Court Opinion

ID: 9695667
Source: CourtListenerOpinion
Date Created: 2023-08-25 18:26:54.268644+00
Date Added: 2024-06-11T18:20:15.675677
License: Public Domain

MOOREMAN, Bankruptcy Judge,
dissenting.
It is well recognized that one of the primary purposes behind the establishment of the Bankruptcy Code was to provide a means to marshal a debtor’s assets and allow for the ratable distribution among all creditors. E.g. Morgan Guaranty Trust Co. v. American Savings and Loan, 804 F.2d 1487, 1496 (9th Cir.1986); In re North American Coin & Currency, Ltd., 767 F.2d 1573, 1575 (9th Cir.1985); In re Lewis W. Shurtleff, Inc., 778 F.2d 1416, 1420 (9th Cir.1985). Equally well recognized rules of statutory construction require federal courts to apply specific legislation in a manner consistent with the purpose of such legislation as well as the statutory language itself. E.g. Watt v. Alaska, 451 U.S. 259, 265-66, 101 S.Ct. 1673, 1677, 68 L.Ed.2d 80 (1981); In re Victoria Station Inc., 88 B.R. 231, 235 (9th Cir. BAP 1988).
In order to further the Bankruptcy Code’s purpose of ratable distribution to all creditors, the Bankruptcy Code provides two remedial sections whereby certain pre-petition transfers of the debtor’s property can be set aside and the property brought back into the estate. 11 U.S.C. §§ 547 and 548. Although the foreclosure sale in the instant case may be valid under state law, the Supremacy Clause makes such proceedings subject to sections 547 and 548. See Matter of McVey Trucking, Inc., 812 F.2d 311 (7th Cir.1987).
The instant case specifically involves a preference action brought pursuant to 11 U.S.C. § 547. The majority disposition gives rise to two issues: first, whether the Bankruptcy Amendments and Federal Judgeship Act of 1984 (BAFJA) effectively overrule the Ninth Circuit Court of Appeals’ decision in In re Madrid, 725 F.2d 1197 (9th Cir.1984); and second, whether the “greater amount” requirement of § 547 was satisfied in the instant case.
In determining whether BAFJA overrules the Ninth Circuit’s decision in In re Madrid, this Judge is compelled to follow recognized notions of statutory interpretation by applying the plain meaning of the statutory language. E.g. Watt v. Alaska, 451 U.S. 259, 101 S.Ct. 1673, 68 L.Ed.2d 80 (1981). The Bankruptcy Amendments and Federal Judgeship Act of 1984 modified the bankruptcy code’s definition of “transfer” to expressly include the “foreclosure of the debtor’s equity of redemption.” 11 U.S.C. § 101(50). In this regard I am inclined to adopt the view that the ultimate effect of BAFJA was to overrule Madrid. E.g. In re Verna, 58 B.R. 246, 250-51 (Bankr.C.D.Cal.1986); In re Main, 75 B.R. 322, 325 (Bankr.D.Ariz.1987); In re Staples, 87 B.R. 645, 646 (Bankr.D.Or.1988); and cases cited therein. To hold otherwise would be to interpret the express statutory language in a manner inconsistent with the purpose of the bankruptcy code.
Turning to the issue of whether the “greater amount” test of 11 U.S.C. § 547(b)(5) was satisfied, the Ninth Circuit has recognized that a “creditor [against whom a preference action is brought] must be charged with the value of what was transferred_” In re Lewis W. Shurtleff, Inc., 778 F.2d at 1421. In the instant case, the fair market value of the property at the time of the foreclosure sale is not apparent from the record. However, the purchasing creditor at the foreclosure sale realized a $110,000 increase in a subsequent sale less than two months later.1 Undoubtedly, the value of the property transferred at the foreclosure sale was greater than the amount the creditor/ap-pellee would have received in a liquidation. Under such circumstances, to allow the creditor to retain a windfall at the expense of other creditors would allow for a result inconsistent with the purpose of the Bankruptcy Code. See e.g. Morgan Guaranty and Trust Co., 804 F.2d at 1496 (recognizing that the “goal of equality of treatment” *904would be furthered by preventing a creditor from retaining certain windfalls).
Accordingly, I would remand the case for a determination of the value of the property at the time of the foreclosure sale, as well as costs incurred.2

. While it should be followed that a regularly conducted non-collusive foreclosure sale creates a "strong presumption" of fair market value (see In re Staples, supra), the facts of the instant case appear to be sufficient to rebut such a presumption.

. It is important to note that a rule allowing the estate to recover a resulting windfall from a foreclosing creditor would not infringe upon the recognized policy to avoid impairment of the marketability of foreclosed properties. Allowing the avoidance of a transfer only to the extent of recovering such a windfall from a foreclosing creditor, would in no way cloud the title of any subsequent purchasers or raise any of the concerns discussed in the Madrid case and would more appropriately further the purpose of the bankruptcy code.