In Re Sasson Jeans, Inc.
OPINION AND ORDER
Paul Guez, founder of the bankrupt Sas-son Jeans Inc. (“Sasson”), appeals from an order of the bankruptcy court approving the sale of certain assets of the debtor to Stanwich Partners, Inc. (“SPI”). Bert K. Bergenfield (“the Trustee”), as Trustee of Sasson, now moves to dismiss the appeal as moot because Guez failed to obtain a stay of the order approving the sale pending appeal.
BACKGROUND
On October 10, 1986, Sasson filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court for the Central District of California. By order, dated November 12, 1986, the case was transferred to the United States Bankruptcy Court for the Southern District of New York. On June 1,1987, the Bankruptcy Court entered an order appointing an examiner and providing for the appointment of a Chapter 11 trustee in the event that Sasson did not comply with certain of the provisions of that order. After Sasson failed to comply with the June 1, 1987 order, the Bankruptcy Court appointed Bert K. Bergenfield as the Chapter 11 Trustee of Sasson on July 14, 1987.
On or about April 8, 1988, the Trustee entered into an agreement (“the Purchase Agreement”) with SPI, whereby SPI agreed to purchase the Sasson Trademarks, trade names, and Sasson’s right as licensor under certain trademark license agreements (collectively, the “Trademark Assets”), for $8,000,000.00. The next day, the Trustee submitted an application to the Bankruptcy Court for an order approving the proposed sale of the Trademark Assets to SPI. By Order to Show Cause, dated April 25, 1988, the Bankruptcy Court scheduled a hearing for May 18, 1988 at which all interested parties were invited to voice their objections to the sale and/or submit higher or better offers for the Trademark Assets.
At the hearing, the appellant, Paul Guez, and other parties asserted various objections to the sale. After the objections were heard, counsel for the Trustee inquired into the existence of higher or better bids. The only bid, for $8,500,000, came from appellant but it was dismissed by the Court as “frivolous” since appellant failed to exhibit
On June 2, 1988, Appellant filed a Notice of Appeal from the Order with the Clerk of the Bankruptcy Court. On or about June 16, 1988, appellant filed his Designation of Record and Statement of Issues on Appeal. On July 7, 1988 the sale of the Trademark Assets was closed. On August 3,1988, the Trustee filed a motion to dismiss the appeal as moot. Apparently, Guez made no efforts, after June 16, to ensure that the record was assembled and transmitted to this court, and the case was never docketed with the Clerk’s Office. Consequently, the motion to dismiss was assigned to Part I.
The Court heard arguments on the motion to dismiss on August 16, 1988. At the conclusion of the arguments, the Court adjourned the hearing until August 23, at which time the parties represented that they would provide the Court with a transcript of the May, 18 Bankruptcy hearing. Because the Trustee argued, correctly, that the validity of a sale to a good faith purchaser pursuant § 363 of the Bankruptcy Code could not be affected by the reversal or modification of the order approving the sale, Counsel for appellant was instructed to demonstrate, at the August 23 hearing, that the basis of the appeal was the purchaser’s alleged lack of good faith. Appellant’s memorandum in opposition to the motion to dismiss and a supporting affidavit were filed with the Court on August 25. At the follow-up hearing on August 23, counsel for appellant expressed his concern that the hearing was “turning into a mini appeal itself” (Tr. at 7) rather than an inquiry into the narrower question of whether the appeal was moot. In response, the Court indicated that appellant had been given a week to expand on and explain his allegations with respect to the purchaser’s good faith which, as a practical matter, would be the same arguments advanced on the merits of the appeal. Nonetheless, appellant was given 3 days to submit any additional papers in support of the appeal. On August 26, the Court received copies of appellant’s supplemental affidavit and memorandum of law in opposition to the motion to dismiss. ,
DISCUSSION
Pursuant to 11 U.S.C. § 363(b)(1), “[t]he trustee, after notice and a hearing, may sell, use, or lease, other than in the ordinary course of business, property of the estate.” Section 363(m) further provides that the reversal or modification of a bankruptcy order approving such a sale “does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal.” (emphasis added). Because Guez did not obtain a stay of the sale, movant asserts that the Court is powerless to grant any effective relief.
In accordance with the provisions of § 363, numerous cases have held that a would-be-appellant’s failure to obtain a stay of a sale
to a good faith purchaser
renders an appeal from the bankruptcy order authorizing and confirming the sale moot.
See, e.g., Matter of Andy Frain Services, Inc.,
Because the bankruptcy court found the consideration for the sale to be fair and adequate and concluded that the purchaser acted in good faith, the Trustee argues that “no issue with respect to SPI’s good faith exists.” This is an overstatement. While the Bankruptcy Court’s findings of fact are reviewed with extreme deference on appeal,
see In re Abbotts,
On an appeal the district court or bankruptcy appellate panel may affirm, modify, or reverse a bankruptcy judge’s judgment, order, or decree or remand with instructions for further proceedings. Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of witnesses.
Bankruptcy Rule 8013. The burden of demonstrating that a particular finding of fact was “clearly erroneous” is, however, a heavy one:
“ ‘a finding is clearly erroneous when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.' United States v. United States Gypsum Co.,333 U.S. 364 , 395,68 S.Ct. 525 , 542,92 L.Ed. 746 (1948). This standard plainly does not entitle a reviewing court to reverse the finding of the trier of fact simply because it is convinced that it would have decided the case differently. The reviewing court oversteps the bounds of its duty under Rule 52 if it undertakes to duplicate the role of the lower court. ‘In applying the clearly erroneous standard to the findings of a district court sitting without a jury, appellate courts must have in mind that their function is not to decide factual issues de novo.’ Zenith Radio Corp. v. Hazeltine Research, Inc.,395 U.S. 100 , 123,89 S.Ct. 1562 , 1576,23 L.Ed.2d 129 (1969). If the district court’s account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently. Where there are two permissible views of the evidence, the fact finder’s choice between them cannot be clearly erroneous.
Anderson v. City of Bessemer City,
Guez’s allegations of bad faith center around SPI’s relationship to the debtor. Charles Bradley, the President of SPI, is also the Chief executive officer of Society Brands, Inc., which owns Men’s Sportswear Inc. (“MSI”). MSI is a former licensee and a current creditor of Sasson,
see In re Men’s Sportswear Inc.,
Based upon the unsupported assertion that MSI owes the Sasson estate “millions of dollars”
2
and the fact that MSI has two pending claims against the estate, one of which is based upon a judgment rendered in favor of MSI and affirmed on appeal,
see In re Men’s Sportswear Inc., supra,
Guez further suggests that the Trustee will be less than diligent in pursuing claims against, and contesting claims by, MSI. Again, the Court is at a loss to see the nexus between the Trustee’s alleged unwillingness to pursue claims against or defend claims by the purchaser and the purchaser’s conduct in bidding for and obtaining the Trademark Assets. The simple fact is that Guez did not provide the Bankruptcy Court with a scintilla of evidence of
conduct
on the part of SPI to co-opt the Trustee with respect to claims by or against the estate or with respect to the sale itself. How the mere existence of claims by or against SPI tainted the sale proceedings — the proper focus of the “good faith” analysis under the caselaw — is never explained. The fact that a successful bidder is a creditor of the estate does not, standing alone, raise an inference that the sale is the product of fraud or collusion.
See, e.g., In re Youngstown Steel Tank Co.,
The remainder of Guez’s contentions are directed at innocent or irrelevant facts, or concern objections to aspects of the bankruptcy proceedings having nothing to do with the SPI’s conduct in obtaining the Trademark Assets. For example, Guez makes much of the fact that SPI assigned the Trademark Assets to a third party soon after the sale closed. But Guez fails to explain why, as owner of the Trademark Assets, SPI was not free to dispose of the newly purchased assets as it saw fit. Guez also purports to find grounds for suspicion in an erroneously designated Certificate of Merger, from 1980, which indicated that the debtor had merged into a corporation called Sasson Licensing Corp. The suggestion is that the Trustee had no authority to sell the Trademark Assets as they were not property of the Sasson estate. In response, counsel for the Trustee produced an updated Certificate of Merger from the Secretary of State indicating that Sasson Licensing Corp. had in fact been merged into the debtor. In addition, as counsel for the Trustee noted at the hearing, this case, captioned Sasson Jeans Inc., was filed by Mr. Guez who was the company’s president “and if this company didn’t exist for six years before the filing he knew it better than anybody else.” (Tr. at 15). More importantly, if the debtor did not exist and the Trustee had no assets to sell, then the purchaser got nothing for its $8 million dollars — hardly a scenario suggestive of collusion or fraud. Finally, Guez’s doubts about the wisdom of selling the Trademark Assets at all represent an attack upon the overall plan of reorganization, rather than SPI’s conduct during the course of the sale proceedings, and are thus irrelevant to the narrow issue before the Court.
Giving Guez the benefit of the doubt, and assuming that one could reasonably infer, from the totality of the circumstances, that
As a final matter, it would be prudent to address any contention that appellant did not have a full opportunity to present his arguments on the merits, given the manner in which this case came to be heard before the Court. Despite having had the opportunity to present all his arguments, and the evidence supporting them, in the context of the Trustee’s motion to dismiss, Guez!s position seems to be that if he establishes a colorable doubt with respect to SPI’s good faith, he is entitled to a separate round of briefing “on the merits.” This position is untenable for several reasons.
The second sentence of Rule 8001(a) states:
Failure of an appellant to take any step other than the timely filing of a notice of appeal does not affect the validity of the appeal, but is ground only for such action as the district court or bankruptcy appellate panel deems appropriate, which may include dismissal of the appeal,
(emphasis added). In addition to the notice of appeal, an appellant must, “[w]ithin 10 days of filing the notice of appeal, file with the clerk and serve on the appellee a designation of the items to be included in the record on appeal and a statement of the issues to be presented,” Rule 8006, file with the clerk and deliver to the court reporter a written request for the transcript of any proceeding
immediately
after filing the designation if the record designated by the appellant includes such a transcript,
id.,
and “take any other action necessary to enable the clerk to assemble and transmit the record,”
id.
Appeals have been dismissed for lack of diligence or outright defaults in following these rules.
See, e.g., In re Colombian Coffee Co., Inc.,
Although the text of Rule 8006 suggests that the designation of the transcript of the bankruptcy proceedings as part of the record is optional, an appellant
must
“include in the record such parts of the reporter’s transcript as are necessary to give the district judge or appellate panel a fair and accurate account of what transpired before the bankruptcy judge with respect to the matters that are the basis of the appeal,” 9 Collier on Bankruptcy para. 8006.04 at 8006-7 (15th ed. 1988);
Cf. Chernack v. Radio,
After filing his Designation of Record and Statement of Issues on Appeal, Guez apparently made no effort to secure a transcript or otherwise ensure that the record was properly assembled for transmission to the district court. In his designation of the record, Guez did not even include the minutes of the May 18,1988 hearing before the bankruptcy judge. Consequently, when ap-pellee’s motion to dismiss was filed on August 3 — 2 months after Guez filed his Notice of Appeal — the matter had not been docketed in the Clerk’s Office of this court and the motion was heard in Part I. Had the Trustee not moved to dismiss the appeal, it is not clear when, if ever, this matter would have been brought to a conclusion.
“The time limits set forth in the Rules of Bankruptcy Procedure are intended to provide for expeditious resolution of bankruptcy proceedings and should not be ignored.”
Sanitation Recycling, Inc. v. Jay Peak Lodging Assoc.,
The stay requirement of this section ... “ ‘is in furtherance of the policy of not only affording finality to the judgment of the bankruptcy court, but particularly to give finality to those orders and judgments upon which [innocent] third parties rely.’” In re Abbotts Dairies of Pennsylvania, Inc.,788 F.2d 143 , 147 (3d Cir.1986) (quoting 14 Collier on Bankruptcy para. 11-62.03 at 11-62-11 (14th ed. 1976)). “Finality is important because it minimizes the chances that purchasers will be dragged into endless rounds of litigation to determine who has what rights in the property. Without the degree of finality provided by the stay requirement, purchasers are likely to demand a steep discount for investing in the property.” In re Sax,796 F.2d 994 , 998 (7th Cir.1986).
In re Pisces Leasing Corp.,
Because he was ordered out of the State for 90 days beginning on May 24,1988, and was further ordered to attend a drug rehabilitation program in California, Guez contends that he was disabled from attending matters on appeal and thus should be granted an enlargement of time to further designate the appellate record and transmit
In any event, Guez has not articulated any need to supplement the record before the Court. Guez has submitted evidence that allegedly supports his allegations of bad faith and, although it is not clear that all of the materials were before the Bankruptcy Court,
see In re Tiana Queen Motel, Inc.,
For the foregoing reasons, the order of the Bankruptcy Court approving the sale of the Trademark Assets is affirmed.
SO ORDERED.
Notes
. The Court-approved notice of the sale specified that any person wishing to bid had to exhibit a cashier's or certified check drawn on the order of the Trustee for at least 25% of his bid. Apart from his failure to back up the offer as required, the Bankruptcy Court noted that Guez was, and apparently still is, a debtor in his own personal Chapter 11 case and thus had improperly submitted the bid — an act outside the ordinary course of his business — without first seeking approval from the Bankruptcy Court.
. Guez has submitted a portion of the minutes of a hearing before the bankruptcy Court at which the Trustee admitted that he failed to collect certain royalties from Men’s Sportswear Inc. because he misunderstood the terms of the licensing agreement governing those royalties. The Bankruptcy Court accepted the Trustee’s assurances that he will pursue valid claims for unpaid royalties against MSI or any other licensee and I see no basis for questioning that determination.
. "Decisions under the Appellate and Bankruptcy Rules have made it clear that the burden of presenting the court of appeals with an adequate record is squarely on the appellant.” Id. para. 8006.04, at 10.
. Rule 9006(c)(1) permits the court to reduce the period of time within which actions under the Bankruptcy Rules are to be taken. Similarly, Rule 8009, which provides that the appellant’s brief must be filed within 15 days after entry of the appeal on the docket, "permits the court by rule or order to shorten or extend the relevant time period.” 9 Collier, supra 8009.03 at 4 (emphasis added). Collier suggests that the drafters of the Bankruptcy Rules provided flexibility in the timing and manner of hearing bankruptcy appeals because they recognized the necessity for quick action in certain cases. Id.