Rushton v. ANR Company ( 2014 )

FILED
United States Court of Appeals
Tenth Circuit
January 22, 2014
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
In re: C.W. MINING COMPANY,
doing business as Co-Op Mining
Company,
Debtor.
____________________
KENNETH A. RUSHTON, Trustee,
Plaintiff-Appellee,
Nos. 12-4091, 12-4102, 12-4106,
v. 12-4112, 12-4132, 12-4144
ANR COMPANY, INC.; HIAWATHA
COAL COMPANY, INC.; CHARLES
REYNOLDS; C.O.P. COAL
DEVELOPMENT COMPANY;
STANDARD INDUSTRIES, INC.;
ABM, INC.; WORLD ENTERPRISES;
SECURITY FUNDING, INC.;
FIDELITY FUNDING, INC.; and
P.P.M.C., INC.,
Defendants-Appellants,
and
RHINO ENERGY LLC; CASTLE
VALLEY MINING LLC,
Interested Parties-
Appellees.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
(D.C. Nos. 2:10-CV-00079-TS, 2:10-CV-00267-TS, 2:10-CV-00969-TS,
2:10-CV-00269-TS, 2:10-CV-00920-TS, 2:10-CV-00921-TS,
2:10-CV-00922-TS, 2:10-CV-00924-TS)
Laura J. Fuller, Law Offices of Laura J. Fuller, Salt Lake City, Utah, for
Appellant ANR Company, Inc. in Case No. 12-4091.
Peter W. Guyon, Salt Lake City, Utah, for Appellant Hiawatha Coal Company,
Inc. in Case Nos. 12-4102 and 12-4144.
Russell S. Walker (David R. Williams and Anthony M. Grover with him on the
briefs), Woodbury & Kesler, P.C., Salt Lake City, Utah, for Appellant Charles
Reynolds in Case No. 12-4106.
David L. Pinkston (Kim R. Wilson and P. Matthew Cox with him on the briefs),
Snow Christensen & Martineau, Salt Lake City, Utah for Appellant C.O.P. Coal
Development Company in Case Nos. 12-4112 and 12-4132.
George B. Hofmann, Parsons Kinghorn Harris, A Professional Corporation, Salt
Lake City, Utah (William F. Dobbs, Jr., and William C. Ballard, Jackson Kelly
PLLC, Charleston, West Virginia, with him on the briefs for Appellees Castle
Valley Mining, LLC and Rhino Energy, LLC), and James C. Swindler (Michael
N. Zundel with him on the briefs), Prince, Yeates & Geldzahler, Salt Lake City,
Utah, for Appellee Kenneth A. Rushton, Trustee in Case Nos. 12-4091, 12-4102,
12-4106, 12-4112, 12-4132, and 12-4144.
Before TYMKOVICH, BRORBY, and MURPHY, Circuit Judges.
TYMKOVICH, Circuit Judge.
These appeals arise from a Chapter 7 asset sale for the liquidating
bankruptcy estate of C.W. Mining Co., a former coal mining operation in Emery
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County, Utah. The four appellants did business with C.W. Mining before its
involuntary bankruptcy. They now claim various assets that the bankruptcy
trustee, Kenneth A. Rushton, sold to an unrelated entity, Rhino Energy LLC.
Standing in the way of the appellants’ claims is one of the Bankruptcy
Code’s mooting provisions, 11 U.S.C. § 363(m). 1 Under this statute, we can grant
the appellants no relief that would affect the validity of Rushton’s sale to Rhino.
The question then for each appellant is whether any relief can be granted that
would not affect the sale’s validity. The district court, which first addressed these
appeals from the bankruptcy court, answered that question in the negative and
thus dismissed the appeals as moot.
As we further explain below, we DISMISS Rhino and its wholly owned
subsidiary, Castle Valley Mining LLC, from these appeals, and exercising
jurisdiction under 28 U.S.C. § 158(d)(1), we AFFIRM Nos. 12-4091, 12-4102, 12-
4112, 12-4132, and 12-4144, and we REVERSE No. 12-4106.
In summary, we dismiss Rhino and Castle Valley from all appeals because
no appeal seeks any relief affecting either entity.
As against the remaining appellee, Rushton, we agree with the district court
that ANR Co.’s appeal (No. 12-4091), COP Coal Development Co.’s first appeal
(No. 12-4112), and Hiawatha Coal Co.’s first appeal (No. 12-4102) are moot. By
1
All citations hereafter come from title 11 of the U.S. Code unless
otherwise noted.
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raising only those claims that affect the sale order, ANR and COP waived any
relief besides that which would violate § 363(m). And Hiawatha failed to contest
Rushton’s arguments showing that no theories of relief are available except those
that affect the sale order. Accordingly, we affirm those appeals.
We also affirm the district court’s judgment in COP’s second appeal (No.
12-4132) and Hiawatha’s second appeal (No. 12-4144) because both appeals seek
only to protect COP and Hiawatha’s first appeals from waiver for failing to
appeal the sale order itself. But because we do not find any waiver for that
reason, we cannot offer relief in either appeal and thus find both moot as well.
That said, in Charles Reynolds’s appeal (No. 12-4106), Reynolds has
consistently raised a statutory claim for relief that does not affect the validity of
the sale, and the district court mistakenly relied on an unpublished opinion to
decide otherwise. Accordingly, we reverse his appeal and remand it to the district
court for proceedings consistent with this opinion.
I. Background
Before it was forced into bankruptcy, C.W. Mining mined coal on land
belonging to two related entities, COP and ANR. C.W. Mining had the exclusive
right to mine coal on COP and ANR’s property per leases C.W. Mining had with
both. 2
2
Although COP and ANR are distinct entities, Joseph O. Kingston is the
(continued...)
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Hiawatha also mined coal, but on a much smaller scale than C.W. Mining.
Originally, Hiawatha had been in charge of operations at ANR’s mine, but after
2
(...continued)
president of both. COP and ANR are also closely related to C.W. Mining and to
the other appellants, Hiawatha and Charles Reynolds. In a prior proceeding, the
Bankruptcy Appellate Panel outlined some of these entities’ relationships with
each other:
The relationship between [C.W. Mining] and COP is
more than mere lessor-lessee. Although COP maintains
there is no legal relationship between itself and [C.W.
Mining], both entities are owned and operated, at least
in part, by various members of the Kingston family and
members of the Davis County Cooperative, a non-profit
entity. The Davis County Cooperative, [C.W. Mining]
and COP share various common directors, officers,
shareholders and registered agents. Carl Kingston is the
registered agent for [C.W. Mining] and COP, is a
member of the Davis County Cooperative, and has acted
as attorney for [C.W. Mining]. Carl Kingston’s cousin,
Joe Kingston, is the president and a shareholder of COP.
Joe Kingston’s brother, Paul Kingston, is a shareholder
of [C.W. Mining] and COP, as well as the trustee (akin
to the CEO) of the Davis County Cooperative. Charles
Reynolds, the president of [C.W. Mining] since 2004, is
a member of the Davis County Cooperative. John
Gustafson, the vice president of [C.W. Mining] and one
of its shareholders, sits on the board of directors of the
Davis County Cooperative. Rachel Young, sister of Paul
Kingston and Joe Kingston, is a shareholder of [C.W.
Mining] and formerly a shareholder of COP. COP
disputes that any of these connections gave it the ability
to control [C.W. Mining].
C.O.P. Coal Dev. Co. v. C.W. Mining Co. (In re C.W. Mining Co.), 422 B.R. 746,
749 (B.A.P. 10th Cir. 2010) (footnotes omitted).
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Hiawatha ran into trouble with mining regulatory agencies, Hiawatha and ANR
jointly agreed to pass control of the operations to C.W. Mining.
Of the two mines, only COP’s mine, the Bear Canyon mine in Emery
County, Utah, was active. Charles Reynolds ran C.W. Mining’s coal mining
operations there. He and his family, including ten children, lived in a house
connected to the mine’s major operations center (the “scale house”). COP owned
the scale house, but because the scale house was under C.W. Mining’s exclusive
control per its mining contract with COP, Reynolds lived at the home with C.W.
Mining’s permission.
A. The Bankruptcy
C.W. Mining’s bankruptcy arose from a breach of contract action brought
by Aquila, Inc., which claimed that C.W. Mining failed to deliver coal as
contracted. In 2007, Aquila obtained a favorable judgment for $24.8 million. See
C.O.P. Coal Dev. Co. v. C.W. Mining Co. (In re C.W. Mining Co.), 641 F.3d
1235, 1236 (10th Cir. 2011). After the judgment, C.W. Mining and COP
attempted to terminate their mining contract. But before they could do so, Aquila
(along with two other C.W. Mining creditors) filed an involuntary Chapter 11
bankruptcy petition against C.W. Mining in January 2008.
After the petition was filed, C.W. Mining tried to transfer all of its
operations to Hiawatha in June 2008. COP and ANR then entered into
postpetition agreements with Hiawatha to mine coal in C.W. Mining’s stead.
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Hiawatha, in turn, used only C.W. Mining’s existing mining operations and even,
at times, C.W. Mining’s name.
In September 2008, the bankruptcy court granted Aquila’s petition to keep
C.W. Mining in involuntary bankruptcy. Two months later, in November 2008,
the bankruptcy court converted the case into a Chapter 7 bankruptcy. This
changed the bankruptcy from one of reorganization (where C.W. Mining would
continue to exist after the bankruptcy) to one of liquidation (where all of C.W.
Mining’s assets would be sold to provide its creditors with as much relief as
possible). In that same month, Rushton was appointed the C.W. Mining
bankruptcy estate’s trustee.
B. The Adversary Proceedings
Rushton filed several adversary proceedings in bankruptcy court to recover
C.W. Mining’s assets, including its coal mining operation at the Bear Canyon
mine, its scale house at the mine (which Reynolds was occupying at the time),
and its contracts with ANR and COP (which both had attempted to transfer to
Hiawatha). After several evidentiary hearings, the bankruptcy court ordered all
assets to be returned to the estate. ANR, Hiawatha, Reynolds, and COP each
appealed to the district court.
While their appeals were pending in the district court, Rushton sold the
Bear Canyon mining operations, scale house, and mining contracts to another
mining company, Rhino, for $15 million. Rushton and Rhino relied on the
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bankruptcy court’s prior rulings that established the estate’s ownership of the
mining operations, scale house, and mining contracts. After reviewing the sale,
the bankruptcy court issued an order finding that Rhino was a good faith
purchaser and entitled to the protection of § 363(m). None of the appellants
moved to stay the sale order, and the sale closed in August 2010—months after
the district court appeals were filed. On August 25, 2010, Rhino took possession
and transferred the mining operation to its wholly owned subsidiary, Castle
Valley, which promptly began mining.
After the sale closed, Rushton and Rhino moved to dismiss as moot the
various appeals still pending in district court, citing § 363(m) mootness and, in
the alternative, equitable mootness. The district court agreed with both mootness
rationales and dismissed the underlying appeals. ANR, Hiawatha, Reynolds, and
COP now appeal the district court’s mootness decisions to this court.
We provide additional background information as relevant to each claim.
II. Analysis
The appellants challenge the district court’s determination that their
bankruptcy appeals are both statutorily and equitably moot. We review de novo
the district court’s decision that a bankruptcy appeal is statutorily moot. Search
Market Direct, Inc. v. Jubber (In re Paige), 584 F.3d 1327, 1334 (10th Cir. 2009).
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Thus, we review de novo whether the appellants have no possibility of relief
under § 363(m) 3 (“§ 363(m) mootness” for short). See id. at 1336–37. The
district court’s determination that these appeals are equitably moot is normally
reviewed for abuse of discretion. In re Paige, 584 F.3d at 1335.
We begin our analysis with § 363(m) mootness. We first dismiss the
appeals against Rhino and Castle Valley, as no appellant is seeking any relief that
would affect those appellees. Then we address the remaining appeals against
Rushton. We ultimately affirm the district court’s dismissal on § 363(m)
mootness for every appellant except Reynolds. Thus, we need not address
equitable mootness for those appeals. And because Rushton conceded that
equitable mootness did not apply to Reynolds’s live claim, as we discuss below,
we need not address equitable mootness for Reynolds’s appeal either. Finally, we
address the extra appeals filed by two appellants, COP and Hiawatha. We affirm
those appeals because they are mooted by both parties’ first appeals, respectively.
3
Section 363(m) states:
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, unless such authorization and such sale or lease
were stayed pending appeal.
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A. Appellees Rhino and Castle Valley
All appellants expressly disclaim any relief that would affect Rhino or
Castle Valley or Rhino’s purchase from the bankruptcy estate. 4 Since no
appellant seeks relief affecting Rhino or Castle Valley, these appeals are moot as
to both.
We now consider what effect § 363(m) has on the remaining appeals.
B. Nos. 12-4091, 12-4102, 12-4106, & 12-4112 Against Rushton
The appellants do not dispute that § 363(m) applies to the asset sale in
question, that Rhino was a good-faith purchaser, and that no party requested a
stay of the sale order. The only remaining question is whether § 363(m) permits
the relief available to the appellants if they prevailed in these appeals.
The appellants first contend that § 363(m) applies only to appeals of the
sale order itself, and since these four appeals are not of that order in particular,
§ 363(m) does not apply. But § 363(m)’s effect is not limited to appeals of the
sale order itself where, as here, the sale order depends on the other orders on
4
At oral argument, however, ANR seemed to suggest that if we found no
monetary relief was available, as we do here, ANR might seek to unwind its
portion of the asset sale. This request in the alternative would in fact affect
Rhino and Castle Valley, because the request, if granted, would unwind part of
their asset purchase. But for that very reason, this request is plainly barred by
§ 363(m) because it affects the validity of an unstayed asset sale to a good faith
purchaser. Thus, to the extent ANR also seeks this alternative relief, its appeal is
still moot as to Rhino and Castle Valley and is accordingly dismissed.
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appeal. If these other orders are reversed or modified, the sale order would be
effectively “modifi[ed]” as well, which is contrary to § 363(m)’s text.
Further, allowing such modifications would frustrate § 363(m)’s purpose of
“protect[ing] the public’s interest in finalizing bankruptcy sales.” See Osborn v.
Durant Bank & Trust Co. (In re Osborn), 24 F.3d 1199, 1203 (10th Cir. 1994),
abrogated in part on other grounds by Eastman v. Union Pac. R.R., 493 F.3d
1151, 1156 (10th Cir. 2007). Section 363(m)’s protection is vital to
“encourag[ing] buyers to purchase the debtor’s property” and thus “insur[ing] that
adequate sources of financing remain available. ” Id. In this way, § 363(m)
ultimately “prevent[s] injury to creditors.” Id. But, as a result, “§ 363(m) [will]
moot[] some appeals, namely, those in cases where the only remedies available
are those that affect the validity of the sale.” Id. at 1203–04.
The appellants are correct, however, that the trustee bears the burden of
proving that a bankruptcy appeal is moot under § 363(m). In re C.W. Mining Co.,
641 F.3d at 1239. Even so, Rushton can carry his burden if the appellants fail to
offer a permissible theory for relief. See In re W. Pac. Airlines, Inc., 181 F.3d at
1197 (finding an appeal moot under the Bankruptcy Code’s other mooting
provision, 11 U.S.C. § 364(e), 5 because the appellant “fail[ed] to point us to any
5
Section 364(e) is identical with § 363(m) in all relevant respects here:
The reversal or modification on appeal of an
authorization under this section to obtain credit or incur
(continued...)
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other provision of the Bankruptcy Code or state law that would permit us to
fashion a remedy that would not disturb the validity of the financing and terms of
its collateralization”); see also Clarke v. United States, 915 F.2d 699, 703 (D.C.
Cir. 1990) (en banc); Ctr. for Biological Diversity v. Kempthorne, 498 F. Supp.
2d 293, 296–97 (D.D.C. 2007). In other words, although the appellants bear no
burden to produce evidence or argument, the appellants will not overcome a
motion to dismiss for § 363(m) mootness simply because the trustee fails to
disprove every possible legal remedy imaginable. Instead, the appellants must at
least identify an available remedy that will not affect the sale’s validity.
And before us, the appellants point to various remedies that do not affect
the sale’s validity. The crux of these remedies is whether the appellants can
obtain part of the sale proceeds from the estate. The appellants contend that
merely asserting that they may be entitled to some of the sale proceeds is enough
to reverse the district court here. They point to a prior appeal arising out of this
same bankruptcy where we found that § 363(m) did not moot the appeal because
5
(...continued)
debt, or of a grant under this section of a priority or a
lien, does not affect the validity of any debt so incurred,
or any priority or lien so granted, to an entity that
extended such credit in good faith, whether or not such
entity knew of the pendency of the appeal, unless such
authorization and the incurring of such debt, or the
granting of such priority or lien, were stayed pending
appeal.
11 U.S.C. § 364(e).
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the appellant there, COP, claimed “it may be able to recover monetary relief,” and
the appellee, Rushton, had not “affirmatively foreclosed” that possibility. In re
C.W. Mining Co., 641 F.3d at 1239. They contend the same holds true here.
We disagree. In In re C.W. Mining Co., we were not reviewing a lower
court’s decision on the merits of a motion to dismiss for mootness, as here;
instead, we were reviewing a motion to dismiss the appeal in the first instance.
While the In re C.W. Mining Co. appeal was pending, the asset sale to Rhino
closed. Rushton and Rhino then moved to dismiss the appeal as moot, a motion
we denied. But because of the posture of that case, the appellants could raise
whatever arguments they thought helpful to avoid mootness. In this appeal,
however, we are limited by the arguments made below, and not those minted on
appeal. See, e.g., Somerlott v. Cherokee Nation Distribs., Inc., 686 F.3d 1144,
1148 (10th Cir. 2012) (“[W]hen an argument was not raised before the district
court but is instead advanced for the first time on appeal, the court will only
reverse if the appellant shows the district court’s decision amounted to plain
error.”); Turner v. Pub. Serv. Co. of Colo., 563 F.3d 1136, 1143 (10th Cir. 2009)
(“Absent extraordinary circumstances, we will not consider arguments raised for
the first time on appeal.”).
More importantly, in In re C.W. Mining Co., we did not discuss what relief
COP had sought below or whether COP had presented arguments to support
finding a monetary remedy in that case. We also did not discuss what arguments
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Rushton made, if any, to affirmatively show that COP’s proffered remedy was not
available. “Questions which merely lurk in the record [of earlier cases], neither
brought to the attention of the court nor ruled upon, are not to be considered as
having been so decided as to constitute precedents.” Cooper Indus., Inc. v. Aviall
Svcs., Inc., 543 U.S. 157, 170 (2004) (internal quotation marks omitted). Thus,
our opinion in In re C.W. Mining Co. does not control.
And in this appeal, the limits of appellants’ requests for relief are front and
center. Rushton argues that, in the district court, each waived or abandoned any
relief not barred by § 363(m). He also argues that, even if we reach their various
claims for monetary relief here, the relief they request is not available under the
facts of this case.
We decide whether Rushton is correct as to each appeal in turn.
1. Appeal No. 12-4091 – ANR’s Appeal
In the bankruptcy court, ANR sought only a determination that its
agreement with C.W. Mining had in fact been terminated. See ANR App. 337.
The bankruptcy court denied this request for relief because “ANR never provided
[C.W. Mining] with any notice of default as required before termination of the
ANR Operating Agreement,” thus ANR’s agreement with C.W. Mining had not
been terminated. Id. at 13. In the alternative, ANR requested that Rushton “pay
all unpaid royalties due to ANR” and others “as provided in” a set of documents
ANR submitted to the bankruptcy court. Id. at 337–38. The bankruptcy court
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denied this request because the documents contained no evidence that C.W.
Mining’s bankruptcy estate owed ANR any royalties. See id. at 14.
ANR appealed to the district court. In the meantime, the asset sale to
Rhino was completed and the bankruptcy court issued the sale order. ANR’s
mining agreement was included in the assets sold. Accordingly, Rushton and
Rhino moved to dismiss ANR’s appeal. In response, ANR argued that its
requested relief did not affect the validity of the sale order. Rather, ANR said,
the “proper remedy” for its appeal was “declaratory relief through contract
interpretation.” Id. at 326. In other words, ANR wanted the district court to find
that its mining agreement with C.W. Mining was no longer in effect. The district
court found that “[a]ny such declaratory relief would necessarily call into
question the bankruptcy court’s interpretation of the ANR Agreement and,
therefore, would affect the validity of the Sale Order.” Id. at 445. Thus, the
district court granted the motion to dismiss. ANR again appealed.
Before this court, ANR does not contest that the declaratory relief it sought
would affect the sale order. Rather, it argues, first, that reversing the bankruptcy
court’s contract interpretation would not substantially affect the sale order and,
second, that it is entitled to monetary relief from the bankruptcy estate in the form
of a constructive trust.
Both arguments fail. First, § 363(m) does not speak in gradations; it
“forecloses any remedy . . . that would affect the validity of the . . . sale,” even if
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the remedy would not bring about a significant change to the sale. See In re C.W.
Mining Co., 641 F.3d at 1239 (emphasis added).
Second, ANR has waived any right to a constructive trust in this case.
Neither before the bankruptcy court nor before the district court did ANR seek a
constructive trust. And “we generally will not consider issues on appeal that were
not presented” below. Golfland Entm’t Ctrs., Inc. v. Peak Inv., Inc. (In re BCD
Corp.), 119 F.3d 852, 857 (10th Cir. 1997) (internal quotation marks omitted).
Granted, we do have the discretion to consider such issues. See id. For
instance, in In re BCD Corp., we exercised our discretion to hear an appeal where
§ 363(m) disallowed the relief requested below because “the evidence and legal
arguments relating to the claim for proceeds are the exact same as” those made
for the relief requested below. Id.
But those circumstances are not present here. Instead, after three stages of
litigation, ANR still has yet to set forth the evidence and legal arguments showing
it is entitled to an equitable remedy like a constructive trust. Before the
bankruptcy court, ANR’s alternative claim for monetary relief lacked any
evidence showing that ANR was due financial compensation. See, e.g., ANR
App. 357 (listing ANR’s purported evidence of royalties owed, none of which
showed royalties owed to ANR). And both before the bankruptcy court and
district court, ANR has failed to demonstrate any financial losses to itself or any
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unjust enrichment to the bankruptcy estate resulting from the estate’s retention
and subsequent sale of C.W. Mining’s ANR mining agreement.
In short, the only remedy ANR has preserved on appeal would unwind the
sale order, and that is something ANR cannot do under § 363(m).
2. Appeal No. 12-4102 – Hiawatha’s Appeal
Unlike ANR, Hiawatha did request relief below that would not affect the
validity of the sale order. But before this court, Hiawatha does not rebut
Rushton’s arguments showing that such relief is not available to Hiawatha.
Therefore, although we disagree with the district court’s reasons for finding
Hiawatha’s appeal moot, we agree that the appeal is in fact moot under § 363(m).
We briefly describe the background unique to Hiawatha’s appeal before
explaining our decision.
a. Procedural History
Bankruptcy Court Action. In June 2008, during the “gap period” between
when C.W. Mining’s creditors filed an involuntary bankruptcy petition and when
the bankruptcy court granted that petition, C.W. Mining attempted to transfer
essentially all of its assets to Hiawatha. Once Rushton became trustee of C.W.
Mining’s bankruptcy estate, he filed an adversary action against Hiawatha to
recover the transferred property under §§ 549(a) (avoiding the transfer) and
550(a) (recovering the transferred property).
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Hiawatha opposed the action. It argued that Rushton could not avoid the
transfer because Hiawatha was entitled to the protection of § 549(b), which
disallows avoiding transfers in an involuntary bankruptcy where the transferee
gave “value” (other than by assuming prepetition debts) in exchange for the
assets. Hiawatha claimed it gave value to C.W. Mining by agreeing to hire C.W.
Mining’s former employees and by agreeing to pay C.W. Mining’s trade creditors,
royalties owed, property taxes, and any interest that accrued on C.W. Mining’s
prepetition debt.
The bankruptcy court rejected this argument because Hiawatha’s only
evidence of giving value—a declaration by Hiawatha’s president—did not show
that Hiawatha (as opposed to C.W. Mining itself) actually made those various
payments, let alone that Hiawatha did so “in exchange for” C.W. Mining’s assets.
The district court also noted that to the extent Hiawatha actually made these
payments as part of its own “ongoing business operations,” the payments did not
count as “value” anyway. Hiaw. App. 336.
In response, Hiawatha filed a counterclaim for an improver’s lien under
§ 550(e), arguing that as a good faith transferee, it was entitled to a lien on the
property based on its alleged expenditures to improve the property.
The bankruptcy court rejected Hiawatha’s counterclaim, too, because
Hiawatha still had not produced any “credible evidence” showing that it had
expended its own money to satisfy C.W. Mining’s postpetition debts. Rushton’s
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Supp. Hiaw. App. 680. More to the point, the court concluded that Hiawatha was
not a good faith transferee. First, the court found that Hiawatha was
“undercapitalized” at the time it took possession of C.W. Mining’s property
because, up until then, Hiawatha’s “total annual receipts . . . from its [prior] coal
salvaging operations” were “only a few thousand dollars.” Id. at 682. Plus,
Hiawatha “had no full-time employees, and its president . . . was and remains
employed as a full-time computer technician at another company.” Id. Thus, if
Hiawatha actually had paid any of C.W. Mining’s debts, the court determined it
had done so from the mine’s proceeds or by borrowing from C.W. Mining’s
existing lenders. And second, the court found that, when Hiawatha received C.W.
Mining’s assets, Hiawatha already knew that C.W. Mining was in involuntary
bankruptcy and that Aquila had a $24 million judgment against C.W. Mining. Id.
The court thus concluded Hiawatha was not acting in good faith.
Consequently, the bankruptcy court denied Hiawatha a lien on C.W.
Mining’s assets and ordered that Hiawatha turn them over to Rushton. Hiawatha
complied and then appealed the bankruptcy court’s decisions to the district court.
District Court Appeal. While Hiawatha’s appeal was pending, Rushton
sold the estate’s assets to Rhino, including the mining assets that Hiawatha had
claimed as its own. Rushton and Rhino, along with Rhino’s subsidiary Castle
Valley, then moved to dismiss Hiawatha’s appeal as moot under § 363(m) because
Hiawatha sought to recover assets that were included in the sale to Rhino.
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In response, Hiawatha made various arguments about why its appeal was
not moot under § 363(m), only two of which are relevant here. First, Hiawatha
claimed “entitlement to the proceeds of the [asset] sale” based on its improver’s
lien theory in the bankruptcy court. Hiaw. App. 493 (citing § 550(e)) (emphasis
in original). And second, in lieu of recovering the assets themselves, Hiawatha
suggested the court “could order that Hiawatha be paid [their value] from the
estate.” Id. at 505.
In Rushton’s reply, he rebutted all of Hiawatha’s claims for relief from the
sale proceeds by citing “a bright-line rule” from Freightliner, LLC v. Central
Refrigerated Svc., Inc. (In re Simon Transp. Svcs., Inc.), 138 F. App’x 52 (10th
Cir. 2005), which states, in effect, that “if the proceeds of a § 363 asset sale have
not been segregated, then the claimant cannot recover those proceeds.” Hiaw.
App. 519. Because the sale proceeds had not been segregated from the estate’s
other funds, Rushton reasoned that § 363(m) mooted Hiawatha’s monetary claims
as well.
The district court granted the motion to dismiss. Adopting In re Simon’s
bright-line rule, the court concluded that “because the relief Hiawatha seeks in
this appeal would necessarily affect the validity of the Sale Order or would
improperly seek recovery from commingled sale proceeds, . . . [Rushton] ha[s]
met [his] burden to establish mootness under § 363(m).” Id. at 535.
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b. Discussion
Before us, Hiawatha concedes that recovering the assets Rhino purchased
or imposing an improver’s lien on those assets would affect the validity of the
asset sale. Hiawatha now claims its appeal is not moot because the court can still
grant relief by imposing a constructive trust on the sale’s proceeds.
As an initial matter, Hiawatha did not present this constructive trust theory
to the district court below. Hence, as with ANR, we could consider the theory
waived and decline to address it. But, unlike ANR, Hiawatha did inform the
district court that the estate’s sale proceeds could be used in lieu of the assets
themselves. And, in the context of supporting its improver’s lien theory,
Hiawatha quoted language from In re Osborn explaining how the availability of a
constructive trust can defeat § 363(m) mootness. Nonetheless, we can still affirm
the district court on § 363(m) mootness grounds without finding that Hiawatha’s
constructive trust theory has been waived, so we proceed to the constructive trust
arguments on appeal.
Hiawatha first argues that In re Simon’s bright-line rule against granting
relief from commingled funds should not apply. In In re Simon, an unpublished
order and judgment from this court, a divided panel of judges held that “the only
course consistent with the purpose of § 363(m)” is limiting the recovery of asset
sale proceeds to only those funds that “have been segregated” from the estate’s
other funds. In re Simon, 138 F. App’x at 56.
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We agree with Hiawatha and reject this bright-line rule. First, the rule
conflicts with published precedent in this circuit. In In re Osborn, a creditor
asked this court to find a bankruptcy appeal moot under § 363(m) because
“distributions have been made without objection, and the proceeds of the sale . . .
have been commingled with the other funds, [so] there is no res that could be
recovered.” In re Osborn, 24 F.3d at 1209 (emphasis added). We rejected that
argument, saying, “The Bank cites no [state], federal or other authority in support
of its dogmatic position.” Id. We concluded, “[Here, t]here is a possibility of
equitable relief. It is only if there is no such possibility that the appeal should be
dismissed as moot.” Id. at 1209–10. And, in fact, on remand, some relief was
granted despite the funds’ commingling. See In re BCD Corp., 119 F.3d at 856.
Thus, contrary to In re Simon’s rule, relief can be granted even if the sale
proceeds are commingled with other funds—In re Osborn shows as much.
Second, In re Simon’s reliance on In re BCD Corp. is also unavailing.
Although In re BCD Corp. correctly notes that equitable relief was possible in
that case because proceeds were segregated pending the appeal, relief was also
possible because state law “provide[d] for equitable remedies” and “the sale
proceeds ha[d] not been disbursed.” Id. at 856–57. Thus, far from identifying
segregation as the necessary factor for possible relief, In re BCD Corp. named a
number of factors suggesting relief was possible in that case—all, some, or none
of which may have been necessary.
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Third, In re Simon’s factors do not support its no-commingled-funds rule.
The first factor cited—preventing “uncertainty as to the sale”—is irrelevant. See
In re Simon, 138 F. App’x at 56. When an estate sells assets, the purchaser
receives the assets and the estate receives proceeds. If, sometime thereafter, a
court reallocates some of the estate’s proceeds to a third party, the validity of the
original sale agreement remains unaffected. The sale is already complete;
whatever happens to the proceeds thereafter is of no concern to the purchaser.
Congress’s purpose behind § 363(m)—assuring that asset sales are final—is
undisturbed.
In re Simon’s second factor—preventing “uncertainty as to paid-out
creditors”—is likewise inapplicable. Id. As long as the funds are not fully
disbursed, the trustee can satisfy an equitable award of money against the estate;
paid-out creditors need not be concerned. See id. at 58 (Murphy, J., dissenting).
And the third factor—“segregation is not overly burdensome”—also is of
no help to the rule. See id. at 57. The implication of In re Simon’s rule is that an
appellant can obtain either a stay or a segregation of sale proceeds in order to
later seek relief from the sale order, but the appellant must obtain one or the
other. Yet § 363(m) only requires a stay—it says nothing about whether funds
must be segregated. See Elwell v. Okla. ex rel. Bd. of Regents of the Univ. of
Okla., 693 F.3d 1303, 1312 (10th Cir. 2012) (“Common sense, reflected in the
canon expressio unius est exclusio alterius, suggests that the specification of [one
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provision] implies the exclusion of others.” (internal quotation marks and
alteration omitted)). Easy or not, segregating funds is simply not required.
Accordingly, we disapprove of In re Simon’s bright-line rule. But rejecting
the district court’s rationale for § 363(m) mootness in this case does not end our
inquiry, as we may affirm on different grounds. Thus, we proceed to Hiawatha’s
second argument—that Rushton failed to meet his burden of proving that no
remedy is available in this appeal.
Rushton argues that a constructive trust—the only proposed remedy before
this court that does not affect the sale order’s validity—is not available to
Hiawatha here. He explains that, under Utah law, Hiawatha must identify
“specific property that can be traced to [Rushton’s allegedly] wrongful behavior”
in order to receive a constructive trust. Rushton’s Hiaw. Br. at 13 (quoting
Wilcox v. Anchor Wate Co., 164 P.3d 353, 362 (Utah 2007)). And that tracing
requirement is impossible to meet here, Rushton says, because “[t]here is no
evidence that any part of [Rhino’s] $15 million purchase price . . . was allocated
or attributable to the [assets] recovered from Hiawatha.” Id. at 14.
In addition, Rushton notes that Utah’s constructive trust law requires
proving “unjust enrichment,” which in turn requires showing that Rushton
“accepted or retained the benefit [conferred by Hiawatha] under circumstances
making it inequitable to retain the benefit without making payment of its value.”
Id. at 16 (quoting Thorpe v. Washington City, 243 P.3d 500, 507 (Utah 2010)).
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And this is impossible for Hiawatha to show, according to Rushton, because
Hiawatha’s “conduct in this matter has been consistently devoid of equity.” Id. at
19. Rushton explains, “[H]aving mined a million tons of coal to which it had no
lawful right in willful violation of the automatic stay, [Hiawatha asks] this Court
[to] rule that the Trustee must compensate Hiawatha for the cost of its illegal
behavior.” Id.
In the face of these arguments, Hiawatha replies only that “it was the
Trustee’s burden . . . to show impossibility of relief to Hiawatha; not Hiawatha’s
burden to show entitlement [to a constructive trust].” Hiaw. Reply Br. at 11
(emphasis in original). But Hiawatha never actually contests Rushton’s
arguments.
We are thus persuaded that Rushton has met his burden on the record here.
Hiawatha does not contest that it cannot trace its claimed assets to a certain
portion of the sale proceeds, as is required by Utah law for a constructive trust.
And Hiawatha does not contest that it mined a million tons of coal in willful
violation of the automatic stay, making an equitable remedy impossible in light of
such inequitable behavior. See Mfrs. Fin. Co. v. McKey, 294 U.S. 442, 449
(1935) (“he who seeks equity must do equity” (internal quotation marks omitted)).
Nor does it point to wrongful conduct by Rushton. In sum, it is clear from the
undisputed facts in this particular record that Hiawatha cannot prevail on its
constructive trust theory even if its appeal were permitted to proceed below.
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With this analysis, we do not mean to suggest that, at the mootness stage,
we decide a claim’s merits. Rather, pursuant to § 363(m), we decide only
whether the claim is available. Here, Rushton has shown that Hiawatha cannot
prevail under a constructive trust theory, thereby making that remedy unavailable
and Hiawatha has given us no reason to believe otherwise.
On these grounds, we affirm the district court’s dismissal of Hiawatha’s
appeal for § 363(m) mootness.
3. Appeal No. 12-4106 – Reynolds’s Appeal
Reynolds and his family lived at the Bear Canyon mine’s scale house while
Reynolds ran the mine for C.W. Mining. After C.W. Mining was forced into
bankruptcy, Rushton filed an adversary proceeding in bankruptcy court to
establish ownership of the scale house and to evict the Reynolds family.
Reynolds opposed Rushton’s action, arguing that he was the rightful owner of the
scale house, not C.W. Mining’s bankruptcy estate. Reynolds also filed a
counterclaim under the Utah Occupying Claimant Statute (UOCS), Utah Stat.
Ann. § 57-6-1 et seq., seeking $175,000 for purported improvements to the scale
house. This counterclaim served as an alternate remedy in the event that the
bankruptcy court determined the estate owned the house. See Reynolds App.
176–77. Ultimately, the bankruptcy court did in fact find that the estate owned
the scale house, and the court also rejected Reynolds’s counterclaim. Reynolds
then appealed both decisions to the district court.
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In the meantime, Rushton sold the mining assets, including the scale house,
to Rhino, and the sale closed without a stay. Then, Rushton, Rhino, and Castle
Valley moved to dismiss Reynolds’s appeal as moot under § 363(m) and equitable
mootness, both of which the district court adopted as independent reasons to
dismiss Reynolds’s appeal. Reynolds then appealed to this court.
As an initial matter, Rushton contends that Reynolds waived any available
relief in the district court by arguing only that the scale house should be returned
to him. But in fact, Reynolds also mentioned that relief was available through his
UOCS counterclaim. Id. at 81. Granted, he did so in only one sentence, but the
counterclaim was also included in his notice of appeal, id. at 11, and the district
court discussed the counterclaim at several points in its opinion, see id. at 140,
144–45. Thus, whether Reynolds could obtain monetary relief under the UOCS
was squarely before the district court.
Before this court, Reynolds now disclaims any relief that would affect the
validity of the sale to Rhino. See, e.g., Reynolds Br. at 4–5 (“The purpose of . . .
the present appeal . . . is not to undo the sale of the Reynolds Home or to
invalidate the Sale Order, but rather to preserve [Reynolds’s] right to damages
from the loss of his home . . . .”); id. at 19 (“To be clear, such a remedy would
come from the estate and not Rhino.”). He seeks only the value of his home or,
alternatively, the value of the improvements to his home from the estate’s sale
proceeds. And under the UOCS, just such relief is available to Reynolds, at least
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as to the value of any improvements he made to the scale house. See Hidden
Meadows Dev. Co. v. Mills, 590 P.2d 1244, 1249 (Utah 1979) (concluding that the
UOCS “ameliorate[s] the strict common law rule that the owner is entitled to the
improvements placed by another upon his property” by allowing a good faith
improver to receive monetary compensation for the value of improvements he
made to property he possessed under color of title).
For his part, Rushton does not dispute the availability of relief for Reynolds
under the UOCS. Instead, Rushton argues that Reynolds cannot obtain relief from
a constructive trust, with which we agree. 6 And Rushton argues that Reynolds
“cannot assert a damage claim for the loss of use of the [house] . . . [because] he
consented . . . [to] vacate[] the premises,” Rushton’s Reynolds Br. at 21, but that
has nothing to do with whether Reynolds can assert a claim for the value of
improvements he made to the scale house. Hence Rushton has failed to meet his
burden of proving § 363(m) mootness because relief is still available under the
UOCS. On § 363(m) mootness, the district court’s opinion cannot stand.
As for equitable mootness, at oral argument, Rushton conceded that
equitable mootness would not apply to a purely statutory claim for money—e.g.,
Reynolds’s UOCS counterclaim here. And while “[a] party’s concession of legal
error . . . cannot, standing alone, justify reversing a district court,” United States
6
Like ANR, Reynolds did not raise the issue of a constructive trust in the
district court. Thus, like ANR, Reynolds has waived any such relief. Only a
remedy under the UOCS has been preserved.
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v. Avery, 295 F.3d 1158, 1169 (10th Cir. 2002) (emphasis added), Rushton’s
concession is not the only basis for reversal. In addition to Rushton’s concession,
the district court’s equitable mootness finding is undermined by a false premise.
The district court concluded the appeal was equitably moot in part by assuming
that Reynolds’s only relief was recovery of the scale house. See, e.g., Reynolds
App. 152 (“The Court is also persuaded that a return of the Reynolds family to
the scale house would result in a devaluation of the C.W. Mining estate . . . .”).
In fact, the monetary relief Reynolds seeks under the UOCS does no such thing.
Therefore, we reverse the district court’s dismissal of Reynolds’s appeal.
4. Appeal No. 12-4112 – COP’s Appeal
COP owns the Bear Canyon mine at which C.W. Mining mined coal before
its bankruptcy and asset sale. In a prior appeal, COP sought to establish that its
mining agreement with C.W. Mining “automatically terminated shortly after the
bankruptcy petition was filed,” so the bankruptcy court had erred in determining
that the agreement was still property of the estate. In re C.W. Mining Co., 641
F.3d at 1236. We disagreed with COP’s contract interpretation and affirmed the
bankruptcy court’s order. See id. at 1241–42. Consequently, the COP mining
contract remained C.W. Mining’s asset and, after the asset sale, became Rhino’s
asset.
With this appeal, COP seeks to reverse the bankruptcy court’s
interpretation of another clause from that mining contract, the continuing
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operations clause. This clause requires the mine’s operator to “diligently and
continuously operate” the mine. COP App. 443. COP has alleged that, during
C.W. Mining’s bankruptcy, C.W. Mining was in default of this provision. For
this claim, COP sought alleged damages of over $10 million in the bankruptcy
court. But the bankruptcy court disagreed with COP’s more expansive definition
of the clause and, as a result, concluded that the estate owed COP only
$1,320,930.89 for C.W. Mining’s defaults. Id. at 434. COP then appealed to the
district court. But while the appeal was pending, COP’s contract with C.W.
Mining was sold to Rhino as part of the bankruptcy estate’s asset sale, and
Rushton, Rhino, and Castle Valley moved to dismiss COP’s appeal under
§ 363(m) mootness.
In opposition to their motion to dismiss, COP argued that § 363(m) did not
moot the appeal because its appeal “merely seek[s] a determination or explanation
of contractual rights, without seeking reversal of the sale.” Id. at 327. More
specifically, COP was seeking “a different interpretation of [the continuing
operations clause] going forward.” Id. at 331.
The district court rejected this remedy as impermissible under § 363(m),
and the district court was correct to do so. By changing the interpretation of
COP’s mining contract, which Rhino purchased in good faith from the estate,
COP would be altering the definition and value of the assets Rhino purchased,
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which would violate § 363(m)’s bar on any “modification . . . [that] affect[s] the
validity of [the] sale.”
In this appeal, COP effectively concedes that the remedy it sought in the
district court cannot be granted in light of § 363(m). See, e.g., COP Br. at 17
(“COP is entitled to monetary remedies against the [e]state . . . . To be clear,
such a remedy would come from the estate and not Rhino.”). Now, COP seeks
compensation only from the sale proceeds in the estate’s possession.
Yet as with ANR’s appeal, we will not reverse the district court based on a
theory not presented to it. And monetary relief was not adequately presented to
the district court. Granted, in a footnote, COP told the district court, “[M]onetary
relief is another available remedy that will not disturb the Sale Order. The sale
proceeds from the sale of the mine assets have not been completely disbursed and
may be used to provide an effective or ‘meaningful’ remedy to COP.” COP App.
331 n.21. But “[a]rguments raised in a perfunctory manner, such as in a footnote,
are waived.” United States v. Berry, 717 F.3d 823, 834 n.7 (10th Cir. 2013)
(emphasis added; internal quotation marks omitted).
And even if we find that COP actually preserved monetary relief as a
possible remedy, 7 we still conclude that Rushton satisfied his burden of proving
7
We recognize COP may have preserved the issue of monetary relief,
despite the issue being raised only in a footnote, because the district court still
considered it. True, the district court then rejected the remedy by relying on In re
Simon, an unpublished decision we reject. But we may affirm the district court on
(continued...)
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that COP cannot obtain any relief. In his brief, Rushton explains how COP’s
contract claim cannot succeed because COP cannot show damages, and he
explains how COP’s constructive trust theory cannot succeed because COP cannot
trace the value of its mining agreement to specific assets in the estate’s
possession and because COP cannot show that the estate was unjustly enriched.
COP’s only counter is that the “mere existence” of these theories of relief
preclude § 363(m) mootness. But COP is mistaken: The mootness question does
not turn on what relief “merely exists.” Rather, “[t]he mootness question turns on
what relief is available to COP if it were to prevail in this appeal.” In re C.W.
Mining Co., 641 F.3d at 1239 (emphasis added); cf. Arbaugh v. Y&H Corp., 546
U.S. 500, 513 n.10 (2006) (“A claim . . . may be dismissed for want of subject-
matter jurisdiction if it is not colorable, i.e., if it is ‘immaterial and made solely
for the purpose of obtaining jurisdiction’ or is ‘wholly insubstantial and
frivolous.’”). And COP has not rebutted Rushton’s arguments that COP’s
proposed theories are not available here, thus making it clear that, under the
7
(...continued)
alternate grounds, as we do here, and the district court’s subsequent conclusion
about COP’s monetary relief claim is correct: “It is unclear . . . how COP could
allege a claim against the proceeds of the sale to Rhino based upon the future
interpretation and application of the Continuous Operations Clause.” COP App.
613. COP did not begin to explain how that remedy might work until its reply
brief before this court, which is too late. See Hill v. Kemp, 478 F.3d 1236,
1250–51 (10th Cir. 2007); Headrick v. Rockwell Int’l Corp., 24 F.3d 1272,
1277–78 (10th Cir. 1994) (White, J., sitting by designation).
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undisputed facts in this record, COP cannot prevail on its alternate theories even
if its appeal were permitted to proceed below.
We therefore affirm the district court’s conclusion that COP’s appeal is
moot under § 363(m).
C. COP and Hiawatha Appeal the Sale Order – Nos. 12-4132 & 12-4144
With these appeals, COP and Hiawatha challenge the bankruptcy court’s
order approving the sale of C.W. Mining’s assets to Rhino. But because neither
COP nor Hiawatha requested a stay of the sale order, § 363(m) “forecloses any
remedy . . . that would affect the validity of the trustee’s sale.” In re C.W.
Mining Co., 641 F.3d at 1239.
Recognizing this impediment, COP and Hiawatha ask us to acknowledge
remedies they seek in other appeals. Specifically, both ask that we find
arguments made in their first appeals (No. 12-4102 for Hiawatha and No. 12-4112
for COP) not waived for failure to appeal the sale order. But as discussed above,
we do not find any arguments waived for that reason. Because COP and
Hiawatha seek no other relief in their second appeals, there is no relief we can
grant, and those appeals, Nos. 12-4132 and 12-4144, are accordingly moot.
III. Conclusion
For the foregoing reasons, we DISMISS Rhino and Castle Valley from
these appeals, we AFFIRM Nos. 12-4091, 12-4102, 12-4112, 12-4132, and 12-
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4144, and we REVERSE and REMAND No. 12-4106 to the district court for
further proceedings consistent with this opinion.
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