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In re Sugarloaf Holdings, LLC

In re Sugarloaf Holdings, LLC

United States Bankruptcy Court for the District of Utah

February 16, 2022, Decided

Bankruptcy Number: 18-27705, Chapter 11

Opinion

MEMORANDUM DECISION ON FARMS, LLC'S MOTION TO AMEND SALE ORDER (DOCKET NO. 415)

The Chapter 11 trustee sold the Debtor's farm assets under § 363(f). The sale included a water right subject to a pre-petition, state court forfeiture action for nonuse. The purchaser asserts that the free and clear sale vitiated the forfeiture action. In counterpoint, the plaintiffs to the forfeiture action assert that: (1) the sale motion did not provide adequate notice regarding the water right or the forfeiture action; (2) the sale motion neither asserted nor established a basis to sell the water right free and clear under § 363(f); and (3) the forfeiture action is not a property interest that can be affected by § 363(f). The purchaser brought this motion to amend the sale order to state that the water right was sold free and clear of the [*2]  forfeiture action. For the reasons set forth herein, the Court finds that the water right remains subject to the forfeiture action.

I. FACTS

1. Property of the bankruptcy estate consisted of a 7,000-acre farm in central Utah that included multiple water rights, personal property, farm equipment, and grazing leases (the "Farm").

2. One of the many water rights associated with the Farm is WRN 67-1752 (the "Water Right") that was accessed through a well on the Farm property until road construction buried it in 1990.1

3. On May 17, 2017, Leslie Mascaro ("Mascaro") filed with the Utah Division of Water Rights a Report of Conveyance asserting a one-fourth interest in the Water Right.2

4. On August 25, 2017, the Debtor filed a complaint in the Utah state court contesting Mascaro's claim to the Water Right and seeking to quiet title in the Debtor's name (the "Quiet Title Action").3

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2022 Bankr. LEXIS 388 *; 2022 WL 479606

In re: SUGARLOAF HOLDINGS, LLC, Debtor

CORE TERMS

water rights, forfeiture action, Farms, free and clear, Parties, notice, preliminary injunction, state court, sale order, asserts, liens, motion to amend, sell water, extinguished, proceeds of sale, purchaser, bankruptcy court, right to use, state law, rights, secured creditor, adequate notice, beneficial use, quiet title, consents, reasons

Bankruptcy Law, Administrative Powers, Estate Property Lease, Sale & Use, Sale of Estate Property, Sales Free of Interest, Discharge & Dischargeability, Exceptions to Discharge, Automatic Discharge & Determinations, Constitutional Law, Fundamental Rights, Procedural Due Process, Scope of Protection, Real Property Law, Bankruptcy, Sales, Types of Claims, Secured Claims & Liens, Rights of Secured Creditors, Financing, Foreclosures, Judicial Foreclosures, Commencement of Case, Involuntary Cases, Prerequisites for Commencement, Evidence, Burdens of Proof, Allocation, Standing, Governments, State & Territorial Governments, Property, Water Rights, Water Rights, Appropriation Rights, Beneficial Use, Administrative Allocations, Water Dispute Procedures, The Judiciary, Congressional Limits, Civil Procedure, Preclusion of Judgments, Full Faith & Credit, Enforcement of Judgments, Relations Among Governments, Full Faith & Credit, Rooker-Feldman Doctrine, Full Faith & Credit Statutes, Remedies, Injunctions, Preliminary & Temporary Injunctions