The Zuercher Trust of 1999 v. Schoenmann (The Zuercher Trust of 1999)

9th Circuit BAP Case Nos. NC-14-1440-KuWJu and NC-14-1515-KuWJu (Not for Publication)
The 9th Circuit Bankruptcy Appellate Panel ("BAP") affirmed the bankruptcy court's order approving the sale of real property. In regards to the issue of The Zuercher Trust of 1999 ("Trust") and its owner Monica Hujazi ("Hujazi") standing to appeal, the BAP determined that the standing doctrine is not a constitutional mandate but rather is a prudential, judge-made rule applied in the interests of judicial economy and efficiency. Therefore, the BAP declined to dismiss the appeal based on standing grounds. The BAP affirmed that bankruptcy court's determination that the buyer was a good faith buyer addressing the factors set forth in In re M. Capital Corp., 290 B.R. 743 (9th Cir. BAP 2003). The bankruptcy court did not err in not requiring the Chapter 11 Trustee to obtain an appraisal prior to the sale.
Procedural context:
The Trust and Hujazi appealed the bankruptcy court's orders that (i) approved the Chapter 11 Trustee's proposed sale procedures and (ii) approval of the Chapter 11 Trustee's proposed sale. The issues presented on appeal included: (1) does the Trust and Hujazi have standing to appeal (2) is the appeal limited by 11 U.S.C. Sec. 363(m) and (3) did the bankruptcy court err when it approved the sale.
The Trust filed Chapter 11 in September 2012. It was owned and controlled by Hujazi. The Trust's primary asset was 88.5% ownership in a two-story mixed residential and retail building. During the court of the Chapter 11, a Chapter 11 Trustee was appointed. Based on the Chapter 11 Trustee's analysis that the applicable real property was not generating sufficient revenue to service it ongoing obligations; the Chapter 11 Trustee commenced pursuing a sale of the real property. The Chapter 11 Trustee procured a proposed buy and sought approval of the sale of real property. The Trust and Hujazi objected to the sale asserting that the proposed purchase price of $3.1 million (subject to overbid) was not market value based on the Trust's and Hujazi's appraisals and broker price opinions in the amount of $4.0 million to $4.5 million. The bankruptcy court required the Chapter 11 Trustee to continue market the real property for 90 days to determine if there are any higher bidders. During this time the initial proposed buyer withdrew its offer. The Chapter 11 Trustee obtained authority to employ two real estate brokers, one with more experience handling the sale of real property in bankruptcy and the co-broker with more experience in the area in which the real property was located. After marketing the real property for several months, the Chapter 11 Trustee received an offer for approximately $3.0 million and the Chapter 11 Trustee pursued approval of the proposed sale. Again, The Trust and Hujazi contested the proposed sale on the basis that the proposed purchase price was too low, the proposed buyer was not a good faith buyer, and the Chapter 11 Trustee should be required to obtain a formal appraisal of the real property before pursuing the sale. The bankruptcy court determined that based on the ongoing monthly reports related to the market efforts of the Chapter 11 Trustee and brokers, that the proposed purchase price of the sale was market value. Moreover, the bankruptcy court determined that the proposed sale was in good faith and an arms' length sale with a disinterested / unrelated party. Therefore, the proposed buyer was also a good faith buyer pursuant to 11 U.S.C. Sec. 363(m).
Bankruptcy Judges KURTZ, WANSLEE, and JURY

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