John Lovald v. Kathryn Tennyson

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 11-2737
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In re: Theodore Stephen Wolk. *
*
Debtor, *
________________ *
*
John S. Lovald, Trustee, * Appeal from the Bankruptcy
* Appellate Panel for the
Appellant, * Eighth Circuit.
*
v. *
*
Kathryn M. Tennyson, *
*
Appellee, *
*
ABN AMRO Mortgage Group; Great *
Western Bank; Pennington County. *
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Submitted: June 11, 2012
Filed: July 30, 2012
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Before MURPHY, MELLOY, and COLLOTON Circuit Judges.
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MURPHY, Circuit Judge.
Theodore Wolk filed for Chapter 7 bankruptcy, and the trustee sought an order
from the bankruptcy court authorizing the sale of the home Wolk owned as a tenant
in common with his wife, Kathryn Tennyson. After several proceedings the
bankruptcy court1 denied the motion to sell the home, concluding that the detriment
of such a sale to Tennyson outweighed the benefit to the bankruptcy estate. Wolk
appealed, and the bankruptcy appellate panel2 affirmed. In re Wolk, 451 B.R. 468,
470 (B.A.P. 8th Cir. 2011). The trustee now appeals, and we affirm.
The trustee of Wolk's bankruptcy estate sought a court order under 11 U.S.C.
§ 363(b) authorizing the sale of the home Wolk and Tennyson jointly owned. Section
363(b)(1) enables a trustee to “use, sell, or lease . . . property of the estate” so that the
proceeds can be distributed to the bankruptcy estate. When the trustee and coowner
both possess an interest in a property, the bankruptcy estate may not proceed to sell
the asset unless “the benefit to the estate of a sale of such property free of the interests
of co-owners outweighs the detriment, if any, to such co-owners.” 11 U.S.C. §
363(h)(3). In evaluating the detriment to the co-owner, noneconomic factors can be
considered. See In re Persky, 893 F.2d 15, 20–21 (2d Cir. 1989).
After weighing the benefit to the estate of the sale of the home against the
detriment to Tennyson, the bankruptcy court denied the trustee's motion. 11 U.S.C.
§ 363(h)(3). The court found that all of the equity in the home was attributable to
1
The Honorable Charles L. Nail, Jr., United States Bankruptcy Judge for the
District of South Dakota.
2
The Honorable Robert J. Kressel, Chief Judge, United States Bankruptcy
Court for the District of Minnesota, the Honorable Arthur B. Federman, United States
Bankruptcy Court Judge for the Western District of Missouri, and the Honorable
Thomas L. Saladino, United States Bankruptcy Court Judge for the District of
Nebraska.
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Tennyson’s financial contributions, that the equity in the home would accrue to her
under South Dakota state law, that Tennyson would suffer emotional hardship from
a sale, and that the bankruptcy estate would not substantially benefit from a sale of
the home. The trustee appealed, arguing that the bankruptcy court had failed to
consider another provision of the bankruptcy code which could require the home's
equity to be divided equally between Tennyson and the bankruptcy estate. See 11
U.S.C. § 544(a) (trustee given rights and powers of a judicial lien creditor and of a
bona fide purchaser of real property). Because this argument was first raised on
appeal, the bankruptcy appellate panel remanded to the bankruptcy court for its
consideration of the provision.
On remand, the bankruptcy court found that by a sale the trustee could receive
approximately $31,000 from the equity in the home minus liquidation costs. It also
determined, however, that the detriment to Tennyson would outweigh the benefit to
the bankruptcy estate. The trustee appealed once again, and the bankruptcy appellate
panel affirmed based on its conclusion that “the bankruptcy court’s findings of fact
regarding the benefit to the estate and detriment to Tennyson [were] not clearly
erroneous.” In re Wolk, 451 B.R. at 473. The trustee now appeals to this court.
On appeal from a decision of the bankruptcy appellate panel, “we act as a
second reviewing court of the bankruptcy court’s decision, independently applying
the same standard of review as the [bankruptcy appellate panel].” In re Lasowski,
575 F.3d 815, 818 (8th Cir. 2009). The bankruptcy court’s factual determinations are
reviewed for clear error. Granite Reinsurance Co. v. Acceptance Ins. Cos., 567 F.3d
369, 376 (8th Cir. 2009). Issues committed to the bankruptcy court’s discretion,
including authorization to a trustee to sell property under § 363(h), are reviewed for
an abuse of discretion. Official Comm. of Unsecured Creditors v. Farmland Indus.,
Inc. (In re Farmland Indus., Inc.), 397 F.3d 647, 650–51 (8th Cir. 2005); Probasco v.
Eads (In re Probasco), 839 F.2d 1352, 1357 (9th Cir. 1988). The bankruptcy court
abuses its discretion when it fails to apply the proper legal standard or bases its order
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on findings of fact that are clearly erroneous. Stalnaker v. DLC Ltd., 376 F.3d 819,
825 (8th Cir. 2004).
We conclude that the bankruptcy court did not abuse its discretion in denying
the trustee's motion to sell the home because its findings with respect to the benefit
to the estate and the detriment to Tennyson were not clearly erroneous. Accepting for
the sake of analysis the trustee's position that he was entitled to a one half interest in
the equity, the administrative and commission costs of a sale would have reduced the
benefit to the bankruptcy estate’s unsecured creditors. The trustee thus failed to show
that the bankruptcy estate would reap substantial benefits from the sale of the home.
Moreover, the detriment to Tennyson of such a sale was shown to be substantial
because she had a long history of depression and in the opinion of her therapist her
condition would worsen if the house were sold. Tennyson would be further burdened
by having to finance a new house and pay relocation costs. The bankruptcy court also
properly considered the fact that all the equity in the home had been contributed by
Tennyson. See In re Persky, 893 F.2d 15, 21 (2d Cir. 1989).
On its review, the bankruptcy appellate panel concluded that the bankruptcy
court had carefully balanced the equities and had not abused its discretion in denying
the trustee’s motion to sell the home. We agree and therefore affirm the judgment.
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