
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________        No. 92-2045                  IN RE MARK BELL FURNITURE WAREHOUSE, INCORPORATED,                                       Debtor,                                                                                      ________                     MARK BELL FURNITURE WAREHOUSE, INCORPORATED,                                Plaintiff, Appellant,                                          v.                             D. M. REID ASSOCIATES, LTD.,                                 Defendant, Appellee.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                   [Hon. Douglas P. Woodlock, U.S. District Judge]                                              ___________________                                 ____________________                                        Before                                 Selya, Circuit Judge,                                        _____________                            Coffin, Senior Circuit Judge,                                    ____________________                               and Cyr, Circuit Judge.                                        _____________                                 ____________________             Leon Aronson for appellant.             ____________             Gordon  P. Katz with whom Donald  R. Lassman and Widett, Slater &             _______________           __________________     ________________        Goldman, P.C. were on brief for appellee.        _____________                                 ____________________                                     May 4, 1993                                 ____________________                    CYR, Circuit Judge.   An involuntary chapter 7 petition                    CYR, Circuit Judge.                         _____________          was filed against Mark  Bell Furniture Warehouse, Inc. ("Debtor")          in 1988.   The property of  the chapter 7 estate  included a pre-          petition cause of  action against D. M. Reid Associates ("Reid").          Mark  Bell ("Bell"),  Debtor's  president and  sole  shareholder,          urged the chapter 7  trustee to litigate the claim  against Reid.          When  the trustee  failed to  pursue the  claim, Bell  offered to          purchase  the cause  of action  from the  estate for  $250.   The          notice of the proposed private sale to Bell invited upset bids in          excess of $500, subject to the condition that qualifying  bidders          would be asked to submit competing sealed  bids at auction.  Reid          submitted an upset bid in the amount of $501.                    At the  auction sale  conducted  before the  bankruptcy          court on March 9, 1992, Bell submitted a sealed bid for $1000 and          Reid  bid "$1000 plus the amount of [Bell's bid]."  Although both          the  trustee and the bankruptcy  judge voiced concerns  as to the          propriety  of Reid's  "relative" bid,  neither Bell  nor Debtor's          counsel objected.  The trustee accepted Reid's $2000 bid.  Debtor          did  not seek to stay the sale.   Three days later, Reid tendered          $2000 to the trustee, and the trustee delivered a bill of sale.                    Debtor appealed  to the district court, contending that          Reid's  relative bid should be declared void and that the trustee          should  be directed  to accept  Bell's lower  bid.   The district                                          2          court  dismissed the appeal as moot, based on Debtor's failure to          obtain a stay of the sale pending appeal.1                    Absent a stay pending  appeal, Bankruptcy Code   363(m)          precludes appellate relief  invalidating a sale to a "good faith"          purchaser.  See In re Onouli-Kona  Land Co., 846 F.2d 1170, 1171-                      ___ ___________________________          72 (9th Cir. 1988).  On the theory that "[t]he finality and reli-          ability of judicial  sales enhance  the value of  assets sold  in          bankruptcy,"  In re Tri-Cran, Inc.,  98 B.R. 609,  617 (Bankr. D.                        ____________________          Mass. 1989),  section 363(m)  ensures protection of  a successful          bidder's "good faith"  reliance on a consummated sale.  See In re                                                                  ___ _____          Sax,  796 F.2d 994, 998  (7th Cir. 1986);  International Union v.          ___                                        ___________________          Morse Tool,  Inc., 85  B.R. 666,  667 (D. Mass.  1988).   A "good          _________________          faith"  purchaser is one who buys property  in good faith and for          value, without knowledge of  adverse claims.  In re  Tri-Cran, 98                                                        _______________          B.R. at  615-19 (citing  Greylock Glen  Corp.  v. Community  Sav.                                   ____________________     _______________          Bank, 656  F.2d 1, 4 (1st Cir.  1981)).  "Good faith"  is a mixed          ____          question of law and fact.  In re Abbotts Dairies of Pennsylvania,                                     ______________________________________          Inc., 788 F.2d 143, 147  (3d Cir. 1986).  "Good  faith" purchaser          ____                                        ____________________               1The  district court  relied  on Bankruptcy  Code    363(m),          which provides:                    The reversal  or modification on appeal of an                    authorization under subsection (b) or  (c) of                    this section  of a sale or  lease of property                    does  not affect  the validity  of a  sale or                    lease  under such authorization  to an entity                    that  purchased  or leased  such  property in                    good faith, whether  or not such entity  knew                    of the  pendency of  the appeal, unless  such                    authorization  and  such sale  or  lease were                    stayed pending appeal.          11 U.S.C.   363(m).                                          3          status  is precluded  by, inter alia,  fraud, collusion  with the                                    _____ ____          trustee, and taking "grossly  unfair advantage" of other bidders.          In  re Andy Frain  Servs., Inc.,  798 F.2d  1113, 1125  (7th Cir.          _______________________________          1986);  Willemain v. Kivitz, 764 F.2d 1019, 1023 (4th Cir. 1985);                  _________    ______          In re Bel Air Assocs., Ltd., 706 F.2d 301, 305 (10th Cir. 1983).          ___________________________                    In its  appeal to the district  court, Debtor contended          that "relative" or "sharp" bids are illegal per se, hence grossly                                                      ___ __          unfair,  see, e.g., Holliday v.  Higbee, 172 F.2d  316, 318 (10th                   ___  ____  ________     ______          Cir. 1949);  Trump v. Mason, 190 F.  Supp. 887, 888 (D.D.C. 1961)                       _____    _____          (noting that relative bids "destroy the integrity of the [sealed]          bidding  system").2   Thus,  Debtor argued,  Reid  became a  "bad          faith" purchaser  merely by submitting  the unannounced  relative          bid.3  The  district court recognized the "problematic" nature of          the  "bad  faith" claim  urged by  Debtor,  but decided  that the          presumed "evil"  of relative bidding  lay in concealing  the fact          that a relative  bid had prevailed.  The court  concluded that no          "bad faith"  was shown on the part of Reid since all auction par-          ticipants (and bystanders) were  informed of Reid's relative bid,                                        ____________________               2The notices of  appeal filed in  the bankruptcy court,  see                                                                        ___          Fed.  R. Bankr. P. 8002(a), 9001(1),(3),  9002(2),(3), and in the          district court,  see  Fed. R.  App.  P. 4(a)(1),  6(a),  6(b)(1),                           ___          designate Debtor as the only appellant.  Accordingly, Bell is not          a party  to the present  appeal.  Pontarelli  v. Stone,  930 F.2d                                            __________     _____          104, 108 (1st  Cir. 1991)  (holding that court  of appeals  lacks          jurisdiction  of  appeal by  party  not designated  in  notice of          appeal as required under Fed. R. App. P. 3(c)).               3"Relative" or  "sharp" bidding  is highly unusual  in bank-          ruptcy cases.  Although we do not condone its unannounced use, we          leave  for another day whether relative bidding is ever appropri-          ate or practicable in the context of a judicial sale.                                          4          were afforded  an opportunity  to  object to  it, and  acquiesced          until well after the bid was accepted and the sale consummated.                    Debtor again argues on appeal that the relative bidding          which  took place in this case amounted  to "bad faith."  We need          not decide this claim,  however, because it was not  preserved in          the bankruptcy  court.  See  In re LaRoche,  969 F.2d  1299, 1305                                  ___  _____________          (1st Cir. 1992) (arguments not raised  in bankruptcy court cannot          be raised  for the first time on appeal) (citing In re 604 Colum-                                                           ________________          bus  Ave. Realty  Trust, 968  F.2d 1332,  1343 (1st  Cir. 1992)).          _______________________          Debtor  had ample  opportunity  to  object  to the  relative  bid          submitted by  Reid, the trustee's  acceptance of Reid's  bid, and          the consummation of the sale.  After the sealed bids were opened,          the  bankruptcy  judge and  the  trustee engaged  in  an extended          discussion  as   to  the  appropriateness  of  relative  bidding.          Although  both Bell  and Debtor's  counsel were  present, neither          challenged the  propriety of  the bid  or the  bidding.   Nor did          Debtor request a stay.   In sum, at no time did  the Debtor alert          the bankruptcy  court to the  "unfairness" claim later  raised in          its appeal to the district court.4                                        ____________________               4At oral argument, Debtor disclaimed any contention whatever          that relative bidding, per se, violates public policy, or that it                                 ___ __          contravenes  the  policy  favoring  maximization  of  liquidation          recoveries in  bankruptcy proceedings.   Debtor's retreat  to its          "unfair surprise" claim completely undermined its earlier conten-          tion that Reid's relative bid  was void ab initio.  See  Short v.                                                  __ ______   ___  _____          Sun Newspapers, Inc., 300 N.W.2d 781  (Minn. 1980).  Accordingly,          ____________________          Debtor's  remaining claim    that Bell  was unfairly surprised by          Reid's  relative bid    might  portend, at most,  that Reid's bid          was voidable upon timely objection by an unsuccessful bidder.              ________                                          5                    Appellate claim preclusion is especially appropriate in          these circumstances,  where a  timely objection before  the bank-          ruptcy court  might well have  enabled the  prompt submission  of          nonrelative  bids by  the assembled  participants.   At  the very          ___          least, it  would  have permitted  the  bankruptcy court  to  make          findings of  fact and conclusions  of law as to  whether any cog-          nizable unfairness occurred in this case.  See Poliquin v. Garden                                                     ___ ________    ______          Way, Inc., ___  F.2d ___, ___ (1st Cir. 1993)  [Nos. 92-1115, 92-          _________          1116, slip op. at 8 (1st Cir. Mar. 24, 1993)]  (explaining impor-          tance  of  "raise or  waive"  rule in  the  litigation "winnowing          process,"  as it  enables courts  to "narrow  what remains  to be          decided[;] [i]f lawyers could pursue on appeal issues not proper-          ly raised below, there  would be little incentive to get it right          the first time and no end of retrials").                    Even  assuming its  "unfairness" claim  were preserved,          however, Debtor  would lack "standing" to  assert it.  See  In re                                                                 ___  _____          Dein Host,  Inc., 835 F.2d  402, 404  (1st Cir.  1987) (court  of          ________________          appeals  "duty  bound"  to  undertake  preliminary  inquiry  into          "standing").  Debtor  does not  allege that it  is an  "aggrieved          person,"  nor  does the  record  indicate  that Debtor  possesses          "standing."   See, e.g., Rumford  Pharmacy, Inc. v.  City of East                        ___  ____  _______________________     ____________          Providence,  970  F.2d  996,  1001 (1st  Cir.  1992)  ("standing"          __________          requires, inter  alia, "personal  injury fairly traceable  to the                    _____  ____          allegedly  unlawful conduct");  see also  In re Lovitt,  757 F.2d                                          ___ ____  ____________          1035, 1039 (9th Cir.), cert. denied, 474 U.S. 849 (1985).                                 ____  ______                                          6                    First, all the Debtor's property became property of the          chapter  7 estate long before  the auction sale.   See Bankruptcy                                                             ___          Code    303, 541; 11 U.S.C.    303, 541.  The  chapter 7 trustee,          not  the  chapter 7  debtor,  is responsible  for  collecting all          property of the estate and reducing  it to money.  See Bankruptcy                                                             ___          Code   704(1); 11  U.S.C.   704(1);  cf. Fed. R.  Bankr. P.  2010                                               ___          (authorizing proceeding on trustee's bond for breach of condition          of "faithful  performance of  official duties").   Second, it  is          well established that a chapter  7 debtor generally lacks "stand-          ing" to  challenge a bankruptcy court judgment  confirming a sale          of property of the chapter 7 estate:                    A chapter 7 debtor  is not considered a "per-                    son aggrieved,"  as  [it] lacks  a  pecuniary                    interest  in  the "property  of  the estate."                    There are two exceptions:   (1) if the debtor                    can show  that a successful appeal would gen-                    erate  assets in excess of liabilities, enti-                    tling the debtor to a distribution of surplus                    under Bankruptcy Code    726(a)(6), 11 U.S.C.                      726(a)(6), or (2)  the order appealed  from                    affects the  terms of the  debtor's discharge                    in bankruptcy.          In re Thompson, 965 F.2d 1136,  1144 (1st Cir. 1992); see also In          ______________                                        ___ ____ __          re  Goodwin's  Discount  Furniture,  Inc., 16  B.R.  885,  887-88          _________________________________________          (Bankr. 1st  Cir. 1982).    In this  case, an  estate surplus  is          neither suggested by the Debtor nor by the record, as the chapter          7  estate was hopelessly insolvent.5   Third, Debtor submitted no          bid.  Rather, Mark Bell, Debtor's president and sole shareholder,          submitted a private offer  in his own name; the chapter 7 trustee                                     __ ___ ___ ____                                        ____________________               5For  example,  the trustee  represented  in  the notice  of          proposed private sale that  the estate had "no funds"  with which          to pursue the cause of action against Reid.                                          7          designated  Bell as the offeror in his notice of proposed private          sale ("to Mark Bell  or his nominee") (emphasis added),  and Bell                                  ___          submitted a sealed bid  in his personal capacity ("sealed  bid of          Mark Bell").  See also supra note 2.                          ___ ____ _____                    In sum, Debtor failed  to preserve any cognizable claim          of injury resulting from the order approving the sale.   Thus, we          need not, indeed should not, address the idiosyncrasies attending          section  363(m)  "mootness" and  the  scope  of  the "bad  faith"          defense.                    Appeal dismissed; no costs to either party.                    Appeal dismissed; no costs to either party.                    __________________________________________                                          8
