Opinion
Case No. C07-1976RSL, Bankruptcy No. 07-10698, Bankruptcy Appeal No. 07-S037.
February 5, 2008
ORDER GRANTING MOTION TO DISMISS
I. INTRODUCTION
This matter comes before the Court on a motion to dismiss filed by appellee Ronald Brown, the Trustee (the "Trustee") for Clearlake LLC, the Chapter 7 debtor and appellant. The bankruptcy case involved the sale of real property to pay unsecured creditors. The Trustee moved for and obtained an order approving the sale of the property. After the bankruptcy court denied Clearlake's motion for reconsideration, the sale closed on November 29, 2007. The appeal and the response to this motion were filed by Clearlake's managing member, James Jacobson, an attorney admitted to practice law in Washington.
The Court considered Jacobson's response, even though it was filed late. The Court has not considered Jacobson's "supplemental response," filed on January 31, 2008, after the January 25, 2008 noting date for the motion. In addition to the fact that the filing was untimely, the Local Rules do not permit a "supplemental response."
For the reasons set forth below, the Court grants the Trustee's motion.
II. DISCUSSION
Clearlake appeals four orders entered by the United States Bankruptcy Court: (1) November 19, 2007 order approving sale of property free and clear of liens; (2) November 29, 2007 order denying motion for reconsideration and motion to stay and/or dismiss; (3) November 26, 2007 order directing the U.S. Marshal to assist in removing James Jacobson from property of the estate; and (4) a proposed order entitled "Protective Order and for Filing Documents Under Seal," which was denied on November 30, 2007.
The Trustee argues that the appeal is moot as to the first three of the listed orders because the property has been sold to a good faith purchaser. Clearlake, which now seeks to invalidate the sale, did not obtain a stay pending the appeal. The relevant statute provides:
The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal.11 U.S.C. § 363(m). Courts have interpreted the statute to mean that when a sale of assets is made to a good faith purchaser, the order may not be modified or set aside unless the sale was stayed pending appeal. See, e.g., Onouli-Kona Land Co. v. Estate of Richards, 846 F.2d 1170, 1172 (9th Cir. 1988).
The Bankruptcy Code and Rules do not define "good faith." However, "courts generally have followed traditional principles in holding that a good faith purchaser is one who buys `in good faith' and `for value.' Typically, lack of good faith is shown by fraud, collusion between the purchaser and other bidders or the trustee, or an attempt to take grossly unfair advantage of other bidders." Ewell v. Diebert, 958 F.2d 276, 281 (9th Cir. 1992) (internal citations and quotations omitted). In this case, although the bankruptcy court did not make an explicit finding of good faith, the statute nevertheless precludes the appeal if the Court finds good faith. See, e.g., Onouli-Kona Land Co., 846 F.2d at 1174. The purchase was made after the property was listed on the open market. The purchaser was a third party who did not have a pre-existing relationship with the property or the parties. Value was given; the Trustee received over $1.34 million in net proceeds. There is no evidence of fraud, collusion, or attempts to take advantage of other bidders. Under these circumstances, the sale was made to a good faith purchaser. Clearlake's challenges to the sale order and order denying its motion for reconsideration of the same are moot.
Clearlake has also challenged the order that permitted the Trustee to request assistance from the U.S. Marshal to preclude Jacobson from entering the property (the "removal order"). Since the premises are no longer the property of the bankruptcy estate, the Trustee will not take further action pursuant to the removal order. Reversal of the order on appeal would not afford Clearlake any relief, and the appeal is moot.
In addition, the appeal of the removal order is untimely. Clearlake filed its appeal on December 7, 2007, 11 days after entry of that order. Fed.R.Bankr.P. 8002(a) (appeals must be commenced within 10 days of the order being appealed from).
Also, Clearlake lacks standing to challenge the removal order and the order denying Jacobson's motion to file his personal health information under seal. "Only those persons who are directly and adversely affected pecuniarily by an order of the bankruptcy court have been held to have standing to appeal that order." In re Fondiller, 707 F.2d 441, 442 (9th Cir. 1983) (describing the "person aggrieved" test). Both orders personally affected Jacobson. Clearlake, the only appellant before this Court, was not aggrieved by either order. Nor do they relate to Clearlake's assets. Accordingly, it lacks standing to challenge them on appeal.
The record does not reflect why Jacobson filed his health information in the bankruptcy case. Even though the Trustee argued, in support of its motion to dismiss, that the information was irrelevant in the bankruptcy proceedings, Jacobson did not explain its relevancy.
Jacobson does not address the Trustee's arguments in response to the motion. Instead, he contends that he was denied an opportunity to be heard during the November 16, 2007 hearing. However, the Trustee's counsel has stated that the bankruptcy judge heard arguments from both sides at the hearing. Regardless, Jacobson has not shown that Clearlake had a due process right to oral argument before the bankruptcy court. Also, Jacobson filed, and the bankruptcy court considered, Clearlake's written objections. (Dkt. #1, Order Approving Sale of Property). Clearlake was not denied due process.
Jacobson also states, "The Court and the Trustee were provided with Notice and Requests for an Accommodation under the ADA at the outset of this case. Those requests have been summarily ignored." Response at p. 3. Jacobson has never submitted a request for an accommodation to this Court or identified one in the record. He did not explain in his motion why he allegedly needs an accommodation, and the need is not apparent.
III. CONCLUSION
For the foregoing reasons, the Court GRANTS the Trustee's motion to dismiss (Dkt. #4) and dismisses this appeal.