- Kallman & Co. v. Gottlieb (In re Lewis), BAP No. CC-13-1367-TaDKi, 2014 WL 4099248, --- B.R. --- (B.A.P. 9th Cir. Aug. 20, 2014)
- The Bankruptcy Appellate Panel of the Ninth Circuit (the “BAP”) affirmed the United States Bankruptcy Court for the Central District of California’s (the “Bankruptcy Court”) order approving the sale of the bankruptcy estate’s interest in various state court claims against the debtor’s former employer to the debtor’s non-filing spouse pursuant to section 363(i). In so ruling, the BAP first held that the Bankruptcy Court was authorized to enter the order approving the sale to the spouse notwithstanding the fact that the Bankruptcy Court had previously entered an order approving the sale of the claims to the former employer in the state court action because the BAP concluded that (1) the former employer had not yet consummated the proposed sale at the time that the later order was entered and (2) section 363(i)’s language expressly provides that the Bankruptcy Court could enter a subsequent order approving the sale to the non-filing spouse. Second, the BAP held that the Bankruptcy Court did not abuse its discretion in approving the section 363(i) sale to the non-filing spouse after finding that the claims were community property subject to section 363(i). Finally, the BAP summarily rejected most of the former employer’s remaining arguments that the non-filing spouse waived her rights under section 363(i) or failed to pay the purchase price offered by the former employer by not paying the value of a mutual release between the former employer and the bankruptcy estate included in the order approving the sale to the former employer.
- Procedural context:
- The Bankruptcy Court initially orally approved a sale of the debtor’s claims to his former employer. A week later, the debtor’s counsel advised the chapter 7 trustee that the debtor’s non-filing spouse intended to exercise her rights under section 363(i) to purchase the claims for the same price as the former employer. Unaware of this second agreement, the Bankruptcy Court entered an order approving the sale to the former employer. The debtor then timely moved for reconsideration, and the chapter 7 trustee concurrently moved to approve a stipulation to sell the claims to the non-filing spouse. The Bankruptcy Court first orally approved the section 363(i) and then denied the motion to reconsider because the first sale order established the price that the non-filing spouse was to pay. On appeal, the BAP vacated the order approving the sale to the non-filing spouse based on a lack of factual findings. On remand, the Bankruptcy Court approved the sale to the non-filing spouse for a second time after issuing the requisite factual finding needed to support its decision. After the former employer appealed again, the BAP reviewed the second order approving the sale to the non-filing spouse for an abuse of discretion.
- Prior to filing for bankruptcy, the debtor sued his former employer in state court for various claims. The former employer responded by filing a cross-complaint against the debtor. During the pendency of the action, the debtor filed for bankruptcy under chapter 7. Even though the debtor specifically identified the ownership of his other assets in his schedules, he did not indicate whether the claims against the former employer were community property or separate property. At some point, the former employer entered into a proposed agreement with the chapter 7 trustee that provided that the former employer would purchase the claims, subject to a minimum overbid, and the parties would enter into mutual releases.
- Taylor, Dunn, and Kirscher, Bankruptcy Judges
3616 in the system
0 Being Processed