In re: The Zuercher Trust of 1999
NC-15-1174-KuBS
| 9th Cir. BAP | Mar 22, 2017Background
- Debtor (Zuercher Trust) owned two apartment buildings (Union and Alexandria); bankruptcy court approved sale procedures and found purchasers (including Win Win) were good-faith buyers under 11 U.S.C. § 363(m).
- Original sale: Union sold to Win Win on a $2.7M credit bid; Alexandria was to be sold to Vista for $6.8M, with Win Win as backup on a $4.5M credit bid.
- The Vista transaction failed to close; trustee (Kravitz, successor now Schoenmann) closed Alexandria with Win Win as backup. Win Win later resold Alexandria to an affiliate of Vista for $6.8M.
- Appellant Hujazi (former principal and codebtor on loans) argued post-sale events showed fraud, collusion, and that the trustee improperly substituted Win Win without new court approval, causing a $2.3M loss to the estate.
- Bankruptcy court (on remand from the Panel) credited trustee and Win Win declarations explaining title/insurance issues, withholding tax, and Win Win’s willingness to assume risks; it reaffirmed the original § 363(m) good-faith finding and denied Hujazi’s motion.
- Hujazi appealed; the Panel (this opinion) held she had appellate standing (as a codebtor) and affirmed the bankruptcy court—finding the good-faith determination was not clearly erroneous and denial of additional discovery/time was not an abuse of discretion.
Issues
| Issue | Hujazi’s Argument | Appellees’ Argument | Held |
|---|---|---|---|
| Standing to appeal | Hujazi claimed interest because sale outcomes affect her personal liability | Appellees argued no realistic surplus for debtor so Hujazi lacks pecuniary injury | Hujazi has standing as a codebtor with ongoing personal stake; appeal permitted |
| Whether post-sale events showed lack of good faith under § 363(m) | Post-sale facts (trustee allegedly backed out of Vista sale; Win Win resold at same price) evidence fraud, collusion, unfair advantage | Trustee and Win Win offered detailed, credited explanations for failed Vista closing and legitimate backup sale/resale; estate suffered no net loss | Bankruptcy court’s reaffirmed good-faith finding not clearly erroneous; affirmed |
| Whether trustee needed new court order to close backup sale | Trustee improperly substituted buyers and needed court approval | Sale order authorized consummation with backup bidder if original sale failed; trustee acted within order terms | Court’s interpretation of its sale order was reasonable and not an abuse of discretion; backup sale authorized |
| Denial of additional time/discovery | Bankruptcy court should have granted continuance to permit discovery to prove bad faith | Hujazi had been dilatory and made no formal discovery motions; speculates without showing prejudice | Denial affirmed; Hujazi failed to show actual and substantial prejudice required to overturn denial |
Key Cases Cited
- Retz v. Samson (In re Retz), 606 F.3d 1189 (9th Cir. 2010) (standard for clearly erroneous factual findings)
- Adeli v. Barclay (In re Berkeley Delaware Court, LLC), 834 F.3d 1036 (9th Cir. 2016) (appellate review of § 363(m) good-faith determinations)
- Anderson v. City of Bessemer City, N.C., 470 U.S. 564 (U.S. 1985) (factfinder’s permissible choice among two views is not clearly erroneous)
- Martel v. County of Los Angeles, 56 F.3d 993 (9th Cir. 1995) (need for "clearest showing" of actual and substantial prejudice to overturn continuance denial)
- Fondiller v. Robertson (In re Fondiller), 707 F.2d 441 (9th Cir. 1983) ("person aggrieved"/standing to appeal bankruptcy orders)