Court Opinion

ID: 172938
Source: CourtListenerOpinion
Date Created: 2010-08-14 19:00:07+00
Date Added: 2024-06-11T17:25:22.071434
License: Public Domain

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not binding precedent, except under the doctrines of law of the case, res judicata,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

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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

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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.

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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

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