Tucker v. MLH Investments LLC

Filing 17

MEMORANDUM OPINION AFFIRMING ORDER AND MEMORANDUM OPINION OF THE BANKRUPTCY COURT: Bankrupcty Court's order and memorandum opinion granting petitioner's motion to sell 500 shares of Mound City to appellant is AFFIRMED. This appeal is to be Dismissed and Stricken from the active docket of this Court. Clerk directed to enter judgment. Signed by Senior Judge Frederick P. Stamp, Jr on 10/17/13. (copy to appellant Tucker by cert. mail)(soa) (Additional attachment(s) added on 10/17/2013: # 1 Certified Mail Return Receipt) (soa).

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
IN RE:
FRANCIS CLIFFORD TUCKER,

Bankruptcy No. 09-914

Debtor.
_______________________________
FRANCIS CLIFFORD TUCKER,
Debtor - Appellant,
v.

Civil Action No. 5:12CV119
(STAMP)

MLH INVESTMENTS, LLC and
D. WILLIAM DAVIS, Chapter 7,
Trustee,
Creditors - Appellees.
MEMORANDUM OPINION AFFIRMING ORDER AND
MEMORANDUM OPINION OF THE BANKRUPTCY COURT
I.

Procedural History

Ohio Valley Amusement Company, Alexas Intertainment, LLC, and
Allan Hart filed an involuntary Chapter 7 petition against the
appellant/debtor, Francis C. Tucker (“Tucker”).

Tucker filed an

answer contesting the petition and two motions to dismiss.

The

United States Bankruptcy Court for the Northern District of West
Virginia denied the motions to dismiss and held a trial on the
contested

petition.

The

bankruptcy

court

found

that

the

petitioning creditors established grounds for relief under 11
U.S.C. § 303.

Tucker appealed to this Court.

the bankruptcy court’s order.

This Court affirmed

The case then continued in the bankruptcy court and the
trustee

of

the

estate

of

the

appellant,

D.

William

Davis

(“trustee”), filed a motion to sell Tucker’s shares of stock in
Mound

City,

Inc.

(“Mound

City”)

to

the

other

appellee,

Investments, LLC (“MLH”), for the sum of $25,000.00.

MLH

In addition

to the motion, the trustee also issued a notice of private sale
which required all upset bidders to secure their bids by depositing
the amount of their bids in the form of a cashier’s check or
certified bank check with the trustee to be held in trust with the
trustee pending court approval.
Tucker then filed an objection to the proposed sale, followed
by a supplement to his objection, arguing that (1) MLH was not a
disinterested party and thus not a good faith purchaser and (2) the
trustee was not receiving fair value for the stock of Mound City.
The bankruptcy court then held a telephonic hearing to consider the
trustee’s motion and the objections of Tucker.

The bankruptcy

court then ordered the trustee to conduct an investigation of the
assets and debts of Mound City in order to determine the fair value
of the Mound City stock.

Prior to the final hearing on the

trustee’s motion, Tucker filed a response suggesting that at least
three persons were interested in purchasing the Mound City stock
for $30,000.00.

However, at the final hearing, the trustee

reported that none of the potential purchasers had contacted him
prior to the hearing as required by the notice of private sale he
had issued.

Thus, the bankruptcy court found that the sale to MLH

2

met the “sound business judgment test” of the court, that MLH was
a good faith purchaser pursuant to 11 U.S.C. § 363(m), and that the
sale was the best option for Tucker’s bankruptcy estate.

The

bankruptcy court therefore entered an order authorizing the trustee
to sell Tucker’s stock in Mound City to MLH for the sum of
$25,000.00.
Thereafter, Tucker filed a notice of appeal of the bankruptcy
court’s order with this Court. However, the notice was filed a day
late.

MLH filed a motion to dismiss and the parties fully briefed

the motion.

After the motion was fully briefed, this Court

remanded the motion to dismiss to the bankruptcy court.
bankruptcy

court

denied

the

motion

to

dismiss

because

The
of

a

technical error that had occurred with the Court’s electronic
filing system.
In addition to the briefing for the motion to dismiss, the
parties filed their briefs pursuant to the appeal before this Court
remanded to the bankruptcy court.

However, Tucker’s counsel

withdrew prior to the response to the appeal being filed by MLH and
no reply was filed by Tucker who was then proceeding as a pro se1
appellant.

After the case was returned to this Court by the

bankruptcy court, this Court entered a Roseboro2 notice notifying

1

“Pro se” describes a person who represents himself in a court
proceeding without the assistance of a lawyer.
Black’s Law
Dictionary 1341 (9th ed. 2009).
2

Roseboro v. Garrison, 528 F.2d 309, 310 (4th Cir. 1975)
(finding that the court must inform a pro se plaintiff of his right
to file material in response to a motion for summary judgment).
3

Tucker of his right to respond to MLH’s response and directing
Tucker to file a reply by February 15, 2013.
15 (return receipt from appellant).

See ECF Nos. 14 and

Again, no reply was filed.

For the reasons set forth below, this Court affirms the order
of the bankruptcy court approving and confirming the sale of 500
shares of stock of Mound City to MLH.
II.
This

Court

Jurisdiction and Standard of Review
has

jurisdiction

over

this

bankruptcy

appeal

pursuant to 28 U.S.C. § 158(a) and Federal Rule of Bankruptcy
Procedure

8002.

This

Court

reviews

the

bankruptcy

court’s

conclusions of law under a de novo standard of review and reviews
findings of fact by the bankruptcy court for clear error.

See

Federal Rule of Bankruptcy Procedure 8013; In re NVR, LP, 189 F.3d
442, 448 (4th Cir. 1999); Educ. Credit Mgmt. Corp. v. Kirkland, 600
F.3d 310, 314 (4th Cir. 2010).
III.

Discussion

In his memorandum of law in support of appeal, Tucker focuses
on two arguments previously raised before the bankruptcy court: (1)
MLH was not a good faith purchaser and (2) the purchase price of
$25,000.00 for 500 shares of Mound City was not a sufficient value.
Tucker also raises a new contention in his appeal, arguing that MLH
did not meet the burden of proof required for proving it was a good
faith

purchaser.

Before

this

Court

addresses

each

of

the

appellant’s arguments in turn, it must consider MLH’s assertion
that this appeal falls within the rule of “statutory mootness”

4

under 11 U.S.C. § 363(m).

In re Rare Earth Minerals, 445 F.3d 349,

363 (4th Cir. 2006).
A.

Title 11, United States Code, Section 363(m)
In MLH’s supporting brief, it argues that § 363 applies to

this case because the appellant has not obtained a stay of the sale
of the Mound City shares.

That section states:

[t]he reversal or modification on appeal of an
authorization under subsection (b) or (c) of this section
of a sale or lease of property does not affect the
validity of a sale or lease under such authorization to
an entity that purchased or leased such property in good
faith, whether or not such entity knew of the pendency of
the appeal, unless such authorization and such sale or
lease were stayed pending appeal.
11 U.S.C. § 363(m).

The bankruptcy court found that MLH qualified

as a good faith purchaser under this section.

Further, the

appellant has not sought a stay of the sale of the Mound City
shares pending this appeal.

“Where a sale of a bankrupt’s assets

has not been stayed, an appeal challenging the sale’s validity is
moot because ‘the court has no remedy that it can fashion even if
it would have determined the issues differently.’”

In re Rare

Minerals, 445 F.3d at 363 (citing Anheuser-Busch, Inc. v. Miller
(In re Stadium Mgmt. Corp.), 895 F.2d 845, 847 (1st Cir. 1990)).
In this case, the bankruptcy court approved the sale of the
Mound City shares under 11 U.S.C. § 363(b), sale of property of a
debtor’s estate after notice and a hearing. Further, the appellant
has not attempted to stay the sale of the shares during the
pendency of this appeal.

Thus, the appellant’s appeal is moot

unless MLH was not a good faith purchaser.
5

B.

MLH’s Status as a Good Faith Purchaser
The appellant’s main contention with the bankruptcy court

order is that the court found that MLH was a good faith purchaser.
Because this case falls under § 363(m), if MLH is a good faith
purchaser, the appellant’s appeal is moot.

For the following

reasons, this Court finds that MLH was a good faith purchaser and
this appeal is moot.
A good faith purchaser is “one who purchases the assets for
value, in good faith, and without notice of adverse claims.”
Kivitz,

764

F.2d

1019,

1023

(1985)

(citations

Willemain

v.

omitted).

The first element, value, is traditionally defined as

“75% of the appraised value of the asset.”

Id.

The second

element, good faith, is typically only destroyed if the sale
involves “fraud, collusion between the purchaser and other bidders
or the trustee, or an attempt to take grossly unfair advantage of
other bidders.”

Id. (citing In re Rock Indus. Mach. Corp., 572

F.2d 1195, 1198 (7th Cir. 1978)).

Finally, notice of adverse

claims is not proven simply by the buyer’s knowledge of the
pendency of the debtor’s appeal.
1.

Id.

Value

First, as to value, the appellant argues that the purchase
price of $25,000.00 for 500 shares of Mound City was not a
sufficient sale price.

Further, the appellant contends that Mound

City owns two judgments against Ohio Valley Amusements for the
amounts of $547,000.00 and $250,000.00.

6

Thus, the appellant

asserts that the sale price of $25,000.00 that the bankruptcy court
allowed was not sufficient.
The bankruptcy court, however, required the trustee to conduct
an investigation of the assets and debts of Mound City when the
same arguments were raised by the appellant in objection to the
trustee’s

motion

to

sell.

The

trustee

filed

an

affidavit

reflecting the results of his investigation which purported that
the fair value of the Mound City shares was $25,000.00.

The

bankruptcy court found that this was a fair value for the shares.
Further, although not reasserted by the appellant, the bankruptcy
court also found that the appellant’s suggestion that three other
persons were interested in purchasing the stock at $30,000.00 had
not panned out by the time of the hearing.

No other purchaser,

other than MLH contacted the trustee.
There is no clear “appraised value” in this case.

This Court

must use the findings of the trustee, the bankruptcy court, and the
appellant’s assertions as to the judgments against Ohio Valley
Amusements.

Thus, the appraised value could be approximately

$800,000.00 if the appellant’s valuation is used.

Again, the

default rule is that the sale price, in order to fulfill the value
component, should be “75% of the appraised value of the asset.”
Willemain, 764 F.2d at 1023.

A bankruptcy court, however, can

discredit and ignore an appraisal if it is proper to do so.

Id.

Further, “the lack of willing buyers reduces the value of a
property” and the United States Court of Appeals for the Fourth

7

Circuit has found that this is also a valid consideration for why
the value may be lower than expected by the debtor.
Inc., 833 F.2d 1005, 1005 (4th Cir. 1987).

In re Marjec,

In this case, the

bankruptcy court relied on the value given by the trustee and also
on the only bid that the trustee was provided.

The trustee had

given notice of the sale, and was only contacted by MLH.

Further,

the appellant’s objection that there were three other purchasers
proved without merit in that no other contact was made with the
trustee concerning the sale of the shares.

Finally, even if the

other bidders had materialized, their bids would have only been for
$30,000.00, according to the appellant.
sufficient under the 75% default rule.

Thus, $25,000.00 would be
Accordingly, this Court

agrees with the bankruptcy court that MLH did purchase the assets
for value.
2.

Good Faith

In analyzing Tucker’s claim that MLH was not a good faith
purchaser, the bankruptcy court found that there was no evidence of
fraud or collusion between the trustee and MLH.

Further, the

bankruptcy court noted that there was no evidence that any other
bidders had been taken advantage of by the trustee nor was there
evidence of unclean hands by the trustee or MLH.

In addition, the

bankruptcy court held that the purchaser of a debtor’s assets does
not need to be a disinterested person.

Finally, the bankruptcy

court found that Tucker did not have unclean hands in this matter

8

because another creditor was successful in unwinding the transfer
of the stock of Mound City from Francis Tucker to Helen Tucker.
On appeal, Tucker again asserts that MLH was not a good faith
purchaser because it was aware of litigation involving Tucker in
this Court.

In that litigation, Mound City is suing Frank Barker

who is the owner of MLH.

In a new argument raised by the

appellant, Tucker relies on 11 U.S.C. § 363(p)(1), which he
contends places the burden of proof in arguing good faith on “the
entity asserting an interest in property . . . .”

Tucker argues

that no testimony or evidence was provided by MLH surrounding the
proposed sale.

Thus, Tucker asserts that the bankruptcy court

incorrectly relied on the trustee’s affidavit and in not requiring
the same from MLH.
MLH argues that Tucker’s reliance on § 363(p)(2) is misplaced.
According to MLH, § 363(p)(2) only applies to cases in which a
creditor has a lien on assets which the trustee proposes to use,
sell or lease pursuant to 11 U.S.C. § 363(e).
Although the appellant argues otherwise, this Court finds that
the language “entity asserting an interest in property” refers to
a creditor or lien holder.

Several cases, too numerous to account

for fully in this order, apply this section to creditors or lien
holders, not to buyers of property in a sale initiated by the
trustee.

See VanCura v. Hanrahan (In re Meill), 441 B.R. 610,

613–14 (8th Cir. BAP 2010) (pursuant to § 363(p)(2), the burden is
on the holder of a vendor’s lien who objected to a § 363 sale);

9

Morris v. Kasparek (In re Kasparek), 426 B.R. 332, 340 (10th Cir.
BAP 2010) (“As the party contesting record title and asserting full
equitable title to the Property, [the non-debtor] had the burden of
proving the validity and extent of his equitable interest.”); In re
Premier Golf Properties, LP, 477 B.R. 767, 772 (B.A.P. 9th Cir.
2012) (bank/creditor “has the burden of establishing the existence
and the extent of its interest in the property it claims as cash
collateral”); Kiser v. Russell Cty., Va. (In re Kiser), 344 B.R.
432, 439 (Bankr. W.D. Va. 2004) (“Pursuant to Bankruptcy Code
§ 363(p)(2) the burden of proof falls on the party asserting an
interest in property.

Because [creditor] is asserting a lien on

the [debtors’] property it has the burden of proving to what
property its lien attaches.”).

Thus, it appears that the standard

bankruptcy practice is to apply this burden of proof to cases in
which there is an intervening creditor or lien holder.
Consequently, the burden in this case would have been on the
trustee and the debtor.

When deciding whether to approve a § 363

sale, a court must “‘expressly find from the evidence presented
before [it] at the hearing a good business reason to grant such an
application [to sell].’”

Stephens Indus., Inc. v. McClung, 789

F.2d 386, 389 (6th Cir.) (quoting Comm. of Equity Sec. Holders v.
Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1071 (2d Cir.
1983)). The party seeking approval of the sale bears the burden of
demonstrating that there is a sound business purpose for the sale.
See Lionel Corp., 722 F.2d at 1071.

10

The objecting party must

“produce some evidence respecting its objections.”

Id.

Thus, the

trustee has the burden of demonstrating that there is a sound
business purpose for the sale, and the debtor, Tucker, had the
burden to produce evidence respecting his objection to the sale of
the Mound City shares.
The bankruptcy court found that this transaction met the sound
business judgment test based on the affidavit and evidence given by
the trustee.

Further, the bankruptcy court found that Tucker’s

objections were unfounded and that none of the exceptional factors
that would require a finding of bad faith on the part of MLH were
present. Thus, MLH had not taken part in “fraud, collusion between
the purchaser and other bidders or the trustee, or [attempted] to
take grossly unfair advantage of other bidders.”
F.2d at 1023.

Willemain, 764

This Court agrees and finds that based on the

information given by the trustee, it did meet its burden of showing
that MLH was purchasing the Mound City shares in good faith.
3.

Notice of Adverse Claims

The appellant’s final argument is that MLH does not qualify as
a good faith purchaser because it was aware of Tucker’s claims
against MLH’s owner, Frank Barker.

The Fourth Circuit has held,

however, that a prior relationship with the debtor does not
preclude a purchaser from qualifying for good faith status.
Marjec, Inc., 833 F.2d 1005, 1005 (4th Cir. 1987).

In re

In that case,

the purchaser had previously entered into negotiations with the
debtor to sell the land at issue in the action, but the deal had

11

fallen through.
show

what

transaction
advantage.

Id.

The court noted that the debtor was unable to

information
that
Id.

could

the

purchaser

have

been

used

had
to

gained
gain

from
an

that

improper

The court therefore found that the purchaser had

entered the agreement with the trustee in good faith under the
notice prong of the good faith purchaser test.

Id.

The bankruptcy court in this action also found that although
MLH was not a disinterested party, it was still a good faith
purchaser.

Although MLH’s owner is involved in litigation with

Tucker, MLH itself is not.

Tucker has not provided any evidence

that MLH has gained an unfair advantage over other bidders, the
trustee, or Tucker, through the litigation.

Thus, this Court

agrees with the bankruptcy court that MLH also qualifies as a good
faith purchaser under this final prong.
For the reasons stated above, this Court finds that MLH was a
good faith purchaser and that Tucker’s appeal is therefore moot
under 11 U.S.C. § 363(m).
IV.

Conclusion

For the reasons set forth above, the bankruptcy court’s order
and memorandum opinion granting the petitioner’s motion to sell
five hundred (500) shares of Mound City to the appellant is
AFFIRMED.

It is further ORDERED that this appeal should be and

hereby is DISMISSED and STRICKEN from the active docket of this
Court.

12

The Clerk is directed to transmit copies of this memorandum
opinion to the pro se appellant, Frances Clifford Tucker, by
certified mail and to counsel of record herein.

Pursuant to

Federal Rule of Civil Procedure 58, the Clerk is directed to enter
judgment on this matter.
DATED:

October 17, 2013

/s/ Frederick P. Stamp, Jr.
FREDERICK P. STAMP, JR.
UNITED STATES DISTRICT JUDGE

13