United States District Court, D. Colorado
IN RE: ROBERT JOHN STEMWEDEL, and LINDA ANN KELLY, Debtors.
v.
PEAK PROPERTIES AND DEVELOPMENT, INC., Appellee. ROBERT JOHN STEMWEDEL, Appellant,
OPINION AND ORDER AFFIRMING BANKRUPTCY COURT
Marcia
S. Krieger, Senior United States District Judge
THIS
MATTER comes before the Court for determination of
the Appellant’s (“Mr. Stemwedel”) appeal
from the Bankruptcy Court’s September 27, 2018 Order
Granting Motion for Determination Regarding Disposition of
Estate Asset. This Court has considered Mr. Stemwedel’s
opening brief (# 19), the Appellee’s
(“Peak”) response brief (# 23),
and Mr. Stemwedel’s reply (# 24), as
well as the contents of the record in the Bankruptcy Court
(# 7).
FACTS
This
appeal arises from a convoluted combination of a sale of
property of a Mr. Stemwedel’s bankruptcy estate and an
arbitration arising out of a state court action.
Prior
to 2011, Mr. Stemwedel served as corporate counsel to Peak, a
real estate developer. Mr. Stemwedel’s compensation was
payable on a partially-contingent basis, 15% of the net fees
that Peak received upon the completion of certain projects.
In or about 2011,Mr. Stemwedel was terminated by Peak, but
several projects that he had been involved with remained
pending. Thus, he expected to receive compensation as those
remaining projects were completed.
In
2011, Mr. Stemwedel[1] filed a voluntary Chapter 7 petition. He
claimed a 75% wage exemption for the yet-to-be-paid
contingent fees. This left the Estate with ownership of the
remaining 25% of the unpaid fees (“the 25%
interest”).
In July
2014, Mr. Stemwedel offered to buy the Estate’s 25%
interest in the unpaid compensation for roughly $11,000. The
Trustee moved for approval of that sale, and Peak responded
with a counter-offer of roughly $16,000. The Trustee then
sent creditors a notice of a sale that described the 25%
interest to be sold and bidding procedures to be used but did
not expressly state that the sale would be free and clear of
liens. By November 2014, no alternative bids had been
received, and consequently the Trustee sold the 25% interest
to Peak for $16,000. Peak and the Trustee closed on the sale,
and the Trustee moved for its approval. For unknown reasons,
the proposed order submitted by the Trustee and issued by the
Bankruptcy Court stated that the sale was free and clear of
liens and encumbrances. No. immediate objection was raised to
the sale or the Bankruptcy Court’s Order.
Several
months later, Mr. Stemwedel asked the Bankruptcy Court to
correct the sale order as to the sale being free and clear of
encumbrances. In the intervening time, Mr. Stemwedel had
commenced an action against Peak in state court, seeking to
collect the compensation still owed to him under the
contingent fee arrangement. Peak had apparently contended
that Mr. Stemwedel’s claims were subject to certain
offsets of payments that Peak had advanced to him, and the
parties disagreed as to how – or even if – those
offsets would affect the 25% interest that Peak had acquired
from the bankruptcy estate. In June 2015, after hearing
argument from the parties, the Bankruptcy Court found that
“free and clear” language was not included in the
notice, and thus its inclusion in the Order was improper. The
Bankruptcy Court indicated an intention “to rescind the
sale order on the basis of this and let the Trustee
re-auction it.”
However,
it does not appear that Peak, Mr. Stemwedel, or the Trustee
took any further action to do so. Instead, the Trustee filed
her Final Accounting that showed that the Estate had been
fully administered. The accounting reflected, among other
things, that the $16,000 paid by Peak for the 25% interest
had been fully distributed to creditors. Neither Peak nor Mr.
Stemwedel objected to the Trustee’s report, and the
Bankruptcy Court closed the case.[2]
Mr.
Stemwedel’s state court action continued, and in 2017,
the parties agreed to arbitration. The arbitration panel
determined that Mr. Stemwedel was entitled to a total of
$1,219,297 in unpaid compensation from Peak. The parties had
requested that the arbitration panel also resolve the dispute
over the 25% interest – Peak had argued that the
arbitrator should reduce the amount Peak owed to Mr.
Stemwedel by 25% to reflect Peak’s purchase of the 25%
interest in the Bankruptcy Court. The arbitration panel
refused to address the 25% interest, deferring to the
Bankruptcy Court. It stated: “[b]ecause the Bankruptcy
Court vacated its earlier order which approved this sale to
Peak, the Panel holds that Stemwedel is entitled to the full
[contingent fee]”; “[i]f Peak believes its
purchase of Stemwedel’s interest survives [the
Bankruptcy Court’s] Order vacating the sale, then Peak
must take this issue up with the Trustee in Bankruptcy
Court.”
Peak
then returned to Bankruptcy Court requesting clarification of
the ownership of the 25% interest – i.e.
whether that share was owned by Peak, Mr. Stemwedel, or the
Trustee, and whether Peak is entitled to a refund of the
$!6,000 it initially paid to acquire that interest. After
reopening the case and hearing argument, on September 27,
2018, the Bankruptcy Court issued as thorough and highly
detailed decision.
The
Bankruptcy Court ruled that the Trustee had validly sold the
25% interest to Peak. Specifically, the Court found: (i) when
an asset sale occurs without proper notice, the Bankruptcy
Court has a variety of options as to how to address the
issue[3]; (ii) the Court’s goal in setting
aside the sale in 2015 was “to protect any party whose
interests might be affected by a ‘free and clear’
sale” that was not actually free and clear; (iii) that
the Trustee had received Peak’s $16,000 payment for the
25% interest and had distributed that sum to Mr.
Stemwedel’s creditors and that it would be
“inequitable, if not practically impossible” to
retrieve those sums from the creditors; (v) that neither
party had timely objected to the Trustee’s failure to
re-notice the 25% interest for sale in 2015; and (vi) that,
ultimately, “the most equitable thing the Court can do
is leave the parties were they are” – that is,
with the 25% interest in the hands of Peak. The Court also
addressed the effect of the arbitration award, rejecting Mr.
Stemwedel’s argument that the arbitration panel’s
finding that Peak’s purchase of the 25% interest was
vacated by the Bankruptcy Court should be given collateral
estoppel effect. After expressing some doubt as to whether
the arbitrator had the jurisdiction to construe its order,
the Court ultimately held that the doctrine of collateral
estoppel did not apply in any event because the arbitration
finding as to the effectiveness of the sale of the 25%
interest was, tentative, not final.
Mr.
Stemwedel appeals from the Bankruptcy Court’s September
2018 Order. Mr. Stemwedel raises two issues: (i) did the
Bankruptcy Court err in upholding the sale of the 25%
interest to Peak because the parties’ misunderstandings
about what was being sold in 2014 resulted in a distorted
bidding process; and (ii) did the Bankruptcy Court err in not
giving the arbitrator’s ruling collateral estoppel
effect.
A.
...