Opinion ID: 2797374
Heading Depth: 3
Heading Rank: 2

Heading: The Loans from the Family Trusts

Text: Between February 5 and May 6, 2008, the Lee and Lowney Family Trusts (the Family Trusts) made three loans to Anderson totaling $1,004,000. Each loan was evidenced by a promissory note and a deed of trust pledging the Property as collateral (subject to the District’s rights). Each of the promissory notes required monthly payments for five years. Anderson soon became delinquent in making the monthly payments. At his urging, the parties modified the notes, making them payable in full one year later (on November 1, 2009). When Anderson did not pay, the Family Trusts issued a notice of -3- default to Anderson and initiated state court foreclosure proceedings. A foreclosure sale was set. However, on the eve of the sale, Anderson filed a bankruptcy petition resulting in an automatic stay of all proceedings, including the foreclosure sale. See 11 U.S.C. § 362(a). C. The Bankruptcy Proceedings and Sale of the Property Anderson initially filed for bankruptcy relief under Chapter 113 and, as debtor in possession, successfully moved to assume the Settlement Agreement.4 See 11 U.S.C. § 365. Upon a motion by the Family Trusts, the case was converted to a Chapter 7 proceeding, see 11 U.S.C. § 1112(b), changing the proceedings from a reorganization to a liquidation. See In re C.W. Mining Co., 740 F.3d 548, 553 (10th Cir. 2014). A Trustee was appointed. The Trustee determined the Property “to be burdensome and of inconsequential value to the estate” and provided notice of his intent to abandon the Property under 11 U.S.C. § 554(a) and Fed. R. Bankr. P. 6007(a). (Appellant’s App’x, Vol. 1 at 32.) His reasoning: he had listed the Property with a broker to sell, but no purchase offers were 3 While in Chapter 11, Anderson tried to render the Property profitable by installing a zipline; his efforts failed. 4 11 U.S.C. § 365 allows a trustee or debtor in possession to assume or reject an executory contract. Leasing Serv. Corp. v. First Tenn. Bank Nat’l Ass’n, 826 F.2d 434, 436 (6th Cir. 1987). “The statutory purpose of [§] 365 . . . is to enable the trustee to assume those executory obligations which are beneficial to the estate while rejecting those which are onerous or burdensome to perform.” Id. A rejection generally constitutes a breach of the contract. See 11 U.S.C. § 365(g); see also Int’l Bhd. of Teamsters, Chauffeurs, Warehousemen & Helpers of Am. v. IML Freight, Inc., 789 F.2d 1460, 1463 (10th Cir. 1986). -4- received by the broker. While the Property was listed, the Trustee directly negotiated with the District about a purchase. The District offered $1.54 million and had commissioned an appraisal, which valued the Property at $1.49 million.5 But, since the liens exceeded the appraisals by several hundred thousand dollars, the Trustee did not consider the Property of value to the bankruptcy estate. Anderson objected to the notice of abandonment.6 Apparently wanting the Property to remain subject to the bankruptcy (and to enjoy the benefits of the automatic stay), he complained that the Trustee’s notice, first given at the Meeting of Creditors, was inadequate. He also claimed to be entitled to an evidentiary hearing under 11 U.S.C. § 554. At bottom, he questioned the Trustee’s decision to abandon the Property, contending it could be made valuable to the bankruptcy estate by extracting the rare earth elements allegedly present in the spring waters.7 He also wanted the Trustee to litigate with the District over the terms of the Settlement Agreement, which litigation would, in his view, remove the District’s claims as a cloud on the Property’s title, thereby 5 The appraisal included some of the water shares which were not being abandoned (see supra n.1) and did not consider the Settlement Agreement, which required Anderson (or any subsequent owner) to make costly improvements to the Property. 6 Even though abandonment removes property from the bankruptcy estate and returns it to the debtor, see Dewsnup v. Timm (In re Dewsnup), 908 F.2d 588, 590 (10th Cir. 1990), aff’d, 502 U.S. 410 (1992), Anderson objected. His objection was not timely under Fed. R. Bankr. P. 6007(a) and 9006(a), but no one complained. 7 Anderson made some superficial effort to determine if such a venture could reap a profit. Nothing came of it. Why he thinks it reasonable for the Trustee to pick up that cudgel to beat a dead horse is baffling. -5- increasing its value. Without holding an evidentiary hearing,8 the bankruptcy judge allowed the abandonment. Anderson filed a timely motion to reconsider, but never sought to stay the abandonment. Relieved of the automatic stay with respect to the Property, see 11 U.S.C. § 362(c), the Family Trusts continued their foreclosure efforts in state court. The foreclosure sale, pretermitted by the stay, was reset to November 8, 2012, and notice of the sale was provided to Anderson. The Family Trusts purchased the Property at the foreclosure sale; there were no other bids.9 Although Anderson was represented by counsel and personally attended the sale, he did not move to stay or otherwise challenge the foreclosure proceedings in state court. Instead, after the Property was sold to the Family Trusts, he filed an emergency motion with the bankruptcy court seeking to extend/impose the automatic stay. In the motion, he sought to invalidate the foreclosure 8 The bankruptcy judge had scheduled an evidentiary hearing but conditioned the holding of the hearing on Anderson obtaining, among other things, property insurance with a minimum coverage of $1.8 million (the amount owed to the Family Trusts). When Anderson obtained only $405,000 in property insurance, the judge vacated the scheduled evidentiary hearing. 9 The documents evidencing the loans from the Family Trusts to Anderson included as collateral 30.92 water shares in the Hurricane Canal Company and 8.0 equivalent shares of water delivery contracts with LaVerkin City, neither of which was abandoned by the Trustee. See supra n.1. According to the Trustee, the Family Trusts did not obtain a lien on these water interests and, even if a lien existed, they failed to perfect their interest in them. It does not appear the water shares or delivery contracts were part of any subsequent conveyance either when the Family Trusts purchased the Property at the foreclosure sale or when the Family Trusts later sold it to the District. In any event, we are only concerned with the abandoned property; what the Family Trusts bought or sold during and after the foreclosure proceedings is irrelevant. -6- sale and to stop the Family Trusts’ efforts to evict him from the Property.10 The bankruptcy judge denied Anderson’s motion to reconsider as well as his emergency motion to extend/impose automatic stay. He also dismissed the adversary proceeding Anderson had initiated against the Trustee and the District in an attempt to prevent the Trustee from separating the water shares and water delivery contracts from the Property (thereby devaluing the Property) (see supra n.1) and to have the Settlement Agreement declared invalid and thus removed as a cloud on the Property’s title. The judge concluded the matter was moot because the bankruptcy court could no longer provide meaningful relief after the Property had been abandoned and sold. He also determined Anderson lacked standing to challenge the abandonment because the abandonment returned the Property to him and thus he suffered no injury. The Family Shares eventually sold the Property to the District. D. The Appeal to the District Court Anderson appealed to the district court for relief.11 See 28 U.S.C. § 158(a)(1), (c)(1), Fed. R. Bankr. P. 8005(a) (formerly Fed. R. Bankr. P. 8001(e)). The district judge 10 Nothing in the record suggests Anderson exercised his rights to redeem the Property under Utah law. See Utah R. Civ. P. 69C. But, because he refused to leave the Property after the sale, the Family Trusts initiated a state court proceeding to evict him, as permitted by Utah law. See Utah Code Ann. §§ 78B-6-801-816. We mention these matters only to provide context; Utah foreclosure law is not a matter of our concern. 11 Anderson filed four separate appeals challenging the bankruptcy judge’s (1) denial of his motion for reconsideration, (2) denial of his emergency motion to extend/impose automatic stay; (3) grant of the Trustee’s motion to dismiss the adversary proceeding; and (4) grant of the District’s motion to dismiss the adversary proceeding. The appeals were consolidated. -7- thought Anderson should have received an evidentiary hearing on the abandonment issue. But, after allowing the parties to proffer evidence, he ultimately determined any error in failing to hold the hearing was harmless. He affirmed the bankruptcy court’s decision allowing abandonment of the Property without direct mention of the jurisdictional concerns.