Opinion ID: 6931473
Heading Depth: 2
Heading Rank: 2

Heading: Unscrambling the Eggs: Substantial Consummation

Text: “Substantial consummation” is a statutory measure for determining whether a reorganization plan may be amended or modified by the bankruptcy court. 11 U.S.C. § 1127(b). 10 This court, in addressing the mootness issue, has borrowed the “substantial consummation” yardstick because it informs our judgment as to when finality concerns and the reliance interests of third parties upon the plan as effectuated have become paramount to a resolution of the dispute between the parties on appeal. E.g., Block Shim, 939 F.2d at 291; accord Club Associates, 956 F.2d at 1069. The district court concluded that the Plan had not been “substantially consummated,” and, as a result, the relief sought was not moot. The principal basis for this conclusion was the fact that the ranch had yet to be sold at the time the district court entered its order. Of course, that event has now occurred, and we must determine as a threshold matter whether we may properly incorporate the December 16 sale into our mootness analysis. If so, we will then evaluate the effect the sale has upon that determination, in addition to the other transactions which are contended to evidence substantial consummation of the Plan.
The Manges debtors have long recognized the significance of this transaction and the consequent effect it would have on the mootness question. In fact, in requesting a stay during the pendency of this appeal, they represented that: The trustee is currently involved in negotiations to sell the property, having received written offers to purchase the property. An order preventing such sale is necessary to prevent the sale from rendering moot the appellants’ appeal. A sale of this property would leave the bankruptcy estate with few assets and would render this appeal moot (emphasis added). As noted above, this court denied the stay. Now that the ranch has been sold and the threat of mootness looms larger, the Manges debtors challenge the December 16 sale — apparently for the first time — on the basis that there is no evidence that the sale was made to a good-faith third-party purchaser, a requirement that they contend has been incorporated into the first prong of the substantial consummation determination. They also speculate that “discovery could conceivably reveal ... that [the sale] was not a good faith transfer for value, or was conditioned on the outcome of this appeal” (emphasis added). Reasoning from that assumption, the debtors argue that the recent sale might be subject to rescission in the event their appeal was successful. Therefore, the Manges debtors previously asked that we remand the case to the district court for discovery on the mootness issue; however, this court denied the request. Although we recognize that the “substantial consummation” test is generally fact-driven such that an evidentiary hearing on the issue would be necessary, there is a very important distinction in the case presented. Substantial consummation here is merely a sub-part of the overall mootness balancing test, as discussed above. Mootness is evaluated by the reviewing court, which may take notice of facts not available to the trial court if they go to the heart of the court’s ability to review. See Board of License Comm’rs v. Pastore, 469 U.S. 238, 240, 105 S.Ct. 685, 686, 83 L.Ed.2d 618 (1985) (“When a [post-appeal] development ... could have the effect of depriving the Court of jurisdiction due to the absence of a continuing case or controversy, that development should be called to the attention of the Court without delay.”); Clark v. K-Mart Carp., 979 F.2d 965, 967 (3d Cir.1992) (Unless reviewing court can receive facts relevant to mootness, “there [is] no way to find out if an appeal has become moot.”). Thus, this court may review evidence as to subsequent events not before the courts below which bears upon the issue of mootness. E.g., Crystal Oil, 854 F.2d at 81; Roberts Farms, 652 F.2d at 796. Problems can arise, however, where the party opposing a motion to dismiss on mootness grounds contests the newly submitted evidence, as do the debtors here. 11 However, we need not concern ourselves with resolving any such evidentiary dispute in the context of our mootness determination-or remanding it to the bankruptcy court for resolution-because there is no real controversy as to the facts regarding the sale of the ranch. Seattle and SeaFirst have ified authenticated copies of the deeds of sale and sales agreements respecting the December 16 sale, and the co-trustees have stated tinder oath that these documents constitute the entire agreement between the Trust and, the third-party buyers. Conspicuously absent from the papers before us is any affidavit or documentary evidence-other than sheer speculation by the debtors in their motion to remand-that the sale was somehow compromised in order to facilitate a finding of mootness. This silence is even more suspect in light of the fact that the debtors ified motions to stay in this court to suspend the sale at issue, never once having lodged the charges they make today. 12 Seattle and SeaFirst urge us to take judicial notice of the unimpeached certified copies of the deeds and assignments executed by the Trust to the third-party purchasers contained in Seattle and SeaFirst’s Record Excerpts, an invitation we accept. E.g., Pratt v. Kelly, 585 F.2d 692, 696 (4th Cir.1978); see also Fed.R.Evid. 201; cf. Landy v. FDIC, 486 F.2d 139, 151 (3d Cir.1973) (taking judicial notice of court documents), cert. denied, 416 U.S. 960, 94 S.Ct. 1979, 40 L.Ed.2d 312 (1974). We also take note of the properly authenticated sales agreements which fail to evidence any contingency upon the outcome of this appeal. Prom these documents, it appears that the “centerpiece” of this litigation has been irreversibly sold to third parties. Therefore, “it is very doubtful that effective relief could be afforded even if [the Manges debtors] prevailed on the merits.” In re Information Dialogues, Inc., 662 F.2d 475, 476 (8th Cir.1981) (per curiam). This factor alone weighs heavily in favor of a finding of mootness.
Even prior to the sale, the Trust spent millions of dollars improving, upgrading, and preparing the property for sale, countless hours in negotiation of the conveyance, and substantial amounts in appraisals, surveys, and other closing costs. The Trust additionally engaged in negotiations to renew gas production on the ranch mineral estate, to lease both the surface estate and mineral rights, and to dispose of litigation involving Trust assets. Significant amounts were paid to state taxing authorities to reduce the outstanding liability for property taxes on the ranch which had not been paid for several years. Millions of dollars in claims have been paid to date from the creditor fund established by Seattle and SeaFirst. In sum, (i) the Trust “has transferred all or substantially all of the property proposed by the [P]lan to be transferred”; (ii) the liquidating trustees have assumed the business and management of all the property dealt with by the Plan; and (iii) the Trust has “eommenee[d] distribution under the [P]lan.” 11 U.S.C. § 1101(2). Accordingly, the “substantial consummation” factor counsels convincingly against reviewing the merits of the debtors’ challenge to the Plan.