United States District Court, W.D. Wisconsin
BRIAN J. KELLY, Debtor, and PAUL KELLY, Creditor, Appellants,
PETER F. HERRELL, Trustee, Appellee.
OPINION AND ORDER
BARBARA B. CRABB DISTRICT JUDGE
case arises out of an involuntary petition filed on December
12, 2002 under chapter 7 of the Bankruptcy Code against
debtor Brian Kelly. Over the past 15 years, the appellants,
Kelly and his father, Paul Kelly, have filed numerous appeals
in the Bankruptcy Court for the Western District of
Wisconsin, this court and the Court of Appeals for the
Seventh Circuit. Now before the court is their appeal of an
order entered by the bankruptcy court on October 5, 2017,
allowing trustee Peter Herrell to sell a farm allegedly owned
by Brian Kelly to the Jerry Johnson Revocable Trust. Dkt. #2.
sole issue raised in the appeal is whether the bankruptcy
court entered the October 2017 order without proper notice
and a fair hearing, in violation of appellants' rights
under the due process clause. For the reasons explained
below, I am dismissing the appeal.
following facts are drawn from the bankruptcy court record
(Bankr. dkt.), Bankr. Case No. 02-18037, unless noted
otherwise. Because this case has an exhaustive procedural
history spanning more than 15 years, only those events
relating to the issues raised on appeal are summarized below.
January 10, 2017, Peter Herrell, the Chapter 7 bankruptcy
trustee, filed a motion in the bankruptcy court seeking
authority under sections 105, 363 and 365 of the bankruptcy
code to sell real estate purportedly owned by Brian Kelly to
the Jerry Johnson Revocable Trust for the sum of $44, 000,
free and clear of all liens, claims, encumbrances and
interests, except for real estate taxes. Bankr. dkt. #335.
The trustee specifically requested that the bankruptcy court
find the sale to be a legal, valid and effective transfer of
the real estate, the real estate is owned solely by the
debtor and there are no other persons or entities having any
rights or interests in the real estate in accordance with 11
U.S.C. § 363(f) and the buyer is purchasing the property
in good faith in accordance with 11 U.S.C. § 363(m).
Id. Accompanying the motion was a notice to
appellants and other potentially interested parties, stating
that they had 21 days to file a request for a hearing and a
written response. Id.
January 31, 2017, appellants filed an objection to the sale,
arguing that (1) the events leading up to the involuntary
petition, the involuntary petition itself and the subsequent
involuntary proceeding were all tainted with fraud; and (2)
because Paul Kelly purchased the real estate and placed the
title in his son Brian's name while Paul occupied it as
his residence and operated the farm, Paul has an interest in
the real estate based on a “right of adverse
possession” that precludes a sale under 11 U.S.C.
§ 363(f). Bankr. dkt. #336, #357 at 3. Appellants also
requested a hearing on the matter. The bankruptcy court held
a preliminary telephonic hearing on March 8, 2017, at which
the parties agreed to submit written briefs on the motion to
sell the property. Bankr. dkt. #349.
considering the lengthy briefs filed by the trustee,
appellants and other parties, bankr. dkt. ##350-57, the
bankruptcy court issued a written decision on October 5,
2017. Bankr. dkt. #357. The bankruptcy court declined to
consider appellants' fraud arguments, concluding that
they had been raised and ruled on in previous bankruptcy
proceedings and were referred to on appeal in the United
States District Court for the Western District of Wisconsin
and the Court of Appeals for the Seventh Circuit.
Id. at 3-4. (Neither this court nor the court of
appeals has ruled on the merits of the fraud claims because
the bankruptcy court has not yet issued a final appealable
order in this case. Id.; W.D. Wis. case no.
13-cv-633-bbc, dkt. #21.) With respect to appellants'
second objection to the sale, the bankruptcy court found that
Paul Kelly did not have title to the real estate or a right
to the property by adverse possession. Bankr. dkt. #357 at
4-5. However, the bankruptcy court noted that the United
States trustee alleged that Paul and Patricia Kelly may have
some interest in the property.
the bankruptcy court rejected both of appellants'
objections to the sale of the property, it determined that
the specific conditions requested by the trustee under 11
U.S.C. §§ 363(f) and (m) could not be granted. In
support of his position that the property was free and clear
of all liens, claims and encumbrances, the trustee relied on
a report from a title company and a 2009 state court decision
in a fraudulent transfer action, ordering the property
returned to Brian Kelly. However, the bankruptcy court found
that neither the title report nor the state court judgment
made it clear whether there were any liens, claims or
encumbrances attached to the real estate, including any
interest that may be held by Paul Kelly. The bankruptcy court
also noted that although the parties had agreed that the
motion for approval of the sale be decided on briefs without
an evidentiary hearing, a review of the record revealed that
there were questions of fact as to the status of the title
that could be determined only after an evidentiary hearing.
However, it concluded that ordering an extensive evidentiary
hearing to make the findings necessary to satisfy 11 U.S.C.
§§ 363(f) and (m) would contravene the court of
appeals' admonishment that this case had consumed too
many resources and should be resolved expeditiously.
Kelly v. Herrell, 602 Fed.Appx. 642, 647 (7th Cir.
2015) (“This case has consumed far more
resources-judicial and otherwise-than it should have. We
trust that the bankruptcy court will now be in a position to
resolve it expeditiously.”). The bankruptcy court also
noted that the status of the property's title was an
issue best left for the state courts. Bankr. dkt. #357 at
end, the bankruptcy court declined to approve the sale of the
property under 11 U.S.C. § 363(f) and make the findings
that the trustee requested. However, it concluded that
“the [t]rustee should be authorized to sell the real
estate to the proposed purchaser pursuant to a trustee's
deed, subject to all liens, claims, and encumbrances and
without the requested findings” and that “[t]he
proposed purchaser can decide if the conveyance is sufficient
to give it the title it needs” or “whether it
wants to go forward with the purchase and resort to a state
court action to clear title, or to forgo the purchase.”
Bank. dkt. #357 at 9.
preliminary matter, it is necessary to address the role of
Paul Kelly in this case. In ruling on a prior appeal filed by
Brian and Paul Kelly in the underlying bankruptcy case, the
Court of Appeals for the Seventh Circuit held that
Kelly's father, Paul Kelly (who has a law degree but was
disbarred in Wisconsin in 1982), not only signed the notice
of appeal but also his son's appellate briefs. Yet as far
as we can tell, the senior Kelly does not have a cognizable
interest in the Chapter 7 estate. He calls himself a
creditor, but that characterization is questionable. He did
not file a claim against the estate, nor is he identified as
a creditor on the Claims Register. Neither can we find
anything in the record from Brian Kelly indicating that his
father was one of his creditors at the time the Chapter 7
case was filed. Paul Kelly first surfaced in December
2011-nine years after the involuntary petition was filed-when
he objected to the settlement with the trustee. At the
hearing in 2013 on the debtor's motion to vacate the
transfer to a different bankruptcy judge, the senior Kelly
participated in the conference, “appearing
personally.” The bankruptcy and district courts seem to
have tolerated this shadowing of his son, but Kelly's
father was not legitimately involved in the bankruptcy case
and is not a proper appellant. In addition to these serious
flaws, Paul Kelly has not explained how the district
court's decision or any ruling of the bankruptcy court
injured him in a way that we ...