S. MARTIN TEEL, Jr., Bankruptcy Judge.
This addresses the Emergency Motion to Stay Bankruptcy's Court Order Pending Appeal (Dkt. No. 213) filed by the debtor, LaTricia Lee Hardy, and seeking a stay pending appeal of this court's Order Ratifying And Approving Sale Free And Clear (1414-1416 Pennsylvania Avenue, S.E. Washington, DC) (the "Sale Order") (Dkt. No. 224 signed on June 1, 2017, and entered by the clerk on June 2, 2017). The Emergency Motion to Stay will be denied for the following reasons.
The debtor has not filed a notice of appeal from the Sale Order and paid the fee for filing such a notice of appeal. Accordingly, there is no pending appeal within which to grant a stay pending appeal.
Even if the debtor filed a notice of appeal, she would not be entitled to pursue the appeal unless she paid the filing fee for pursuing an appeal or obtained an order permitting her to prosecute the appeal in forma pauperis. No fee has been paid for pursuing an appeal, and no motion has been filed to pursue an appeal in forma pauperis. It is appropriate to consider procedural infirmities related to the appeal in deciding whether to grant a stay pending appeal. In re Smith, 397 B.R. 134, 137 (Bankr. D. Nev. 2008). I thus address next whether the debtor would be entitled to proceed in forma pauperis.
Under 28 U.S.C. § 1915(a), "[a]n appeal may not be taken in forma pauperis if the trial court certifies in writing that it is not taken in good faith." An appellant is not entitled to proceed in forma pauperis unless the appellant states issues the appellant intends to pursue on appeal that have at least an arguable basis in law and fact, failing which the appeal is not taken in good faith. See Neitzke v. Williams, 490 U.S. 319, 325 (1989); Sills v. Bureau of Prisons, 761 F.2d 792, 794 (D.C. Cir. 1985). The issues on appeal stated in the Emergency Motion to Stay are not issues having an arguable basis in law and fact, as demonstrated by the discussion later of the lack of a probability of success on appeal.
As in the case of an appeal of a district court order, if a bankruptcy court, as the trial court, denies such a motion, certifying that the appeal is not taken in good faith or is taken based on some improper motive, see Wooten v. D.C. Metro. Police Dept., 129 F.3d 206, 207 (D.C. Cir. 1997); Fed. R. App. P. 24(a)(3), the party pursuing the appeal to the district court may nevertheless file in the district court, as the appellate court, a motion for leave to appeal in forma pauperis despite the trial court's denial of such leave. See Wooten, 129 F.3d at 207; Fed. R. App. P. 24(a)(5). A district court may take into account a certification by the bankruptcy court that the appeal has not been taken in good faith, see Akers v. Dovenmuehle Mortgage (In re Akers), No. BR 07-662, 2013 WL 394189, at *1 (D.D.C. Jan. 30, 2013), but if the district court disagrees with the bankruptcy court and finds that the appeal was taken in good faith, the appellant would be entitled to proceed in forma pauperis. See Wooten, 129 F.3d at 208. If leave to appeal in forma pauperis is not obtained and the appellant fails to pay the filing fee, the appeal should be dismissed.
I will proceed to address the motion for a stay pending appeal, even though no appeal is pending, upon the assumption that the debtor might file a notice of appeal, and that, if the debtor does not pay the filing fee, stay relief might need to be addressed before the District Court decides whether dismissal is warranted based on non-payment of the filing fee.
The debtor, LaTricia Hardy, and her mother, Patricia White, own commercial real estate located at 1414-1416 Pennsylvania Avenue, SE, Washington, DC 20003 (the "Property"). On May 31, 2016, the debtor commenced this case by filing a voluntary petition under chapter 13 of the Bankruptcy Code (11 U.S.C.). Under 11 U.S.C. § 541(a)(1), the debtor's interest in the Property became property of the bankruptcy estate. On July 25, 2016, the court entered an order converting the case to a case under chapter 7 of the Bankruptcy Code. The debtor did not pursue an appeal of that order.
On August 17, 2016, Ross filed a motion (Dkt. No. 63) for an order compelling the debtor to turn over the Property. The debtor failed to oppose that motion, and the Bankruptcy Court entered an order (Dkt. No. 79) on September 9, 2016, compelling the debtor to turn over the Property.
On November 15, 2016, in Adversary Proceeding No. 16-10034, the Bankruptcy Court entered a final order pursuant to 11 U.S.C. § 363(h) authorizing Ross to sell the Property free and clear of Patricia White's 50% co-owner's interest in the Property incident to a sale of the debtor's interest in the Property. No appeal was pursued with respect to that order.
Ross has proceeded to attempt to sell the entire Property. One sale approved by the court by an order entered on January 30, 2017, fell through, but Ross obtained a second proposed contract of sale. Ross filed a motion to approve that contract of sale, and gave the debtor and creditors notice pursuant to Fed. R. Bankr. P. 2002(a) of a 21-day opportunity to oppose the motion, warning that "[i]f no objections are filed, the Court may consider the motion to be unopposed, and proceed to grant the relief requested without further notice to you." (Dkt. No. 157). No opposition was filed.
However, even though the sale motion was unopposed, the court had concerns about the proposed order the trustee had submitted, specifically, its proposed disposition of the proceeds of the sale. Accordingly, the court proceeded to hold a hearing on the sale motion on April 19, 2017, to address those concerns. The debtor appeared at the hearing of April 19, 2017, and did not request to be allowed to object to the motion out of time. The court orally approved that contract of sale, but instructed the trustee to submit a revised proposed sale order. The trustee eventually submitted a proposed order that was signed and entered as the Sale Order at issue.
After the hearing of April 19, 2017, the court held a hearing on May 23, 2017, on a motion the trustee filed on April 28, 2017, to facilitate closing the eventual sale by assuring that he could convey the Property free of occupants. In early 2017, the debtor had interfered with the trustee's efforts to sell the Property by allowing other persons to occupy the Property, and they still occupied the Property after the hearing of April 19, 2017. Accordingly, on April 28, 2017, Ross filed his Motion for Order to Show Cause Why the Debtor Should Not Be Held in Contempt for Failure to Comply with Order Approving Turnover of Real Property (Dkt. No. 167) (the "Contempt Motion") seeking to hold the debtor in civil contempt and seeking additional relief related to the occupants who Ross had not authorized to occupy the Property. The debtor opposed the trustee's Contempt Motion by filing on May 22, 2017, a Motion to Dismiss Trustee's Claims (Dkt. No. 193), a motion in which she challenged the propriety of the sale approved by the court in its oral ruling rendered more than a month ago at the hearing of April 19, 2017.
On May 23, 2017, the court held a hearing on the Contempt Motion and the Motion to Dismiss Trustee's Claims. The court issued an oral ruling at the hearing in favor of the trustee, and supplemented that ruling in a Memorandum Decision re Trustee's Contempt Motion Against Debtor and Debtor's Motion to Dismiss Trustee's Claims (Dkt. No. 201) entered on May 26, 2017. To the extent that the Motion to Dismiss Trustee's Claims was requesting the court to revise its oral ruling of April 19, 2017 (the ruling that the trustee's motion to sell the Property would be granted), the court's oral ruling of May 23, 2017, and the Memorandum Decision of May 26, 2017, rejected the debtor's arguments in favor of such relief. The Bankruptcy Court accordingly denied the Motion to Dismiss Trustee's Claims by a separate order (Dkt. No. 202) of May 23, 2017. The Sale Order was entered on June 2, 2017. The debtor filed her Emergency Motion to Stay on June 8, 2017.
With that as background, I explain now why no stay pending appeal should be granted even if the debtor files a notice of appeal and pays the appeal fee or is allowed to proceed in forma pauperis.
In Hardy v. Ross (In re Hardy), 561 B.R. 281, 283 (D.D.C. 2016), involving three consolidated appeals by the debtor in this case, the District Court addressed the standards for a stay pending appeal, and they need not be repeated here.
One factor relevant to a motion for a stay pending appeal is whether the appellant has shown a probability of success on appeal. There is no probability that the debtor will succeed on appeal.
In the Motion to Dismiss Trustee's Claims, the debtor raised one of the arguments that she raises now in her Emergency Motion to Stay. There is no probability that the debtor will succeed on appeal in showing that the court's rejection of that argument was in error. The debtor's Motion to Dismiss Trustee's Claims asserted that "Debtor has acquired a lease to carry on business affairs on behalf of Capitol Hill Beauty Salon in 2010 with a 25 year lease," (Dkt. No. 193, at ¶ 10), that the lease was rejected by operation of 11 U.S.C. § 365(d)(4),
The debtor's arguments were arguments that the debtor should have raised via filing a timely opposition to the sale motion. By failing timely to oppose the sale motion, the debtor was barred from raising those arguments out of time, and she failed to show excusable neglect under Fed. R. Bankr. P. 9006(b)(1). warranting permitting her to raise the arguments out of time.
Even if the debtor was entitled to oppose the sale motion out of time, the Bankruptcy Court found on the merits that there was no such lease:
Memorandum Decision at 3. That finding cannot be reversed on appeal unless it is clearly erroneous. The evidence and circumstances supporting the court's finding included the following:
Accordingly, there is no probability of the debtor's succeeding on appeal in showing that the Bankruptcy Court committed clear error in finding that no lease existed. There may have been an executory contract relating to using the trade name of Capitol Hill Beauty Salon and its goodwill, but an executory contract is not a lease, and is not subject to the deemed rejected provisions of 11 U.S.C. § 365(d)(4).
In any event, such a lease from the mother (if it existed), and if the debtor were entitled to contest the sale motion out of time, would not be a bar to the trustee's selling the Property, and selling it free and clear of the mother's rights as the lessor. The trustee was authorized by the order entered on November 15, 2016, in Adversary Proceeding No. 16-10034, to sell the debtor's mother's one-half interest in the Property (including any rights she has as a lessor of the Property) incident to any sale of the debtor's one-half interest in the Property. Accordingly, the trustee could sell the entire Property (both the mother's one-half interest and the debtor's one-half interest), upon approval by the court under 11 U.S.C. § 363(b)(1) of the sale as being in the best interest of the estate.
As to the debtor's alleged interest as a lessee of her mother's one-half interest, the Sale Order was appropriate for two reasons even if (1) such a lease from the mother existed, and (2) the debtor was entitled to oppose the sale motion out of time on the basis of this alleged lessee interest. First, 11 U.S.C. § 363(f)(4) authorizes a trustee to sell property under § 363(b) "free and clear of any interest in such property of an entity other than the estate, . . . if . . . (4) such interest is in bona fide dispute[.]" For reasons discussed above, Hardy's assertion that she has such a lessee interest is in bona fide dispute based on the incredible nature of her testimony regarding the existence of such a leasehold interest. Accordingly, § 365(d)(4) authorized the trustee to sell the Property free of the asserted leasehold interest.
Second, the debtor is equitably estopped from contending that there was such a lease. As explained in the Memorandum Decision at 3-4:
Accordingly, the debtor has no likelihood of succeeding on appeal based on her allegation that she had a lease from her mother.
At the hearing of May 23, 2017, the debtor testified that she entered into leases with the current occupants of the Property in early 2017, and that these were the only leases still in place. However, she had been ordered to produce at the hearing any such leases, and she failed to do so.
The debtor's Emergency Motion to Stay points to 11 U.S.C. § 365(n), which she argues "provides protections for intellectual property rights that are analogous to those protections provided to lessees of real property under section 365(h)." Neither § 365(n) nor § 365(h) applies here.
Section 365(n) was cited by the debtor for the first time in her Emergency Motion to Stay, and thus is a ground that the debtor, as an appellant, ordinarily would not be entitled to raise on appeal. In any event, § 365(n) deals with certain rights and obligations of a trustee regarding "an executory contract under which the debtor is a licensor of a right to intellectual property" (11 U.S.C. § 365(n)(1)) and the rights of the licensee upon a rejection of the executory contract (and prior to any rejection occurring). It plainly has no applicability to the Property, which is real property, or any lease of the Property.
Section 365(h) applies when "the trustee rejects an unexpired lease of real property
Accordingly, there are no leases to which § 365(h) would apply.
The debtor does not contend that the sales price under the sales contract approved by the Sales Order was an unreasonable price. Instead, she contends that the permitting the sale to go forward will moot the appeal. However, "[i]t is well settled that an appeal being rendered moot does not itself constitute irreparable harm." In re 203 N. LaSalle St. Pshp., 190 B.R. 595, 598 (N.D. Ill. 1995) (citation omitted). See also Acton v. Fullmer (In re Fullmer), 323 B.R. 287, 304 (Bankr. D. Nev. 2005)
The debtor also fears that the sale will moot her appeal pending in the District of Columbia Court of Appeals regarding a dispute with her mortgagee. The validity of the mortgage is also being addressed in the Bankruptcy Court, and the Bankruptcy Court has made clear that any distribution to the mortgagee will require a binding adjudication that the mortgage is valid. There is no risk of the mortgagee receiving payment of its mortgage without there being such a binding adjudication, and even if there were the debtor has not shown injury for which a monetary judgment would not be an adequate remedy at law. The debtor has not shown any irreparable damage arising fro12-1137m a stay pending appeal.
If a stay pending appeal were granted, the harm to the trustee, as representative of the estate being administered for the benefit of creditors, is that his efforts to comply with his statutory duty to expeditiously liquidate property of the estate under 11 U.S.C. § 704(a)(1) will be impeded, and his ability to close on the contract of sale may be frustrated if the purchaser and back-up purchaser elect to back out based on the length of time it takes to deliver the Property free of any occupants.
The public interest favors allowing the trustee to carry out his statutory duty to expeditiously liquidate the property of the estate. Thus, a stay pending appeal would be contrary to the public interest.
For all of these reasons, the debtor has failed to show that a stay pending appeal is appropriate. It is thus ORDERED that the debtor's Emergency Motion to Stay Bankruptcy's Court Order Pending Appeal (Dkt. No. 208-1), appended to her notice of appeal (Dkt. No. 208), is DENIED.
