Trauner v. State Bank and Trust Company
Filing
8
ORDER AND OPINION denying 2 Plaintiff's Motion for Leave to Appeal the Bankruptcy Court's Order. Signed by Judge Julie E. Carnes on 9/22/13. (ddm)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
ROBERT TRAUNER, Chapter 7
Trustee for Solid Rock
Development Corporation, Inc.,
Plaintiff,
CIVIL ACTION NO.
v.
1:12-cv-03761-JEC
STATE BANK AND TRUST COMPANY,
Defendant.
ORDER & OPINION
This case is before the Court on the motion of the bankruptcy
trustee for leave to appeal a bankruptcy court’s order denying his
motion for summary judgment.
The Court has reviewed the record and
the arguments of the parties and, for the reasons set out below,
concludes that the plaintiff’s motion for leave [2] should be DENIED.
BACKGROUND
On September 27, 2012, the bankruptcy court below ruled on
cross-motions for summary judgment filed by the parties presently
before the Court: Trustee Robert Trauner and the State Bank and Trust
(“SB&T”).
[2].)
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(Bankr. Order, attached as Ex. 1 to Pl.’s Mot. for Leave
These cross-motions were filed after the defendant SB&T made
a credit bid1 in a foreclosure sale that included, as part of the bind
amount, statutory attorney fees allowable under Georgia state law,
but in excess of those fees actually incurred by SB&T.
(Id. at 2 &
3.)
The facts of the case are largely undisputed.
On February 3,
2009, the debtor in this action, Solid Rock Development Corporation,
executed
promissory
notes
currently held by SB&T.
secured
(Id. at 2.)
by
a
deed
(the
“property”)
After being granted relief
from the automatic stay,2 SB&T sent a letter to Solid Rock notifying
it that SB&T had accelerated the debt and that if this debt was not
paid within 10 days, SB&T would seek attorney’s fees pursuant to
O.C.G.A. § 13-1-11.
(Id. at 3.)
When the balance was not paid, SB&T conducted a foreclosure sale
1
Credit bidding allows for a creditor with a secured interest
in a property that is the subject of a foreclosure sale to make a bid
at that sale up to the amount of its claim. If the creditor wins the
foreclosure sale, he may offset his claim against the purchase price
of the property. 11 U.S.C. § 363(k); See RadLAX Gateway Hotel, LLC
v. Amalgamated Bank, 132 S. Ct. 2065, 2070 (2012).
2
The bankruptcy court below entered an order prepared by SB&T’s
counsel and signed by Trauner as “not opposed.” The order provided:
The automatic stay of 11 U.S.C. § 362 of the Bankruptcy
Code is modified to allow SB&T to exercise its rights and
remedies under applicable law, including foreclosure of its
security interest in the Property, promptly accounting to
the Trustee for any proceeds received in excess of the
lawful claim of SB&T.
(Bankr. Order [2] at 2-3.)
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on November 1, 2011, which it won with a credit bid in the amount of
$2,025,182.00. (Bankr. Order [2] at 3.) This credit bid included of
statutory fees under O.C.G.A. § 13-1-11 of $262,386.87.
While the
precise amount of actual attorney’s fees has not been stipulated by
the parties, there appears to be no dispute that the statutory
attorney fees are far in excess of those actually incurred by SB&T.
I.
BANKRUPTCY COURT’S RULING
In its motion for summary judgment, the trustee argued that the
Eleventh Circuit’s decision in In re Welzel, 275 F.3d 1308 (11th Cir.
2001), limited the recovery of fees to actual, reasonable attorney
fees, and that the statutory attorney fees under O.C.G.A. § 13-1-11
were not recoverable.
Therefore, the trustee argued, SB&T could not
recover statutory attorney’s fees through its foreclosure sale and
must pay the trustee the difference between its actual attorneys’
fees and the statutory attorneys’ fees used in the credit bid.
(Bankr. Order [2-1] at 4.)
As the property was never abandoned and
the order lifting the automatic stay expressly allowed the trustee to
seek any monies in excess of the lawful claim by SB&T,3 the bankruptcy
court agreed with the trustee that the Welzel decision governed.
Thus,
§
506(b)
collectable
3
applied
attorneys’
to
fees
the
to
only
See note 2 supra.
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foreclosure
those
sale,
that
limited
were
the
actually
incurred, and the trustee was entitled to recover any surplus.
(Id.
at 13.)
Yet, even though it was undisputed that SB&T was the high bidder
at the foreclosure sale and had included the statutory attorney fees
in its credit bid, the bankruptcy court remained unconvinced that
SB&T had actually received the full amount of statutory attorney fees
in excess of their allowable claim.
(Id. at 15.)
The bankruptcy
court opined that many possible explanations existed for why SB&T
made its credit bid and that “[i]f SB&T unilaterally bid in the
entire debt, including statutory attorney’s fees, but the value of
the Property actually does not support the amount bid in, SB&T [would
not have] receive[d] a surplus to which the Trustee is entitled.”
(Id.) For these reasons, the bankruptcy court decided the proper way
to proceed was to hold an evidentiary hearing to determine the actual
value of the property, and, from that, to calculate the amount of
surplus owed to the trustee, if any.
II.
(Id. at 15-16.)
PARTIES’ CONTENTIONS ON APPEAL
This final part of the bankruptcy court’s ruling--that the
credit bid made at the foreclosure sale by SB&T does not necessarily
reflect the extent to which the creditor recovered fees in excess of
those allowable under § 506(b)--is the portion of the order that the
trustee appeals. (Mot. for Leave [2-4] at 6.)
Specifically, the
trustee argues that the credit bid of $2,025,182.00 should, as a
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matter of law, represent the value received by SB&T, obviating the
need to conduct an evidentiary hearing as to the value of the
property.
The
(Id. at 3.)
trustee
argues
that,
because
its
appeal
meets
the
requirements of 28 U.S.C. § 1292(b), this Court should grant its
interlocutory appeal motion.
He argues that this appeal meets the
first requirement for such an appeal because it involves a question
of pure law and can be decided quickly and cleanly without having to
study the record in the underlying matter.
(Id. at 8-9.)
Second,
the trustee argues that it has shown a substantial ground for a
difference of opinion on this legal issue because it is a question of
law that has yet to be addressed by the Eleventh Circuit.
(Id. at
9.) He cites the Supreme Court’s decision in BFP v. Resolution Trust
Corp., 511 U.S. 531 (1994), as representing conflicting law. (Id. at
11.)
Although he admits that BFP involved a different statute, the
trustee
argues
that
when
viewed
broadly,
BFP
stands
for
the
proposition that a “federal statute should not be construed to
override the effect of a duly conducted foreclosure sale under State
Law.”
(Mot. for Leave [2-4] at 16.)
The trustee argues that the
third requirement of § 1292(b) is also met because, if he wins his
appeal, it will eliminate the need for an evidentiary hearing on the
value of the property.
SB&T counters by arguing that none of the three prongs of the §
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1292(b) test are satisfied.
First, SB&T disputes that the question
to be certified is one of pure law.
SB&T notes that whether the
value of the foreclosure sale credit bid was the equivalent of cash
value is a fact for which the bankruptcy court has yet to make a
finding and it is not a legal question fit for interlocutory review.
(Def.’s Resp. [3] at 3-4.)
Second, SB&T argues that the trustee
failed to show that there is a substantial ground for difference of
legal opinion because he has failed to identify two courts that
interpret the relevant legal principle differently.
(Id. at 4-5.)
Finally, SB&T argues that the trustee failed to meet the third
requirement because the ultimate termination of the litigation will
not be substantially advanced by an immediate appeal.
Noting that
valuation hearings are commonplace in bankruptcy proceedings, SB&T
argues that the litigation would have been substantially advanced
because these hearings typically only require a meeting with an
appraiser prior to coming to court for a short hearing.
In fact,
SB&T argues, the litigation will be resolved more rapidly and
efficiently if the bankruptcy court below could be allowed to make
its determinations without this premature appeal.
(Id. at 6.)
DISCUSSION
Plaintiff, as trustee for Solid Rock Development, brings this
action seeking certification of an interlocutory appeal from a
bankruptcy court’s grant of partial summary judgment.
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I.
LEGAL STANDARD
District courts may exercise jurisdiction to grant interlocutory
appeals from bankruptcy proceedings. 28 U.S.C. § 158(a).
Because §
158 provides no guidance for determining when to exercise this
discretion, however, the Eleventh Circuit approves use of the factors
outlined
in
28
U.S.C.
§
1292(b),
which
governs
discretionary
interlocutory appeals from district courts to appellate courts.
Laurent v. Herkert, 196 Fed. App’x 771 (11th Cir. 2006) (citing In re
Charter Co., 778 F.2d 617, 620 n.5 (11th Cir. 1985).
Under this section, a district court may grant a motion for an
interlocutory appeal if the appeal “[1] involves a controlling
question of law [2] as to which there is substantial ground for
difference of opinion and [3] that an immediate appeal from the order
may materially advance the ultimate termination of the litigation.”
28 U.S.C. § 1292(b)(numbering added). The Eleventh Circuit, however,
has emphasized that the interlocutory appeals process should be used
sparingly in order to prevent piecemeal litigation and promote
judicial efficiency.
See McFarlin v. Conseco Servs., LLC, 381 F.3d
1251, 1259 (11th Cir. 2004).
For these reasons, both Congress and
the Eleventh Circuit maintain that requests for interlocutory appeals
should only be granted in “exceptional cases where a decision of the
appeal may avoid protracted and expensive litigation.”
Id. at 1256
(quoting the report of the Judicial Conference to Congress regarding
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the creation of section 1292(b)).
Thus, a court’s discretionary power is so broad and the concern
against overuse of the process so great that a court may turn down an
appeal even if all three of these requirements are met.
Id. at 1259.
Further, the party seeking leave to appeal bears the burden of
proving exceptional circumstances and, therefore, the need for an
interlocutory appeal.
FXM, P.C. v. Gordon, Civ. No. 1:07-cv-1642,4
2007 WL 3491274, at *3 (N.D. Ga. Nov. 6, 2007)(Carnes, J.).
II.
CONTROLLING QUESTION OF LAW
The first element is not shown merely by proving that an answer
to the question on appeal would be determinative of an issue.
More
than just demonstrating that outcome, an aspiring appellant must also
demonstrate that the court is confronted with an issue of “pure” law
that can be decided quickly and cleanly without having to study the
record.
McFarlin, 381 F.3d at 1258.
One way of determining whether
a question is controlling is deciding that it disposes “not only []
the case at hand, but also disposes of a wide spectrum of cases.”
FXM, P.C., 2007 WL 3491274, at *3.
The trustee claims that this appeal falls into this category.
He
argues
that
in
answering
his
certified
question
in
the
affirmative, this Court will help in the disposition in a wide array
4
Civil case numbers 1:07-cv-1660-JEC and 1:07-cv-1726-JEC were
consolidated into this action.
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of cases because it will prevent the need in the future to hold
evidentiary hearings after foreclosure sales to determine if the
purchase
creditor.
price
accurately
reflected
(Pl.’s Reply [4-8] at 6.)
First,
the
trustee
overstates
the
value
received
by
the
The Court disagrees.
the
expansiveness
of
Judge
Hagenau’s ruling and thus, asks this Court to certify a question for
appeal
that
is
much
broader
than
necessary.
This
is
not
a
circumstance where the bankruptcy court ruled that valuation hearings
are
required
routinely
to
determine
the
proper
value
of
the
foreclosed property or that a winning credit bid may never be deemed
to be the value received by the creditor, as the trustee’s proposed
certified question suggests.
(See Mot. for Leave [2] at 6.)
The
bankruptcy court based its conclusion to hold an evidentiary hearing
not on some interpretation of a legal principle or a bankruptcy
statute, but on the facts of the case--specifically, its lack of
knowledge about what motivated SB&T in its bid process and
“whether
the credit bid of statutory attorney’s fees is a reflection of the
value of the Property.”
(Bankr. Order [2-1] at 15.)
Simply put, Judge Hagenau did not substantively or expansively
engage on the legal issue the trustee now presents on appeal.
The
bankruptcy court merely expressed doubts as to whether, in this case,
the defendant SB&T actually received the statutory attorney’s fees
included in its bid.
(Id. at 15.)
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Further, the bankruptcy court
explicitly listed a series of issues not addressed by its order and
limited its ruling to cases where a court needs to “determin[e]
whether a surplus is owed to the estate in accordance with Welzel and
11 U.S.C. § 506(b).”
(Id. at 14.)
The fact that part of the
bankruptcy court’s determination also hinged on the wording of the
order granting relief from the automatic stay, (see id. at 11),
further limits the applicability of this holding to other bankruptcy
decisions.
Even though Judge Hagenau carefully couched her decision
in these respect, the trustee has read the order more broadly, and,
from that, he argues that an issue of “pure” law is present.
In
short, while the question proposed for certification may very well
dispose of a wide array of cases that could hypothetically arise in
the future, it would not be proper for the Court to engage in this
legal inquiry when the bankruptcy court has yet to do so.
Cf.
McFarlin, 381 F.3d at 1255 (noting that a court’s failure to specify
the reasons for certifying an appeal under § 1292(b) is a factor the
appellate
court
can
use
to
determine
how
to
exercise
its
discretionary power to review).
For these reasons, the Court concludes that the plaintiff failed
to meet his burden with respect to the first prong of the § 1292(b)
test.
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III. SUBSTANTIAL GROUND FOR DIFFERENCES OF OPINION
Even if this Court incorrectly construed the scope of the
bankruptcy court’s order or the trustee’s proposed question for
certification, this motion should still be denied because even if the
legal issue is as the plaintiff presents, the plaintiff failed to
meet the other two requirements of § 1292(b).
A party may satisfy the requirement that there be a substantial
ground for difference of opinion by showing the issue is difficult
and one of first impression or that there is a difference of opinion
as to the issue, whether within the circuit or between different
courts of appeal.
Georgia State Conf. of the NAACP v. Fayette Co.
Bd. of Comm’rs, Civil Action No. 3:11-cv-123-TCB, 2013 WL 3336754, at
*1 (N.D. Ga. July 3, 2013)(Batten, J.).
question
is
insufficient.”
one
of
first
“However, the fact that the
impression,
standing
alone,
is
Id. (citing In re Flor, 79 F.3d 281, 284 (2d Cir.
1996);
In re Auto Dealer Servs., Inc., 81 B.R. 94, 96 (M.D. Fla.
1987).
Instead, the court’s duty is to analyze the strength of the
arguments opposing the challenged ruling when determining if there is
a substantial ground for dispute.
Georgia State Conf., 2013 WL
3336754, at *1.
In
determining
whether
there
is
a
substantial
ground
for
dispute, courts often look to decisions from other circuits in the
event that the issue is one of first impression. E.g. In re Pac.
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Forest Prods., Corp., 335 B.R. 910 (S.D. Fla. 2005).
After failing
to locate any precedent within its circuit, the Pacific Forest court
decided it “must [] determine ‘whether at least two courts interpret
the law differently’” because petitioners “can satisfy their burden
on this element if they can prove that there is a substantial
difference of opinion between the Bankruptcy Court’s ruling, and the
rulings of other courts.”
Id. at 922-23.
After locating a case from
another circuit that directly conflicted with the ruling of the
bankruptcy
decision
being
appealed,
Judge
Gold
concluded
that,
“[g]iven the dearth of case-law in the Eleventh Circuit, and the
degree to which [the other bankruptcy ruling] is on point with this
case
and
is
neither
insubstantial
nor
frivolous...there
is
a
substantial ground for difference of opinion sufficient to warrant
interlocutory review.”
In
the
present
Id. at 923-24.
case,
the
trustee
fails
to
identify
any
decisions, either within or outside this circuit, that show that
substantial ground for dispute exists regarding the issue they seek
to appeal.
The trustee simply relies on the fact that this issue
appears to be one of first impression, albeit he points to general
principles of bankruptcy law that the bankruptcy court has violated.
(Mot. for Leave [2] at 11.)
These arguments, however, fail to
persuade the Court that plaintiff has met his burden of proving that
this is an “exceptional case” where a substantial difference of
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opinion exists.
For these reasons,5 the Court concludes that the trustee failed
to meet the second requirement of 1292(b).
IV.
MATERIALLY ADVANCE THE LITIGATION
The trustee failed to adequately illustrate that an immediate
appeal would materially advance this litigation.
1292(b).
The
litigation
is
trustee’s
that
a
evidentiary hearing.
appellee
SB&T
argues
sole
ruling
argument
will
for
eliminate
See 28 U.S.C. §
the
advancement
the
need
(Mot. for Leave [2] at 11-12.)
that
deciding
this
motion
for
of
the
Defendant-
now
will
not
substantially shorten this litigation as the valuation hearing that
would be eliminated would be brief and require little preparation.
(Def.’s Resp. [3] at 6.)
The Court agrees.
Plaintiff fails to show how this litigation
will be materially advanced by an immediate appeal.
In fact, the
litigation
rapidly
would
likely
have
been
resolved
efficiently had this appeal not been taken.
more
and
First, permitting
premature appeals only serves to hinder the lower court’s ability to
advance the litigation.
FXM, P.C., 2007 WL 3491274, at *4.
Second,
certifying this appeal and deciding the issue on its merits will
5
Additionally, “if it is not clear that there is a question of
law, then there are no grounds for a substantial difference of
opinion.” FXM, P.C., 2007 WL 3491274, at *4.
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likely take much longer and require much more preparation by the
parties than would be required if the bankruptcy court held a simple
evidentiary hearing.
This factor is especially relevant where, as
here, the evidentiary hearing could render the trustee’s current
complaints moot.
At the very least, the hearing would provide
findings of fact upon which a reviewing court could adequately
determine the legal question presented.
For these reasons, the Court concludes that the trustee’s motion
is premature and that he has failed to show that the litigation will
be substantially advanced by an immediate appeal.
Nevertheless,
having decided that this case does not raise the type of compelling
circumstance that justifies an interlocutory appeal, the Court does
not intend to diminish the impact on bankruptcy practice that could
result should the bankruptcy court’s intended practice here become
the norm. There appears to be much to commend the trustee’s argument
that allowing these types of hearings could greatly, and perhaps
unnecessarily, expand bankruptcy proceedings.
After all, a secured
creditor,
its
such
as
foreclosure sales.
SB&T,
is
the
master
of
own
destiny
at
Typically, as the only bidder, the creditor will
win any bid it makes.
So there is really no need to overbid the
value of the property.
And, if it does so, arguably, the creditor
should be stuck with that decision.
If the creditor finds himself
competing with other bidders, he may seek to increase his bid to win
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the property, but that action would merely show that the property was
worth the bid amount.
It may be that SB&T simply made a mistake by including in the
bid price the amount of statutory attorney’s fees, when the value of
the property could not support that amount.
And, perhaps suspecting
that this happened, the bankruptcy court acted mercifully, in trying
to provide SB&T with a way out of its blunder and to prevent the
trustee from receiving a windfall based on the creditor’s harmless
mistake.
Whether that is a good practice, or whether it complies
with Georgia and bankruptcy law, is something that can be best
decided when the bankruptcy court creates a record and finally rules.
From that ruling, an appellate court can make a definitive ruling.
CONCLUSION
For the above reasons, the Court concludes that the plaintiff
failed to meet his high burden in proving that this appeal presents
an “exceptional case[] where a decision of the appeal may avoid
protracted and expensive litigation.”
McFarlin, 381 F.3d at 1256.
Accordingly,
for
the
plaintiff’s
motion
leave
to
appeal
the
bankruptcy court’s order [2] is DENIED.
SO ORDERED, this 22nd day of September, 2013.
/s/ Julie E. Carnes
JULIE E. CARNES
CHIEF UNITED STATES DISTRICT JUDGE
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