Sherman v. Rose

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
AUG 31 2001
FOR THE TENTH CIRCUIT
PATRICK FISHER
Clerk
In re: JESSE JUNIOR SHERMAN
and DORIS MAYE SHERMAN,
Debtors.
No. 00-8052
_____________________________ (D.C. No. 99-CV-80)
(Adversary No. 97-2044)
JESSE JUNIOR SHERMAN; DORIS (D. Wyo.)
MAYE SHERMAN,
Plaintiffs-Appellants,
v.
P. J. ROSE,
Defendant-Appellee.
ORDER AND JUDGMENT *
Before HENRY , ANDERSON , and MURPHY , Circuit Judges.
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument.
Appellants Jesse Junior Sherman and Doris Maye Sherman appeal from an
order of the district court affirming a bankruptcy court order granting judgment
for appellee P. J. Rose on appellants’ claim for fraudulent conveyance. We
affirm.
In 1954, the Shermans purchased a house in Casper, Wyoming (the Casper
property). 1
Beginning in 1965, they rented the house to tenants. Their last tenant
departed in 1989, and the Shermans received no income from the property after
that date.
In 1968, the Shermans opened a mobile home business called Sherman
Trailer Transportation. They later started two other businesses, Restway Trailer
Park (Restway), and a trucking business called Maranatha Trucking. Their
expansion into the trucking business did not go well, and in July 1994, the
Shermans filed Chapter 11 bankruptcy, which was converted to a Chapter 7
bankruptcy in April 1995. They later dismissed this first bankruptcy case in July
1995.
1
The record variously describes the street address of the property as 501
Kearney, 502 Kearney, or 1501 Kearney. The legal description appears to be Lot
245, Fort Casper Addition, City of Casper. The date the Shermans acquired the
property is identified in the record as either 1945 or 1954. These minor factual
discrepancies do not affect our analysis.
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Due to their financial difficulties, the Shermans did not pay the 1991 real
estate taxes on the Casper property when they became due. As a result, Rose
acquired a tax deed to the Casper property on August 9, 1995, for approximately
$450.
The Shermans filed a second bankruptcy on February 20, 1996, which was
confirmed on July 14, 1997. They then brought this adversary proceeding against
Rose, seeking to recover the Casper property. Through prior decisions of the
bankruptcy court and the Tenth Circuit Bankruptcy Appellate Panel, all of the
Shermans’ claims against Rose were dismissed, with the exception of their claim
of fraudulent conveyance brought pursuant to 11 U.S.C. §§ 548 and 550.
Under § 548, a bankruptcy trustee may avoid a transfer, whether voluntary
or involuntary, made within one year prior to the date of filing a petition, if the
debtor “received less than a reasonably equivalent value in exchange for such
transfer or obligation” and “was insolvent on the date that such transfer was made
. . . or became insolvent as a result of such transfer.” Id. § 548(a)(1)(B)(i), (ii)(I).
It is undisputed, for purposes of this appeal, that the approximately $450 Rose
paid for the tax deed was less than a reasonably equivalent value for the Casper
property. The issue we face, therefore, is whether the Shermans were insolvent
on the date of the transfer.
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“In reviewing a district court’s decision affirming the decision of a
bankruptcy court, this court applies the same standards of review which governed
the district court. The bankruptcy court’s findings of fact will be rejected only if
clearly erroneous. Its conclusions of law, however, are reviewed de novo .” Tulsa
Energy, Inc. v. KPL Prod. Co. (In re Tulsa Energy, Inc.) , 111 F.3d 88, 89 (10th
Cir. 1997) (quotation omitted).
The Bankruptcy Code defines insolvency as a “financial condition such that
the sum of such entity’s debts is greater than all of such entity’s property, at fair
valuation,” exclusive of exempt property and fraudulent transfers of a type not at
issue here. 11 U.S.C. § 101(32). The bankruptcy court determined that the
Shermans had net assets on August 9, 1995, (the date of transfer) valued at
$310,205, and liabilities valued at $310,652. Although these figures show that
the Shermans’ liabilities exceeded their assets by approximately $450, the
bankruptcy court assigned an “ongoing business value” to the Shermans’ business
ventures which it found undoubtedly exceeded the $450 difference between their
assets and liabilities. Therefore, it determined that the Shermans were not
insolvent on August 9, 1995.
The Shermans attack this finding of solvency. They contend that in
reaching its decision, the bankruptcy court relied on matters outside the record
that were neither presented nor argued by Rose, and were not subject to rebuttal
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or cross-examination. They also argue that if this evidence is excluded, the
bankruptcy court’s findings of fact are clearly erroneous and its conclusion
incorrect as a matter of law.
1. Internal Revenue Service debt
The Shermans entered into evidence a summary of their debts in which they
calculated the amount due to the Internal Revenue Service at $152,748.16. The
bankruptcy court, noting that the Shermans had treated the IRS debt as disputed
and scheduled it at $50,000, valued the debt using a balance sheet from the
confirmed plan, not entered into evidence in the adversary proceeding, showing
that the claim was later amended to $75,745.
The Shermans claim the district court was prohibited from relying on the
balance sheet because it was not entered into evidence in the adversary
proceeding. In assessing whether a debtor was insolvent at the time of a transfer,
however, a bankruptcy court may take judicial notice of schedules to the
bankruptcy petition filed by the debtor. Pembroke Dev. Corp. v. Commonwealth
Sav. & Loan Ass’n (In re Pembroke Dev. Corp.) , 124 B.R. 398, 401-02 (Bankr.
S.D. Fla. 1991). It may even take notice of schedules, averments and statements
filed in prior bankruptcy cases. Weatherbee v. Willow Lane, Inc. (In re Bestway
Prods., Inc.) , 151 B.R. 530, 539-41 (Bankr. E.D. Cal. 1993), aff’d , 165 B.R. 339(9th Cir. BAP 1994) (table); cf. Mansell v. Carroll , 379 F.2d 682, 683 (10th Cir.
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1967) (approving use of judicial notice, in fraudulent conveyance proceeding, of
result in prior fraudulent conveyence proceeding involving debtor’s conveyance
of neighboring property). The bankruptcy court did not err by taking judicial
notice of the balance sheet from the Shermans’ bankruptcy case.
The Shermans also argue that use of the amended $75,745 figure for the
IRS debt is incorrect because it does not accurately reflect the amount due as of
the transfer date. Upon careful review of the record, we have determined that the
bankruptcy court’s valuation of the IRS debt was not clearly erroneous.
2. Valuation of Restway
In their summary of assets, the Shermans valued Restway at $150,000, the
amount they claimed was offered to the Chapter 7 trustee in the first bankruptcy
for a proposed sale. The bankruptcy court found, however, that the offer was
actually $165,000, and that Restway should be valued in this amount. The
Shermans do not argue that this figure for the proposed sale price is factually
incorrect; rather, they claim (1) there was no evidence of the $165,000 figure in
the record in the adversary proceeding and the district court should not have
adopted it by taking judicial notice from the bankruptcy files, and (2) the
$165,000 proposed sale figure overstated the trailer park’s value on the transfer
date. As we have previously stated, the bankruptcy court was entitled to take
judicial notice of facts contained in the bankruptcy file. Moreover, use of the
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$165,000 figure was not clearly erroneous, in light of the Shermans’ valuation of
Restway at $400,000 in the disclosure statement and Mrs. Sherman’s testimony
that a similar trailer park had been sold in the Cheyenne, Wyoming area for
$400,000 in 1994, and that she had disputed the $150,000 figure at the time of the
proposed sale as being too low.
3. “Going business value”
The Shermans complain that the bankruptcy court improperly attributed a
“going business value” to the assets. They argue that the evidence does not
support that attribution. The issue of whether a business is a going concern, and
the value to be attributed to a business as a going concern, is one to be made by
review of “the entire financial picture of the debtor.” Gillman v. Scientific
Research Prods. Inc. (In re Mama D’Angelo, Inc. , 55 F.3d 552, 555 (10th Cir.
1995). Having reviewed the entire record, we are satisfied that the bankruptcy
court’s findings on this issue are not clearly erroneous.
4. Notice under Fed. R. Evid. 201
The Shermans argue that if the district court chose to rely on evidence that
it judicially noticed, it should have first provided them notice and an opportunity
to respond under Fed. R. Evid. 201(e). Rule 201(e) states that “[a] party is
entitled upon timely request to an opportunity to be heard as to the propriety of
taking judicial notice and the tenor of the matter noticed.” The rule goes on to
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say, however, that “[i]n the absence of prior notification, the request may be made
after judicial notice has been taken.” Id. (emphasis added); see also King Res.
Stockholders’ Protective Comm. v. Baer (In re King Res. Co.), 651 F.2d 1326,
1337 (10 th Cir. 1980). The Shermans had the opportunity to be heard on the
judicial notice question by addressing the district court with a motion under
Fed. R. Civ. P. 59(e). They did not do so. Therefore, they did not avail
themselves of the procedural provisions of Rule 201(e) and have waived their
objection to being denied an opportunity to be heard. See generally Edwards v.
Hurtel , 724 F.2d 689, 690 (8th Cir. 1984) (stating party must raise challenge to
judicial notice before trial court in first instance).
The judgment of the United States District Court for the District of
Wyoming is AFFIRMED.
Entered for the Court
Michael R. Murphy
Circuit Judge
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