Tarpenning v. Peer Street, Inc.
1:24-cv-00121
| D. Del. | Mar 24, 2025Background
- Sean Tarpenning, former principal of US Real Estate Equity Builder (USREEB) entities, personally guaranteed a loan on property at 440 East 63rd Street in Kansas City, Missouri, which defaulted in August 2019.
- USREEB entered Chapter 11 bankruptcy in Kansas in 2020, with a trustee appointed; a sale order authorized transfer of the property to Peer Street's affiliate, PS Funding, free and clear of all claims and liens in July 2022, over Tarpenning's objections.
- Tarpenning filed a lis pendens on the property in July 2023, after Peer Street commenced its own Chapter 11 case in Delaware, and after the sale to Peer Street's affiliate.
- Peer Street sought an order enforcing the bankruptcy automatic stay, declaring the lis pendens void ab initio as a violation of that stay.
- The Bankruptcy Court granted Peer Street's motion; Tarpenning appealed, arguing the lis pendens was valid and his interests were ignored.
Issues
| Issue | Tarpenning's Argument | Peer Street's Argument | Held |
|---|---|---|---|
| Did filing the lis pendens violate the automatic stay? | Filing did not violate the stay; lis pendens protected his equitable interest. | Filing violated § 362 automatic stay: action to control estate property post-petition. | Yes, lis pendens was a violation and is void ab initio. |
| Did the sale eliminate Tarpenning’s equitable interest? | Claimed Release of Deed of Trust preserved an interest; § 541(d) meant estate only took legal title. | Sale Order conveyed property free and clear; Tarpenning’s interests were extinguished. | Sale extinguished all claims; any alleged interest was not preserved. |
| Did the bankruptcy court misconstrue the sale order and § 541(d)? | Court failed to recognize § 541(d) limits to legal title, not equitable interest. | Argued sale was free and clear by court order, and equitable arguments were already rejected by prior court. | Court did not err; § 541(d) arguments were overruled and not relevant here. |
| Did Peer Street lack authority to sell free of Tarpenning’s interest? | Peer Street held only bare legal title under Delaware law, so couldn’t sell free of other interests. | Trustee’s sale valid; record shows Peer Street ownership; no evidence of only legal title. | No error; Peer Street owned property and could sell free and clear. |
Key Cases Cited
- In re Taylor, 913 F.2d 102 (3d Cir. 1990) (defining final orders in bankruptcy appeals)
- Mar. Elec. Co., Inc. v. United Jersey Bank, 959 F.2d 1194 (3d Cir. 1991) (actions in violation of the automatic stay are void ab initio)
- In re Wettach, 811 F.3d 99 (3d Cir. 2016) (automatic stay violation is reviewed de novo)