2010

    (authorizing proceeding on trustee's bond for breach of condition

    of "faithful

    performance of

    official duties").

    well established that a chapter


    ing" to

    Second, it

    is

    7 debtor generally lacks "stand-

    challenge a bankruptcy court judgment

    confirming a sale

    of property of the chapter 7 estate:


    A chapter 7 debtor is not considered a "person aggrieved," as [it] lacks a pecuniary
    interest in the "property of the estate."
    There are two exceptions:
    (1) if the debtor
    can show that a successful appeal would generate assets in excess of liabilities, entitling the debtor to a distribution of surplus
    under Bankruptcy Code
    726(a)(6), 11 U.S.C.
    726(a)(6), or (2) the order appealed from
    affects the terms of the debtor's discharge
    in bankruptcy.
    In re Thompson, 965 F.2d 1136,
    ______________

    1144 (1st Cir. 1992); see also In


    ___ ____ __

    re Goodwin's Discount Furniture, Inc., 16


    _________________________________________

    B.R.

    (Bankr. 1st

    estate surplus

    Cir. 1982).

    In this

    case, an

    885,

    887-88

    is

    neither suggested by the Debtor nor by the record, as the chapter


    7

    estate was hopelessly insolvent.5

    bid.

    Third, Debtor submitted no

    Rather, Mark Bell, Debtor's president and sole shareholder,

    submitted a private offer

    in his own name; the chapter 7 trustee


    __ ___ ___ ____

    ____________________

    5For example, the trustee represented in the notice of


    proposed private sale that the estate had "no funds" with which
    to pursue the cause of action against Reid.
    7

    designated

    Bell as the offeror in his notice of proposed private

    sale ("to Mark Bell

    or his nominee") (emphasis added),


    ___

    submitted a sealed bid


    Mark Bell").

    in his personal capacity ("sealed

    and Bell

    bid of

    See also supra note 2.


    ___ ____ _____

    In sum, Debtor failed

    to preserve any cognizable claim

    of injury resulting from the order approving the sale.

    Thus, we

    need not, indeed should not, address the idiosyncrasies attending


    section

    363(m)

    "mootness" and

    the

    scope

    of

    the "bad

    defense.
    Appeal dismissed; no costs to either party.
    Appeal dismissed; no costs to either party.
    __________________________________________

    faith"

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