Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-90-04084/USCOURTS-ca10-90-04084-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

GORDON R. FLYGARE and SHARON L. 

FLYGARE, 

Appellants, 

F IJ"' E D United Statt£ C<r.:rt 0, Appeals ,.. . 1 1-~·. - ~- .. .., .... :{-

JAN 17 1991 

_ OBERT L. HOECKFf. Clerk 

v. 

BARBARA W. RICHMAN, 

Appellee. 

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No. 90-4084 

(D.C. No. 89-CV-921-W) 

(District of Utah) 

ORDER AND JUDGMENT! 

Before McKAY, MOORE, and BRORBY, Circuit Judges. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. The case is therefore ordered submitted without oral argument. 

Gordon and Sharon Flygare, Chapter 13 debtors, appeal an 

order of the district court affirming a bankruptcy court order 

which declares certain stock to be property of the estate and 

1 This order and judgment has no precedential value and shal l 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

Appellate Case: 90-4084 Document: 010110076402 Date Filed: 01/17/1991 Page: 1 
which orders the Chapter 13 Trustee to liquidate that stock for 

the benefit of creditors. 

The Debtors filed their first petition for relief in April 

1980. The bankruptcy court denied confirmation and dismissed the 

case. 

The Debtors filed a second petition in July 1980. In their 

schedules, the Debtors listed as assets 5,000 shares of stock in a 

family corporation known as Helaman Development Corporation. This 

represents one-sixth of the shares of Helaman Development. The 

Debtors claimed that the shares had zero value because no market 

existed for the stock. 

The bankruptcy court again denied confirmation and dismissed 

the case. The district court affirmed the dismissal. This court 

reversed the district court order because the bankruptcy court had 

apparently applied the wrong test to determine good faith. See 

Flygare v. Boulden, 709 F.2d 1344 (10th Cir. 1983). 

On remand, the Debtors submitted their First Amended Chapter 

13 Plan. The amended plan was filed on September 20, 1983. In 

order to meet Chapter 13's "liquidation test," 2 the Debtors made 

2 The Bankruptcy Code prohibits confirmation of a plan unless 

"the value, as of the effective date of the plan, of property to 

be distributed under the plan on account of each allowed unsecured 

claim is not less than the amount that would be paid on such claim 

if the estate of the debtor were liquidated." 11 u.s.c. § 

1325(a)(4). 

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Appellate Case: 90-4084 Document: 010110076402 Date Filed: 01/17/1991 Page: 2 
the following proposal in their First Amended Plan: 

Debtors propose to sell this [Helaman Development] stock 

on or before April 1, 1984, to whoever is the highest 

bidder. The proceeds of the sale shall be used in the 

Chapter 13 Plan and shall be used by the Trustee to pay 

unsecured claims. This shall be a good faith effort by 

the Debtors to sell these shares to whoever is the highest bidder. If at the end of this period, April 1, 

1984, the Debtors are unable to sell the stock, then the 

stock shall remain as property of the estate not to be 

used for payment of the creditors. The Court shall hold 

a hearing on the sale of this stock on or after April 1, 

1984, to determine whether the Debtors have complied 

with the provisions as set forth herein. 

First Amended Chapter 13 Plan at 2. However, the amended plan 

listed the value of the Helaman Development stock as "not known" 

and described the corporation's assets as "twenty-four acres of 

pasture" in Billings, Montana. Id. 

In addition to agreeing to sell the stock, the Debtors agreed 

to make scheduled payments. The Debtors eventually made payments 

which exceeded those required under the original plan and which 

netted the unsecured creditors about twelve percent of their 

claims, but the Debtors never sold the Helaman Development stock. 

The First Amended Plan was confirmed by the bankruptcy court 

on August 20, 1984. On September 5, 1984, the Debtors scheduled a 

hearing to show that they had made good faith efforts to sell the 

Helaman Development stock. At the hearing, the Debtors' counsel 

admitted that there had been some controversy over the value of 

the stock. The bankruptcy court noted that only the Chapter 13 

Trustee had received notice of the hearing. Therefore, the court 

did not proceed with the hearing. Instead, the court directed the 

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Appellate Case: 90-4084 Document: 010110076402 Date Filed: 01/17/1991 Page: 3 
Debtor to give written notification to all unsecured creditors 

detailing the specific steps which the Debtors had taken to market 

the stock and giving the creditors an opportunity to object before 

the stock was returned to the Debtors. The Debtors never complied 

with the bankruptcy court's instructions to properly notify creditors, nor did they ever initiate any other effort to make the 

required showing of good faith effort to sell the stock. 

Meanwhile, another of the Helaman Development stockholders 

filed a Chapter 7 petition. During the investigation of that 

bankruptcy, the Chapter 13 Trustee learned that in 1981, two years 

before the Debtors in this case filed their First Amended Plan in 

which they stated that the value of the stock was unknown, the 

Debtors had attended a stockholders' meeting at which they were 

informed that the land described as "twenty-four acres of pasture" 

was worth about $3,000,000. Furthermore, since 1981 the assets of 

the corporation have grown considerably. The value of the corporation's assets were never disclosed to the court by the Debtors 

in this case. 

Upon learning of the value of Helaman Development's assets, 

the Trustee moved for a declaration that the stock was still property of the estate and for an order authorizing liquidation of the 

stock to satisfy the claims of creditors. The hearing on the 

Trustee's motion was held on July 25, 1989. 

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Appellate Case: 90-4084 Document: 010110076402 Date Filed: 01/17/1991 Page: 4 
At that hearing, the Debtors admitted that they had never 

complied with the order of the bankruptcy court, issued nearly 

five years before. They argued, however, that the stock had 

revested in them despite their failure to comply. Additionally, 

they argued that the Trustee's motion was barred by laches, and 

that the Debtors were entitled to discharge on equitable and 

policy grounds because they had made monthly payments which 

exceeded the monthly payments required by the plan. 

The Debtors then offered to present evidence at that hearing 

of their good faith efforts to sell the stock. The Debtors had 

not sent the required notice to creditors, but, the Debtors 

argued, "This hearing has been on notice to all the creditors and 

has indicated that the Trustee does not believe the Debtor's 

efforts to sell the stock were in good faith. This hearing would 

certainly comport with the Court's requirement in 1984, if the 

Court believes such proof is required." Record, supplemental vol. 

3, at 15. Later, the Debtor offered, "If the Court concludes that 

the requirement of the hearing should be met and is not met by 

this hearing, we would be willing to send out notice to all creditors, including a description of the Debtors' activities and have 

a hearing." Id. at 17. 

The bankruptcy court rejected the Debtors' arguments and held 

that the stock was still property of the estate because the 

Debtors had not taken the steps necessary to allow revesting. The 

court also rejected the Debtors' offer to present evidence of good 

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Appellate Case: 90-4084 Document: 010110076402 Date Filed: 01/17/1991 Page: 5 
faith efforts to sell the stock, stating, "Today they offer to 

provide testimony or to do what the Court ordered them to do years 

ago. I find that it's simply too late, that the Debtors have 

shown an unwillingness to perform under the Plan." Id. at 21. 

The bankruptcy court then granted the Trustee's motion. The district court affirmed the bankruptcy court order. 

The Debtors now challenge the bankruptcy court's conclusion 

that the Helaman Development stock did not vest in them, but 

remains property of the estate. We review de novo mixed questions 

of fact and law. In re Ruti-Sweetwater, Inc., 836 F.2d 1263, 1266 

(10th Cir. 1988). We affirm the district court order for the reasons set out therein. We agree that the plan placed the burden of 

establishing their good faith efforts to sell the stock upon the 

Debtors. The Debtors did not meet this burden, nor did they comply with the order of the Bankruptcy court. 

The Debtors challenge the power of the Trustee to liquidate 

the stock. We agree with the reasoning of the district court on 

this issue, and add that the bankruptcy court has broad powers 

under the Bankruptcy Code to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions 

of this title," and to "tak[e] any action or mak[e] any determination necessary or appropriate to enforce or implement court order 

or rules, or to prevent an abuse of process." 11 u.s.c. § lOS(a). 

The order issued by the bankruptcy judge in this case falls within 

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Appellate Case: 90-4084 Document: 010110076402 Date Filed: 01/17/1991 Page: 6 
this provision. 

The Debtors raise the equitable defense of laches and argue 

that it is inequitable for the court to order the liquidation of 

the stock when the debtors have made payments exceeding those 

required in the original plan. However, the bankruptcy court 

found, and we affirm, that the Debtors disregarded a prior order 

and showed unwillingness to perform under the plan. With such 

unclean hands, the Debtors may not now seek equitable relief from 

the court's order. See,~, Oklahoma Retail Grocers Ass'n v. 

Wal-Mart Stores, Inc., 605 F.2d 1155, 1157 (10th Cir. 1979) (in 

appropriate case, court of equity will withhold aid in accordance 

with clean hands doctrine). 

Finally, we hold that the bankruptcy court did not abuse its 

discretion by refusing to allow the Debtors to present evidence of 

their good faith efforts to sell the stock. See Alexander v. 

United States, 849 F.2d 1293, 1301 (10th Cir. 1988) (abuse of discretion standard of review for rulings on admission or exclusion 

of evidence). The Debtors' good faith was not called into issue 

by the Trustee's motion. Furthermore, the Debtors had made no 

effort to provide the required notice to creditors. The bankruptcy court had already made clear that such notice was required 

before the Debtors would be allowed to make a showing of good 

faith. 

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Appellate Case: 90-4084 Document: 010110076402 Date Filed: 01/17/1991 Page: 7 
.,. 

The order of the district court is therefore AFFIRMED. The 

mandate shall issue forthwith. 

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Entered for the Court 

Monroe G. McKay 

Circuit Judge 

Appellate Case: 90-4084 Document: 010110076402 Date Filed: 01/17/1991 Page: 8