Summary
indicating that § 363 sales "arise under" title 11
Summary of this case from A&D Prop. Consultants, LLC v. A&S Lending, LLC (In re Groves)Opinion
NOT FOR PUBLICATION
Argued and Submitted at Seattle, Washington: October 17, 2008
Appeal from the United States Bankruptcy Court for the Western District of Washington. Honorable Paul B. Snyder, Bankruptcy Judge, Presiding. Bk. No. 00-36568.
Before: KAUFMAN, [ JURY and PAPPAS, Bankruptcy Judges
Hon. Victoria S. Kaufman, U.S. Bankruptcy Judge for the Central District of California, sitting by designation.
MEMORANDUM
This appeal concerns the finality of an order approving a debtor's sale of real property free and clear of, inter alia, a right of first refusal (" RFR") that was not properly exercised and whether the bankruptcy court had jurisdiction, after it had confirmed the debtor's chapter 11 plan and entered a final decree in the case, to determine the impact of the court's sale order on the RFR. Following the entry of the final decree, the holder of the RFR (the appellant in this appeal) sued the debtor, a co-owner/seller, the buyer of the real property and the buyer's successor entities in state court for, among other things, specific performance of the RFR. The state court referred the appellant's causes of action to the bankruptcy court. Pursuant to a motion for summary judgment, the bankruptcy court held that the appellant could not collaterally attack the sale by pursuing specific performance of the RFR in the state court. We AFFIRM.
Unless otherwise indicated, all " Code, " chapter and section references are to the Bankruptcy Code, 11 U.S.C. § § 101-1330 prior to its amendment by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub.L. 109-8, 119 Stat. 23, as the case from which this appeal arises was filed before October 17, 2005. All " Rule" references are to the Federal Rules of Bankruptcy Procedure, and all " FRCP" references are to the Federal Rules of Civil Procedure as amended in 2007.
I. FACTS
A. The Real Property and the RFR
On August 10, 2000, Douglas M. Ray (the " Debtor") filed a chapter 11 petition. At the time the petition was filed, the Debtor and Irwin P. Jessen (" Jessen") were co-owners of commercial real estate consisting of a shopping center commonly known as the Battle Ground Plaza Shopping Mall (" BG Plaza Property"). In December 2000, the Debtor and Jessen entered into a purchase and sale agreement with Bruce Feldman, Inc. for the sale of the BG Plaza Property (" BG Plaza Agreement"). On June 8, 2001, the bankruptcy court approved the sale. Bruce Feldman, Inc. subsequently assigned its interest under the BG Plaza Agreement to BG Plaza LLC.
When BG Plaza LLC filed its Notice of Appeal, the sale of the BG Plaza Property had not yet closed, nor had it closed as of the date that this appeal was argued.
The BG Plaza Agreement included a right of first refusal for an adjoining 1/2 acre vacant parcel (" 1/2 Acre Parcel") owned by the Debtor and Jessen. The RFR provides in relevant part as follows:
This Right of First Refusal means that Seller may not sell or become contractually obligated to sell the adjacent parcel without giving written notice to Purchaser of all of the terms and conditions upon which Seller is willing to sell the adjacent property and giving Purchaser the opportunity to buy the adjacent land on those terms. Purchaser shall have seventy-two (72) hours from receipt of any such written notice within which to accept Seller's offer by serving a written and signed acceptance upon Seller . . . . [I]n the event that Seller becomes willing to sell upon terms that are different than those contained in the original notice, then Purchaser's Right of First Refusal shall again apply and must be satisfied (including a new notice) before sale or voluntary transfer of the adjacent property to any other party.
(Emphasis added).
In December 2002, the Debtor and Jessen executed and recorded a Deed of Easement, as contemplated in a " counter offer" executed when the BG Plaza Agreement was signed. This easement conveyed a 35-foot wide strip over the BG Plaza Property to the 1/2 Acre Parcel for ingress and egress. However, this easement did not provide for cross-parking on these two lots.
An order confirming the Debtor's Third Amended Plan of Reorganization (the " Plan") was entered on March 7, 2002. The terms of the Plan provided for the sale of the 1/2 Acre Parcel either to BG Plaza LLC pursuant to the RFR or to some other party if BG Plaza LLC did not elect to exercise the RFR. The Plan further provided that the bankruptcy court would retain jurisdiction " to determine any controversies in connection with assets of the bankruptcy estate . . . ."
B. The First Approved Sale of the 1/2 Acre Parcel
In June 2005, the Debtor and Jessen entered into a purchase and sale agreement dated May 18, 2005 (" 1/2 Acre Parcel Agreement"), to sell the 1/2 Acre Parcel to Dean Maldonado (" Maldonado") for $380,000. The sale was to be closed on or before August 20, 2005. The following additional conditions were contained with the 1/2 Acre Parcel Agreement:
3. Conditions to Purchase. Buyer's obligation to purchase the Property is conditioned on the following . . . Review and acceptance of the cross parking agreements and a satisfactory Level I Environmental Survey . . . .
5. Seller's Documents. Within ten (10) days after the Execution Date, Seller shall deliver to Buyer, at Buyer's address shown below, legible and complete copies of the following documents and other items relating to the ownership, operation, and maintenance of the Property, to the extent now in existence and to the extent such items are within Seller's possession or control: Cross easement for access and parking, rules for shopping center, management and advertising.
(Emphasis in original).
BG Plaza LLC was notified of the proposed sale by way of a letter dated May 27, 2005, which included a copy of the 1/2 Acre Parcel Agreement. At that time, BG Plaza LLC elected not to exercise its RFR, contending that its RFR was not ripe until its purchase of the BG Plaza Property was closed. Instead, BG Plaza LLC filed an objection to the sale. Overruling this objection, on July 5, 2005, the bankruptcy court entered an order approving the sale of the 1/2 Acre Parcel to Maldonado free and clear of liens and encumbrances pursuant to section 363, " including but not limited to the right of first refusal granted to Battle Ground Plaza LLC" (" July 2005 Sale Order"). Order Approving Sale of Real Estate Free and Clear of Liens and Encumbrances, July 5, 2005 at 2. The July 2005 Sale Order was never appealed.
In August 2005, counsel for Jessen prepared a Reciprocal Easement Agreement. Within this agreement, the BG Plaza Property is referred to as " Parcel 1, " and the 1/2 Acre Parcel is referred to as " Parcel 2." The agreement provides in relevant part as follows:
JESSEN & RAY and MALDONADO wish to establish an easement for the mutual use of a common driveway and cross parking for customers by Parcels 1 and 2 and to provide for the maintenance of the driveway. The driveway shall be the established driveway presently located in Parcel 1 and the cross parking shall be the existing parking areas on Parcel 1 and the parking areas designated on Parcel 2's site plan (" Easement Area").
On August 5, 2005, counsel for Jessen sent a draft of the document to the Debtor's attorney, the selling agent, and Maldonado. The Reciprocal Easement Agreement, however, was not executed at this time.
C. The Modification of the 1/2 Acre Parcel Agreement
The parties later discovered that a sewer pipe needed to be removed on the 1/2 Acre Parcel. On October 8, 2005, the parties entered into an addendum to the 1/2 Acre Parcel Agreement reducing the purchase price from $380,000 to $365,000 and changing the closing date to November 15, 2005, with a possible 30-day extension (" Addendum B"). The purchase price reduction related to the cost of removing the sewer pipe.
By letter dated October 18, 2005, BG Plaza LLC was notified of the reduced purchase price for the sale of the 1/2 Acre Parcel and provided a copy of Addendum B. On October 21, 2005, BG Plaza LLC gave notice of its intent to exercise its RFR. BG Plaza LLC subsequently provided a $5,000 earnest money promissory note stating that both principal and interest would be payable on or before December 19, 2005, or upon satisfaction or waiver of contingencies pursuant to the 1/2 Acre Parcel Agreement.
By letter dated October 25, 2005, BG Plaza LLC requested all cross parking agreements and other documents referenced in the 1/2 Acre Parcel Agreement from the Debtor and Jessen. Jessen's counsel did not provide the unexecuted draft of the Reciprocal Easement Agreement because he believed BG Plaza LLC did not have an interest in the 1/2 Acre Parcel and thus had no reason to receive a copy of the unexecuted agreement.
D. The Second Approved Sale of the 1/2 Acre Parcel
On October 24, 2005, the Debtor filed a motion to approve the sale of the 1/2 Acre Parcel to Maldonado, as modified by Addendum B. The Debtor contended that BG Plaza LLC had not duly exercised its RFR, because the terms set forth in BG Plaza LLC's promissory note differed from the terms set forth in Addendum B. Most importantly, Addendum B provided for a closing date of no later than December 15, 2005, but the terms of BG Plaza LLC's promissory note authorized a later closing date. On October 27, 2005, BG Plaza LLC objected to the proposed sale, asserting that it had met the conditions of the RFR.
After a hearing on November 1, 2005, the bankruptcy court approved the sale of the 1/2 Acre Parcel to Maldonado (" November 2005 Sale Order"). The November 2005 Sale Order approved the sale free and clear of liens and encumbrances pursuant to section 363, including the RFR granted to BG Plaza LLC. The bankruptcy court held that BG Plaza LLC's attempt to exercise the RFR was not sufficient because the terms of its offer were different from those set forth in Addendum B. For example, BG Plaza LLC did not propose to close as required by Addendum B.
On November 4, 2005, BG Plaza LLC filed a motion to alter or amend the November 2005 Sale Order pursuant to Rule 9023 and FRCP 59(e) (the " 59(e) Motion"). On November 9, 2005, the bankruptcy court found that BG Plaza LLC had not shown manifest error, new facts, or legal authority that could not have been brought to the court's attention earlier with reasonable diligence. The bankruptcy court entered an order denying the 59(e) Motion. BG Plaza LLC did not appeal the November 2005 Sale Order or the Order denying the 59(e) Motion.
On November 23, 2005, the Debtor, Jessen and Maldonado executed the Reciprocal Easement Agreement. The Debtor and Jessen conveyed the 1/2 Acre Parcel to Mills End LLC, an assignee of Maldonado, by statutory warranty deed recorded November 30, 2005.
The Debtor's share of the net sale proceeds from the 1/2 Acre Parcel enabled the Debtor to pay in full all the remaining creditor claims due and payable under the terms of the Plan. On December 29, 2005, the bankruptcy court entered a final decree closing the case.
E. The Development of the 1/2 Acre Parcel and BG Plaza LLC's Initiation of State Court Litigation
Following the entry of the November 2005 Sale Order, Maldonado constructed a building on the 1/2 Acre Parcel and leased the spaces in the building.
In June 2006, BG Plaza LLC obtained a copy of the Reciprocal Easement Agreement, which had been executed by the Debtor, Jessen and Maldonado on November 23, 2005. BG Plaza LLC contended that it was unaware of this agreement until that time. On July 5, 2006, BG Plaza LLC commenced a lawsuit in the Clark County Superior Court (" State Court") against the Debtor, Jessen, Maldonado and Maldonado's successor entities alleging breach of contract related to the RFR and seeking specific performance, damages and declaratory relief. BG Plaza LLC alleged that the Debtor and Jessen did not comply with the terms of the RFR because they failed to advise BG Plaza LLC of their intent to execute the Reciprocal Easement Agreement.
On December 12, 2006, the State Court issued a letter ruling concluding that it would be appropriate to " remand" the State Court action to the bankruptcy court for further proceedings. On motion of the Debtor, the Debtor's bankruptcy case was reopened in January 2007.
The State Court and BG Plaza LLC have incorrectly used the term " remand" to describe the State Court's reference of a portion of BG Plaza LLC's action to the bankruptcy court. Under 28 U.S.C. § 1452(b), " remand" refers to a district or bankruptcy court's decision, following removal, to return a claim or cause of action to the court from which the claim or cause of action originated. Instead, we consider the effect of the State Court's order to have been the imposition of a stay on further proceedings in that court concerning BG Plaza LLC's causes of action while the parties sought a decision from the bankruptcy court regarding the effects of its prior orders in this dispute.
On January 19, 2007, the State Court entered an Order referring BG Plaza LLC's causes of action against the defendants to the bankruptcy court for further proceedings. The State Court retained jurisdiction over certain cross-claims filed by Maldonado and other related parties.
That order was entitled " Order Remanding Matter to U.S. Bankruptcy Court for the Western District of Washington."
F. The Bankruptcy Court's Resolution of the Renewed 1/2 Acre Parcel Dispute
The Debtor asked the bankruptcy court to determine the effect of the bankruptcy court's prior rulings on the causes of action referred by the State Court. On July 31, 2007, the bankruptcy court heard oral argument on whether it should exercise jurisdiction over the dispute. On August 28, 2007, the bankruptcy court entered an order " retain[ing] jurisdiction to hear and decide the claim for specific performance made by Battle Ground Plaza LLC, " and " reserv[ing] jurisdiction at this time over the claim made by Battle Ground Plaza LLC, concerning the rights of the respective parties under the reciprocal easement agreement." Order Retaining Jurisdiction to Hear and Decide Battle Ground Plaza LLC Claim, Aug. 28, 2007 at 2.
At a hearing held on August 21, 2007, when articulating its decision to retain jurisdiction, the bankruptcy court noted that BG Plaza LLC could not obtain specific performance of its RFR without invalidating the bankruptcy court's November 2005 order that approved the sale of the 1/2 Acre Parcel to Maldonado free and clear of BG Plaza LLC's RFR. The bankruptcy court concluded that it was " best suited to determine the factors it considered in ruling that the right of first refusal was not properly exercised and whether any disclosures were required, and if so, what is the effect." Trial Tr. Aug. 21, 2007 at 10. As the bankruptcy court stated during the August 21, 2007 hearing, " The primary reason that I'm retaining jurisdiction on . . . specific performance - - because I couldn't get around the feeling that it was an interpretation of my prior order. And I thought it was unfair for the state court to have to interpret what I was doing and going back and looking at a bankruptcy court record." Id . at 15.
On January 11, 2008, Jessen having passed away since the sale of the 1/2 Acre Parcel, Jessen's probate estate (the " Jessen Estate") filed a Motion for Summary Judgment, asserting that there were no issues of material fact that Jessen and the Debtor had given BG Plaza LLC sufficient notice of all conditions upon which they would sell the 1/2 Acre Parcel to Maldonado.
In its response, BG Plaza LLC argued that the Reciprocal Easement Agreement constituted a different term for the sale of the 1/2 Acre Parcel and that it should have been given notice of this term either when a draft of the Reciprocal Easement Agreement was circulated in August 2005, or when the parties executed the agreement in November 2005. On February 26, 2008, the bankruptcy court entered an order granting summary judgment to the Jessen Estate (the " Summary Judgment Order"), holding that, as a matter of law, the " sale of the 1/2 Acre Parcel approved by this Court pursuant to 11 U.S.C. § 363 may not be collaterally attacked" by way of BG Plaza LLC's action filed in the State Court seeking specific performance of its RFR. Order Granting Jessen Estate Summary Judgment, Feb. 26, 2008 at 2. The bankruptcy court also remanded the matter to the State Court for further proceedings.
On March 3, 2008, BG Plaza LLC filed a motion to alter or amend the Summary Judgment Order pursuant to Rule 9023 and FRCP 59(e), contending that the State Court action constituted a permissible independent action pursuant to Rule 9024 and FRCP 60(d)(1) and (3), or a motion for relief from a judgment or order pursuant to Rule 9024 and FRCP 60(b). On April 10, 2008, the bankruptcy court denied that motion, finding that BG Plaza LLC had not established grounds under FRCP 59(e) for the bankruptcy court to alter or amend the Summary Judgment Order. On April 14, 2008, BG Plaza LLC timely filed a notice of appeal.
II. ISSUES
A. Whether the bankruptcy court had jurisdiction to evaluate BG Plaza LLC's right to seek specific performance of the RFR in the State Court action, despite the provisions of the July and November 2005 Sale Orders;
B. Whether the Debtor and Jessen complied with the terms of BG Plaza LLC's RFR;
C. Whether BG Plaza LLC appropriately and timely sought to set aside the bankruptcy court's orders allowing the sale of the 1/2 Acre Parcel free and clear of BG Plaza LLC's RFR; and
D. Whether the bankruptcy court should have granted BG Plaza LLC's motion to alter or amend the Summary Judgment Order.
III. JURISDICTION
We have jurisdiction over this appeal under 28 U.S.C. § 158(a)(1) and (c). We address below the bankruptcy court's jurisdiction to hear and decide whether BG Plaza LLC could collaterally attack the July and November 2005 Sale Orders in the State Court.
IV. STANDARDS OF REVIEW
A. Bankruptcy jurisdiction is an issue of law that we review de novo. In re Marino, 234 B.R. 767, 769 (9th Cir. BAP 2000).
B. We review a bankruptcy court's ruling on a motion to alter or amend a judgment (FRCP 59(e)) or for relief from judgment (FRCP 60(b)) for abuse of discretion. Dixon v. Wallowa County, 336 F.3d 1013, 1022 (9th Cir. 2003). A bankruptcy court abuses its discretion if it bases its decision on an erroneous view of the law or clearly erroneous factual findings. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct. 2447, 2461, 110 L.Ed.2d 359 (1990). We must have a definite and firm conviction that the bankruptcy court committed a clear error of judgment in the conclusion it reached to reverse for abuse of discretion. S.E.C. v. Coldicutt, 258 F.3d 939, 941 (9th Cir. 2001); In re Black, 222 B.R. 896, 899 (9th Cir. BAP 1998).
C. Summary judgment orders are reviewed de novo. Gill v. Stern (In re Stern), 345 F.3d 1036, 1040 (9th Cir. 2003). " Findings of fact made in summary judgment proceedings are not entitled to the 'clearly erroneous' standard of review because the trial court has not weighed the evidence in the conventional sense." C.H. Rider & Family v. Wyle (In re United Energy Corp.), 102 B.R. 757, 760 (9th Cir. BAP 1989) (citing Am. Fed'n v. Stephens (In re Stephens), 51 B.R. 591, 594-95 (9th Cir. BAP 1985)). Rather, the reviewing court must stand in the same position as the court below and apply the standards set forth in FRCP 56(c).
Summary judgment is proper " if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FRCP 56(c).
V. DISCUSSION
A. Jurisdiction to Enter the Order Granting Summary Judgment
Appellant's first argument is that the bankruptcy court did not have jurisdiction to review the impact of the State Court action on the July and November 2005 Sale Orders. As set forth more fully below, the bankruptcy court had both ancillary jurisdiction and " arising under" jurisdiction to determine the impact of the July and November 2005 Sale Orders on BG Plaza LLC's ability to obtain specific performance of the RFR in another court.
1. Ancillary Jurisdiction
Ancillary jurisdiction may rest on one of two bases: (1) to permit disposition by a single court of factually interdependent claims, and (2) to enable a court to vindicate its authority and effectuate its decrees. Sea Hawk Seafoods, Inc. v. Alaska (In re Valdez Fisheries Dev. Ass'n, Inc.), 439 F.3d 545, 549 (9th Cir. 2006) (citing Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 379-80, 114 S.Ct. 1673, 1676, 128 L.Ed.2d 391 (1994)).
A bankruptcy court's ancillary jurisdiction is not terminated when a plan has been confirmed or a case has been closed or dismissed. See, e.g., Tsafaroff v. Taylor (In re Taylor), 884 F.2d 478, 481 (9th Cir. 1989)(" bankruptcy court retains subject matter jurisdiction to interpret orders entered prior to dismissal of the underlying bankruptcy case and to dispose of ancillary matters"); Beneficial Trust Deeds v. Franklin (In re Franklin), 802 F.2d 324, 325 (9th Cir. 1986)(bankruptcy court retains jurisdiction to construe its own orders after the dismissal of the underlying bankruptcy proceeding); Aheong v. Mellon Mortg. Co. (In re Aheong), 276 B.R. 233 (9th Cir. BAP 2002)(after case dismissed, bankruptcy court had jurisdiction to determine effect of its dismissal order on creditor's postpetition foreclosure action); Hawaiian Airlines, Inc. v. Mesa Air Group, Inc., 355 B.R. 214, 218 (D. Haw. 2006)(" bankruptcy court retains post-confirmation jurisdiction to interpret and enforce its own orders").
In Aheong, the debtor contended that the bankruptcy court did not have jurisdiction to enter an order annulling the automatic stay, after the court had re-opened the debtor's previously-dismissed chapter 13 case. The debtor had filed her chapter 13 petition one day before a hearing on a secured creditor's foreclosure action. After the debtor filed her petition, and despite the provisions of a General Order of the bankruptcy court, she did not notify the secured creditor or the state court of her bankruptcy filing. The state court hearing went forward, the debtor did not appear, and the state court granted the secured creditor's summary judgment motion.
The debtor thereafter dismissed her chapter 13 case, and it was closed. More than two years later, the debtor contended in state court that the secured creditor's foreclosure was void because it was obtained in violation of the automatic stay. The secured creditor moved to reopen the bankruptcy case for the limited purpose of considering its motion to annul the automatic stay. The bankruptcy court reopened the case and granted the motion annulling the automatic stay.
The debtor contended that the bankruptcy court did not have jurisdiction to annul the automatic stay in her dismissed case. This panel held that the bankruptcy court had ancillary jurisdiction. As the panel explained:
By granting Mellon's Motion to Annul the Stay the bankruptcy court was acting to " interpret" and " effectuate" General Order No. 1, which directed Debtor to notify Mellon and the state court of her bankruptcy filing and provided that " failure to give such notice . . . may constitute cause for nullification of the automatic stay." The bankruptcy court interpreted General Order No. 1 by deciding whether the facts presented by Mellon did in fact constitute cause to nullify the automatic stay and, having determined that such cause was shown, it enforced General Order No. 1 by granting the Motion to Annul the Stay.
Aheong, 276 B.R. at 240.
Similar to the bankruptcy court in Aheong, which was asked to effectuate its order in a long-since dismissed case, the bankruptcy court here was asked to effectuate the July and November 2005 Sale Orders. In this case, the State Court referred BG Plaza LLC's claims against the Debtor and Jessen, among others, to the bankruptcy court, so that the bankruptcy court could evaluate whether BG Plaza LLC's claims could proceed despite the provisions of the sale orders. The bankruptcy court then agreed to evaluate whether BG Plaza LLC's action for specific performance, which would, if successful, eviscerate the previously approved sale of the Debtor's interest in the 1/2 Acre Parcel, could proceed. Like the court in Aheong, the bankruptcy court had ancillary jurisdiction to interpret and enforce its prior orders.
2. " Arising Under" Jurisdiction
In addition to ancillary jurisdiction, in order to resolve the conflict between the State Court action and the November 2005 Sale Order, the bankruptcy court could exercise its jurisdiction " of all civil proceedings arising under title 11" pursuant to 28 U.S.C. § 1334(b). " Arising under" jurisdiction " includes proceedings based on a right or cause of action created by title 11." Aheong, 276 B.R. at 243. Moreover, " arising under" jurisdiction " does not depend on the present existence of an open case or a non-dismissed case. It depends solely on the existence of civil proceedings arising under title 11." Id . at 244.
" Requests for bankruptcy courts to construe their own orders must be considered to arise under title 11 if the policies underlying the Code are to be effectively implemented." Franklin, 802 F.2d at 326; see also McCowan v. Fraley (In re McCowan), 296 B.R. 1, 4 (9th Cir. BAP 2003)(holding that " where a proceeding is brought to execute on a judgment entered by the bankruptcy court, the proceeding is a continuation of the original proceeding" and thus, any proceeding to enforce a judgment that " arose under" the Code continues to be a matter " arising under" the Code).
In Franklin, after filing their second bankruptcy petition, the debtors entered into an agreement with a secured creditor stipulating that the automatic stay would be lifted on June 14, 1982 and that this relief would be " effective as against any subsequent [bankruptcy] filings on the part of these Debtors as to the above-described properties . . . ." 802 F.2d at 325. Although signed and authorized earlier, the stipulation was entered shortly after the debtors' second bankruptcy petition was dismissed, the secured creditor foreclosed on the real property and the debtors filed their third bankruptcy petition.
Subsequently, the debtors filed a complaint in state court to set aside the foreclosure sale as being in violation of the automatic stay. The secured creditor filed an ex parte application in the bankruptcy court to determine the validity of its foreclosure sale. The bankruptcy court concluded that the third bankruptcy petition did not impose the automatic stay on the secured creditor and that the foreclosure sale was valid as provided in the stipulated agreement.
The Ninth Circuit held that the bankruptcy court had subject matter jurisdiction to construe the effect of the stipulation to relief from the automatic stay, entered in the debtors' dismissed case. The Ninth Circuit explained that the secured creditor's ex parte application
was basically in the nature of a declaratory judgment action requiring the bankruptcy court to construe the validity and effect of its prior order. . . . We believe that [the secured creditor]'s action before [the bankruptcy court] was one 'arising under' title 11. Simply put, bankruptcy courts must retain jurisdiction to construe their own orders if they are to be capable of monitoring whether those orders are ultimately executed in the intended manner.
Franklin, 802 F.2d at 326.
Here, the bankruptcy court had jurisdiction based on the " arising under" language in 28 U.S.C. § 1334(b). BG Plaza LLC's pursuit of specific performance in the State Court required resolution of a substantial question of bankruptcy law, i.e., the impact of the bankruptcy court's November 2005 Sale Order, arising under section 363(b), that authorized the now-consummated sale of the Debtor's interest in the 1/2 Acre Parcel to Maldonado free and clear of BG Plaza LLC's RFR.
B. The Debtor and Jessen's Compliance with the Terms of BG Plaza LLC's RFR
A right of first refusal is a contract that gives the prospective purchaser the right to buy upon terms the seller establishes in the event the seller decides to sell. The seller is obligated not to sell to any other party unless the prospective purchaser decides not to buy. Bennett Veneer Factors, Inc. v. Brewer, 73 Wn.2d 849, 441 P.2d 128 (Wash.Ct.App. 1968). Rights of first refusal are valid contracts, and thus, their words are given ordinary meaning. Davis v. Dep't of Transp., 138 Wn.App. 811, 159 P.3d 427 (Wash.Ct.App. 2007).
In accordance with BG Plaza LLC's RFR, the Debtor and Jessen had to give written notice " of all the terms and conditions upon which Seller is willing to sell [the 1/2 Acre Parcel] and giving Purchaser the opportunity to buy [the 1/2 Acre Parcel] on those terms." On May 27, 2005, BG Plaza LLC received written notice of the 1/2 Acre Parcel Agreement from Debtor and Jessen. Paragraph 3 of the 1/2 Acre Parcel Agreement, titled " Conditions to Purchase, " provided that Maldonado's obligation to purchase the 1/2 Acre Parcel was conditioned on his " [r]eview and acceptance of the cross-parking agreements."
On October 18, 2005, the Debtor and Jessen once again complied with BG Plaza LLC's RFR when they notified BG Plaza LLC of different terms for the sale of the 1/2 Acre Parcel to Maldonado (Addendum B). The RFR provided that " in the event that Seller becomes willing to sell upon terms that are different than those contained in the original notice, then Purchaser's Right of First Refusal shall again apply and must be satisfied (including new notice) before sale or voluntary transfer of the [1/2 Acre Parcel] to any other party." Pursuant to Addendum B, the terms of the sale were changed to provide for a reduced purchase price, from $380,000 to $365,000, and an extended closing date of November 15, 2005, with a possible 30-day additional extension. BG Plaza LLC received notice of those changed terms.
BG Plaza LLC contends that the drafting of the Reciprocal Easement Agreement re-activated its RFR because that agreement constituted a different term to the 1/2 Acre Parcel Agreement. We agree with the bankruptcy court that the draft Reciprocal Easement Agreement circulated in August 2005 did not constitute a different term to the sale. As stated in the bankruptcy court's Memorandum of Decision, the Reciprocal Easement Agreement, both when drafted and when executed, " was merely a fulfillment of the arrangements contemplated by and set forth in Paragraphs three and five [of the 1/2 Acre Parcel Agreement]." Mem. Feb. 26, 2008 at 13.
Furthermore, the parties did not execute the Reciprocal Easement Agreement until after the bankruptcy court had approved the sale of the 1/2 Acre Parcel to Maldonado at the reduced price, free and clear of BG Plaza LLC's RFR. As noted by the bankruptcy court, " Under BG Plaza LLC's approach, parties to a purchase and sale agreement could not years later execute a document that was contemplated by an agreement . . . without retriggering a party's right of first refusal. This would lead to endless litigation and undermine the policy of finality of a court-approved sale." Id.
Lastly, as the bankruptcy court explained, given BG Plaza LLC's status as the purchaser of the BG Plaza Property, BG Plaza LLC was well aware of the need for a cross-parking arrangement between that property and the adjacent 1/2 Acre Parcel.
[I]f BG Plaza LLC had had concerns about possible or probable cross parking easements, it could have raised these concerns when it first was presented the 1/2 Acre [Parcel] Agreement. It did not. . . . [F]rom the time that the BG Plaza [Property] Agreement and counter offer were executed in 2000, BG Plaza LLC was well acquainted with access issues concerning the 1/2 Acre Parcel. It should not now be allowed to have a second 'bite at the apple' when it failed to act the first time around.
Id. at 14.
Like Maldonado in May 2005, BG Plaza LLC could have agreed to purchase the 1/2 Acre Parcel subject to the parties' entry into an acceptable cross-parking agreement. Just as Maldonado had no guarantee that an acceptable cross-parking agreement would be prepared and finalized, BG Plaza LLC could have taken the risk that, after exercising its RFR, the sale of the 1/2 Acre Parcel would not close because BG Plaza LLC could not secure an acceptable cross-parking arrangement. After BG Plaza LLC failed to exercise its RFR, the Debtor and Jessen were not obligated to inform BG Plaza LLC that a condition to the sale of the 1/2 Acre Parcel, disclosed in May 2005, was potentially satisfied (based on the draft Reciprocal Easement Agreement) or subsequently satisfied (based on the executed Reciprocal Easement Agreement).
C. BG Plaza LLC's Ability to Initiate the State Court Action Despite the Provisions of the November 2005 Sale Order
" The law is fairly well-settled that 'an order confirming a sale of assets is considered a final judgment.'" Third Nat'l Bank v. Fischer (In re Fischer), 184 B.R. 293, 301 (Bankr. M.D. Tenn. 1995) (quoting Cedar Island Builders v. S. County Sand & Gravel (In re Cedar Island Builders), 151 B.R. 298, 300 (D. R.I. 1993)); see also In re Sax, 796 F.2d 994, 996 (7th Cir. 1986)(holding that bankruptcy sale orders are final decisions). Furthermore, " [a] bankruptcy sale under 11 U.S.C. § 363, free and clear of all liens, is a judgment that is good as against the world, not merely as against parties to the proceedings." Regions Bank v. J.R. Oil Co., LLC, 387 F.3d 721, 732 (8th Cir. 2004); see also Gekas v. Pipin (In re Met-L-Wood Corp.), 861 F.2d 1012, 1017 (7th Cir. 1988) (" A proceeding under section 363 is an in rem proceeding. It transfers property rights and property rights are rights good against the world, not just against parties to a judgment or persons with notice of the proceeding.").
The policy behind the finality of section 363 sales supports this treatment of sale orders. As recognized by the Seventh Circuit, " the importance of finality in judicial sales in bankruptcy" is a " highly relevant concern." Met-L-Wood Corp., 861 F.2d at 1018.
[I]f parties are to be encouraged to bid at judicial sales there must be stability in such sales and a time must come when a fair bid is accepted and the proceedings are ended." In re Webcor, 392 F.2d [893, 899 (7th Cir. 1968), cert. denied 393 U.S. 837, 89 S.Ct. 113, 21 L.Ed.2d 107(1968)]. This policy of finality protects confirmed sales unless " compelling equities" outweigh the interest in finality.
In re Chung King, Inc., 753 F.2d 547, 550 (7th Cir. 1985); see also Winget v. JP Morgan Chase Bank, 537 F.3d 565, 579 (6th Cir. 2008)(" A sale order signals an end to litigation in a bankruptcy proceeding . . . . If sale orders were not final, parties could continue to litigate issues regarding the assets long after their sale, which is certainly an outcome worth prohibiting."); In re Transcon. Energy Corp., 683 F.2d 326, 328 (9th Cir. 1982) (" Because of the great interest in the finality of judicial sales, the standard for setting aside a confirmed sale is stricter than the standard for rejecting a proposed sale."); Taylor v. Lake (In re Cada Investments, Inc.), 664 F.2d 1158, 1162 (9th Cir. 1981) (" the policy of finality normally protects confirmed sales from orders to set aside").
Other than appealing the sale order, the appropriate method to attack a court-approved sale is by a motion to vacate the sale order under FRCP 60(b), made applicable by Rule 9024. See, e.g., Lange v. Schropp (In re Brook Valley VII Jt. Venture), 496 F.3d 892, 899 (8th Cir. 2007)(FRCP 60(b) governs the ability to obtain relief from a sale order, which is a final judgment); Valley Nat'l Bank of Ariz. v. Needler (In re Grantham Bros.), 922 F.2d 1438, 1442 (9th Cir. 1991)(affirming order imposing Rule 11 sanctions against debtor's counsel because debtor's counsel collaterally attacked a sale order and did not seek " any review, reconsideration, or stay of the bankruptcy court's order"); Newman Grill Sys., LLC v. Ducane Gas Grills (In re Ducane Gas Grills), 320 B.R. 324, 333 (Bankr. D.S.C. 2004) (individual may challenge order authorizing sale of estate assets by either (1) objecting to proposed sale and then appealing the sale order, or (2) attacking the order pursuant to FRCP 60(b)).
The bankruptcy court initially approved the 1/2 Acre Parcel Agreement on July 5, 2005, over BG Plaza LLC's objection. BG Plaza LLC did not appeal the July 2005 Sale Order, and the time for appeal has passed. On November 1, 2005, over BG Plaza LLC's objection, the bankruptcy court approved an amended sale order based on Addendum B, which changed, in part, the 1/2 Acre Parcel Agreement. BG Plaza LLC sought reconsideration of the November 2005 Sale Order, which the bankruptcy court denied. BG Plaza LLC did not appeal the November 2005 Sale Order or the Order denying reconsideration. These orders are final.
BG Plaza LLC argues that it did not appeal the two sale orders because it did not know of the Reciprocal Easement Agreement until after the orders were entered. Nonetheless, rather than seek relief in the bankruptcy court by way of a FRCP 60(b) motion, BG Plaza LLC filed suit in state court, claiming that it was denied its RFR because Jessen and the Debtor failed to provide notice of all of the terms of the sale. " Even though an action has an independent purpose and contemplates some other relief, it is a collateral attack if it must in some fashion overrule a previous judgment." Miller v. Meinhard-Commercial Corp., 462 F.2d 358, 360 (5th Cir. 1972) (citing Mitchell v. Village Creek Drainage Dist., 158 F.2d 475, 478 (8th Cir. 1946)); Ducane Gas Grills, 320 B.R. at 333 (holding that a suit for specific performance represented " an improperly disguised collateral attack" on an order approving the sale of the debtor's assets free and clear of all liens, claims, encumbrances and other interests under section 363(b)).
Among other relief requested in its State Court lawsuit, BG Plaza LLC sought specific performance entitling it to exercise its RFR. However, the relief requested by BG Plaza LLC would have had the effect of overruling the July and November 2005 Sale Orders, approving the sale of the 1/2 Acre Parcel free and clear of BG Plaza LLC's RFR in accordance with section 363. Thus, BG Plaza LLC was impermissibly attacking the section 363 sale of the 1/2 Acre Parcel by way of the State Court lawsuit.
We agree with the bankruptcy court's conclusion that there are no issues of material fact regarding the nature of the State Court lawsuit and the procedural posture of the section 363 proceedings in the Debtor's bankruptcy case. Because the July and November 2005 Sale Orders were not appealed and remain valid, and because BG Plaza LLC did not pursue relief in the bankruptcy court pursuant to FRCP 60(b), summary judgment was properly granted for Jessen as a matter of law. The July and November 2005 Sale Orders are final orders good against the world, and they may not be collaterally attacked in the State Court action.
D. FRCP 59(e) and the Summary Judgment Order
Following the bankruptcy court's entry of the Summary Judgment Order, BG Plaza LLC filed a motion to alter or amend the order under FRCP 59(e).
Although FRCP 59(e) permits a court to reconsider and amend a previous order, " the rule offers an extraordinary remedy, to be used sparingly in the interests of finality and conservation of judicial resources." Kona Enters., Inc. v. Bishop, 229 F.3d 877, 890 (9th Cir. 2000)(internal citations omitted). A motion for reconsideration should not be granted, absent highly unusual circumstances, unless the court is presented with newly discovered evidence, committed clear error, or if there is an intervening change in the controlling law. Id . " A Rule 59(e) motion may not be used to raise arguments or present evidence for the first time when they could reasonably have been raised earlier in the litigation." Id . (emphasis in original).
Here, in its motion to alter or amend the Summary Judgment Order, BG Plaza LLC did not present newly discovered evidence, nor assert any intervening change in the controlling law. Instead, BG Plaza LLC contended, for the first time, that its litigation in the State Court was appropriate based on the provisions set forth in FRCP 60(d). In addition, BG Plaza LLC contended that the bankruptcy court should have treated its action in the State Court as a motion under FRCP 60(b) and ruled " on the substance of that request."
FRCP 60(b) used to provide: " This rule does not limit the power of a court to entertain an independent action to relieve a party from a judgment, order, or proceeding . . . or to set aside a judgment for fraud upon the court." Effective December 1, 2007, these provisions were relocated to FRCP 60(d)(1) and (3).
With respect to BG Plaza LLC's FRCP 60(d) argument, the bankruptcy court appropriately denied BG Plaza's motion to alter or amend the Summary Judgment Order on the basis that BG Plaza LLC did not refer to the provisions in FRCP 60(d) before the bankruptcy court ruled on the Jessen Estate's summary judgment motion.
As concerns BG Plaza LLC's FRCP 60(b) argument, BG Plaza LLC has provided no support for its position that its action in State Court, i.e., seeking specific performance of the RFR, should or could be characterized as a FRCP 60(b) motion. Contrary to BG Plaza LLC's position, a motion brought under FRCP 60(b) must be filed in the court and in the action in which the original order or judgment was entered. Bankers Mortg. Co. v. United States, 423 F.2d 73, 78 (5th Cir. 1970), cert denied, 399 U.S. 927, 90 S.Ct. 2242, 26 L.Ed.2d 793 (1970); Taft v. Donellan Jerome, Inc., 407 F.2d 807, 809 (7th Cir. 1969); Porcelli v. Joseph Schlitz Brewing Co., 78 F.R.D. 499, 500 (E.D. Wis. 1978), aff'd, 588 F.2d 838 (7th Cir. 1978).
Furthermore, BG Plaza LLC's arguments that it was entitled to specific performance were not presented to the bankruptcy court until more than one year after the entry of the November 2005 Sale Order. As a result, even if BG Plaza's opposition to the summary judgment motion is characterized as a request for relief from the July and November 2005 Sale Orders, BG Plaza LLC failed to act timely under FRCP 60(c)(1). Therefore, BG Plaza LLC may not receive relief from the sale orders pursuant to FRCP 60(b)(2) or (3). Kathe v. United States, 284 F.2d 713, 715 (9th Cir. 1960); see also, Wright, Miller & Kane, 11 Fed. Prac. & Proc. Civ.2d § 2866 (2008).
A motion under FRCP 60(b) " must be made within a reasonable amount of time." FRCP 60(c). If the motion is based on newly discovered evidence, or fraud, misrepresentation, or misconduct by the opposing party, it must be made no more than one year after the entry of the final judgment or order at issue. FRCP 60(c)(1).
Lastly, as discussed at length above, because BG Plaza LLC did not exercise its RFR in May 2005, and did not properly exercise its RFR in October 2005, BG Plaza LLC was not entitled to notice of the draft Reciprocal Easement Agreement. That agreement did not change the terms to the sale of the 1/2 Acre Parcel, but simply satisfied a condition to the sale. Consequently, in accordance with the standards set forth in FRCP 60(b), BG Plaza LLC was not entitled to relief from the July and November 2005 Sale Orders, and the bankruptcy court did not abuse its discretion when it denied BG Plaza LLC's motion to alter or amend the Summary Judgment Order.
In pertinent part, FRCP 60(b) states, " [o]n motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding for the following reasons: . . . (2) newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under [FRCP] 59(b); [and](3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party."
VI. CONCLUSION
The bankruptcy court had jurisdiction on two independent grounds. First, the bankruptcy court had ancillary jurisdiction to interpret and effectuate its July and November 2005 Sale Orders. Second, the State Court's referral of BG Plaza LLC's request for specific performance to the bankruptcy court, so the bankruptcy court could interpret and effectuate the July and November 2005 Sale Orders, commenced a " civil proceeding[Ballot box] arising under title 11" within the meaning of 28 U.S.C. § 1334(b). Moreover, the bankruptcy court properly held that BG Plaza LLC could not collaterally attack the sale of the 1/2 Acre Parcel, free and clear of BG Plaza LLC's RFR, by pursuing specific performance of the RFR in state court. Lastly, the bankruptcy court did not abuse its discretion when it denied BG Plaza LLC's motion to alter or amend the Summary Judgment Order.
The summary judgment of the bankruptcy court is AFFIRMED.