Petition for Writ of Certiorari — ITNX v. Alpha Business Group, Inc.

sunreme Court, U.S.

In the

Supreme Court of the United States

OCTOBER 200i TERM

Petitioner

ALPHA BUSINESS GROUP, INC, and NORMA J. HURT,

Respondents

ON PETITION FOR WRIT OF CERTIORARI TO THE UNITED _

STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

—

PETITION FOR WRIT OF CERTIORARI

Jonathan C. Scott, Esq.

Scott & Scott, LLP

999 Walt Whitman Road

Melville, NY 11747

(631) 271-6448

Counsel for Petitioner

Dated: November 1, 2001

=

4 tid os

i en ee ee

QUESTIONS PRESENTED

1.

Does a Circuit Court of Appeal violate due process

when it affirms on a ground never raised or relied

upon by the parties or the lower courts?

Does a bankruptcy court violate due process by

ordering the sale of real propeity titled in the name

of a non-creditor merely because the debtor claims

an interest in that property?

Does a bankruptcy court have subject matter jurisdiction to

order the sale of real property titled in the name of a non-

creditor merely because the debtor claims an interest in that

property?

Does 11 U.S.C. § 363(b) authorizes the sale of property in

which a party other than the debtor has an interest, without

the debtor meeting the requirements of 11 U.S.C. § 363(f) as

the Ninth Circuit has held, or must those requirements be

met as the Second, Fourth and Eighth Circuits have held?

Is a Federal Court judgment binding on an entity without

proof that it was properly represented and had notice and an

opportunity to be heard in the prior proceeding?

PARTIES TO THE PROCEEDINGS BELOW

Petitioner ITNX (“ITNX”) appeared by counsel as the

objectant in connection with the application of the debtor, Norma J.

Hurt (“Hurt”), brought in the Unite¢ States Bankruptcy Court for the

District of Arizona for permission to sell six lots of real property

located in Creede, Colorado and titled in the name of ITNX. Hurt,

the debtor, appeared by counsel in the same court as the movant in

connection with the application to sell the properties free and clear

of all interests. The same two parties appeared by counsel before the

Bankruptcy Appellate Panel for the Ninth Circuit and the United

States Court of Appeals for the Ninth Circuit.

CORPORATE DISCLOSURE STATEMENT

Neither the Petitioner, nor any of the other parties below, is

a publicly traded corporation.

il

TABLE OF CONTENTS

er l

PARTIES TO THE PROCEEDINGS BELOW .............. il

~ CORPORATE DISCLOSURE STATEMENT .............. ii

oe ii

Us Glas os. i v

et ees ive scererses l

INGEST RET OS RE eo l

CONSTITUTIONAL AND STATUTORY PROVISIONS

I PETE GLA La, «Sodas ccs eudveledies 2

STATEMENT OF THE CASE .............. ict one aa os 5

REASONS FOR GRANTING THE PETITION ............ 7

POINT I THE PETITION SHOULD BE GRANTED

BECAUSE THE NINTH CIRCUIT’S DECISION

TO AFFIRM THE BAP’S ORDER ON A

GROUND NOT RAISED OR ADDRESSED IN

THE COURT BELOW CONFLICTS WITH THE

REQUIREMENTS OF DUE PROCESS. ..... 8

POINT II THE PETITION SHOULD BE GRANTED

BECAUSE THE NINTH CIRCUIT’S HOLDING

THAT 11 U.S.C. § 363 AUTHORIZES THE SALE

OF PROPERTY TITLED IN THE NAME OF A

NON-CREDITOR MERELY BECAUSE THE

DEBTOR CLAIMS THAT TITLE IS IN DISPUTE

iii

POINT III

POINT IV

71S INCONSISTENT WITH THE LIMITED

JURISDICTION CONGRESS GRANTED

BANKRUPTCY COURT JUDGES. ........ 12

The Court lacks the authority to sell property that is

gk ge ee eer rrr errr Tre ee 12

Bankruptcy Courts lack the authority to sell

property titled in the name of a non-creditor. .. 13

THE PETITION SHOULD BE GRANTED SO

THAT THIS COURT MAY RESOLVE A

CONFLICT AS TO WHETHER 11 U.S.C. § 363(B)

AUTHORIZES THE SALE OF PROPERTY IN

WHICH IT IS CONCEDED THAT ANOTHER

PARTY OTHER THAN THE DEBTOR HAS AN

INTEREST, WITHOUT FIRST SATISFYING

ANY OF THE PROVISIONS OF 11 U.S.C. §

DO kon 0550 a Sa riawanecocateersahees s

THE PETITION SHOULD BE GRANTED

BECAUSE THE NINTH CIRCUIT’S DECISION

TO HOLD AN ENTITY WHO WAS NOT

BEFORE THE COURT BOUND BY A

JUDGMENT ENTERED IN A PRIOR

PROCEEDING CONFLICTS WITH THE RULEIN

OTHER CIRCUIT COURTS OF APPEALS. . 15

The petition should be granted to resolve a split

between the Ninth Circuit in this case and the

holding of this Court and the other Courts of

Appeals as to the propriety of using the concept of

“virtual representation” to bind a non-party to a

UT II, n-5 chk p san ender beneeaeeas 16

The Ninth Circuit’s use of a_ broad virtual

representation rule in the present case is particularly

unfair in view of the fact that no hearing was ever

held concerning the interrelationship between

Andrew Spain and the shareholders of ITINX. 19

iV

CONCLUSION

TABLE OF AUTHORITIES

FEDERAL CASES

Alaska Airlines, Inc. v. United Airlines, Inc., 948 F.2d 536, 541 (9th

Cir. 1991) ...ccscdectavscepeuegeweectvestucteecers 9, 10

Becherer v. Merrill Lynch, Pierce, Fenner and Smith, Inc., 193 F.3d

415, 423 (6th Cir. 1999) ..... ccc cece cece eee e eee ee eeees 18

Cohen v. DeLaCruz, 523 U.S. 213, 222 (1998) .........-555 13

Cruz v. Coach Stores, Inc., 202 F.3d 560, 572 n. 8 (2d Cir. 2000)10

Green v. City of Tucson, 255 F.3d 1086, 1101 (9th Cir.

2001)... cccccbveuedavp ures seNEeweeeCVRUETD COe¥s bates 18

Hansberry v. Lee, 311 U.S. 32 (1940) .. 6... eee cece eee ees 16

Holland v. Big River Minerals Corp., 181 F.3d 597, 605-607 (4th

Cir. 1999) 0.0 cccs cee ees cei ee ee wae we bee Pewee he ernees 10

Hutchinson v. McGee, 5 F.3d 750, 755 (4th Cir. 1993) ......- 14

Lindsey v. Ipock, 732 F.2d 619, 622 (8th Cir. 1984), cert den. sub

nom. Cryts v. French, 469 U.S. 881 (1984) .....--.+-- +05: 14

MacArthur Co. v. Johns-Manville Corp., 837 F.2d 89, 93 cert den.,

488 U.S. 868 (1988) 2... cece eee teen t eee eens 14

Matter of Wood, 825 F.2d 90, 96-97 (Sth Cir. 1987) ......... 13

Mullane v Central Hanover Bank & Trust, Co., 339 U.S. 306, 313

(1950)... ccc kets s cee Hehe Es CUPS URES ENERO UNS re 11

vi

National Ass’n for the Advancement of Colored People v. Hunt, 891

Pune boomy Howe CRIM, BOI ces vd vccecccccns 17, 18

Nelson v. Adams USA, Inc., 529 U.S. 460, 472 COUUOP eke ek. 11

Northern Pipeline Co. v. Marathon Pipe Line Co., 458 U.S. 50

EP USC ere ee ehh Sele ce cle eee ab cuties 13

Ortiz v. Fibreboard Corp., 527 U.S. 815, 845 (1999) ........ 16

Rauh v. Noonan, 119 F.3d 46, 51 (1st Cir. SePes hae dv thea: 9

Richards v. Jefferson County, Alabama, 517 U.S. 793 (19946, 18

Singleton v. Wulff, 428 U.S. 106, 120 (1976) ............... 9

Thomas v. Union Carbide Agricultural Products, 473 U.S. 568, 584

SeUe ay PUNE Rta oe $4.08 es s cnk ae OR Le eae. 13

Tice v. American Airlines, Inc, 162 F.3d 966, 971 (7th Cir.1998),

OU. Se, ae ey BOO CODON ses bo Sma eek k, 18

Tyus v. Schoemehl, 93 F.3d 449, 454 (8th Cir. 1996), cert dend. sub

nom. Miller v. Schoemehl, 520 U.S. 1166 (1997) ........... 17

United States v. Hughes, 33 F.3d 1248, 1252 n.4 (10th Cir. 19940

STATE CASES

BFOW, Inc. v. Hurt, NO. 85-3802-PHX-RGM, ADV. 95-00913 11

FEDERAL STATUTES

PE EME Ue sis oh PDI cub 35 Ald bshee OX passim

SP Seiites O PPEUENED oc sc casedcccececn Weewusbe ls eau us 12

Vii

SB UBL. § 1294) io 05. feds esac tatcewararer rene sors 2

SUID. 8 ISTIIOD «0 sce creer crereneesorrere ress a

28 U.S.C. § 157(b)(2)(O) -- +--+ +s Sea ee: l

28 USC. § ISTENMA) 0.- noes cece nncencoscrennernneeen® 13

OTOL: BAI 5a ick oo 5s vale ny 8 ER ON NNT PATE 1

28 U.S.C. § 158(d) Be LAS Re piles 8 on eee el Soot l

SUE GUID Se 6oRs IERIE ie SER EO 18

Vill -

OPINIONS BELOW

The opinion of the Bankruptcy Court of the District of

Arizona is not reported. The opinion of the Bankruptcy Appellate

Panel for the Ninth Circuit is not reported. The opinion of the

United States Court of Appeals for the Ninth Circuit is not reported.

The text of all three opinions are contained in the appendix, as are

the orders granting an extension to file a petition for rehearing with

suggestion for rehearing en banc and denying the petition for

rehearing with suggestion for rehearing en banc.

JURISDICTION

The Bankruptcy Court did not have jurisdiction over the

proceeding pursuant to 28 U.S.C. § 157(b)(2)(N) and 28 U.S.C. §

157(c)(2), although Hurt will claim that the Bankruptcy Court did

have jurisdiction under 28 U.S.C. § 157(b)(2)(O). The Bankruptcy

Panel for the Ninth Circuit had jurisdiction over the appeal from the

final order of the Bankruptcy Court pursuant to 28 U.S.C. § 158(b).

The BAP order was filed on September 13, 1999, and ITNX filed its

notice of appeal to the United States Court of Appeals for the Ninth

Circuit on November 30, 1999 within thirty days of the denial of

ITNX’s timely motion for rehearing. The United States Court of

Appeals for the Ninth Circuit had jurisdiction to hear the timely

appeal from the order of the Bankruptcy Appellate Panel pursuant to

28 U.S.C. § 158(d). The order of the Ninth Circuit was entered on

June 5, 2001. ITNX filed a timely petition for rehearing with

suggestion for rehearing en banc (after receiving an extension from

the Ninth Circuit of the 14 day time limit). The petition for rehearing

was denied on August 3, 2001. This petition is timely as it is being

filed on or before November 1, 2001, within ninety days of the order

denying the petition for rehearing. Supreme Court Rules 13.1 and

13.3. The jurisdiction of this Court is invoked under 28 U.S.C. §

1254(1).

CONSTITUTIONAL AND STATUTORY PROVISIONS

INVOLVED

The Fifth Amendment to the Constitution provides in

relevant part:

No person shall be held to answer for a capital, or

otherwise infamous crime, unless on a presentment

or indictment of a Grand Jury, except in cases

arising in the land or naval forces, or in the Militia,

when in actual service in time of War or public

danger; nor shall any person be subject for the same

offence to be twice put in jeopardy of life or limb;

nor shall be compelled in any criminal case to be a

witness against himself, nor be deprived of life,

liberty, or property, without due process of law; nor

shall private property be taken for public use,

without just compensation.

11 U.S.C. § 363 states in pertinent part:

(a) In-this section, "cash collateral" means cash,

negotiable instruments, documents of title,

securities, deposit accounts, or other cash

equivalents whenever acquired in which the estate

and an entity other than the estate have an interest

and includes the proceeds, products, offspring,

rents, or profits of property and the fees, charges,

accounts or other payments for the use or occupancy

of rooms and other public facilities in hotels,

motels, or other lodging properties subject to a

security interest as provided in section 552(b) of this

title, whether existing before or after the

commencement of a case under this title.

(b)(1) The trustee, after notice and a hearing, may

use, sell, or lease, other than in the ordinary course

of business, property of the estate.

(2) If notification is required under subsection (a) of

section 7A of the Clayton Act in the case of a

transaction under this subsection, then--

(A) notwithstanding subsection (a) of such section,

the notification required by such subsection to be

given by the debtor shall be given by the trustee;

and

(B) notwithstanding subsection (b) of such section,

the required waiting period shall end on the 15th

day after the date of the receipt, by the Federal

Trade Commission and the Assistant Attorney

General in charge of the Antitrust Division of the

Department of Justice, of the notification required

under such subsection (a), unless such waiting

period is extended--

(i) pursuant to subsection (e)(2) of such section, in

the same manner as such subsection (e)(2) applies to

a cash tender offer;

(ii) pursuant to subsection (g)(2) of such section; or

(iii) by the court after notice and a hearing. . . .

(f) The trustee may sell property under subsection

(b) or (c) of this section free and clear of any

interest in such property of an entity other than the

estate, only if--

(1) applicable nonbankruptcy law permits sale of

such property free and clear of such interest;

(2) such entity consents;

(3) such interest is a lien and the price at which such

property is to be sold is greater than the aggregate

value of all liens on such property;

(4) such interest is in bona fide dispute; or

(5) such entity could be compelled, in a legal or

equitable proceeding, to accept a money satisfaction

of such interest. . .

(h) Notwithstanding subsection (f) of this section,

the trustee may sell both the estate's interest, under '

subsection (b) or (c) of this section, and the interest

of any co-owner in property in which the debtor

had, at the time of the commencement of the case,

an undivided interest as a tenant in common, joint

tenant, or tenant by the entirety, only if--

(1) partition in kind of such property among the

estate and such co-owners is impracticable;

(2) sale of the estate's undivided interest in such

property would realize significantly less for the

estate than sale of such property free of the interests

of such co-owners;

(3) the benefit to the estate of a sale of such

property free of the interests of co-owners

outweighs the detriment, if any, to such co-owners;

and

(4) such property is not used in the production,

transmission, or distribution, for sale, of electric

energy or of natural or synthetic gas for heat, light,

or power

(i) Before the consummation of a sale of property to

which subsection (g) or

(h) of this section applies, or of property of the

estate that was community property of the

debtor and the debtor's spouse immediately before

the commencement of the case, the debtor's spouse,

or a co-owner of such property, as the case may be,

may purchase such property at the price at which

such sale is to be consummated .. .

a ee

STATEMENT OF THE CASE

According to the records of the County Clerk of Mineral

County, Colorado, ITNX is the title owner of record of six parcels of

real property located in that locale. In 1985, an involuntary petition

in bankruptcy was filed in the United States Bankruptcy Court for the

District of Arizona against Hurt. It was thereafter converted into a

voluntary bankruptcy proceeding. ITNX was never listed as a

creditor in the proceeding.

On June 24, 1996, Norma Hurt, filed an application in the

Bankruptcy Court to sell the subject property located in Creede,

Colorado. ITNX immediately filed an objection to the sale. As

conceded by Hurt, ITNX has a fee interest in the property in the ©

regular chain of title. ITNX obtained this interest in 1981 - almost

twenty years prior to Hurt’s filing of the present application. Norma

Hurt’s ex-husband, Milton Pace, acquired the Colorado property by

patent issued by Colorado on September 17, 1965. After Hurt and

Pace divorced, Pace conveyed the Colorado property to Hurt by quit

claim deeds in 1978 in accordance with the divorce decree. In 1979,

Robertson Wood Products, Inc. obtained title to the Colorado

property by Sheriff's Sale for execution of a $47,763.25 default

judgment against Milton Pace. In 1981, Robertson conveyed this

interest to ITNX, Inc. In 1989, ITNX granted Alpha Business Group,

Inc. a beneficial interest in the property by means of a Deed of Trust.

At no time did Hurt file an action to set aside ITNX’s fee

interest or the 1979 Sheriff's Sale under Colorado law. Hurt did

commence a proceeding to test the attachment of her Arizona

property on the basis of Robertson’s default judgment against her ex-

husband. The Arizona judgment that resulted from this proceeding

did not address the validity of the 1979 Sheriff's Sale or the 198]

conveyance to ITNX.

.Notwithstanding ITNX’s ownership of the property, Hurt

contends that the property is part of the debtor’s estate and that she

has an equitable interest in the property arising from the 1978

Divorce Decree awarding her the property and a 1990 settlement

agreement between her and various creditors (none of which were

ITNX) awarding her the property. In 1990, Hurt and her creditors

entered into a Settlement Agreement purportedly giving Hurt title to

the Colorado property. ITNX was not a party to the settlement

agreement and was never noticed or scheduled as a creditor, despite

its recorded fee interest in the property.

On August 9, 1996, the bankruptcy court approved the sale

of ITNX’s property over its objection, and then confirmed the sale

on September 30, 1996 under 11 U.S.C. § 363(f) on the grounds that

the title to the property was in bona fide dispute. The Colorado

properties were sold to Gary Clark as trustee for Fidelity Title and

Trust for the sum of $16,000. The bankruptcy court then impounded

the proceeds of the sale until further order of the court.

ITNX appealed the bankruptcy court’s order. In an

unpublished opinion, the BAP concluded that the court properly

authorized sale of the property under 11 U.S.C. §363(f)(4) because

a bona fide dispute existed between Hurt and ITNX regarding

ownership of the property. (A. 19-23). Under the BAP’s

interpretation of subsection (f)(4), a bankruptcy court has unbridled

authority to extinguish a third-party’s vested contract right in real

property owned in fee. Under this “reasoning,” although ITNX holds

a fee interest in the property by means of the regular chain of title in

Colorado, the bankruptcy court could sell that property even though

ITNX was neither a creditor nor a party to Hurt’s bankruptcy

proceeding. ITNX appealed the order of the BAP to the United

States Court of Appeals for the Ninth Circuit. In an unpublished

opinion, the Ninth Circuit affirmed the order of the BAP. (A. 28-33)

The Ninth Circuit also denied ITNX’s petition for a rehearing and

suggestion for a rehearing en banc. (A. 35-36).

REASONS FOR GRANTING THE PETITION

The petition should be granted so that this Court may decide

important issues concerning the authority of the Courts of Appeals

to decide a matter on a ground never raised by any party, the effect

of a judgment against a non-party, as well as the authority of a

bankruptcy court to sell property titled in the name of an entity that

is not a creditor.

These issues are of nation-wide importance. The issue of

whether an entity that is not a party to a proceeding may be bound by

the judgment arises in numerous contexts. It is not limited to

bankruptcy proceedings. The issue of whether a bankruptcy court

has the authority to authorize the sale of property titled in the name

of an entity that was never named as a creditor in the bankruptcy

goes to the very essence of the bankruptcy court’s powers. The

resolution of this issue is not only of interest to the litigants in the

case at bar, but to debtors and creditors throughout the country.

POINT I THE PETITION SHOULD BE GRANTED

BECAUSE THE NINTH CIRCUIT’S

DECISION TO AFFIRM THE BAP’S ORDER

ON A GROUND NOT RAISED OR

ADDRESSED IN THE COURT BELOW

CONFLICTS WITH THE REQUIREMENTS

OF DUE PROCESS.

Hurt argued at all times below that ITNX had an interest in

the properties, but that the interest was in bona fide dispute,

permitting the properties to be sold free and clear under 11 U.S.C. §

363(f). The Ninth Circuit, however, held that Hurt had sole title to

the properties, and that ITNX had no interest. (A. 33). By deciding

the case on grounds never argued by Hurt and never discussed by the

two lower courts which heard the matter, the Ninth Circuit denied

ITNX the chance to present relevant evidence on the issue and

violated its due process rights. For example, the sole basis for the

panel’s holding that ITNX lacked any interest in the subject property

was that the settlement and judgment in adversary proceeding 87-

199, to which ITNX was not a party, waived ITNX’s claim to the

property. (A. 31-33). Hurt never argued this in any of the lower

courts. In fact, a thorough reading of the BAP opinion shows that

Hurt conceded that ITNX had an interest in the property. (A. 21-

23).

Had Hurt argued that ITNX lacked any interest in the

Colorado properties before the bankruptcy court, ITNX would have

had the opportunity to present evidence that (1) ITNX was not a

party to the proceeding or settlement in adversary proceeding 87-199,

and (2) Andrew Spain did not sign the stipulation, and if he did sign

it, he signed it in his individual capacity and not as an officer of

ITNX.

This Court has held that, as a general rule, the Courts of

Appeals will not entertain arguments raised for the first time on

appeal. Singleton v. Wulff, 428 U.S. 106, 120 (1976). The Court

stated there may be some exceptions, such as where the proper

resolution is beyond any doubt, or where "injustice might otherwise

result." Jd. Those exceptions are not applicable here. The panel

opinion violated this rule of law.

In addition, numerous decisions of the Circuit Courts of

Appeals, including prior decisions of the Ninth Circuit, have held

that appellate courts will not address theories not raised in the lower

court. In Alaska Airlines, Inc. v. United Airlines, Inc.,948 F.2d 536,

541 (9th Cir. 1991), cert. den., 503 U.S. 977 (1992), the plaintiff

brought an action under Section 2 of the Sherman Antitrust Act (15

U.S.C. § 2). The Court held that it would therefore not address the

viability of any potential claims under Section 1 of the Act, because

it would not consider theories not raised either in the court below or

to the Court of Appeals. /d., at 541 fn. 8. Part of the Court's

reasoning as to why it would not do so is that Sections 1 and 2 of the

Sherman Act were designed to remedy distinct problems, and

therefore required different proof. /d. at 540. See also Rauh y.

Noonan, 119 F.3d 46, 51 (1st Cir. 1997) (party may not raise new

arguments for the first time on appeal); Cruz v. Coach Stores, Inc.,

202 F.3d 560, 572 n. 8 (2d Cir. 2000) (issue not raised below or

briefed on appeal is waived); Holland v. Big River Minerals Corp., '

181 F.3d 597, 605-607 (4th Cir. 1999), cert den., 528 U.S. 1117

(2000) (court will address issues not raised in the court below only

under exceptional circumstances); United States v. Hughes, 33 F.3d

1248, 1252 n.4 (10th Cir. 1994).

The Ninth Circuit in this case went beyond addressing an

argument raised for the first time on appeal. It addressed an

argument that Hurt never raised, even on appeal to that court. By

doing so it denied ITNX the ability to present relevant evidence.

As in Alaska Airlines, 11 U.S.C. §§ 363(b) and 363(f)(4)

address different problems. Section 363(b) concerns situations

where no other party claims an interest in the property other than the

debtor. In contrast, section 363(f) addresses situations where another

party does claim an interest in the property and the debtor is

attempting to sell the property free and clear of that alleged interest.

9

The proof required is different. By holding that Section 363(b)

authorized the sale of the properties, the Court essentially held that

ITNX had no interest in the property, which was not what was

argued by Hurt. By deciding the case on a theory not previously

raised, TNX was precluded from developing a sufficient record on

that issue. Had Hurt tried the case on the theory that ITNX had no

interest as a result of the judgment in adversary proceeding 87-199,

rather than on the theory that ITNX did have an interest but that

interest was in dispute, ITNX would have presented different

evidence in the Bankruptcy Court. ;

In the present matter, the Ninth Circuit should not have

decided the matter based upon a theory never presented, which was

in fact directly contrary to the position Hurt had taken at each stage

of the litigation. ITNX did not have the opportunity to present

relevant evidence with respect to the theory raised, for the first time,

by the Ninth Circuit panel.

The Ninth Circuit relied exclusively on its belief that

Andrew Spain signed the settlement agreement in Bankruptcy Court

adversary proceeding . 87-199, as president of ITNX. (A. 31).

However, had that theory been raised before, ITNX would have

submitted evidence that Spain never signed the agreement, and

certainly did not sign the agreement in his capacity as president of

ITNX. In fact, these issues were tried on remand to the bankruptcy

court in the related case of BFOW, Inc. v. Hurt, NO. 85-3802-PHX-

RGM, ADV. 95-00913. There, it is alleged that Milton Pace, the

debtor’s ex-husband, signed Spain’s name. ITNX did not present

this evidence in the present proceeding because Hurt never argued

that ITNX did not have title to the property. The Ninth Circuit

deprived ITNX of due process by deciding a matter on a grounds that

was not in the record.

It is weli-settled that the core requirements of the due

process clause are notice and an opportunity to be heard. Mullane v

Central Hanover Bank & Trust, Co., 339 U.S. 306, 313 (1950). See

also, Nelson v. Adams USA, Inc., 529 U.S. 460, 472 (2000) (while a

10

pleading may be amended post-judgment to add an additional party,

that party must be given the opportunity to defend on the merits; the

judgment may not simultaneously amended to impose instantaneous

liability on the new party). A party is deprived of a meaningful

opportunity to be heard if, as here, a court decides a matter on a

ground never raised by any party.

1]

POINT II THE PETITION SHOULD BE GRANTED

BECAUSE THE NINTH CIRCUIT’S HOLDING

THAT 11 U.S.C. § 363 AUTHORIZES THE

SALE OF PROPERTY TITLED IN THE NAME

OF A NON-CREDITOR MERELY BECAUSE

THE DEBTOR CLAIMS THAT TITLE IS IN

DISPUTE IS INCONSISTENT WITH THE

LIMITED JURISDICTION CONGRESS

GRANTED BANKRUPTCY COURT JUDGES.

11 U.S.C. § 363(b) permits the sale of property of the estate.

Because the Colorado property was not property of the Estate at the

time the petition was filed, and because, as is argued below in Point

IV ITNX cannot be bound by the judgment in adversary proceeding

87-199, the property was never property of the Estate.

A. The Court lacks the authority to sell property

that is not part of the estate.

All parties concede that Hurt did not have any equitable or

legal interest in the Colorado property at the time the bankruptcy

petition was filed in 1985. In fact, the Ninth Circuit, in its

memorandum opinion, quotes the language of 11 U.S.C. § 541(a)(1)

that, “‘Property of the estate’ is defined as, ‘All legal or equitable

interests of the debtor in property as of the commencement of the

case,’” (A. 30) then goes on to hold that Hurt did not obtain any

alleged interest in the properties until April 1990, over four years

after the petition was filed.

The Bankruptcy Code is designed to advance competing

goals - to provide debtors with “fresh starts” while at the same time

providing creditors with some avenue of repayment and to prevent

the fraudulent debtor from escaping the consequences of his or her

fraud. Cohen v. DeLaCruz, 523 U.S. 213, 222 (1998) (exceptions to

discharge evince legislative determination that creditor’s interest in

receiving full payment in those categories of cases outweighs the

debtor’s interest in a fresh start). By permitting the debtor in

12

Possession to sell property that was not part of the estate, the Ninth

Circuit pushed the balance too far in favor of the debtor, by

permitting the debtor to obtain assets that were not part of the estate

at the time the petition was filed.

B. Bankruptcy Courts lack the authority to sell

property titled in the name of a non-creditor.

The bankruptcy court lacked authority to sell ITNX’s

property pursuant to section 363(f)(4) because ITNX was not a

creditor in the proceeding. See Northern Pipeline Co. v. Marathon

Pipe Line Co., 458 U.S. 50 (1982). Pursuant to Marathon,

“Congress may not vest in a non-Article III court (such as a

bankruptcy court) the power to adjudicate, render final judgment,

and issue binding orders in a traditional contract action arising under

state law, without consent of the litigants, and subject only to

ordinary appellate review.” Thomas v. Union Carbide Agricultural

Products, 473 U.S. 568, 584 (1985). A proceeding that does not

invoke a substantive right created by the federal bankruptcy law and

that can exist outside the bankruptcy is not a core proceeding. Jn

Matter of Wood, 825 F.2d 90, 96-97 (5th Cir. 1987). Here, ITINX

Was not a party to Hurt’s bankruptcy action, and the bankruptcy court

lacked the authority to sell ITNX’s property. Hurt claims an

equitable interest pursuant to an Arizona Divorce Decree and

~ Colorado law purportedly voiding the Colorado Sheriff's Sale and

conveyance to ITNX. If she is correct, she would have actions under

state law, albeit time-barred. Accordingly, the trustee’s attempt to

capture this property for the estate is a non-core proceeding over

which the bankruptcy court lacked jurisdiction to enter dispositive

orders pursuant to 28 U.S.C. § 157(c)(2).

13

POINT II §©THE PETITION SHOULD BE GRANTED SO

THAT THIS COURT MAY RESOLVE A

CONFLICT AS TO WHETHER 11 U.S.C. §

363(B) AUTHORIZES THE SALE OF

PROPERTY IN WHICH IT IS CONCEDED

THAT ANOTHER PARTY OTHER THAN

THE DEBTOR HAS AN _ INTEREST,

WITHOUT FIRST SATISFYING ANY OF THE

PROVISIONS OF 11 U.S.C. § 363(F).

The Ninth Circuit relied solely on 11 U.S.C. § 363 (b) in

authorizing the sale, and specifically held that it was not necessary

to find that one of the prerequisites of 11 U.S.C. § 363(f) were

satisfied before the sale could be authorized. (A. 32-33). However,

even Hurt conceded that ITNX had an interest in the property - it had

acquired title over twenty years ago in a Sheriff's sale that remains

unchallenged to this day.

The Second, Fourth and Eighth Circuits have held that the

bankruptcy court may only order or authorize the sale of property in

which a third party has an interest if certain conditions are met,

namely one of the conditions listed in 11 U.S.C. § 363(f).

MacArthur Co. v. Johns-Manville Corp., 837 F.2d 89, 93 cert den.,

488 U.S. 868 (1988); Hutchinson v. McGee, 5 F.3d 750, 755 (4th Cir.

1993); Lindsey v. Ipock, 732 F.2d 619, 622 (8th Cir. 1984), cert den.

sub nom. Cryts v. French, 469 U.S. 881 (1984) (“Before authorizing

the trustee to sell the [property], the bankruptcy court was to

‘carefully consider the requirements of section 363(f) and the duty

under the Code to protect the property interests of third parties.’”’).

In conflict with these decisions, the Ninth Circuit in the present case

held that Section 363(b) authorizes the sale of Colorado properties

without demonstrating the existence of one of the bases under

Section 363(f), notwithstanding the fact that all parties conceded that

ITNX had an interest in these properties. The Ninth Circuit therefore

approved the sale of property in which a non-debtor had title,

exceeding the jurisdiction of the bankruptcy court.

14

POINT IV THE PETITION SHOULD BE GRANTED

BECAUSE THE NINTH CIRCUIT’S

DECISION TO HOLD AN ENTITY WHO WAS

NOT BEFORE THE COURT BOUND BY A

JUDGMENT ENTERED IN A PRIOR

PROCEEDING CONFLICTS WITH THE

RULE IN OTHER CIRCUIT COURTS OF

APPEALS.

The sole basis for the Ninth Circuit’s conclusion that the

Colorado property was exclusively the property of the bankrupt

debtor and that ITNX had no interest in the property was the 1990

settlement agreement in adversary proceeding 87-199. (A. 31). But

ITNX was not a party to that adversary proceeding, and is not bound

by the consent judgment entered in that case.

15

A. The petition should be granted to resolve a split

between the Ninth Circuit in this case and the

holding of this Court and the other Courts of

Appeals as to the propriety of using the concept

of “virtual representation” to bind a non-party to

a prior judgment.

Although the Ninth Circuit’s brief memorandum opinion

does not explicitly state its reasoning for concluding that ITNX was

bound by the judgment in 87-199 despite the fact that it was not

before the bankruptcy court in that proceeding, it is implied that the

Ninth Circuit held that Andrew B. Spain, ITNX’s president, in his

individual capacity only, who was an alleged signatory to the

settlement in 87-199, “virtually represented” ITNX so that ITNX

could be bound by the judgment. The Ninth Circuit stated that

“Spain thus waived ITNX’s clam to the Colorado property.” (A. 31).

This concept that an individual binds a corporation when he signs in

an individual capacity and is not a corporate officer at that time is at

odds with the holdings of this Court, as well as the holdings of

various other Circuit Courts of Appeal. However, the Eighth and

Eleventh Circuits have apparently accepted the concept and permit

the broad use of “virtual representation,” as did the Ninth Circuit in

the case at bar. This Court should grant the petition to resolve the

conflict.

The closely tailored application of the doctrine of “virtual

representation” comports more closely with the due process

demands identified by this Court in Richards v. Jefferson County,

Alabama, 517 U.S. 793 (1996). The Court in Richards, citing

Hansberry v. Lee, 311 U.S. 32 (1940), held that the due process

clause of the Fourteenth Amendment precluded a court from binding

a litigant to a judgment rendered in an earlier litigation to which it

was not a party unless the nonparty was adequately represented by

a party. See also, Ortiz v. Fibreboard Corp., 527 U.S. 815, 845

(1999) (in order to ensure that a person is not bound by a settlement

to which he has not a party, a class action settlement based upon a

limited fund theory is only permissible if the fund is limited

16

independently of an agreement by the parties, and the class must

include al those with unsatisfied claims).

In Richards, the petitioners represented a class of all

nonfederal employees subject to an occupation tax imposed upon

them by Jefferson County, Alabama. The County moved for

summary judgment, holding that the petitioner’s action was barred

by prior consolidated actions brought by the City of Birmingham,

Alabama and three county taxpayers in which the Supreme Court of

Alabama upheld the validity of the tax. Richards at 795. The

Supreme Court of Alabama agreed, holding that the tax payers in the

prior action adequately represented the petitioner’s class. This Court

disagreed, holding that the application of claim or issue preclusion

under the facts of that case would violate the due process clause of

the Fourteenth Amendment. This Court emphasized two factors in

determining that the petitioners had been adequately represented, (1)

the petitioners had not received any notice of the prior proceeding,

and (2) the plaintiffs in the prior proceeding had not purported to act

in any class-wide representative capacity. Richards at 800-802.

Here, too, ITNX did not receive any notice of adversary proceeding

87-199, and none of the participants in 87-199 purported to represent

any class interests.

The Eighth Circuit has adopted a broad interpretation of the

rule of virtual representation, whereby a judgment in a prior

proceeding may bind a nonparty if there exists a substantial

relationship between the party and the nonparty, such that the party

adequately represented the interests of the nonparty. -Jyus v.

Schoemehl, 93 F.3d 449, 454 (8th Cir. 1996), cert den. sub nom.,

Miller v. Schoemehl, 520 U.S. 1166 (1997). In approving of this

concept, the Eighth Circuit focused on the need for judicial economy,

Id., 93 F.3d at 455. The Eleventh Circuit has also approved of the

broad use of virtual representation for claim preclusion purposes. In

National Ass'n for the Advancement of Colored People v. Hunt, 891

F.2d 1555, 1561 (11th Cir. 1990), the Eleventh Circuit held that

members of the state legislature who filed a federal action alleging

that the flying of the Confederate Flag over the Alabama Capital

17

violated the Flag Code (36 U.S.C. §175) and their Constitutional

rights were precluded by a state court judgment in a suit brought by

another state legislator asserting similar claims. The Court held that

the plaintiffs in the state court action was so closely aligned with the

NAACP’s interests that it was their virtual representative. NAACP

v. Hunt at 1561.

In contrast the Seventh Circuit has rejected the use of the

“virtual representation” test, and has focused instead on the factual

question of whether there is a sufficient link between the party and

the nonparty which would justify binding the nonparty to the result

reached in the first litigation. Tice v. American Airlines, Inc, 162

F.3d 966, 971 (7th Cir.1998), cert. den., 527 U.S. 1036 (1999).

According to the Seventh Circuit, this closely tempered version

comports more closely with Richards vy. Jefferson County, Alabama,

517 U.S. 793 (1996).

The Sixth Circuit has also taken a more narrow view of the

“virtual representation” doctrine, holding that it normally only arises

when the nonparty expressly agrees to be bound by the

representation of the party. Becherer v. Merrill Lynch, Pierce,

Fenner and Smith, Inc., 193 F.3d 415, 423 (6th Cir. 1999). In the

absence of an express agreement to be bound, such an agreement

should only be inferred upon the plainest circumstances.” Id. at 423.

(emphasis in original). The Ninth Circuit has held that Richards

forecloses the use of the “similar interests” test advanced by the

Eleventh Circuit in NAACP v. Hunt, 891 F.2d 1555 (11th Cir. 1990).

Green v. City of Tucson, 255 F.3d 1086, 1101 (9th Cir. 2001). There

is, therefore, an internal conflict between the various panels of the

Ninth Circuit, and a circuit split on this important issue.

The Ninth Circuit’s holding in this case is at odds with the

holdings of the Seventh and Sixth Circuits, as well as its own opinion

in Green which limits the appellate courts in their use of the virtual

representation doctrine to circumstances where minimum protections

of due process are satisfied.

18

B. The Ninth Circuit’s use of a broad virtual

representation rule in the present case is

particularly unfair in view of the fact that no

hearing was ever held concerning the

interrelationship between Andrew Spain and the

shareholders of ITNX.

The Ninth Circuit's adoption of the broader theory in this

case, binding ITNX to a judgment to which it was not a party, was

particularly inappropriate in light of the fact that. none of the lower

courts conducted . hearing to evaluate the relationship between

Andrew Spain and ITNX to see if ITNX’s interests were adequately

represented in adversary proceeding 87-199. Because to use of issue

and claim preclusion against a nonparty raises due process concerns,

Richards at 797, it was inappropriate to make this finding sua sponte

at the Circuit Court level as no hearing was conducted prior to

holding that the non-party’s interests were adequately protected in

the prior proceeding.

19

CONCLUSION

For the foregoing reasons, ITNX requests that this Court

grant the Petition for Writ of Certiorari and grant it such other and

further relief to which it may be entitled.

Dated: November 1, 2001

Respectfully Submitted,

a. _ponsthias (1 Lapel

SeOTT & SCOTT, LLP, by

Jonathan C. Scott, Esq.

999 Walt Whitman Road

Melville, NY 11747

(631) 271-644

Attorneys for Petitioner

20

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF ARIZONA

In re: ) Chapter 11

) Case No. 85-3802-PHX-JMM

) ORDER RE: APPLICATION

NORMA J. HURT fka_ ) FOR SALE OF REAL

NORMA J. PACE, ) «= PROPERTY

)

Debtor. ) (Tract 32, Block 42, Lots

) 1,2,3,4,5 & 6, Creede, Mineral

) County, Colorado)

)

The hearing on the debtor’s application for sale of real

property came on for regularly on August 2, and August 9, 1996. At

the August 2™ hearing, the following parties were represented: The

debtor was represented by Lester L. Penterman, and by G. Gregory

Eagleburger; ITNX and Alpha Business Group was represented by

David W. Eagle; Keith Knowlton was also present, as an interested

party. At the August 2™ hearing, the Court took the matter under

advisement, in order to study the file and continued the matter to

August 9, 1996.

At the August 9, 1996 hearing, the same attorneys were

present, with the exception of Mr. Knowlton.

After consideration of the arguments made, and the state of

the record, good cause appearing,

IT IS ORDERED overruling the objection ITNX and Alpha

Business Group to the sale of the property, and authorizing an

auction sale thereof. Said auction sale will be held on September 6,

1996 at 1:30 p.m. At that time, no further objections will be

entertained, but only affirmative bidding will be received, resulting

in a cash sale of the aforesaid real property.

IT IS FURTHER ORDERED that, once the property is sold,

that any funds relating to that sale be impounded in an interest-

bearing account, subject to further order of this Court;

IT IS FURTHER ORDERED that, once the sale has

occurred, and funds are paid therefore, any person or entity claiming

an interest in said funds shall make such claim by filing an adversary

proceeding, commenced pursuant to Bankr. R. 7001, within 30 days

of the date of the closing of the sale;

IT IS FURTHER ORDERED that if no complaining is filed,

within the 30-day period following closing of the sale, then any

interest of any party or entity claiming entitlement to the fund (other

A2

than the debtor) including but not limited to ITNX and Alpha

Business Group, shall be avoided and their interests shall be deemed

extinguished;

IT IS FURTHER ORDERED that, with regard to any

adversary proceeding eeininieed to determine the interest in the

funds set forth above, that the Court will, upon the filing of an

Answer, establish a trial scheduling order with a discovery cutoff, a

dispositive motion cutoff, and will set a trial date. The Court may

attend any or all depositions which may be scheduled in the case, and

will require the parties to discuss with the Court the available times

within which such depositions will be taken. Due to the apparent

interwoven factual network of cases, adversary proceedings and

judicial proceedings by and between the various persons associated

with this debtor the Court anticipates that such depositions will

include, but not be limited to, the following individuals:

Milton Pace

Milton Pace, Jr.

Andrew Spain

Carlton Hull (C. Hull)

A3

Alpha Business Group’s President

ITNX’s President

The Court further notes that it may be helpful to also have a

chain of title report prepared, by a credible title company in

Colorado, for all parties’ mutual assistance in determining the record

of title ownership with regard to the subject real property.

Dated this 9" day of August, 1996.

James M. Marlar

JAMES M. MARLAR

UNITED STATES BANKRUPTCY JUDGE

Copy of the foregoing mailed

this 9" day of August, 1996, to:

United States Trustee

320 North Central, Suite 100

Phoenix, Arizona 85004

Keith Knowlton, Esq.

63 East Main Street, Suite 501

Mesa, AZ 85201-7417

Lester Penterman, Esq.

6040 East Thomas Road

Scottsdale, AZ 85251

G. Gregory Eagleburger, Esq.

2999 N. 44" St., #600

Phoenix, AZ 85018-7203

A4

David W. Eagle, Esq.

Sternberg & Eagle

80 E. Columbus

Phoenix, AZ 85012-2334

Deputy Clerk (jp)

AS

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF ARIZONA

In re: ) Chapter 11

) Case No. 85-3802-PHX-JMM

) ORDER CONFIRMING SALE

NORMA J. HURT fka_ ) FREE AND CLEAR OF LIENS -

NORMA J. PACE, ) LIENS TO ATTACH TO

) PROCEEDS

Debtor. ) (Tract 32, Block 42, Lots

) 1,2,3,4,5 & 6, Creede, Mineral

) County, Colorado)

)

THIS MATTER coming on regularly before the Court upon

the Debtor’s Application for Sale of Reai Property Free and Clear of

Liens - Liens to Attach to Proceeds.

An objection to sale was filed by ITNX, a Nevada

Corporation, and Alpha Business Group, Inc. on July 26, 1996, and

said objection having come on for hearing and the Court being

advised in the premises, entered its Order on August 9, 1996

overruling the objections, and setting the date for sale of the subject

real property in open court to the highest bidder for September 6,

1996 at 1:30 P.M. on that date. Upon request, and without objection,

the sale was continued to September 13, 1996 at 9:00 o’clock A.M.

A6

On August 29, 1996 a Request for Evidentiary Hearing and

Stay of Sale Real Property or Alternatively Postpone the Sale was

filed by Milton G. Pace. The Court finds that this Request should be

denied.

On September 13, 1996 the Court conducted the sale of the

following described real property.

Tract 32, Block 42, Lots 1,2,3,4,5,6

Creede, Mineral County, Colorado

Mr. Jack Herweg, the original bidder, was present by

telephonic appearance, and Mr. Gary Clark appeared as Trustee for

Fidelity Title and Trust as the only bidders.

The Court advised the bidders that the sale was being made,

as is, where is, no warranties or representations made by the estate.

The Court further advised the bidders that the property would be

conveyed without a warranty of title, and asked if the bidders were

satisfied with title.

Mr. Clark, the successful bidder, stated that he understood

the foregoing and agreed.

A7

The Court accepted bids, and the highest and best bid was

made by Gary Clark as Trustee for Fidelity Title and Trust, or its

nominee, in the sum of Sixteen Thousand Dollars ($16,000.00).

The Court finds that this is the highest and best bid, and that

it is for the best interests of the Debtor Estate to sell the subject

property.

The Court asked Mr. Herweg if he desired to have his bid of

$12,000.00 stand as a backup bid in the event Gary Clark did not

consummate the sale. Based upon Mr. Herweg’s affirmative

response, his bid will be a backup bid.

IT IS ORDERED denying the objection filed by ITNX, a

Nevada corporation, and Alpha Business Group, Inc., and the Motion

filed by Milton G. Pace;

IT IS FURTHER ORDERED that the above-described real

property be sold to the highest bidder Gary Clark as trustee for

Fidelity Title and Trust, or its nominee, as is, where is, with no

warranties or representations made by the estate, and without a

warranty of title, for the sum of Sixteen Thousand Dollars

A8

($16,000.00) cash, to be paid within thirty (30) days from date of this

Order, and;

IT IS FURTHER ORDERED, in the event Gary Clark as

Trustee for Fidelity Title and Trust does not consummate the sale

then and in that event, the pera property will be sold to Jack

Herweg or nominee for the sum of $12,000.00.

IT IS FURTHER ORDERED that the proceeds of sale shall

be deposited in an interest bearing account until further Order of this

Court, and;

IT IS FURTHER ORDERED that any person or entity

claiming an interest in said funds, shall make such claim by filing an

adversary proceeding, commenced within thirty (30) days of the date

of the closing of the sale, and;

IT IS FURTHER ORDERED that if no Complaint is filed

within the thirty (30) day period, then and in that event, any interest

of any party or entity claiming entitlement to the funds (other than

the Debtor) including but not limited to ITNX and Alpha Business

Group, shall be avoided and the their interest shall be deemed

extinguished.

A9

Pn CEE EN Oe IT AT ONT aC RS

Dated this day of SEP 30 1996, 1996.

JAMES M. MARLAR

U.S. Bankruptcy Judge

Al0

NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re

NORMA J. HURT, )BAP No. AZ-98-1532-

' ) KPRv

Debtor. )

)Bk. No. 85-03802-PHX-

ITNX, ). JMM

)

Appellant, )

JMEMORANDUM'

v. )

)

NORMA J. HURT, )

)

Appellee. )

)

Argued and Submitted on July 22, 1999

at Phoenix, Arizona

Filed - September 13, 1999

Appeal from the United States Bankruptcy Court

for the District of Arizona

Honorable James M. Marlar, Bankruptcy Judge, Presiding

'This disposition is not appropriate for publication and

may not be cited to or by the courts of this circuit except when

relevant under the doctrines of law of the Case, res judicata, or

collateral estoppel. See 9th Cir. BAP Rule 13 and 9th Cir. Rule

36-3.

All

Before: KLEIN, PERRIS and RYAN, Bankruptcy Judges.

The bankruptcy court approved the debtor’s application to

sell real property free and clear of liens pursuant to § 363(f)(4),”

finding that the interest in the property is in a bona fide dispute.

ITNX appealed, claiming that it is the undisputed owner of the real

property. We AFFIRM.

FACTS

This appeal is one of many that stems from the domestic

dispute between appellee/debtor Norma Hurt (“Hurt’’) and Milton

Pace (“Pace”).’ Hurt and Pace filed for divorce on January 4, 1977,

and the final decree dissolving the marriage was entered on May 15,

1978.

? Unless otherwise indicated, all chapter, section and

rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-

1330 and to the Federal Rules of Bankruptcy Procedure, Rules

1001-9036.

> Although Hurt appears to allege that appellant ITNX,

Inc. is a corporation controlled by Pace, the record is unclear as

to Milton Pace’s relationship with the appellant.

Al2

The subject of this appeal is a piece of real property located

in Creede, Mineral County, Colorado (“the Colorado Property”).

Appellant’s contentions:

According to the appellant, ITNX, Inc. (“ITN ”), Pace

acquired title to the Colorado property by patent from the State of

Colorado in 1965, during his marriage to Hurt. ITNX contends that

it is the sole fee title holder to the Colorado property based upon an

uninterrupted chain of title. ITNX claims that title to the Colorado

property was transferred from Pace to Robertson Wood Products on

May 23, 1979, via a Sheriff's Deed. The Deed allegedly indicates

that the Colorado property was conveyed by the Sheriff to Robertson

Wood Products as a result of an execution sale. Robertson Wood

Products, in turn, conveyed title of the Colorado property to ITNX

on November 21, 1981. On June 30, 1989, ITNX executed a deed of

trust conveying the Colorado property to Alpha Business Group.

Debtor’s contentions:

Debtor Hurt, on the other hand, tells a different story.

According to Hurt, the divorce court awarded her all right, title and

interest to various real properties, including the Colorado property.

Al3

Thus, the Sheriff's Deed with which Robertson Wood Products

acquired title to the property was void because Pace did not own the

property at the time. Hurt asserts that she brought a successful action

against Robertson Wood Products in the Arizona state court, which

held that the levy and the subsequent sale of the Colorado property

against Milton Pace was void as to Hurt.

On December 2, 1985, an involuntary chapter 11 petition

was filed against Hurt, allegedly by Pace and his corporate entities.

Hurt filed an adversary complaint against Pace and several

of his corporate entities and Robertson Wood Products with regard

to the Colorado property. The judgment, entered on April 3 1990,

provides that all of claimants’ liens and encumbrances placed upon

Hurt’s real properties are declared null and void and that claimants

are ordered to release all liens and encumbrances placed upon Hurt’s

real properties. Hurt claims that the judgment further provides that

any transfer of the Colorado property in derogation of Hurt’s rights

was null and void. The Bankruptcy Appellate Panel and the Ninth

Circuit affirmed the judgment.

Al4

Proceedings Below:

On June 24, 1996, the debtor sought authority from the

bankruptcy court to sell the Colorado property free and clear of liens

pursuant to § 363. Appellant ITNX and Alpha Business Group filed

objections to the sale, and the debtor filed a response.

After conducting hearings on the matter, the bankruptcy

court overruled the objections and entered an order authorizing an

auction sale of the Colorado property. The order further provided

that the proceeds from the sale shall be impounded in an interest-

bearing account and that any entity claiming an interest in the sale

proceeds shall make a claim by filing an adversary proceeding.

Subsequently, Pace filed a motion for evidentiary hearing

and stay of sale of real property. The court denied the motion. This

appeal ensued.

ISSUES

Whether the bankruptcy court erred in authorizing the debtor

to sell the Colorado property free and clear of liens pursuant to §

363(f)(4) because said interest is in a bona fide dispute.

Al5

Whether the bankruptcy court erred in finding that the

appellant is not a “co-owner” within the meaning of § 363 (h) and (i).

STANDARD OF REVIEW

We review the bankruptcy court’s findings of fact for clear

error and the court’s conclusions of law de novo. Jodoin v. Samavoa

- Unre Jodoin), 209 B.R. 132, 135 (9th Cir. BAP 1997).

Whether a bona fide dispute exits is a question of fact

reviewable under the clearly erroneous standard. See Austein v.

Schwartz (In re Gerwer), 898 F.2d 730, 733 (9th Cir. 1990).

DISCUSSION

I.

Preliminarily, we note that the record of this appeal is

inadequate. Indeed, the record is so sparse that we have no way of

independently verifying the “facts” as asserted by the parties in their

briefs.

Federal Rule of Bankruptcy Procedure 8006 requires that an

appellant designate a record that includes both “any opinion, findings

of fact, and conclusions of law of the court” and any transcript that

will be needed. Fed. R. Bankr. P. 8006. These items are mandatory,

Al6

not optional. McCarthy v. Prince (In re McCarthy), 230 B.R. 414,

417 (9th Cir. BAP 1999). Similarly, Federal Rule of Bankruptcy

Procedure 8009(b)(5) requires that in any appeal to a bankruptcy

appellate panel there be an appendix of excerpts of the record that

includes the “opinion, findings of fact, or conclusions of law filed or

delivered orally” by the court. Fed. R. Banrk. P. 8009(b)(5). This is

also mandatory, not optional. The appellant’s appendix omits the

findings and is, as a matter of law, incomplete. McCarthy, 230 B.R.

at 41 7: Keitt v. Kritt (In re Kritt), 190 B.R. 382, 386 (9th Cir. BAP

1995); Burkhart v. FDIC (In re Burkhart), 84 B.R. 658, 661 (9th Cir.

BAP 1988).

Appellant did not provide us with a copy of the transcript of

the court’s oral findings of fact and conclusions of law, even though

appellant quotes from it in his opening brief. Without the transcript,

we are unable to determine the reasoning for the trial court’s action.

Furthermore, Federal Rule of Appellate Procedure 10(b)(2)

provides that:

Al7

If the appellant intends to urge on appeal that a

finding or conclusion is unsupported by the

evidence or is contrary to the evidence, the appellant

shall include in the record a transcript of all

evidence relevant to such finding or conclusion.

Fed. R. App. P. 10(b)(2).

Our effort in reviewing this appeal has been hampered by the

failure of both parties to provide us with those portions of the record

wherein support for their respective positions is asserted to be found.

Almost all of the factual assertions in the parties’ briefs are

unsupported by the record and, thus, we have no knowledge of

whether the assertions made here were properly before the trial court.

See Burkhart, 84 B.R. at 661.

Appellant should know that in order to reverse the trial

court's finding of fact for clear error, the record must include the

entire transcript and all other relevant evidence considered by the

bankruptcy court. Id.; Kritt, 190 B.R. at 387; Friedman v. Sheila

Plotsky Brokers, Inc. (In re Friedman), 126 B.R. 63, 68 (9th Cir.

BAP 1991).

In this appeal, we are faced with a record on appeal that is so

scant it makes review under the clearly erroneous standard difficult.

Al8

In the appellant’s opening brief, he cites to the trial court’s transcript,

the debtor’s application to sell property free and clear of liens, the

original title to the Colorado property acquired by appellant from the

state of Colorado, the judgment which declared appellant’s liens and

encumbrances against the Colne property to be null and void, the

alleged conveyance of title from Robertson Wood Products to ITNX,

and last, but not least, the objection to sale filed by appellant. Yet,

the appellant did not supply us with copies of any of these documents

as part of the appellate record.‘

The burden is on the appellant to provide an adequate record.

McCarthy, 230 B.R. at 417; Kritt, 190 B.R. at 387. The appellant’s

failure to provide relevant portions of the record entitles us to

dismiss this appeal. See McCarthy, 230 B.R. at 41 7; Syncom Capital

Corp. v. Wade, 924 F.2d 167, 169 (9th Cir. 1991); Southwest

* In light of the competing claims to the Colorado

property, the bankruptcy court, in its Order Re: Application for

Sale of Real Property, noted that it may be helpful to have a

chain of title report prepared by a credible title company in

Colorado. We cannot determine if the parties did submit a title -

report to the court, and assuming they did, the appellant did not

include a copy of the title report in the record.

Al9

Admin’rs, Inc. v. Lopez, 781 F.2d 1378, 1378-80 (9th Cir. 1986). If

we do not dismiss, we are entitled to presume that the appellant does

not regard the record as helpful to his appeal. See Gionis v. Wayne

(In re Gionis), 170 B.R. 675, 680-81 (9th Cir. BAP 1994), aff'd

mem., 92 F.3d 1192 (9th Cir. 1996).

In this case, we will exercise our discretion to examine what

little record we have been provided. In doing so, we may affirm for

any basis fairly supported by the record. Foster v. Skinner, 70 F.3d

1084, 1087 (9th Cir. 1995).

A 4

Section 363(f) of the Bankruptcy Code gives a debtor in

possession’ the authority to sell property of the debtor free and clear

of liens under certain conditions. It provides in pertinent part:

(f) The trustee may sell property ... free and clear

of any interest in such property of an entity other

than the estate only if - -

> Section 1107 of the Bankruptcy Code confers upon the

debtor in possession all of the rights, powers, duties and

limitations of a Chapter 11 trustee.

A20

(1) applicable nonbankruptcy law permits sale of

such property free and clear of such interest;

(2) such entity consents;

(3) such interest is a lien and the price at which such

property is to be sold is greater than the aggregate

value of all liens on such property;

(4) such interest is in a bona fide dispute; or

(5) such entity could be compelled, in a legal or

equitable proceeding, to accept a money satisfaction

of such interest.

11 U.S.C. § 363(f). Only one of the enumerated conditions need be

met for the court to approve the proposed sale. In re Collins, 180

. B.R. 447, 450 (Bankr. E.D. Vir. 1995). In this case, the parties agree

that the bankruptcy court approved the sale based upon a finding of

a “bona fide dispute.”

Although the term “bona fide dispute” is not defined in §

363(f)(4), bankruptcy courts have examined the term in conjunction

with § 303, which also utilizes the term in connection with the nature

of claims asserted as a basis for involuntary Chapter 7 petitions.

Collins, 180 B.R. at 452; In re Octagon Roofing, 123 B.R. 583, 590

(Bankr.N.D.Ill. 1991). The standard under § 303 requires the

bankruptcy court to determine “whether there is an objective basis

for either factual or legal dispute as to the validity of the debt.”

A21

Octagon Roofing, 123 B.R. at 590. A court need not resolve the

dispute, but only determine its existence. Collins, 180 B.R. at 452.

In this case, a cursory reading of the briefs would indicate

that the ownership of the Colorado property is clearly in dispute. In

essence, the debtor asserts that she was awarded the property as part

of her divorce and that any subsequent conveyances by Pace and

other parties were null and void. ITNX contends that it properly

acquired title to the property through a regular chain of title.

Unfortunately, ITNX did not supply us with a title report to

support its claim. While the debtor claims that the Arizona judgment

declared the Sheriff's levy and sale of the Colorado property void,

ITNX arbitrarily dismissed the Arizona judgment as irrelevant.

Indeed, ITNX claims that the Sheriff's Deed has never been

challenged in any proceeding, but the debtor’s action in the Arizona

state court appears to do precisely that. Of course, without a copy of

the Arizona judgment, we are unable to determine the validity of the

Sheriff's Deed as it applies to the debtor.

A22

Similarly, the one document that would have shed some light

on the situation would be the April 30, 1990 judgment entered by the

bankruptcy court. Unfortunately, the debtor and ITNX presented

completely contradictory views of the judgment that are impossible

to reconcile, and again, the record does not contain the judgment.

ITNX complains that the bankruptcy court gave credit to a

number of “unproven allegations” asserted by the debtor while at the

same time ignored the evidence presented by ITNX. ITNX did not

specify what these unproven allegations were and what evidence it

presented to the court. Indeed, we have no record of any of the

evidence presented by both parties to the bankruptcy court.

Judging from the assertions contained in the briefs, there is

a factual dispute as to the ownership of the Colorado property. It is

a dispute that we cannot, and need not, resolve. An interest is in

bona fide dispute if “the outcome of the dispute over the interest will

affect the value of the estate .. . .” Gerwer, 898 F.2d at 733. The

outcome of whether the debtor or ITNX owns the Colorado property

will inevitably affect the value of the estate and, therefore, a bona

fide dispute exits.

A23

If anything, the parties’ positions give credence to the fact

that there is indeed a bona fide dispute as to the ownership of the

Colorado property. As the record presently stands, the appellant has

not supplied us with those portions of the record indicating the

commission of clear error.

Il.

Next, ITNX argues that he should enjoy the rights of a co-

owner as specified in § 363(h)and (i), which, in pertinent part,

provide:

(h) Notwithstanding subsection (f) of this section,

the trustee may sell both the estate's interest, under

subsection (b) or (c) of this section, and the interest

of any co-owner in property in which the debtor

had, at the time of the commencement of the case,

an undivided interest as a tenant in common, joint

tenant, or tenant by the entirety, only if--

(1) partition in kind of such property among the

estate and such co-owners is impracticable;

(2) sale of the estate's undivided interest in such

property would realize significantly less for the

estate than sale of such property free of the interests

of such co-owners;

(3) the benefit to the estate of a sale of such

property free of the interests of co-owners

outweighs the detriment, if any, to such co-owners;

and

(4) such property is not used in the production,

transmission, or distribution, for sale, of electric

A24

energy or of natural or synthetic gas for heat, light,

or power

(i) Before the consummation of a sale of property to

which subsection (g) or.

(h) of this section applies, . . . the debtor's spouse, or

a co-owner of such property, as the case may be,

may purchase such property at the price at which

such sale is to be consummated .

11 U.S.C. § 363 (h) and (i).

Even though ITNX asserts that it is the sole owner of the property,

it urges us to extend § 363 (h) and (i) to cover sole owners because

it would be illogical to deny a sole owner the rights that are granted

to a partial owner. In essence, ITNX contends that it should have the

right to match the winning bid on the Colorado property, just as a co-

owner would under § 363(i). ITNX does not cite to any authorities

to support this proposition.

Section 363 governs the rights of parties in

liquidating the bankruptcy estate’s fractional

interest in property owned jointly by the bankruptcy

estate and the nonbankrupt co-owners. Subsection

(h) permits the trustee ... to affect a forced sale of

property in which the debtor and the other co-

owners have an undivided interest. Subsection (i)

permits a co-owner of the property to purchase it

from the trustee at the same price as the trustee

otherwise intended to sell it to the third party.

A25

The plain language of subsections (h) and (i) refers to “co-

owners”. If Congress wanted the rights enumerated in subsections

(h) and (i) to apply to sole owners, it would have said so. The fact

that § 363(h) expressly specifies the co-owner interest to be “a tenant

in common, joint tenant, or tenant by the entirety” reinforces

Congress’ intention to have this subsection apply to co-owners only.

Indeed, Collier on Bankruptcy provides that the nature of the co-

ownership must fall within the aforementioned categories in order

for § 363(h) to apply.

Furthermore, the general subject matter of § 363 is

concerned with the estate’s fractional interest in properties that are

jointly owned by others. To extend the rights covered in § 363 (h)

® Collier notes that “The legislative history says

‘[s]ubsection (h) permits sale of a co-owner’s interest in

property in which the debtor had an undivided interest such as a

joint tenancy, tenancy in common or a tenancy by the entirety.’

Nevertheless, because the words, ‘such as’ do not appear in

section 363(h) itself, the section does not apply if the manner of

holding property does not fall squarely within one of the three

listed categories.” LAWRENCE P. KING, 3 COLLIER ON

BANKRUPTCY, 4 363.08[2] (15th ed. rev. 1999) (emphasis in

original).

A26

and (i) to sole owners would defeat the entire statutory scheme of §

363.

ITNX, at no time, contends that it is a co-owner of the

Colorado property. It claims to be the sole owner and, thus, it is not

entitled to match the obi bid pursuant to § 363(i). ITNX does

not cite to any case law, treatise, or congressional record to support

its proposition that rights granted to co-owners should be extended

to sole owners. The plain language of the statute is clear. As a

result, we decline to extend the rights covered in § 363(h) and (i) to

sole owners.’ Accordingly, the bankruptcy court did not err by

refusing ITNX’s request to match the winning bid to the Colorado

property.

CONCLUSION

This appeal is plainly a morass. There is much more to this

appeal than meets the eye and the bankruptcy court is in a better

position to judge the facts. Given the scant record in this appeal, we

7 In its opening brief, ITNX contends that Federal Rule

of Bankruptcy Procedure 7001 requires an adversary proceeding

for an action brought under § 363(h). Since we conclude that §

363(h) is inapplicable to ITNX, this argument is not relevant.

A27

conclude that the bankruptcy court’s finding of a bona fide dispute

as to the ownership of the Colorado property is not in clear error.

The bankruptcy court properly approved the sale of the Colorado

property pursuant to § 363(f)(4). Order AFFIRMED.

A28

Filed

Jun 05 2001

CATHY A. CATTERSON, CLERK

U.S. COURT OF APPEALS

NOT FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

In re: NORMA J. HURT, No. 00-15088

Debtor. BAP No. AZ-98-01532-KPRy

ITNX, MEMORANDUM”™***"***

Appellant,

V.

ALPHA BUSINESS GROUP, INC.;

This disposition is not appropriate for publication and

may not be cited to or by the courts of this circuit except as may be

provided by 9" Cir. R. 36-3.

A29

NORMA J. HURT,

Appellees.

Appeal from the Ninth Circuit

Bankruptcy Appellate Panel

Klein, Perris and Ryan, Judges, Presiding

Argued and Submitted May 15, 2001

San Francisco, California

Before: HUG and T.G. NELSON, Circuit Judges, and

SHADUR,”””””**”’ District Judge.

seeeesese

Honorable Milton I. Shadur, Senior United States

District Judge for the Northern District of Illinois, sitting by

designation.

A30

1. The first question presented is whether the bankruptcy

court erred in allowing the sale of the Colorado property. Although

the bankruptcy court allowed the sale under 11 U.S.C. § 363(f)(4),

which ITNX challenges, we find that the sale was proper under 11

U.S.C. § 363(b) and affirm. ; 1 U.S.C. § 363(b) allows the debtor in

possession’ to sell, other than in the ordinary course of business,

“property of the estate.” ‘Property of the estate” is defined as,

among other things, “all legal or equitable interests of the debtor in

property as of the commencement of the case.” 11 U.S.C. §

541(a)(1). Accordingly, if the Colorado property was property of the

estate, it was within the bankruptcy court’s power to allow the sale.

The settlement agreement and subsequent judgment in

adversary proceeding 87-199 establish that title in the Colorado

property was quieted in favor of Hurt. The settlement agreement

provided for the “[w]aiver and release of . . . any claim by Andrew

B. Spain or any of his entities in and to the real property in

Although 11 U.S.C. § 363(b) speaks in terms of the

“trustee,” 11 U.S.C. § 1107 confers upon debtors in possession all the

rights, powers, and duties of a Chapter 11 Trustee.

A31

Colorado.” As president of ITNX, Spain thus waived ITNX’s claim

to the Colorado property. The judgment in adversary proceeding 87-

199 confirms as much, providing, “The property listed on the exhibit

tendered with the settlement agreement . . . shall be confirmed in

Norma J. Hurt as her sole and separate property ... .” The Colorado

property was correctly identified in the exhibit. Accordingly, the

Colorado property was property of the estate, the sale of which the

bankruptcy court was empowered to allow.

2. As the bankruptcy court correctly ruled, ITNX was not

entitled under 11 U.S.C. § 363(i) to match the high bid on the

property. That provision provides:

Before the consummation of a sale of property to which

subsection (g) or (h) of this section applies . . . a co-owner

of such property . . . may purchase such property at the

price at which such sale is to be consummated.

11 U.S.C. § 363(i). Subsection (g) is inapplicable, for it applies to

“any vested or contingent right in the nature of the dower or curtesy.”

11 U.S.C. § 363(g). And subsection (h) apples to “the interest of any

co-owner in property in which the debtor had, at the time of the

commencement of the case, an undivided interest as tenant in

A32

common, joint tenant, or tenant by the entirety.” 11 U.S.C. § 363(h).

This, too, is inapplicable. ITNX is not a co-owner with Hurt sharing

an undivided interest as joint tenant, tenant in common, or tenant by

the entirety. It is a third party that itself claims to be sole owner.

Accordingly, ITNX had no right to match the high bid.

3. Although argued by ITNX, we need not determine

whether the bankruptcy court had the power to itself “determine” an

adversary proceeding to resolve who owned the property, because

Hurt owned the property as a matter of law due to the settlement and

judgment in adversary proceeding 87-199. There was no need for an

adversary proceeding in 1996 as to ownership, and none in fact

occurred. Accordingly, the bankruptcy court did not exceed its

powers under 28 U.S.C. § 157 because it did not purport to resolve

the ownership dispute by conducting and deciding an adversary

proceeding.

4. Similarly, although also argued by INTX, we need not

decide whether a bona fide dispute existed under 11 U.S.C. §

363(f)(4). Sale of the Colorado property was proper under 11 U.S.C.

§ 363(b) because the property was, as a matter of law, property of the

A33

estate by virtue of the settlement and judgment in adversary

proceeding 87-199. Accordingly, there was no need to resort to §

363(f)(4).

AFFIRMED.

A34

NOT FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

FILED

Jun 20 2001

Cathy A. Catterson, Clerk

United States Court of Appeals

In re: NORMA HURT, No. 00-15088

Debtor. BAP No.

AZ-98-01532-

KPRy

ITNX,

Appellant, ORDER

V.

ALPHA BUSINESS GROUP, INC.; ©

NORMA J. HURT,

Appellees.

Before: HUG, Circuit Judge.

The motion for extension of time to file petition for

rehearing with suggestion for rehearing en banc is GRANTED.

A35

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

FILED

Aug - 3 2001

Cathy A. Catterson, Clerk

U.S. Court of Appeals

In re: NORMA J. HURT, No. 00-15088

Debtor. BAP No. AZ-98-01532-

KPRy

ITNX, ORDER

Appellant,

v.

ALPHA BUSINESS GROUP, INC.;

NORMA J. HURT,

Appellees.

Before: HUG and T.G. NELSON, Circuit Judges, and

SHADUR, ’ District Judge.

The panel has voted to deny the petition for rehearing.

Judges Hug and Nelson vote to deny the suggestion for rehearing en

banc and Judge Shadur so recommends.

Honorable Milton I. Shadur, Senior United States

District Judge for the Northern District of Illinois, sitting by

designation.

A36

The full court has been advised of the suggestion for

rehearing en banc and no active judge has requested a vote on

whether to rehear the matter en banc. Fed. R. App. P. 35 (b).

The petition for rehearing and suggestion for rehearing en

banc are denied.