The Horse That Wasn’t There: When the Petition Says “Yes” and the Bell Says “No”

The following is a case update written by Hale Andrew Antico, Chief Counsel of Antico Law Firm, analyzing FAB 5 LLC v. Dye (In re FAB 5 LLC),  2025 WL 2556098 (B.A.P. 9th Cir. Sep 5, 2025).

Summary

In In re FAB 5, the BAP affirmed the bankruptcy court’s determination that FAB 5 owned the horses at filing was not clearly erroneous, applying judicial estoppel to bar FAB 5’s later denial of ownership, and in the alternative, holding that the sale was protected under 11 USC § 363(m) with good faith purchasers, thereby making FAB 5’s appeal moot. Finally, the BAP rejected the claim of due process violation, noting the debtor’s failure to provide evidence.

To view the full decision, click here.

Facts

In July 2024, five stallions and two geldings were grazing at Tucalota Creek Ranch (TCR) and were involved in a pending state court lien sale. FAB 5 LLC filed an incomplete Chapter 11 petition through attorney Carolyn Lindholm (“Carolyn”). The seven-page filing identified only two creditors and listed “perishable assets” at TCR, later understood to refer to the horses.

FAB 5’s failure to file required schedules and documents triggered conversion to Chapter 7. Following conversion to Chapter 7 in August 2024, the court appointed Carolyn Dye (“Dye”) as trustee. Dye moved to sell the horses, relying on statements made by FAB 5 through principals Carolyn Lindholm and husband Robert, both before and after filing the petition, in contracts, pleadings, and declarations.

FAB 5, still represented by Carolyn, opposed the sale, abruptly reversing course post-conversion, claiming Robert retained personal ownership due to alleged title transfer failure by its deceased accountant. (Robert was identified by the bankruptcy trustee as having been found to commit bankruptcy fraud and designated a vexatious litigant in prior proceedings — factors weighing against his credibility and late ownership claim.) The court explicitly determined FAB 5 owned the horses at filing via judicial estoppel based on its prior representations and bankruptcy petition disclosures referencing perishable assets at TCR.

In October 2024, the court authorized the sale. FAB 5 failed to substantiate allegations challenging the sale’s legitimacy despite multiple opportunities, including refusing to pursue requested evidentiary hearings or present witnesses. The auction proceeded at TCR’s premises, selling the stallions while abandoning the geldings. Dye conducted the auction after consultations with equine appraisers and, due to estate insolvency, marketed through targeted equestrian networks and word-of-mouth.

Reasoning

FAB 5 appealed the sale order, and the BAP affirmed both the sale order and the finding that the purchasers qualified as good faith purchasers under 11 USC § 363(m). The BAP started by assessing whether the sale was protected by § 363(m) with good faith buyers, making the appeal moot.

Good Faith Purchasers

The Panel applied § 363(m), which provides, in pertinent part:

“The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal…

As the BAP noted, “A good faith buyer is one who buys in good faith and for value.” Paulman v. Gateway Venture Partners III, L.P. (In re Filtercorp, Inc.), 163 F.3d 570, 577 (9th Cir. 1998)” FAB 5 at *19-20.  FAB 5 had the burden under § 363(m) to demonstrate that the purchaser lacked good faith.  As the BAP wrote: “Repeatedly arguing that the auction was a sham — or was “fake” — is not evidence.” Id. at *21. The bankruptcy court’s findings of a good faith sale were supported by “ample evidence” of Dye’s sworn testimony, the sale records, and the absence of any evidence of fraud, collusion, or procedural irregularity. Id. at *20-21.

Having found they were good faith purchasers, the BAP held that the appeal was moot under § 363(m).  In the alternative, if it could reach the merits, the BAP would affirm the bankruptcy court’s decision based on its conclusion that the Debtor was judicially estopped to deny ownership of the horses. Id. at *27.

Judicial Estoppel

Under Ninth Circuit precedent, judicial estoppel applies when considering three factors: (1) a party takes clearly inconsistent positions in different proceedings; (2) the court in the first proceeding accepted or relied on the initial position; and (3) the party sought to gain an unfair advantage. Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782-83 (9th Cir. 2001), citing New Hampshire v. Maine, 532 U.S. 742 (2001). FAB 5 asserted ownership of the horses in both its petition and turnover motion. The resulting automatic stay stopped the lienholders from selling the horses pursuant to a state court lien sale. However, once the case was converted to Chapter 7, both Robert and Carolyn submitted new declarations that they were “mistaken” with the prior position, and actually, FAB 5 never owned the horses. As these positions are clearly inconsistent and were relied upon to FAB 5’s unfair advantage, judicial estoppel applies.

The Lindholms contended that the position change was the result of a simple mistake, but the bankruptcy court found this claim implausible given the timing, lack of documentation, and failure to explain how the error arose. The shift from asserting ownership to denying it coincided precisely with the threat of a sale that could have deprived them of control over the horses. This, coupled with the Lindholms being unable to explain how they came to learn of the so-called mistake, its specifics, or any documentary evidence to support the new claim, all undermined the credibility of the “simple-mistake claim.”

Ownership

Even without utilizing judicial estoppel, the Panel found sufficient evidence to support FAB 5’s ownership of the horses. The Lindholms had repeatedly and consistently represented in multiple filings, both before and after the bankruptcy petition (including in the petition itself), that FAB 5 owned the horses in contracts with TCR and in a turnover motion. No one disputed these claims of ownership. The BAP continued that, “Only after conversion of the case to chapter 7 and the filing of Dye’s motion to sell the horses did the Lindholms suddenly discover and disclose their alleged mistake as to ownership of the horses.” Id. at *31. The resulting declarations stating their belief as to Robert’s ownership were self-serving, conclusory, and incredibly convenient.” Id. at *31. The bankruptcy court rejected the Lindholms’ newly asserted claim of non-ownership as lacking credibility, and the BAP affirmed that the finding was not clearly erroneous.

Due Process

FAB 5 argued the court denied it due process, contending it lacked the opportunity to present evidence of ownership at the sale hearing. The BAP emphasized that FAB 5’s failure to submit evidence in advance or request a hearing did not constitute a denial of due process, especially given the absence of prejudice or procedural unfairness in the record. The BAP noted that FAB 5 failed to provide any evidence to support its claim: “FAB 5 had notice of the motion and the opportunity to respond. Its decision to sit on its hands and failure to present the alleged ownership documentation to the court is not a due process violation.” Id. at *34.

Author’s Commentary

Picture seven horses grazing at Tucalota Creek Ranch… their future hanging on a single bankruptcy filing. How did they get here? We’ve all heard the desperate client plea: “Can my corporation file bankruptcy?” The real question is “who owes” and here, who pays? In FAB 5, it may seem to be about assets but is instead about integrity. When a party repeatedly states claims under penalty of perjury, only to retract them when a sale threatens their interests, the system holds them accountable. Bankruptcy filings are contracts with the court, and once made, those representations can’t be casually recalled.

Key Takeaways

• Judicial Estoppel as Buttress: A party repeatedly asserting ownership to stall and obtain relief (here, stopping a sale via automatic stay) cannot later deny that same ownership simply because bankruptcy liquidation now looms. The BAP rightly affirmed the bankruptcy court’s conclusion: after asserting you own assets, you can’t retroactively “unown” them once the sale starts… especially when credibility issues exist (vexatious litigant status, fraud history). Such reversals undermine the entire system. Similarly, changing your story after filing creates inherent distrust. Integrity starts before ink hits paper.
• Evidence: FAB 5 repeatedly argued the auction was a sham, even casting doubt on its legitimacy. But as the BAP wryly observed, merely asserting something is “fake” or a “sham” isn’t evidence. It constitutes, in essence, a self-serving diatribe… a bold assertion lacking any probative weight, a procedural Traveshamockery. This raises a critical procedural safeguard: the burden of demonstrating bad faith under § 363(m) falls squarely on those alleging impropriety. Without verifiable facts, objections become precisely what the BAP identified: empty assertions.
• Finality Under § 363(m): The purchaser paid value and acted in good faith? Protected. Period. No post-sale unraveling allowed. Finality ensures the market is stable in distress sales. Without it, transactional certainty collapses. Think of this like contract law: Once executed, barring fraud, you honor the deal. Here, the auction crossed the finish line.
• The Silent Contract: What debtors don’t disclose matters too. While not central here: Silence in a petition can be binding on omission. Creditors rely on what isn’t listed as much as what is; the undisclosed lawsuit claim could be attacked post-bankruptcy. Hamilton v. State Farm Fire & Casualty Co., 270 F.3d 778, 784-785 (9th Cir. 2001). When failing to properly schedule an asset, including a cause of action, that asset continues to belong to the bankruptcy estate and does not revert to debtor. Cusano v. Klein, 264 F.3d 936, 945-946 (9th Cir. 2001). 
• Practitioner Imperative: Verify everything pre-filing. It is a challenge in emergency filings, but Rule 9011 doesn’t forgive forgotten Cessnas or assets discovered mid-race. Document marketing efforts meticulously; every step must support good faith. Trustees/purchasers, build an airtight record; § 363(m) protects only bulletproof processes.

Why It Matters

Bankruptcy exists at a unique intersection: Legitimate restructuring meets systemic safeguards against abuse. When parties weaponize filings instead of using them fairly, procedural tools like estoppel and § 363(m) act as essential reins. To allow otherwise would enable those who say “Nay” to every outcome they dislike (“Nay, thou shalt not sell my stallions!” …and then deny owning the stallions!), undermining the entire process. In bankruptcy, the most dangerous lie isn’t shouted in court. Instead, it’s quietly filed in Schedules A & B, then retracted when the auction bell rings. And that bell tolls for everyone.

These materials were written by Hale Andrew Antico, Chief Counsel of Antico Law Firm, representing consumer debtors in the Central District of California, and President of the Central District Consumer Bankruptcy Attorneys Association, with editorial contributions by Kathleen A. Cashman-Kramer of Fennemore Law’s San Diego office, and the Hon. Meredith Jury (ret.).