Court Opinion

ID: 2642871
Source: CourtListenerOpinion
Date Created: 2013-11-18 17:30:45.22591+00
Date Added: 2024-06-11T09:34:49.488357
License: Public Domain

NOT PRECEDENTIAL

                   UNITED STATES COURT OF APPEALS
                        FOR THE THIRD CIRCUIT
                             _____________

                                  No. 11-4565
                                 _____________

         IN RE: MICHELLE L. WEYANDT, a/k/a Michelle Geiger, Debtor

                MICHELLE L. WEYANDT a/k/a Michelle Geiger,
                                                        Appellant
                                 v.

            FEDERAL HOME LOAN MORTGAGE CORPORATION

                           RONDA J. WINNECOUR,
                                     Intervenor-Appellee
                              _____________

                 On Appeal from the United States District Court
                      for the Western District of Pennsylvania
               (Nos. 2-11-cv-00957, 2-11-cv-01012, 2-11-cv-01013)
                 District Judge: Honorable Terrence F. McVerry
                                  ____________

                Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
                              September 27, 2013
                                ____________

        Before: CHAGARES, VANASKIE, and SHWARTZ, Circuit Judges.

                           (Filed: November 18, 2013)

                                 ____________

                                   OPINION
                                 ____________

CHAGARES, Circuit Judge.
       Debtor Michelle Weyandt appeals the District Court’s affirmance of a Bankruptcy

Court order dismissing the adversary proceeding she filed against the Federal Home Loan

Mortgage Corporation (“Freddie Mac”) related to her Chapter 13 bankruptcy

proceedings. The District Court affirmed the Bankruptcy Court’s order on the grounds

that Weyandt lacked standing. For the reasons explained below, we will affirm.

                                             I.

       Weyandt owned a residential property located in Irwin, Pennsylvania that was

subject to a mortgage held by Wells Fargo Home Mortgage, Inc. (“Wells Fargo”). In

November 2009, the mortgage went into default for a second time. Wells Fargo

commenced a foreclosure action against Weyandt, and on July 22, 2010, the Court of

Common Pleas of Westmoreland County entered a default judgment in favor of Wells

Fargo for $87,166.15. Wells Fargo subsequently purchased the property at a sheriff’s

sale for $1,460.97. The name recorded on the deed to the property reflecting the sale was

Freddie Mac.1 Weyandt refused to leave the property, and Freddie Mac initiated an

ejectment action.

       Following the sale of the property, Weyandt filed her bankruptcy petition. She

listed the value of her residence as $125,000, with a net equity of $22,741.85. Freddie

1
 The parties’ submissions differ somewhat with respect to how and when the transfer of
ownership from Wells Fargo to Freddie Mac occurred. Weyandt represents that Freddie
Mac’s involvement began when the deed was recorded following the sheriff’s sale. The
Trustee for Weyandt’s estate, though, represents that Freddie Mac obtained the mortgage
after it went into default for the first time, and that it was Freddie Mac who obtained the
default judgment in 2010 and purchased the property at the sheriff’s sale the following
year. While we note the differences between the accounts, they have no effect on our
analysis.
                                             2
Mac filed a motion seeking relief from the automatic stay triggered by the bankruptcy

filing in order to resume its eviction proceeding against Weyandt. In response, Weyandt

filed an action of her own purporting to exercise the bankruptcy Trustee’s avoidance

powers to overturn the sheriff’s sale as a preference or a fraudulent transfer under 11

U.S.C. §§ 544, 547, or 548.

       The Bankruptcy Court held a hearing to address Freddie Mac’s motion for relief

from the stay as well as Weyandt’s adversary proceeding. The Trustee for the estate,

who appears here as an intervenor, attended the hearing to state that she would not

exercise her avoidance powers with respect to the property because to do so would not

benefit the estate. She explained that even if the estate recovered the property, there

would be insufficient equity in the property to benefit unsecured creditors.

       Following the hearing, the Bankruptcy Court issued a memorandum order finding

that Weyandt lacked standing to assert the Trustee’s avoidance powers and that, even if

Weyandt was permitted to assert those powers, the Rooker-Feldman doctrine would bar

the Bankruptcy Court from avoiding the sheriff’s sale and overturning the state court’s

default foreclosure judgment. Because Weyandt admitted that the reason she filed her

bankruptcy petition was to recover her residential property, her inability to avoid the sale

meant that the purpose of filing for bankruptcy was frustrated. Accordingly, the

Bankruptcy Court entered three orders: one dismissing Weyandt’s bankruptcy case, one

dismissing Weyandt’s adversary proceeding, and one granting Freddie Mac relief from

the automatic stay.

                                             3
       Weyandt appealed all three orders, and the District Court upheld the Bankruptcy

Court’s orders based only on Weyandt’s lack of standing. Weyandt timely appealed to

this Court and argues that she was entitled to derivative standing, that the Rooker-

Feldman doctrine would not prevent her action to avoid the foreclosure sale, and that she

properly alleged a prima facie case for an avoidable preference or fraudulent transfer

under 11 U.S.C. §§ 544, 547, or 548.

                                            III.

       The Bankruptcy Court had jurisdiction over this matter pursuant to 28 U.S.C. §§

157 and 1334 and the District Court had jurisdiction to review the Bankruptcy Court’s

order under 28 U.S.C. § 158(a). We have jurisdiction pursuant to 28 U.S.C. § 158(d).

“In reviewing the decision of the bankruptcy court, we exercise the same standard of

review as the district court. Legal determinations are reviewed de novo. Factual

determinations are reviewed under the clearly erroneous standard.” Sovereign Bank v.

Schwab, 414 F.3d 450, 452 n.3 (3d Cir. 2005) (citations omitted).

       Weyandt’s standing is a threshold issue; if her argument is unsuccessful, we must

affirm. In finding that Weyandt lacked standing, the District Court relied primarily on In

re Knapper, 407 F.3d 575 (3d Cir. 2005), to conclude that a debtor in Weyandt’s situation

could not exercise the Trustee’s avoidance powers under §§ 544, 547, or 548 of the

Bankruptcy Code because those powers are exclusively granted to the Trustee. Weyandt

does not contest the District Court’s conclusion that she lacked direct standing under In re

Knapper, but rather suggests that the District Court erred in finding that she also lacked

derivative standing. Weyandt Br. 5.

                                             4
       A derivative action is one that a bankruptcy court may authorize under its

equitable powers when the Bankruptcy Code’s envisioned scheme breaks down. Official

Comm. of Unsecured Creditors of Cybergenics Corp. v. Chinery, 330 F.3d 548, 553 (3d

Cir. 2003) (en banc). “Even if permitted under the Bankruptcy Code, derivative standing

is the exception rather than the rule.” In re Baltimore Emergency Servs. II, Corp., 432
F.3d 557, 562 (4th Cir. 2005). In Cybergenics, this Court carefully considered pre-Code

bankruptcy practice, the text of relevant Bankruptcy Code provisions, and policy

objectives to determine that derivative standing was appropriate in some Chapter 11

bankruptcy cases. Cybergenics, 330 F.3d at 559-76. We held that when a trustee fails to

comply with his or her fiduciary duties, the bankruptcy court is empowered under the

Bankruptcy Code to use its equitable powers to confer derivative standing on another

party. Id. at 572.

       Weyandt faces two hurdles in her attempt to assert derivative standing under

Cybergenics. First, she must explain why the Chapter 11 derivative standing found in

Cybergenics should be extended to the Chapter 13 context. Second, she must show that

derivative standing is appropriate here because the Trustee failed to carry out her Trustee

duties in declining to initiate an avoidance action directly. See In re Gibson Grp., Inc., 66
F.3d 1436, 1442 (6th Cir. 1995) (observing that in the Chapter 11 context “perhaps the

most important prerequisite to derivative standing is that [the party with authority to act

under the Bankruptcy Code] has abused its discretion in failing to avoid a preferential or

fraudulent transfer”). Otherwise there would be no reason for the Bankruptcy Court to

                                              5
subvert the Bankruptcy Code’s usual scheme and grant Weyandt derivative standing to

exercise powers normally granted exclusively to the Trustee.

       At this time we do not take a position on whether derivative standing may be

appropriate in some Chapter 13 contexts, an issue Weyandt acknowledges in her brief is

an unsettled one. We note, however, that the question of whether such an extension is

appropriate would require an in-depth examination of the form and purpose of Chapter 13

bankruptcies, which Weyandt has not provided. Instead we hold that even assuming

derivative standing may be available in some Chapter 13 bankruptcies, Weyandt cannot

prevail because she has not shown that a grant of derivative standing would be

appropriate under the facts and circumstances of this case. The Trustee and the

Bankruptcy Court agreed that avoiding the foreclosure sale would bring no benefit to the

estate because there would be insufficient equity in the property once existing liens,

exemptions, and costs were taken into account to leave any funds for creditors. The

District Court did not clearly err in reaching the same conclusion. Weyandt has offered

no alternative account explaining how a sale would benefit her creditors. It appears,

therefore, that the Trustee did not violate any of her duties in failing to pursue an

avoidance action. Weyandt is thus not entitled to derivative standing and the Bankruptcy

Court was correct to dismiss her adversary action.

                                                  IV.

       For the foregoing reasons, we will affirm the order of the District Court.

                                              6