United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 01-1025

___________

In re: Jon Paulson; Gloria Paulson, *

*

Debtors. *

________________ *

*

Jefferson Company; Gerard *

Zachman, *

* Appeal from the United States

Appellants, * District Court for the District

* of Minnesota.

v. *

*

Mark C. Halverson, *

*

Appellee. *

___________

Submitted: October 18, 2001

Filed: January 8, 2002

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Before MURPHY, BEAM, and BYE, Circuit Judges.

___________

BEAM, Circuit Judge.

Bankruptcy Trustee Mark Halverson ("trustee") brought an adversary

proceeding against Jefferson Company ("Appellant"). In such action, the trustee
1

The Honorable James M. Rosenbaum, United States District Judge for the

District of Minnesota. 

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sought to declare Jefferson Company an invalid trust and to require the conveyance

of the debtors' real and personal property from the trust to the bankruptcy estate. The

bankruptcy court granted the trustee's motion in this regard and ordered the trust to

immediately surrender the property at issue, thereby divesting any right, title, interest

and ownership of such property. The United States District Court for the District of

Minnesota1

 affirmed the decision of the bankruptcy court on appeal. Jefferson

Company now appeals to this court. We find the matter moot and dismiss the appeal.

I. BACKGROUND

Jefferson Company is a Minnesota business trust formed by a declaration of

trust filed with the Minnesota Secretary of State, and dated April 25, 1983. In

October of 1983, the Paulsons transferred three parcels of real estate, currently at

issue in this appeal, to Jefferson Company in exchange for certificates of beneficial

interest in the trust. In January 1997, Jon and Gloria Paulson filed for bankruptcy

relief under Chapter 7 of the Bankruptcy Code. The debtors did not include the assets

conveyed to Jefferson Company in their bankruptcy schedules, but instead disclosed

their certificates of beneficial interest in the trust. At that time, the Paulsons resided

on one of the parcels and made the mortgage payment each month in lieu of a rental

payment to the trust. 

Rather than invalidating the trust, the bankruptcy court essentially concluded

that the conveyance from the Paulsons to Jefferson Company was fraudulent. The

court reasoned that the property was always held by the Paulsons, they remained the

beneficial owners, and the transfer was created for the specific purpose of shielding

the property from legitimate claims by creditors, including the United States and the

State of Minnesota. Essentially, the court ruled that the property never left the
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ownership of the Paulsons and therefore became the property of the bankruptcy estate

at the time of the filing. The court ordered the trust to surrender the property to the

bankruptcy trustee in May 2000 and issued an Order Authorizing Sale of Real Estate

Free and Clear of Liens and Encumbrances in September 2001, following the sale of

the property. 

Appellant asserts that the record before the bankruptcy court was insufficient

for the court to conclude on summary judgment that a fraudulent conveyance

occurred. Appellant also claims that an allegation of fraud was never pleaded and

thus was not an issue properly before the court. The trustee's motion to dismiss this

appeal due to mootness is also pending.

II. DISCUSSION

We review a bankruptcy court's findings of fact for clear error and conclusions

of law de novo. In re Wintz Cos., 219 F.3d 807, 811 (8th Cir. 2000). This court

reviews a grant of summary judgment de novo. See, e.g., United States v. Scherping,

187 F.3d 796, 800 (8th Cir. 1999). Federal Rule of Civil Procedure 56(c) provides

that summary judgment shall be granted where the record reveals that there is no

genuine issue of material fact and that the moving party is entitled to judgment as a

matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). 

A. Motion to Dismiss

In order for a federal court to have jurisdiction over a case, there must be a live

case or controversy at the time the case is decided. U.S. Const. art. III, § 2; United

States v. Nelson, 969 F.2d 626, 629 (8th Cir. 1992). In the motion to dismiss

currently before this court, the trustee claims that this case is now moot as a result of

the authorized sale of the three tracts of real property at issue.
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"[F]ederal courts are not empowered to give opinions on moot questions or

declare rules of law which cannot affect the matter in issue in the case before it." In

re Rodriquez, 258 F.3d 757, 759 (8th Cir. 2001). Further, it is true that "[s]ales in

bankruptcy cases are not subject to modification by an appellate court unless the

appellant receives a stay pending appeal." Id. Section 363 of the Bankruptcy Code

contains a rule of finality designed to permit the sale of property in a bankruptcy

estate to a good faith purchaser. Wintz, 219 F.3d at 811. Under the statute, a

"reversal or modification on appeal of [a judicial authorization] of a sale or lease of

property does not affect the validity of a sale or lease . . . to an entity that purchased

or leased such property in good faith . . . unless such authorization and such sale or

lease were stayed pending appeal." 11 U.S.C. § 363(m). Appellate courts have

interpreted section 363 as preventing the overturning of a completed sale to a bona

fide third-party purchaser in the absence of a stay. Wintz, 219 F.3d at 811. "[Section

363] protects the finality of bankruptcy sales and the reasonable expectations of third

party purchasers." Id.

In this case, no party applied for a stay pending appeal of the order of the

bankruptcy court authorizing the sale. The trustee sold the three parcels of real estate

in dispute to third parties. The bankruptcy estate received aggregate proceeds in the

amount of $91,867.00. The trustee claims that "[p]er the 'finality rule,' the sales by

the Bankruptcy Estate [precludes this circuit] from providing any effectual relief visa-vis the real estate because the sales are now not subject to modification." This

assertion is correct as to the sales of the real estate at issue. Consequently, the good

faith third-party purchasers are protected and we may not overturn the sale.

However, in a bankruptcy proceeding, valid claims against sale proceeds may

usually be maintained. Wintz, 219 F.3d at 811; MacArthur Co. v. Johns-Manville

Corp., 837 F.2d 89, 93 (2d Cir. 1988) (stating that the bankruptcy court has inherent

equitable power to sell a debtor's property and transfer third-party interests to the

proceeds of the sale). Appellant in this matter is not specifically seeking to overturn
2

Even assuming the legitimacy of this trust, which we find questionable at best,

the Paulsons executed quit claim deeds in October of 1983 purporting to transfer

three parcels of real property. In exchange, the Paulsons received certificates of

beneficial interest in the trust. While the Declaration of Trust states that shares of

interest "shall not be personal property," this defies reason. Property is either real

property or personal property and the certificates are certainly not real property. The

Paulsons recognized them as personal property in their filings with the bankruptcy

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the sale of the real property, but seeks a review and reversal of the bankruptcy court's

summary judgment. But see In re Rodriquez, 258 F.3d at 759 (finding the appeal

moot because the appellant was challenging the sale of property from the bankruptcy

estate where there was no stay pending appeal); Wintz, 219 F.3d at 812 (finding the

appeal moot because the appellants failed to obtain a stay pending appeal and thus

were barred from attempting to overturn the sale of the property from the bankruptcy

estate). 

In the final analysis, though, this panel cannot provide relief. If we were to rule

in favor of Appellant on the summary judgment issue, Appellant could perhaps seek

money damages from the proceeds of the sale received by the bankruptcy estate. See

In re Popkin & Stern, 223 F.3d 764, 766 n.2 (8th Cir. 2000) (holding that even if the

sale cannot be undone nor property specifically awarded, parties may still receive

money damages for their loss). However, obtaining money damages equal to the

value of the property at issue does not effectively change either Appellant's or the

bankruptcy estate's position. 

The debtors as the sole certificate holders of the trust maintain the only

beneficial interest in Jefferson Company and they listed this interest in their

bankruptcy petition as personal property of the estate. Thus, the value of these

certificates of interest is already part of the bankruptcy estate. Although the

Declaration of Trust attempts to define the rights and obligations of the certificate

holders by using nefarious and nonsensical legalese,2

 the fact is that the value of the
court and, if the certificates constitute a valid interest in a valid trust, they are

personalty, whatever the trust instrument says.

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debtors' interest in the trust at least equals the value of the real property deeded. To

find otherwise would be to elevate form over substance. The certificates of beneficial

interest claimed as part of the debtors' bankruptcy petition, then, are worth at least

$91,867.00, or the amount received by the bankruptcy estate as a result of the sales

of the property. 

III. CONCLUSION

Whether in the form of real property as assumed by the bankruptcy court or

proceeds of the sale of that property, as assumed by this court, the three parcels of

property at issue or their value remain in the bankruptcy estate and we have no basis

for providing Appellant with a practical remedy. The court cannot grant effective

relief and the case is moot. The motion to dismiss is granted. 

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.