Transp. Alliance Bank v. Int'l Confections Co.

This opinion is subject to revision before final
publication in the Pacific Reporter
2017 UT 55IN THE
SUPREME COURT OF THE STATE OF UTAH
TRANSPORTATION ALLIANCE BANK, BANK OF AMERICAN FORK, and
MRS. FIELDS CONFECTIONS, LLC,1
Appellees,
v.
INTERNATIONAL CONFECTIONS COMPANY, LLC, NG ACQUISITION, LLC,
and MICHAEL D. RYAN,
Appellants.
No. 20150784
Filed August 29, 2017
On Direct Appeal
Third District Court, Salt Lake
The Honorable Laura S. Scott
No. 140907314
Attorneys:
Steven C. Strong, Bradley M. Strassberg, Salt Lake City, for appellee
Mrs. Fields Confections, LLC
Adelaide Maudsley, Justin W Starr, Salt Lake City, for appellee Bank
of American Fork
Douglas J. Payne, Salt Lake City, for appellee Arcadia Holdings, LLC
D. Craig Parry, Joseph M.R. Covey, Salt Lake City, for appellees
Wasatch Peak Holdings, LLC and Dynamic Confections, Inc.
Karra J. Porter, Salt Lake City, Rex H. Elliott, Barton R. Keyes,
Columbus, Ohio, for appellants
ASSOCIATE CHIEF JUSTICE LEE authored the opinion of the Court, in
which CHIEF JUSTICE DURRANT, JUSTICE HIMONAS, JUDGE ORME, and
JUSTICE PEARCE joined.
1 Additional appellees include Arcadia Holdings, LLC, Wasatch
Peak Holdings, LLC, and Dynamic Confections, Inc.
TRANSP. ALLIANCE BANK v. INT’L CONFECTIONS CO., LLC
Opinion of the Court
Having recused themselves, JUSTICE DURHAM does not participate
herein; COURT OF APPEALS JUDGE GREGORY K. ORME sat.
ASSOCIATE CHIEF JUSTICE LEE, opinion of the Court:
¶1 International Confections Company, LLC asks us to set
aside a district court order approving a receivership sale of its assets
to a third party. We dismiss the appeal as moot because there is no
relief requested that this court has the power to grant.
I
¶2 In October 2014, Transportation Alliance Bank (T.A.B.) filed
a verified complaint in the Third District Court. T.A.B.’s complaint
alleged that International Confections Company, LLC; NG
Acquisition, LLC; and Michael D. Ryan had breached a loan
agreement and related payment guarantee with T.A.B. T.A.B. also
sought the appointment of a receiver to manage International
Confections’ assets, as provided in the loan agreement.
¶3 After T.A.B. filed its complaint, several of International
Confections’ other creditors—including Bank of American Fork—
moved to intervene in the case. Thereafter, International Confections
stipulated to these other creditors’ intervention, even though the
intervenors had not filed a formal pleading accompanying their
motions to intervene as required by rule 24 of the Utah Rules of Civil
Procedure. The next day, the district court entered an order granting
the creditors’ motion to intervene.
¶4 The district court appointed a receiver in November 2014.
In so doing, the court directed the receiver to “immediately have and
take possession, custody, and control of the business and all of the
assets of” International Confections. It also gave the receiver
authority to “sell, transfer, and liquidate the [a]ssets.”
¶5 T.A.B. thereafter settled its claims against International
Confections. And it then filed a notice of voluntary dismissal under
civil rule 41(a)(1)—just eleven days after the receiver’s appointment.
Bank of American Fork filed an objection to the notice of dismissal. It
asserted that rule 41(a) does not allow dismissal where a receiver has
been appointed and where additional creditors have intervened.
¶6 At a hearing on the dismissal notice, International
Confections stipulated that the intervening creditors could continue
the suit without T.A.B. It also stipulated that the receiver would
remain in place and could sell the company’s assets. At the same
hearing, the district court asked International Confections’ counsel
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how the stipulation would affect the dismissal notice and the
intervenors’ causes of action. Counsel responded, “I think that we
would stipulate . . . that the case is dismissed . . . with respect to the
causes of action filed by T.A.B. We would agree that for purposes of
the receivership the case can remain open as to the other intervening
creditors.” Thereafter, on December 11, 2014, the district court
entered an order (approved by International Confections) that the
“case shall remain pending” and that the receivership order would
“remain[] in full force and effect.”
¶7 On December 17, 2014, the receiver accepted an offer from
Mrs. Fields Confections, LLC to buy International Confections’
assets. The receiver signed an asset purchase agreement on behalf of
International Confections, subject to court approval, and filed an
expedited motion for an order of sale of receivership assets.2 The
notice of hearing that accompanied the expedited motion directed
that any objections be filed by December 22, 2014 (the day before the
hearing). And on the same day the receiver’s counsel filed the
expedited motion, International Confections’ counsel filed a notice
attempting to withdraw as counsel.
¶8 The district court held a hearing on the expedited motion
for an order of sale on December 23, 2014. No representative or
attorney attended on International Confections’ behalf—
International Confections was unrepresented at the time.3 But the
court proceeded with the hearing on the belief that International
Confections was aware of the hearing and had chosen not to attend.
2 At the hearing, the receiver explained the need for haste:
[W]e have a little bit of a melting ice cube issue
here. The inventory is aging. It’s seasonal. Employees
are out of work. There’s a concern that to get the most
value from this company we do need to strike quickly
to preserve the possibility of the employees coming
back to work for the purchaser and the assets
becoming productive once again.
3 The parties disagree on whether International Confections knew
about the hearing. T.A.B. says that International Confections’ counsel
“continued to receive electronic notice of all pending motions and
hearings as required by the rules.” International Confections argues
that they had no notice of the hearing or the sale pursuant to the
purchase agreement. We need not resolve their disagreement,
because the case is now moot.
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TRANSP. ALLIANCE BANK v. INT’L CONFECTIONS CO., LLC
Opinion of the Court
After the hearing the court entered an order granting the expedited
motion and approving the asset sale to Mrs. Fields.
¶9 The purchase agreement included a provision releasing
Mrs. Fields “and its employees, officers, directors, members,
affiliates, and agents” from “any and all claims” that International
Confections might have. Mrs. Fields paid the $2.15 million purchase
price pursuant to this agreement. Mrs. Fields then received and
began utilizing the purchased assets.
¶10 The district court approved the receiver’s accounting and
discharged the receiver on January 23, 2015. A few weeks later,
International Confections filed a complaint against Mrs. Fields
Franchising (an affiliate of Mrs. Fields, the asset purchaser) in federal
court. The complaint alleged that Mrs. Fields Franchising had
unlawfully terminated a licensing agreement with International
Confections. In response, Mrs. Fields Franchising asserted that the
asset purchase agreement’s release provision barred International
Confections’ lawsuit. International Confections voluntarily
dismissed the federal complaint without prejudice.
¶11 Thereafter, International Confections returned to the Third
District Court. It filed a motion for relief from judgment under rule
60 of the Utah Rules of Civil Procedure. In that motion International
Confections asked the district court to “reactivate the case and allow
[International Confections] to file objections to the [r]eceiver’s
December 18, 2014 [e]xpedited [m]otion.” The district court denied
that motion. International Confections then filed this appeal.
II
¶12 International Confections asks us to reverse the district
court’s denial of its rule 60 motion on three grounds. First
International Confections claims that T.A.B.’s notice of voluntary
dismissal deprived the district court of jurisdiction over any
subsequent proceedings—thus voiding any further proceedings.
Second it asserts that the court should have granted relief pursuant
to rule 60 because of alleged irregularities in the notice of
withdrawal. Finally it argues that its failure to object to the sale order
amounted to “excusable neglect” under rule 60(b)(1).
¶13 We do not address the merits of these arguments. Instead
we conclude that this case has become moot. And we dismiss it on
that basis.
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A
¶14 The mootness doctrine “is not a simple matter of judicial
convenience” or an “ascetic act of discretion.” Utah Transit Auth. v.
Local 382 of Amalgamated Transit Union, 2012 UT 75, ¶ 18, 289 P.3d
582. It is a constitutional principle limiting our exercise of “judicial
power” under article VIII of the Utah Constitution. See id. ¶¶ 21–24.
¶15 A case may be mooted on appeal if “the relief requested” is
rendered “impossible or of no legal effect.” In re Adoption of L.O.,
2012 UT 23, ¶ 8, 282 P.3d 977 (citation omitted). In that event the case
is moot because “anything we might say about the issues would be
purely advisory.” Utah Transit Auth., 2012 UT 75, ¶ 15. And in “the
absence of a justiciable controversy” the court lacks the power to
issue a decision. Id. ¶ 19 (citation omitted) (internal quotation marks
omitted).
¶16 This form of mootness can arise as to a suit aimed at
preventing the sale of land or other property. Such a suit is rendered
moot if the lower court refuses to enjoin the sale, the plaintiff fails to
seek a stay or other means of preventing the legal conveyance of the
property, and the property is sold to a third party while the case is
pending on appeal.4 In such circumstances the appellate court is
“without power to grant any relief” to a plaintiff who allows a third
party to acquire rights in disputed property without protecting itself
by taking steps to “stay the operation of the [lower court’s]
4 See Richards v. Baum, 914 P.2d 719, 720 & n.1 (Utah 1996) (suit
seeking decree requiring defendants to perform contract to sell real
property rendered moot when the property was sold to a third party
while the case was pending on appeal and there was no evidence
that plaintiffs “took any steps to prevent the [defendants] from
legally conveying the disputed land to a third party”); Kellch v.
Westland Minerals Corp., 484 P.2d 726, 726 (Utah 1971) (suit for writ of
mandamus to require corporation to issue free trading stock rather
than investment stock rendered moot when the stock was sold while
the case was pending on appeal and “[n]o steps were taken by the
defendants to stay the operation of the judgment, nor did they
supply a supersedeas bond”); United States v. Asset Based Res. Grp.,
LLC, 612 F.3d 1017, 1018–19 (8th Cir. 2010) (“Because [the company]
did not move to stay the sale pending appeal, the appeal is
moot. . . . ‘Once foreclosed property is sold to a bona fide third-party
purchaser, a court generally lacks the power to craft an adequate
remedy for the debtor.’”) (citation omitted).
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TRANSP. ALLIANCE BANK v. INT’L CONFECTIONS CO., LLC
Opinion of the Court
judgment.” Kellch v. Westland Minerals Corp., 484 P.2d 726, 726 (Utah
1971).
¶17 That conclusion is appropriate here. The order that is
challenged on appeal is the December 23, 2014 order approving the
terms of the receivership sale to Mrs. Fields. But International
Confections made no attempt to stay the operation of that order.
And it thereby allowed Mrs. Fields to acquire the property in
question in reliance on the (unstayed) order. That leaves this court
“without power to grant any relief” from the order, id., thus mooting
the case on appeal.
B
¶18 International Confections offers two grounds for avoiding
our conclusion that the case is moot. But we find neither persuasive.
¶19 International Confections first explains that it is not asking
to “recover the property sold by the receiver,” but only to
“enforce . . . legal rights . . . in the [l]icense [a]greement with Mrs.
Fields Franchising.” In support of this argument International
Confections points to the affidavit of Michael Ryan. The Ryan
affidavit asserts that International Confections does not intend to
“exercise any rights [it] may have to reclaim the purchased assets,”
but “only to pursue legal remedies against Mrs. Fields entities
arising out of the unlawful termination of” a separate licensing
agreement. But this is beside the point. The point of the rule 60
motion was to rescind or reform the purchase agreement approved
by the district court. And we have no power to undo that agreement
for reasons noted above.
¶20 Our decision in Franklin Financial v. New Empire
Development Co., 659 P.2d 1040 (Utah 1983) is unhelpful to
International Confections. There we refused to dismiss a case on
mootness grounds because the appellants were not seeking “to
prevent the sale, but [only] to establish their right to a share of the
sale proceeds.” Id. at 1043. A decision establishing a right to a share
of sale proceeds does not involve reforming or rescinding the
original contract under which the sale occurred. International
Confections’ claim, on the other hand, can succeed only if we allow it
(at the very least) to strike the release provision from the purchase
agreement, or to void the purchase agreement entirely. Since
International Confections failed to seek a stay and the sale was
finalized, we have no authority to grant that relief on this appeal.
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¶21 International Confections also challenges the district court’s
subject-matter jurisdiction. International Confections notes that
T.A.B. filed a notice of voluntary dismissal prior to any of the
proceedings that ultimately resulted in the receiver sale and
purchase agreement. And because civil rule 41 provides that “an
action may be dismissed by the plaintiff without order of court” by
the filing of a voluntary notice of dismissal, UTAH R. CIV. P.
41(a)(1)(A)(i),5 International Confections claims that the notice of
dismissal terminated the case and deprived the district court of
jurisdiction for any further proceedings.
¶22 We reject this argument without reaching its merits. We
decline to decide whether the district court lacked jurisdiction
because we conclude that we lack jurisdiction to decide this appeal.
Mootness, as noted, goes to our judicial power to decide the case on
appeal. And the jurisdictional defect in International Confections’
case on appeal forecloses the need for us to decide whether the
notice of dismissal may have voided the proceedings in the district
court.
III
¶23 International Confections had an opportunity to protect its
interests by seeking a stay of the district court’s sale order. When it
failed to do so a third party entered into a binding purchase
agreement and acquired the assets at issue. In these circumstances
we lack the judicial power to turn back the clock to allow
International Confections to renegotiate or undo the terms of the
purchase agreement. For that reason we dismiss the appeal on
mootness grounds.
5 This rule was amended after briefing was complete. But we
analyze the rule as of the time the notice of dismissal was filed.
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