IN RE: Waukeen Q. McCoy,

Filing 11


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1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 9 IN RE WAUKEEN Q. MCCOY No. C 16-04079 WHA Br. No. 14-30381 HLB 11 For the Northern District of California United States District Court 10 12 ORDER AFFIRMING DECISION OF BANKRUPTCY COURT RE SPECIAL DEAL FOR DEBTOR WAUKEEN MCCOY 13 14 / 15 16 INTRODUCTION 17 This is an appeal from the bankruptcy court’s orders (1) approving a sale of the estate’s 18 interest in real property, and (2) granting in part and denying in part debtor’s motion for 19 reconsideration. The bankruptcy court’s decision as to both orders is AFFIRMED. 20 STATEMENT 21 In March 2014, debtor and appellant Waukeen McCoy filed for Chapter 13 bankruptcy. 22 At the time, he resided at and held in joint tenancy real property located on Clayton Street in 23 San Francisco. In June 2014, McCoy successfully moved to convert his bankruptcy case to 24 Chapter 11. In April 2015, the Trustee successfully moved to convert the case to Chapter 7. 25 1. 26 TRUSTEE’S MOTION TO SELL. In March 2016 and after “nearly six month[s] of marketing efforts,” the Trustee moved 27 to sell the subject property — with the co-owner’s consent — to prospective purchasers for $2.2 28 million, free and clear of all liens and subject to overbid. Any overbid had to be at least $2.225 1 million. The Trustee asked Bankruptcy Judge Hannah Blumenstiel to authorize use of the sale 2 proceeds to, among other things, pay a five percent commission, or $110,000, to be divided 3 equally between Mark Benson, the Trustee’s broker, and Gavin Stuart, the prospective 4 purchasers’ broker. The Trustee also asked Judge Blumenstiel to require McCoy to vacate the 5 premises by the time the sale closed. 6 McCoy opposed the Trustee’s motion to sell. The Trustee’s reply, however, revealed 7 that McCoy had actually participated in the overbid procedure, with some modifications. 8 Specifically, McCoy had overbid to purchase only the estate’s 50 percent interest in the subject 9 property for $210,500, “an amount calculated to provide the estate with the equivalent cash proceeds . . . that would have been generated if the Property was sold for the minimum overbid 11 For the Northern District of California United States District Court 10 price of $2.25M [sic],” and “subject to all liens and encumbrances (rather than free and clear of 12 all liens)” (Dkt. No. 3-35 at 2). There had been no other overbids, and the prospective 13 purchasers declined to participate in an auction to bid against McCoy’s overbid. The Trustee 14 therefore intended to seek Judge Blumenstiel’s approval to instead sell the estate’s 50 percent 15 interest in the subject property to McCoy, as McCoy wished, with the prospective purchasers as 16 backup buyers in case McCoy failed to perform.1 17 Prior to the hearing on his overbid, McCoy had signed a draft purchase and sale 18 agreement that provided for a purchase price of “no less than $210,500” (Dkt. No. 3-35 at 33). 19 That agreement remained in draft form pending the anticipated auction on McCoy’s overbid, 20 which might have raised the final purchase price (see Dkt. No. 3-50 at 21, 24). As stated, 21 however, no auction took place because no one bid against McCoy’s overbid. 22 The prospective purchasers objected to McCoy’s overbid. They protested that McCoy 23 had not satisfied the overbid requirements because he did not offer at least $2.225 million to 24 purchase the entire subject property free and clear of liens. Moreover, they criticized the plan 25 to accept McCoy’s overbid because it would not pay the creditors whose liens were tied up in 26 27 28 1 The Trustee’s reply also noted that “[t]he $2.2M purchase price [was] an accurate reflection of the fair market value of the Property as no other buyer [had] come forward to present an overbid,” and “the Trustee’s broker marketed the Property for over six months before [the prospective purchasers] presented their offer of $2.2M” (Dkt. No. 3-35 at 5–6). 2 1 the subject property. They further criticized McCoy’s overbid on the basis that, while Benson 2 (the Trustee’s broker) would still be paid for his efforts no matter what, Stuart (the prospective 3 purchasers’ broker) would receive no compensation for his work if Judge Blumenstiel approved 4 McCoy’s overbid. Finally, the prospective purchasers refused to act as backup buyers in case 5 McCoy’s overbid fell through. 6 At the hearing on the Trustee’s motion to sell, Judge Blumenstiel asked McCoy if he 7 was “prepared to proceed with the transaction on the terms that [were] recently proposed.” 8 McCoy confirmed that he was (Dkt. No. 3-42 at 3:3–4:6). Judge Blumenstiel therefore 9 indicated she would grant the Trustee’s motion and approve “the overbid sale of the estate’s interests to the debtor on the terms recently proposed by the trustee” (id. at 4:13–4:16). McCoy 11 For the Northern District of California United States District Court 10 assured Judge Blumenstiel that he would be able to hold up his end of the deal but added, “I 12 don’t think I should pay for the broker’s fee because there’s no sale” (id. at 5:17–5:20). The 13 Trustee (through her attorney) then confirmed her intent “to pay Mr. Benson, who is the 14 trustee’s broker, without whose efforts this overbid would never have taken place.” Judge 15 Blumenstiel replied, “I have no problem with that either” (id. at 6:9–6:12). 16 A written order issued on April 25, 2016, overruling the prospective purchasers’ 17 objection and approving the Trustee’s sale of the estate’s 50 percent interest in the subject 18 property to McCoy for $210,500, subject to all liens and encumbrances. The order observed 19 that McCoy’s overbid was “the highest and best offer presented and resulted in more 20 consideration to the estate than [the prospective purchasers’] offer” (Dkt. No. 3-38 at 2). The 21 order also authorized the Trustee to pay Benson $55,000 for his broker’s commission. 22 2. 23 MCCOY’S MOTION FOR RECONSIDERATION. McCoy paid the Trustee (see Dkt. No. 3-54 at 4:8–4:14) but also moved for 24 reconsideration of the order approving the sale, claiming he had actually agreed to purchase the 25 estate’s 50 percent interest in the subject property for only $175,000. He argued that Judge 26 Blumenstiel had improperly conflated the purchase price with Benson’s broker’s commission of 27 $55,000, which McCoy contended he should not have to pay because it would be exorbitant 28 3 1 given his accepted overbid. Significantly, McCoy did not seek to undo the sale, but rather 2 demanded that the Trustee return $55,000 of the purchase price to him.2 3 McCoy apparently pulled the figure of $175,000 from a letter he had written to the 4 Trustee on April 2, 2016, wherein he offered that sum in exchange for the Trustee abandoning 5 the subject property (Dkt. No. 3-49 at 12–14). The Trustee had rejected that offer in a reply 6 letter on April 6, 2016, stating (id. at 16 (footnote omitted)): 7 The Trustee cannot seek to abandon the Clayton Property in light of the pending sale motion but is willing to allow you to participate in the overbid procedures outlined in the sale motion, with some modifications that would allow you to bid only on the estate’s 50% interest in the property, subject to all liens. 8 9 As you know, the minimum overbid for the property is $2.25 [sic] million. A sale at that price would generate net proceeds to the estate in the approximate amount of $155,500 after payment of the brokers’ commission due to the Trustee’s real estate broker and the buyer’s broker. Without the Trustee’s broker’s efforts, we would not have been able to procure a buyer for the Clayton Property and for that reason, the amount of the overbid must also include the $55,000 sales commission that would otherwise be payable to the Trustee’s broker. Therefore, the amount of your minimum overbid to acquire the estate’s 50% interest in the property, subject to all liens, is approximately $210,500. 11 For the Northern District of California United States District Court 10 12 13 14 15 16 17 On April 11, 2016, and as part of a series of email exchanges hashing out details of the modified overbid procedure, McCoy emailed the Trustee (Dkt. No. 3-50 at 13): 18 Also, in your most recent correspondence you indicated that the broker’s fee would be included in the purchase of my 50% interest even though no “sale” would occur if I am the highest bidder. Can you explain why this condition has been added to my purchasing 50% when the house will not be sold free and clear of the liens? Although Mr. Benson secured the buyers in contract, they may not end of [sic] purchasing the property. 19 20 21 22 The next day, the Trustee replied, “Mr. Benson will be paid a commission from the disposition 23 of the property because the overbid process would not have been made possible without his 24 efforts” (id. at 15). McCoy did not further argue the point until the hearing on the Trustee’s 25 26 27 28 2 The calculations in McCoy’s motion are clearly erroneous. At one point, for example, he claimed he bought the estate’s 50 percent interest in the subject property for $175,000, Benson’s commission was $55,000, and Judge Blumenstiel approved a purchase price of $210,000 (Dkt. No. 3-39 at 2). Later on the same page, he correctly identified the purchase price as $210,500. His theory seemed to be that Judge Blumenstiel erroneously added $55,000 to $175,000 to arrive at either $210,000 or $210,500 (see id. at 2–3; Dkt. No. 3-43 at 4), but $175,000 plus $55,000 actually equals $230,000. 4 1 motion to sell, when he commented, “I don’t think I should pay for the broker’s fee because 2 there’s no sale” (Dkt. No. 3-42 at 5:17–5:20). Nor did McCoy otherwise indicate that his 3 continued participation in the overbid procedure depended in any way on the Trustee ultimately 4 reducing or eliminating Benson’s expected commission. 5 The Trustee opposed McCoy’s motion for reconsideration, unequivocally stating she 6 had never agreed to sell the estate’s 50 percent interest in the subject property to McCoy for less 7 than $210,500 (Dkt. No. 3-49 at 2). The Trustee also pointed out the inconsistencies in 8 McCoy’s own calculations of the purported true purchase price. 9 In his reply in support of his motion for reconsideration, McCoy shifted ground, changing his version of the true purchase price from $175,000 to $155,500. He claimed that 11 For the Northern District of California United States District Court 10 when the Trustee “wrote that it was her belief that the Estate would obtain a benefit in the 12 amount of $155,500 after payment of the brokers’ commission,” he “understood that [$155,500] 13 was the minimum bid amount” required to purchase the estate’s 50 percent interest in the 14 subject property (Dkt. No. 3-50 at 2). 15 At the hearing on McCoy’s motion for reconsideration, Judge Blumenstiel — referring 16 to the draft purchase and sale agreement McCoy had signed — reminded McCoy that he had 17 agreed to purchase the estate’s 50 percent interest in the subject property for “no less than 18 $210,500” and asked him to explain how he could get around that agreement (Dkt. No. 3-53 at 19 7:11–7:25). McCoy responded that the draft “was not the final agreement,” and that he “had to 20 sign [the draft] in order to participate in the auction” (id. at 8:1–8:4). He did not dispute, 21 however, that the draft purchase and sale agreement accurately represented the actual approved 22 terms of sale. Judge Blumenstiel then asked, “where does this contract say that part of that 23 money is intended as a broker fee?” McCoy admitted the contract contained no such provision 24 but claimed, again shifting ground, that he had paid the purchase price of $210,500 “under 25 protest as to the broker’s fee” in order to save his house (id. at 9:3–10:11). 26 Judge Blumenstiel indicated that McCoy would have to “live with” the promise he 27 made, but that Benson would likewise have to live with his own commission contract to receive 28 only “five percent of the selling price.” Judge Blumenstiel also commented, “it’s not like this 5 1 difference [in commission] would be going back to [McCoy]. It would be going to pay 2 creditors” (id. at 16:3–16:22). She concluded (id. at 19:14–20:20): 3 [The sale] contract clearly sets forth the purchase price as $210,500 and doesn’t differentiate between the amount that was paid for the real property and an amount . . . earmarked for Mr. Benson. So I find and conclude that the Debtor agreed to pay $210,500, and so I’m going to deny the motion to the extent it requests . . . a finding that what Mr. McCoy paid for the property was $155,000. It’s simply not supported by the evidentiary record. 4 5 6 7 The calculation of the commission that the estate ultimately intended or may have already paid to Mr. Benson is another thing entirely. The contract with Mr. Benson indicates that he agreed to accept a five percent commission . . . . Mr. Benson was entitled to a five percent commission calculated on the selling price, which was $210,500. By my calculation, that means he was entitled to a commission of $10,525 . . . . 8 9 11 For the Northern District of California United States District Court 10 The difference remains in the estate because as I originally concluded, the price that Mr. McCoy agreed to pay for this property was $210,500. 12 13 A written order issued on July 8, 2016, granting in part the motion for reconsideration 14 on the basis that, because the purchase price ended up at $210,500, Benson’s commission 15 should have been five percent of $210,500, or $10,525. The order denied the motion for 16 reconsideration in all other respects. 17 18 ANALYSIS The gravamen of McCoy’s position on appeal is that the bankruptcy court should have 19 ordered the Trustee to refund McCoy $44,475 — the difference between Benson’s expected 20 commission of $55,000 and his approved commission of $10,525 — because McCoy 21 supposedly paid the purchase price of $210,500 “under protest” (see Dkt. Nos. 1-3 at 1–3, 3-55 22 at 1–4, 7 at 3). 23 As a preliminary matter, the Trustee urges dismissal of this appeal because McCoy, a 24 trial attorney, failed — twice — to timely file his opening brief. McCoy’s opening brief was 25 originally due on October 27, 2016. On October 31, McCoy belatedly moved to continue that 26 deadline. A prior order granted the motion and continued the due date for the opening brief to 27 November 14. McCoy missed that deadline too and filed his opening brief on November 17. 28 McCoy’s reply brief defends his untimeliness by citing California Rule of Court 8.220 for the 6 1 proposition that, once he missed the deadline for his opening brief, the court clerk had to notify 2 him in writing that he had 15 days to file it (Dkt. No. 9 at 6–7). This is a total non-starter 3 because California Rules of Court have nothing to do with federal practice. As a trial attorney, 4 McCoy surely knows better. The Court agrees that the appeal should be dismissed on this 5 ground but will reach the merits anyway. 6 The bankruptcy court’s rulings on the Trustee’s motion to sell the subject property and 7 McCoy’s motion for reconsideration are both reviewed for abuse of discretion. In re Clark, 266 8 B.R. 163, 168 (B.A.P. 9th Cir. 2001); In re Hansen, 368 B.R. 868, 875 (B.A.P. 9th Cir. 2007) 9 (citing In re Weiner, 161 F.3d 1216, 1217 (9th Cir. 1998)). McCoy has utterly failed to show 11 For the Northern District of California United States District Court 10 the bankruptcy court abused its discretion. First, McCoy cites case law for the proposition that bankruptcy courts can set aside 12 sales on equitable grounds, and argues that he “was in an unfair bargaining position because he 13 would not be able to participate in the bidding process unless he complied with the [Trustee’s] 14 unfair demand” (Dkt. No. 7 at 6–7). To reiterate, McCoy does not seek to set aside the sale. He 15 has no intent to return his 50 percent interest in the subject property acquired through the sale 16 — he rather wants to keep it for a reduced price. 17 Neither McCoy nor the record provides any support for his repeated characterization of 18 Benson’s commission — calculated based on the original $2.2 million deal with the prospective 19 purchasers derailed by McCoy’s overbid — as “exorbitant.” McCoy’s own requested relief on 20 appeal — not a complete excision of Benson’s commission from the purchase price but a mere 21 refund for the difference between Benson’s expected and approved commissions — belies any 22 suggestion that inclusion of the commission in the purchase price is somehow inappropriate. 23 Finally, McCoy’s complaint that not being able to participate in bidding without paying the 24 asking price constitutes an “unfair bargaining position” is baffling. McCoy seems to believe he 25 was somehow entitled to bid on the subject property on his own terms instead of the Trustee’s 26 (see id. at 7 (claiming the Trustee took “unfair advantage” of McCoy by “refusing to allow 27 [him] to bid on his own property without inclusion of the excessive broker’s fees”)). Yet 28 another non-starter. 7 1 Second, and to support his contention that the sale was unfair, McCoy points out that 2 “the Attorney for [the prospective purchasers] reasoned that the overbid procedures [for 3 McCoy] did not comply with the [Trustee’s] noticed procedures for the sale” (ibid.). Counsel 4 for the prospective purchasers made that argument in the context of urging the bankruptcy court 5 to reject McCoy’s overbid because it had not complied with the noticed overbid procedure. 6 McCoy cherry-picks and distorts the prospective purchasers’ argument to suit his purposes but 7 ignores the larger fact that, had they prevailed, the subject property would have sold to them 8 instead of to him. 9 Third, McCoy claims that “[t]here was no contract for the purchase of the [subject] property,” and that the written contract he signed “was for Bidding Purposes Only” (id. at 9). 11 For the Northern District of California United States District Court 10 The bankruptcy court found to the contrary, and its findings of fact are reviewed for clear error. 12 In re Int’l Fibercom, Inc., 503 F.3d 933, 940 (9th Cir. 2007). No such error occurred here. 13 Once the prospective purchasers withdrew as the only other potential buyers, the Trustee 14 clearly communicated to McCoy that the “draft” agreement he had signed would become final 15 upon the bankruptcy court’s approval. The record contains no evidence of any renegotiation 16 thereof, much less evidence of any other “agreement” reached between McCoy and the Trustee. 17 The Trustee flatly denies any other agreement existed. McCoy never memorialized any 18 different “agreement.” He must resort to bald assertion for his only support but, even now, 19 cannot consistently describe the supposedly different “agreement.” For example, he requests 20 only a refund of the difference between Benson’s expected and approved commissions, even 21 though he claims the “real” sale agreement excluded the broker’s commission altogether. And 22 in his opening brief, he reverts to his original position that he should pay only $175,000 — an 23 amount he himself had previously admitted to be erroneous. It would be redundant and 24 wasteful to retrace the many inconsistencies in McCoy’s calculations of what the purchase price 25 was “supposed” to be. The bottom line is that his inability to produce a consistent story further 26 belies his assertion that a different sale agreement existed. 27 28 In his reply brief, McCoy claims the bankruptcy court actually “modif[ied] the Purchase Agreement to reflect that the broker’s fee of $55,000.000 was to be reduced to $10,525.00” 8 1 (Dkt. No. 9 at 6). This is false. The bankruptcy court expressly found that McCoy had agreed 2 to pay $210,500, and that the correct amount of commission under Benson’s contract was 3 “another thing entirely” (Dkt. No. 3-53 at 19:23–19:25). And — in yet another perplexing 4 arithmetic error — McCoy seems to forget that if a five percent commission for Benson 5 amounted to $10,525, then the predicate purchase price must have been $210,500. In short, 6 McCoy’s assertion that the bankruptcy court crafted a new agreement that superseded his 7 agreement with the Trustee is contradicted by both the record and third-grade math. 8 9 Significantly, McCoy never made any serious effort to renegotiate his deal with the Trustee. He never made his overbid contingent on any specific terms, including omission of broker’s fees. Rather — despite complaining about various decisions of the Trustee throughout 11 For the Northern District of California United States District Court 10 the sale process and briefly griping on two occasions about Benson’s commission — McCoy 12 unambiguously agreed to pay the Trustee’s price to retain his home. That price included a cash 13 payment of $210,500 with no delineation for Benson’s commission, whether as-expected or 14 subject to the bankruptcy court’s approval. The purchase price was the purchase price, McCoy 15 agreed to pay it, and his agreement did not hinge on any condition — including the possibility 16 that the bankruptcy court might disapprove of or reduce Benson’s commission. Only after 17 affirming and re-affirming his agreement to the deal, obtaining the Trustee’s consent and the 18 bankruptcy court’s approval, and acquiring the estate’s 50 percent interest in the subject 19 property did McCoy about-face to complain that he paid too much. This order refuses to bless 20 McCoy’s Soviet-style negotiation — “what’s mine is mine and what’s yours is negotiable.” 21 The Trustee and Judge Blumenstiel showed McCoy more leniency than most trustees or 22 bankruptcy judges (or district judges) would have — far more. Allowing McCoy to retain his 23 home required both specially modifying the overbid procedure for him and passing up a chance 24 to sell the subject property free and clear of liens to prospective purchasers prepared to pay $2.2 25 million for it. Having reaped the benefits of his special deal and chased off the prospective 26 purchasers, McCoy now wants to renegotiate the terms of that special deal. The bottom line is 27 that McCoy agreed to those terms and the time has come for him to honor his word. Whether 28 9 1 or not he liked the conditions imposed by the Trustee, the bottom line is that he accepted those 2 conditions. Judge Blumenstiel was within her discretion in insisting that McCoy keep his word. 3 CONCLUSION 4 The bankruptcy court’s decision is AFFIRMED as to both its order approving the 5 Trustee’s motion to sell the estate’s interest in the subject property and its order denying in part 6 McCoy’s motion for reconsideration. Judgment shall follow. 7 8 IT IS SO ORDERED. 9 Dated: March 30, 2017. WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 11 For the Northern District of California United States District Court 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10

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