Court Opinion

ID: 3020022
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:22:06.872753+00
Date Added: 2024-06-11T12:46:32.920550
License: Public Domain

UNITED STATES BANKRUPTCY APPELLATE PANEL
                              FOR THE EIGHTH CIRCUIT

                                   No. 97-6087MN

In re:                                               *
                                           *
MICHAEL THOMAS PRASIL,                     *
and LORI LYNN PRASIL,                      *
                                           *
                          Debtors.         *
                                           *
                                           *
LORI LYNN PRASIL,                          *     APPEAL FROM THE UNITED
                                                         *     STATES
BANKRUPTCY COURT
                          Appellant,       *     DISTRICT OF MINNESOTA
                                           *
v.                                         *
                                           *
MICHAEL S. DIETZ, Trustee,                            *
                                           *
and                                        *
                                           *
HEARTLAND REALTY, INC.,                    *
                                           *
                         Appellees.        *

                          Submitted: December 2, 1997
                            Filed: January 5, 1998

Before WILLIAM A. HILL, SCHERMER, and SCOTT, Bankruptcy Judges

SCHERMER, Bankruptcy Judge:

      This matter is before the Bankruptcy Appellate Panel on the

Trustee’s Motion to Dismiss an appeal of a bankruptcy court1 order which

approved the sale of the estate’s

      1
           The Honorable Dennis D. O’Brien, United States Bankruptcy Court for the
District of Minnesota.
interest in an employment law claim by Lori Prasil (the “Debtor”)

against her former employer.          The Trustee seeks dismissal on the basis

of mootness for the reasons that (1) the debtor did not obtain a stay

pending appeal, and (2) the Trustee has concluded the sale by tendering

a bill of sale to the purchaser in exchange for the agreed cash sale

price.    We grant the Motion to Dismiss.

       The Trustee, Michael S. Dietz (“Trustee”) filed a Notice of

Intention to Sell to the Debtor, for $1,000, the bankruptcy estate’s

interest in an employment law claim which the Debtor held against her

former employer.      The former employer, Heartland Realty, Inc.

(“Heartland”) objected to the sale and offered to pay $1,700 for the

claim.    The Trustee withdrew his notice of intent to sell to the Debtor

and provided notice of intent to sell to Heartland for the higher

amount.     The Debtor objected to the proposed transfer to Heartland.

The bankruptcy court directed that an auction be conducted, and,

following the bidding process, the Trustee recommended that the court

approve the sale of the estate’s interest to Heartland for $5,500.          The

court orally approved the sale at a hearing on October 1, 1997.          The

court’s order approving the sale under 11 U.S.C. § 363 was entered on

October 14, 1997.       Although this court observes that the Debtor filed

her Notice of Appeal four days prior to entry of the order approving the

sale, the Debtor did not, however, seek a stay pending appeal.

       On November 6, 1997,       Heartland delivered the purchase price of

$5,500 to the bankruptcy estate, and the Trustee executed a bill of sale

to Heartland conveying the estate’s interest in the claim.

                                             2
     The Debtor appealed the sale without filing a Motion for Stay

Pending Appeal.   The Trustee filed this Motion to Dismiss the Appeal on

the grounds the appeal became moot when the Trustee consummated the sale

and Debtor neglected to obtain a stay pending appeal.    The Debtor

responds to the Trustee’s Motion to Dismiss asserting that Heartland is

not a party in interest who should have been allowed to bid at the sale,

and that the sale to Heartland is against public policy.    Debtor

believes the sale to Heartland is against public policy because, through

the purchase, Heartland was able to eliminate exposure to the Debtor’s

employment claim.   Additionally, the Debtor asserts that as a pro-se

appellant, she was unaware that a stay pending appeal was necessary, and

she requests that the court now grant her that stay.

                                  DISCUSSION

     Whether an appellant’s failure to obtain a stay of a sale under

section 363 renders the appeal moot is a question of law that we review

de novo.   In re CGI Indus., Inc., 27 F.3d 296, 298 (7th Cir. 1994).    The

Bankruptcy Code is explicit in pronouncing the need for a stay pending

appeal when the sale of estate property is challenged.    Section 363(m)

states:

     (m)   The reversal or modification on appeal of an
     authorization under subsection (b) or (c) of this section of
     a sale or lease of property does not affect the validity of a
     sale or lease under such authorization to an entity that
     purchased or leased such property in good faith, whether or
     not such entity knew of the pendency of the appeal, unless
     such authorization and such sale or lease were stayed pending
     appeal.

11 U.S.C. § 363(m) (1994).    Additionally, Bankruptcy Rule 8005

emphasizes the importance of obtaining a stay pending appeal as quickly

as possible.   That Rule states

                                      3
in part: “A motion for a stay of the judgment, order or decree of a

bankruptcy court, for approval of a supersedeas bond, or for other

relief pending appeal must ordinarily be made in the first instance in

bankruptcy court. . . .   ”

      The rule that an appeal from an order approving the sale of an

estate asset becomes moot if one fails to seek a stay pending appeal is

known as the “finality rule.” See Forbes v. Forbes (In re Forbes), BAP

Nos. 97-6041, 97-6048, 1997 WL 754596 at *10 (B.A.P. 8th Cir. Dec. 9,

1997).   The rationale for the rule is two-fold.    First, it reflects the

judicial doctrine which states that an appeal may be rendered moot when

the occurrence of certain events prevents an appellate court from

granting effective relief.    Second, with respect to sales of estate

property, the rule reflects the importance of encouraging finality in

bankruptcy sales by protecting good-faith purchasers.     Veltman v.

Whetzal, 93 F.3d 517, 521 n.4 (8th Cir. 1996);     In re CGI Indus., Inc.,

27 F.3d at 299.

      The Eighth Circuit and other circuits have consistently adhered to

the finality rule and held that failure to obtain a stay pending appeal

of an order permitting sale of estate assets renders the appeal moot.

Forbes, 1997 WL 754596 at *10; Van Iperen v. Production Credit Ass’n (In

re Van Iperen), 819 F.2d 189, 190 (8th Cir. 1987)     (holding that “[o]nce

collateral is taken and converted into cash, no court is able to

formulate adequate relief to the debtor.”); In re UNR Indus., Inc., 20

F.3d 766, 769 (7th Cir. 1994) (once a sale has gone forward, the

positions of the interested parties have changed, and . . . the court is

faced with the unwelcome prospect of “unscrambl[ing] an egg.”) quoted

                                     4
in, CGI Industries, Inc., 27 F.3d at 299-300; Markstein v. Massey

Assocs., Ltd., 763 F.2d

                                   5
1325 (11th Cir. 1985); Park Plaza Assocs. Ltd. Partnership v. Connecticut

Gen. Life Ins. Co. (In re 255 Park Plaza Assocs. Ltd. Partnership), 100

F.3d 1214 (6th Cir. 1996).

        Because a stay pending appeal must be made in the first instance

and, at a minimum, before transfer of the property sold, the Debtor’s

request for stay contained in her                 Response to the Trustee’s Motion to

Dismiss is denied.          Further, upon review of the record, we find that the

sale was properly noticed and that no grounds exist to conclude that

Heartland’s purchase was contrary to public policy.                         The Trustee’s

obligation in a Chapter 7 proceeding is to maximize value to the estate

from liquidation of the debtor’s assets. The record reflects that Heartland’s successful bid

exceeded the Debtor’s prior bid by several thousand dollars. When the Trustee originally sought

approval of the prior offer to purchase the estate’s interest in the litigation, Heartland objected and

offered considerably more value for the estate.    Thus, Debtor’s opposition to the Motion to

Dismiss and her substantive comments on the validity of the sale are unpersuasive.

        Accordingly, we grant Trustee’s Motion to Dismiss, and hereby dismiss the appeal as

moot.

A true copy.

        Attest:

                  CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE
                  EIGHTH CIRCUIT

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