Opinion ID: 578737
Heading Depth: 2
Heading Rank: 3

Heading: Application of Fed.R.Civ.P. 62(a)

Text: 16 Rule 62(a) provides that, except for circumstances not relevant here, no execution shall issue upon a judgment nor shall proceedings be taken for its enforcement until the expiration of ten days after its entry. Bankruptcy Rule 7062 makes Rule 62(a) applicable in adversary proceedings in bankruptcy, and Bankruptcy Rule 9014 makes Rule 7062 applicable in contested matters raised by motion, such as the court-authorized sale at issue here. See L. King, 9 Collier on Bankruptcy p 7062.02, at 7062-4 (15th ed. 1991). The 10-day stay begins when the judgment is entered and expires at the end of the tenth day after entry. Id. p 7062.04, at 7062-4. Because the authorization order was entered on January 30 and escrow closed on February 2, the Debtor maintains that the sale is invalid because it occurred in violation of the automatic 10-day stay. 17 We have not previously considered the application of Rule 62(a) to bankruptcy sales. In In re Combined Metals Reduction Co., 557 F.2d 179 (9th Cir.1977), we dismissed as moot a minor creditor's appeals of various sales and leases of estate property by the trustee pursuant to bankruptcy court orders. One of the sales had occurred within 10 days of entry of an order authorizing sale. The appellant argued that this sale violated the 10-day automatic stay of Rule 62(a). We did not reach the issue, however, and instead held that we were powerless to void the sale because the purchaser had not been made a party to the appeal and that therefore the appeal was moot: 18 Given the trial court's ruling [denying the appellant's application for a stay], the transfer of title and the failure to join the transferees as parties, it would appear that this court cannot at this time restore the status quo or grant any relief even if the district court did err in not applying Fed.R.Civ.P. 62(a). We therefore will not rule on the issue of whether the automatic stay provision of the sale is applicable to Chapter X proceedings; any such decision on our part would be in effect an advisory opinion. 19 Id. at 192. 20 Since Combined Metals was decided, we consistently have affirmed the importance of finality in bankruptcy sales. See In re Onouli-Kona Land Co., 846 F.2d 1170, 1172 (9th Cir.1988) (Finality in bankruptcy has become the dominant rationale for our decisions; the trend is towards an absolute rule that requires appellants to obtain a stay before appealing a sale of assets. ). We have applied the mootness rule whether or not the purchaser is a party to the appeal or the purchaser has taken irreversible steps following the sale. Id. Indeed, we have recognized only two exceptions to the section 363(m) mootness rule: (1) where real property is sold subject to a statutory right of redemption, and (2) where state law otherwise would permit the transaction to be set aside. In re Mann, 907 F.2d 923, 926 (9th Cir.1990). 21 Our cases strongly suggest that, even if Bankruptcy Rule 7062 had not been amended, Rule 62(a) would have no application to judicially authorized sales of estate property in bankruptcy proceedings. By its terms, Rule 62(a) applies only to the execution or enforcement of a judgment. The Debtor is aided by Bankruptcy Rule 9002(5), which provides that as used in those Federal Rules of Civil Procedure made applicable to bankruptcy cases the term judgment includes any order appealable to an appellate court. We doubt, however, that the sale at issue here can be characterized as the execution or enforcement of a judgment. 22 In Travelers Insurance Co. v. Lawrence, 509 F.2d 83 (9th Cir.1974), this court discussed at length the difference between execution sales and judicial sales. We noted five distinctions, the most important of which is that no levy or seizure is required in a judicial sale because the property is already in the custody of the court. Id. at 89; see also O'Brien v. Kelly, 597 F.Supp. 17, 19 (D.Alaska 1984) (relying on Travelers), aff'd mem., 786 F.2d 1175 (9th Cir.1986). Here, the two properties sold by the Trustee were part of the bankruptcy estate within the jurisdiction of the bankruptcy court. This circuit elsewhere has treated bankruptcy sales as judicial sales. See In re Transcontinental Energy, 683 F.2d 326, 328 (9th Cir.1982); In re CADA Inv., Inc., 664 F.2d 1158, 1162 (9th Cir.1981). Bankruptcy commentators likewise have taken the view that sales of estate property by the trustee are judicial sales rather than execution sales. See 2 Collier on Bankruptcy 363.03, at p 363-19 & n. 6; 2 D. Cowans, Bankruptcy Law and Practice § 11.9, at 425-26 (1989). 23 Even if we assume, without deciding, that under the Bankruptcy Rules in effect at the time Fed.R.Civ.P. 62(a) applied to the sale of bankruptcy estate property, the fact that escrow closed within the 10-day stay period does not mean that the sale is either forever void or that it was indefinitely stayed. As section 363(m) makes clear, only a stay pending appeal will avoid mootness. Rule 62(a), if it applies at all, provides only a 10-day stay. Debtor argues in essence that because escrow closed during that period, the temporary Rule 62(a) stay was magically transformed into a stay of indefinite duration. Not surprisingly, the Debtor cites no authority for this proposition. 24 The Trustee sold the property to Buyer pursuant to court authorization almost two years ago, and in that time the Debtor has not managed to obtain a stay of any sort. 2 Whether or not the 10-day stay applied in February 1990, the Debtor's failure since that time to obtain a stay pending appeal necessarily renders her appeals moot.D. Good Faith 25 The Debtor argues that the Buyer is not a good faith purchaser subject to the protections of section 363(m) because the Trustee failed to disclose a conflict of interest and accorded preferential treatment to the Buyer over other potential purchasers. 26 Though the Bankruptcy Code and Rules do not provide a definition of good faith, courts generally have followed traditional equitable principles in holding that a good faith purchaser is one who buys in good faith and for value. See, e.g., In re Abbotts Dairies of Pennsylvania, Inc., 788 F.2d 143, 147 (3rd Cir.1986). Typically, lack of good faith is shown by fraud, collusion between the purchaser and other bidders or the trustee, or an attempt to take grossly unfair advantage of other bidders. In re Suchy, 786 F.2d 900, 902 (9th Cir.1985). 27 As evidence of lack of good faith, the Debtor argued below that Trustee Diebert had been employed within the last four years by Pacific Agricultural Services (PAS), of which Dan Ewell (Ben Ewell's brother) was the principal stockholder. Diebert declared that he had worked for PAS as Controller from 1973 to 1975 and that he had had no personal, professional or business relationship with Dan Ewell since 1975. The Bankruptcy Court found that Diebert's former employment by PAS did not result in any preferential treatment for either Dan Ewell or Ben Ewell. The court also found that the sale was in the best interests of all creditors and other parties in interest. In its order authorizing the sale, the court further stated that the terms and conditions of the sale were fair and reasonable. These findings are not clearly erroneous. There was evidence before the bankruptcy court that the sale would generate sufficient funds to pay all of the Debtor's creditors, including lienholders on the property, and to pay all taxes on the sale. 28 The Debtor also offered the declaration of Dennis Dolan to support her allegation of collusion. Dolan declared that he had represented ValWest Companies in making an offer on the two properties, that the Trustee had told him that a fifty percent cash down payment would be required, and that the Trustee later refused to accept an offer by ValWest that complied with this requirement on the ground that fifty percent down was insufficient. The Trustee objected to this portion of Dolan's declaration on relevance grounds and moved to strike. The bankruptcy court excluded Dolan's statements. The district court did not reach the evidentiary issues because it found that the Debtor's appeals were moot. 29 Federal Rule of Evidence 401 defines relevant evidence broadly as evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probably or less probably than it would be without the evidence. Preferential treatment or collusion would certainly be of consequence to whether the sale was fair and in the best interest of creditors. We need not decide whether the district court abused its discretion in excluding the statements, however. Any error was harmless in view of the significant differences between the Buyer's offer and the ValWest offer Dolan discussed, which involved contingencies, a longer escrow period, and no earnest money. The letter from the Trustee to ValWest, which Dolan attached to his declaration, reveals that the Trustee's primary reason for rejecting the ValWest offer was ValWest's insistence on waiting until all approvals for subdivision development were in place before closing the sale and its request for a six-month escrow period after all contingencies had been satisfied. 30 Finally, the Debtor argues that Buyer is not a good faith purchaser because it did not purchase for value. Debtor relies on In re Abbotts Dairies for its statement that courts traditionally have held that fair and valuable consideration is given in a bankruptcy sale when the purchaser pays 75% of the appraised value of the assets. 788 F.2d at 149. Because the Trustee never had the properties appraised, the Debtor would have us use the appraisals she obtained, which valued the property at $17,500 per acre. This argument is meritless. The bankruptcy court had substantial evidence before it in the Trustee's declarations that the sale price was approximately equal to the fair market value of the properties as is. Thus, we cannot say that the Buyer did not give value in exchange for the properties.