in re Lawrence Paul Federico, No. 2:2008cv02182 - Document 24 (E.D. Cal. 2009)
Court Description: ORDER AFFIRMING DECISION OF BANKRUPTCY COURT signed by Judge John A. Mendez on 9/4/2009. Civil Case Terminated. CASE CLOSED. (Matson, R)
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1 2 3 4 5 6 7 IN THE UNITED STATES DISTRICT COURT 8 FOR THE EASTERN DISTRICT OF CALIFORNIA 9 10 No. 2:08-cv-2182-JAM In re: 11 12 13 14 Bankruptcy No. 07-21245-B-7 LAWRENCE PAUL FEDERICO, fdba Fargo Construction, fdba Construction Offices, fdba Specialty Equipment, fdba D & L Fargo, ORDER AFFIRMING DECISION OF BANKRUPTCY COURT Debtor. 15 16 17 18 BRIAN FEDERICO, WILLIAM FEDERICO, DOUGLAS BROWN, and TERRI BROWN, 19 Appellants, 20 v. 21 22 23 24 25 MICHAEL D. MCGRANAHAN, Appellee. ______________________________/ Brian Federico, William Federico, Douglas Brown, and Terri Brown (collectively, Appellants ) appeal the Bankruptcy Court s 26 September 5, 2008 Order Denying Appellants Motion to Set Aside 27 28 Order and Judgment as Void pursuant to 28 U.S.C. § 158(a). 1 1 2 Michael D. McGranahan ( Appellee ) opposes. For the reasons stated below, the decision of the Bankruptcy Court is AFFIRMED. 3 BACKGROUND 4 5 Appellee, as Chapter 7 trustee of Lawrence Paul Federico s 6 ( Debtor s ) bankruptcy estate, filed a motion in the Bankruptcy 7 Court to sell certain property that was housed in a storage yard 8 leased to Debtor (the Property ) free and clear of liens on 9 October 1, 2007. On October 16, 2007, Brian Federico filed a 10 11 written opposition, arguing that the Bankruptcy Court needed to 12 have an adversary proceeding to first determine whether the 13 Property belonged to the bankruptcy estate. 14 declaration, Brian Federico stated, I am the owner of most of In a supporting 15 the personal property which is the subject of the [motion] ¦I 16 17 have certificates of ownership ( pink slips ) for most of the 18 vehicles which are the subject of the Motion and many of the 19 certificates show me as the registered owner. 20 in 2002, Debtor owed him $200,000 and gave him most of the He stated that 21 Property to satisfy the debt. He stated that the Debtor did not 22 have any ownership interest in the Property. Besides Brian 23 24 Federico s declaration, no other evidence or opposition was 25 filed. 26 A hearing was set for October 30, 2007. On October 29, 2007, the Bankruptcy Court issued a 27 tentative ruling denying the motion to sell because Appellee had 28 failed to establish that the Property belonged to the bankruptcy 2 1 2 estate. Later that day, Appellee and Brian Federico stipulated to continue the motion until November 14, 2007. Both Appellee 3 and Brian Federico appeared at the hearing scheduled for October 4 5 30, 2007. The Bankruptcy Court ordered that the motion be 6 continued until November 14, 2007. 7 be filed no later than November 7, 2007. 8 Supplemental evidence was to On November 7, 2007, Appellee filed supplemental evidence, 9 including 106 pages of vehicle registration inquiry reports. 10 11 Brian Federico did not file any supplemental evidence. On 12 November 14, 2007, after a hearing at which both Appellee and 13 Brian Federico appeared, the Bankruptcy Court granted Appellee s 14 Motion to sell the Property with the exception of three vehicles 15 that Appellee had determined did not belong to the Debtor s 16 17 bankruptcy estate. Furthermore, Appellee noted that the Debtor 18 had not disclosed that he was holding any property for others in 19 his bankruptcy schedule. 20 Property free and clear of the interest, if any, of Brian Appellee was permitted to sell the 21 Federico. However, his interest would attach to the proceeds of 22 the sale. 23 24 The Bankruptcy Court s order approving the sale was entered 25 on November 26, 2007. The order was not appealed and became 26 final on December 6, 2007. A sale of some or all of the 27 Property occurred on or around January 19, 2008. 28 3 1 2 On June 30, 2008, Appellants filed a motion in the Bankruptcy Court to set aside the sale order as void pursuant to 3 Rule 60(b)(4). The Bankruptcy Court denied the motion. 4 5 6 Appellants now appeal the decision in this Court pursuant to 28 U.S.C. § 158(a). 7 OPINION 8 Rule 60(b)(4), as incorporated by Fed. R. Bankr. P. 9024, 9 allows a court to relieve a party or its legal representative 10 11 from a final judgment, order, or proceeding for the following 12 reasons: ¦(4) the judgment is void; ¦. 13 a Rule 60(b) motion is reviewed for abuse of discretion. 14 A trial court s denial of In re Burley, 738 F.2d 981, 988 (9th Cir. 1984). 15 A final judgment is void for purposes of Rule 60(b)(4) 16 17 only if the court that considered it lacked jurisdiction, either 18 as to the subject matter of the dispute or over the parties to 19 be bound, or acted in a manner inconsistent with due process of 20 law. United States v. Berke, 170 F.3d 882, 883 (9th Cir. 1999) 21 (internal citations omitted). A judgment is not void merely 22 23 24 because it is erroneous. Id. Appellants argue that the Sale Order was void because the 25 Bankruptcy Court issued it without an adversary proceeding 26 pursuant Rule 7001 of the Federal Rules of Bankruptcy Procedure. 27 Rule 7001 states that an adversary proceeding is required to 28 determine the validity, priority, or extent of a lien or other 4 1 2 interest in property, other than a proceeding under Rule 4003(d) ¦. However, 11 U.S.C. § 363(f)(4) states that the 3 trustee may sell property under subsection (b) or (c) of this 4 5 section free and clear of any interest in such property of an 6 entity other than the estate, only if: ¦ (4) such interest is in 7 bona fide dispute, ¦. 8 The purpose of § 363(f)(4) is to permit property of the estate to be sold free and clear of interests 9 that are disputed by the representative of the estate so that 10 11 liquidation of the estate s assets need not be delayed while 12 such disputes are being litigated. Moldo v. Clark (In re 13 Clark), 266 B.R. 163, 171 (9th Cir. BAP 2001). 14 proceeds of sale are held subject to the disputed interest and Typically, the 15 then distributed as dictated by the resolution of the dispute; 16 17 such procedure preserves all parties rights by simply 18 transferring interests from property to dollars that represent 19 its value. 20 Id. Appellants argue that their interest in the Property was 21 not in bona fide dispute, which would allow the trustee to sell 22 the Property and divide the proceeds amongst the claimants 23 24 later. Rather, they argue that they owned the Property outright 25 and that Debtor had no interest in any of it. 26 Appellants argue, Appellee had no authority to sell the Property Therefore, 27 under 11 U.S.C. § 363(f)(4). Selling the Property without an 28 5 1 2 adversary process violated their due process rights, rendering the sale order void. 3 The statement that Debtor had no interest in the Property 4 5 lacks sufficient evidentiary support. The Property was on a 6 storage lot leased by Debtor. 7 majority of the Property was registered to debtor. 8 A title search showed that the Appellants only produced a self-serving declaration to support the claim 9 that Debtor had no interest in the Property and that it in fact 10 11 belonged to them. Similarly, Appellants claim that they were 12 denied due process is not borne out by the facts. The 13 Bankruptcy Court allowed Appellants time to produce supplemental 14 evidence establishing ownership. Furthermore, Appellants were 15 afforded the opportunity to appeal the Sale Order of which they 16 17 18 did not avail themselves. Appellants mistakenly rely on Fed. R. Bankr. P. 7001 in 19 stating that an adversary proceeding was required. In 20 authorizing the sale, the Bankruptcy Court was not determining 21 the issue of Appellants interest in the Property. The Court 22 left that issue for the date on which the proceeds from the sale 23 24 would be determined. Rather, the Bankruptcy Court, based on 25 substantial evidence, found that the Debtor shared an interest 26 in the Property with his creditors, including Appellants. 27 Accordingly, the Court finds that Appellants Due Process Rights 28 were not violated. 6 1 2 ORDER For the reasons stated above, the order of the Bankruptcy 3 Court is AFFIRMED. Any request for attorneys fees may be filed 4 5 as a separate motion. 6 7 8 IT IS SO ORDERED. _____________________________ JOHN A. MENDEZ, UNITED STATES DISTRICT JUDGE Dated: September 4, 2009 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7
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