In re Parsons

In re: Jeffrey M. Parsons, Debtor.

Jeffrey M. Parsons, Plaintiff, v. Mark Parsons, Trustee of the Frances H. Parsons Living Trust, et al., Defendants.

No. 18-12462-12

Adversary No. 21-5002

United States Bankruptcy Court, D. Kansas

November 23, 2021

MEMORANDUM OPINION AND ORDER GRANTING MOTION FOR SUMMARY JUDGMENT

Dale L. Somers, Judge.

Plaintiff/Debtor Jeffrey M. Parsons is the owner of an undivided partial interest in four large tracts of real property in Texas. Debtor filed a Chapter 12 petition several years ago but has become delinquent in plan payments and seeks to sell his and the co-tenants' interests in the property under 11 U.S.C. § 363(h).^[1] Seven of the eight co-owners oppose the sale, relying on subsection (h)(4) of § 363, which prohibits such sales if the property is "used in the production, transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat light, or power."

Debtor moves for summary judgment, arguing the only basis for opposing the proposed sale is invalid as a matter of law.^[2] The opposing co-owners counter there is a material issue of fact precluding summary judgment on the applicability of subsection (h)(4).^[3] Because the Court concludes Debtor is entitled to pursue a sale under § 363(h) even if the facts are as the opposing co-owners contend, and therefore the dispute of fact is immaterial, the Court concludes Debtor is entitled to judgment as a matter of law. The Court therefore grants Debtor's motion for summary judgment.^[4]

I. Findings of Fact

Debtor filed a Chapter 12 petition on December 28, 2018. In his petition, Debtor disclosed no interest in real property ^{other than his [5]} Debtor disclosed an interest in four tracts of real estate in Lipscomb County, Texas. Specifically, per an appraisal attached as Exhibit 3 to the amended plan, Debtor has a 20% undivided interest in 2536 acres in Lipscomb County, Texas.^[6] The confirmation order for the amended plan notes the Texas property is security for two lenders: Conway Bank and First National Bank of Hutchinson.^[7] Debtor's interest in the Texas property has an agreed value of $315, 000, and Debtor planned to make yearly payment of $25, 276.41, beginning August 1 2020, on the claims secured by the Texas property. Debtor has become delinquent on his plan payments.^[8]

On January 22, 2021, Debtor filed an adversary proceeding seeking sale of the non-debtor co-tenants' interest in the property under § 363(h).^[9] The Texas property is owned in co-tenancy, with the partial interests divided as follows:

1/5^th Debtor (Jeffrey Parsons)

1/5^th Mark Parsons, Trustee of the Frances H.

Parsons Revocable Trust

1/5^th Michelle Kelly Weins, Trustee of the Michelle Kelly Weins Trust

1/15^th Robert and Marjory Burchfiel

1/15^th Dennis Burchfiel

S1/15^th James Burchfiel

1/15^th Darlyne Burchfiel, Trustee of the Darlyne M. Burchfiel Trust

1/15^th Mary Louise Jensen

1/15^th Daniel and Marian Burchfiel, Trustees of the Daniel and Marian Burchfiel Trust

Defendants Conway Bank^[10] and First National Bank of Hutchinson^[11] filed answers indicating they did not object to the proposed sale. Debtor reported to the Court that the answer of Defendant Mark Parson, Trustee of the Frances H. Parsons Revocable Trust, ^[12] objecting to the sale had been resolved.^[13] The complaint therefore proceeds against the following Defendants who are co-owners of the property: (1) Michelle Kelly Weins, Trustee of the Michelle Kelly Weins Trust; (2) Robert and Marjory Burchfiel; (3) Dennis Burchfiel; (4) James Burchfiel; (5) Darlyne Burchfiel, Trustee of the Darlyne M. Burchfiel Trust; (6) Mary Louise Jensen; and (7) Daniel and Marian Burchfiel, Trustees of the Daniel and Marian Burchfiel Trust. Hereinafter, the Court will refer to these Defendants as the co-owners.

In his motion for summary judgment, Debtor asserts, through citation to discovery responses and an expert report, that partition of the Texas property would be impracticable, sale of Debtor's estate's undivided interest in the Texas property would realize significantly less for the estate than the sale of the Texas property free of the interests of the co-owners, and the benefit to Debtor's estate of the sale of the Texas property free of the interests of the co-owners outweighs the detriment to the co-owners.^[14] The co-owners do not counter these facts.

Addressing subsection (h)(4) of § 363, Debtor's motion for summary judgment asserts the Texas property is not used in the production, transmission, or distribution for sale of electric energy or natural gas for heat, light, or power. The co-owners counter with an affidavit from one co-owner that the Texas property "has been producing natural gas [] which has sold upstream for decades, with proceeds from such sales being distributed to the various heirs/defendants."^[15] The affidavit references what appears to be a summary of payments to the co-owner from Melbourne Oil Co., purporting to evidence gas sales on certain acres, although it is undated and few II. Analysis

Adversary proceedings concerning the sale of property and liquidation of assts of the estate are core proceedings under 28 U.S.C. § 157(b)(2)(N) and (O), over which this Court may exercise subject matter jurisdiction.^[16]

A. Summary Judgment Standards

Federal Rule of Civil Procedure 56 requires a court to grant summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."^[17]When analyzing a summary judgment motion, the Court draws all reasonable inferences in favor of the non-moving party.^[18] An issue is "genuine" if "there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way."^[19] "Material facts" are those that ^[20]

The moving party bears the initial burden of demonstrating-by reference to pleadings, depositions, answers to interrogatories, admissions, or affidavits-the absence of genuine issues of material fact.^[21] If the moving party meets its initial burden, the nonmoving party cannot prevail by relying solely on its pleadings.^[22] "Rather, the nonmoving party must come forward with specific facts showing the presence of a genuine issue of material fact for trial and significant probative evidence supporting the allegation."^[23] Under this Court's Local Bankruptcy Rules, "[t]he court will deem admitted . . . all material facts contained in the statement of the movant unless the statement of the opposing party specifically controverts those facts."^[24]

In response to Debtor's motion for summary judgment, the co-owners respond to only one statement of fact propounded by Debtor, concerning the use of the Texas property in the production of natural gas. As a result, the Court deems admitted all material facts contained in Debtor's motion that are supported "by affidavit, declaration under penalty of perjury, and/or through the use of relevant portions of pleadings depositions, answers to interrogatories and responses to requests for admissions."^[25] The Court's analysis focuses on whether the uncontroverted facts entitle Debtor to favorable judgment as a matter of law.^[26]

B. Section 363(h)

Section 363(h) permits "the trustee" ^[27] to sell both the estate's interest . . . and the interest of any co-owner in property in which the debtor had, at the time of the commencement of the case, an undivided interest as a tenant in common, joint tenant, or tenant by the entirety." But these sales may proceed "only if" the following statutory conditions are met:

(1) partition in kind of such property among the estate and such co-owners is impracticable;

(2) sale of the estate's undivided interest in such property would realize significantly less for the estate than sale of such property free of the interests of such co-owners;

(3) the benefit to the estate of a sale of such property free of the interests of co-owners outweighs the detriment, if any, to such co-owners; and

(4) such property is not used in the production, transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat, light, or power.

The movant under § 363(h) has the burden to prove each element of the statute.^[28]

All four elements of § 363(h) must be shown before a proposed sale can be authorized.^[29] In this proceeding, the first three elements are established by the co-owners' failure to respond to the asserted facts establishing those elements in the motion for summary judgment. Each asserted fact is properly supported by reference to underlying documents. Debtor responds only to the facts concerning the applicability of subsection (h)(4), concerning the use of the property in the production of natural gas. Therefore, only the fourth element is in dispute, namely, whether the Texas property is "used in the production, transmission, or distribution, for sale, of electric energy or of C. The Limited Protection of Subsection (h)(4)

Debtor asserts the co-owners' reliance on the fact that there are oil and gas wells located on the Texas property is insufficient as a matter of law to satisfy subsection (h)(4). The co-owners respond that the production of natural gas for sale upstream is sufficient to meet subsection (h)(4)'s bar to sales under § 363(h).^[30]

This Court starts its analysis with the statute's structure and the plain meaning of the words used in the Code.^[31] The purpose of § 363(h) is to address the problem in bankruptcy that arises "when fewer than all co-owners of property have filed for bankruptcy protection."^[32] The Code provides a mechanism to realize the bankruptcy estate's interest in property owned as a tenant in common, a joint tenant, or tenant by the entirety, but...