Centrix Financial LLC v. Weinman

FILED
United States Court of Appeals
Tenth Circuit
December 8, 2009
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
Clerk of Court
FOR THE TENTH CIRCUIT
In re:
CENTRIX FINANCIAL LLC,
Debtor.
No. 09-1266
(D.C. No. 1:08-CV-01130-PAB)
ROBERT E. SUTTON; 6762 S. (D. Colo.)
POTOMAC LLC; CENTRIX
CONSOLIDATED, LLC,
Appellants,
v.
JEFFREY A. WEINMAN, as Trustee
to the Centrix Liquidating Trust,
Appellee.
ORDER AND JUDGMENT *
Before KELLY, LUCERO, and HOLMES, Circuit Judges.
*
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument. This order and judgment is
not binding precedent, except under the doctrines of law of the case, res judicata,
and collateral estoppel. It may be cited, however, for its persuasive value
consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
Robert E. Sutton (Sutton), 6762 S. Potomac LLC (Potomac), and Centrix
Consolidated, LLC (collectively Appellants), seek to appeal interlocutory and
final orders, rulings, and decisions entered by the bankruptcy court in this
proceeding. The district court dismissed their appeal as equitably moot.
Exercising our jurisdiction pursuant to 28 U.S.C. § 158(d)(1), we REVERSE and
REMAND this case to the district court for further proceedings consistent with
this order and judgment.
I.
In this matter the bankruptcy court jointly administered Chapter 11
proceedings involving Centrix Financial LLC, and other affiliated companies
(collectively the Debtors). Appellants were constituents of the Debtors’
businesses related to underwriting and servicing sub-prime automobile loans. On
May 16, 2008, over Sutton’s and Potomac’s objections, the bankruptcy court
confirmed the liquidating Chapter 11 plan proposed by the Debtors and Creditors’
Committee (the Plan). Appellants filed a notice of appeal to the district court on
May 28, 2008. They did not seek a stay of execution of the Plan pending appeal.
In their district court appeal Appellants challenged several pre-confirmation
orders by the bankruptcy court (1) denying Sutton and Potomac leave to conduct
examinations under Fed. R. Bank. P. 2004, (2) approving the disclosure statement
over Sutton’s and Potomac’s objections, (3) enjoining Sutton and Potomac from
filing claims objections, and (4) estimating Sutton’s and Potomac’s administrative
-2-
claims at zero. They also appealed the bankruptcy court’s confirmation of the
Plan over Sutton’s and Potomac’s objections. In response to Appellants’ opening
brief, bankruptcy trustee Jeffrey A. Weinman (Trustee) filed a motion to dismiss
the appeal. He argued that, following substantial consummation of the Plan, the
relief Appellants’ sought in their appeal was impractical and inequitable in light
of the changed circumstances post-confirmation. Thus, he asked the court to
dismiss the appeal as “equitably moot.”
The district court initially denied the Trustee’s motion without prejudice,
stating that a hearing on the motion may be required after briefing on the merits
was completed. After the close of briefing, the Trustee renewed his motion to
dismiss the appeal and the district court granted it. Recognizing that this court
had not yet adopted the doctrine of equitable mootness, the district court looked
to a decision by this circuit’s Bankruptcy Appellate Panel (BAP) that had applied
it. See In Re Milk Palace Dairy, LLC, 327 B.R. 462, 468-69 (B.A.P. 10th Cir.
2005). The BAP cited cases from other circuits, including the Third Circuit’s
decision in In re Continental Airlines, 91 F.3d 553 (3rd Cir. 1996), setting forth
different tests used to determine whether to grant a motion to dismiss an appeal as
equitably moot. See In Re Milk Palace Dairy, 327 B.R. at 468 nn.18-22. The
district court in this case proceeded to apply a five-part test derived from In re
Continental Airlines, including the following factors: “[1] whether the
reorganization plan has been substantially consummated; [2] whether a stay has
-3-
been obtained; [3] whether the relief requested would affect the rights of parties
not before the Court; [4] whether the relief requested would affect the success of
the plan; and [5] the public policy of affording finality to bankruptcy judgments.”
Aplt. App., Vol. 5 at 882; see also In re Continental Airlines, 91 F.3d at 560. The
court ultimately concluded all five of these factors weighed strongly in favor of
finding Appellants’ appeal equitably moot. It therefore granted the Trustee’s
motion and dismissed the appeal on June 10, 2009. Appellants filed a timely
notice of appeal to this court.
II.
Appellants contend first that the district court erred in adopting the doctrine
of equitable mootness. 1 But in the event adoption of the doctrine is appropriate,
they argue that the district court erred in applying the relevant criteria. Finally,
they assert that this court should review de novo the district court’s dismissal of
their appeal as equitably moot.
On November 3, 2009, this court issued a decision resolving some of the
questions at issue in this appeal. Our decision also raises new issues the district
1
Appellants initially argue that the district court erred in concluding it could
not entertain their appeal by immunizing post-confirmation transactions
consummated in reliance on the confirmed Plan. They characterize this as an
issue independent of the equitable mootness analysis, but we agree with the
district court that the issue is appropriately addressed in the context of whether
the relief requested in the appeal would affect the rights of parties not before the
court.
-4-
court in this case should address in the first instance. In Search Market Direct,
Inc. v. Jubber (In re Paige), 584 F.3d 1327 (10th Cir. 2009), we formally adopted
the equitable mootness doctrine, id. at 1337, and we concluded further that a
district court’s ultimate determination of equitable mootness should be reviewed
for an abuse of discretion, id. at 1335. In adopting the doctrine, we set forth a
six-part test for determining whether an appeal is equitably moot:
It seems that under the doctrine of equitable mootness a court
should decline to hear an appeal of a bankruptcy court’s decision
where the answers to the following six questions indicate that
reaching the merits would be unfair or impracticable: (1) Has the
appellant sought and/or obtained a stay pending appeal? (2) Has the
appealed plan been substantially consummated? (3) Will the rights of
innocent third parties be adversely affected by reversal of the
confirmed plan? (4) Will the public-policy need for reliance on the
confirmed bankruptcy plan—and the need for creditors generally to
be able to rely on bankruptcy court decisions—be undermined by
reversal of the plan? (5) If appellant’s challenge were upheld, what
would be the likely impact upon a successful reorganization of the
debtor? And (6) based upon a quick look at the merits of appellant’s
challenge to the plan, is appellant’s challenge legally meritorious or
equitably compelling?
Id. at 1339. In reference to applying this test, we held “that the party inviting the
court not to reach the merits of an appeal always carries the burden of showing
that the answers to the six questions discussed above demonstrate that it would be
unfair or impracticable to reverse the confirmed plan.” Id. at 1340. 2
2
We concluded in Search Market Direct that the district court erred by
placing the burden on the appellant to establish that reversal of the confirmed
plan would not adversely affect innocent third parties. See 584 F.3d at 1343-44.
-5-
III.
Several of the factors in the test adopted in Search Market Direct are
substantially similar to those applied by the district court in this case, yet our
opinion provides further guidance on how these questions should be approached.
Our six-part test also includes one additional question the district court did not
consider, specifically whether Appellants’ challenge to the Plan is legally
meritorious or equitably compelling “based upon a quick look at the merits.” Id.
at 1339. Further, in applying its fifth factor, the district court considered whether
the relief requested by Appellants would affect the success of the Plan, while our
test requires a court to analyze the likely impact of an appellant’s challenge to the
plan upon a successful reorganization of the debtor. See id. at 1339, 1348.
In Search Market Direct we stated, “These six factors are not necessarily
conclusive, nor will each factor always merit equal weight.” Id. at 1339. It is
now clear that dismissal of an appeal as equitably moot is a matter ultimately
committed to the district court’s discretion. This is not a case where we can
affirm the district court’s discretionary dismissal as a matter of law, on the basis
“that it would have been an abuse of discretion for the district court not to dismiss
[the appeal].” Conkle v. Potter, 352 F.3d 1333, 1337 (10th Cir. 2003) (remanding
where district court had not evaluated factors relevant to exercise of discretion).
Nor can we conclude as a matter of law that, applying the Search Market Direct
six-factor test, the district court was constrained to deny the Trustee’s motion.
-6-
Therefore, we conclude that a remand is appropriate in this case, to allow the
district court to weigh and apply those factors in the first instance.
The district court’s order dismissing the appeal is REVERSED and this
matter is REMANDED to the district court for further proceedings consistent with
this order and judgment.
Entered for the Court
Jerome A. Holmes
Circuit Judge
-7-