Court Opinion

ID: 4670129
Source: CourtListenerOpinion
Date Created: 2021-03-22 16:00:34.349419+00
Date Added: 2024-06-11T08:01:33.888786
License: Public Domain

FILED
                                                                    United States Court of Appeals
                          UNITED STATES COURT OF APPEALS                    Tenth Circuit

                                FOR THE TENTH CIRCUIT                     March 22, 2021
                            _________________________________
                                                                       Christopher M. Wolpert
                                                                           Clerk of Court
 In re: RAILYARD COMPANY, LLC,

        Debtor.

 ------------------------------

 RICK JARAMILLO; STEVEN DURAN,

        Appellants,

 v.                                                         No. 20-2049
                                                (D.C. No. 1:19-CV-00589-MV-SCY)
 CRAIG DILL, Chapter 7 Trustee,                              (D. N.M.)

        Appellee.
                            _________________________________

                                ORDER AND JUDGMENT *
                            _________________________________

Before MORITZ, BALDOCK, and EID, Circuit Judges.
                  _________________________________

       Railyard Company, LLC (“Railyard” or “Debtor”) is the debtor in the

underlying Chapter 7 bankruptcy proceeding. Appellants Rick Jaramillo and Steven

Duran are members and managers of, and equity investors in, Railyard. Proceeding

       *
        After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist in 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 This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral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.
pro se, 1 they seek to appeal the district court’s decision affirming the bankruptcy

court’s orders (1) approving a settlement with the City of Santa Fe (the “City”) and

striking their objections to the proposed settlement for lack of standing; and

(2) denying their motion seeking recusal of the bankruptcy court judge. Appellee

Craig Dill, Chapter 7 Trustee (the “Trustee”), argues that we should dismiss the

appeal both because Appellants lack standing and because the appeal is

constitutionally and equitably moot. We agree that the appeal is constitutionally

moot. Accordingly, we dismiss the appeal for lack of jurisdiction and do not address

the other alleged bases for dismissal.

                                      Background

      Appellants and other investors formed Railyard to construct and operate a

large, multi-unit building at an abandoned rail station near downtown Santa Fe

(“Market Station”). Market Station is built on land owned by the City and leased or

subleased to Railyard. Railyard’s income came from leasing space in the building.

Shortly after Railyard closed on a substantial bridge loan to refinance existing debt

encumbering Market Station, a significant tenant filed for bankruptcy and moved out

of Market Station. Railyard defaulted on the loan and the parties to the loan became

embroiled in litigation. Railyard was also involved in litigation with several of its

tenants and the City. It ultimately filed a voluntary petition for relief under

Chapter 11 of the Bankruptcy Code. The bankruptcy court converted the case to

      1
        Because Appellants are pro se, we construe their pleadings liberally.
Ledbetter v. City of Topeka, 318 F.3d 1183, 1187 (10th Cir. 2003).
                                            2
Chapter 7 and appointed the Trustee as trustee of Railyard’s bankruptcy estate (the

“Estate”).

       The appeal involves three bankruptcy court orders. First, Appellants moved to

recuse the bankruptcy court judge on the ground that his former law partner was an

attorney for the Trustee and gave legal advice to Appellants as members of Railyard

concerning claims against the City. The court denied the motion.

       The second and third orders Appellants seek to appeal stemmed from the

Trustee’s motion to approve a settlement with the City. Appellants filed an

objection, alleging that litigation is pending in New Mexico state court against

Railyard and its members, and the automatic bankruptcy stay in that case has

deprived Appellants of an opportunity to pursue counterclaims against the City and

others. The Trustee moved to strike the objection, arguing Appellants lacked

standing to object to the settlement because they did not have a pecuniary interest in

the outcome of the motion given that their only interest was as members of the

Debtor and there were insufficient funds to pay the allowed unsecured claims let

alone any to revert to the Debtor. See C.W. Mining Co. v. Aquila, Inc. (In re C.W.

Mining Co.), 636 F.3d 1257, 1260-61 (10th Cir. 2011) (explaining that “a hopelessly

insolvent debtor does not have standing to appeal orders affecting the size of the

estate, since such an order would not diminish the debtor’s property, increase his

burdens, or detrimentally affect his rights,” and that to have a pecuniary interest, the

debtor’s managers must show a reasonable possibility of surplus after satisfying all

debts (brackets omitted)); see also 11 U.S.C. § 726(a)(6) (establishing the priorities for

                                            3
distributions in a Chapter 7 liquidation and providing that the debtor is paid last, after all

secured and unsecured claims are paid). The bankruptcy court agreed, expressly

finding “[t]here are insufficient funds to pay the allowed unsecured claims in full.”

Aplt. App., Vol. 2 at 128. It thus struck the objection for lack of standing and, in a

separate order, approved the settlement.

       Appellants appealed those three orders to the district court. With respect to

the order concluding they lacked standing to object to the settlement, Appellants did

not challenge the bankruptcy court’s finding that there were insufficient funds in the

Estate to pay all unsecured creditors in full. They instead maintained that they

sought to make a claim against the Estate not as investors but as creditors based on a

state court judgment against them in their individual capacities. However, they did

not timely file a claim against the Estate, cited no record evidence supporting their

claim to be creditors, and provided no legal support for their theory that a state court

judgment against them in their individual capacities as Railyard’s managers and

investors gave them a valid claim against the company.

       A magistrate judge found the record supported the bankruptcy court’s factual

finding of insolvency. And because Appellants failed to provide factual or legal

support for their assertion that they were creditors with a valid claim against the

Debtor, the magistrate judge concluded they waived that argument. Consequently,

the magistrate judge recommended affirming both the standing order and the order

approving the settlement. The magistrate judge also concluded Appellants lacked

standing to appeal the order denying recusal and that even if they had standing to

                                               4
appeal it, the order was unreviewable because they presented an insufficient record to

the reviewing court—they did not ensure that the appellate record included the

bankruptcy judge’s order explaining his reasons for denying the motion.

      Appellants filed timely objections to the magistrate judge’s recommendations

but again failed to cite any authority supporting their theory that they were Railyard’s

creditors. The district court overruled the objections, adopted the magistrate judge’s

recommendations, and affirmed the bankruptcy court’s orders. It later entered a

separate judgment.

      Appellants timely appealed, but they did not seek a stay of the order approving

the settlement with the City. Accordingly, the Trustee carried out the settlement

agreement and received the settlement proceeds from the City into the Estate.

Shortly after this appeal was filed, the Trustee filed his Final Report in the

bankruptcy court. Appellants did not object to the Final Report, nor did anyone else.

The bankruptcy court approved the Final Report and authorized the Trustee to

distribute the funds in the Estate, including the settlement proceeds, pursuant to the

Final Report. Appellants did not seek a stay of that order, and the Trustee has since

paid all creditors entitled to receive a distribution. The Estate has been fully

administered and does not have any remaining funds or assets to distribute. Soon

thereafter, the bankruptcy court entered the Final Decree and closed the case.

                                            5
                                       Discussion

       The Trustee argues that this appeal is constitutionally moot. We agree and

therefore dismiss the appeal for lack of jurisdiction. 2

       “[T]he existence of a live case or controversy is a constitutional prerequisite to

federal court jurisdiction.” Rio Grande Silvery Minnow v. Bureau of Reclamation,

601 F.3d 1096, 1109 (10th Cir. 2010) (internal quotation marks omitted); see U.S.

Const. art. III, § 2, cl. 1 (limiting federal court to adjudicating “Cases” and

“Controversies”).

       A bankruptcy “appeal is constitutionally moot if the court can fashion no

meaningful relief.” Search Mkt. Direct, Inc. v. Jubber (In re Paige), 584 F.3d 1327,

1336 (10th Cir. 2009) (brackets and internal quotation marks omitted). If the “court

can fashion some form of meaningful relief, even if it only partially redresses the

grievances of the prevailing party, the appeal is not moot.” Id. (internal quotation

marks omitted). “The crucial question is whether granting a present determination of

the issues offered will have some effect in the real world.” Citizens for Responsible

Gov’t State Pol. Action Comm. v. Davidson, 236 F.3d 1174, 1182 (10th Cir. 2000).

       Real-world relief does not have to be monetary. See, e.g., Golfland Ent. Ctrs.,

Inc. v. Peak Inv., Inc. (In re BCD Corp.), 119 F.3d 852, 857 (10th Cir. 1997)

(explaining that the unsuccessful bidder’s appeal of the bankruptcy court order

       2
        The Trustee raised this argument in both a motion to dismiss and in his
merits brief. In light of the merits brief argument, the motion to dismiss is moot, and
we need not resolve the parties’ arguments about whether the motion should be
denied as untimely under 10th Cir. R. 27.3(A)(3)(a).
                                             6
confirming the sale of property was not moot because there was still a possibility of

relief given that the proceeds of the challenged sale had not been distributed and state

law provided for equitable remedies under the principles of constructive trust). Here,

however, the bankruptcy case is closed, and it does not appear there is any form of

meaningful relief—monetary or equitable—the court could order if Appellants were

to prevail on appeal. Based on the issues they raised, prevailing on appeal means

reversal of the orders denying recusal and striking Appellants’ objection to the

proposed settlement with the City. But the Trustee has consummated the settlement

agreement, liquidated all of Debtor’s assets, and distributed all funds of the Estate,

including the proceeds of the objected-to settlement. The Estate has thus been fully

administered and the bankruptcy case has been closed.

      Appellants do not dispute these facts and have not suggested there is any form

of real-world relief we could order if we determined either that they had standing to

object to the settlement or that the bankruptcy judge should have recused himself.

We thus conclude the appeal is constitutionally moot and must be dismissed for lack

of jurisdiction. See EEOC v. CollegeAmerica Denver, Inc., 869 F.3d 1171, 1173

(10th Cir. 2017) (explaining that because “[a] case or controversy does not exist

when a claim is moot,” moot appeals “must be dismissed”). And, having so

                                            7
concluded, we need not address the Trustee’s arguments that the appeal should be

dismissed as equitably moot 3 and because Appellants lack appellate standing. 4

                                     Conclusion

      We dismiss this appeal as moot, and we deny the motion to dismiss as moot.

                                           Entered for the Court

                                           Allison H. Eid
                                           Circuit Judge

      3
        We note that the Tenth Circuit adopted the equitable mootness doctrine in
In re Paige, 584 F.3d at 1337, which, like most cases in which the doctrine has been
invoked, involved a confirmed Chapter 11 reorganization plan that had been
substantially consummated, see id. at 1335 n.7 (explaining that “the doctrine of
equitable mootness is rooted . . . in the court’s discretionary power to fashion a
remedy in cases seeking equitable relief.”). We have not yet decided whether
equitable mootness should apply in the Chapter 7 context. See C.O.P. Coal Dev. Co.
v. C.W. Mining Co. (In re C.W. Mining Co.), 641 F.3d 1235, 1239-40 (10th Cir.
2011) (declining to decide issue).
      4
         “Because there is no mandatory sequencing of nonmerits issues, we have
leeway to choose among threshold grounds for denying audience to a case on the
merits.” Citizen Ctr. v. Gessler, 770 F.3d 900, 906 (10th Cir. 2014) (brackets and
internal quotation marks omitted)). Accordingly, we may dismiss the appeal as moot
without deciding whether Appellants have standing. See Brown v. Buhman, 822 F.3d
1151, 1163 n.12 (10th Cir. 2016) (not deciding standing issue and remanding with
directions to vacate judgment on the merits and dismiss suit as moot).

                                          8