In re Pasley ( 2019 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 19b0007p.06
BANKRUPTCY APPELLATE PANEL
OF THE SIXTH CIRCUIT
IN RE: JEFFREY W. PASLEY, ┐
Debtor. │
___________________________________________ │
JEFFREY W. PASLEY, │ No. 18-8048
>
Appellant, │
│
│
v. │
│
ROBERT W. KEATS, Chapter 7 Trustee, │
Appellee. │
┘
On Appeal from the United States Bankruptcy Court
for the Western District of Kentucky at Louisville.
No. 3:16-bk-33769—Alan C. Stout, Judge.
Decided and Filed: August 6, 2019
Before: HARRISON, PRICE SMITH, and WISE, Bankruptcy Appellate Panel Judges.
_________________
COUNSEL
ON BRIEF: Robert W. Keats, KEATS & SCHWIETZ, PLLC, Louisville, Kentucky, for
Appellee. Jeffrey W. Pasley, Louisville, Kentucky, pro se.
_________________
OPINION
_________________
TRACEY N. WISE, Bankruptcy Appellate Panel Judge. Appellant/Debtor Jeffrey W.
Pasley (“Debtor”) is the sole member of R.E.N. Enterprises, LLC (“REN”), a Kentucky limited
liability company. REN owns real estate at 4528 West Broadway, Louisville, Kentucky (“LLC
Real Estate”). Appellee/Chapter 7 Trustee Robert W. Keats (“Trustee”) filed a motion seeking
authority from the United States Bankruptcy Court for the Western District of Kentucky to sell
No. 18-8048 In re Pasley Page 2
the LLC Real Estate. Trustee asserted that Debtor’s interest in REN was estate property under
§ 541(a)(1),1 and Debtor is deemed to have assigned that interest to Trustee, who had the same
rights that Debtor would have as to REN, including the right to sell REN’s property. Debtor
objected. The bankruptcy court held two hearings, both times explaining that Trustee stands in
Debtor’s shoes as the sole member of REN and has whatever authority Debtor would have to sell
the LLC Real Estate. The bankruptcy court subsequently entered an order (“Sale Order”)
granting Trustee’s motion. Debtor appealed the Sale Order, arguing that the court lacked
authority to enter the Sale Order because the LLC Real Estate is not property of his bankruptcy
estate.
JURISDICTION
The Panel has jurisdiction to decide this appeal. The United States District Court for the
Western District of Kentucky has jurisdiction to hear appeals from final orders issued by the
Bankruptcy Court. 28 U.S.C. § 158(a)(1). The district court has authorized appeals to this Panel
under 28 U.S.C. § 158(b)(6), and no party elected to have the district court hear this appeal.
“[A] bankruptcy court’s order may be immediately appealed if it is (1) ‘entered in
[a] . . . proceeding[ ]’ and (2) ‘final’—terminating that proceeding.” Ritzen Grp., Inc. v. Jackson
Masonry, LLC (In re Jackson Masonry, LLC), 906 F.3d 494, 499 (6th Cir. 2018) (quoting
28 U.S.C. § 158(a)), cert. granted sub nom. Ritzen Grp., Inc. v. Jackson Masonry, LLC, No.
18-938, 2019 WL 266853 (May 20, 2019). A bankruptcy court’s order authorizing a trustee to
administer an asset is a final order. Bonner v. Sicherman (In re Bonner), 330 B.R. 880(unpublished table decision), available at 2005 WL 2136204, at *1 (B.A.P. 6th Cir. 2004)
(“bankruptcy court’s order granting the trustee’s motion to reopen the bankruptcy case to
administer an asset is a final order, because the determination that the trustee may administer the
asset as property of the estate is conclusive on the merits.”) (citation omitted). A bankruptcy
court’s sale order is also a final order. K&B Capital, LLC v. Official Unsecured Creditors’
Comm. (In re LWD, Inc.), 335 F. App’x 523, 526 (6th Cir. 2009) (“a sale order by a bankruptcy
1
Unless otherwise indicated, all chapter and section references are to the United States Bankruptcy Code,
11 U.S.C. §§ 101-1532.
No. 18-8048 In re Pasley Page 3
court is generally a final, appealable order.”); accord ELM Road Dev. Co. v. Buckeye Ret. Co.,
LLC, Ltd. (In re Hake), 419 B.R. 328, 331 (B.A.P. 6th Cir. 2009) (citations omitted).
FACTS
The relevant facts are undisputed. Debtor filed a chapter 7 bankruptcy petition on
December 19, 2016, and his amended petition lists “DBA R.E.N. Enterprises, LLC” in response
to question 4, which asks for “[a]ny business names . . . you have used in the last 8 years.”
(Bankr. No. 16-33769-acs, ECF No. 143-1 at 2, 4.2) Debtor listed his 100% ownership interest
in REN as an asset valued at $50,000 on Schedule B but did not separately identify the LLC’s
assets or debts. Debtor did not claim an exemption in his REN membership interest on amended
Schedule C. (ECF No. 61-1.3)
Trustee discovered that REN owns the LLC Real Estate. On June 29, 2018, Trustee filed
a “Notice and Motion to Sell Real Property Free and Clear (11 U.S.C. § 363) 4211 West
Broadway and 4528 West Broadway” (the “Sale Motion”). Only the Sale Motion as it pertains
to the LLC Real Estate is at issue in this appeal. Pursuant to § 363, the Sale Motion sought
authority for Trustee to: (a) list the LLC Real Estate with a realtor or sell it privately; (b) pay
closing costs “as an administrative expense of the debtor estate”; and (c) hold the net sale
proceeds pending further order. (ECF No. 115 at 2.) Trustee asserted that REN owns the LLC
Real Estate, and Debtor’s interest in REN “is an interest of the Debtor that upon the filing of a
bankruptcy petition by the Debtor falls into the hands of the Trustee, which ultimately gives the
Trustee authority to sell the Debtor’s property.” Id. (citing § 541).
Debtor objected to the Sale Motion, arguing that the LLC Real Estate should not be sold
until a pending adversary proceeding relating to separate real estate was resolved, but he did not
explain the correlation between the LLC Real Estate sale and the adversary proceeding. Trustee
2
All subsequent references to “ECF No. __” are to the CM/ECF record in Bankruptcy Case No. 16-33769-
acs.
3
Debtor did not designate amended Schedule C as part of the record on appeal, and the parties’ briefs did
not discuss it. However, the Panel takes judicial notice of its filing in the bankruptcy court record pursuant to
Federal Rule of Evidence 201(b)(2). Appellate courts may take judicial notice of facts not subject to reasonable
dispute that are supported by documents not included in the record on appeal. U.S. v. Ferguson, 681 F.3d 826, 834
(6th Cir. 2012) (citations omitted).
No. 18-8048 In re Pasley Page 4
filed a Supplemental Brief in support of the Sale Motion, reaffirming his positions that Debtor is
deemed to have assigned his membership interest in REN to Trustee upon his bankruptcy filing
and that Trustee had the right to liquidate REN’s assets. Debtor’s only response was, again, that
the LLC Real Estate should not be sold until the adversary proceeding was resolved.
The bankruptcy court held an initial hearing on the Sale Motion on October 2, 2018, and
Debtor, his counsel, and Trustee appeared. The court explained that it would overrule Debtor’s
objection regarding Trustee’s authority to operate REN, stating: “The trustee has the authority to
stand in the shoes of the debtor as to this LLC, and if he wants to sell the property, he can sell the
property that is owned by the LLC. Period.” (Oct. 2, 2018 Hr’g Tr. at 24.) However, the court
instructed Trustee to identify REN’s creditors that would have to be satisfied before any of
REN’s funds would flow through to Debtor’s estate and continued the hearing.
The bankruptcy court held a continued hearing on the Sale Motion on November 27,
2018, and Debtor, his counsel, and Trustee appeared. The court again stated that Trustee stood
in Debtor’s shoes regarding Debtor’s ownership interest in REN. After addressing the court’s
concerns regarding notice to REN’s creditors, Trustee stated that a realtor was ready to list the
LLC Real Estate and, to avoid potential issues with title companies and closing attorneys, asked
the Court to enter an order giving him authority to sell the LLC Real Estate. Debtor’s counsel
argued in opposition that the LLC Real Estate was not property of Debtor’s bankruptcy estate,
and the court responded:
It’s not property of the bankruptcy estate, it’s the ownership interest in the LLC
that’s the property of the bankruptcy estate . . . and the trustee stands in the shoes
now of the – he is the sole stockholder of that – or shareholder of that LLC now.
He has the authority to sell it, not under 363, but he has the authority to sell it as
the stock – sole owner.
(Nov. 27, 2018 Hr’g Tr. at 9.)
After concluding that law in the Sixth Circuit regarding Trustee’s authority to sell the
LLC Real Estate is clear, the bankruptcy court granted the Sale Motion as to the LLC Real
Estate. The court subsequently entered the Sale Order. Debtor timely filed a Notice of Appeal
of the Sale Order on December 11, 2018.
No. 18-8048 In re Pasley Page 5
DISCUSSION
This appeal must be dismissed for lack of standing. Although neither party raised
standing as an issue, standing is a threshold issue that federal appellate courts must consider prior
to reaching the merits of an appeal. Barry v. Lyon, 834 F.3d 706, 714 (6th Cir. 2016) (citation
omitted); Harker v. Troutman (In re Troutman Enters., Inc.), 286 F.3d 359, 364 (6th Cir. 2002)
(stating that appellate courts may consider standing sua sponte because “[s]tanding is a
jurisdictional requirement and we are under a continuing obligation to verify our jurisdiction
over a particular case.”) (citation omitted). “The lack of standing is a jurisdictional bar to
appellate review.” Simon v. Amir (In re Amir), 436 B.R. 1, 9 (B.A.P. 6th Cir. 2010)) (citing
Troutman Enters., 286 F.3d at 364).
In bankruptcy cases, appellate standing “‘is more limited than Article III standing or the
prudential requirements associated therewith.’” Moran v. LTV Steel Co., Inc. (In re LTV Steel
Co., Inc.), 560 F.3d 449, 453 (6th Cir. 2009) (citations omitted). “[T]o have standing to appeal a
bankruptcy court order, an appellant must have been ‘directly and adversely affected pecuniarily
by the order.’” Troutman Enters., 286 F.3d at 364 (quoting Fidelity Bank, Nat’l Ass’n v. M.M.
Group, Inc., 77 F.3d 880, 882 (6th Cir. 1996)). “[A] party may only appeal a bankruptcy court
order when it diminishes their property, increases their burdens or impairs their rights.” Id.(quoting Fidelity Bank at 882).
As a result, chapter 7 debtors rarely have the requisite “‘pecuniary interest because no
matter how the estate’s assets are disbursed by the trustee, no assets will revert to the debtor.’”
Lunan v. Jones (In re Lunan), 523 F. App’x 339, 340 (6th Cir. 2013) (quoting Cult Awareness
Network, Inc. v. Martino (In re Cult Awareness Network, Inc.), 151 F.3d 605, 607 (7th Cir.
1998)). “However, if the debtor can show that a successful appeal will generate assets in excess
of liabilities, thus entitling [him] to a distribution of surplus under 11 U.S.C. § 726(a)(6), then
the debtor is a ‘person aggrieved’ with standing to appeal.” Id. (citing Kowal v. Malkemus (In re
Thompson), 965 F.2d 1136, 1144 n.12 (1st Cir. 1992); Amir, 436 B.R. at 10). “‘[T]he debtor
cannot simply claim that there is a theoretical chance of a surplus in the estate, but must show
that such surplus is a reasonable possibility.’” Id. (quoting Amir, 436 B.R. at 10 (internal
quotation marks and citations omitted)).
No. 18-8048 In re Pasley Page 6
There is no evidence that Debtor is a “person aggrieved” by the Sale Order he appeals.
REN—not Debtor—owns the LLC Real Estate. The Sale Order directs the sale of the LLC Real
Estate, and Debtor failed to explain how that sale would diminish his property, increase his
burdens, or impair his rights. Thus, Debtor lacks the requisite pecuniary interest in the LLC Real
Estate sale contemplated in the Sale Order. Debtor did not claim an exemption in his
membership interest in REN, and he failed to demonstrate that his success on appeal would
otherwise entitle him to a distribution of surplus assets from his chapter 7 estate. Consequently,
Debtor lacks standing to appeal the Sale Order. Therefore, the appeal must be dismissed.
CONCLUSION
For the foregoing reasons, the appeal is DISMISSED for lack of standing.