Court Opinion

ID: 8495939
Source: CourtListenerOpinion
Date Created: 2022-11-22 22:38:52.293934+00
Date Added: 2024-06-11T12:08:28.417417
License: Public Domain

LAMOUTTE, Bankruptcy Judge,
Dissenting.
I respectfully dissent. Although I agree with the legal analysis on a chapter 7 debtor’s standing to appeal a sales order, I do not agree how the established legal precedent applies to the particular facts of this case. I concur with the determination made by the Hon. Frank J. Bailey in his Memorandum of Decision on Motion for Reconsideration dated November 30, 2012, that the immediate sales of the properties will cause irreparable harm to the debtors.
The chapter 7 trustee’s duty to expeditiously dispose of estate property is unquestionable. 11 U.S.C. § 704(a)(1). However, the trustee’s duty to sell property of the estate is premised on a benefit to the estate. The majority concludes that the debtors have no standing because they failed to establish that the sales would likely result in a surplus. If there is no equity in the properties, then there is no surplus. The conclusion assumes that the existing lien is valid. On the other hand, if there is no equity in the properties, then there is no benefit for the estate, and the trustee should move the bankruptcy court to abandon the same pursuant to § 554(a). The facts of the case show that the trustee failed to establish any benefit to the estate. There is no evidence that the secured creditor agreed to a carve out. See footnote 3 of the majority opinion. Thus, the trustee failed to articulate a sound business reason as to why the properties, with no equity, should be sold for the benefit of the estate. Therefore, the trustee’s duty was to abandon the properties to the debt- or and not to act as an agent for the secured creditor, irrespective of whether or not the sale proceeds would not be immediately distributed.
The uncontested facts of the case show that the only lien affecting the properties is a prejudgment attachment, which is subject to the creditors prevailing in the state court action. The negligent entrustment basis for liability against the debtors has already been dismissed as to co-debtor Vittorio Gentile. The remaining issues concerning liability are still on appeal. There is no final judgment yet.
The burden to establish a likelihood to succeed in the state court appeal was on the debtors. The majority acknowledges that at the hearing held to consider the contested matter “the trustee displayed little knowledge of the appeal.” The debtors’ arguments did not move the court. However, in my opinion, they had merit as negligent entrustment cause of action had already been dismissed. Therefore, there is a reasonable basis to find that the debtors may prevail on appeal. If they do prevail on appeal, then there is no lien and there may be an elimination or a significant reduction in the amount of damages. Under this scenario, the debtors may be irreparably harmed by a forced sale that is likely to result in a reduced sales price.
The debtors made a prima facie showing that they are persons economically aggrieved by the immediate sale of the properties before there is a final judgment determining their liability, and because, as of the date of the sale hearing, there was no equity to the estate, a fact that should have moved the trustee to abandon the properties to the debtors. Thus, “the challenged order directly and adversely affects [the] appellant’s pecuniary interests.” Spenlinhauer, 261 F.3d at 117, and, conse*587quently, impairs their rights over the properties.
The facts, if fully presented to the bankruptcy court, may have ended in a different result. The record, however, does not show that the bankruptcy court was placed in a position to balance the competing interests.