Hytken v. Williams

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
June 6, 2008
No. 07-20350 Charles R. Fulbruge III
Clerk
In The Matter Of: BEACH DEVELOPMENT LP
Debtor
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ROBERT M HYTKEN; HYTKEN’S A PARTNERSHIP; KENT B HYTKEN
Appellants
v.
CHAPTER 11 TRUSTEE RANDY W WILLIAMS; MARISA GAYNE;
SOURCEONE CAPITAL GROUP, LP; RAMPART RESOLUTION GROUP
LLC; WILLIAM B CARROLL
Appellees
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:06-CV-2169
Before REAVLEY, JOLLY, and GARZA, Circuit Judges.
PER CURIAM:*
Robert and Kent Hytken and Hytken’s A Partnership (the “Hytken
parties”) appeal the district court’s order dismissing their appeal of the
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
No. 07-20350
bankruptcy court’s confirmation of the sale of certain assets of the bankruptcy
estate and its denial of their motion for a new trial. The district court dismissed
the appeal, holding that it is moot under 11 U.S.C. § 363(m) and, in the
alternative, that the bankruptcy court did not err in affirming the sale or
denying the Hytken parties’ motion. We AFFIRM the district court’s judgment
dismissing the appeal.
I.
The bankruptcy court authorized the sale of the debtor’s causes of action
against SourceOne Capital Group, L.P., for wrongful foreclosure arising out of
the foreclosure of seven tracts of land owned by the debtor, Beach Development,
L.P. Rampart Resolution Group, L.L.C., an affiliate of SourceOne, purchased
the causes of action at an auction conducted by the bankruptcy trustee, Randy
Williams. Rampart was the sole bidder, bidding $301,000 at the auction and,
immediately before confirmation of the sale, raising its bid to $360,000.1 The
bankruptcy court approved the sale, finding that the trustee and Rampart had
acted in good faith in the conduct of the auction and sale. No stay was sought
pending appeal. The bankruptcy court denied the Hytken parties’ emergency
motion for a new trial, for rehearing, to set aside the order of sale and for
sanctions, which alleged that the sale was not conducted in good faith.
The Hytken parties appealed to the district court, which held that the
bankruptcy court’s finding of good faith was not clearly erroneous. Because
there was no stay of the sale or authorization of the sale, the district court
dismissed the appeal as moot under 11 U.S.C. § 363(m). The district court held,
in the alternative, that the bankruptcy court did not err in approving the sale of
1
In an earlier auction, a partnership controlled by Hytken bid $350,000 for the causes
of action, but failed to close, requiring a second auction to be held. The second auction is the
subject of this appeal.
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No. 07-20350
the claims against SourceOne or in denying the Hytken parties’ motion for a new
trial.
The Hytken parties appealed to this court.
II.
The Hytken parties contend that their appeal is not moot and that the
bankruptcy court erred in confirming the sale because it was not conducted in
good faith.
III.
In reviewing cases originating in bankruptcy, we perform the same
function as the district court: the bankruptcy court's findings of fact are
reviewed for clear error, and issues of law are reviewed de novo. In re Soileau,
488 F.3d 302, 305 (5th Cir. 2007). “A finding is ‘clearly erroneous’ when,
although there is evidence to support it, the reviewing court on the entire
evidence is left with the definite and firm conviction that a mistake has been
committed.” United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948). We
review de novo a district court’s dismissal of an appeal from the bankruptcy
court as moot. In re Ginther Trusts, 238 F.3d 686, 688 (5th Cir. 2001).
A.
We adopt the reasoning expressed in the district court’s memorandum
opinion and hold that this appeal is moot under 11 U.S.C. § 363(m). Section
363(m) provides that
the reversal or modification on appeal of an
authorization under subsection (b) or (c) of this section
of a sale or lease of property does not affect the validity
of a sale or lease under such authorization to an entity
that purchased or leased such property in good faith . .
. unless such authorization and such sale or lease were
stayed pending appeal.
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No. 07-20350
We have held that § 363(m) “patently protects, from later modification on appeal,
an authorized sale where the purchaser acted in good faith and the sale was not
stayed pending appeal.” In re Gilchrist, 891 F.2d 559, 560 (5th Cir. 1990).
It is uncontested that the sale was not stayed pending appeal. Nor have
the Hytken parties demonstrated that the bankruptcy court’s finding of good
faith was clearly erroneous. The Bankruptcy Code does not define “good faith”
for the purposes of § 363(m). We have stated that an appropriate
characterization of good faith in a bankruptcy sale is a lack of “fraud, collusion
between the purchaser and other bidders or the trustee, or an attempt to take
grossly unfair advantage of other bidders.” In re Bleaufontaine, Inc., 634 F.2d
1383, 1388 n.7 (5th Cir. 1981) (quoting In re Rock Indus. Mach. Corp., 572 F.2d
1195, 1198 (7th Cir. 1978)). The Hytken parties contend that Rampart
increased its bid in a secret agreement with a receiver appointed in state court
litigation between Kent Hytken and his ex-wife, Marisa Gayne. The Hytken
parties contend that Rampart increased its bid in order to sabotage a proposed
settlement between the Hytken parties, the state court receiver, the bankruptcy
trustee, and Gayne. Even if this allegation had been proved, there is still no
proof of fraud or collusion between Rampart and the trustee, that any fraudulent
conduct attended the sale of the claims, or that unfair advantage was taken of
any other bidder.2
The Hytken parties argue that a sale does not render the case moot under
§ 363(m) if relief is sought that does not affect the validity of the sale. See Krebs
Chrysler-Plymouth, Inc. v. Valley Motors, Inc., 141 F.3d 490, 499 (3d Cir. 1998)
(holding that, contrary to the majority rule, an appeal is only moot under §
363(m) when “the court, if reversing or modifying the authorization to sell or
lease, would be affecting the validity of such a sale or lease.”). Even if this were
2
The Hytken parties failed to qualify as bidders in the auction under procedures
established by the bankruptcy court. Rampart was the sole bidder.
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No. 07-20350
the rule in this Circuit, the Hytken parties’ appeal would nevertheless be moot
because the remedies they seek affect the validity of the sale by requiring this
court to either reverse the authorization of the sale or declare it invalid.
The Hytken parties also make a number of arguments for the first time on
appeal to this court. This court typically does not consider arguments not raised
in the district court, except in exceptional circumstances. See, e.g., In re Bradley,
501 F.3d 421, 433 (5th Cir. 2007). However, even if these arguments were not
waived, they are without merit.
First, the Hytken parties contend that § 363(m) does not apply to sales
that have taken place before authorization by the bankruptcy court. But the
sale procedures prescribed by the bankruptcy court here provide that the sale at
issue would not close until the day of the hearing to confirm it.
Second, they contend for the first time that § 363(m) is an unconstitutional
grant of judicial power to bankruptcy judges to the extent that it forecloses
judicial review through mootness. This contention has no basis because judicial
review is not foreclosed by § 363(m). If a stay is obtained, a sale may be
invalidated on appeal.
Third, the Hytken parties argue that the bankruptcy court erred by
waiving the 10-day stays provided by Federal Bankruptcy Rules of Procedure
6004(g)3 and 7062.4 Rule 6004(g) provides a 10-day stay unless the bankruptcy
court orders otherwise. The Hytken parties have not shown that the bankruptcy
court here abused its discretion in waiving the stay. Rule 7062 applies to
judgments in adversary proceedings. A proceeding to obtain approval of a sale
3
Rule 6004(g) provides: “An order authorizing the use, sale, or lease of property other
than cash collateral is stayed until the expiration of 10 days after entry of the order, unless the
court orders otherwise.”
4
Rule 7062 provides that Federal Rule of Civil Procedure 62 applies in adversary
proceedings. Rule 62 provides in part that “no execution may issue on a judgment . . .until 10
days have passed after its entry.”
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No. 07-20350
of property of the estate under 11 U.S.C. § 363(b) is not an adversary proceeding
under Federal Rule of Bankruptcy Procedure 7001; therefore, Rule 7062 is
inapplicable.
B.
The Hytken parties also challenge the district court’s alternative holding
that the bankruptcy court did not err in authorizing the sale or in denying their
motion for a new trial or for rehearing. They contend that the bankruptcy
court’s finding of good faith in the conduct of the sale was clearly erroneous.
For the reasons discussed above and in the district court’s order, the
bankruptcy court’s finding of good faith is fully supported by the record and is
not clearly erroneous. The Hytken parties have demonstrated no grounds for
error in the bankruptcy court’s denial of their motion for a new trial or for
rehearing.
IV.
For the foregoing reasons, the district court’s judgment dismissing the
appeal is
AFFIRMED.
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