Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-90-03195/USCOURTS-ca10-90-03195-0/pdf.json

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

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FILED 

U-niced Scates Court of Appeals 

UNITED STATES COURT OF APPEALS Tenth Circuit 

TENTH CIRCUIT 

IN RE: ) 

) 

ROBERT EUGENE LACY and ) 

JANE ( runn) LACY, ) 

) 

Debtors. ) ________________ ) 

) 

H. HURST COFFMAN, Trustee of ) 

the THOMAS P . BLACKBURN, ) 

and RUTH z. BLACKBURN TRUST, ) 

) 

Plaintiff-Appellant, ) 

) 

vs. ) 

) 

ROBERT E. LACY and ) 

JANE ( runn) LACY, ) 

) 

Defendants-Appellees. ) 

AUG 6 1991 

ROBERT L. HOECKER 

Clerk 

No. 90-3195 

(D.C. No. 86-4318-R) 

(D. Kan.) 

(115 Bankr. 296) 

ORDER AND JUDGMENT* 

Before LOGAN, MOORE and BALDOCK, Circuit Judges.** 

On October 27, 1979, debtor Robert E. Lacy purchased real 

estate on contract from the Blackburns (sellers) as trustees. On 

* This order and judgment has no precedential value and shall 

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

except for the purposes of establishing the doctrines of law of 

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

36.3. 

** After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not assist the 

determination of this appeal. See Fed. R. App. P. 34(a); 10th 

Cir. R. 34.1.9. The case therefore is ordered submitted without 

oral argument. 

Appellate Case: 90-3195 Document: 010110130265 Date Filed: 08/06/1991 Page: 1 
May 2, 1983, sellers gave the debtors notice of default for 

failure to make contract payments and failure to pay 1982 and 1983 

taxes and special assessments. On May 11, 1983, sellers sued in 

state court seeking return of the real estate and cancellation of 

the contract or, in the alternative, judgment for the full 

contract price. 

On May 19, 1983, debtors filed chapter 11 bankruptcy. 

Sellers sought relief from the automatic stay to pursue state law 

remedies or to cancel the contract. See IR. doc. 3, pleading no. 

1. 1 Subsequently, the parties negotiated and reached an agreement 

which culminated in the bankruptcy court entering an order 

allowing the debtors "to abandon any right, title, and interest 

which they may have had" in the real estate. Id. pleading no. 6. 

Sellers accepted the property, sold it, and then filed an amended 

proof of claim seeking to recover a deficiency between the sales 

price and the contract price, as well as taxes paid for 1982 and 

1983 and special assessments. Relying upon sellers' apparent 

election to cancel the contract and their subsequent acceptance of 

the property, the bankruptcy court disallowed the claim insofar as 

the deficiency, but allowed it insofar as the amount of taxes and 

special assessments. Id. pleading nos. 17 & 22. The bankruptcy 

court reasoned that 1982 taxes were nondischargeable under 11 

U.S.C. § 523(a)(l)(A) and that 1983 taxes should be allowed as an 

administrative expense under 11 u.s.c. § 503(b). Id. pleading no. 

1 The pleading numbers correspond to the record on appeal 

transmitted by the bankruptcy court to the district court. 

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Appellate Case: 90-3195 Document: 010110130265 Date Filed: 08/06/1991 Page: 2 
17. 

Debtors sought reconsideration arguing that (1) the 

liquidated damage provision in the contract was exclusive and 

precluded sellers' recovery of taxes and (2) the sellers had 

agreed to accept the abandonment of the property in full 

satisfaction of all claims. Id. pleading no. 23. Pursuant to 

debtors' request, the bankruptcy court held an evidentiary hearing 

and denied the motion for reconsideration. Id. pleading no. 29. 

The bankruptcy court characterized the issue before it as "a 

question of fact what the parties intended the terms of the 

abandonment to be" and concluded that debtors "had failed to 

sustain their burden of showing this Court cause why its earlier 

rulings should be set aside." Id. at 1-2. On appeal, the 

district court relied on a case decided subsequent to the 

bankruptcy court's order, Rosson v. Cutshall, 719 P.2d 23 (Kan. 

App. 1986), and determined that sellers, by electing to accept the 

property, were precluded from collecting the taxes and special 

assessments. In re Lacy, 115 Bankr. 296, 298 (D. Kan. 1990). The 

case was remanded to the bankruptcy court for further proceedings 

consistent with the district court's views. Id. 

We ordered the parties to brief the issue of our jurisdiction 

to consider this appeal under 28 u.s.c. § 158(d). Although this 

circuit adheres to a traditional view of finality even in the 

context of bankruptcy appeals, we are satisfied that the sellers' 

amended claim represents "a discrete dispute within a bankruptcy 

case." Eddelman v. United States Dep't of Labor, 923 F.2d 782, 

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Appellate Case: 90-3195 Document: 010110130265 Date Filed: 08/06/1991 Page: 3 
786-87 n.7 (10th Cir. 1991). Here, sellers' entire amended claim 

concerning the real property has been disallowed. Although the 

district court remanded the case to the bankruptcy court for 

further proceedings, the only outcome is that the bankruptcy court 

will enter an order disallowing the amended claim in its entirety. 

This does not constitute "significant further proceedings" which 

would make appellate jurisdiction inappropriate. See State Bank 

v. Anderson (In re Bucyrus Grain Co., Inc., 905 F.2d 1362, 1366 

(10th Cir. 1990) (district court's decision is considered final if 

remanded matters are not likely to generate new appeal or affect 

issue appellant seeks to raise); Homa Ltd. v. Stone (In re 

Commercial Contractors, Inc.), 771 F.2d 1373, 1375 (10th Cir. 

1990). We have jurisdiction. 

We review the legal conclusions below de nova; factual 

findings are evaluated under the clearly erroneous standard. See 

Bartmann v. Maverick Tube Corp., 853 F.2d 1540, 1543 (10th Cir. 

1988); Yeates v. Yeates (In re Yeates), 807 F.2d 874, 877 (10th 

Cir. 1986). Interpretations of state law by the district court 

and the bankruptcy court are evaluated de nova, without special 

deference. Salve Regina College v. Russell, 111 s. Ct. 1217, 1225 

(1991). 

"What claims of creditors are valid and subsisting 

obligations against the bankrupt at the time the petition in 

bankruptcy is filed is a question which, in the absence of 

overruling federal law, is to be determined by reference to state 

law." Vanston Bondholders Protective Committee v. Green, 329 U.S. 

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Appellate Case: 90-3195 Document: 010110130265 Date Filed: 08/06/1991 Page: 4 
156, 161 (1946) (footnote omitted). Thus, we first look to 

substantive nonbankruptcy law to determine the validity and amount 

of a claim when the petition was filed. In re American Reserve 

Corp., 840 F.2d 487, 489 (7th Cir. 1988). Federal bankruptcy law, 

however, controls the actual allowance and disallowance of claims 

and distribution of assets with the objective of a fair and 

ratable distribution of assets among creditors. Vanston, 329 U.S. 

at 162-63. Addison v. Langston (In re Brints Cotton Marketing, 

Inc.), 737 F.2d 1338, 1341 (5th Cir. 1984). 

After reminding us that the contract required the debtors to 

pay the taxes and the special assessments, the sellers then argue 

that "neither the payment of the 1982 nor the 1983 taxes [by 

sellers] constituted any damage which resulted from the breach of 

contract II See Appellant's Brief at 16, 21. This is 

because the liability for 1982 taxes was incurred prepetition and 

before debtors' default, while the liability for 1983 taxes 

accrued postpetition when the sellers could not proceed with their 

state court action because of the automatic stay. Id. at 21. 

Sellers urge us to view the taxes as independent obligations of 

the debtors by the taxing authority. Id. They suggest that, had 

they not paid the taxes, the taxes would have become a priority 

nondischargeable item of the estate. Id. 

Sellers further argue that the liquidated damage provision in 

the contract does not bar recovery of taxes and special 

assessments. They take issue with the bankruptcy court's finding 

concerning election of remedies because they "never elected to do 

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Appellate Case: 90-3195 Document: 010110130265 Date Filed: 08/06/1991 Page: 5 
anything, and once the debtors abandoned the property to them, 

[they] had no alternative but to accept that property." Id. at 

23. Sellers urge us to uphold the bankruptcy court's "factual 

determination that neither the election of remedies doctrine nor 

the liquidated damages provision of the contract precluded 

recovery of the taxes paid by the [sellers] both before and after 

the Chapter 11 filing." Id. at 24. They also urge us to uphold 

the bankruptcy court's factual finding that the debtors were 

unable to prove that sellers surrendered all claims during 

negotiations in exchange for the notice of abandonment. 

We first reject the argument that the taxes and assessments 

paid by the sellers should not be viewed as damages resulting from 

the debtors' breach of contract. As sellers point out, the 

debtors had a contractual obligation to pay the taxes and 

assessments, notwithstanding that the contract allowed the sellers 

to pay the taxes and add the amount to unpaid principal. IR. 

doc. 3, pleading 1, ex.Bat 5 (§ II(3) & at 9-10 (§ III(9)). 

The debtors' abandonment of the property occurred 

postpetition and in the course of bankruptcy proceedings while 

some of the events giving rise to the sellers' amended claim 

occurred both pre and postpetition. While we look to state law to 

determine the sellers' interest at the time of filing, in the 

absence of contrary federal policy, we also may apply state law to 

analyze the property interests in the bankruptcy proceeding. See 

Butner v. United States, 440 U.S. 48, 55 (1979). 

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Appellate Case: 90-3195 Document: 010110130265 Date Filed: 08/06/1991 Page: 6 
Here, Kansas has determined that, under its election of 

remedies doctrine, forfeiture of the property precludes an award 

of damages for past rental value, past taxes, past insurance 

premiums and the like. Rosson, 719 P.2d at 25, 27. Although 

"[t]he test for inconsistency of remedies is a factual and a 

logical one," Griffith v. Stout Remodeling, Inc., 548 P.2d 1238, 

1242 (Kan. 1976), it is not, contrary to sellers' brief, an 

inquiry dependent upon the taking of evidence and subsequent 

findings of fact. In circumstances which permit no meaningful 

distinction, the Kansas Court of Appeals has determined as a 

matter of law that "relief ... in the form of damages and 

forfeiture [is] factually and logically inconsistent in that the 

former affirms the existence of the contract while the latter 

disaffirms or repudiates the contract." Rosson, 719 P.2d at 27. 

Thus, damages for taxes and assessments are inconsistent with 

return of the property and cancellation of the contract. 

The bankruptcy court's finding that sellers had elected this 

latter remedy by accepting the property is not clearly erroneous. 

Sellers' adversary complaint prayed for modification of the 

automatic stay so as to allow pursuit of state law remedies. In 

the alternative, sellers asked the bankruptcy court to "order 

cancellation of the contracts in question, and restore the 

plaintiffs to full title to the subject properties." IR. doc. 3, 

pleading no. 1. As discussed by the bankruptcy court, when the 

sellers accepted the property they received a substantial asset 

which they could liquidate without incurring additional delay and 

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Appellate Case: 90-3195 Document: 010110130265 Date Filed: 08/06/1991 Page: 7 
litigation in the bankruptcy court and beyond. IR. doc. 3, 

pleading no. 17 at 2-4. 

By praying for return of the property as one of their 

alternatives in all of their earlier pleadings, they had 

indicated that that remedy would be satisfactory to them 

and completely resolve their claim. At the time of 

abandonment they gave no indication that this was not 

the case and that they intended to pursue the 

deficiency. 

Id. at 3-4. Having elected this remedy, the sellers would be 

foreclosed as a matter of state law from collecting damages for 

the taxes and special assessments. Rosson, 719 P.2d at 27. We 

must agree with the Seventh Circuit "that a bankruptcy court is 

not allowed to give a creditor rights that state law has withheld 

from him." In re Chicago, Milwaukee, St. Paul & Pac. R.R. Co., 

791 F.2d 524, 532 (7th Cir. 1986). Cf. 11 U.S.C. §§ 502(b)(l) 

(claims unenforceable against debtor); 558 (defenses of the 

estate). Accordingly, the factual issue concerning the parties' 

understanding concerning the alleged surrender of claims in the 

negotiating process becomes irrelevant. 

AFFIRMED. 

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Entered for the Court 

Bobby R. Baldock 

Circuit Judge 

Appellate Case: 90-3195 Document: 010110130265 Date Filed: 08/06/1991 Page: 8