[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 09-10994 MAY 4, 2010
________________________ JOHN LEY
CLERK
D. C. Docket No. 03-00354-CV-OC-10-GRJ
OLD WEST ANNUITY AND LIFE INSURANCE COMPANY,
et al.,
Plaintiff-Counter-Claimant,
UNITED STATES OF AMERICA,
Intervenor Plaintiff-Counter-Defendant-Appellant,
versus
THE APOLLO GROUP,
a California corporation,
Defendant-Appellee,
CAMP COAST TO COAST, INC.
THE AFFINITY GROUP, INC.,
Intervenor Plaintiffs-Appellees,
HANS SCHULZ,
a Trustee of the Schulz Family Trust, dated
1/1/88, et al.,
Defendants.
_______________________
Appeal from the United States District Court
for the Middle District of Florida
_________________________
(May 4, 2010)
Before EDMONDSON, BARKETT and BALDOCK,* Circuit Judges.
PER CURIAM:
This appeal is one by the Government from the district court’s allocation of
surplus proceeds from the sale of real property in a foreclosure action. A
bankruptcy estate owned the real property; several creditors obtained relief from
the automatic stay to pursue this foreclosure action. The Government contends
that the district court erred in these ways: (1) by applying Florida law instead of
federal common law to determine whether the Government could recover from the
surplus proceeds for tax liens against the property for taxes owned by the debtor’s
alleged alter ego; and (2) by distributing the surplus proceeds in satisfaction of the
Government’s and Coast’s liens instead of distributing the funds to the bankruptcy
*
Honorable Bobby R. Baldock, United States Circuit Judge for the Tenth Circuit, sitting
by designation.
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trustee or applying the Bankruptcy Code’s priority scheme.
We affirm.
I. BACKGROUND
Old West Annuity and Life Insurance Company (“Old West”) commenced
this foreclosure action in Florida state court, seeking to foreclose its mortgage lien
on a campground in Clermont, Florida (the “Campground”) owned by Apollo
Group, Inc. (“Apollo”). Apollo acquired the Campground in an auction associated
with the bankruptcy of All Seasons Resorts, Inc. (“All Seasons”). Soon after Old
West initiated the foreclosure action in a Florida state court, Apollo itself filed a
petition under Chapter 11 of the Bankruptcy Code in the Northern District of Ohio.
The filing of Apollo’s bankruptcy petition automatically stayed the Florida
foreclosure action. See 11 U.S.C. § 362. Two years later, the bankruptcy court
granted Old West relief from the automatic stay, allowing Old West to assert its
rights to the Campground by continuing with the foreclosure action.
Soon after, the Government filed a proof of claim for unpaid taxes in the
bankruptcy court. The claim was based on unpaid tax assessments against Apollo
for approximately $21,000 and unpaid assessments against All Seasons in excess
3
of $10 million. The Government contends that Apollo is the alter ego of All
Seasons, making Apollo liable for All Seasons’s delinquent taxes. The bankruptcy
court granted the Government relief from the stay to establish and enforce tax liens
against the Campground. The Government then locally recorded notice of its tax
assessments and intervened in this foreclosure action in state court. The
Government later removed this case (the foreclosure action) to federal district court
in Florida.
The bankruptcy court then granted creditors Camp Coast to Coast, Inc. and
Affinity Group, Inc. (“Coast”) relief from the automatic stay. Coast had won a
substantial money judgment against Apollo in a California case several years
earlier. After Coast obtained relief from the stay, it domesticated its California
judgment in Florida. Coast obtained an order from a Florida court declaring its
judgment lien against Campground; the lien was recorded and thus perfected.
Coast then intervened in this foreclosure action. The district court ordered the sale
of the Campground, with the liens of Old West, the Government, and Coast to
attach to the proceeds of the sale to the same extent, and in the same priority, that
they attached to the property prior to the sale. The sale resulted in proceeds of $4.4
million.
By then, the bankruptcy court had converted the bankruptcy case from
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Chapter 11 to Chapter 7. The Government sought and obtained an order from the
bankruptcy court confirming that the conversion to Chapter 7 did not affect that
court’s earlier stay-relief orders. The proceedings in the foreclosure action
continued: Old West undisputedly held the first priority lien on the Campground,
and the Government undisputedly held the second priority lien for Apollo’s taxes.
The contentious issue in the district court was whether the Government could also
recover for the taxes owed by Apollo’s alleged alter ego, All Seasons; if so, the
Government’s recovery would deplete the remaining proceeds and preclude
recovery by Coast. The district court granted Old West summary judgment and
disbursed $2.9 million of the proceeds in satisfaction of its undisputed first priority
claim. The district court set the alter ego issue for trial.
Meanwhile, the Government filed an administrative claim in the bankruptcy
court for the bankruptcy estate’s tax liabilities resulting from the sale of the
Campground, which amounted to over $1.8 million (more than the remaining
proceeds in the district court’s register). The Government then filed a
supplemental complaint in the district court seeking to have the funds in the district
court’s register returned to the bankruptcy trustee for distribution in accordance
with the Bankruptcy Code. After that, the Government filed a motion specifically
requesting the transfer of the money. Coast opposed the motion on standing
5
grounds; so the Government obtained an order from the bankruptcy court allowing
the Government to represent the estate in the foreclosure proceedings in the district
court to “assert such claims or rights on behalf of the estate which the Trustee may
be entitled to assert in that action, including whether the bankruptcy estate has a
senior right to the funds that are now held in the registry of that court.” The
bankruptcy court’s order noted, however, that it “is not ruling, and has never
previously ruled, on the issue of whether [11 U.S.C.] § 544(a) grants the estate
priority over the lien claim of” Coast.
Now asserting the section 544(a) rights of the trustee, the Government
continued to argue in the district court that the funds there should be returned to the
bankruptcy court or, in the alternative, that the district court should distribute the
remaining funds in accordance with the Bankruptcy Code.1 The crux of the
Government’s argument was that the bankruptcy court did not intend its stay-relief
orders to constitute an abandonment of the Campground property and that
therefore the surplus proceeds remained the property of the estate and were subject
1
In the district court, Coast argued that it was improper for the Government to assert the
trustee’s claims because those claims were unsupported by any pleadings. Although Coast
mentions the lack of supporting pleading in a footnote in its appellate brief, Coast has not
presented substantive argument on this point on appeal; the issue is therefore waived. See
United States v. Flores, 572 F.3d 1254, 1265 n.3 (11th Cir. 2009) (noting that bare allegations
without citation of “any authority” or supporting facts are waived); Marek v. Singletary, 62 F.3d
1295, 1298 n.2 (11th Cir. 1995) (“Issues not clearly raised in the briefs are considered
abandoned.”). We express no opinion on the propriety of the Government’s assertion of the
trustee’s rights in a motion mid-trial.
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to the Bankruptcy Code.
The district court acknowledged that the trustee had not formally abandoned
the Campground, but denied the Government’s motion to transfer the surplus
proceeds. Interpreting the bankruptcy court’s orders, the district court determined
that, pursuant to its concurrent jurisdiction over the Campground and in the
absence of a contrary order from the bankruptcy court, its task was to adjudicate
the rights of the parties before it and to distribute the remaining sales proceeds.
The district court also rejected the Government’s attempt to assert the trustee’s
strong arm powers under section 544, concluding that those powers can only defeat
liens arising pre-petition.2
After holding a bench trial on the alter ego issue, the district court concluded
that it must apply Florida law -- as opposed to the federal common law advocated
by the Government -- when determining liability.3 The district court concluded
that the Government did not meet its burden to establish alter ego liability under
Florida law; therefore, the court concluded that the Government was only entitled
2
The district court also noted that it was “very much aware of the real motivation behind
the United States’ motion”: to receive an automatic disbursement of the funds without needing to
litigate the alter ego question. The district court declined to allow “the United States at this very
late stage in the litigation to forum shop and essentially negate this Court’s proceedings, or to
use its derivative Trustee standing in such a self-serving manner.”
3
The district court viewed this determination as critical because of the substantial
differences between the Florida and federal common law alter ego tests.
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to recover for Apollo’s taxes (and not All Seasons’s taxes) and that Coast was
entitled to the remaining foreclosure funds. The Government now appeals.
II. DISCUSSION
A. Applicable Law to Determine Alter Ego Liability
At trial, the Government argued that Apollo is the alter ego of All Seasons,
making Apollo liable for All Seasons’s tax liabilities. The Government contends
that the district court should have applied the federal common law alter ego test
instead of the test under Florida law.
The Government contends that, because the tax code is a nationwide federal
program, this Court must apply the framework established by United States v.
Kimbell Foods, Inc., 99 S. Ct. 1448, 1458-59 (1979), to determine whether federal
common law or state law determines alter ego liability. Coast, on the other hand,
contends that Aquilino v. United States, 80 S. Ct. 1277 (1960), and Drye v. United
States, 120 S. Ct. 474 (1999), require this Court to look to state law. Other circuits
appear uniform in their application of state law to this issue. See, e.g., United
States v. Scherping, 187 F.3d 796, 801-02 (8th Cir. 1999) (“Generally, federal
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courts will look to state law to determine whether an entity is an alter ego of a
taxpayer.”); Floyd v. I.R.S., 151 F.3d 1295, 1298-99 (10th Cir. 1998) (applying
state law); Towe Antique Ford Foundation v. I.R.S., 999 F.2d 1387, 1391 (9th Cir.
1993) (“We apply the law of the forum state in determining whether a corporation
is an alter ego of the taxpayer.”); Zahra Spiritual Trust v. United States, 910 F.2d
240, 242 (5th Cir. 1990) (“ In determining whether the appellants are the alter egos
of the taxpayers, and whether the taxpayer has an interest in property to which the
government's tax lien attached, we look to state law.”)
In Drye, the Supreme Court applied a two-part analysis to determine
whether a federal tax lien could attach to an inheritance that had been disclaimed
by the taxpayer under state law. 120 S. Ct. at 478, 481-83. The Court noted that,
pursuant to the federal tax code, “the Government may impose a lien on any
‘property’ or ‘rights to property’ belonging to the taxpayer.” Id. at 480. Courts,
however, must look first to “state law to determine what rights the taxpayer has in
the property the Government seeks to reach.” Id. at 481. Then, federal law
determines “whether the taxpayer’s state-delineated rights qualify as ‘property’ or
‘rights to property’ within the compass of the federal tax lien legislation.” Id. at
481. If the Government is able to attach a lien to a state property interest
qualifying either as property or a right to property under the federal tax code,
9
federal law then determines the priority of that lien. Aquilino, 80 S. Ct. at 1280-
81.
The Government claims that we should view the alter ego question not as a
question of property under the Aquilino and Drye framework, but instead as an
issue of the taxpayer’s identity -- an issue it believes a uniform federal common
law standard should control per the test established by Kimbell Foods. But that
inquiry is not the one Drye, a case which has not been overruled, instructs us to
make. The question we must answer is this one: Despite being titled in Apollo’s
name, does the Campground belong to All Seasons or does All Seasons have rights
to the Campground? A number of facts or legal theories might support the notion
that All Seasons has a property interest in the Campground subject to the reach of
the Government’s tax lien. To determine what interests All Seasons might have in
the Campground, if any, we must look to state law. Drye, 120 S. Ct. at 481. The
Supreme Court has confirmed the continued validity of this framework as recently
as 2002. See United States v. Craft, 122 S. Ct. 1414, 1420-21 (2002).
Applying this framework preserves the “proper balance between the
legitimate and traditional interest which the State has in creating and defining the
property interest of its citizens, and the necessity for a uniform administration of
the federal revenue statutes.” Aquilino, 80 S. Ct. at 1281. We decline the
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Government’s invitation to conclude -- against the clear weight of authority -- that
alter ego analysis is not properly within the Aquilino and Drye framework. The
district court therefore correctly concluded that Florida law supplied the pertinent
alter ego test. The Government does not contend that, if Florida law controls, the
district court incorrectly applied Florida law to the facts of this case. We therefore
affirm the district court’s judgment that the Government’s claim on the
Campground is limited to the taxes owed by Apollo.
B. The District Court’s Distribution of the Proceeds in Satisfaction of the
Parties’ Liens
As an alternative route to recover the surplus proceeds, the Government,
asserting the section 544(a) rights of the bankruptcy trustee, also argues that the
surplus proceeds from the Campground sale must be returned to the bankruptcy
trustee or distributed by the district court according to the Bankruptcy Code’s
priorities because (despite the bankruptcy court’s orders authorizing the
Government and Coast to proceed) the bankruptcy estate has not formally
abandoned the property. The Government contends that the bankruptcy trustee’s
hypothetical lien under 11 U.S.C. § 544(a) primes -- that is, takes priority over --
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the Government’s own lien and Coast’s lien, both of which were perfected after the
bankruptcy petition date although with authorization from the bankruptcy court.
The Government says that, under the pertinent sections of the Bankruptcy Code, its
administrative claim for taxes owed by the bankruptcy estate as a result of the
Campground’s sale is entitled to priority over both Coast’s lien and its own lien for
Apollo’s old taxes.
Coast argues that the Bankruptcy Code is inapplicable to this foreclosure
action when all the parties to the action have express authorization from the
bankruptcy court to proceed against the collateral. In the alternative, Coast argues
that, even under the Bankruptcy Code, it will be entitled to the disputed proceeds
because it now has a perfected lien that is not subject to avoidance by the
bankruptcy trustee.
We conclude that, even if the Government is correct that the district court
should have transferred the surplus proceeds to the trustee to distribute according
to the Bankruptcy Code or that the district court itself should have applied the
Bankruptcy Code’s priorities, Coast would be entitled to the disputed proceeds
actually awarded to it by the district court. We therefore affirm the judgment of
the district court.
Upon a debtor’s filing of a bankruptcy petition, his legal and equitable
12
interests in property become the property of the bankruptcy estate. 11 U.S.C.
§ 541(a)(1). The filing of a petition also operates as an automatic stay, preventing
the creation, perfection, or enforcement of any lien against the estate’s property.
11 U.S.C. § 362(a)(4). The bankruptcy court may grant creditors relief from the
stay after notice and a hearing. 11 U.S.C. § 362(d). A stay-relief order is a final
order that is immediately appealable, Borg-Warner Acceptance Corp. v. Hall, 685
F.2d 1306, 1309 (11th Cir. 1982), and not subject to collateral attack, F.D.I.C. v.
Shearson-American Exp., Inc., 996 F.2d 493, 498 (1st Cir. 1993). A bankruptcy
court’s order lifting the automatic stay is not equivalent to an abandonment of the
estate’s property. Catalano v. Comm’r, 279 F.3d 682, 686-87 (9th Cir. 2002).
When a bankruptcy trustee abandons estate property, the estate is completely
divested of any interest in the abandoned property. Id. On the other hand, when a
bankruptcy court grants a creditor relief from the automatic stay for part of the
estate’s property, the bankruptcy estate retains a residual interest in that property.
See id. But, a stay-relief order normally allows the relieved creditor to realize its
interest in the collateral, Killebrew v. Brewer (In re Killebrew), 888 F.2d 1516,
1519-20 (5th Cir. 1989), by, for example, pursuing a foreclosure action. If such a
foreclosure sale results in proceeds in excess of the relieved creditor’s interest, the
surplus proceeds normally belong to estate. Id.
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That the trustee has not formally abandoned the Campground is undisputed,
but the lack of formal abandonment is not dispositive in this case. For the
Campground, the bankruptcy court granted three creditors relief from the
automatic stay. The bankruptcy court’s order permitted Old West to “assert[] its
rights to” the Campground, “including proceeding with the foreclosure sale.” The
order pertinent to the Government allowed the Government to “assert and to
enforce its claim in the Florida foreclosure action to the extent permitted by that
court.” The order for Coast allowed Coast to “perfect its lien against the
[Campground] and to participate in all respect as a party in the Foreclosure
Litigation and/or to initiate or participate in any other foreclosure action against the
[Campground].” The order for Coast further stated that it appeared to the
bankruptcy court that Apollo “has no equity in the [Campground] and the
reorganization of Debtor is unlikely, and that therefore, the [Campground] is not
necessary for an effective reorganization.”
The bankruptcy court’s stay-relief orders may seem unusual or even
confused to some people, but those orders remain valid and are not subject to
collateral attack in this case. See Shearson-American Exp., 996 F.2d at 498
(“[O]rders of the bankruptcy court modifying the stay . . . , even if erroneous, are
entitled to respect and are not subject to collateral attack.”). The appropriate forum
14
to challenge the stay-relief orders was the bankruptcy court; the Government and
Coast proceeded against the collateral in the district court as authorized by the
bankruptcy court’s orders. The somewhat exceptional circumstances before us
reflect the results of these earlier orders.
The district court properly determined that the Government had the second
priority lien on the Campground for Apollo’s taxes and that Coast had the third
priority lien. The question we must resolve is what effect, if any, the
Government’s assertion of the trustee’s “strong arm” power under section 544(a)
has on the priorities for distribution of the proceeds. In addition to acting as an
automatic stay, the filing of a bankruptcy petition grants the bankruptcy trustee the
rights and powers of a hypothetical perfected judgment lien creditor.4 11 U.S.C.
§ 544(a). This status attaches “as of the commencement of the case,” id., and does
not terminate until the property ceases being the property of the estate, In re
Parrish, 171 B.R. 138, 141 (Bankr. M.D. Fla. 1994). Because the Campground
remains the property of the estate, the trustee’s hypothetical lien seems to attach to
the property. State law generally determines the rights attributable to such a lien
creditor. Weed v. Washington (In re Washington), 242 F.3d 1320, 1322-23 (11th
Cir. 2001). And under Florida law, the trustee’s hypothetical judgment lien will
4
Florida law also includes “[a] trustee in bankruptcy from the date of the filing of the
petition” within the definition of a “Lien creditor.” Fla. Stat. § 679.1021(zz).
15
generally prime any judgment liens arising later in time, including Coast’s and the
United States’ in this case. See Franklin Fin., Inc. v. White, 932 So. 2d 434, 436-
37 (Fla. 4th Dist. Ct. App. 2006) (“When a judgment is recorded, the judgment lien
takes priority over any liens recorded thereafter.”).
But, accepting for the sake of argument that the trustee’s lien remains
attached to the Campground, establishing the priority of that hypothetical lien does
little to resolve this case ultimately. The trustee’s lien is no actual lien -- it is not
monetized; it is a tool intended to bring assets into the bankruptcy estate for
distribution according to the Bankruptcy Code. See Kapila v. Atl. Mortgage &
Inv. Corp. (In re Halabi), 184 F.3d 1335, 1337 (11th Cir. 1999). The Bankruptcy
Code gives the trustee other tools as well. Section 544(a) also allows the trustee to
avoid a transfer of the debtor’s property that is avoidable by a creditor holding a
judgment lien. In the typical bankruptcy case, the trustee will invoke section
544(a) to avoid any interest inferior to his own. But, the trustee can only use the
section 544(a) avoidance power to avoid pre-petition transfers.5 11 U.S.C.
§ 544(a) (“The trustee . . . may avoid any transfer of property of the debtor . . . .”
(emphasis added)); 5 Collier on Bankruptcy ¶ 544.01 (2009); see also In re
5
We accept that section 549 allows the trustee to avoid post-petition transfers in certain
circumstances. 11 U.S.C. § 549(a) (“[T]he trustee may avoid a transfer of property of the estate .
. . .” (emphasis added)). But the section 549 avoidance power is inapplicable in this case
because the bankruptcy court authorized the transactions. 11 U.S.C. § 549(a)(2)(B).
16
Branam, 247 B.R. 440, 444 (Bankr. E.D. Tenn. 2000); In re Stoops, 209 B.R. 1, 3
(Bankr. M.D. Fla. 1997). Coast’s lien and the United States’ lien arose post-
petition and are therefore out of the reach of the section 554(a) avoidance power.
In this case, the Government does not even attempt to assert the trustee’s section
544(a) avoidance power.
The unusual procedural history of this case thus leads to an unusual result:
even when we assume that the trustee has a hypothetical lien that takes priority
over the two secured creditors’ liens, the secured creditors’ liens cannot be avoided
by the trustee. For better or for worse, Coast and the Government (in its non-
trustee capacity) are now secured creditors. Cf. In re Concord Mill Ltd.
Partnership, 136 B.R. 896, 901-02 (Bankr. D. Mass. 1992) (concluding creditor
that perfected lien post-petition during relief from the automatic stay was allowed
to keep perfected interest after reimposition of stay); In re Spaude, 112 B.R. 304,
307 (Bankr. D. Minn. 1990) (“Where a creditor has invoked remedies and settled
its property rights in good faith reliance upon the termination of the automatic stay
in Bankruptcy, the Court should not and may not invoke its broad equitable powers
to void the results of the creditor’s action-even if doing so would enable the debtor
to make full use of statutory remedies previously unavailable to him under the
Code.”). And Coast and the United States remain secured creditors under
17
bankruptcy law -- regardless of whether that law is applied by the district court or
by the bankruptcy court if the surplus proceeds were transferred to the trustee --
because the trustee cannot avoid their liens under section 544(a) or 549(a).
Under the Bankruptcy Code, secured creditors are generally entitled to be
paid from their collateral. See 11 U.S.C. § 725; Monarch Air Serv., Inc. v. Solow
(In re Midway Airlines, Inc.), 383 F.3d 663, 669 (7th Cir. 2004) (“Secured claims
are paid (or the collateral returned) before any distribution is made to priority
claimants or to unsecured general creditors.”). The Government’s tax claim on the
gain associated with the sale of the Campground is an administrative claim that is
entitled to priority over unsecured claims under 11 U.S.C. § 726(a)(1).
“Administrative expenses, however, do not have priority over secured claims.”
Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 120 S. Ct. 1942,
1946 (2000). Therefore, even if the Government is correct that bankruptcy law
governs this case, the Government cannot recover on its administrative tax claim to
the detriment of Coast. 6
III. CONCLUSION
6
The government is before this Court representing the interests of the trustee. The only
basis the Government (as trustee) asserts for divesting Coast of its priority is that under the
Bankruptcy Code, administrative claims are superior to Coast’s claim. Given the circumstances
here, we reject that contention, but we only decide the issue presented to us.
18
We affirm the district court’s conclusion that Florida law determines the
alter ego liability issue in this case. Because we conclude Coast is entitled to the
disputed surplus proceeds even if the Government is correct about the applicability
of bankruptcy law to this action, we affirm the judgment of the district court.
AFFIRMED.
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