Appeal from the United States Bankruptcy Court for the Eastern District of California Honorable David E. Russell, Bankruptcy Judge, Presiding Bk. No. 08-28230-MM Adv. No. 09-02730
U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
Argued and Submitted on November 16, 2011 at Sacramento, California
Filed - December 16, 2011
Before: KIRSCHER, DUNN, and JURY, Bankruptcy Judges.
Appellants, chapter 7*fn2 trustee Michael F. Burkart 2 ("Trustee") and Susan Vineyard ("Vineyard")(collectively 3 "Trustee"), appeal a bankruptcy court judgment in favor of 4 defendants, appellees Robert Kupka ("Robert") and Cynthia Kupka 5 ("Cynthia")(collectively "Defendants"), on Trustee's action for 6 declaratory relief regarding debtor's rights under an option to 7 purchase real property owned by Defendants. We AFFIRM.
I. FACTUAL AND PROCEDURAL BACKGROUND
Debtor, Dead Oak Estates, Inc. ("Dead Oak"), is a Delaware 11 corporation originally incorporated on June 7, 1982. Dead Oak's 12 name was changed to Hangtown Leasing Company by amendment filed 13 on July 11, 1986 ("Hangtown"). Dead Oak's name was changed back 14 to Dead Oak Estates, Inc. by amendment filed on April 4, 2002. 15 Phil Sheridan ("Sheridan") owned and operated a small 16 charter airline, Galaxy Airlines ("Galaxy"), located in Fort 17 Lauderdale, Florida. In January 1985, a Galaxy flight crashed in 18 Reno, Nevada, killing 70 of the 71 persons on board. Shortly 19 after the crash, the U.S. Department of Transportation ("DOT") 20 suspended Galaxy's operational certificate. Sheridan's efforts 21 to reinstate the operational certificate were unsuccessful, and 22 he decided to sell Galaxy.
In 1987, Sheridan entered into a Stock Purchase Agreement
("Agreement") transferring his 100% interest in Galaxy to John 2 Kupka ("John") and John's assigns, in exchange for: a promissory 3 note to Sheridan in the amount of $400,000, an agreement to pay 4 Sheridan's debt to Cardinal Corporation in the amount of 5 $900,000, and payment of Galaxy's 941 tax obligation to the IRS. 6 John's "assigns" were Hangtown n/k/a Dead Oak, one of several 7 corporations controlled by John through the Kupka Family Trust, 8 and William and Tammy Tsui (collectively "buyers"). In October 9 1987, the buyers attempted to rescind the Agreement for, inter 10 alia, Sheridan's failure to disclose the correct amount of the 11 IRS's tax lien, and the buyer's inability to reinstate the 12 operational certificate with the DOT.*fn3 Sheridan rejected the 13 rescission notice.
In 1988, Sheridan sued the buyers in a Florida federal court 15 for specific performance of the Agreement. While the suit was 16 pending, Sheridan filed for chapter 7 bankruptcy. In August 17 1993, the Florida court entered a default judgment in favor of 18 Donna Bumgardner, Sheridan's chapter 7 trustee, and Cardinal Corporation (the third-party beneficiary to the Agreement) and 2 against John, Hangtown, and the Tsuis (the "Sheridan Judgment"). 3 In 1995, Marika Tolz succeeded Donna Bumgardner as trustee for 4 Sheridan's estate. In 1996, the bankruptcy court approved 5 trustee Tolz's employment of co-plaintiff Vineyard as collection 6 agent for the Sheridan Judgment. In 2000, Vineyard filed a 7 chapter 7 bankruptcy. John filed a chapter 7 bankruptcy in 2001.
8 In 2001, Cardinal Corporation assigned its portion of the default 9 judgment (about $1.4 million plus interest) to the trustee of 10 Vineyard's bankruptcy estate. In 2003, the bankruptcy court 11 entered an order approving the trustee's abandonment of 12 Vineyard's estate's interest in the Sheridan Judgment back to 13 Vineyard. After years of having no success in collecting on the 14 Sheridan Judgment, in May 2005, trustee Tolz filed a notice of 15 intent to abandon Sheridan's portion of the Sheridan Judgment 16 (about $600,000 plus interest) back to Sheridan. In July 2005, 17 Sheridan affirmed and assumed the assignment agreement between 18 trustee Tolz and Vineyard for collection of the Sheridan 19 Judgment.
Vineyard filed an involuntary chapter 7 petition against 22 Dead Oak on June 20, 2008. John is the principal of Dead Oak.*fn4 23 Upon no objection, an order for relief was entered in August 24 2008. Two proofs of claim were filed in Dead Oak's case, 25 including a general unsecured claim by Vineyard for $5,955,000 based in part on the Sheridan Judgment. On August 21, 2009, the 2 bankruptcy court approved a compromise authorizing the joint 3 prosecution (at Vineyard's expense) of the estate's Option to 4 purchase real property owned by Defendants in Acampo, California, 5 commonly known as Lodi Airport for $1.8 million, and providing 6 for a division of any net recovery to Vineyard and the estate's 7 other creditors. In September 2009, pursuant to an order based 8 on Dead Oak's failure to file documents, Vineyard filed schedules 9 and a statement of financial affairs on behalf of Dead Oak. In 10 those documents, Vineyard identified the Option as property of 11 the estate.
12 On November 11, 2009, Trustee filed a declaratory relief 13 action against Defendants seeking a determination that Dead Oak's 14 Option was valid. Attached to the complaint was a copy of the 15 Option, dated November 10, 1986, which stated:
16 The following is an option, with first right of refusal, given to Hangtown Leasing Company, a Delaware Corporation 17 to purchase all that real property described in exhibit "A" attached, commonly known as Lodi Airport situated in 18 Acampo, California. Option price is One million, eight hundred thousand dollars. ($1,800,000.00).
The Option reflected the signatures of Robert and Cynthia in 21 their individual capacities as co-owners of Lodi Airport.
22 Trustee alleged that Defendants never revoked the Option, and it 23 did not limit Dead Oak's right to exercise it to any specific 24 time period or describe a particular manner in which it must be 25 exercised. Defendants disputed the validity of the Option, thus 26 explaining Trustee's need for declaratory relief.
Defendants moved to dismiss Trustee's complaint on 28 December 15, 2009. In their motion, Defendants denied knowing 1 about the unrecorded Option until Vineyard's counsel brought it 2 to their attention in February 2008. Defendants denied ever 3 agreeing to the Option and asserted that they had never received 4 any payment with respect to or on account of it. The motion also 5 referred to a letter sent by Defendants's counsel to Trustee on 6 May 11, 2009. In the letter, attached to Robert's Declaration in 7 support of the motion, counsel asserted that Robert's and 8 Cynthia's signatures on the Option had been forged, and that the 9 Option was never signed by either of them. Defendants's motion 10 was denied on January 20, 2010. They filed an answer on 11 February 2, 2010. Defendants subsequently filed two motions for 12 summary judgment, both of which were denied.
13 Two days before trial, Trustee filed his trial brief and a 14 motion in limine to exclude certain evidence of Defendants. In 15 his brief, Trustee conceded that he was not convinced Cynthia 16 personally signed the Option based on the opinions of the 17 handwriting experts employed by both parties. However, contended 18 Trustee, their expert's analysis of Cynthia's questioned 19 signature was limited due to Defendants's unwillingness to 20 produce known signature exemplars for her for the period from 21 1985 to 1990.*fn5 As for Robert's questioned signature, Trustee's 22 expert concluded that it was probably genuine. Based on the 23 expert's findings, Trustee contended that it was more probable 24 than not that Robert signed both his own signature and Cynthia's 1 signature, either mechanically or at her direction, or in his 2 capacity as her authorized agent. Cynthia had admitted at 3 deposition that Robert handled the day-to-day operations of Lodi 4 Airport, that she had little involvement with it, and that she 5 deferred to Robert's judgment on documents to be executed on 6 their behalf.
7 In his motion in limine, Trustee disputed the admission of a 8 statement by Robert in his Alternate Direct Testimony ("ADT").
9 In the ADT, Robert asserted that upon showing John a copy of the 10 Option in February 2008, John told Robert that he recognized the 11 document and stated that he had forged the signatures so the 12 Option would appear to be an asset for purposes of his 13 application to acquire Galaxy and DOT approval. Trustee 14 contended Robert's statement was inadmissible hearsay being 15 offered for the first time on the eve of trial to exculpate 16 Defendants. Moreover, John had since passed away so Trustee was 17 unable to question him about it. Alternatively, ...