United States Court of Appeals
For the First Circuit
No. 00-1427
ROBERT J. SPENLINHAUER, DEBTOR,
Plaintiff, Appellant,
v.
JOSEPH V. O’DONNELL, TRUSTEE IN BANKRUPTCY,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Gene Carter, U.S. District Judge]
Before
Boudin, Chief Judge,
Cyr, Senior Circuit Judge,
and Lipez, Circuit Judge.
Anthony E. Perkins, with whom Michael A. Fagone and
Bernstein, Shur, Sawyer & Nelson were on brief for appellant.
U. Charles Remmell, II, with whom Kelly, Remmell &
Zimmerman, Stephen Morrell, and Eaton, Peabody, Bradford &
Veague were on brief for appellee.
August 20, 2001
CYR, Senior Circuit Judge. Chapter 7 debtor Robert J.
Spenlinhauer appeals from a district court order which affirmed
a bankruptcy court ruling authorizing the chapter 7 trustee to
sell certain property of the chapter 7 estate to the estranged
siblings of the chapter 7 debtor. We dismiss the appeal due to
lack of jurisdiction.
I
BACKGROUND
The chapter 7 debtor and his two brothers established
the JRS Trust in 1979 for the purpose of leasing certain real
estate situated in Wells, Maine.1 When Robert Spenlinhauer filed
a voluntary chapter 11 petition in 1990, his one-third
beneficial interest in the JRS Trust became property of the
chapter 11 estate by operation of law. The case was converted
to a chapter 7 liquidation proceeding in 1994, whereupon the
appellee became the chapter 7 trustee. Beginning in 1995, the
trustees of the JRS Trust — viz., debtor’s brothers, John and
Stephen, and the chapter 7 trustee — renegotiated the terms of
a sublease which the JRS Trust had entered into with Spencer
1
We recite only the record facts directly pertinent to the
determinative jurisdictional issue. For greater background
detail, see In re Spenlinhauer, 231 B.R. 429 (D. Me. 1999).
3
Press, a company controlled by the Spenlinhauer family.2
In 1998, the chapter 7 trustee filed a notice of sale
with the bankruptcy court, see Bankruptcy Code § 363; 11 U.S.C.
§ 363, proposing to sell the chapter 7 estate’s one-third
beneficial interest in the JRS Trust to John and Stephen
Spenlinhauer [hereinafter: “Purchasers”] for $500,000. The
notice of sale did not expressly provide that the chapter 7
trustee would also release the Purchasers from any potential
liability, either to the chapter 7 estate or to the chapter 7
debtor, arising from the Purchasers’ pre-sale administration of
the JRS Trust.
The chapter 7 debtor then brought suit in federal
district court against Spencer Press and the JRS Trust trustees,
claiming that their sublease renegotiations were conducted in
violation of the automatic stay provisions. See Bankruptcy Code
§ 362(a)(3); 11 U.S.C. § 362(a)(3). Simultaneously, in the
pending bankruptcy court proceeding, the chapter 7 debtor
objected to the proposed sale, contending that the sublease
renegotiations conducted by the Purchasers violated the
automatic stay, breached their fiduciary duties as trustees of
the JRS Trust, and seriously devalued the chapter 7 debtor’s
2
By 1988, the chapter 7 debtor, Robert Spenlinhauer, had
sold all his stock in Spencer Press.
4
interest in the JRS Trust, thereby rendering the proposed
$500,000 sale price inadequate.
On November 3, 1998, the bankruptcy court conducted
a telephonic hearing on the chapter 7 trustee’s section 363
notice of sale, during which the chapter 7 debtor contended that
his causes of action against the Purchasers for allegedly
violating the automatic stay and breaching their fiduciary
duties should not be included in the sale proposed by the
chapter 7 trustee, since these assets were distinct from his
one-third beneficial interest in the JRS Trust. The chapter 7
trustee responded that these causes of action were of
questionable merit and value, and, in any event, that his sale
of the underlying trust interest to the Purchasers might, by
necessary implication, release the Purchasers from the claims
asserted by the chapter 7 debtor. The Purchasers informed the
bankruptcy court that though they had not requested a release of
claims from the chapter 7 trustee as part of the proposed sale,
they nonetheless preferred a release, given the chapter 7
debtor’s litigation posture. After observing that the notice of
the proposed sale contained no release of claims, the bankruptcy
court continued the telephonic hearing for one week in order to
permit the chapter 7 trustee to reevaluate “all the facts and
circumstances of the sale.”
5
On November 10, the day the hearing resumed, the
Purchasers submitted the affidavit of Gordon C. Ayer, Esq.
(“Ayer Affidavit”), in-house-counsel to Spencer Press,
describing in detail the sublease renegotiations conducted in
1995 between Spencer Press and the JRS Trust. During the
reconvened hearing, counsel to the chapter 7 debtor informed the
bankruptcy court that he was “at a bit of a disadvantage”
because he had not yet received the Ayer Affidavit, thus it was
“very difficult . . . to address it in any fashion or to have
submitted countering affidavits.” In addition, the Purchasers
stated that a release of all claims must be part of the
consideration for their purchase.
In light of the chapter 7 debtor’s failure to adduce
evidence that there had been any violation of the automatic stay
or breach of fiduciary duty by the chapter 7 trustee, the
bankruptcy court announced that it would approve the sale of the
chapter 7 estate’s interest in the JRS Trust, as well as the
release of any potential causes of action against the Purchasers
arising from their pre-sale administration of the JRS Trust.
Thus, the court held that the Purchasers had purchased “in good
faith,” within the meaning of Bankruptcy Code § 363(m), 11
U.S.C. § 363(m).
Subsection 363(m) provides that “[t]he reversal or
6
modification on appeal of a[] [bankruptcy court’s] authorization
. . . of a sale . . . does not affect the validity of a sale .
. . to an entity that purchased . . . such property in good
faith . . . unless such authorization and such sale . . . were
stayed pending appeal.”3 Prior to hearing from counsel to the
chapter 7 debtor, the bankruptcy court announced its intention
to deny any motion for stay. Whereupon counsel to the chapter
7 debtor interjected: “[B]y not asking for [a stay], we are not
giving up our rights to appeal.”
In due course, the chapter 7 debtor appealed to the
district court. The district court upheld the determination
that the Purchasers were purchasers “in good faith” under
subsection 363(m), but remanded to the bankruptcy court to
reevaluate whether the terms of the sale fairly encompassed a
release of the chapter 7 debtor’s putative causes of action
against the Purchasers. In re Spenlinhauer, 231 B.R. 429 (D.
Me. 1999).
Following the remand, after yet another hearing, the
3
Subsection 363(m) is designed to ensure that a “good faith”
purchaser, or “one who buys property in good faith and for
value, without knowledge of adverse claims,” In re Mark Bell
Furniture Warehouse, Inc. (Mark Bell Furniture Warehouse, Inc.
v. D.M. Reid Assocs.), 992 F.2d 7, 8 (1st Cir. 1993),
justifiably may rely on the finality of the sale. See In re
Healthco Int’l, Inc. (Hicks, Muse & Co. v. Brandt), 136 F.3d 45,
49 (1st Cir. 1998) (noting that § 363(m)’s guarantee of finality
promotes optimal prices for estate assets).
7
bankruptcy court ruled that it could not undertake further
inquiry into the scope of the sale since the district court had
upheld the Purchasers’ “good faith” status on appeal, and
consequently subsection 363(m) precluded any reassessment of the
terms of the sale consummated on November 10, 1998. The chapter
7 debtor once again appealed to the district court, which
adopted the bankruptcy court’s rationale on remand, and
affirmed. In re Spenlinhauer, No. 99-364, 2000 WL 760745 (D.
Me. Feb. 18, 2000).
II
DISCUSSION
The chapter 7 debtor urges us to reverse the November
10, 1998, order confirming the sale, for the following reasons,
among others: (1) the chapter 7 trustee concededly failed to
follow the local bankruptcy court rule which requires the
parties to submit their supporting affidavits not later than one
business day prior to a hearing; thus, the bankruptcy court
abused its discretion (i) by relying on the pivotal Ayer
Affidavit as evidence of the Purchasers’ “good faith,” and (ii)
by denying the chapter 7 debtor’s requests for additional
discovery or for an evidentiary hearing aimed at countering the
deleterious evidence presented in the Ayer Affidavit; and (2) on
remand from the district court, the bankruptcy court erroneously
8
ruled that subsection 363(m) precluded its reassessment
regarding whether the November 10, 1998, sale encompassed the
release of claims, since the finality provisions in subsection
363(m) pertain strictly to sales of property (e.g., the chapter
7 estate’s one-third interest in the JRS Trust), not to the
chapter 7 estate’s settlement or relinquishment of causes of
action acquired by the chapter 7 estate.
On appeal from a district court decision reviewing a
bankruptcy court order, we review the bankruptcy court order
directly, disturbing its factual findings only if clearly
erroneous, while according de novo review to its conclusions of
law. In re Stoehr (Stoehr v. Mohamed), 244 F.3d 206, 207-08
(1st Cir. 2001) (per curiam). Moreover, we may affirm the
bankruptcy court order on any ground apparent from the record on
appeal. See In re Rauh (Noonan v. Rauh), 119 F.3d 46, 53-54
(1st Cir. 1997). Before we address the substantive claims
advanced on appeal, however, we must determine our appellate
jurisdiction.
Under the Bankruptcy Code, standing to appeal from a
final bankruptcy court order is accorded only to a “person
aggrieved.” See In re Thompson (Kowal v. Malkemus), 965 F.2d
1136, 1142 n.9 (1st Cir. 1992). The “person aggrieved”
paradigm, which delimits appellate jurisdiction even more
9
stringently than the doctrine of Article III standing, see,
e.g., In re Alpex Computer Corp. (Nintendo Co. v. Patten), 71
F.3d 353, 357 n.6 (10th Cir. 1995); In re H.K. Porter Co.
(Travelers Ins. Co. v. H.K. Porter Co.), 45 F.3d 737, 741 (3d
Cir. 1995),4 bestows standing only where the challenged order
directly and adversely affects an appellant’s pecuniary
interests. In re Thompson, 965 F.2d at 1142 n.9.
The advent of the chapter 7 estate and the appointment
of the chapter 7 trustee divest the chapter 7 debtor of all
right, title and interest in nonexempt property of the estate at
the commencement of the case. See Bankruptcy Code §§ 541(a),
704; 11 U.S.C. §§ 541(a), 704.5 Since title to property of the
4The principal policy underlying the heightened “standing”
requirement is that bankruptcy proceedings — often
administratively and procedurally unwieldy — not be prolonged by
unnecessary appeals. In re Thompson, 965 F.2d at 1145-46; In re
Colony Hill Assocs. (Kabro Assocs. of W. Islip v. Colony Hill
Assocs.), 111 F.3d 269, 273 (2d Cir. 1997); In re Andreuccetti,
975 F.2d 413, 416-17 (7th Cir. 1992).
5Neither party disputes that the debtor’s putative causes of
action against the Purchasers, for violation of the automatic
stay and breach of fiduciary duty, constitute property of the
chapter 7 estate, and that a release of those claims was
amenable to disposition by the chapter 7 trustee. See, e.g., In
re Acton Foodservices Corp., 39 B.R. 70, 72 (Bankr. D. Mass.
1984) (holding that potential causes of action became property
of the chapter 7 estate even though they arose postpetition,
since any legal or equitable rights of the debtor in the
underlying real property from which those causes of action
derived had become property of the chapter 7 estate before the
causes of action accrued) (citing 11 U.S.C. § 541(a)(7)); see
also In re Doemling, 116 B.R. 48, 50 (Bankr. W.D. Pa. 1990).
10
estate no longer resides in the chapter 7 debtor, the debtor
typically lacks any pecuniary interest in the chapter 7
trustee’s disposition of that property. See In re El San Juan
Hotel, 809 F.2d 151, 154-55 (1st Cir. 1987); see also In re Cult
Awareness Network, Inc. (Cult Awareness Network, Inc. v.
Martino), 151 F.3d 605, 607 (7th Cir. 1998); In re Richman
(Richman v. First Woman’s Bank), 104 F.3d 654, 657 (4th Cir.
1997). Thus, normally it is the trustee alone, as distinguished
from the chapter 7 debtor, who possesses standing to appeal from
bankruptcy court orders which confirm or reject sales of
property of the estate. See In re Mark Bell Furniture
Warehouse, Inc. (Mark Bell Furniture Warehouse, Inc. v. D.M.
Reid Assocs.), 992 F.2d 7, 10 (1st Cir. 1993); In re Eisen
(Moneymaker v. CoBen), 31 F.3d 1447, 1451 n.2 (9th Cir. 1994).
In the normal course, therefore, the bankruptcy or
district courts must make the required “person aggrieved”
determination in the first instance, which entails a factual
inquiry which we review only for clear error. See In re El San
Juan Hotel, 809 F.2d at 154 n.3; In re Parker (McClellan Fed.
Credit Union v. Parker), 139 F.3d 668, 670 (9th Cir. 1998). But
where, as here, the lower court has not undertaken the required
“standing” inquiry, we must do so, ab initio, on our own
initiative. See In re Mark Bell Furniture, 992 F.2d at 9; In re
11
Dein Host, Inc., 835 F.2d 402, 404 (1st Cir. 1987). Moreover,
provided the appellate record discloses the requisite facts, we
may address the matter without remanding. See In re Parker, 139
F.3d at 670; In re American Ready Mix, Inc. (Lopez v. Behles),
14 F.3d 1497, 1499-1500 (10th Cir. 1994) (noting also that
parties may neither waive nor stipulate to “standing”). As in
other jurisdictional contexts, of course, the party asserting
appellate jurisdiction — here, the chapter 7 debtor — bears the
burden. See In re Depoister (Depoister v. Mary M. Holloway
Found.), 36 F.3d 582, 585 (7th Cir. 1994); In re Willemain
(Willemain v. Kivitz), 764 F.2d 1019, 1023 (4th Cir. 1985); In
re Cosmopolitan Aviation Corp. (Cosmopolitan Aviation Corp. v.
New York State Dep’t of Transp.), 763 F.2d 507, 513 (2d Cir.
1985); In re Alfaro (Alfaro v. Vazquez), 221 B.R. 927, 931-32
(B.A.P. 1st Cir. 1998).6
Therefore, when the chapter 7 debtor appeals from an
order authorizing a sale of property of the estate, he must
adduce sufficient evidence to demonstrate that the challenged
order directly and adversely affects the chapter 7 debtor’s
pecuniary interests, notwithstanding the fact that he no longer
6At the November 10, 1998, hearing, the bankruptcy judge
mistakenly observed: “I could take an offer of proof from the
trustee regarding the standing issue,” but “I’m not going to
address that issue today.” (Emphasis added.)
12
has title to the property. The chapter 7 debtor may establish
standing by demonstrating, inter alia, that nullification of the
sale is likely to result in an overall surplus in the chapter 7
estate — viz., a total nonexempt-asset valuation exceeding all
allowed claims against the chapter 7 estate — to which the
debtor, qua individual, would become entitled once the
bankruptcy case is closed, see, e.g., In re Cundiff (Cundiff v.
Cundiff), 227 B.R. 476, 478 (B.A.P. 6th Cir. 1998) (citing 11
U.S.C. § 554(c), noting that all unadministered chapter 7 estate
property revests in the individual debtor at close of bankruptcy
case). See In re Thompson, 965 F.2d at 1143 n.12; see also In
re McGuirl (McGuirl v. White), 86 F.3d 1232, 1234 (D.C. Cir.
1996); In re Willemain, 764 F.2d at 1022.7 The record on appeal
discloses no indication that the chapter 7 debtor ever attempted
to sustain his burden on “standing.”
At the November 3, 1998, hearing, the bankruptcy judge
7In addition, a debtor may demonstrate standing by
establishing that a proposed sale of property would adversely
affect the terms and conditions of his chapter 7 discharge. See
In re Thompson, 965 F.2d at 1143 n.12. However, this
consideration is not pertinent to the present appeal, which
involves simply a putative debt due the debtor by the
Purchasers. Further, although the chapter 7 debtor asked the
chapter 7 trustee to relinquish these causes of action to him
(viz., abandon them), he did not offer to purchase the releases
from the chapter 7 trustee. Hence, the chapter 7 debtor has no
conceivable claim to “standing” as an unsuccessful bidder. See
Mark Bell Furniture, 992 F.2d at 10.
13
immediately raised the “standing” issue sua sponte. Twice the
chapter 7 trustee was asked: “[W]hat will the impact of the
sale at this [$500,000] price be in terms of [a] dividend to
nonpriority unsecured creditors?” The chapter 7 trustee
responded that though he had yet to calculate the exact
liabilities, he “anticipat[ed] a fairly strong dividend to
unsecured creditors.” The bankruptcy judge then inquired
whether a sale at $727,000, the estimated maximum fair market
value, would “generate a surplus for distribution to the
debtor?” The chapter 7 trustee responded that though he had
anticipated that the “standing” issue would arise at the
hearing, the burden was upon the chapter 7 debtor, who neither
alleged “standing” nor adduced any evidence that the proposed
sale to the Purchasers would adversely affect his pecuniary
interests (viz., deny the chapter 7 estate a potential surplus).
Instead of disputing the procedural deficiency noted
by the chapter 7 trustee, the chapter 7 debtor merely mustered
the conclusory statement that, but for the $500,000 sale to the
Purchasers, “it is very likely that we would have created value
that would have devolved to [the chapter 7 debtor].” At no
point did the chapter 7 debtor proffer evidentiary support for
this supposition, nor tender a counter-appraisal showing that
the one-third JRS Trust interest (whether or not coupled with a
14
release of claims) currently was worth more than $500,000, let
alone $727,000. Similarly, the chapter 7 debtor offered no
evidence as to how, or by what amount, the Purchasers’ 1995
sublease renegotiations reduced the value of the JRS Trust
(hence the value of the chapter 7 debtor’s interest in it).
Furthermore, rather than attempting to approximate the
alleged monetary loss, the chapter 7 debtor conjectured: “I’ve
got to believe that the Arthur Anderson appraisal [viz., the
appraisal adduced by appellees], if it had been done on the
original [viz., the pre-sublease-renegotiation] picture, would
be significantly higher.” (Emphasis added.) Finally, the
chapter 7 debtor neither attempted to adduce evidence as to the
total unsecured liabilities of the chapter 7 estate, nor
suggested that any such calculation (or reasonable
approximation) would be infeasible in the circumstances. Cf. In
re Depoister, 36 F.3d at 585 (appellate court may consider
debtor’s own calculations regarding assets versus liabilities in
arriving at its sua sponte “standing” determination).8
The bankruptcy judge noted that there “would [be]
8
At the November 10, 1998 hearing, the bankruptcy judge
noted that even assuming the chapter 7 debtor had not had an
opportunity to review the Ayer Affidavit before the hearing,
“neither has [the chapter 7 debtor] put forward any sworn or
attested statement in support of his personal allegations
against . . . his brothers.”
15
standing concerns” were the case before the district court for
trial of the chapter 7 debtor’s parallel litigation against the
Purchasers, see supra Section I,9 but ceased further inquiry into
the “standing” issue as it relates to the chapter 7 debtor’s
challenge to the sale. Moreover, at the November 10, 1998,
hearing, the chapter 7 trustee informed the bankruptcy court
that investigation had disclosed that “there is virtually no
prospect for any surplus to the debtor.” Still, the chapter 7
debtor offered no response. Thus, by November 10, 1998, the day
the bankruptcy judge concluded the continued telephonic hearing,
the record contained no competent evidence of “standing” on the
part of the chapter 7 debtor.
Whatever omission or confusion may have been engendered
by any ruling below, however, it remains incumbent upon us to
address the “standing” issue sua sponte, based on the existing
appellate record, which plainly demonstrates that the chapter 7
debtor utterly failed to establish the requisite “standing” to
appeal. See In re Rauh, 119 F.3d at 53.10
9
The bankruptcy judge noted as well that if the chapter 7
debtor’s claims for breach of fiduciary duty and violation of
the automatic stay had any substance, “they certainly would or
could . . . redound to the benefit of the estate rather than
[the chapter 7 debtor] personally.”
10
Nonetheless, appellee is admonished for failing to adhere
to Federal Rule of Appellate Procedure 28(a)(7) & (b), which
mandates that appellee briefs include pertinent citations to the
16
Appeal dismissed.
appellate record, supporting all factual statements. The
Federal Rules of Appellate Procedure are not optional.
Fortunately for the appellee, our disposition has not depended
upon his inadequately supported factual recitations.
17