Unpublished Disposition, 893 F.2d 1338 (9th Cir. 1988)

MEMORANDUM^* 

The Millers ("Debtors") seek reversal of an order of the Bankruptcy Appellate Panel ("BAP") denying the Debtors' Ex Parte Motion for Order Setting Aside Default Order and dismissing as moot the Debtors' appeal of the dismissal of their Chapter 11 petition. The Debtors base their appeal on two arguments: (1) the BAP erred in denying the Debtors' Rule 60(b) motion to set aside the default judgment; and (2) the BAP erred in dismissing the Debtors' appeal of the bankruptcy court's order dismissing their Chapter 11 case on the grounds of mootness. We affirm the BAP's order dismissing the Debtors' appeal insofar as it relates to the automatic stay and the sale of the property, due to the mootness of that issue, and we remand to the BAP the issues of timeliness of the Debtors' appeal to the BAP and whether dismissal of the Debtors' Chapter 11 petition for lack of prosecution of their earlier Chapter 13 petition was proper.

STATEMENT OF FACTS

The Debtors filed a Chapter 11 petition on June 12, 1986. On March 9, 1987, the U.S. Trustee filed a motion to dismiss the Chapter 11 case or, alternatively, to convert it to a Chapter 7 case. On March 31, 1987, Lincoln Title Company ("Lincoln") filed a motion to join in the motion to dismiss and its own motion for dismissal. Lincoln based its motion to dismiss on the Debtors' previous Chapter 13 case that was dismissed for failure to prosecute.¹  Lincoln asked the court to take judicial notice of the fact that the Chapter 13 was dismissed pursuant to section 109(g) (1) of the Bankruptcy Code.²  On May 12, 1987, the bankruptcy court dismissed the Debtors' Chapter 11 case based on the Debtors' ineligibility to file the Chapter 11 case under section 109(g) (1). The order of dismissal was entered on May 15, 1987, and the Debtors filed their notice of appeal to the BAP on May 28, 1987, two days after the ten-day deadline prescribed by Bankruptcy Rule 8002. The respondent objected on the ground that the appeal was untimely and the BAP filed a conditional order of dismissal on July 22, 1987, inviting the Debtors to file a written explanation showing legal cause why the appeal should not be dismissed. On July 23, 1987, the Debtors filed a motion in opposition to the respondent's objection. On September 9, 1987, the BAP issued an order denying the motion to dismiss. The order did not specify the BAP's reasons for denial.

While the Chapter 11 case was pending, Creditway of America ("Creditway") filed a motion for relief from the automatic stay. On September 17, 1986, the bankruptcy court entered an order modifying the automatic stay. This order denied Creditway's motion to lift the stay subject to the following conditions to be performed by the Debtors: (1) Submission of proof of insurance on the subject property; (2) filing of schedules and statements by August 27, 1986; and (3) filing of a plan and disclosure statement on or before September 29, 1986. The order also stated that if the Debtors failed to perform any of these conditions, Creditway could file a declaration of default or order for relief from stay.

The Debtors complied with the first two requirements, but did not file a plan and disclosure statement by the prescribed deadline. However, the Debtors delivered a request for an extension of time to the trustee on September 26, 1986. The Trustee filed the request on September 30, 1986. On October 9, 1986, Creditway filed a document styled, "Declaration of Jeffrey A. Paris and Order Terminating Automatic Stay," based on the Debtors' noncompliance with the order to file a plan and disclosure statement by September 29. The Debtors claim to have received this declaration/order on October 20, 1986. On October 24, 1986, the court granted the Debtors' request for an extension of time to file the plan and disclosure statement until October 27, 1986. On November 24, 1986, Judge Fenning signed Creditway's proposed order terminating the automatic stay, and on December 16, 1986, entered a default order terminating the stay. The Debtors allege that neither the court nor Creditway provided them with a copy of any signed order. The Debtors did not appeal the November or December order.

On January 7, 1987, Creditway conducted a Trustee's Sale of the property. The property was purchased by an independent third party. The Debtors then filed numerous papers in the state courts as well as the bankruptcy court seeking to set aside the sale. All actions were unsuccessful. In the meantime, the municipal court granted a Writ of Execution, Money Judgment for and Writ of Possession of Real Property on the foreclosed property.

On July 27, 1987, the bankruptcy court declined to hear the Debtors' Complaint to Invalidate Sale of Real Property filed June 1, 1987, due to lack of subject matter jurisdiction since the bankruptcy case had been dismissed. The Debtors then filed with the BAP, on December 2, 1987, an ex parte motion to set aside the default order under Rule 60(b). The BAP denied the Debtors' motion and dismissed their appeal as moot on January 11, 1988. The panel clarified this order at the request of the Debtors on March 11, 1988, and explained that because the order lifting the automatic stay was never appealed and the property was subsequently sold, the appeal was rendered moot. Debtors then filed a notice of appeal to the Ninth Circuit on February 10, 1988.

ANALYSIS

The court of appeals reviews a decision of the BAP de novo. Both the court of appeals and the BAP apply the same standard of review to the bankruptcy court judgment, reviewing findings of fact under the clearly erroneous standard and questions of law de novo. See In re Burley, 738 F.2d 981 (9th Cir. 1984).

I. The Automatic Stay.

We affirm the order of the BAP denying the Debtors' Rule 60(b) motion and dismissing their appeal insofar as it affects the automatic stay. The issue of the automatic stay and the sale of the Debtors' residence has been rendered moot by the sale of the property to an independent third party.

This circuit has held that where a stay pending appeal is not requested or is not granted, a party risks losing its ability to realize the benefit of a successful appeal. See In re Combined Metals Reduction Co., 557 F.2d 179 (9th Cir. 1977); In re Sun Valley Ranches, Inc., 823 F.2d 1373, 1374 (9th Cir. 1987) ("We have generally held that where an automatic stay is lifted, the debtor's failure to obtain a stay pending appeal renders an appeal moot after assets in which the creditor had an interest are sold."). Where the property has been sold to an independent third party, this circuit has held that the appeal is moot, because the court cannot grant effective relief, at least in the absence of the third party. See In re Royal Properties, Inc., 621 F.2d 984, 987 (9th Cir. 1980) ("Once the orders have been performed, an appeal attacking the order is moot. Nor may the appellants attack the validity of the sale or the deed in this appeal. The purchasers of the property have not been made parties to the appeal, and we cannot grant effective relief in their absence.").

In the instant case, the default order was not appealed and a stay was not requested. The Debtors claim that they did not appeal because they were not served with the signed default order within the time period for appeal. Nonetheless, because the subject property was sold to an independent third party pursuant to a bankruptcy court order, we cannot grant effective relief in a proceeding to which the purchaser is not a party. Thus, we affirm the BAP's denial of the Debtors' Rule 60(b) motion and its order dismissing the Debtors' appeal insofar as it affects the automatic stay.

II. Dismissal of the Debtors' Chapter 11 Petition

The BAP dismissed the Debtors' appeal of the order dismissing their Chapter 11 case based on the sale of the Debtors' residence rendering the appeal moot. However, it appears that the BAP mistakenly believed that the only property involved in the Debtors' Chapter 11 case was the Debtors' residence. Because other property appears to be involved, we reverse the BAP's dismissal. On remand, the BAP should determine whether the Chapter 11 case involved other property.

B. Dismissal Under 11 U.S.C. § 109(g) (1).

The bankruptcy court dismissed the Debtors' Chapter 11 petition under section 109(g) (1). This section bars an individual who was a debtor in a previous Title 11 case pending in the preceding 180 days from being a debtor under Title 11 if the previous case was dismissed "for willful failure to abide by orders of the court, or to appear before the court in proper prosecution." The Debtors' earlier Chapter 13 case was dismissed for "failure to prosecute" and their subsequent Chapter 11 petition was filed within 180 days of that dismissal. The appellees argue that the dismissal for lack of prosecution of the Chapter 13 proceeding acts as a bar to the Debtors' Chapter 11 filing. The appellants vigorously disagree, arguing that the Chapter 13 dismissal was not based on a willful failure to prosecute and that since section 109(g) (1) requires the element of willfulness, they are not barred from filing the Chapter 11 petition. The BAP did not consider this issue because it dismissed the appeal as moot. Thus, on remand if the BAP concludes that the appeal is timely (see section C infra) and that property other than the house is involved, it should also consider the issue of whether the dismissal of the Debtors' Chapter 13 case for failure to prosecute served to trigger the 180-day filing bar of section 109(g) (1).

C. Timeliness of the Appeal to the BAP.

The untimely filing of a notice of appeal is jurisdictional. In re Nucorp Energy, Inc., 812 F.2d 582 (9th Cir. 1987). However, Bankruptcy Rule 8002 avoids potential hardship by allowing deadline extensions. If a party does not file the notice of appeal or an extension within the ten-day filing period, he may still receive an extension upon request within twenty days of the deadline if he can show "excusable neglect." 11 U.S.C. § 8002(c). The Debtors did not actually request an extension of time to file the appeal before the BAP and the BAP order did not indicate whether or not the Debtors had shown excusable neglect. Thus, on remand the BAP should reconsider the issue of the timeliness of the Debtors' appeal or provide an explanation of the basis for its earlier determination.

AFFIRMED in part, REVERSED in part, and REMANDED for further proceedings consistent with this disposition.