Court Opinion

ID: 3028266
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:40:10.989443+00
Date Added: 2024-06-11T12:46:35.841879
License: Public Domain

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
                                  ___________

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
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

      1
       The Honorable James M. Rosenbaum, United States District Judge for the
District of Minnesota.

                                           -2-
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.

                                          -3-
       "[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 vis-
a-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

                                           -4-
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

      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

                                           -5-
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.

court and, if the certificates constitute a valid interest in a valid trust, they are
personalty, whatever the trust instrument says.

                                          -6-