Spenlinhauer v. O'Donnell

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