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stay relief and secretly bought estate property at foreclosure sales. Defendants were partners in 13 commercial real estate partnerships that filed Chapter 11 petitions. The properties were profitable and had equity, so defendants breached their duty of loyalty when they consented to stay relief, in effect a representation that foreclosure was in the estates' interests. Defendants also breached the duty of loyalty when they secretly bid at the foreclosure sales through an entity they controlled. The purchase price was significantly below the appraised value of the properties. After the properties were sold, the bankruptcy court converted the case to Chapter 7 and appointed a trustee, who initiated adversary proceedings against the defendants seeking to recover damages for defendants' breach of their fiduciary obligations. Defendants argued that the adversary proceedings were impermissible collateral attacks on the foreclosure sales where defendants had taken title that was good against the world. The court found that Fed. R. Bankr. P. 9024 did not apply because the trustee was not seeking to set aside the orders confirming the sales but was, instead, seeking to recover from defendants for breach of fiduciary duty. Defendants also argued that they did not owe a duty of loyalty because the properties ceased being property of the estates when stay relief was granted. The court disagreed, finding that the properties remained property of the estates because lifting the automatic stay merely removes an injunction barring creditors from taking certain actions and does not abandon the interest of the estate in the property. Since the defendants failed to prove that the transaction was fair and reasonable, the bankruptcy court properly found that defendants breached the duty of loyalty and imposed a constructive trust. Since the foreclosure sales themselves were breaches of fiduciary duty because the properties were profitable to the estates, the constructive trust included not only the amount by which defendants underpaid at the time of the foreclosure sales but also the profits they received when they sold the properties years later.)
Thacker v. Federal Commc'ns Comm'n (In re Magnacom Wireless, LLC), 503 F.3d 984 (9th Cir. Sept. 17, 2007) (Proceeds of sale by Federal Communications Commission of spectrum formerly licensed to debtor did not become property of the estate. The FCC had obtained relief from the stay to terminate debtor's licenses, and no one took the position that S 525 prevented the termination. Chapter 7 trustee argued that the proceeds of the new licenses for the same spectrum became property of the estate under S 541. The court disagreed. Under applicable non-bankruptcy law, a licensee is allowed to use spectrum but does not own it. Accordingly, the FCC's sale of new licenses for the use of spectrum to which debtor no
