If so authorized, the purchaser of real property from a bankruptcy estate acquires title to the land “free and clear of any interest” identified in 11 U.S.C. § 363(f). After an affiliate of Liberty Building Corporation (“Liberty”) purchased the Skyline Woods Golf Course in Douglas County, Nebraska, from the estate of a Chapter 11 debtor, residents of the surrounding planned community sued the purchasers to enforce express and implied restrictive covenants. The Supreme Court of Nebraska held that the bankruptcy sale did not extinguish equitable interests in having the property maintained as a golf course.
Skyline Woods Homeowners Ass’n, Inc. v. Broekemeier,
I.
After filing a voluntary Chapter 11 petition, Skyline Woods Country Club, LLC, acting as debtor-in-possession, filed a motion under 11 U.S.C. § 363 seeking to sell substantially all its assets, including the golf course, accompanied by a proposed Asset Purchase Agreement. The high bid of approximately $2.9M was submitted by an affiliate of Liberty, which is owned and operated by David and Robin Broekemeier. The bankruptcy court approved the sale as “in the best interests of the Debtor,
free and clear of all mortgages, liens, pledges, charges ... security interests, interests under conditional sale, capital lease or title retention agreements], encumbrances, easements, options, rights of first refusal, restrictions, judgments, claims, demands, successor liability, defects or other adverse claims, interests or liabilities of any kind or nature (whether known or unknown, accrued, absolute, contingent, or otherwise) in, on or arising from the Assets.
The Sales Order further provided that—
all persons and entities ... holding claims or interests of any kind or nature whatsoever against or in ... the Assets (whether legal or equitable, secured or unsecured, matured or unmatured, contingent or non-contingent, senior or subordinated) ... or the transfer of the Assets to the Buyer, hereby are forever barred and estopped from asserting against the Buyer, its successors or assigns, its property, or the Assets, such persons’ or entities’ claims or interests.
The bankruptcy case was converted to a “no-asset” Chapter 7 liquidation and closed.
Some time after the purchase, Liberty ceased operating the golf course and began changing the nature and use of the property. Nearby residents and various homeowner associations (collectively, “the Homeowners”) sued Liberty and the Broekemeiers (who we will now refer to collectively as “Liberty”) in state court, asserting express and implied restrictive covenants requiring that the property be maintained as a golf course. Liberty responded by filing a motion in the bankruptcy court to enforce terms of the Sales Order, which allegedly barred the Homeowners from pursuing their state-law claims. However, after the bankruptcy court advised that Liberty must move to reopen and pay a filing fee, Liberty withdrew this motion and defended the state-court action on the merits, arguing the Homeowners’ claims were precluded by the bankruptcy court’s Sales Order.
The state trial court granted summary judgment to the Homeowners. Liberty appealed. The Supreme Court of Nebraska affirmed, agreeing that the property was burdened by implied covenants that the property be maintained as a golf course and concluding, after careful analysis, that such implied restrictive covenants running with the land were interests that may not be extinguished under 11 U.S.C. § 363(f).
Skyline Woods,
When Mid-City Bank recorded an Election to sell the property, the Homeowners commenced a second state-court action seeking,
inter alia,
to subordinate the Bank’s deed of trust to the Homeowners’ equitable lien for the costs of maintaining the property. The Bank and Liberty then filed this motion to reopen the Debtor’s bankruptcy case and initiate an adversary proceeding to enforce the Sales Order. They sought an order enjoining the Homeowners “from enforcing or attempting to enforce the decisions of the Nebraska Supreme Court,” enjoining “further prosecution of the Second State Court Suit,” and declaring that the state-court orders at issue “are void for lack of subject matter jurisdiction.” After the bankruptcy court
1
II.
A bankruptcy case may be reopened “to administer assets, to accord relief to the debtor, or for other cause.” 11 U.S.C. § 350(b);
see
Fed. R. Bankr.P. 5010. The Bank’s motion sought leave to commence an adversary proceeding to declare void and enjoin enforcement of a state-court judgment. Though the parties have briefed a great many issues, the critical question is whether the judgment is entitled to full faith and credit under 28 U.S.C. § 1738. If it is, a federal court in a reopened bankruptcy case must give it “the same preclusive effect as would be given that judgment under the law of the State in which the judgment was rendered.”
Migra v. Warren City Sch. Dist. Bd. of Educ.,
The Bank argues that Congress has vested bankruptcy courts with exclusive jurisdiction over the property of a bankruptcy estate and therefore the Nebraska state-court judgment is subject to collateral attack. In
Duke v. Durfee,
However, the Court in
Durfee
recognized there are exceptions to its broad rule of jurisdictional finality. “Doctrines of federal pre-emption or sovereign immunity may in some contexts” trump this general rule, the Court explained, citing
Kalb v. Feuerstein,
In
Kalb,
a state appellate court decided that federal bankruptcy law did not create an automatic statutory stay that would terminate state-court jurisdiction; therefore the court upheld the foreclosure proceedings at issue. The Supreme Court reversed, concluding that Congress, exercising its power to regulate bankruptcy, had ousted the state courts of jurisdiction to proceed with foreclosure after a petition was filed. Therefore, the state-court decision “was not merely erroneous but was beyond its power, void, and subject to collateral attack.”
We reject the contention that the bankruptcy court had exclusive jurisdiction over the Homeowners’ claims in their first state-court action. Federal district courts, and their bankruptcy courts by delegation, have exclusive jurisdiction “of all cases under title 11,” 28 U.S.C. § 1334(a), but that provision is limited to the Debtor’s Chapter 11 petition and “the proceedings that follow the filing of a bankruptcy petition.”
In re Middlesex Power Equip. & Marine, Inc.,
The Bank and Liberty further argue that 11 U.S.C. § 363(m)
2
deprived the Supreme Court of Nebraska of authority to modify the free-and-clear title Liberty acquired under the Sales Order. By its plain language, § 363(m) applies to appeals of sales authorizations or orders, like the appeal we considered in
In re Trism, Inc.,
As the Nebraska state courts had concurrent jurisdiction over the Homeowners’ first suit, and expressly considered the “jurisdictional” arguments here asserted by the Bank and Liberty, the bankruptcy court in a reopened proceeding would be bound to give the Supreme Court of Nebraska decision the same preclusive effect it would be given by the state courts.
Knutson v. City of Fargo,
The judgment of the Bankruptcy Appellate Panel is affirmed.
Notes
. The Honorable Timothy J. Mahoney, United States Bankruptcy Judge for the District of Nebraska.
. 11 U.S.C. § 363(m) provides, "The reversal or modification on appeal of an authorization ... of a sale ... of property does not affect the validity of a sale ... to an entity that purchased ... such property in good faith ... unless such authorization and such sale ... were stayed pending appeal.”
. Of course, Liberty could have but did not petition the Supreme Court of the United States to issue a writ of certiorari and take up the question whether the Supreme Court of Nebraska's interpretation of the Sales Order was contrary to federal law. See 28 U.S.C. § 1257(a).