DAVID R. DUNCAN, Chief Bankruptcy Judge.
Janet B. Haigler, the chapter 7 trustee ("Trustee"), obtained an order of this Court to sell certain farm equipment free and clear of liens and interests on May 19, 2016 [Docket No. 65]. William Joshua Bair ("Josh Bair") filed a motion for relief from judgment on June 7, 2016 [Docket No. 70]. Trustee filed a response to Josh Bair's motion on June 16, 2016 [Docket No. 74] and a supplemental memorandum in opposition to the motion on August 11, 2016 [Docket No. 89]. Josh Bair filed an amended motion on July 8, 2016 [Docket No. 78], a supplemental affidavit on August 9, 2016 [Docket No. 84], and a memorandum in support of the motion on August 10, 2016 [Docket Nos. 86]. Farm Services Agency ("FSA") filed a response in support of the motion on August 11, 2016 [Docket No. 91]. A hearing was held on the motion on August 11, 2016. At the conclusion of the hearing, the Court took the motion under advisement. The Court now makes the following findings of fact and conclusions of law.
1. Vance Marion Bair and Debra Collier Bair ("Debtors") filed their chapter 7 bankruptcy case on July 2, 2015.
2. Josh Bair is Debtors' son. Josh Bair is a farmer and, at one point, farmed in partnership with his father, Vance Bair.
3. Debtors filed their original Schedules and Statements on July 15, 2015 [Docket No. 8]. The July 15 schedules listed various farm equipment owned by Debtors. Debtors filed an Amended Schedule A/B on March 2, 2016 [Docket No. 36] to add various pieces of farm equipment. The amended Schedule A/B listed the following property as owned by Debtors:
Debtors further amended their schedules on August 10, 2016, after this dispute arose, to delete several pieces of equipment [Docket No. 88]. The statement of change attached to the amended schedules states that the equipment was deleted from the schedules because it "was sold to Josh Bair prior to filing petition under Chapter 7."
4. Debtors had a previous chapter 12 bankruptcy case, Case No. 14-02417-dd, which was filed in April 2014. Debtors' schedules filed in the chapter 12 case list the farming equipment and implements owned by Debtors as follows:
5. The confirmed chapter 12 plan does not mention Josh Bair or his intent to purchase equipment from Debtors.
6. On April 20, 2016, Trustee filed a motion to sell certain farm equipment listed on Debtors' schedules free and clear of liens [Docket No. 46]. The addendum to the motion describes the equipment to be sold as follows:
The addendum contains a notation that although Debtors' schedules indicate that the John Deere 8330 tractor was transferred to Josh Bair, "[p]er verbal conversation with debtor, Vance Marion Bair, no funds were received from [Josh Bair] for transfer of tractor and ownership of tractor has NOT been transferred." The addendum also contains a notation as to the farm equipment and trailers listed on the schedules as being held for Josh Bair, which states, "Schedules were updated after initial inspection. Debtors did NOT indicate these farm related items belonged to Josh Bair."
7. Josh Bair was served with Trustee's motion. Attached to Trustee's motion was a notice which states, in part, "TAKE FURTHER NOTICE that no hearing will be held on this application unless a response, return and/or objection is timely filed and served, in which case, the Court will conduct a hearing." No objections to Trustee's motion to sell the farm equipment were filed, and an order granting Trustee's motion was entered on May 19, 2016 [Docket No. 65].
8. Josh Bair filed his motion for relief from judgment on June 7, 2016 [Docket No. 70]. The motion, and the documents filed by Josh Bair in support of the motion, indicate that Josh Bair called an attorney who had previously represented him in other matters almost immediately after he was served with Trustee's notice and motion. That attorney advised Josh Bair that he should contact a bankruptcy attorney, and referred him to an attorney who practices bankruptcy law.
9. Josh Bair filed a supplemental affidavit in support of his motion on August 9, 2016 [Docket No. 84], which included a number of exhibits attached to the affidavit. The affidavit indicates that Josh Bair's father conveyed several items to him in May 2013. Attached to the affidavit are two documents dated May 30, 2013. The first states:
The second document states:
10. Josh Bair's supplemental affidavit indicates that he was present when Trustee's auctioneer, Terry Howe, came to Debtors' property to inspect and inventory the farm equipment. The affidavit further states, "Mr. Howe listed all the equipment he found on the property . . . without asking whether my parents, or someone else, owned it." Josh Bair testified that he was present, at least for part of the time, when Mr. Howe was on Debtors' property inspecting the equipment. Josh Bair testified that he "just thought Mr. Howe was coming to look at" the equipment, and that he told Mr. Howe that 3 grain wagons and 2 tag trailers belonged to him. With respect to other pieces of equipment of which he claims ownership, a fuel tank, a liquid tank, and an auger, Josh Bair testified that he did not know Mr. Howe had those items on his list of equipment.
11. Mr. Howe testified that he visited Debtors' property two or three times. He testified that, to compile a list of the farm equipment owned by Debtors, he started with the schedules filed by Debtors. He testified that when he was out at Debtors' property inspecting the equipment, he noticed that there were several other items of equipment that were not listed on Debtors' schedules. Mr. Howe then advised Vance Bair that he should discuss this property with his attorney. Mr. Howe testified that although he spoke mostly with Vance Bair during his visits to Debtors' property, Josh Bair was present during at least one of his visits and that, contrary to Josh Bair's testimony, Josh Bair never told Mr. Howe that any of the equipment belonged to him and not to his father, Vance Bair. Vance Bair was not called as a witness.
12. As noted above, Debtors amended their schedules in March 2016, following Mr. Howe's suggestion that Vance Bair consult counsel regarding the unlisted equipment [See Docket No. 36]. The statement of change attached to the March 2016 amended schedules states that Schedule B is amended to "add various farm equipment."
13. Mr. Howe testified that the list of equipment to be sold by Trustee was created by relying on amended schedules filed by Debtor.
14. On July 10, 2015, FSA filed a proof of claim in Debtors' case in the total amount of $7,957.09, secured by a 7 ring grain bin. However, FSA's response to Josh Bair's motion indicates that FSA also holds security interests in several items of farm equipment Josh Bair purports to own, and that Josh Bair owes FSA a total debt of $376,188.86. FSA's response indicates that FSA filed a UCC-1 in the South Carolina Secretary of State's office on July 17, 2013 to perfect its security interest in the equipment.
15. The particular item at issue in the present matter for FSA is the John Deere 8330 tractor. This item was not listed on Debtors' schedules; however, the addendum to Trustee's motion to sell indicates that Trustee intends to sell the tractor due to the fact that Josh Bair did not pay his father for the transfer of ownership of the tractor, as required by one of the May 30 documents. FSA, despite receiving notice of Trustee's proposed sale, did not file an objection to Trustee's motion to sell. Counsel for FSA indicated that it did not file an objection to the motion because the equipment was under lien to FSA by virtue of the granting of a security interest by Josh Bair, not by Debtors. However, Trustee's notice of sale, which FSA received, indicated that disputes of Josh Bair's ownership in certain property, including the John Deere 8330 tractor, exist, and that Trustee intended to sell the John Deere 8330 tractor.
16. On August 9, 2016, Trustee filed an adversary proceeding against William Joshua Bair, Vance Marion Bair, Debra Collier Bair, and FSA [Docket No. 85]. The adversary complaint asserts causes of action for a determination of Debtors' ownership interests in the equipment and for fraudulent conveyances due to Debtors' alleged transfer of equipment to Josh Bair for no or inadequate consideration.
Josh Bair seeks relief from the order allowing Trustee to sell the equipment pursuant to Federal Rule of Civil Procedure 60(b), made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 9024. Fed. R. Civ. P. 60(b) provides, in relevant part:
Consideration of a motion made pursuant to Rule 60(b) is a two-step process. "First, the movant must make a threshold showing of timeliness, a meritorious defense, a lack of unfair prejudice to the opposing party, and exceptional circumstances." In re Cilwa, Case No. 15-00263-HB, 2016 WL 828284, at *4 (Bankr. D.S.C. Mar. 2, 2016) (citing Dowell v. State Farm Fire & Cas. Auto. Ins. Co., 993 F.2d 46, 48 (4th Cir. 1993)). If these four threshold requirements are met, the movant then must satisfy one of the six grounds for relief set forth in Rule 60(b). Id. (citing Dowell, 993 F.2d at 48). "`Because [Civil] Rule 60 is an exception to the general policy of favoring finality of judgments, relief is granted only to prevent what would otherwise be a clear miscarriage of justice.'" In re AMF Bowling Worldwide, Inc., Case No. 12-36495-KRH, 2013 WL 5575470, at *3 (Bankr. E.D. Va. Oct. 9, 2013) (quoting In re Jason, 2005 Bankr. LEXIS 2833, at *14 (Bankr. E.D. Va. Sept. 13, 2005)). Josh Bair is relying on Rule 60(b)(1), due to "mistake, inadvertence, surprise, or excusable neglect."
The parties are in agreement that Josh Bair's motion was timely. The parties disagree on whether the other threshold elements or the requirements of Rule 60(b)(1) are met. The Court addresses each element below.
"`To establish a meritorious defense, the defendant must do more than merely allege that he has one. A defendant must allege facts which, if established on trial, would constitute a complete defense to the action. The defenses must be more than "conclusory statements" or "mere denials."'" M & I Equip. Fin. Co. v. Stein (In re Stein), Case No. 1-08017-HB, Adv. No. 11-80173-HB, 2012 WL 12862, at *2 (Bankr. D.S.C. Jan. 3, 2012) (quoting JP Morgan Chase Bank, N.A. v. Pandolfelli, 2010 WL 3745123, at *5 (Bankr. D.N.J. Sept. 14, 2010)). Josh Bair asserts that he has a meritorious defense because many items Trustee proposes to sell were owned by him at the time of Debtors' chapter 7 filing and therefore are not property of the estate. He asserts, therefore, that Trustee cannot sell the equipment under 11 U.S.C. § 363, as it only allows Trustee to sell property of the estate. Josh Bair also asserts that he has a second meritorious defense to the sale, that there will be no benefit to the estate from the sale due to the liens on the equipment. Trustee is relying on section 363(f)(4) for authority to complete the sale, asserting that there is a bona fide dispute as to Josh Bair's interest in the equipment.
Section 363(f)(4) allows a trustee to sell property "free and clear of any interest in such property" if "such interest is in bona fide dispute." "The purpose of section 363(f)(4) is to allow the trustee to sell property subject to dispute so that the estate's liquidation is not delayed while disputes are litigated." In re Taylor, Case No. 11-00156-DD, 2011 WL 3206994, at *4 (Bankr. D.S.C. July 27, 2011) (citing In re Daufuskie Island Props., LLC, 431 B.R. 626, 645 (Bankr. D.S.C. 2010)). Some courts hold that this subsection of section 363(f) allows a trustee to sell property if there is a dispute as to the ownership of the property. See In re Genesys Research Inst., Inc., Case No. 15-12794-JNF, 2016 WL 3583229, at *20 (Bankr. D. Mass. June 24, 2016) ("Section 363(f)(4) does not contemplate or require that the court resolve or determine any dispute about ownership before a sale hearing, but rather requires only an examination of whether there is an objective basis for either a factual or legal dispute about ownership."); In re Hindu Temple and Cmty. Ctr. of Georgia, Inc., Case No. 09-82915, 2013 WL 8214672, at *9 (Bankr. N.D. Ga. Mar. 5, 2013) (stating that the court previously authorized the sale of religious relics in possession of the debtor pursuant to 11 U.S.C. §363(f)(4), because the party asserting an interest in the relics was unable to prove it had any interest in them; stating that section 363(f)(4) "permits the sale of property that is subject to a dispute as to ownership"); In the Matter of Durango Georgia Paper Co., 336 B.R. 594, 597-98 (Bankr S.D. Ga. 2005) (finding that groundwater was properly included in assets to be sold because there was a bona fide dispute as to the ownership of the groundwater). Other courts hold that a determination must be made as to whether property is property of the estate before it can be determined whether or not a bona fide dispute exists. In re Rodeo Canon Dev. Corp., 362 F.3d 603, 608 (9th Cir. 2004) (stating that issue regarding ownership of property should have been decided before trustee could sell property as property of the estate) (opinion withdrawn due to subsequent stipulation of parties that facts on which the court relied were incorrect); In re BHB Enters., LLC, Case No. 97-01975-JW, 1997 WL 33344250, at *2 (Bankr. D.S.C. Sept. 30, 1997) (stating that before allowing a sale under section 363(f), the court must determine whether assets are property of the estate, but ultimately allowing the sale of the assets because party asserting interest in assets failed to contest the trustee's argument and proffered evidence that the assets were assets of the estate). At least one court has stated, "The threshold determination as to the existence of a bona fide dispute necessarily requires a finding that the disputed property is or
It is unnecessary for the Court to determine the section 363(f)(4) issue because, as discussed below, the other elements required for relief under Rule 60(b) are not met. An adversary proceeding is pending which will determine ownership and lien rights in the equipment. Josh Bair's and Trustee's positions regarding ownership of the equipment and avoidance of transfers will be addressed by the Court in connection with that adversary proceeding. No determination regarding those interests is made here.
Josh Bair asserts that there is a lack of unfair prejudice because Trustee has not taken any significant steps to move forward in preparation for the sale. In so arguing, Josh Bair relies on a printout from
Josh Bair has established that there will not be unfair prejudice to Trustee if his motion is granted. Josh Bair presented evidence that Trustee had not begun to advertise for the sale. Josh Bair's motion to vacate was filed over two weeks prior to Trustee's proposed sale date. Trustee presented no evidence regarding any unfair prejudice she would suffer in the event the order granting her motion to sell was vacated. Josh Bair has met this element.
Josh Bair argues that exceptional circumstances exist here because Trustee proposes to sell property despite a question regarding the ownership of the property and despite the fact that the list of equipment to be sold was created based on the farm equipment's location on Debtors' property rather than actual ownership. Josh Bair also argues that Trustee had constructive knowledge of FSA's lien on the John Deere 8330 tractor prior to the date the order granting her motion to sell was entered, by virtue of FSA's UCC filing.
Josh Bair's conduct is inconsistent with an exceptional circumstances finding. Josh Bair testified that he did not retain or pay the bankruptcy attorney with whom he consulted, and he did not file an objection to the motion to sell. Conflicting testimony was presented regarding whether Josh Bair informed Mr. Howe of his ownership of certain items of farm equipment upon Mr. Howe's visits to Debtors' property to inspect and inventory the equipment, and Mr. Howe's testimony regarding his visits to Debtors' property was more credible than Josh Bair's testimony. Josh Bair did not call his father as a witness despite the representations in Trustee's notice of sale that the equipment had not been paid for by Josh Bair and was not his property. Thus, he did not assert his ownership in the equipment either by filing an objection to Trustee's motion to sell or by raising the issue with Mr. Howe, the auctioneer.
Additionally, numerous inconsistencies exist in the record regarding the ownership of the various items of farm equipment, and Josh Bair did not act to protect his interest despite Trustee's obvious intention that an auction occur, and notice by Trustee to that effect. The two documents purporting to convey various pieces of farm equipment from Vance Bair to Josh Bair were executed in May 2013 but are inconsistent with representations to this Court nearly a year later, when Debtors filed their chapter 12 case, listing on their schedules at least some of the same pieces of farm equipment. Josh Bair then appeared as a witness and potential purchaser in his parents' chapter 12 case and agreed to purchase farm equipment, as a term for confirmation of Debtors' chapter 12 plan. His payments for the equipment, which were never made, were intended to be a source of funding for the plan. Then, in Debtors' current chapter 7 case, Debtors listed both on their initial 2015 schedules and their amended March 2016 schedules some of the very same equipment that was purportedly conveyed to Josh Bair pursuant to the May 30 documents and subsequently proposed for sale by Debtors to Josh Bair in Debtors' chapter 12 case.
It is also disputed whether or not Trustee was aware of the extent of FSA's lien on the farm equipment prior to the entry of the order granting the motion to sell. FSA did not object to the sale, and FSA's counsel indicated at the hearing that it did not object because its security interest arose by virtue of interests granted to it by Josh Bair, not Debtors; however, the only information Trustee had, from Vance Bair, was that the equipment belonged to Debtors. The notice of sale, served on FSA, expressly provided for sale of the equipment, including the John Deere 8330 tractor, and FSA did not object.
Based on the lack of objections to Trustee's motion to sell, Josh Bair's failure to protect his interests in the equipment, the inconsistent representations by Debtors and Josh Bair regarding ownership of the farm equipment, and the other inconsistent information in the record, the Court does not find exceptional circumstances warranting reconsideration of its order granting Trustee's motion to sell.
As set forth above, Josh Bair has not made the threshold showing required under Rule 60(b); as a result, it is unnecessary for the Court to address whether Josh Bair has established a basis for relief under Rule 60(b)(1). However, the Court notes that this showing has also not been met. Josh Bair argues that excusable neglect exists here because he took reasonable steps to protect his interests in connection with Trustee's motion to sell and was damaged, through no fault of his own, by poor advice from the bankruptcy attorney he consulted. He asserts that these circumstances constitute a basis for reconsideration under Rule 60(b)(1).
This Court has previously noted that courts are not consistent in their treatment of cases in which an attorney's mistake or negligence has caused a case to be resolved against his client. The Court attempted to reconcile the cases by stating, "[I]t appears that one main difference between these sets of cases is whether the attorney's actions caused the party's case to be dismissed or disposed of other than on the merits." In re Loper, 447 B.R. 466, 469 (Bankr. D.S.C. 2011). However, the Court also stated, "[C]ourts generally recognize that if a party is at fault, he himself must make an adequate showing under Rule 60(b) in order to be granted relief." Id. at 470 (citing Heyman v. M.L. Mktg. Co., 116 F.3d 91, 94 (4th Cir. 1997)). This is where Josh Bair's motion again falls short.
There are numerous inconsistencies in the record regarding the ownership of the various items of farm equipment. Further, although Josh Bair was present at least during one of Mr. Howe's visits to Debtors' property, Mr. Howe's testimony, which the Court finds credible, established that he did not express any claim of ownership to the equipment.
Finally, with respect to Josh Bair's legal counsel, neither attorney he consulted in connection with Trustee's motion was called to present testimony regarding what services, if any, they had been engaged to provide for Josh Bair, and in the absence of some evidence, the Court will not speculate as to the advice given by either attorney. Regardless, Josh Bair cannot rely on an attorney's mistake or negligence as a basis for relief under Rule 60(b)(1) when he bears much of the responsibility. No mistake, inadvertence, surprise, or excusable neglect exists here.
For the reasons set forth above, Josh Bair's motion is denied. The Court's Order granting Trustee's motion to sell the equipment free and clear of liens remains in effect.
AND IT IS SO ORDERED.
