Court Opinion

ID: 2996214
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:26:27.765814+00
Date Added: 2024-06-11T11:45:28.766439
License: Public Domain

In the
 United States Court of Appeals
               For the Seventh Circuit
                          ____________

No. 02-2062
In re JOSEPH VLASEK,
                                                 Debtor-Appellant.
                          ____________
            Appeal from the United States District Court
       for the Northern District of Illinois, Eastern Division.
          No. 01 C 4633—Rebecca R. Pallmeyer, Judge.
                          ____________
   ARGUED DECEMBER 9, 2002—DECIDED APRIL 11, 2003
                  ____________

 Before BAUER, RIPPLE, and KANNE, Circuit Judges.
  KANNE, Circuit Judge. Joseph Vlasek appeals the district
court’s affirmance of the bankruptcy court’s refusal to
dismiss his bankruptcy petition on the assertion that his
mother had fraudulently signed the petition in his name
and filed it without his authority. We dismiss Vlasek’s
appeal.

                            HISTORY
  In January 1991, Joseph Vlasek netted $907,500 in
settlement of a personal-injury lawsuit arising out of an
injury he received in an automobile accident. Because
Vlasek was seventeen years old at the time, a minor estate
was opened on his behalf and the settlement proceeds
were delivered to the estate. Two months later, on the oc-
currence of his eighteenth birthday, the estate was closed,
and the sum of $909,561.88 was turned over to Vlasek.
2                                               No. 02-2062

  Over the next few years, Vlasek started and closed two
business and bought four properties in his own name in
Homewood, Illinois. All four properties were mortgaged,
and he and his mother moved into one of them. By 1993,
the failed businesses and real-estate purchases had con-
sumed most of his settlement proceeds.
  In April 1993, Vlasek’s girlfriend gave birth to a son. She
alleged Vlasek was the father, but Vlasek denied paternity.
So, in October 1993, Vlasek’s girlfriend filed a paternity
action, and nearly three years later, an Illinois state court
found that Vlasek was the child’s father and ordered him
to make semi-monthly $1000 child-support payments.
When he refused to comply with that order, the state court,
on August 20, 1996, entered a retroactive-child-support
judgment against Vlasek in the amount of $77,000.
   Seven days later Vlasek filed a Chapter 7 bankruptcy
petition, and a month after that, he submitted his bank-
ruptcy schedules. But curiously those schedules did not
list the four real-estate holdings that Vlasek had pur-
chased. It appears that back in 1993 while his child’s
mother was still pregnant, Vlasek had begun transferring
his real-estate holdings out of his name—without receiving
any compensation.
  By questioning Vlasek during his mandatory creditor
meeting held pursuant to 11 U.S.C. § 341, the Trustee
learned about the personal-injury settlement, the four real-
estate purchases, and the subsequent transfers. He later
investigated the circumstances of the property transfers,
determined the transfers were voidable, and successfully
pursued a fraudulent-transfer action in the bankruptcy
court. As a result, the bankruptcy court set aside the real-
estate transfers. Vlasek did not move to alter or amend
this order. Nor did he seek to appeal the bankruptcy
court’s ruling.
No. 02-2062                                                   3

  The bankruptcy court obtained an agreement from the
Trustee that the Trustee would not seek to sell Vlasek’s
home unless the funds obtained by selling the other three
properties proved insufficient to settle all creditor claims.
Nevertheless, it became apparent that the proceeds from
the three property sales would in fact prove insufficient.
Thus, on November 17, 1998, the bankruptcy court entered
an order authorizing the Trustee to employ a real-estate
broker to market Vlasek’s residence.
   Seven days after the court authorized the Trustee to
begin preparations to sell Vlasek’s residence, Vlasek
moved to dismiss his bankruptcy petition altogether. This
request came nearly two-and-a-half years after the bank-
ruptcy petition had been filed. Vlasek alleged that he had
never signed his bankruptcy petition, but rather that
his mother had fraudulently signed his name. He later
claimed that at the time of the bankruptcy’s filing in Au-
gust 1996 he was mentally incompetent—a result of a
closed-head injury suffered in the automobile accident.
Vlasek asserted as proof of his incompetency a later 1997
Illinois probate court order granting his mother plenary
guardianship over his person.1 Vlasek asked the court
to dismiss his bankruptcy case and void each of the orders
it had entered previously.
  Besides the November 17, 1998 order authorizing the
Trustee to hire a broker to market Vlasek’s residence,
the orders that Vlasek also sought to void through dis-
missal would have included (i) the order setting aside the
four real-estate transfers; (ii) a March 19, 1998 order ap-

1
  Under Illinois law, the duties of the personal guardian extend
to supervising the ward’s educational and health needs only, see
755 ILL. COMP. STAT. 5/11a-17 (2003), and do not include the
authority to appear for or sue on behalf of the ward’s estate in
a court of law.
4                                                No. 02-2062

proving the sale of the first of the four properties, located
at 2147 Cedar Road, for the sum of $240,000; and (iii) a
June 2, 1998 order requiring the Trustee to abandon the
second of the four properties, located at 17835 South
Howe, pursuant to a motion to compel brought by the bank
that was foreclosing on that property. Vlasek, however,
never sought to appeal or stay any of these individual
orders at the time they were rendered.
  The bankruptcy court promptly conducted an evidentiary
hearing on Vlasek’s motion to dismiss. The court admit-
ted into evidence a recording and transcript of Vlasek’s
§ 341 creditor meeting. Vlasek also testified during the
proceedings, but the bankruptcy court observed that his
testimony “appeared to have been rehearsed.” (R.1, Bankr.
N.D. Ill. Apr. 30, 1999 Order at ¶14.) At the request of
the Cook County Public Guardian’s office (who had been
invited by the court to participate in the hearings given
the 1997 Illinois state court guardianship action), the
bankruptcy court ordered Vlasek to submit to a psychi-
atric evaluation. The evaluation was scheduled for March
23, 1999, and the court deferred ruling on the dismissal
motion. Vlasek never appeared for the evaluation.
  While the dismissal motion was still pending, the court
approved the sale of the third of the four properties, located
at 17864 Tipton, for the sum of $154,500 by order dated
January 7, 1999. In spite of the fact that success on his
dismissal motion would render void this order also, Vlasek
sought no appeal from the ruling nor did he seek to stay
the sale pending the resolution of the dismissal motion.
  On April 30, 1999, the bankruptcy court determined
that even if Vlasek did not personally sign his name to
the petition, he otherwise had adopted and ratified its fil-
ing through his course of conduct during the two years
of bankruptcy proceedings. He was therefore estopped
from raising the issue. Furthermore, the bankruptcy court
No. 02-2062                                                5

was skeptical of Vlasek’s evidentiary basis for filing the
motion, noting that he had only raised the genuineness
of his signature and his mother’s lack of authority to act
on his behalf when the sale of their residence appeared
imminent. (The motion’s filing also coincided with Vlasek’s
and his mother’s repeated obstructionist efforts to thwart
or delay the sale.) Consequently, the bankruptcy court
found that the petition was validly filed and that the
Trustee’s ongoing administration of the estate was prop-
er. Vlasek took no appeal from the ruling.
  Instead, a few months later, Vlasek filed a motion “to
vacate all orders relating to any adversary proceedings,”
which was apparently stylized, like the relief he requested
in his motion to dismiss, to contest the court’s earlier
decisions to set aside the four property transfers and
any orders approving their sale. The bankruptcy court
denied that motion on June 8, 1999. Vlasek didn’t at-
tempt to appeal the ruling. Nor did he later appeal or
seek to stay the bankruptcy court’s August 31, 1999 order
approving the sale of the last of the four properties—his
residence at 1537 W. 187th Street.
  The Trustee’s administration of the estate proceeded,
and on May 25, 2001, the bankruptcy court approved the
Trustee’s final accounting of the disbursement of all
estate funds, discharged the Trustee, and closed the
estate. Only then did Vlasek file a notice of appeal, seeking
to challenge, under the auspice of the May 2001 order
closing the estate, both the April 30, 1999 ruling on the
motion to dismiss and the June 8, 1999 ruling on the
motion to vacate.
  On review, the district court determined that Vlasek
could not have appealed the April 30, 1999 denial of his
motion to dismiss as a “final” order, and thus held that he
was not barred from appealing that ruling under his
current notice. But it also held that the bankruptcy court
6                                               No. 02-2062

properly denied Vlasek’s attempt to dismiss his bankruptcy
petition, agreeing with the bankruptcy court that the
time to challenge his mother’s allegedly fraudulent filing
had long passed by the time the motion was filed and that
he had waived any claim of mental incompetence by fail-
ing to submit to the court-ordered psychiatric evaluation.
Regarding the motion to vacate, the district court held
Vlasek’s appeal untimely, because orders approving the
sale of assets of the estate are final for purposes of appeal
and Vlasek did not appeal those decisions within the
statutorily mandated time frame. See FED. R. BANKR. P.
8002(a) (providing that notice of appeal shall be filed with-
in ten days from the date of entry of the judgment, order,
or decree).
  Vlasek seeks review of the district court’s decision,
challenging its affirmance of the bankruptcy court’s April
30, 1999 order denying the motion to dismiss. He claims
that the allegedly fraudulent filing denied him due process.
Vlasek does not challenge the district court’s ruling that
Vlasek’s appeal of the June 8, 1999 order was untimely.

                        ANALYSIS
I. Jurisdiction
  The Trustee argues that we lack jurisdiction to hear
Vlasek’s appeal. As noted, Vlasek challenges the April 30,
1999 denial of his motion to dismiss his bankruptcy peti-
tion under his notice of appeal from the bankruptcy court’s
May 25, 2001 order closing the estate and discharging
the Trustee. The Trustee argues that the April 30, 1999
order was, in fact, “final” and that Vlasek’s appeal of the
decision under the May 25, 2001 discharge order is thus
untimely.
  A court of appeals’ jurisdiction over a district court’s
review of a bankruptcy court order can only be based on a
No. 02-2062                                                 7

proper exercise of the district court’s jurisdiction. In re
Maurice, 69 F.3d 830, 832 (7th Cir. 1995). Whether the
district court had jurisdiction over any particular matter
is a question of law, reviewable de novo. Hay v. Ind. State
Bd. of Tax Comm’rs, 312 F.3d 876, 878 (7th Cir. 2002).
  In general, the district court has jurisdiction to hear
appeals only from final judgments, orders, and decrees of
bankruptcy courts. 28 U.S.C. § 158(a) (2003). This Court
has recognized that “denials of motions to dismiss are
generally not final orders, even in the bankruptcy context.”
Fruehauf Corp. v. Jartran, Inc. (In re Jartran, Inc.), 886
F.2d 859, 864 (7th Cir. 1989) (citing Cash Currency Ex-
change, Inc. v. Shine (In re Cash Currency Exchange, Inc.),
762 F.2d 542, 546 (7th Cir. 1985) (“The order[ ] . . . denying
[the] motion to dismiss the Chapter 11 petitions . . . [was]
interlocutory and reviewable only if the district court
agreed to entertain the appeals.”)).
   The Trustee notes that there is contrary authority
that treats an order denying a motion to dismiss a bank-
ruptcy petition as final where it can be shown that there
would be a substantial interference with a debtor’s alleged
property rights resulting from the denial. See Old Nat’l
Bank of Wash. v. Allen (In re Allen), 896 F.2d 416, 418-19
(9th Cir. 1990); In re Christian, 804 F.2d 46, 47-48 (3d Cir.
1986). While we have recognized the existence of this
contrary authority, we have previously declined to adopt
it. See Jartran, 886 F.2d at 864. We will not disturb that
ruling absent a compelling argument addressing why we
should now adopt this substantial-interference exception,
and the Trustee here makes none. Accordingly, we will
not treat as “final” the bankruptcy court’s April 30, 1999
decision to deny Vlasek’s motion to dismiss his bankruptcy
petition and, thus, hold that an appeal of that decision as
of right under 28 U.S.C. § 158(a) was not available.
8                                                  No. 02-2062

II. Mootness
   It does not follow, however, that the relief requested in
Vlasek’s dismissal motion can be redressed here. “A case
is moot if there is no possible relief which the court
could order that would benefit the party seeking it.” In re
Envirodyne Indus., 29 F.3d 301, 303 (7th Cir. 1994) (cita-
tion omitted). We hold Vlasek’s appeal moot to the extent
it asks us to overturn the bankruptcy court’s approval of
the four property sales.
  Both the bankruptcy court and the district court saw
Vlasek’s motion to dismiss his bankruptcy petition for
what it truly was: a thinly veiled attack on the bankruptcy
court’s November 17, 1998 order paving the Trustee’s
way to sell Vlasek’s home. It was only after that deci-
sion that Vlasek claimed that his petition had been fraud-
ulently filed. What is more, the relief requested under
Vlasek’s appeal of his dismissal motion is that all orders
entered pursuant to the bankruptcy proceedings be va-
cated. Those orders included, of course, the orders approv-
ing the sale of all of his properties. Thus, the practical effect
of allowing Vlasek to withdraw from the bankruptcy proc-
ess at this stage would be to overturn these sales.
  The bankruptcy code provides that a trustee “after notice
and a hearing, may . . . sell, . . . other than in the ordinary
course of business, property of the estate.” 11 U.S.C.
§ 363(b) (2003). In other words, the trustee must petition
the bankruptcy court for approval to pursue a sale of
estate property. The debtor, or an interested third-party,
can contest the approval of the sale before the bankruptcy
court and may appeal an unfavorable ruling immediately.
In re Sax, 796 F.2d 994, 996 (7th Cir. 1986) (“Orders
approving or failing to approve the sale of a debtor’s prop-
erty are considered final decisions and are immediately ap-
pealable.”).
  The ability to appeal immediately these validity-of-sale
decisions benefits both the debtor’s estate and creditors. Id.
No. 02-2062                                                    9

at 997. The uncertainty that would be fostered by a lack
of timely review would undoubtedly lower the market
price for estate assets, resulting in diminished creditor
restitution per asset and necessitating the liquidation
of more estate assets to cover the same amount of creditor
claims. Id. at 997, 998 (“Without . . . finality . . . purchasers
are likely to demand a steep discount for investing in the
property.”).
  In further interest of finality, when a party seeks review
of a validity-of-sale decision, it must seek to stay that
decision pending appeal. 11 U.S.C. § 363(m) (2003). The
stay requirement bolsters third-party-purchaser reliance
by “minimiz[ing] the chance that purchasers will be dragged
into endless rounds of litigation to determine who has
what rights in the property.” Sax, 796 F.2d at 998. Thus,
“[t]his Court and others have repeatedly held that an
appeal of a bankruptcy sale is moot if the stay required by
§ 363(m) is not obtained.” Id. at 997 (citing Hoese Corp. v.
Vetter Corp. (In re Vetter Corp.), 724 F.2d 52, 55-56 (7th Cir.
1983), Sulmeyer v. Karbach Enter. (In re Exennium, Inc.),
715 F.2d 1401, 1403-04 (9th Cir. 1983), Tompkins v.
Frey (In re Bel Air Assoc.), 706 F.2d 301, 304-05 (10th Cir.
1983), and Bleaufontaine, Inc. v. Roland Int’l (In re Bleau-
fontaine, Inc.), 634 F.2d 1383, 1389-90 (5th Cir. 1981)).
  Despite the fact that Vlasek’s motion to dismiss his
bankruptcy petition seeks the reversal of each and every
order approving the sale of an estate asset, he at no time
sought to stay or appeal any of those individual sale or-
ders. This lack of timely action proves fatal to Vlasek’s
attempt to reverse them now under the guise of his appel-
late effort to void the entire bankruptcy.
  Even if we were to entertain the notion that during his
mother’s alleged overreaching and continuing fraud on the
bankruptcy court, Vlasek lacked the ability to challenge
these sales individually, once he asserted his rights by
10                                                   No. 02-2062

moving to dismiss his bankruptcy petition on November 24,
1998, he could have—and should have—appealed and
sought stays of any subsequent orders approving the sale
of estate assets. There were at least two opportunities to
do so, including the August 31, 1999 approval of the sale
of his residence. Vlasek had ten days from the date of each
sale’s approval to appeal the ruling and secure a stay
pending appeal. See FED. R. BANKR. P. 8002(a), 6004(g).
  Knowing that his dismissal motion sought to affect the
outcome of those sales, it became incumbent upon Vlasek
concurrently to stay their effect, appeal those decisions, and
raise the fraudulent-filing issue on appeal at that time.2
Since he did not do so, to the extent that his appeal seeks
to overturn these sales, it is rendered moot. In short, we
will not allow Vlasek to perform what amounts to an end
run around the appeal and stay requirements of § 363(m).

III. Equity
  Nevertheless, this finding does not necessarily dispense
with Vlasek’s appeal entirely. For even if Vlasek cannot
now disturb the sale of the estate’s assets to third parties,
it may be that he is entitled to the proceeds from those
sales, as opposed to his creditors. Now, at the time of
this appeal, those proceeds already have been distributed
pursuant to the Trustee’s final report and accounting. But
the argument advanced is that if Vlasek’s bankruptcy

2
   Generally speaking, the prohibition against immediate appeal
of nonfinal orders, such as denials of motions to dismiss, is offset
by the rule that once appeal is taken from a final judgment,
earlier rulings can be reviewed. 15A WRIGHT ET AL., FEDERAL
PRACTICE AND PROCEDURE § 3905.1 (2d ed. 1992). As shown above,
the May 25, 2001 order closing the estate was not the first
and only “final” order by which Vlasek could have sought review
of the April 30, 1999 denial of his motion.
No. 02-2062                                               11

petition was fraudulently filed, it would follow that the
Trustee erroneously distributed estate assets to creditors.
And there is authority holding that a trustee has equitable
powers to recover erroneous distributions. See, e.g., United
Prop., Inc. v. Emporium Dept. Stores, Inc., 379 F.2d 55, 71-
72 (8th Cir. 1967) (citing cases, including In re Lilyknit
Silk Underwear Co., 73 F.2d 52, 54 (2d Cir. 1934) (“In the
exercise of a duty imposed by the bankruptcy law, the
trustee may invoke such general equitable principles as
are applicable. Among them is the power to require resti-
tution of what has been taken by the enforcement of a
judgment subsequently reversed.” (citations omitted))). For
the sake of argument, then, let us assume that Vlasek’s
creditors could be ordered to surrender some or all of the
proceeds they received from the sale of estate assets. See
In re Envirodyne Indus., 29 F.3d at 304 (recognizing the
appellate court’s authority to order modification of an
implemented reorganization plan, even if it would require
creditors to surrender distributed assets).
  But we have observed that there is a reluctance to mod-
ify bankruptcy reorganization plans if they have already
been implemented because of the effects of modification
on nonparties to the dispute. Id. For as noted above, a
trustee’s power to recover lies only in equity, and it is
an “age-old principle that in formulating equitable relief
a court must consider the effects of the relief on innocent
third parties.” Id. Therefore, if we determine that modifica-
tion of a reorganization plan—or, in this case, a modifica-
tion of the estate’s final distribution—would unduly upset
an innocent nonparty’s legitimate expectations, we may
refuse to award the relief. Id.
   Here, Vlasek’s creditors, including his child’s mother,
are nonparties to this suit, are innocent of the alleged
fraud, and have been in continuing reliance on the fair-
ness of the distribution of Vlasek’s estate for nearly two
years. Requiring the Trustee to seek restitution from
12                                           No. 02-2062

Vlasek’s creditors now would clearly upset their legiti-
mate expectations.

                    CONCLUSION
  Because Vlasek did not seek to stay any of the orders
approving the sale of estate assets, his appeal of the
bankruptcy court’s denial of this motion to dismiss is
rendered moot as to those sales. To the extent Vlasek’s
appeal requests equitable relief by requiring the return
of estate assets, we refuse that request. As the district
court observed, the self-dealings and forgeries of which
Vlasek accuses his mother may support a claim against
her personally in some forum, but he cannot seek to rem-
edy any alleged harm by disturbing the conclusion of
his bankruptcy proceedings. This appeal is therefore
DISMISSED.

A true Copy:
      Teste:

                       ________________________________
                       Clerk of the United States Court of
                         Appeals for the Seventh Circuit

                  USCA-02-C-0072—4-11-03