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FILED

U.S. Bankruptcy Appellate Panel

of the Tenth Circuit

May 9, 2003

Barbara A. Schermerhorn

Clerk

PUBLISH

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE TENTH CIRCUIT

IN RE DONALD E. ARMSTRONG,

Debtor.

BAP No. UT-02-012

DONALD E. ARMSTRONG,

Appellant,

Bankr. No. 00B-26592

Chapter 11

v.

KENNETH A. RUSHTON, Trustee;

and STEVEN R. BAILEY, Trustee,

Appellees.

OPINION

Appeal from the United States Bankruptcy Court

for the District of Utah

Donald E. Armstrong, pro se.

Lon A. Jenkins (Penrod W. Keith with him on the brief), of LeBoeuf, Lamb,

Greene & MacRae, L.L.P., Salt Lake City, Utah, for Appellee Kenneth A.

Rushton.

Duane H. Gillman (R. Mont McDowell with him on the brief), of McDowell &

Gillman, P.C., Salt Lake City, Utah, for Appellee Steven R. Bailey.

Before McFEELEY, Chief Judge, BOHANON, and CORDOVA , Bankruptcy

1

Judges.

McFEELEY, Chief Judge.

Donald E. Armstrong (“Armstrong”) appeals an Order of the United States

The Honorable Donald E. Cordova, Chief Bankruptcy Judge for the District

1

of Colorado, heard oral argument in this appeal but passed away February 16,

2003. Prior to his death, he had considered this matter fully and participated in

the panel’s conference and resulting decision.

BAP Appeal No. 02-12 Docket No. 109 Filed: 05/09/2003 Page: 1 of 21
Bankruptcy Court for the District of Utah that temporarily allowed a claim by

Appellee Steven R. Bailey, Chapter 7 Trustee for Willow Brook Cottages, LLC.

(“Bailey”), which permitted Bailey to vote on Armstrong’s Chapter 11 Plan.

Armstrong argues that the Estimation Order erred in calculating the disputed

claim, violated the due process rights of some interested parties, and was invalid

because of bias. We affirm.

I. Background

On March 19, 1998, Willow Brook Cottages, L.L.C. (“Willow Brook”)

conveyed to Armstrong, the manager of Willow Brook, three parcels of real

estate, Lots 12, 13, and 25 (hereinafter, when referred to collectively, “the Lots”).

Also on that date, Armstrong recorded a Warranty Deed (“Warranty Deed”) in his

name in Utah, and Armstrong executed a Trust Deed Note (“Note) in favor of

Willow Brook in the amount of $150,000. The Note was secured by a Trust Deed

on Lot 12 (“Trust Deed”), which was recorded with the Summit County, Utah

Recorder on April 15, 1998. The Note due date was March 18, 1999.

Subsequently, Armstrong sold Lot 13, and on April 29, 1998, Willow

Brook received a payment of $1,017.95 on the Note from the proceeds of the sale

of Lot 13. The following month, from proceeds of the same sale, Willow Brook

received $61,227.82 in payment on the Note.

On August 20, 1998, Willow Brook was placed in an involuntary Chapter

11 bankruptcy case, which subsequently converted to a case under Chapter 7.

Bailey was appointed the Chapter 11 trustee for Willow Brook, in September

1998, and later became the Chapter 7 trustee.

2

Bailey caused a Notice of Default on the Trust Deed to be recorded and

served on Armstrong in July 1999, and thereafter, initiated foreclosure

Armstrong filed a claim in Willow Brook’s case. Willow Brook objected.

2

Subsequently, on October 29, 1999, the bankruptcy court entered an order

sustaining the objection and completely disallowing Armstrong’s claim.

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BAP Appeal No. 02-12 Docket No. 109 Filed: 05/09/2003 Page: 2 of 21
proceedings. In November 1999, Lot 12 was sold at a trustee’s sale. Bailey

credit bid at the auction, and on December 7, 1999, a Trustee’s Deed was

executed and recorded in favor of Willow Brook.

On March 10, 2000, Armstrong filed a voluntary petition for relief under

Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the

District of California. Because that court found that venue was not proper in

California, Armstrong’s case was transferred to the Utah bankruptcy court.

Creditors moved for the removal of Armstrong as a debtor-in-possession, for

among other things, impropriety in the administration of the estate. In September

2000, Appellee Kenneth A. Rushton (“Rushton”) was appointed the Chapter 11

trustee for Armstrong’s case.

On March 22, 2000, Bailey filed a claim in the Armstrong case for

$150,847.60, representing the face amount of the Note including attorneys’ fees

and interest dating from December 1, 1999, until the filing of Armstrong’s

Chapter 11 case (“Willow Brook Claim”). Armstrong objected to the Willow

Brook Claim, alleging that there was no consideration for it. Rushton did not

object to the Willow Brook Claim.

Bailey filed a motion seeking to have the Willow Brook Claim estimated so

that he could vote on the Trustee’s Plan in the Armstrong case (“Estimation

Motion”). Armstrong objected to the Estimation Motion. Rushton did not object.

On January 15, 2002, the bankruptcy court held a hearing on the Estimation

Motion. Armstrong was in attendance.

At the conclusion of the hearing, the bankruptcy court orally estimated the

Willow Brook Claim as $81,997.29 for the purpose of voting on the Trustee’s

Plan. The Willow Brook Claim was classified in Class 4 of the Trustee’s Plan,

which contained Allowed General Unsecured Claims, and based on the ballot

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BAP Appeal No. 02-12 Docket No. 109 Filed: 05/09/2003 Page: 3 of 21
previously filed by Bailey was counted as a vote in favor of confirmation. On

3

February 6, 2002, the bankruptcy court entered an Order Estimating Claim

Number 1, Claim of Steven R. Bailey, Trustee of Willow Brook Cottages, L.L.C.

(“Estimation Order”).

Rushton filed the Trustee’s Second Revised Plan of Reorganization Dated

November 19, 2001 (Trustee’s Plan). The Trustee’s Plan was circulated to

creditors for voting along with a disclosure statement approved by the court

pursuant to § 1125(a).

On January 31, 2002, the bankruptcy court entered a Confirmation Order

entitled Findings of Fact, Conclusions of Law and Order Confirming and

Approving Trustee’s Second Revised Plan of Reorganization Dated November 19,

2001 and Granting Related Motion on January 31, 2002 (“Confirmation Order”).

In the Confirmation Order, the bankruptcy court found that Class 4 had accepted

the Trustee’s Plan and that, alternatively, the Trustee’s Plan could be confirmed

4

Also included in Class 4 was a temporarily allowed unsecured claim held

3

by Steppes Apartments Ltd. This claim was based on causes of action held by

Steppes Apartments, Ltd. (“Steppes”) against Armstrong (“Claim 27”) and a

claim based on a settlement agreement entered into between Rushton and Steppes

(“Steppes Settlement”). The bankruptcy court heard Steppes’s motion to

temporarily allow its claim and its Motion for Approval of the Steppes Settlement

as part of the confirmation hearings beginning on December 20, 2002. The

bankruptcy court temporarily allowed only that part of Steppes’s claim as

delineated in the Steppes Settlement (“Steppes’s Temporary Allowance”).

Steppes’s Temporary Allowance Claim was split into two classes. The unsecured

portion of Steppes’s claim was classified in Class 4 of the Trustee’s Plan and

based on a ballot previously filed by Steppes was counted as a vote in favor of

confirmation of the Trustee’s Plan. Steppes’s secured claim was classified in

Class 2A and was also counted as a vote in favor of the Trustee’s Plan. The

Steppes’s Temporary Allowance is the subject of another appeal proceeding

before this court, BAP Number UT-02-007.

Class 4 was comprised of unsecured claims totaling approximately

4

$1,694,034.09. In a Trustee Voting Rights Motion (“Voting Motion”), Bailey

asked the bankruptcy court to determine who could vote certain disputed claims.

The Voting Motion was heard, and the bankruptcy court made findings of fact and

conclusions of law on the record on January 15, 2002, concluding that Bailey held

70% of the disputed claims and Armstrong held 30% of the disputed claims.

Later, Armstrong purported to vote the full amount of each of the disputed Class

(continued...)

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BAP Appeal No. 02-12 Docket No. 109 Filed: 05/09/2003 Page: 4 of 21
over the dissent of Class 4 because the Trustee’s Plan satisfied the “cram down”

provisions of 1129(b) with respect to Class 4. The bankruptcy judge also found

5

that both other impaired Classes, 2A and 2C, had accepted the Trustee’s Plan

(...continued)

4

4 Claims as rejecting claims while Bailey voted whatever portion of the disputed

Class 4 Claims he held. In voting the Disputed Class 4 Claims, Bailey asserted

his right as the majority owner of the claims to vote the full amount as accepting

the Trustee’s Plan. In the Confirmation Order, the bankruptcy court found as

follows:

Whether the Trustee votes the full amount of the Disputed Class 4

Claims or 70% of them, or whether each of these claims is treated as

two claims for voting purposes to be voted by the Trustee and the

Debtor, Class 4 has voted to accept the Plan because creditors who

hold at least two-thirds in amount and more than one-half in number

of the allowed claims of such class held by such creditors have voted

to accept the Plan. 11 U.S.C. § 1126(c).

Confirmation Order at 6, in Rushton’s App. at 52. In a footnote, the bankruptcy

court further explained:

If the Trustee is permitted to vote the full amount of the Disputed

Class 4 Claims, then 8 Claims voting in that Class voted to accept the

Plan and 4 voted to reject, with claims totaling $1,604,25[9].22

voting to accept and $89,774.87 voting to reject the Plan. If the

Trustee is permitted to vote 70% of each Disputed Class 4 Claim and

the Debtor 30% (with the Disputed Class 4 Claims being split for

purposes both of number of claims voting and for amounts voted,

then the voting in Class 4 is 7.1 votes to accept the Plan and 4.9

votes to reject the Plan, with claim amounts totalling [sic]

$1,569,024.76 in favor of the Plan and $125,009.33 against the Plan.

If each of the Disputed Class 4 Claims is split so that each would be

counted as two votes in Class 4, but the Trustee would vote 70% of

each Disputed Class 4 Claim and the Debtor 30% of each Disputed

Class 4 Claim, the result would be 8 votes to accept the Plan, 4 votes

to reject the Plan, with claims totaling $1,569,024.76 in favor of the

Plan and $125,009.33 against the Plan. In each of these three

alternative scenarios, the requirements of Section 1126(d) for

acceptance of the Plan are met with respect to Class 4.

Id. at 6-7 n.3, in Rushton’s App. at 52-53.

The bankruptcy court also found that Classes 2B, 2D, 2E, and 3A were also

5

deemed to have accepted the Trustee’s Plan under the holding of Heins v. RutiSweetwater, Inc. (In re Ruti-Sweetwater, Inc.), 836 F.2d 1263, 1265-67 (10th Cir.

1988), which provides that a nonvoting, nonobjecting judgment lien creditor is

deemed to have accepted the plan. Alternatively, the bankruptcy court found that

the Trustee’s Plan could be confirmed under the cramdown provisions of

§ 1129(b).

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BAP Appeal No. 02-12 Docket No. 109 Filed: 05/09/2003 Page: 5 of 21
because there was only one creditor in each Class, and both voted to accept the

Trustee’s Plan. Class 2C was the impaired claim of Zions Bank.

Armstrong appealed the Confirmation Order to this Court. He also filed a

motion asking the bankruptcy court to enlarge the time for filing a notice of

appeal of the Confirmation Order. The bankruptcy court denied that motion, and

he appealed. Both appeals were dismissed by panels of this Court, see BAP Nos.

UT-02-011, UT-02-038, and have been further appealed to the Tenth Circuit.

Armstrong timely appealed the Estimation Order.

II. Standard of Review

“For purposes of standard of review, decisions by judges are traditionally

divided into three categories, denominated questions of law (reviewable de novo),

questions of fact (reviewable for clear error), and matters of discretion

(reviewable for ‘abuse of discretion’).” Pierce v. Underwood, 487 U.S. 552, 558

(1988); see Fed. R. Bankr. P. 8013. De novo review requires an independent

determination of the issues, giving no special weight to the bankruptcy court’s

decision. Salve Regina College v. Russell, 499 U.S. 225, 238 (1991).

A factual finding is “clearly erroneous” when “‘it is without factual support

in the record, or if the appellate court, after reviewing all the evidence, is left

with the definite and firm conviction that a mistake has been made.’” Las Vegas

Ice & Cold Storage Co. v. Far West Bank, 893 F.2d 1182, 1185 (10th Cir. 1990)

(quoting LeMaire v. United States, 826 F.2d 949, 953 (10th Cir. 1987)). In

reviewing findings of fact, we are compelled to give due regard to the opportunity

of the bankruptcy court to judge the credibility of witnesses. Fed. R. Bankr. P.

8013.

A judge’s decision to temporarily allow a claim under Federal Rule of

Bankruptcy Procedure 3018(a) is reviewed for abuse of discretion. See In re

Marin Town Ctr., 142 B.R. 374, 379 (N.D. Cal. 1992). “Under the abuse of

discretion standard: ‘a trial court’s decision will not be disturbed unless the

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BAP Appeal No. 02-12 Docket No. 109 Filed: 05/09/2003 Page: 6 of 21
appellate court has a definite and firm conviction that the lower court made a

clear error of judgment or exceeded the bounds of permissible choice in the

circumstances.’” Moothart v. Bell, 21 F.3d 1499, 1504 (10th Cir. 1994) (quoting

McEwan v. City of Norman, 926 F.2d 1539, 1553-54 (10th Cir. 1991) (further

quotation omitted)). As with the clearly erroneous standard, when applying the

abuse of discretion standard, deference is given to the bankruptcy court “‘because

of its first-hand ability to view the witness or evidence and assess credibility and

probative value.’” Id. (quoting McEwen, 926 F.2d at 1553-54).

III. Discussion

Armstrong argues that the bankruptcy court erred when it temporarily

allowed the Willow Brook Claim in the Estimation Order because it was

unsupported by the evidence. Additionally, Armstrong argues that the Estimation

Order violated his due process rights because the bankruptcy court was prejudiced

against him and because the Trustee’s Plan affects the rights of the Donald E.

Armstrong Family Trust, the Donald E. Armstrong Charitable Remainder Unitrust

(hereinafter, “Trusts”) and the beneficiaries of the Trusts who were not properly

noticed.

6

Rushton counters that this Court has no jurisdiction over this appeal

because it is an impermissible collateral attack on the Confirmation Order.

Rushton further argues that this appeal is moot because there is no relief that the

bankruptcy court can offer in the absence of a timely appeal of the Confirmation

Order. Alternatively, Bailey argues that the Estimation Order was supported by

the evidence.

Before a court may reach the merits of a case, it must satisfy itself that it

The Donald E. Armstrong Family Trust, created in 1983, and the Donald E.

6

Armstrong Charitable Remainder Unitrust, created in 1994, were formed by

Armstrong. He is both the beneficiary and the trustee in the Trusts, and they are

part of the Armstrong Estate. The Trusts are liable under a Texas Modified

Judgment for $1,579,283.90 to Steppes Apartments and its principal John Feece.

-7-

BAP Appeal No. 02-12 Docket No. 109 Filed: 05/09/2003 Page: 7 of 21
has jurisdiction to hear an appeal. Bender v. Williamsport Area Sch. Dist., 475

U.S. 534, 541 (1986). The bankruptcy court’s order is a final order subject to

appeal under 28 U.S.C. § 158(a)(1). See Quackenbush v. Allstate Ins. Co., 517

U.S. 706, 712 (1996). Armstrong timely filed his notice of appeal pursuant to

Federal Rule of Bankruptcy Procedure 8002. All parties have consented to this

Court’s jurisdiction by failing to elect to have the appeal heard by the United

States District Court for the District of Utah. 28 U.S.C. § 158(c)(1); Fed. R.

Bankr. P. 8001. However, two jurisdictional matters remain before us: whether

the appeal is an improper attempt to appeal an ancillary order; and whether the

appeal is improperly before us because it is moot.

7

First, Rushton argues that this appeal is not properly before us because it is

really a collateral attack on the Confirmation Order. To support this argument,

Rushton indicates a statement in the Confirmation Order that the bankruptcy court

has previously orally estimated Willow Brook’s Claim. Therefore, Rushton

concludes, the terms of the Estimation Order were incorporated into the

Confirmation Order and cannot be changed in the absence of an appeal of the

Confirmation Order. This argument fails. A reference to a previous order cannot

turn two separate orders into one. While Rushton may be correct in asserting that

one of the reasons for this appeal is to overturn the Confirmation Order, the

purpose behind an appeal cannot alone defeat it. The Estimation Order was a

separate order from the Confirmation Order. Armstrong timely appealed it. We

have the jurisdiction to consider it.

Second, Rushton argues that this appeal is not properly before us because it

Armstrong argues that this Court will not fairly consider the issues before

7

us because we are biased and unfair and unable to rule against one of our peers.

However, he offers no factual or legal support for this claim; we conclude that it

has no merit. See Bryce v. Episcopal Church in Diocese of Colo., 289 F.3d 648,

659-60 (10th Cir. 2002) (finding “[t]he recusal statute should not be construed so

broadly as to become presumptive or to require recusal based on unsubstantiated

suggestions of personal bias or prejudice.”).

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BAP Appeal No. 02-12 Docket No. 109 Filed: 05/09/2003 Page: 8 of 21
is moot. The Constitution authorizes federal courts to hear only “cases” or

“controversies.” See U.S. Const., Art. III § 2, cl. 1. If there is no live case or

controversy as mandated by the constitution then an appeal will be moot. See Out

of Line Sports, Inc. v. Rollerblade, Inc., 213 F.3d 500, 501 (10th Cir. 2000). A

controversy is no longer “live” if the reviewing court cannot render “any effectual

relief whatever.” Church of Scientology v. United States, 506 U.S. 9, 12 (1992)

(quoting Mills v. Green, 159 U.S. 651, 653 (1895)); see also Egbert Dev. LLC. v

Community First Nat’l Bank (In re Egbert Dev.), 219 B.R. 903 (10th Cir. BAP

1998). A party must seek only that relief that is “‘capable of addressing the

alleged harm.’” National Advertising Co. v. City and County of Denver, 912 F.2d

405, 411 (10th Cir. 1990) (quoting Blinder, Robinson & Co. v. United States Sec.

& Exch. Comm’n, 748 F.2d 1415, 1418 (10th Cir. 1984)). “It has long been

settled that a federal court has no authority ‘to give opinions upon moot questions

or abstract propositions, or to declare principles or rules of law which cannot

affect the matter in issue in the case before it.’” Church of Scientology, 506 U.S.

at 12 (quoting Mills, 159 U.S. at 653).

The appeal here focuses on an Estimation Order entered pursuant to the

provisions of Federal Rules of Bankruptcy Procedure 3018(a). Pursuant to Rule

3018(a), a bankruptcy judge after notice and a hearing “may temporarily allow the

claim or interest [of a creditor] in an amount which the court deems proper for the

purpose of accepting or rejecting a plan.” Fed. R. Bankr. P. 3018(a). A creditor

may request the temporary allowance of a claim under one of the following

nonexclusive circumstances: when an objection to the claim has been filed and

“the objection was filed too late to be heard prior to the confirmation hearing,

when fully hearing the objection would delay administration of the case, or when

the objection is frivolous or of questionable merit.” See 9 Collier on Bankruptcy

¶ 3018.01[5] (Lawrence P. King ed., 15th ed. 2003) (footnotes omitted); In re

Zolner, 173 B.R. 629, 633 (Bankr. N.D. Ill. 1994), aff’d, 249 B.R. 287 (N.D. Ill.

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BAP Appeal No. 02-12 Docket No. 109 Filed: 05/09/2003 Page: 9 of 21
2000). The policy behind temporarily allowing claims is to prevent possible

abuse by plan proponents who might ensure acceptance of a plan by filing last

minute objections to the claims of dissenting creditors. Stone Hedge Properties v.

Phoenix Capital Corp. (In re Stone Hedge Properties), 191 B.R. 59, 64 (Bankr.

M.D. Pa. 1995); see also 9 Collier on Bankruptcy ¶ 3018.01[5]. Temporary

allowance of a claim under Rule 3018(a) is not dispositive as the amount of the

claim; it provides only limited voting authority to a creditor.

There is no guidance in the Bankruptcy Code for courts as to how to

determine whether to permit the temporary allowance of a claim; it is left to a

court’s discretion. See Marin, 142 B.R. at 379; 9 Collier ¶ 3018.01[5]. The

Bankruptcy Code also offers no guidance on which party has the burden of proof

in a Rule 3018(a) estimation proceeding. Some courts have placed the burden of

proof on the claimant while other courts have placed it on the objector. See, e.g.,

Zolner, 173 B.R. at 633-36 (burden of proof is on the claimant); Stone Hedge,

191 B.R. at 64-65 (questioning whether burden of proof in a summary proceeding

should be on the objector). Because a temporary allowance order only arises if

there is an objection to a claim, we conclude that the burden of proof should be

on the claimant to present sufficient evidence that it has a colorable claim capable

of temporary evaluation.

The bankruptcy court temporarily allowed the Willow Brook Claim for

voting purposes only. At the time this appeal was filed, the amount of Willow

Brook’s Claim had not been conclusively determined. Because the actual claim

had yet to be determined, even if this Court were to find that the Estimation Order

was entered in error, our ruling could have no effect on the bankruptcy court’s

order determining the Willow Brook Claim. Furthermore, reversal of the

Estimation Order could not affect the Confirmation Order, a final order that was

not timely appealed.

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BAP Appeal No. 02-12 Docket No. 109 Filed: 05/09/2003 Page: 10 of 21
Armstrong argues that the appeal is not moot because if there was no basis

8

for temporarily allowing the claim, then the voting on the Trustee’s Plan was

tainted. That argument is not persuasive. First, we observe that even if we were

to find that Class 4 were nonaccepting under § 1129(b), a plan may be confirmed

if the plan is affirmatively accepted by at least one impaired class under

§ 1129(a)(10). Here, the impaired Zions Bank in Class 2C affirmatively

9

accepted the Trustee’s Plan. On that basis alone the Trustee’s Plan could have

been confirmed. Second, the bankruptcy court found that the Trustee’s Plan

10

would have been approved even over the dissent of Class 4. In the Confirmation

Order, the bankruptcy court found that had Class 4 voted against the Trustee’s

On May 7, 2002, Armstrong filed a Motion for Waiver of 10th Cir. BAP

8

L.R. 8009-1(b) and Fed. R. Bankr. P. 8009(b). It is not clear from which part of

either rule Armstrong is seeking exemption. He did file a brief and appendix, and

this Court has considered both. To the extent Armstrong seeks a waiver of the

requirement of 10th Cir. BAP L.R. 8009-1(b)(3) that his appendix be

consecutively paginated, such a waiver is granted. Otherwise, the motion is

denied. Also, on July 28, 2002, Armstrong filed a Motion for Extension of Time

to File Reply Brief and/or in the Alternative for the Court to Accept Armstrong’s

Reply Brief for Consideration in this Appeal. This motion is granted.

In pertinent part that statute provides:

9

(a) The court shall confirm a plan only if all of the following

requirements are met:

. . . .

(10) If a class of claims is impaired under the plan, at least one class

of claims that is impaired under the plan has accepted the plan,

determined without including any acceptance of the plan by any

insider.

11 U.S.C. § 1129(a)(10)

Although there are no provisions in the Bankruptcy Code that directly

10

provide for what would essentially be the nullification of Willow Brook’s vote

after a Confirmation Order has been entered, Federal Rule of Bankruptcy

Procedure 3006 provides that a creditor may withdraw a claim after notice and

hearing. Thereafter, under Rule 3006, an “authorized withdrawal of a claim shall

constitute withdrawal of any related acceptance or rejection of a plan.” So by

analogy, on this point, we are proceeding under the assumption that if the

Estimation Order had not been entered or were invalid, Willow Brook’s unsecured

claim could not have been voted in Class 4.

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BAP Appeal No. 02-12 Docket No. 109 Filed: 05/09/2003 Page: 11 of 21
Plan, it could have been approved under the provisions of 11 U.S.C. § 1129(b).

11

Section 1129(b) delineates what has been called the “cram down”

provisions of the bankruptcy code. These provisions are so named because they

provide that a plan may be confirmed over the dissent of a class if the plan “does

not discriminate unfairly, and is fair and equitable, with respect to each class of

claims or interests that is impaired under, and has not accepted, the plan.” 11

U.S.C. § 1129(b). With respect to a class of unsecured claims, the statute further

provides that the plan must offer each holder of such a claim property equivalent

to the allowed amount of the claim as of the effective date of the plan or provide

that any holder of a junior interest or claim will not receive or retain any

property. 11 U.S.C. § 1129(b)(2)(B)(i), (ii). In this case, the bankruptcy court

found that the plan was fair, equitable, and did not discriminate, and there were

no junior lienholders. The bankruptcy court concluded that under § 1129(b), the

plan would have been confirmed even had Class 4 rejected the Trustee’s Plan.

12

Armstrong argues that the Trustee’s Plan did not meet the provisions of

§ 1129(b) because the Trustee’s Plan falsely promised to pay all of the unsecured

creditors’ debt. He bases this argument on his allegations that a number of

“unknown” administrative claims were presented following confirmation of the

Trustee’s Plan. Because these administrative claims will have to be paid under

the provisions of the Bankruptcy Code, and thereby deplete the funds available to

pay the unsecured creditors, Armstrong concludes that the Trustee’s Plan was

confirmed erroneously. That argument has no merit.

Section 1129(b) does not require full payment to unsecured creditors before

All future statutory references are to Title 11 of the Bankruptcy Code

11

unless otherwise noted.

Moreover, we note that there is evidence that even had the bankruptcy court

12

declined to temporarily approve the Willow Brook Claim, Class 4 would still have

accepted the Trustee’s Plan because there were not enough rejecting votes in

number or amount of claim.

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BAP Appeal No. 02-12 Docket No. 109 Filed: 05/09/2003 Page: 12 of 21
a plan may be approved pursuant to its provisions. Most important, the number

13

of administrative claims presented following a plan confirmation has no bearing

on whether the provisions of § 1129(b) were accurately administered or whether a

temporary allowance order was correctly entered. Any false allegations regarding

the amount of money with which to fund a plan goes to the validity of the

Confirmation Order and not to the validity of the Estimation Order. Finally, even

were we were to find the voting tainted, in the absence of a timely appeal of the

Confirmation Order, there is no relief we could fashion that could address the

alleged harm.

14

Even if we were to accept Armstrong’s claim that this appeal is not moot,

there is no evidence in the record that the bankruptcy court abused its discretion

when it allowed the Willow Brook Claim. Armstrong argues that bankruptcy

court erred because it refused to consider extrinsic evidence that the Willow

In fact, § 1129(b) contemplates the treatment of impaired classes, and by

13

definition, an impaired class is one whose rights are altered under the plan. In

pertinent part, § 1124 provides:

Except as provided in section 1123(a)(4) if this title, a class of

claims or interest is impaired under a plan unless, with respect to

each claim or interests of such class, the plan –

(1) leaves unaltered the legal, equitable, and contractual rights

to which such claim or interest entitled the holder of such claim or

interest . . . .

11 U.S.C. § 1124(1).

It is possible that even had an appeal of the Confirmation Order been

14

timely, that appeal would have been determined to be moot. A mootness analysis

in the bankruptcy context is different with respect to a Confirmation Order than a

constitutional analysis. Nationwide Mut. Ins. Co. v. Berryman Products, Inc. (In

re Berryman Products, Inc.), 159 F.3d 941, 944 (5th Cir. 1998). An appellate

court “may decline to consider the merits of confirmation when a plan has been so

substantially consummated that effective judicial relief is no longer

available–even though the parties may have a viable dispute on appeal.” Id.

Under Berryman, there is a three-part test when considering a dismissal of a

challenge to reorganization plans: 1) whether a stay has been obtained; 2)

whether the plan has been substantially consummated; 3) whether the relief

requested would affect either the rights of parties not before the courts or the

success of the plan. Id.

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BAP Appeal No. 02-12 Docket No. 109 Filed: 05/09/2003 Page: 13 of 21
Brook Claim was invalid. He argues that the Warranty Deed, the Trust Deed

15

Note, and the Note (hereinafter when referred to jointly “the Agreement”) did not

represent the true intent of the parties, or alternatively, that the Agreement was

void for lack of consideration.

The Agreement at issue defined certain property interests of these parties.

Property interests of parties in bankruptcy proceedings are “created and defined

by state law.” Butner v. United States, 440 U.S. 48, 55 (1979). A promissory

note is a contract that is interpreted according to the rules of contract

construction. Webbank v. American General Annuity Serv. Corp., 54 P.3d 1139,

1144 (Utah 2002). Here the parties entered into the Agreement in the state of

Utah. In the absence of any agreement otherwise, the contract is governed by

Utah state law.

Utah employs a two-step process in interpreting contracts. Hall v. Process

Instruments & Control, Inc., 890 P.2d 1024, 1027 (Utah 1995). The first step is

to determine whether the agreement is integrated. Id. An integrated agreement is

a writing “‘which in view of its completeness and specificity reasonably appears

to be a complete agreement . . . unless it is established by other evidence that the

writing did not constitute a final expression.’” Id. (quoting Union Bank v.

Swenson, 707 P.2d 663, 665 (Utah 1985) (further citation omitted)). There is a

In his brief, Armstrong makes several other arguments that the bankruptcy

15

court erred when it entered the Estimation Order. Some of these arguments were

not presented below including (1) whether Rushton had a duty to object to the

Willow Brook Claim; (2) whether Rushton violated his fiduciary duties to the

Armstrong estate; (3) whether Bailey had a duty to accept a quit claim deed in

lieu of pursuing a claim against Armstrong’s Estate; (4) whether Bailey waived

the right to seek a deficiency on the Note when Willow Brook refused

Armstrong’s quit claim deed transferring the property to Willow Brook and

Mountain Pacific Ventures, Inc. We decline to consider these arguments as they

were not properly preserved for our review. Hicks v. Gates Rubber Co., 928 F.2d

966, 970 (10th Cir. 1991) (holding that an appellate court will not consider an

issue raised for the first time on appeal). Armstrong makes one other argument,

namely, whether he has had a full and fair opportunity to litigate in other courts

with respect to other claims. We have no jurisdiction to decide the merits of this

argument.

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rebuttable presumption that an agreement is integrated. Union Bank, 707 P.2d at

665. Under the parol evidence rule, extrinsic evidence will be admissible to show

that an agreement is not integrated. Id. Evidence that an agreement is not

integrated includes evidence of forgery, fraud, duress, mistake, illegality, or the

absence of consideration. Id.

The second step in interpreting a Utah contract is to determine if there are

any ambiguities in it. Hall, 890 P.2d at 1026-27. If there are any ambiguities,

then extrinsic evidence may be admitted only for the purpose of clarifying these

ambiguities. A term is ambiguous if it is susceptible to more than one reasonable

interpretation. Wagner v. Clifton, 62 P.3d 440, 442 (Utah 2002). In the absence

of any ambiguities, the parol evidence rule prohibits the admission of extrinsic

evidence that would vary or contradict clear and unambiguous terms of the

contract. Spears v. Warr, 44 P.3d 742, 750 (Utah 2002).

The only evidence proffered to the bankruptcy court concerning the

Agreement was the Warranty Deed, the Note, and the Trust Deed. Although the

16

bankruptcy court never specifically found that the Agreement was an integrated

document, it impliedly did so when it stated the following during the hearing:

[T]he testimony has already come in that there are no other

agreements. That we’re only looking at four corners of the

document. So I’ll let you argue from the four corners of the

document but any evidence that is contrary to the document or that

attempts to impeach it is improper.

Hearing Transcript at 81-82, in Bailey’s App. at 79-80. Because the agreement

was integrated, the bankruptcy court did not allow any evidence that would

contradict the clear terms of the document.

Armstrong argues that these documents were improperly introduced

16

through the testimony of Bailey’s expert witness, Mark Hashimoto

(“Hashimoto”). However, at the hearing, Armstrong did not object to the

introduction of these documents through Hashimoto and therefore, failed to

preserve this issue for our review. Hearing Transcript at 11-13, in Bailey’s App.

at 10-12.

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Armstrong contends that the bankruptcy court erred when it found that the

Agreement was an integrated document and did not consider any extrinsic

evidence of the parties’ intent. This argument is not supported by the record.

The record reflects that the bankruptcy court let in almost all evidence Armstrong

presented. The bankruptcy court only stopped Armstrong’s testimony, and the

17

presentation of his case, after Armstrong was abusive and disrespectful to the

court. More important, Armstrong presented no extrinsic evidence, other than

18

his own unsupported testimony about his intent, that would rebut the presumption

that the document was a fully integrated agreement. Not only was the bankruptcy

court in the best position to assess Armstrong’s credibility on this issue, but there

is a preference in Utah for gleaning a party’s intent from written agreements

rather than “self-serving testimony.” See Glauser Storage, L.L.C. v. Smedley, 27

P.3d 565, 570 (Utah Ct. App. 2001). We conclude that the bankruptcy court did

not err when it found that the Agreement was an integrated document.

Armstrong’s next argument is that there was a failure of consideration in

the agreement and therefore the agreement was not integrated. Armstrong

contends that in the absence of any proof of the value of the property, Bailey did

The only document presented by Armstrong that was not admitted by the

17

bankruptcy court was an document that was not the original and had been visibly

altered. Hearing Transcript at 86-88, in Bailey’s App. at 84-86.

The bankruptcy court ended Armstrong’s testimony after the following

18

exchange:

MR. GILLMAN [Bailey’s counsel]: If Mr. Armstrong has no more

evidence to present with this witness can we proceed?

THE COURT: Well, I’ll give him a minute to collect his thoughts,

Mr. Gillman.

MR. ARMSTRONG: Your Honor, I object. These whole

proceedings are ludicrous and you allow it.

THE COURT: Do you have any evidence?

MR. ARMSTRONG: Yes, I do. It is a war. It is stupid.

THE COURT: Okay, you can sit down. Sit down. You’re off the

stand now.

Hearing Transcript at 102-03, in Bailey’s App. at 100-01.

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not meet his burden in showing adequate consideration. This argument also fails.

First we note that it was not Bailey’s burden to show consideration; it was

Armstrong’s burden to show lack of consideration because he was both the maker

of the Note and the party alleging lack of consideration. Olpin v. Grove Fin.

19

Co., 521 P.2d 1221, 1223 (Utah 1974) (finding the maker of the note bears the

burden of proving lack of consideration.); Int’l Harvestor Co. of Am. v. Patterson,

257 F. 411, 412 (8th Cir. 1919) (analyzing promissory note with words “for value

received” and finding where the words in a contract or promissory note state that

there is an exchange of consideration, the burden or proof lies with the party

attempting to prove a failure of consideration). Parol evidence may be admissible

to show lack of consideration. Smith, 58 P.3d at 859 n.4.

20

Here, the Agreement clearly stated that there was an exchange of

consideration. The Note stated that it was being executed “for value received.”

The Warranty Deed stated that the exchange occurred “for the sum of Ten and

NO/100 Dollars and other good and valuable consideration.” Armstrong never

presented any evidence that the exchange did not take place. The bankruptcy

court concluded that because there was a conveyance of real property, the

transaction was a valid transaction.

Armstrong argues that consideration was illusory because it did not

Armstrong argues that it was Bailey’s burden to prove that there was

19

consideration for the agreement. He argues that a creditor has the burden of

proving its claim once an objection has been entered. However, Armstrong is

confusing the issues. At issue here is not whether the Willow Brook Claim is

valid, but whether there was consideration for the Agreement that gave rise to the

Willow Brook Claim, and on that point, Armstrong had the burden of proof.

But see Last Chance Ranch Co. v. Erickson, 25 P.2d 952, 958 (1933) (“‘[I]f

20

the consideration stated appears as a clear and unambiguous statement of part of

the agreement, representing an actual contractual term and something more than a

mere formal requisite, such a term of the contract must be regarded in the same

light as any other material term of the contract and extrinsic evidence to vary or

contradict it is inadmissible[.]’” (quoting 4 Jones’[s] Commentaries on Evidence

(2d ed.) 2854)).

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represent the true value of the property. He defines consideration as the value of

the Lots minus the liens and encumbrances affecting the property. This argument

has no merit. Whether a contract or an agreement has valid consideration has

nothing to do with the actual value of the consideration vis a vis the benefit or

detriment incurred. Consideration is present “‘whenever a promisor receives a

benefit or where [a] promisee suffers a detriment, however slight.’” Healthcare

Serv. Group, Inc. v. Utah Dept. of Health, 40 P.3d 591, 596 (Utah 2002) (quoting

Gasser v. Horne, 557 P.2d 154, 155 (Utah 1976) (brackets in original)); see also

Dementas v. Estate of Tallas, 764 P.2d 628, 632 (Utah Ct. App. 1988) (finding

that “‘any detriment no matter how economically inadequate will support a

promise.’”) (quoting J. Calamari & J. Perillo, Contracts § 55 at 107 (1970)).

Here, the bankruptcy court found that there was a bargained-for exchange and,

therefore, consideration. The bankruptcy court concluded that the transaction was

a valid one and that there was an amount owed at the time the obligation was

entered into. This finding is supported by the evidence.

Next, Armstrong argues that the bankruptcy court erred in determining the

amount of Bailey’s Claim in the Estimation Order because Willow Brook received

payments in excess of the actual value of the Lots and therefore had no actual

claim. Armstrong bases this argument on his premise that the maximum amount

of consideration for the Note is $70,515.85. This figure appears to be his

calculation of the net benefit from the Lots to Willow Brook. He also asserts that

there are credits to the Note of $576,791.03.

In his initial premise Armstrong mischaracterizes the issue. The actual

value of the Lots or the net benefit to Willow Brook from the sale of the Lots is

irrelevant with respect to the amount Armstrong owed Willow Brook under the

Note. As we have already observed, when there is an unambiguous integrated

agreement, the interpretation of the agreement is confined to the four corners of

the document. The bankruptcy court found that the terms of the Note were clear

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and that pursuant to it, Armstrong promised to pay Willow Brook $150,000. At

the hearing, there was evidence that he had made a total of $62,245.77 in

payments on the Note. There was also evidence that he was credited for some

equity remaining in Lot 12 after the foreclosure sale. The bankruptcy court

concluded that Willow Brook had a remaining claim of $81,997.29. All of these

findings are supported by the record. With respect to the latter part of

Armstrong’s syllogism that he had a reciprocal claim of $576,791.03, there is

nothing in the record before us to support that assertion.

21

As further support for his contention that the Willow Brook Claim was

improperly calculated, Armstrong argues that Willow Brook owes $20,549.99 to

Chance Investments and $3,540.15 to Summit County, Utah for property taxes on

the foreclosed lot. He argues that because these sums have not yet been paid,

22

Bailey impermissibly deducted them from the amount realized after Lot 12 was

foreclosed and thereby, reduced Armstrong’s credits for the fair market value of

the property. Armstrong cites Utah Code Ann. § 57-1-32 for the proposition that

a court “may not render judgment for more than the amount by which the amount

of the indebtedness . . . exceeds the fair market value of the property.”

While Armstrong may be correctly citing Utah law, this particular statute is

not relevant to this issue. In the Estimation Order the bankruptcy court did not

render judgment on the Willow Brook Claim, it merely estimated the Willow

Brook Claim for voting purposes. Assuming arguendo that the Willow Brook

Armstrong argues that he was not permitted to put in evidence concerning

21

these payments, which he argues occurred in various ways. However, as we have

already observed, the bankruptcy court gave Armstrong extraordinary latitude in

presenting his evidence. More important, in another proceeding in the Willow

Brook case, a bankruptcy court considered the issue of whether Armstrong had a

claim against Willow Brook and found that he had none. See Order Sustaining

Objection to Claim No. 48, Claim of Donald E. Armstrong, in Bailey’s App. at

131.

At the hearing, Bailey stipulated that Willow Brook did not pay either of

22

these obligations. See Hearing Transcript at 76, in Bailey’s App. at 74.

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Claim should have been reduced by $24,090.14, that reduction would have had no

impact on the ultimate result because of the other votes in Class 4 and the

bankruptcy court’s findings that the Trustee’s Plan could have been approved

pursuant to the provisions of § 1129(b). Any error by the bankruptcy court in

calculating the exact amount of the claim is harmless error. See Fed. R. Bankr. P.

9005 (incorporating Fed. R. Civ. P. 61 (providing that any error that does not

affect the substantial rights of the parties is harmless error and not grounds for

granting a new trial or setting aside a verdict)). We conclude that there is no

evidence that the bankruptcy court abused its discretion when it temporarily

estimated Willow Brook’s Claim.

23

Armstrong’s final arguments focus on what he alleges is a failure of due

process. First, Armstrong argues that the Trusts were not properly noticed of the

hearing on Bailey’s Estimation Motion. Rule 3018(a) states that

“[n]otwithstanding any objection to a claim or interest, the court after notice and

hearing may temporarily allow the claim . . . .” Fed. R Bankr. P. 3018(a). The

bankruptcy code further defines notice as “such notice as is appropriate . . . .” 11

U.S.C. § 342(a).

As a preliminary matter, we are not certain in what capacity Armstrong is

alleging a violation of due process as to the Trusts. If it is in Armstrong’s

individual capacity as the appellant to this appeal, he cannot invoke another’s

rights. Hackford v. Babbitt, 14 F.3d 1457, 1465 (10th Cir. 1994) (finding that

ordinarily a party may not assert the rights of another to justify relief for himself

or herself). If Armstrong is asserting the Trusts’ rights in his capacity as the

Trustee for the Trusts, then he is improperly doing so as they are not parties to

Armstrong makes an additional argument that Bailey waived his claim

23

under Utah’s One-Action Rule when Bailey refused to accept a quit claim deed on

Lot 12 on August 18, 1999. This argument is not properly before us as it has

previously been argued and appealed in separate proceedings.

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this appeal.

However, assuming that this matter is properly before us, it is not clear why

the Trusts should have been noticed. There is no evidence that they had any

interest in these proceedings. Armstrong signed the Note in his personal

24

capacity, not as a representative of the Trusts. Second, assuming that for some

reason, the Trusts were due notice, there is no evidence in the record that the

Trusts did not receive notice. While they may not have received formal notice,

they certainly received constructive notice. Pursuant to the Code, the Trusts were

due only such notice as is appropriate. Armstrong was the trustee of the Trusts.

It is undeniable that he was present at the estimation hearing.

Finally, Armstrong asserts that the bankruptcy judge was biased against

him because she ruled against him, she did not allow him to present all of his

evidence, and she favored the opposing counsel because he was her former law

partner. We have already considered Armstrong’s first two arguments and have

found them without merit. There is nothing in the record to support Armstrong’s

last contention that the bankruptcy judge was impermissibly biased toward a

former law partner. In fact, as we have previously observed, the bankruptcy

25

judge gave Armstrong a great deal of latitude in presenting his case. More

important, there is nothing in the record to indicate that he made this argument

below.

IV. Conclusion

For the reasons set forth above, the Estimation Order is AFFIRMED.

Armstrong also alleges that because the Confirmation Order contained an

24

injunction against the Trusts and its beneficiaries that the Trusts were interested

parties with respect to the Estimation Order. There is no apparent logical

relationship between the Estimation Order and an injunction in the Confirmation

Order, and we decline to construe one.

There is no evidence as to whether the opposing counsel was, in fact, the

25

bankruptcy judge’s former law partner.

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