Opinion ID: 781570
Heading Depth: 1
Heading Rank: 1

Heading: analysis

Text: 17 The Trustee argues that we lack jurisdiction to hear Vlasek's appeal. As noted, Vlasek challenges the April 30, 1999 denial of his motion to dismiss his bankruptcy petition under his notice of appeal from the bankruptcy court's May 25, 2001 order closing the estate and discharging the Trustee. The Trustee argues that the April 30, 1999 order was, in fact, final and that Vlasek's appeal of the decision under the May 25, 2001 discharge order is thus untimely. 18 A court of appeals' jurisdiction over a district court's review of a bankruptcy court order can only be based on a proper exercise of the district court's jurisdiction. In re Maurice, 69 F.3d 830, 832 (7th Cir.1995). Whether the district court had jurisdiction over any particular matter is a question of law, reviewable de novo. Hay v. Ind. State Bd. of Tax Comm'rs, 312 F.3d 876, 878 (7th Cir.2002). 19 In general, the district court has jurisdiction to hear appeals only from final judgments, orders, and decrees of bankruptcy courts. 28 U.S.C. § 158(a) (2003). This Court has recognized that denials of motions to dismiss are generally not final orders, even in the bankruptcy context. Fruehauf Corp. v. Jartran, Inc. (In re Jartran, Inc.), 886 F.2d 859, 864 (7th Cir. 1989) (citing Cash Currency Exchange, Inc. v. Shine (In re Cash Currency Exchange, Inc.), 762 F.2d 542, 546 (7th Cir. 1985) (The order[] ... denying [the] motion to dismiss the Chapter 11 petitions ... [was] interlocutory and reviewable only if the district court agreed to entertain the appeals.)). 20 The Trustee notes that there is contrary authority that treats an order denying a motion to dismiss a bankruptcy petition as final where it can be shown that there would be a substantial interference with a debtor's alleged property rights resulting from the denial. See Allen v. Old Nat'l Bank of Wash. (In re Allen), 896 F.2d 416, 418-19 (9th Cir.1990); In re Christian, 804 F.2d 46, 47-48 (3d Cir.1986). While we have recognized the existence of this contrary authority, we have previously declined to adopt it. See Jartran, 886 F.2d at 864. We will not disturb that ruling absent a compelling argument addressing why we should now adopt this substantial-interference exception, and the Trustee here makes none. Accordingly, we will not treat as final the bankruptcy court's April 30, 1999 decision to deny Vlasek's motion to dismiss his bankruptcy petition and, thus, hold that an appeal of that decision as of right under 28 U.S.C. § 158(a) was not available.
21 It does not follow, however, that the relief requested in Vlasek's dismissal motion can be redressed here. A case is moot if there is no possible relief which the court could order that would benefit the party seeking it. In re Envirodyne Indus., 29 F.3d 301, 303 (7th Cir.1994) (citation omitted). We hold Vlasek's appeal moot to the extent it asks us to overturn the bankruptcy court's approval of the four property sales. 22 Both the bankruptcy court and the district court saw Vlasek's motion to dismiss his bankruptcy petition for what it truly was: a thinly veiled attack on the bankruptcy court's November 17, 1998 order paving the Trustee's way to sell Vlasek's home. It was only after that decision that Vlasek claimed that his petition had been fraudulently filed. What is more, the relief requested under Vlasek's appeal of his dismissal motion is that all orders entered pursuant to the bankruptcy proceedings be vacated. Those orders included, of course, the orders approving the sale of all of his properties. Thus, the practical effect of allowing Vlasek to withdraw from the bankruptcy process at this stage would be to overturn these sales. 23 The bankruptcy code provides that a trustee after notice and a hearing, may ... sell, ... other than in the ordinary course of business, property of the estate. 11 U.S.C. § 363(b) (2003). In other words, the trustee must petition the bankruptcy court for approval to pursue a sale of estate property. The debtor, or an interested third-party, can contest the approval of the sale before the bankruptcy court and may appeal an unfavorable ruling immediately. In re Sax, 796 F.2d 994, 996 (7th Cir.1986) (Orders approving or failing to approve the sale of a debtor's property are considered final decisions and are immediately appealable.). 24 The ability to appeal immediately these validity-of-sale decisions benefits both the debtor's estate and creditors. Id. at 997. The uncertainty that would be fostered by a lack of timely review would undoubtedly lower the market price for estate assets, resulting in diminished creditor restitution per asset and necessitating the liquidation of more estate assets to cover the same amount of creditor claims. Id. at 997, 998 (Without ... finality ... purchasers are likely to demand a steep discount for investing in the property.). 25 In further interest of finality, when a party seeks review of a validity-of-sale decision, it must seek to stay that decision pending appeal. 11 U.S.C. § 363(m) (2003). The stay requirement bolsters third-party-purchaser reliance by minimiz[ing] the chance that purchasers will be dragged into endless rounds of litigation to determine who has what rights in the property. Sax, 796 F.2d at 998. Thus, [t]his Court and others have repeatedly held that an appeal of a bankruptcy sale is moot if the stay required by § 363(m) is not obtained. Id. at 997 (citing Hoese Corp. v. Vetter Corp. (In re Vetter Corp.), 724 F.2d 52, 55-56 (7th Cir. 1983), Sulmeyer v. Karbach Enter. (In re Exennium, Inc.), 715 F.2d 1401, 1403-04 (9th Cir.1983), Tompkins v. Frey (In re Bel Air Assoc.), 706 F.2d 301, 304-05 (10th Cir.1983), and Bleaufontaine, Inc. v. Roland Int'l (In re Bleaufontaine, Inc.), 634 F.2d 1383, 1389-90 (5th Cir.1981)). 26 Despite the fact that Vlasek's motion to dismiss his bankruptcy petition seeks the reversal of each and every order approving the sale of an estate asset, he at no time sought to stay or appeal any of those individual sale orders. This lack of timely action proves fatal to Vlasek's attempt to reverse them now under the guise of his appellate effort to void the entire bankruptcy. 27 Even if we were to entertain the notion that during his mother's alleged overreaching and continuing fraud on the bankruptcy court, Vlasek lacked the ability to challenge these sales individually, once he asserted his rights by moving to dismiss his bankruptcy petition on November 24, 1998, he could have — and should have — appealed and sought stays of any subsequent orders approving the sale of estate assets. There were at least two opportunities to do so, including the August 31, 1999 approval of the sale of his residence. Vlasek had ten days from the date of each sale's approval to appeal the ruling and secure a stay pending appeal. See FED. R. BANKR. P. 8002(a), 6004(g). 28 Knowing that his dismissal motion sought to affect the outcome of those sales, it became incumbent upon Vlasek concurrently to stay their effect, appeal those decisions, and raise the fraudulent-filing issue on appeal at that time. 2 Since he did not do so, to the extent that his appeal seeks to overturn these sales, it is rendered moot. In short, we will not allow Vlasek to perform what amounts to an end run around the appeal and stay requirements of § 363(m).
29 Nevertheless, this finding does not necessarily dispense with Vlasek's appeal entirely. For even if Vlasek cannot now disturb the sale of the estate's assets to third parties, it may be that he is entitled to the proceeds from those sales, as opposed to his creditors. Now, at the time of this appeal, those proceeds already have been distributed pursuant to the Trustee's final report and accounting. But the argument advanced is that if Vlasek's bankruptcy petition was fraudulently filed, it would follow that the Trustee erroneously distributed estate assets to creditors. And there is authority holding that a trustee has equitable powers to recover erroneous distributions. See, e.g., United Prop., Inc. v. Emporium Dept. Stores, Inc., 379 F.2d 55, 71-72 (8th Cir.1967) (citing cases, including In re Lilyknit Silk Underwear Co., 73 F.2d 52, 54 (2d Cir.1934) (In the exercise of a duty imposed by the bankruptcy law, the trustee may invoke such general equitable principles as are applicable. Among them is the power to require restitution of what has been taken by the enforcement of a judgment subsequently reversed. (citations omitted))). For the sake of argument, then, let us assume that Vlasek's creditors could be ordered to surrender some or all of the proceeds they received from the sale of estate assets. See In re Envirodyne Indus., 29 F.3d at 304 (recognizing the appellate court's authority to order modification of an implemented reorganization plan, even if it would require creditors to surrender distributed assets). 30 But we have observed that there is a reluctance to modify bankruptcy reorganization plans if they have already been implemented because of the effects of modification on nonparties to the dispute. Id. For as noted above, a trustee's power to recover lies only in equity, and it is an age-old principle that in formulating equitable relief a court must consider the effects of the relief on innocent third parties. Id. Therefore, if we determine that modification of a reorganization plan — or, in this case, a modification of the estate's final distribution — would unduly upset an innocent nonparty's legitimate expectations, we may refuse to award the relief. Id. 31 Here, Vlasek's creditors, including his child's mother, are nonparties to this suit, are innocent of the alleged fraud, and have been in continuing reliance on the fairness of the distribution of Vlasek's estate for nearly two years. Requiring the Trustee to seek restitution from Vlasek's creditors now would clearly upset their legitimate expectations.