Bertran v. Compton

         Appeal from Bankruptcy Case No. F12-00501-HAR

          DECISION & ORDER ON APPEAL

          SHARON L. GLEASON UNITED STATES DISTRICT JUDGE.

         Before the Court is an appeal pursuant to 28 U.S.C. § 158(a) from the United States Bankruptcy Court for the District of Alaska (the “Bankruptcy Court”).^[1] Appellants Margaret A. Bertran, Barbara Tangwall, and Donald Tangwall, in their individual capacities and as trustee or trustor of the Toni 1 Trust, appeal the Bankruptcy Court's Order Granting Trustee's Motion for Authority to Sell Ranch By Auction, and To Sell or Dispose of Personal Property on Site.^[2] The appeal has been fully briefed.^[3] Also before the Court at Docket 44 is Appellants' Motion to Deny Barbara Wacker, William Wacker and Their Attorney Erik LeRoy from Participating in this Appeal; at Docket 49 is Appellants' Motion for Extension of Time to File Reply Brief; and at Docket 54 is Trustee Larry Compton's Motion for Leave to File Trustee's Response to Reply Brief Concerning the Record on Appeal. These additional motions have also been briefed.^[4] Oral argument was not requested and was not necessary to the Court's determinations.

         BACKGROUND

         The facts of this longstanding dispute are well known to the parties. The following facts are relevant to this appeal:

         Appellant Margaret Bertran and her daughter, Appellant Barbara Tangwall, owned a parcel of property in Roundup, Montana (“the Ranch”). Appellant Donald Tangwall, Barbara Tangwall's husband, sued Barbara and William Wacker (“the Wackers”) in Montana state court over a dispute concerning a trucking enterprise and a cattle trailer. The Wackers filed a third party complaint in that action against Ms. Bertran, the Tangwalls, and others to recover on a debt. While that suit was pending, Ms. Bertran and Ms. Tangwall transferred the Ranch, and Ms. Tangwall transferred a commercial property (“the Properties”) to a purported trust called the Toni 1 Trust.^[5] On May 17, 2011, the Wackers obtained a judgment against Ms. Tangwall and Ms. Bertran in the Montana case (the “2011 Judgment”), in the amount of $137, 551.47.^[6] The Wackers then brought a fraudulent transfer suit in Montana state court under the Montana Uniform Fraudulent Transfer Act against the Toni 1 Trust, Ms. Bertran and Ms. Tangwall.^[7] On May 7, 2012, the Montana state court entered an order, which held that the transfers of the Properties to the trust were fraudulent, set them aside, and permitted the Wackers to levy execution on the Properties (the “2012 Judgment”). The 2012 Judgment also expressly authorized the Wackers to sell the Properties at public auction and apply the proceeds to the judgment.^[8] No appeal was taken from either judgment. On July 17, 2012, the County Clerk for the Montana state court issued a writ of execution, and a notice of sale of the Properties by public auction was sent to Ms. Bertran and Ms. Tangwall. Appellants Margaret Bertran and Barbara Tangwall filed a motion to quash the execution of the writ and a motion to set aside the 2012 Judgment with the Montana state court, but at no time did any Appellant in this case argue to the Montana state court that Montana lacked jurisdiction over the Toni 1 Trust.^[9] The Montana state court denied both motions.^[10]

         On August 17, 2012, Ms. Bertran filed for Chapter 7 Bankruptcy in the District of Alaska, Case No. A12-00501.^[11] Larry Compton was appointed as Trustee. On December 20, 2012, Donald Tangwall, as trustee of the Toni 1 Trust, initiated an adversary proceeding against the Trustee and the Wackers in the Alaska Bankruptcy Court (the “Adversary Action”). Among other claims, Mr. Tangwall argued that service of process on the Toni 1 Trust in the 2012 Montana fraudulent transfer case was so defective as to make the 2012 Judgment against the Toni 1 Trust void.^[12] On August 16, 2013, after a hearing on the issue, the Bankruptcy Court dismissed Mr. Tangwall's complaint, and held that the Toni 1 Trust was required to appear through an attorney and Mr. Tangwall as trustee could not file pro per papers or pleadings on behalf of the Toni 1 Trust.^[13]

         The Trustee then brought his own fraudulent transfer claims in the Adversary Action seeking to invalidate the 2011 transfers of the Properties to the Toni 1 Trust.^[14] On October 15, 2013, the Bankruptcy Court held that the Trustee had shown that “the two real property transfers were made to keep the property out of the hands of the Wackers, who were on the verge of obtaining a $137, 000 judgment against the debtor, ” and that the real property transfers thereby violated 11 U.S.C. § 548(a)(1)(A).^[15] Accordingly, on October 16, 2013, the Bankruptcy Court entered a final judgment holding that Ms. Bertran's conveyances of her interest in the Properties were fraudulent and that the Trustee's rights to Ms. Bertran's interest in the Properties was superior to those of both Mr. Tangwall, as trustee of the Toni 1 Trust, and the Toni 1 Trust itself (the “2013 Final Judgment”). The 2013 Final Judgment also dismissed Mr. Tangwall's Adversary Action and held that Ms. Bertran's interest in the Properties became the property of her Bankruptcy Estate.^[16] The 2013 Final Judgment did not address Ms. Tangwall's interest in the Ranch.^[17]

         Mr. Tangwall, in his capacity as trustee of the Toni 1 Trust, then filed two appeals to the Bankruptcy Appellate Panel (“BAP”) on November 18, 2013 and on December 2, 2013. The BAP dismissed both appeals as untimely. Mr. Tangwall then appealed to the Ninth Circuit, which dismissed one of the appeals for failure to perfect the appeal and one for being frivolous.^[18]

         On May 11, 2016, the Trustee filed a motion in the main bankruptcy case seeking an order permitting him to sell the bankruptcy estate's half interest in the Ranch. The Wackers joined in the motion, so that the entire Ranch property was the subject of the motion.^[19] A hearing on the motion was held on June 6, 2016. The Tangwalls, the Trustee and his attorney, and Attorney Eric LeRoy for the Wackers all attended the hearing.^[20] On June 7, 2016, the Bankruptcy Court granted the Trustee's motion (the “Order Approving Sale”) and made the following findings: (1) the Bankruptcy Court has subject matter jurisdiction over the Trustee's motion as it constitutes a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (N); (2) the Bankruptcy Court has personal jurisdiction over Donald Tangwall both in his individual capacity and as the “alleged trustee of the Toni 1 Trust”; (3) the Bankruptcy Court has personal jurisdiction over the Toni 1 Trust; (4) the Bankruptcy Court has personal jurisdiction over Barbara Tangwall and Margaret Bertran; (5) the Trustee may sell the Bankruptcy Estate's 50% undivided interest in the Ranch by auction; (6) because the Wackers joined in the Trustee's motion, the sale of the Ranch shall be for the Ranch as a whole; (7) proper notice of the motion had been given to all parties involved in the Bertran bankruptcy proceedings, and all persons claiming through them; and (8) the sale of the Ranch would be free and clear of the claims and liens of all persons who received notice of the motion.^[21]

         On June 13, 2016, Ms. Bertran filed a Notice of Appeal from the Bankruptcy Court's Order Approving Sale. On June 20, 2016, Ms. Bertran and the Tangwalls filed a request for an evidentiary hearing in the main bankruptcy case, in which they asserted that the Bankruptcy Court lacked jurisdiction “over the Toni 1 Trust.” They also maintained that all “orders, memorandum and judgments entered by [the Bankruptcy] Court should be deemed null and void.”^[22] The Bankruptcy Court denied the motion because it concluded that the notice of appeal filed on June 13, 2016 divested the Bankruptcy Court of jurisdiction.^[23]

         Ms. Bertran and the Tangwalls then moved to stay the execution of the Order Approving Sale. On June 30, 2016, the Bankruptcy Court denied the motion.^[24] Ms. Bertran and the Tangwalls then appealed to this Court, which also denied the motion to stay.^[25] There is no indication in the record that the Ranch has since been sold.^[26]

         On appeal to this Court, Appellants argue the following:^[27] (1) “the Montana [state] [c]ourt is in want of [. . .] personal jurisdiction in failing to name a trustee of the Toni 1 Trust and in failing to serve the same with a summons and complaint[, and] [i]n want of subject matter jurisdiction because the issue of Toni 1 Trust assets are administered in Alaska by qualified trustees [and] [e]xclusive jurisdiction lies with the courts of Alaska; (2) the Bankruptcy Court lacks personal and subject matter jurisdiction “over Toni 1 Trust [because that court] never named a trustee of the Toni 1 Trust as a defendant and never served the same with a summons and complaint”; (3) the Bankruptcy Court improperly granted full faith and credit to the Montana state court ruling when it ordered the sale of the Ranch in its Order Approving Sale because “full faith and credit cannot be given to judgments which are void on their face”; (4) the Bankruptcy Court “lost jurisdiction to enter [the Order Approving Sale] [. . .] when the [C]ourt refused to set an evidentiary hearing on the issue of jurisdiction”; and (5) “Trustee Compton violated the stay on all bankruptcy orders when he executed [the Order Approving Sale]” on the same day it was issued.^[28]

         JURISDICTION

         The Court has jurisdiction over this appeal pursuant to 28 U.S.C. § 158.

         STANDARD OF REVIEW

         The Court reviews legal conclusions reached by the Bankruptcy Court de novo.^[29]Findings of fact are review for clear error. Findings of fact are clearly erroneous only if they are illogical, implausible, or lacking support in the record.^[30] Whether the Bankruptcy Court has jurisdiction to hear and decide a matter is a legal question that is reviewed de novo.

         DISCUSSION

         This appeal challenges the Bankruptcy Court's jurisdiction over Ms. Bertran and the Toni 1 Trust, as well as its jurisdiction to issue the Order Approving Sale. Appellants challenge the Order Approving Sale specifically because the order authorized the sale of the entire Ranch, including the Wackers' half interest. Appellants argue that the Wackers' half interest was created by a Montana state court judgment that is void for lack of jurisdiction.

         1. The Tangwalls' Participation

         As a preliminary matter, the Court addresses whether Donald Tangwall and Barbara Tangwall should be dismissed from this appeal. The Tangwalls appear before the Court in their individual capacities; Mr. Tangwall also appears as trustee of the Toni 1 Trust. Neither Mr. Tangwall nor Ms. Tangwall in their individual capacities are parties to the main bankruptcy case or the Adversary Action. Accordingly, they have no grounds upon which to challenge the Bankruptcy Court's jurisdiction or the Order Approving Sale.^[31] And in Mr. Tangwall's position as trustee, the Bankruptcy Court ordered Mr. Tangwall to procure legal representation but he failed to do so.^[32] The Ninth Circuit prohibits non-attorneys from appearing in a federal court on behalf of another person or a legal entity such as a trust.^[33] Therefore, Mr. Tangwall lacked the authority to file a notice of appeal in the Bankruptcy Case on behalf of the Toni 1 Trust as he is not an attorney. Accordingly, the Court will dismiss from this appeal the Tangwalls in their individual capacities and Mr. Tangwall as trustee of the Toni 1 Trust.^[34]

         2. The Bankruptcy Court's Jurisdiction

         Ms. Bertran argues that the Bankruptcy Court lacked both subject matter jurisdiction and personal jurisdiction over the Toni 1 Trust to issue the Order Approving Sale, which granted the Trustee's motion for authority to sell the Ranch and other personal property. Ms. Bertran also argues that the Bankruptcy Court “lost jurisdiction” when it “refused to set an evidentiary hearing on the issue of jurisdiction [as] requested at the June 6, 2016 hearing.”^[35]

         A. Subject Matter Jurisdiction

         A bankruptcy court's authority “depends on whether Congress has classified the matter as a “core proceeding” or a “non-core proceeding” under the Bankruptcy Code. Congress has given bankruptcy courts the power to “hear and determine core proceedings and to enter appropriate orders and judgments, subject to appellate review by the district court.”^[36] “Approving the sale of property, ” which includes approving sale by auction, is one such “core proceeding” listed in 28 U.S.C. § 157(b).^[37]

         In this case, the Bankruptcy Court had subject matter jurisdiction over the Estate's half interest in the Ranch because it became the property of the Bankruptcy Estate in 2013 by virtue of the 2013 Final Judgment in the Adversary Action.^[38] After issuing the 2013 Final Judgment, the Bankruptcy Court retained jurisdiction to administer the Bankruptcy Estate and ensure that its orders were executed as intended.^[39] Accordingly, pursuant to § 157(b), the Bankruptcy Court had subject matter jurisdiction to enter its order granting the Trustee's motion to sell Ms. Bertran's interest in the Ranch.

         As for the Bankruptcy Court's authority to authorize the sale of the Wackers' half interest, 11 U.S.C. § 363(f) authorizes a bankruptcy trustee to sell property “free and clear of any interest in such property of an entity of the estate only if . . . (2) such entity consents.” At the time of the Order Approving Sale, the Bankruptcy Court determined that the Wackers owned a 50% undivided interest in the Ranch. Because the Wackers joined in the Trustee's motion for authorization to sell the Ranch by auction, the Bankruptcy Court properly determined that the Wackers had consented to the sale.^[40]

         B. Personal Jurisdiction

         To the extent Ms. Bertran argues that the Bankruptcy Court did not have personal jurisdiction over her, she has waived any such argument by filing a Chapter 7 bankruptcy petition in the District of Alaska, Bankruptcy Court.^[41] Likewise, the Toni 1 Trust's asserted trustee, Mr. Tangwall, filed the Adversary Action in the Bankruptcy Court. Moreover, the Toni 1 Trust is allegedly an Alaskan trust.^[42] The Court finds the Bankruptcy Court properly exercised personal jurisdiction over both Ms. Bertran and the Toni 1 Trust.^[43]

         C. Evidentiary Hearing Requirement

         On June 20, 2016, after the entry of the Order Approving Sale, the Tangwalls filed a request for evidentiary hearing, in which they argued that the Bankruptcy Court lacked personal jurisdiction over the Toni 1 Trust and subject matter jurisdiction over the proceedings against the Toni 1 Trust because the proceedings are non-core proceedings, and an evidentiary hearing on the motion was necessary. But by that point, a Notice of Appeal had already been filed, divesting the Bankruptcy Court of jurisdiction to consider the request.^[44] And, in any event, the factual record was adequately developed and demonstrated that the Bankruptcy Court had properly determined that it had subject matter jurisdiction to authorize the sale of the Ranch by auction and that it had personal jurisdiction over the Toni 1 Trust.

         3. The Montana Court's Jurisdiction

         The Bankruptcy Court's Order Approving Sale authorized the sale of the entire Ranch, including the Wackers' half interest. Ms. Bertran challenges the Bankruptcy Court's authority to approve a sale of the Wackers' half interest in the Ranch, because in her view, the Montana state court's 2012 Judgment, which led to the creation of the Wackers' half interest in the Ranch, is void for lack of jurisdiction. According to Ms. Bertran, the Bankruptcy Court thus had no authority to authorize the sale of the entire Ranch because the Wackers do not own a 50% interest in the Ranch.

         Ms. Bertran advances three rationales in furtherance of her argument that the Montana state court 2012 Judgment is void on its face: (1) “the Montana default judgment . . . fail[ed] to name the trustee of the Toni 1 Trust and to serve the same”; (2) “[the] Toni 1 Trust is an Alaskan trust [and therefore] . . . [e]xclusive jurisdiction over the Toni 1 Trust . . . lies with the Courts of Alaska”; and (3) the Wackers ...