In re: Mark A. Culp v.

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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Nos. 16-1454 & 16-1455
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In re: MARK A. CULP and PATRICIA J. CHAMBERLAIN,
Appellants
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On Appeal from the United States District Court
for the District of Delaware
(District Court Civil Nos. 1-15-cv-00914 and 1-15-cv-00916)
District Judge: Honorable Leonard P. Stark
Submitted Under Third Circuit LAR 34.1(a)
October 25, 2016
BEFORE: VANASKIE, KRAUSE, and NYGAARD, Circuit Judges
(Filed: March 15, 2017)
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OPINION*
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NYGAARD, Circuit Judge.
Appellants Mark Culp and Patricia Chamberlain (Appellants) contend that the
Bankruptcy Court erred by denying their request to convert their Chapter 7 petition into a
Chapter 13 case. They also argue that the Bankruptcy Court erroneously granted a
motion to sell certain real property. We will affirm.
*
This disposition is not an opinion of the full court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
I.
The District Court, in its various opinions, thoroughly related the factual and
procedural background of this matter.1 We need only summarize. The Appellants owned
and operated a bed and breakfast inn that suffered fire damage in 2010. This property
was encumbered by liens which exceeded $350,000. In June of 2014, the Appellants
filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. They did
not claim an exemption interest in the property or in the insurance proceeds they received
after the fire. Green Tree, a company that held a promissory note and mortgage on the
property, asserted a secured claim for $280,000 and held approximately $74,000 in
insurance proceeds in escrow. Accord Restoration Inc., (Accord)—hired by the
Appellants to repair the fire damage—asserted a mechanics lien against the property for
approximately $40,000. Accord also filed a proof of claim in the Chapter 7 case for
$131,210.23, asserting that $74,409.75 of its claim was secured.
The valuation of the fire-damaged property became a flashpoint of disagreement
between the Appellants and the Chapter 7 Trustee. The Appellants testified that the
damage from the fire was significant, and estimated the fair market value of the property
to be $100,000. They based this estimate on valuations set by popularly-used web
applications such as Zillow and Trulia, minus the costs of repair and restoration. The
Trustee valued the property at $143,423. After protracted negotiations, the Trustee
agreed to sell the property to Accord “as is” for $290,000.
1
See, e.g., In re Culp, 550 B.R. 683 (D. Del. 2015); In Re Culp, 545 B.R. 827 (D. Del.
2016).
2
The Trustee then filed a motion in July of 2015 seeking the Bankruptcy Court’s
approval of the plan for the marketing and sale of the property. The Trustee faced
significant difficulties in the marketing of the property. Several appraisers declined to
put a specific value on the property because of the fire damage. Real estate agents
declined to list the property for the same reason. Although the Trustee advertised the
property on various platforms, no offers to purchase were received. Lacking any other
offers, the Trustee accepted Accord’s offer, which if completed would result in a net
positive result for the bankruptcy estate. However, in August of 2015, the Appellants
filed a motion seeking to convert their Chapter 7 case into one under Chapter 13.2 This
bare-bones motion was devoid of any supporting documentation, such as proof of
income. Both the Trustee and Accord opposed this motion, arguing that the Appellants
were not eligible debtors under Chapter 13.
The Bankruptcy Court held a hearing, granted the motion to sell and denied the
motion to convert. The Appellants appealed to the District Court, which affirmed the
Bankruptcy Court’s ruling. As to the conversion motion, the District Court concluded
that the Appellants could not make payments under a Chapter 13 plan and that the court
2
“The difference between Chapter 13 (also Chapter 11) and Chapter 7 is the difference
between reorganization and liquidation. In the latter type of bankruptcy the debtor
surrenders his assets (subject to certain exemptions) and in exchange is relieved of his
debts (with certain exceptions), thus giving him a “fresh start.” But in a reorganization
the assets are not sold—the enterprise continues—though ownership is transferred from
the debtor to his creditors. Chapter 13 is only analogous to a reorganization; the debtor
does not become a slave. But unlike what happens in a Chapter 7 bankruptcy, his assets
are not sold; instead he pays his creditors, over a three- or five-year period, as much as he
can afford. 11 U.S.C. § 1325(b). Often this makes the creditors better off than they
would be in a liquidation, for the assets, though important to the debtor, may have little
market value.” Palomar v. First American Bank, 722 F.3d 992, 995 (11th Cir. 2013).
3
lacked any factual basis to determine the nature of their income. These conclusions
informed the District Court’s ruling that the Bankruptcy Court did not err by denying the
Appellants’ request to convert their petition. The District Court also affirmed the
Bankruptcy Court’s ruling on the Trustee’s motion to sell. The District Court concluded
that since the sale was made to a good faith purchaser in the absence of relief under a
stay, the appeal from the Bankruptcy Court was moot. The District Court further noted
that the Appellants failed to claim an exemption interest in the property, and that the
Trustee was appropriately fulfilling his statutory duty to liquidate the assets of the
bankruptcy estate.
II.
A.
As they did in the District Court, the Appellants now challenge the propriety of the
Bankruptcy Court’s ruling on the sale motion and their conversion request.3 We will
begin with the conversion motion. Here, we focus on Section 706 of the Bankruptcy
Code which provides that a “debtor may convert a case under this chapter to a case under
chapter 11, 12 or 13 of this title at any time, if the case has not been converted under
3
The District Court had jurisdiction to review the Bankruptcy Court's order pursuant to
28 U.S.C. § 158(a), and we have jurisdiction to review the District Court's order under 28
U.S.C. §§ 158(d) and 1291. Our review of the District Court’s determination is plenary,
and we use the same standard of review as the District Court in reviewing the decision of
the Bankruptcy Court. See Kool, Mann, Coffee & Co. v. Coffey, 300 F.3d 340, 353 (3d
Cir. 2002). That is, an order denying a motion to convert a Chapter 7 petition into one
under Chapter 13 is reviewed for an abuse of a bankruptcy court’s discretion. Marrama
v. Citizens Bank of Mass., 549 U.S. 365, 375 (2007).
4
section 1112, 1208 or 1307 of this title.”4 The Code further instructs that
“[n]otwithstanding any other provisions of this section, a case may not be converted to a
case under another chapter of this title unless the debtor may be a debtor under such
chapter.”5 To qualify as a debtor under Chapter 13, the Appellants must be “individual[s]
with regular income,” and also must meet certain limits on the amounts of indebtedness.6
Section 109(e), for its part, dictates that “only an individual with regular income” may be
a Chapter 13 debtor.7 “Regular income” is income that is “sufficiently stable and regular
to enable such individual to make payments under a plan under Chapter 13.”8 This is the
Appellants’ burden to bear.9 Therefore, the touchstone for this analysis is not so much
the sources of income, but instead the stability and regularity of that income.10 The
Bankruptcy Court determined that the Appellants could not qualify as debtors under
Chapter 13, based on the evidence they provided. The Bankruptcy Court also determined
that the Appellants filed their conversion motion in bad faith and that their filing was an
abuse of the bankruptcy process.
4
11 U.S.C. § 706(a).
5
11 U.S.C. § 706(d).
6
See 11 U.S.C. § 109(e).
7
Id.
8
Id. § 101(30).
9
See, e.g., In re Antoine, 208 B.R. 17, 19 (Bankr. E.D.N.Y. 1997).
10
See id. at 20 (quoting In re Fischel, 103 B.R. 44, 48 (Bankr. N.D.N.Y. 1989)).
5
We agree with the Bankruptcy Court that the Appellants failed to establish regular,
steady income which would have made them qualifying debtors under Chapter 13. Given
the paucity of supporting evidence, we cannot say the Bankruptcy Court abused its
discretion. Aside from their conversion motion (which was devoid of any supplemental
information from which the Bankruptcy Court could have formed a conclusion regarding
the regularity of income), the Appellants filed amended schedules (Schedule I and J),
which were just as vague. Their Amended Schedule I, for example, indicates Mark
Culp’s employment as a sales associate at a local liquor store. Although he lists a
monthly income, he provides no information on the regularity of this work, or the
reliability of his stated income. Moreover, the Bankruptcy Court’s determination that the
Appellants filed their conversion request in bad faith was not clearly erroneous because
such a determination is supported by the record.11 The conversion motion was filed after
the Bankruptcy Court approved the bidding procedures for the real property, after the
Trustee had marketed the property, and shortly before the hearing on the sale motion.12
We also note that the amended schedules upon which the Appellants rely were filed one
day before the hearing on the conversion motion. The Bankruptcy Court’s
characterization of the filing as an “eleventh-hour request” did not miss the mark.
11
We have instructed that because a bad faith inquiry is “a fact intensive determination
better left to the discretion of the bankruptcy court,” such a determination will not be
disturbed on appeal unless it is clearly erroneous. In re Myers, 491 F.3d 120, 125 (3d
Cir. 2007) (quoting In re Lilley, 91 F.3d 491, 496 (3d Cir. 1996)).
12
It was also not an abuse of discretion for the Bankruptcy Court to find that, in filing the
conversion motion, the Appellants were abusing the bankruptcy process.
6
B.
We will dismiss the Appellants’ appeal of the sale order because it is moot. The
District Court also concluded as much and the Appellants offer scant challenge to that
mootness determination on appeal. To promote certainty and finality with respect to such
sales, as well as to encourage parties to bid for assets in bankruptcy cases, § 363(m)
prohibits the reversal of a sale to a good faith purchaser of bankruptcy estate property if a
party fails to obtain a stay of the sale.13 We have interpreted this section of the Code to
require satisfaction of two conditions before dismissing an appeal for mootness: first, the
sale was not stayed pending appeal, and second, the reversal or modification of the
Bankruptcy Court’s authorization would affect the validity of the sale.14
We agree with the District Court that the Appellants’ appeal is moot pursuant to
11 U.S.C. § 363(m). The Appellants did not secure a stay of the sale pending appeal, and
the Trustee sold the property. The Appellants now seek to set aside the property sale,
which would almost certainly undermine the validity of that prior transaction. The sale,
as noted by the Bankruptcy Court, “has been undertaken by Accord in good faith,” and
that “Accord satisfies the good faith requirement of Section 363(m) of the Bankruptcy
Code and, accordingly, Accord is entitled to all of the protections afforded by Section
363(m) . . . .” We see nothing on this record which would render that determination
13
See 11 U.S.C. §§ 363(b)(1), (m), Cinicola v. Scharffenberger, 248 F.3d 110, 128 (3d
Cir. 2001).
14
See Cinicola, 248 F.3d at 128.
7
erroneous and, therefore, conclude that the Appellants’ appeal of the Sale Order is moot
pursuant to 11 U.C.S. § 363(m).15
III.
After a thorough review of the record and consideration of all arguments raised by
the parties, we will affirm the decision of the District Court.
15
Apparently for the first time on appeal, the Appellants oppose the grant of the sale
motion on the ground that they claimed an exemption in the property in their Chapter 7
petition. They have not, however, cited any part of the record demonstrating where, in
relation to the sale motion, this issue was raised, briefed, argued, and ruled on by the
Bankruptcy Court. Issues not preserved in the lower courts cannot be reviewed on
appeal. We do not consider issues that were not raised below. DIRECTV Inc. v. Seijas,
508 F.3d 123, 125 n.1 (3d Cir. 2007) (“It is well established that arguments not raised
before the District Court are waived on appeal.”); In re Kaiser Grp. Int’l Inc., 399 F.3d
558, 565 (3d Cir. 2005) (“[W]hen a party fails to raise an issue in the bankruptcy court,
the issue is waived and may not be considered by the district court on appeal.”).
Furthermore, and as noted by the District Court, exempt property is to be listed on
Schedule C. The Appellants’ Amended Schedule C lists the value of their exempted
property at $0.00, and it remained listed as $0.00 through subsequent amendments.
8