In re: John Wade Bell et al
Filing
8
MEMORANDUM OPINION AND ORDER: The Bankruptcy Court's August 23, 2013 [2-16] Order is REVERSED; the Court ORDERS that this matter be REMANDED to the Bankruptcy Court for the Southern District of West Virginia for further findings and disposition consistent with this opinion. Signed by Judge Irene C. Berger on 3/26/2014. (cc: attys; any unrepresented party; United States Bankruptcy Court) (slr)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
BECKLEY DIVISION
IN RE:
JOHN WADE BELL and
ANN TATE BELL,
Debtor.
RBS, INC. and
UNITED BANK, INC.,
Appellants,
v.
CIVIL ACTION NO. 5:13-cv-27240
JOHN WADE BELL and
ANN TATE BELL,
Appellees.
MEMORANDUM OPINION AND ORDER
This is an appeal from a decision of the United States Bankruptcy Court for the Southern
District of West Virginia denying Appellants, R.B.S. Inc. (RBS) and United Bank, Inc.’s (United)
Motion to Lift Stay (Document 2-4).1 The Court disposes with oral argument because the facts
and legal arguments are adequately presented in the briefs and in the record, and the decisional
process would not be significantly aided by oral argument.2 See Fed R. Bankr. P. 8012. For the
reasons stated herein, the decision of the Bankruptcy Court is reversed.
1
RBS joined United’s motion to lift stay on January 31, 2013, when the Bankruptcy Court granted RBS’s
motion to intervene. (See Document 2-9).
2
The record before the Court on appeal consists of the following: (1) Amended Notice of Appeal; (2)
Appellant Designation of Records and Statement of Issues To Be Presented on Appeal; (3) Appellees' Designation of
Records; (4) Motion of United Bank to Lift Stay; (5) Response to Motion to Lift Stay; (6) Response to Motion to Lift
Stay; (7) Motion to Intervene; (8) Memorandum in Opposition to Motion to Lift Stay and Order on Motion to Lift
Stay; (9) Order granting Motion to Intervene ; (10) Reply by RBS, Inc. In Support of United Banks, Inc.'s Motion to
I.
FACTUAL AND PROCEDURAL HISTORY
A. Factual History
The facts underlying this appeal are undisputed. The Debtor / Appellee, John Wade Bell,
has been a builder in Greenbrier County, West Virginia, since at least 1973.3
4
(Document 2-16
at 1.) Mr. Bell’s primary focus was in building custom cabinetry, and, to that end, he established
a shop on the subject property, and made periodic additions specific to the nature of his business,
such as a three-phase electrical service, custom wood-drying racks and intricate ventilation
systems. (Id. at 2.)
On or about July 11, 2006, the John Bell Company, Inc. (Bell Co.) executed a promissory
note with United, whereby Bell Co. borrowed monies from United, and, in exchange, became
obligated to re-pay roughly $324,600 pursuant to the terms of the note. (Document 2-16 at 2.)
For various reasons, on or about December 10, 2009, the Bell Co. and United agreed to refinance
the July note, and the parties executed a second Promissory Note on that date. (Id.) Paramount
to the instant dispute, on that same date, both John W. Bell and Ann T. Bell (together, the Debtors)
executed a personal Guaranty, whereby each unconditionally assured payment of the note to
United. (Id.) To effectuate their guaranties, the Debtors executed a Deed of Trust, in which they
conveyed certain property to James B. Hayhurst, Trustee, for the benefit of United.5 (Id.)
Lift Stay; (11) Response to Reply; (12) Memorandum by United Bank in Support of Motion to Lift Stay; (13) Reply to
Response; (14) Further Response to Reply; (15) Order Converting Case to Chapter 11; (16) Order Denying Motion to
Lift Stay; (17) Response to Notice of Appeal; (18) Order Granting Motion to Amend Complaint; (19) Amended
Complaint; (20) Main Docket Card; (21) AP Docket Card; and (22) an Index. (See Docket 2.)
3
The Debtor / Appellee was a pioneer of green building techniques in the area, which involved collecting and
preserving unique lumber to use for home construction builds. Exhibit 16 at 1.) He employed anywhere between
five and fifteen local craftsmen at his business. (Id. at 2.)
4
Appellee Ann Tate Bell is the wife of John Wade Bell.
5
The deeded property (Property) is described as “2.23 acres and 0.27 acres, less an outsale of 0.765 acres,
2
On or about December 19, 2011, the Debtors and United again agreed to refinance the note,
and executed a Memorandum and Notice of Loan and Deed of Trust Modification, this time
extending the maturity date to November 1, 2021. (Document 2-16 at 3.) The Bell Co. defaulted
on its obligation to repay the Note, and United entered default per the terms of the Deed of Trust.6
(Id.) United then appointed James W. Lane as successor trustee (Trustee) per the Deed of Trust,
and he sent a notice of default and right to cure to the Debtors on October 16, 2012. (Id.)
A foreclosure sale was originally set for October 16, 2012, but due to a defect in the notice,
a new notice was issued for November 2, 2012, at 10:30 A.M. (Document 2-16 at 3.) The terms
of the sale specified, in relevant part, that “[t]he property will be sold for cash in hand on the date
of sale to the highest bidder.” (Document 2-8, Exhibit A at 3.) The Debtors allege that their
counsel called the Trustee on November 1, 2012, to inform him that they would be filing a
bankruptcy petition the next day, November 2, 2012. (Document 2-16 at 4.)
Nonetheless, the Trustee conducted a foreclosure sale at 10:30 A.M., on November 2,
2012. (Document 2-16 at 4.) Appellant RBS was the highest bidder at $255,000, which
represented approximately $50,000 more than the payoff of the Note and costs of sale. (Id.) At
approximately 10:50 A.M., and after the hammer dropped, the Trustee and RBS executed a
Memorandum of Successor Trustee’s Sale, whereby RBS delivered a $25,000 deposit, with the
remainder due as soon as the Trustee delivered an acceptable deed together with a report of sale.
(Id. at 5.)
Caldwell, Lewisburg District, Greenbrier County, West Virginia. (Document 2-16 at 1.) The Deed of Trust is
recorded in the office of the Clerk of the County Commission of Greenbrier County, West Virginia, in Trust Deed
Book 587, page 536. (Id. at 3.)
6
It is alleged that Mr. Bell suffered from severe health problems, including cancer, during this period, and the
Debtors tried unsuccessfully to refinance the note a third time with United.
3
The Debtors completed their mandatory credit counseling at 12:06 P.M., on that same day.
(Document 2-16 at 4.) Thereafter, at approximately 4:00 P.M., the Debtors filed a petition for
relief under the Bankruptcy Code. As part of their bankruptcy petition, the Debtors listed in
Schedule A two parcels of land, or the subject Property, as valued at $189,350, and indicated that
they intended to retain said property. (Id. at 5.) Attendant to their bankruptcy petition, on that
date an automatic stay began pursuant to 11 U.S.C. § 362.
B. Procedural History
On November 8, 2012 United filed a Motion for Order for Relief from the Automatic Stay
to Permit Trustee under Deed of Trust to Consummate Foreclosure Sale of Real Property
Conducted Prior to the Bankruptcy Filing (Document 2-4.) On November 21, 2012, the Debtors
filed an Answer to Motion for Order for Relief from Automatic Stay to Permit Trustee under Deed
of Trust to Consummate Foreclosure Sale of Real Property Conducted Prior to the Bankruptcy
Filing (Document 2-5.) Thereafter, on December 5, 2012, a hearing was held in relation to the
above filings, and on January 8, 2013, the Debtors filed an Answer to Motion by United Bank to
Lift Automatic Stay and Motion by Debtor to Pay United Bank in Full (Document 2-6).7
On January 29, 2013, Appellant RBS filed a Motion to Intervene and Joinder in United
Bank, Inc.’s Motion for Relief from Stay (Document 2-7). On that same day, the Debtors filed a
Memorandum of Law in Opposition to United Bank’s Motion for Relief from the Automatic Stay
and Permit Deed of Trust Trustee to Consummate Sale (Document 2-8). On January 31, 2013,
the Bankruptcy Court issued an Order Granting R.B.S., Inc.’s Motion to Intervene (Document
2-9), and thereafter, on February 6, 2013, Appellant RBS filed their Reply in Support of United
7
The Court notes that at the December hearing, the United States Bankruptcy Judge for the Southern District
of West Virginia gave the parties additional time to file memoranda, resulting in another response from the debtors.
4
Bank, Inc.’s Motion for Relief from Stay (Document 2-10). The Debtors filed their Response to
the Argument of R.B.S., Inc. (Document 2-11) on February 12, 2013, with RBS filing a Reply to
Response of Debtors to the Argument of R.B.S. Inc. (Document 2-13) on March 8, 2013. United
filed its Memorandum in Support of United Bank, Inc.’s Motion for Relief from Stay on February
13, 2013 (Document 2-12). The Debtors filed a Further Response of the Debtors to the Argument
of RBS, Inc. (Document 2-14) on March 15, 2013. On August 8, 2013, the Bankruptcy Court
issued an Order Converting Case to a Chapter 11 Reorganization Case; Relieving Chapter 7
Trustee; Setting Meeting of Creditors; Setting Deadline to File Proofs of Claim; Directing
Debtor(s) to File Required Pleadings; and Directing Debtor(s) to Pay Conversion Fee (Document
2-15).
In the filings below, United (and RBS) argued that the Debtors did not have an ownership
interest, legal or equitable, in the subject Property after it had been “hammered down” and sold at
the foreclosure sale, and therefore, it should not be part of the estate subject to the automatic stay.
(Document 2-4 at 4-5.) They cited In re Bardell, 374 B.R. 588 (N. D. W. Va. 2007) for support,
and noted that it is factually analogous to the instant dispute. The Debtors responded that Bardell
is inapplicable as it conflicts with the teachings of Smith v. Mooney (In re Smith), 155 B.R. 145
(B.R. S. D. 1993), and further argued that the foreclosure sale was not complete when the Debtors
filed their Bankruptcy Petition because the terms of the actual sale were different from those
mandated by the applicable Notice. (Document 2-5 at 3-6.) The Debtors further argued that the
Bardell case is not binding as the Fourth Circuit merely affirmed the district court via an
unpublished opinion.
5
On August 23, 2013, the Bankruptcy Court issued an Order Denying Stay Relief
(Document 2-16). In that order, the Bankruptcy Court denied the motion to lift the stay because
“a foreclosure sale confers a contractual right under the terms and conditions of the foreclosure
sale, but that the equitable title to the real property remains unchanged until the recordation of the
deed.” (Id. at 9.) The Bankruptcy Court disagreed with the Bardell “interpretation” of West
Virginia law, and found that its denial of the motion to lift the stay, and supporting reasoning, “is
more reflective of the language the West Virginia Supreme Court chose to use [in Atkinson v.
Washington and Jefferson College, 54 W. Va. 32, 46 S.E. 253, 255 (1903)].” (Id.) Thus,
because the Debtors had filed their Bankruptcy Petition before RBS and the Trustee recorded the
deed, the Bankruptcy Court held that the equitable interest remained with the Debtors such that the
Property should be included in the Bankruptcy estate’s automatic stay.
On September 4, 2013, Appellant RBS filed a Notice of Appeal.8 On September 5, 2013,
the Debtors filed a Response to R.B.S., Inc.’s Notice of Appeal (Document 2-17). The Debtors /
Plaintiffs also filed an Amended Complaint (Document 2-19) on October 2, 2013.9
Pursuant to this Court’s November 4, 2013 Order (Document 3), Appellant RBS submitted
its Brief (Document 5) on November 18, 2013. The Debtors / Appellees’ Brief
10
(Document 6)
was submitted on December 2, 2013, and Appellant RBS’s Reply Brief (Document 7) was filed on
December 19, 2013.
8
The Court notes that on September 5, 2013, the Appellant R.B.S. filed an Amended Notice of Appeal (Exhibit
1).
9
The Court notes that an Adversary Proceeding was initiated on June 5, 2013, by the Debtors / Plaintiffs with
the filing of a single-count Complaint requesting a declaratory judgment.
10
The Debtors / Appellees attached the following as exhibits to their brief: (1) an undated, five-page copy of the
docket sheet from adversary proceeding case no. 5:13-ap-05011; and (2) a copy of the amended complaint filed in
adversary proceeding case no. 5:13-5011.
6
II.
STANDARD OF REVIEW
“On an appeal the district court . . . may affirm, modify, or reverse a bankruptcy judge's
judgment, order, or decree or remand with instructions for further proceedings. . .” Fed. R. Bankr.
P. 8013. “In considering such appeals from bankruptcy court decisions, the district courts are
thus required to review the bankruptcy court's findings of fact for clear error, its legal conclusions
de novo, and its exercise of discretion for abuse thereof.”
George Junior Republic in
Pennsylvania v. Williams, 2008 WL 763304, at *2 (E.D.Pa. Mar. 19, 2008) (citing IRS v. Pransky,
318 F.3d 536, 542 (3d Cir.2003); Professional Insurance Management v. Ohio Casualty Group of
Insurance Companies, 285 F.3d 268, 282-283 (3d Cir.2002); In re Krystal Cadillac Oldsmobile
GMC Truck, Inc., 142 F.3d 631, 635 (3d Cir.1998)); see also In re Modanlo, 266 F.App'x 272, 274
(4th Cir.2008) (per curium) (unpublished decision) (“In a bankruptcy appeal, we review the
bankruptcy court’s decision directly, applying the same standard of review as did the district court
. . . Under this standard, we review legal conclusions de novo and factual findings for clear error.”
(citations omitted)).
On appeal, the district court may only consider the evidence which was presented to the
bankruptcy court and made part of the record. See In re Computer Dynamics, Inc. 253 B.R. 693,
697 (E.D.Va. Oct. 13, 2000) (citing Com. Of Va., State Educ. Assistance Authority v. Dillon, 189
B.R. 382, 384 (W.D.Va. Mar. 9, 1995)). Simply put, we review, as would the Fourth Circuit
Court of Appeals, any questions of law, such as those at issue in this case, de novo. See In re
Royal, 137 Fed.Appx. 537 (4th Cir. 2005).
7
III.
APPLICABLE LAW
“Section 362 of the Bankruptcy Code imposes a broad automatic stay which prohibits all
entities from, among other things, engaging in any act to obtain possession of property of the estate
or of property from the estate or to exercise control over property of the state.” In re Royal, 137
Fed.Appx. 537, 539 (4th Cir. 2005) (internal citations omitted). 11 U.S.C. § 362(d) provides, in
relevant part, that after a request and hearing, a court shall grant relief from the automatic stay:
(1) for cause, including the lack of adequate protection of an interest in property of
such party in interest;
(2) with respect to a stay of an act against property under subsection (a) of this
section, if –
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization.
11 U.S.C. §§ 362(d)(1), 362 (d)(2)(a)-(b).
IV.
DISCUSSION
As an initial matter, the Court observes that the parties wish to present, and argue, certain
issues that were not noted in the notice of appeal nor decided by the Bankruptcy Court in its
August 2013 order.11 The Court declines the opportunity to entertain any arguments not squarely
on point to the ultimate issue. The lone issue before the Court is whether the Bankruptcy Court
11
For example, the Debtor / Appellees argue in their brief that they did assert below, both in the adversary
proceeding and in the answer to the motion to lift the stay “that the Memorandum of Sale was never filed. The
Memorandum of Sale that was attached to the pleadings and made a part of [the] record here on appeal is an
unrecorded document." The Court finds that this issue is not before it on appeal, and also notes that the Bankruptcy
Court in its order denying stay relief noted that the “[overall bankruptcy] litigation raises numerous issues as to the
trustee sale and those issues must be resolved in the related adversary proceeding.” (Document 2-16 at 10.)
8
erred by finding that the Debtors retained an interest in the Property after it had been “hammered
down” and sold at a foreclosure sale, but before a deed could be recorded by RBS. Resolution of
this question necessarily decides the ultimate query of whether the Bankruptcy Court erred when it
denied the Appellee’s motion to lift the automatic stay, relative to the Bankruptcy Petition filed
after the foreclosure sale but before the recording of the deed.
The Court finds that the facts are not in dispute and, accordingly, the issue turns on a purely
legal question. The Court notes that, at first glance, the legal issue seems to have split the United
States District Courts for the Northern and Southern Districts of West Virginia, with the two sister
districts – specifically their Bankruptcy Courts – reaching opposite conclusions upon application
of the same state law.
A. Argument on Appeal
Appellant RBS asserts that the Bankruptcy Court erred by incorrectly interpreting West
Virginia law to find that the Debtors retained an equitable interest in the subject Property sold at
the pre-petition foreclosure sale. (Document 5 at 7-10.) RBS argues that the Bardell opinion
extensively reviewed Smith v. Mooney, the case the Bankruptcy Court relied on to support denying
the motion to lift the stay, and that the court in Bardell ultimately “respectfully disagree[d]” with
the legal analysis in Smith, for the following reasons:
In his discussion, Judge Friend [of Smith] cited Atkinson v.
Washington & Jefferson College, 54 W.Va. 32, 40, 46 S.E. 253
(1903), for the proposition that the acceptance of the bid at the
foreclosure sale and execution of a memorandum of sale does not
confer title on the purchaser, but rather confers a right to call for the
deed. While this is certainly true, the fact remains that after the bid is
accepted and the memorandum executed, the debtor has no interest
in the property. The equitable interest in the property lies with the
purchaser at the sale. The legal titled rests in the hands of the trustee.
While the purchaser only has a right ‘to call for the deed,’ it is the
9
trustee to whom the call is to be made, and it is the trustee who will
execute the deed. See West Virginia Code § 38-1-6.
(Document 5 at 11-12.) (quoting Bardell, 374 B.R. at 594.) Essentially, RBS argues that Bardell,
while not binding, is persuasive and applicable, and that the Bankruptcy Court erred by failing to
utilize it as support to lift the automatic stay.
The Debtors / Appellees respond that the Bankruptcy Court was correct in denying the
motion to lift the automatic stay because West Virginia is a race-notice state, and failing to record
the deed before the Debtors filed their bankruptcy petition rendered the foreclosure sale
incomplete. (Document 6 at 6-7.) They argue that only the deed confers title, and because no
deed was executed following the sale, the equitable interest remained with them. (Id. at 9.) On
the question of Bardell and its applicability to the issue at hand, the Debtors argue that because the
Bankruptcy Court “opined [that Bardell] was the product of either flawed or incomplete
reasoning,” it is not applicable here, and even if it were, it is not binding. (Id. at 12, 14-15.) The
Debtors also argue that the terms of the sale did not match the terms of the foreclosure sale notice,
and thus, the sale was “improper pursuant to the due process requirement under West Virginia law
for a non-judicial foreclosure sale.” (Id. at 13.) Finally, the Debtors argue that an adversary
proceeding is necessary to determine the validity of an interest in property, and that, again, because
of due process concerns, “a property interest cannot be divested without some kind of hearing, and
the proper hearing in this instance is an adversary proceeding.” (Id. at 15.) (citations omitted).
RBS replies that the issue is simply whether the Bankruptcy Court erred by relying on
Smith rather than Bardell. It notes that the Debtors are attempting to complicate and muddy the
waters on appeal, and that again, the only issue before the Court is the applicability of Bardell.
(Document 7 at 1.) (Id. at 1-2.)
The Appellant also avers that the terms of the foreclosure sale
10
were proper, that the Debtors indeed enjoyed due process protections, and that the Bankruptcy
Court’s denial of RBS and United’s motion to lift the automatic stay was not based on any ground
other than Bardell being inapplicable inasmuch as it misinterpreted West Virginia law. (Id. at
6-7.)
The Court finds that the Bankruptcy Court erred by failing to apply the ruling of Bardell,
which disagreed with the Smith court’s interpretation of West Virginia law, yet was affirmed by
the Fourth Circuit Court of Appeals after briefing. The Court remands the case to the Bankruptcy
Court for disposition pursuant to this Memorandum Opinion and Order.
B. The Cases
The United States District Court for the Northern District of West Virginia held in Bardell
v. Branch Banking & Trust Co, a case factually analogous to this one, that, “under West Virginia
law, the pre-petition foreclosure sale terminated [the] debtor’s equitable interest in the property,
even though the deed of trust was not delivered to the purchaser until after the filing of the
bankruptcy petition.” 12 Bardell, 374 B.R. at 588. (emphasis added.) Bardell also involved
undisputed facts which revealed that a debtor’s property was sold via foreclosure sale just two days
before the debtor filed for Chapter 13 bankruptcy protection. Id. at 589. While the debtor’s
petition was filed before a deed from the foreclosure sale could be recorded, the court there held
that the equitable interest passed to the purchaser at the foreclosure sale, and thus, the property was
not part of the bankruptcy estate, subject to an automatic stay. In reaching its conclusion, the
Bardell court “respectfully disagreed” with the holding of Smith v. Mooney, 155 B.R. 145 (Bankr.
S. D. W. Va. 1993). Bardell, 374 B.R. at 594.
12
The District Court’s opinion affirmed the Bankruptcy Court’s determination that the debtor “was not entitled
to cure his mortgage default or avoid the pre-petition foreclosure sale.” Bardell, 374 B.R. at 590.
11
The Bardell court specifically challenged the Smith court’s interpretation of Atkinson v.
Washington & Jefferson College, 54 W. Va. 32, (1903), and reiterated that “after the [foreclosure
sale] bid is accepted and the memorandum executed, the debtor has no interest in the property.
The equitable interest in the property lies with the purchaser at the sale. The legal title rests in the
hands of the trustee.” Id. (emphasis added). The Bardell court also discussed a number of cases
from the Fourth Circuit, mainly from Virginia, and noted that “these decisions are consistent with
the law in Virginia.”13 Id. at 592. That court also examined cases from other circuits which
supported its holding that “the foreclosure sale itself terminates the debtor’s property rights.” Id.
Smith v. Mooney involved a similar circumstance to that presented here, with the debtor’s
property, used as security for a loan, sold via foreclosure sale in January of 1992. 155 B.R. 145,
146 (Bankr. S. D. W. Va. 1993). In February of that year, the debtor filed for Chapter 11
bankruptcy, but it was not until March that the deed of trust was prepared and recorded. Id.
There, the court noted that “[c]onsistent with the Court of Appeals of West Virginia, this Court
finds that, as to the transfer of real property, such transfer cannot be complete absent delivery of
the deed,” and further, “[t]his Court’s interpretation of the Atkinson decision is that until the deed
of trust trustee delivers the deed, the debtor continues to maintain an equitable interest in the
subject property.” Id. at 148.
The West Virginia Supreme Court of Appeals has more recently considered the question of
property ownership when a bankruptcy petition is filed after a foreclosure sale, but before the
recording of a deed, in Harper v. Smith, 753 S.E.2d 612 (W. Va. 2012), a per curiam opinion. In
pertinent part, Harper involved facts similar to those seen here. In 1997, the Harpers secured a
13
The Bardell court found that the law in Virginia is “particularly relevant in areas of property law, inasmuch as
West Virginia adopted the common law of Virginia at its inception. West Virginia Code § 2-1-1.” Bardell, 374 B.R.
at 591, note 2.
12
loan, using property as collateral. Harper, 753 S.E.2d at 614. The Harpers were in default by
2001, however, and the property was subsequently sold at a foreclosure sale to the Bank of New
York on July 10, 2001. Id. The Harpers filed for bankruptcy on July 19, 2001, but the trustee’s
deed – reflecting the foreclosure sale – was dated July 16, 2001. Id. at 615. Importantly, the
deed was not recorded until October 1, 2001, well after the Harpers filed their bankruptcy. Id.
Thereafter, the purchaser at the foreclosure sale failed to remit property taxes from 2003
through 2006, and the Mingo County Sheriff sold the tax lien on the property, which was
purchased by Marquis Development, LLC, which then sold the property to Mr. Smith, who served
an eviction notice on the Harpers’ son, Mike Harper, then living on the property. Harper, 753
S.E.2d at 614. In 2008, the Harpers filed a declaratory judgment action, claiming they were the
owners of the property. Id. After submission of the respective motions for summary judgment,
the circuit court ruled that there was no genuine issue of material fact, and granted summary
judgment for the defendants and against the Harpers. The Harpers appealed, claiming, in addition
to other arguments, that there was a question of fact with regard to whether the Bank of New York
actually obtained title to the property via the foreclosure sale. Id.
The West Virginia Supreme Court, in holding that the Bank of New York did, in fact,
obtain title to the property via the foreclosure sale, declared that:
Contrary to Mr. Harper’s contentions, there is clear evidence in the
record showing that the Bank of New York purchased the property
at the foreclosure sale on July 10, 2001, and obtained a valid title.
In particular, the record includes various letters sent to the Harpers
advising them that their loan was in default; the trustee’s notice of
sale; the report of the trustee indicating that the property was in fact
sold at the front door of the Mingo County Courthouse on July 10,
2001 to the Bank of New York . . .; and the trustee’s deed conveying
the property to the purchaser, the Bank of New York. During her
deposition, Lois Harper admitted that the foreclosure occurred
13
before she and her husband filed for bankruptcy. She further
testified that she did not tell her bankruptcy attorney about the
foreclosure. Even Mr. Harper acknowledges that the sale occurred
prior to his parents filing their bankruptcy application.
Harper, 753 S.E.2d at 615. (emphasis added). Later in the opinion, the West Virginia Supreme
Court again reiterated that, “we affirm the circuit court order granting summary judgment in favor
of Mr. Smith because the Harpers lost title to the property as a result of the foreclosure sale in
2001 . . .” Id. at 617. (emphasis added). Hence, the Harper decision demonstrates that Smith
does not accurately reflect West Virginia law.
Also important to the Court’s determination today, Bardell was appealed to the Fourth
Circuit Court, which affirmed the decision after briefing, finding “no reversible error.” See
Bardell v. Branch Banking & Trust Co., 294 Fed.Appx. 47 (CA.4 (W.Va.) 2008)). Smith was
apparently never appealed to the District Court for the Southern District of West Virginia, and,
therefore, not to the Fourth Circuit. This procedural and historical review is especially relevant
when presented with such a divide between two cases examining the same legal issue with similar
underlying facts. The review is likewise pertinent when viewed against the Bankruptcy Court’s
reasoning for not applying Bardell, which was that Bardell misinterpreted language contained in
Atkinson.
The Court further notes the length and depth of the two competing opinions as support for
the applicability and appropriateness of employing Bardell to the case at bar. Bardell delved into
the applicable law in West Virginia, as well as other state and circuit interpretations, examined
Atkinson, and further scrutinized and distinguished Smith as getting it wrong. Smith, on the other
hand, interpreted Atkinson – and West Virginia law – as giving support for the conclusion that “as
14
to the transfer or real property, such transfer cannot be complete absent delivery of the deed.”14
Smith, 155 B.R. at 147.
Of paramount importance to the Court, Bardell actually critiqued Smith and disagreed with
the interpretation it gave Atkinson, with the Fourth Circuit (implicitly) affirming the “alternative”
conclusion reached by Bardell. Certainly, the Fourth Circuit would have found reversible error if
a West Virginia District Court misapplied West Virginia law, particularly when the Bardell court
disagreed with, and made such a sharp break with, Smith. The West Virginia Supreme Court, as
the final arbiter of West Virginia law, applied the same interpretation in Harper as the District
Court used in Bardell. Thus, applying the reasoning of Bardell and Harper, the Court finds that
the Debtor’s equitable interest in the subject Property was severed when the “hammer was struck
down” at the foreclosure sale before the filing of Debtor’s bankruptcy petition. That, coupled
with the fact that the Trustee, as opposed to the Debtors, was vested with legal title, results in the
conclusion that the subject Property should not have been included as part of the Debtors’
bankruptcy estate, subject to the automatic stay.
CONCLUSION
Accordingly, the Bankruptcy Court’s August 23, 2013 Order (Document 2-16) is
REVERSED. The Court ORDERS that this matter be REMANDED to the Bankruptcy Court
for the Southern District of West Virginia for further findings and disposition consistent with this
opinion.
14
The Court notes that the Smith court initially avoided the transfer of the debtor’s property via an earlier
foreclosure sale as violating Bankruptcy Code §§ 1107(a) and 549(a). .
15
The Court DIRECTS the Clerk to send a copy of this Order to counsel of record, to any
unrepresented party, and to the Bankruptcy Court Clerk.
ENTER:
16
March 26, 2014
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