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In re Rumsey Land Company, LLC

United States Court of Appeals, Tenth Circuit

December 20, 2019


          Appeal from the United States District Court for the District of Colorado (D.C. No. 1:16-CV-02117-CMA-SKC)

          Ronald L. Wilcox, Wilcox Law Firm, LLC, Denver, Colorado for Plaintiff - Appellant.

          David M. Rich, Minor & Brown, P.C., Denver, Colorado, and Sarah B. Wallace, Ballard Spahr LLP, Denver, Colorado, (Andrew J. Petrie, Ballard Spahr LLP, Denver, Colorado, with them on the brief) for Defendants - Appellees.

          Before HARTZ, SEYMOUR, and MATHESON, Circuit Judges.


         This appeal stems from a dispute involving land sold at a bankruptcy auction. Rumsey Land Company, LLC ("Rumsey") owned a property subject to a first deed of trust held by Pueblo Bank & Trust Company, LLC ("PBT"). In 2010, Rumsey filed for bankruptcy. Resource Land Holdings, LLC ("RLH")[1] offered to purchase the property, but the bankruptcy court did not approve the sale. Shortly thereafter, PBT purchased the property at a bankruptcy auction. PBT then transferred the land to RLH.

         In 2015, Rumsey discovered that during the bankruptcy proceedings, RLH had entered a loan purchase agreement to purchase PBT's interest in the property. The agreement eventually led to litigation in state court between RLH and PBT, which culminated with a settlement agreement allowing RLH to purchase Rumsey's property from PBT for $4.75 million.

         Rumsey believed the loan agreement, lawsuit, and settlement influenced the price at its bankruptcy auction. It initiated this adversarial proceeding in bankruptcy court against RLH and PBT (collectively "Defendants"), alleging (1) fraudulent concealment in violation of state law and (2) collusive bidding activities in violation of 11 U.S.C. § 363(n). The case was transferred to federal district court, which granted summary judgment to Defendants on both claims. Exercising jurisdiction under 28 U.S.C § 1291 and § 1294(1), we affirm.

         On the fraudulent concealment claim, we affirm summary judgment for RLH on the alternative ground that RLH was not a party to a business transaction with Rumsey and therefore had no duty to disclose information. We affirm summary judgment for PBT because Rumsey forfeited its arguments about PBT's duty to disclose and has not argued plain error on appeal.

         On the § 363(n) collusive bidding claim, we distinguish between Rumsey's alternative requests (1) to avoid the bankruptcy sale and (2) for damages. As to the former, we affirm summary judgment for Defendants on the alternative ground that the claim was time-barred by the one-year limitations period in Federal Rule of Civil Procedure 60(c)(1). As to damages, we affirm summary judgment because Rumsey failed to demonstrate a genuine dispute of material fact as to whether Defendants intended to control the sale price at the bankruptcy auction.

         I. BACKGROUND

         A. Factual Background

         Rumsey, a Colorado-based limited liability company, owned real property in Evans, Elizabeth, and Nederland, Colorado. In January 2010, it filed for bankruptcy in the United States Bankruptcy Court for the District of Colorado. At the time it filed for bankruptcy, Rumsey's holdings included a property known as the Rumsey Farm ("the property" or "the land"), which was encumbered by a first deed of trust held by PBT.

         1. RLH's Initial Attempts to Acquire the Property

         In March 2010, RLH attempted to purchase the property from Rumsey. It discussed with Rumsey the possibility of buying the PBT loan but ultimately offered to purchase the property for $7, 484, 397.75.

         In April 2010, Rumsey filed a motion to approve the sale with the bankruptcy court. Because three creditors objected, the court denied the motion and instructed Rumsey to market the property more broadly.

         2. RLH and PBT's Loan Purchase Agreement and Lawsuit

         Because RLH could not acquire the property from Rumsey directly, it decided to pursue the possibility of purchasing the debt Rumsey owed to PBT. On December 1, 2010, RLH signed a written loan purchase agreement ("the loan purchase agreement" or "the agreement") to purchase the debt from PBT for $4.93 million. The agreement contained a confidentiality provision prohibiting disclosure of the agreement or its terms. The parties did not disclose the agreement to Rumsey or to the bankruptcy court.

         On February 1, 2011, PBT refused to close on the loan purchase agreement. On March 15, RLH sued PBT to enforce the agreement. As explained below, this lawsuit eventually settled. The parties did not inform Rumsey about the lawsuit.

         3. Rumsey's Bankruptcy Auction

         In early March 2011, the bankruptcy court approved the sale and notice procedures to auction the property. On March 31, 2011, RLH submitted a $4 million stalking horse bid.[2] The same day, PBT submitted a credit stalking horse bid, which did not offer new money but agreed to reduce Rumsey's debt by $5 million. Rumsey selected PBT's bid as the stalking horse.

         Shortly after Rumsey selected PBT as the stalking horse bidder, RLH's counsel e-mailed PBT regarding the pending lawsuit with RLH. He noted that "[t]he indications that RLH has received from [Rumsey's] marketing agent are that RLH was the second place contender to be the stalking horse and no other offers were really in the ball park." App. at 949. He then added,

[PBT] and [RLH] may turn out to be the only two horses in this race. If that should come to pass, there may be some avenues for a consensual resolution of the disputes between our clients . . . . Naturally, collusive bidding is inappropriate and I'm not suggesting anything like that, but the bankruptcy court might be a good forum for a global resolution.

Id. PBT's counsel responded that it did "not want to create the appearance or impression of any sort of impropriety or collusive bidding to which . . . some other interested party could object pursuant to Section 363(n) of the Bankruptcy Code." Id. at 1019. It therefore suggested that "until the auction and sale process is concluded, . . . it would be unwise to engage in any dispute resolution or settlement discussions, of any nature, which may involve the property to be sold at the auction or the underlying loan documents held by [PBT]." Id.

         On May 11, 2011, Rumsey auctioned the property. RLH did not participate in the auction. Confluence Resource Holdings, LLC ("Confluence") placed the winning bid.

         On May 25, 2011, Rumsey submitted a Proposed Sale Order, which contained the following representation:

The Debtor and each Successful Bidder and the Back-Up Bidder have fully disclosed all consideration to be given by each Successful Bidder and the Back-Up Bidder and all other agreements or arrangements entered into by each Successful Bidder and the Back-Up Bidder in connection with the sale of the Assets.

Id. at 963. RLH and PBT both received copies of the Proposed Sale Order, but neither disclosed their loan purchase agreement or lawsuit.

         The bankruptcy court entered the Proposed Order on June 17, authorizing Confluence as the successful bidder and PBT as the back-up bidder. In August, Confluence announced it would not proceed with closing. As a result, Rumsey accepted PBT's back-up bid.

         4. Defendants' Settlement Agreement

         On September 13, 2011, RLH and PBT agreed to settle their lawsuit. As part of their settlement, they agreed that after PBT acquired the property through the bankruptcy sale, it would sell the property to RLH for $4.75 million. On September 20, the parties entered a contract formalizing this agreement.

         5. Sale to PBT and Later Transfer to RLH

         On October 4, 2011, PBT moved the bankruptcy court to approve transfer of the property from Rumsey to PBT. In the motion, PBT represented that the property was "free and clear of all liens, encumbrances, claims, and interests." Id. at 1021. PBT provided a non-exhaustive list of liens and encumbrances but did not disclose the loan purchase agreement or settlement with RLH. The bankruptcy court's proposed Supplemental Sale Order also did not mention the loan purchase agreement, and it specified that "[t]he acquisition of the Assets is undertaken by [PBT] without collusion and in good faith." Id. at 1034. Both RLH and PBT received copies of the Order, which the bankruptcy court entered on October 6, 2011, thereby transferring the property to PBT. On October 13, PBT conveyed the property to RLH.

         6. Discovery of Defendants' Loan Purchase Agreement and Settlement

         PBT and RLH never disclosed their loan purchase agreement, lawsuit, or settlement to Rumsey, and Rumsey did not learn of the agreement until 2015. Rumsey stated that "the [agreement] and subsequent efforts to enforce it had the effect of limiting RLH's bid to the amount agreed to by RLH and PBT," and that it "would have objected to credit bidding as a part of the sale process if it had known of the [agreement]." Id. at 964.

         The following table summarizes the events described above.

Events Relating to Sale of The Property Events Relating to Loan Purchase Agreement
01/15/2010 Rumsey files for bankruptcy.
03/08/2010 RLH offers to purchase the property for approximately $7.5 million.
09/03/2010 Bankruptcy court denies Rumsey’s motion to approve sale to RLH.

12/01/2010 RLH signs agreement to purchase debt from PBT for $4.93 million.
02/01/2011 PBT refuses to close on loan purchase agreement.
03/02/2011 Bankruptcy court approves sale and notice procedures for bankruptcy auction of the property.

03/15/2011 RLH sues PBT to enforce loan purchase agreement.
03/31/2011 RLH and PBT submit stalking horse bids. Rumsey selects PBT as the stalking horse.
05/11/2011 Rumsey auctions the property. Confluence places winning bid.
05/25/2011 Rumsey submits Proposed Sale Order specifying parties have disclosed agreements related to the property.
06/17/2011 Bankruptcy court enters Proposed Sale Order designating Confluence as winning bidder and PBT as back-up bidder.
08/15/2011 Confluence backs out of sale, leaving PBT as winning bidder.

09/13/2011 RLH and PBT agree to settle lawsuit; parties agree that PBT will transfer the property to RLH for $4.75 million.
09/20/2011 RLH and PBT enter contract formalizing settlement and sale from PBT to RLH.
10/04/2011 PBT files motion to transfer the property from Rumsey to PBT. It represents that property is free of liens and encumbrances and that acquisition of assets was undertaken without collusion.
10/06/2011 Bankruptcy court enters Supplemental Sale Order transferring the property to PBT.

10/13/2011 PBT transfers the property to RLH.

         B. Procedural Background

         1. Adversarial Proceeding Against RLH and PBT

         In 2015, Rumsey initiated an adversarial proceeding against Defendants in bankruptcy court. Its complaint alleged Defendants "entered into a secret collusive agreement which had the effect of corrupting the bidding mechanism approved by the Court." Id. at 442. Specifically, Rumsey noted RLH initially offered to purchase Rumsey Farm from it for approximately $7.5 million and later agreed to purchase PBT's loan for $4.9 million.[3] Rumsey alleged that the loan purchase agreement between RLH and PBT was "[a] 'secret deal' [that] allowed [RLH] to acquire the Rumsey Farm for a savings of $2.5 million based on the price that they originally bid" and "deprived [Rumsey's] creditors of . . . $2.5 million." Id. at 443.

         2. Bankruptcy Court Proceedings

         The bankruptcy court re-opened Rumsey's bankruptcy case, and Rumsey filed an amended complaint asserting six causes of action: (1) fraud on the court (against Defendants), (2) violation of 11 U.S.C. § 363(n)'s prohibition of collusive bidding activities (against Defendants), (3) breach of contract (against PBT), (4) negligence (against Defendants), (5) fraudulent concealment (against Defendants), and (6) breach of the duty of good faith and fair dealing (against PBT). On the § 363(n) claim, Rumsey requested two alternative forms of relief: "that the Bankruptcy Court avoid the sale" or "[i]n the alternative, . . . that PBT and RLH be required to pay damages in the amount by which the value of the property sold exceeds the price at which such sale was consummated . . . ." Id. at 519.

         RLH and PBT filed separate motions to dismiss for failure to state a claim. The bankruptcy court denied the motions, finding Rumsey had "alleged facts supporting a conclusion" that PBT and RLH "reached a secret understanding or agreement regarding the sale of [Rumsey's] Assets, which agreement improperly lowered the ultimate sale price." Id. at 689. The court also found Rumsey "alleged sufficient facts to support a conclusion that the agreement between RLH and [PBT] controlled the bidding price for the sale of the property. Id. at 691.

         3. District ...

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