Court Opinion

ID: 9373917
Source: CourtListenerOpinion
Date Created: 2023-02-22 16:10:29.992152+00
Date Added: 2024-06-11T17:16:43.892894
License: Public Domain

FILED
                                                                                 NOV 7 2022
                          NOT FOR PUBLICATION                               SUSAN M. SPRAUL, CLERK
                                                                               U.S. BKCY. APP. PANEL
                                                                               OF THE NINTH CIRCUIT

          UNITED STATES BANKRUPTCY APPELLATE PANEL
                    OF THE NINTH CIRCUIT

 In re:                                              BAP Nos. CC-21-1262-SGL
 ALICIA MARIE RICHARDS,                                       CC-21-1266-SGL
                Debtor.
 ALICIA MARIE RICHARDS;                              Bk. No. 8:21-bk-10635-ES
 LAWRENCE REMSEN,
                Appellants,
 v.                                                  MEMORANDUM*
 RICHARD A MARSHACK, Chapter 7
 Trustee; RYAL W. RICHARDS,
                Appellees.

               Appeal from the United States Bankruptcy Court
                     for the Central District of California
                Erithe A. Smith, Bankruptcy Judge, Presiding

Before: SPRAKER, GAN, and LAFFERTY, Bankruptcy Judges.

                                 INTRODUCTION

      Alicia Richards jointly owned her Newport Beach residence with her

former husband Ryal Richards (“Residence”).1 For the past several years

she has challenged the sale of the Residence to which she previously

      *
        This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
      1
        We refer to Alicia and Ryal by their first names for ease of reference and to
avoid confusion. No disrespect is intended.
stipulated, and the family court ordered, in her divorce proceedings. After

losing several state court appeals, she filed her bankruptcy case hoping to

forestall the sale. When the chapter 72 trustee moved to sell the Residence,

she unsuccessfully objected to the bankruptcy sale. She raised numerous

arguments and asserted that she and her father, Lawrence Remsen, were

nonconsenting secured creditors. Remsen filed a separate objection to the

sale. They appeal from the bankruptcy court’s order authorizing the trustee

to sell the Residence (“Sale Order”) over their objections.

      This Panel has limited the scope of the appeals to the sale of the

Residence free and clear of Remsen’s and Alicia’s alleged liens. As we

previously have ruled, all other aspects of their joint appeals have been

rendered moot pursuant to § 363(m). Because appellants’ arguments are

meritless, we AFFIRM.

                                       FACTS3

A.    The divorce proceedings.

      In 2015, Ryal commenced divorce proceedings in the Orange County

Superior Court. At that time, Alicia and Ryal owned the Residence as

husband and wife in joint tenancy. The parties entered into a stipulation

giving Alicia several weeks to refinance the Residence and buy out Ryal’s

      Unless specified otherwise, all chapter and section references are to the
      2

Bankruptcy Code, 11 U.S.C. §§ 101–1532.
      3
          We exercise our discretion to take judicial notice of documents electronically
filed in the underlying bankruptcy case. See Atwood v. Chase Manhattan Mortg. Co. (In re
Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
                                            2
community property interest. If she was unable or unwilling, the

stipulation required the sale of the Residence and for Alicia and Ryal to

split the proceeds. The court entered its dissolution judgment based in part

on the stipulation.

      Alicia was unable to buyout Ryal’s interest, but she also failed to

cooperate with the required sale. She instead moved to set aside the

stipulation claiming fraud and duress. The family court denied the motion,

and the Court of Appeal affirmed. In re Marriage of Richards, Case No.

G055927, 2020 WL 104357, at *9-13 (Cal. Ct. App. Jan. 9, 2020). The Court of

Appeal noted that the Residence was community property and needed to

be equitably divided between Alicia and Ryal.

      Alicia never appealed the dissolution judgment. But she did file

several appeals from post-judgment orders aimed at enforcing the

dissolution judgment and the required sale of the Residence. None of her

appeals were successful in overturning either the dissolution judgment or

the required sale. As the Court of Appeal noted in its decision disposing of

Alicia’s fifth appeal, “[c]ontrary to Wife’s contention on appeal, the former

couple’s respective rights concerning the Property were determined long

ago by the final marital dissolution judgment.” In re Marriage of Richards,

Case No. G057803, 2020 WL 5902889, at *5 (Cal. Ct. App. Oct. 6, 2020).

B.    The bankruptcy and the trustee’s motion to sell the Residence.

      In the midst of her efforts to derail the sale of the Residence required

under the dissolution judgment, Alicia filed a voluntary chapter 7

                                       3
bankruptcy petition. Richard Marshack was appointed to serve as chapter 7

trustee.

      Alicia scheduled the Residence as an asset and identified it as

“community property.” Until Marshack moved to sell the Residence, she

treated it as estate property. Indeed, she opposed Ryal’s motion for relief

from stay to enforce the dissolution judgment on the basis that she owned

the Residence and that it was “property of [her] estate that is being

administered by the Trustee.” The bankruptcy court agreed and found that

the Residence was “property of the bankruptcy estate under the exclusive

control of the chapter 7 trustee who has exclusive authority to sell the

property, subject to any community property interest of Movant.” No one

appealed from the relief from stay order.

      Marshack moved to sell the Residence, subject to overbids, to a third-

party purchaser for $1,662,500 free and clear of all liens and other interests.

Marshack attached to his motion a preliminary title report showing that

Alicia and Ryal held the title to the property.

      Marshack proposed to pay all real property tax liens, and all

undisputed, perfected, and consensual liens upon closing. All remaining

proceeds were to be held pending a determination of the validity, priority

and extent of all judgment liens, IRS tax liens, and disputed liens.

Marshack proposed to sell the Residence free and clear of liens under

§ 363(f)(4) to the extent there existed some “objective basis for dispute”

regarding the specific liens. Marshack alternately argued that the sale was

                                       4
authorized by § 363(f)(3) because all affected interests in the property were

liens and the sale price was significantly more than the aggregate value of

all liens against the property. Marshack included as disputed secured

claims an unrecorded lien for support filed by Alicia and an unrecorded

deed of trust filed by the Remsen Family Trust. But even with these claims,

the $1,662,500 sale price was substantially more than the $1,223,514.80

aggregate value of these liens.

      The motion also requested a finding that the proposed purchaser

qualified as a good faith purchaser for purposes of § 363(m).

      Alicia opposed the sale motion on numerous grounds. She argued

the proposed sale price was inadequate and Marshack had insufficiently

marketed the Residence. She contended that the sale could not be approved

without her consent, as well as the consent from her minor daughter,

Remsen, the Remsen Family Trust, and the Estate of Greg Remsen. Alicia

also argued that the proposed purchaser was not a good faith purchaser.

      Remsen separately opposed the sale motion. He stated that he had

not received notice of the sale.4 He also asserted for the first time that he

was a secured creditor for $1,500,000 “by right of contract,” that preempted

other claims. Previously, Remsen had filed a proof of claim for $1,750,000

as an unsecured debt arising from a prepetition “Contractual Agreement”

      4  Remsen is incarcerated following a murder conviction. He claims he never
received written notice of the sale from Marshack but learned of the sale motion from
Alicia. Allegedly one day after learning of the sale motion, he signed and caused to be
mailed his written opposition.
                                            5
with Alicia. He also argued that the family court had deprived him and

Alicia of their substantive due process and equal protection rights by not

following California law.

      At the hearing on the sale motion, at which Alicia argued at length,

the court overruled the objections. Marshack then auctioned the Residence,

selling it to a third party based on a successful bid of $2,200,000. After

questioning the successful bidder under oath, the court ruled that the

buyer qualified as good faith purchaser under § 363(m). The bankruptcy

court entered its Sale Order on November 29, 2021, and a slightly amended

Sale Order a day later. Alicia and Remsen objected to the form of the Sale

Order, but the court specifically overruled their objections.

C.    The appeals and the determination that the appeals of the sale are
      moot under § 363(m).

      Alicia and Remsen timely appealed. On June 29, 2022, this panel

issued an order denying Marshack’s motion to dismiss these appeals as

moot but held that under § 363(m) the sale could not be unwound because

the Residence was sold to a good faith purchaser. Under such

circumstances, we observed, relief only could be granted to the extent

appellants challenged the portion of the Sale Order selling free and clear of

liens under § 363(f). Clear Channel Outdoor, Inc. v. Knupfer (In re PW, LLC),

391 B.R. 25, 35-37 (9th Cir. BAP 2008). We also denied appellants’ motion

for reconsideration. The appellants have not timely and meaningfully

                                       6
challenged the good faith of the purchaser on appeal. 5 Thus, our June 29,

2021 order limits our consideration to any jurisdictional issues and the

bankruptcy court’s application of § 363(f) to authorize the sale free and

clear of liens. See id.

                                   JURISDICTION

       Subject to our jurisdictional discussion below, the bankruptcy court

had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(N). We have

jurisdiction under 28 U.S.C. § 158.

                                        ISSUES

1.     Is the bankruptcy court’s sale order void for lack of jurisdiction?

2.     Did the bankruptcy court abuse its discretion when it authorized

       Marshack to sell the Residence free and clear of liens under § 363(f)(3)

       and (f)(4)?

                            STANDARDS OF REVIEW

       We review the bankruptcy court’s subject matter jurisdiction de

novo. Sea Hawk Seafoods, Inc. v. Alaska (In re Valdez Fisheries Dev. Ass'n), 439

F.3d 545, 547 (9th Cir. 2006).

       We review for an abuse of discretion the bankruptcy court’s sale

order. See In re PW, LLC, 391 B.R. at 32. The bankruptcy court abused its

discretion if it applied an incorrect legal rule or its factual findings were

       5
        Appellants did not address this issue in their opening brief. Accordingly, they
have forfeited it. See Christian Legal Soc'y v. Wu, 626 F.3d 483, 487–88 (9th Cir. 2010);
Brownfield v. City of Yakima, 612 F.3d 1140, 1149 n.4 (9th Cir. 2010).
                                             7
illogical, implausible, or without support in the record. TrafficSchool.com v.

Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011).

                                 DISCUSSION

A.    Appellants’ jurisdictional argument does not justify reversal.

      Alicia and Remsen challenge the bankruptcy court’s jurisdiction to

approve the sale of the Residence. They argue that the bankruptcy court

lacked subject matter jurisdiction to sell the Residence because it was not

property of the estate. They contend that the bankruptcy court did not have

jurisdiction over the Residence because the family court retained

continuing jurisdiction and because they continue to dispute title to the

property.

      The family court’s dissolution judgment fully and finally decided

that the Residence was community property. “[U]ntil division, all

community property of the divorcing couple is property of the bankruptcy

estate pursuant to § 541(a)(2).” Dumas v. Mantle (In re Mantle), 153 F.3d

1082, 1085 (9th Cir. 1998). The bankruptcy court has exclusive jurisdiction

over all estate property, 28 U.S.C. § 1334(e)(1), and the trustee has both the

authority and the duty to administer that property, § 704(a)(1). In

furtherance of this duty, § 363(b)(1) enables the trustee to sell estate

property outside the ordinary course of business, Pinnacle Rest. at Big Sky,

LLC v. CH SP Acquisitions, LLC (In re Spanish Peaks Holdings II, LLC), 872

F.3d 892, 897 (9th Cir. 2017), and § 363(f) authorizes him to sell property

                                        8
free and clear of interests, including liens, see In re PW, LLC, 391 B.R. at 37.

       The Court of Appeal has affirmed the dissolution judgment and the

community property nature of the Residence. While appellants want to set

aside these decisions, the bankruptcy court is bound by those decisions.

Alicia has made arguments attacking the dissolution judgment multiple

times in state court, and the California Court of Appeal has repeatedly

rejected them. See, e.g., In re Marriage of Richards, 2020 WL 104357, at *9-13;

In re Marriage of Richards, 2020 WL 5902889, at *5. Appellants seem to

believe that so long as they continuously filed motions and actions

collaterally attacking the dissolution judgment, no sale of the Residence

could occur. They are simply incorrect; their disagreement with the

California courts’ final decisions does not create a genuine dispute as to

ownership. In the absence of jurisdictional defects, the family court’s

dissolution judgment is final and binding in the state courts, see People v.

Am. Contractors Indem. Co., 33 Cal. 4th 653, 661 (2004), and similarly is

binding on this Panel, see 28 U.S.C. § 1738.6

       6
         Appellants point to the fact that the dissolution judgment provided for the
family court to retain jurisdiction to enforce the required sale of the Residence. They
claim that this retention of jurisdiction deprived the bankruptcy court of jurisdiction to
sell the Residence. It did not. See 28 U.S.C. § 1334(e)(1) (granting the bankruptcy court
exclusive jurisdiction over all estate property). They also claim that their position is
supported by Keller v. Keller (In re Keller), 185 B.R. 796 (9th Cir. BAP 1995). They are
incorrect. Keller concerned the spouses’ separate property interests in proceeds from a
community property residence sold prepetition. Here, in contrast, the asset in question
is the community property Residence itself, which was not sold before Alicia filed
bankruptcy.

                                             9
      Appellants rely heavily on Darby v. Zimmerman (In re Popp), 323 B.R.

260, 270–71 (9th Cir. BAP 2005), and Warnick v. Yassian (In re Rodeo Canon

Development Corp.), 362 F.3d 603 (9th Cir. 2004), opinion withdrawn and

superseded, 126 F. App’x 353 (9th Cir. 2005). However, the bankruptcy sales

before those courts were found to have been improperly authorized under

§ 363(b)(1) because of pending adversary proceedings challenging the

estate’s interest (if any) in the subject property. Both cases involved

genuine disputes concerning the estate’s ownership of the property. Here,

there is no such genuine dispute. Additionally, neither Popp nor Rodeo

Canon support the proposition that the bankruptcy court lacks subject

matter jurisdiction in the face of a genuine title dispute. Both decisions

specifically declined to unwind the respective bankruptcy sales. See In re

Rodeo Canon Dev. Corp., 362 F.3d at 610; In re Popp, 323 B.R. at 272.

      Until Marshack filed his sale motion, Alicia recognized that the

Residence was community property and, therefore, property of the

bankruptcy estate. Indeed, she relied on the estate’s interest in the

Residence to stave off Ryal’s efforts to obtain relief from stay. Furthermore,

the preliminary title report Marshack presented with his sale motion

showed that Alicia and Ryal jointly held title to the Residence. In any

event, Alicia argues that she owns the entirety of the Residence because

Ryal prevented her from refinancing the debts. Success on this argument

would vest the estate with all the interest in the Residence rather than a

                                      10
community property interest.

      When as here there is no factual support offered for allegations

challenging the estate’s ownership of property subject to a sale motion,

such spurious allegations cannot be permitted to undermine the

bankruptcy trustee’s efforts to administer estate assets. See, e.g., In re Grubb

& Ellis Co., Case No. 12-10685 MG, 2012 WL 1036071, at *5-8 (Bankr.

S.D.N.Y. Mar. 27, 2012) (overruling sale objection because objector “failed

to provide any evidence” establishing the existence of alleged competing

ownership interest), aff'd, 523 B.R. 423 (S.D.N.Y. 2014); In re Conrad, Case

No. 10-08505-PB7, 2012 WL 1744741, at *2–3 (Bankr. S.D. Cal. Apr. 27, 2012)

(same); see also Kwai v. Wirum (In re Glob. Reach Inv. Corp.), 570 F. App’x 723

(9th Cir. 2014) (distinguishing Popp because neither the debtor nor its sole

shareholder who opposed the bankruptcy sale “disclosed any dispute over

the stock ownership until the Trustee attempted to sell the stock.”).

      In sum, appellants’ argument that the sale order was void because

the Residence was not estate property or because the family court retained

jurisdiction over the Residence is both factually and legally meritless.

B.    The bankruptcy court did not abuse its discretion when it
      authorized Marshack to sell the residence free and clear of liens.

      Appellants also contest the bankruptcy court’s ruling that Marshack

was authorized to sell the Residence free of all liens, with the liens to attach

to the sale proceeds. According to the bankruptcy court, § 363(f)(3) and (4)

supported the sale free and clear. Under § 363(f)(3), the trustee may sell

                                       11
free and clear of liens when “the price at which such property is to be sold

is greater than the aggregate value of all liens on such property.” In re PW,

LLC, 391 B.R. at 39. In turn, the trustee may sell free and clear of a lien or

other competing property interest under § 363(f)(4) when that interest is

subject to bona fide dispute. See Union Planters Bank, N.A. v. Burns (In re

Gaylord Grain L.L.C.), 306 B.R. 624, 627 (8th Cir. BAP 2004). Such interest is

subject to bona fide dispute when, “there is an objective basis for either a

factual or legal dispute” regarding the lien’s validity. Id. at 627 (quoting In

re Busick, 831 F.2d 745, 750 (7th Cir.1987)); accord, In re Kellogg-Taxe, Case

No. 2:12-bk-51208-RN, 2014 WL 1016045, at *6 (Bankr. C.D. Cal. Mar. 17,

2014).

      In challenging the court’s order authorizing sale free and clear,

appellants focus on three alleged liens: (1) Remsen’s purported $1,750,000

lien supposedly arising from the “Contractual Agreement” between him

and Alicia; (2) the Remsen Trust’s unrecorded deed of trust securing a

principal amount of $235,280.88; and (3) Alicia’s recorded abstract of

support judgment. According to appellants, § 363(f)(3) and (4) do not

permit a sale free and clear of these liens.

      Appellants are incorrect. The record amply supports the conclusion

that all three liens were subject to bona fide dispute. Remsen’s alleged lien

was not genuinely supported by any documentation and conflicted with

his earlier proofs of claim, signed under penalty of perjury, stating that his

claim was unsecured. Remsen also failed to perfect his alleged lien. Remsen

                                       12
never obtained an executed or recorded deed of trust securing any debt

Alicia allegedly owed him. As such, his alleged lien (if it even existed)

would have been subject to avoidance by Marshack under § 544(a)(3). The

lien held by the Remsen Trust also was not recorded. As for Alicia’s

support abstract of judgment, she admitted in appellants’ reply brief on

appeal and at oral argument before this panel that her support abstract of

judgment has been vacated by the family court. She claims to hold a second

support abstract of judgment that has not been vacated. Alicia did not

present this second abstract to the bankruptcy court as part of the sale

proceedings or to this Panel on appeal. According to the trustee’s title

report, both support abstracts of judgment arise from the same judgment—

entered on the same day. Thus, both appear to secure the same support

judgment obligations; Alicia has not argued otherwise. Even if the

duplicate abstract of judgment somehow remains valid, the sale has

generated sufficient funds to satisfy that obligation in full.

      On the record presented, both § 363(f)(3) and (f)(4) support the sale

free and clear. Without Remsen’s alleged $1,750,000 lien, the $2,200,000 sale

price clearly was more than enough to satisfy all liens actually held against

the Residence. And neither § 363(f)(3) nor (4) enable Remsen to challenge

the sale free and clear without him presenting some material, competent

evidence supporting his bare belated assertion that his claim was secured.

§ 363(p)(2); Chequers Inv. Assocs. v. Hotel Sierra Vista Ltd. P’ship (Hotel Sierra

Vista Ltd. P’ship), 112 F.3d 429, 434 (9th Cir. 1997) (objecting lienholder

                                        13
opposing use of cash collateral); see also Wilmington Tr., Nat’l Ass’n v. Boh

Park Highlands NV, L.P (In re Nov. 2005 Land Invs., LLC), 636 F. App’x 723,

725-26 (9th Cir. 2016) (holding that contingent interest holder opposing

§ 363(f) sale free and clear failed to meet his burden to establish that his

contingent interest had any value); In re Conrad, 2012 WL 1744741, at *2–3.

The Contractual Agreement on which Remsen relies fails to set forth any

specific debt, grant any encumbrance, and was never recorded. The

bankruptcy court did not err in granting the motion to sell free and clear of

whatever claims Remsen may assert under the Contractual Agreement.

C.    Appellants have not established that their due process rights were
      violated.

      Finally, appellants argue that Remsen was not given sufficient time

and opportunity to oppose the sale motion. According to appellants,

Marshack never served the sale motion on Remsen. They are incorrect. The

certificate of service shows that the sale motion and notice of motion was

properly mailed to both the Remsen Trust and Remsen individually.

Moreover, Remsen had actual knowledge of the sale motion in time to file

his objection to the motion, and the bankruptcy court was clear that it

considered the opposition.

      Appellants also claim that they needed more time and opportunity to

present evidence. The court specifically overruled this argument, and the

record supports the bankruptcy court’s ruling. There is no evidence that

any additional time or opportunity to present evidence would have

                                       14
improved appellants’ position. Remsen’s alleged lienholder status was

legally insupportable because the Contractual Agreement on which he

relied to establish the alleged lien was insufficient as a matter of law to

create such a lien. Subject to certain exceptions not relevant here, neither

conveyances nor encumbrances of real property can be made under

California law without a written instrument containing a grant transferring

the property interest from the grantor to the grantee. See Cal. Civ. Code

§§ 1091, 2922; Swiss Bank Corp. v. Van Ness Assocs. (In re Van Ness Assocs.),

173 B.R. 661, 666 (Bankr. N.D. Cal. 1994); see generally 3 Miller & Starr, Cal.

Real Est. § 8:3 (4th ed.) (describing prerequisites for a valid conveyance of

real property). The Contractual Agreement on which Remsen relies

contained no such grant transferring any property interest from Alicia to

Remsen.

      When as here the party asserting a violation of its due process rights

was not prejudiced by the alleged due process violation, the alleged

violation cannot constitute reversible error. See Rosson v. Fitzgerald (In re

Rosson), 545 F.3d 764, 776 (9th Cir. 2008), partially abrogated on other grounds

as recognized in Nichols v. Marana Stockyard & Livestock Mkt., Inc. (In re

Nichols), 10 F.4th 956, 962 (9th Cir. 2021).

                                CONCLUSION

      For the reasons set forth above, we AFFIRM.

                                        15