Linton Properties LLC

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
LINTON PROPERTIES, LLC, et
al.,
Debtors.
)
)
)
)
)
)
)
)
Case No. 08-00095
(Chapter 7)
Jointly Administered
Not for Publication in
West’s Bankruptcy Reporter
MEMORANDUM DECISION AND ORDER RE
CHESAPEAKE BANK & TRUST COMPANY’S MOTION TO
COMPEL TRUSTEE TO COMPLETE SALE OF REAL PROPERTY
Chesapeake Bank & Trust Co. (“Chesapeake”) seeks to compel
the Chapter 7 trustee of the bankruptcy estate of the debtor
Linton Properties, LLC (“Linton”) to complete an auction sale
held by the debtor at the time it was serving as a debtor in
possession in this case prior to the conversion of the case from
Chapter 11 to Chapter 7.
By order entered on June 13, 2008, the court authorized the
debtor-in-possession to sell certain condominium units (the
“Property”) at auction. 	The order did not require that the court
confirm the successful bid at the auction sale as being in the
best interest of creditors and the estate. 	The auction sale was
The Memorandum Decision and Order below is hereby
signed. Dated: October 10, 2008.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
Case 08-00095 Doc 153 Filed 10/10/08 Entered 10/10/08 14:24:30 Desc Main
Document Page 1 of 6

2
held on June 28, 2008, with Chesapeake being the successful
bidder for the Property. 	Pursuant to a contract executed that
day by Linton and Chesapeake reflecting Chesapeake’s successful
bid, closing was to occur within 45 days, or by August 12, 2008.
Linton’s case was converted to Chapter 7 on August 7, 2008. 	This
Memorandum Decision sets forth my preliminary views on the
issues, and sets the matter for hearing as one issue warrants
holding a hearing.
I
The trustee contends that the order approving the sale only
authorized the sale and did not compel the debtor in possession
to complete the sale, and that the doctrine of res judicata thus
does not bar his refusal to complete the sale. 	But Chesapeake is
not attempting to enforce the order authorizing the sale.
Instead, it is seeking to enforce the contract between Chesapeake
and Linton that arose pursuant to the auction sale. 	That
contract was authorized by the court’s having authorized the
auction sale. 	Such an authorized act of a debtor in possession
is binding upon a successor trustee. 	Armstrong v. Norwest Bank,
Minneapolis, N.A., 964 F.2d 797, 801 (8th Cir. 1992). 	The
trustee has not filed a motion under Fed. R. Bankr. P. 9024 (and
Fed. R. Civ. P. 60) to set aside the order authorizing the
auction sale.
The decisions the trustee relies upon in contending that he
Case 08-00095 Doc 153 Filed 10/10/08 Entered 10/10/08 14:24:30 Desc Main
Document Page 2 of 6

3
is not bound by the contract of sale, In re Cmty. Hosp. of
Rockland County, 15 B.R. 785, 787 (Bankr. S.D.N.Y. 1981), and In
re Silver Mill Frozen Foods, Inc., 32 B.R. 783, 786 (Bankr. E.D.
Mich. 1983), are distinguishable. 	Instead of dealing with
enforcement of a sale contract duly authorized by the bankruptcy
court, they deal with whether a judgment in prior litigation
between a debtor in possession and a second party bars a
successor trustee from pursuing claims against the second party
that were not raised in the prior litigation.
II
The trustee points to two adverse consequences which may
arise from completing the sale. 	The sale may subject the
bankruptcy estate to claims pursuant to warranties imposed by
Maryland law on any developer (like Linton) who sells condominium
property. 	It may also subject the bankruptcy estate to adverse
tax consequences. 	Creditors and the United States Trustee,
however, were given the opportunity to object to the proposed
auction sale, and did not object to it. 	Except in extraordinary
circumstances (such as fraud in obtaining the sale order or
collusive bidding), a successful bidder at a duly authorized
auction sale is entitled to assume that the agreement of sale
arising from that successful bid will be enforceable, without
parties in interest being allowed to revisit the pros and cons of
whether permitting an auction sale was in the best interest of
Case 08-00095 Doc 153 Filed 10/10/08 Entered 10/10/08 14:24:30 Desc Main
Document Page 3 of 6

1 	If the Property was sold free and clear of the mechanic’s
lien, the mechanic’s lien attached to the proceeds of sale with
the same rank of priority, if any, as it enjoyed previously. 	If
the Property was not sold free and clear of the mechanic’s lien,
then Chesapeake can opt to complete the sale with the mechanic’s
lien still upon the Property, or it can opt not to go forward
with the sale.
4
creditors and the estate. 	Moreover, the trustee has not
addressed the issue of whether the warranty obligation arose upon
the contract of purchase being formed, and has not shown that the
auction sale was not at a loss.
III
The trustee next contends that there is a mechanic’s lien in
excess of $200,000 against the Property. 	He questions whether
the order authorizing the sale was effective to sell the Property
free and clear of that mechanic’s lien. 	Chesapeake, however,
does not appear to be concerned in that regard, and the
mechanic’s lien is a matter of concern for Chesapeake, not the
trustee. 1 	In any event, it does not matter whether the trustee
is correct that the mechanic’s lienor could have successfully
objected to the sale free and clear of its lien based on an
assertion that 11 U.S.C. § 363(f) did not authorize the court to
direct that the sale of the Property would be free and clear of
the lien. 	The trustee has not demonstrated any defect in service
on the mechanic’s lienor of the motion to sell the Property free
and clear of its lien (and the accompanying notice of opportunity
to oppose that motion). 	Without any defect in service on the
Case 08-00095 Doc 153 Filed 10/10/08 Entered 10/10/08 14:24:30 Desc Main
Document Page 4 of 6

5
mechanic’s lienor, the order granting the motion is binding on
the mechanic lienor, with the consequence that the sale was free
and clear of the mechanic’s lien.
IV
The trustee finally contends that he needs to investigate
further whether completing the sale would be in the best interest
of creditors and the estate. 	If completing the sale would be
burdensome to the estate, he contends that he could opt to
abandon the Property. 	Chesapeake contends that any warranty
obligation and any tax consequences already arose upon the
execution of the contract of sale because, pursuant to Maryland
law, the contract vested Chesapeake with an equitable interest in
the Property. 	The trustee has not had an opportunity to respond
to that contention. 	Nor has the trustee addressed how the estate
can avoid the damage claim, entitled to administrative priority
under 11 U.S.C. § 503(b)(1)(A), for breach of contract that would
arise were he to abandon the Property, thus disabling himself
from complying with the contract. 	The contract is not an
executory contract “of the debtor” within the meaning of 11
U.S.C. § 365 that could be rejected pursuant to that provision
(with rejection damages treated by 11 U.S.C. § 502(g)(1) as a
prepetition claim that would share pro rata with other
prepetition unsecured non-priority claims). 	The court will set
the matter down for hearing to hear oral argument on this issue
Case 08-00095 Doc 153 Filed 10/10/08 Entered 10/10/08 14:24:30 Desc Main
Document Page 5 of 6

6
of whether the trustee ought to be allowed to seek to abandon the
Property. 	The trustee is free at that hearing to attempt to sway
me to his view on the other issues, but I am unaware of any
reason to think that he has any likelihood of causing me to
change my preliminary views expressed above.
V
It is thus
ORDERED that a hearing on Chesapeake’s Motion to Compel
Trustee to Complete Sale of Real Property will be held on
October 15, 2008, at 2:00 p.m.
[Signed and dated above.]
Copies to: Debtor; Debtor’s attorney; Chapter 7 Trustee; Office
of United States Trustee; Katherine M. Sutcliffe Becker, Esq.;
Troy C. Swanson, Esq.; Craig M. Palik, Esq.
Case 08-00095 Doc 153 Filed 10/10/08 Entered 10/10/08 14:24:30 Desc Main
Document Page 6 of 6