Court Opinion

ID: 34076
Source: CourtListenerOpinion
Date Created: 2010-04-25 19:12:20+00
Date Added: 2024-06-11T14:55:25.901068
License: Public Domain

United States Court of Appeals
                                                                Fifth Circuit
                                                             F I L E D
               IN THE UNITED STATES COURT OF APPEALS         January 29, 2004

                        FOR THE FIFTH CIRCUIT            Charles R. Fulbruge III
                                                                 Clerk

                            No. 03-20347
                          Summary Calendar

In The Matter Of: STEPHANIE R PIERCE

                     Debtor

-------------------------

ELBAR INVESTMENTS INC

                     Appellant
     v.

STEPHANIE R PIERCE; PAMELA J FRANKLIN; GLEN CHEEK, Constable;
DAVID G PEAKE, Trustee; HARRIS COUNTY; ALIEF INDEPENDENT SCHOOL
DISTRICT; BEECHNUT MUNICIPAL UTILITY DISTRICT; FAIRBANKS CAPITAL
CORP; CONTI MORTGAGE, Conti Mortgage Corporation

                     Appellees

                      --------------------
          Appeal from the United States District Court
               for the Southern District of Texas
                         No. H-02-CV-220
                      --------------------

Before KING, Chief Judge, and DAVIS and BARKSDALE, Circuit
Judges.

PER CURIAM:*

     Appellant Elbar Investments, Inc. appeals the district

court’s decision affirming the bankruptcy court’s judgment, which

     *
        Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
                              No. 03-20347
                                   -2-

found, inter alia, that Elbar did not acquire any interest in the

real property purportedly auctioned at a constable’s tax sale

because the sale violated the automatic stay provision of 11

U.S.C. § 362.     For the following reasons, we AFFIRM.

                 I.   FACTUAL AND PROCEDURAL BACKGROUND

         In 1998 and 1999, Debtor-Appellee Stephanie Pierce failed

to pay the property taxes assessed against her homestead.       On

March 10, 2000, the local taxing authorities obtained a default

judgment against the Debtor1 and began proceedings to sell the

property at a constable’s sale.     After learning of the tax

judgment, the mortgagee threatened to foreclose its mortgage for

nonpayment of taxes.     In response, the Debtor entered into an

agreement with the mortgagee to pay the tax deficiency.     The

mortgagee then forwarded a check to satisfy the tax judgment to

the Constable but, due to an inadequate description of the

property involved, it was returned.     On August 1, 2000, the

Constable sold the property to the highest bidder, Elbar, for

$31,000.     Elbar promptly paid the promised sum to the Constable.

     Two days later––before issuing a deed or disbursing the

proceeds of the sale––the Constable received written notification

that the Debtor had filed for Chapter 13 bankruptcy protection

less than thirty minutes before the tax sale had taken place.

     1
          The Debtor’s mortgagee, Conti Mortgage Corp., was also
listed as an in rem defendant in the tax suit. However,
Fairbanks Capital Corp., Conti Mortgage’s successor in interest,
is the current mortgagee of the Debtor’s homestead property.
                           No. 03-20347
                                -3-

Both sides concede that, on the date of the tax sale, neither the

Constable nor Elbar had actual or constructive notice of the

Debtor’s bankruptcy filing.   After receiving the bankruptcy

petition notice on August 3, however, the Constable informed the

parties that he would not take any further action regarding the

tax sale until directed by court order.

     On August 15, 2000, Elbar filed a petition for relief from

the automatic stay under 11 U.S.C. § 362(d), asking the United

States Bankruptcy Court for the Southern District of Texas to

validate the tax sale retroactively.   In addition, Elbar filed an

adversary proceeding in the bankruptcy court, seeking an

adjudication of the transfer of title.    Elbar argued that, even

if the bankruptcy court refused to modify the automatic stay to

validate the Constable’s sale of the Debtor’s interest in the

real property, the stay did not prevent Elbar from acquiring the

mortagee’s interest in the property.   Importantly, Elbar

explained that the mortgagee was listed as the Debtor’s co-

defendant in the tax suit; however, the automatic stay does not

protect co-defendants from the enforcement of pre-petition

judgments.   Thus, under this logic, by placing the highest bid at

the tax sale and tendering payment, Elbar acquired at least the

mortgagee’s interest in the Debtor’s real property.

     After holding a series of hearings, the bankruptcy court

rendered judgment on November 26, 2001.   The court first noted

that 11 U.S.C. § 362(a) automatically stays the enforcement of
                           No. 03-20347
                                -4-

pre-petition judgments against the Debtor’s property upon the

filing of a bankruptcy petition, regardless of whether creditors

have knowledge of the stay’s applicability.   The court therefore

concluded that the tax sale was invalid and without legal effect

because it was conducted minutes after the Debtor petitioned for

bankruptcy protection.   Second, the bankruptcy court agreed with

Elbar that it had discretionary authority to annul the stay

retroactively under 11 U.S.C. § 362(d) and could, therefore,

validate the tax sale.   Nevertheless, the court declined to

exercise its power after concluding that the Debtor had filed her

bankruptcy petition in good faith, believing that she had already

resolved her tax delinquency.   Finally, the court concluded that

because the tax sale was void under § 362, the sale was

ineffective to transfer any interest in the Debtor’s real

property––including the mortgagee’s interest––to Elbar.   The

court therefore ordered the Constable both to return the $31,000

to Elbar and to terminate the tax sale proceedings.

     Elbar appealed the bankruptcy court’s judgment to the United

States District Court for the Southern District of Texas.    The

district court agreed with the bankruptcy court that, because the

tax sale violated the automatic stay provision of § 362, it was

invalid and incapable of transferring the mortgagee’s lien

interest in the property to Elbar.2

     2
          Before both the bankruptcy court and the district
court, Elbar further argued that 11 U.S.C. § 549(c) carves-out an
exception to the automatic stay provision for good-faith
                            No. 03-20347
                                 -5-
                           II.   DISCUSSION

     Like the district court, we review the bankruptcy court’s

factual findings for clear error and its legal conclusions de

novo.    Universal Seismic Assocs., Inc. v. Harris County (In re

Universal Seismic Assocs., Inc.), 288 F.3d 205, 207 (5th Cir.

2002).

     On appeal, Elbar reasserts its position that it purchased

the mortgagee’s interest in the debtor’s homestead property at

the August 1, 2000, tax sale.    Elbar correctly states that, in

many instances, the automatic stay provision does not bar

creditors from enforcing a pre-petition judgment against a

Debtor’s co-defendants.    See, e.g., Wedgeworth v. Fibreboard

Corp., 706 F.2d 541 (5th Cir. 1983).    Nevertheless, Elbar cites

no authority that even remotely supports its novel theory that

the highest bidder at an invalid tax sale obtains the mortgagee’s

security interest in the property, simply because the mortgagee

was an in rem co-defendant in the Debtor’s tax deficiency

purchasers of a Debtor’s real property who lack notice of the
Debtor’s pending bankruptcy. The bankruptcy court and the
district court disagreed, however, and held that a post-petition
foreclosure sale of the Debtor’s property is invalid under § 362
automatically, unless the bankruptcy court chooses to exercise
its discretion to annul the stay retroactively. Since the
bankruptcy court did not exercise its discretion in this case,
both courts concluded that Elbar’s attempt to purchase the
Debtor’s property at the tax sale was not salvaged by § 549(c).
     In its brief on appeal, Elbar neither raises this issue nor
argues that § 549(c) creates an exception to § 362. Therefore,
this argument has been waived and will not be considered by this
court. United Paperworkers Int’l Union v. Champion Int’l Corp.,
908 F.2d 1252, 1255 (5th Cir. 1990).
                           No. 03-20347
                                -6-
judgment.3   Critically, 11 U.S.C. § 362(a) automatically stayed

the tax sale proceedings; thus, the bankruptcy court correctly

held that the tax sale conducted on August 15, 2000, was null and

without legal effect.   We therefore agree with the bankruptcy and

district courts that Elbar did not acquire any interest in the

Debtor’s property on August 15, 2000.

                         III.   CONCLUSION

     Accordingly, we AFFIRM the district court’s judgment

affirming the decision of the bankruptcy court.

     3
          In Texas, “a lien holder must be joined as a party in a
suit to enforce a tax lien,” Murphee Prop. Holdings, Ltd. v.
Sunbelt Sav. Ass’n, 817 S.W.2d 850, 852 (Tex. App.—Houston [1st
Dist.] 1991, no writ), because its lien will be “subject to
preemption by the tax lien[]” once a tax deficiency judgment is
rendered against the owner of the real property, BW Village,
Ltd. v. Tricorn Enters., Inc., 879 S.W.2d 205, 207 (Tex.
App.—Houston [14th Dist.] 1994, writ denied). But the lien
holder is merely an in rem defendant, and is “not jointly and
severally liable . . . for the [tax] judgment”; rather, it is
“joined as a party solely in its capacity as a lienholder.” Id.
at 206-07. Thus, Elbar’s analogy between the mortgagee in this
case and the co-defendants in Wedgeworth fails to persuade. See
706 F.2d at 542-46 (holding that the automatic stay does not
prevent suits against a Debtor’s joint tortfeasors).