Debilio v. Golden (In re Debilio)

Ninth Circuit Bankruptcy Appellate Panel, No. CC-13-1441-TaPaKi (September 11, 2014)
Order approving sale of assets by chapter 7 trustee to ex-wife of debtor vacated and remanded because the bankruptcy court failed to make any findings in support of the decision.
Procedural context:
Appeal from bankruptcy court order approving sale of assets pursuant to section 363(b)(1) of the Bankruptcy Code and FRBP 9019(a).
In the midst of contentious divorce proceedings, the debtor filed for bankruptcy. Prior to the state court resolution of property division and spousal support disputes, the chapter 7 trustee entered into a settlement with the ex-wife pursuant to which the trustee sold all of the debtor's assets to the ex-wife in exchange for some cash and a waiver of all claims against the estate, although the ex-wife could retain the claims against the debtor, including arguments regarding nondischargeability. The Debtor opposed. The Court granted the motion without making any oral or written findings. On appeal, the BAP agreed the Debtor had standing to appeal even though the estate was insolvent because the sale would affect the Debtor's homestead recovery and could leave the Debtor with nondischargeable debts. The BAP further held that the bankruptcy court had jurisdiction even though there was a pending state court action regarding the property division and spousal support. The BAP vacated and reversed, however, because the bankruptcy court did not make any findings applying the traditional four factor test to approve a 9019 settlement and findings required for a 363 sale. The evidence showed that the value of the sold properties was roughly worth the ex-wife's priority claims, but there was no evidence of any discount for litigation risk, etc. There was no evidence how creditors would benefit from the settlement. Therefore, while the settlement might be reasonable, the bankrputcy court erred by not making any findings. The BAP also determined the bankruptcy court erred by failing to make any findings concerning the sale process and fair value. The ex-wife was the sole bidder, and there was little evidence concerning the fair value of the assets sold. A value derived from zillow was not credible evidence. Therefore, there was inadequate evidence that the estate received "optimal value for the estate."
Taylor, Pappas, and Kirscher

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