Court Opinion

ID: 2652387
Source: CourtListenerOpinion
Date Created: 2014-02-06 06:06:37.467477+00
Date Added: 2024-06-11T09:10:43.291656
License: Public Domain

Case: 13-10468      Document: 00512523153         Page: 1    Date Filed: 02/05/2014

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT     United States Court of Appeals
                                                       Fifth Circuit

                                                                                   FILED
                                                                               February 5, 2014
                                      No. 13-10468
                                                                                Lyle W. Cayce
                                                                                     Clerk
In the Matter of: R.E. LOANS, L.L.C.; R.E. FUTURE, L.L.C.; CAPITAL
SALVAGE, a California Corporation,

                                                 Debtors

WELLS FARGO CAPITAL FINANCE, L.L.C.,

                                                 Appellant
v.

GORDON NOBLE; ARLENE DEA DEELEY; FREDRIC C. MENDES;
NANCY RAPP; PHILLIP CANTOR; JOHN EMANUELE; IRENE LEE;
DAVID NOLAN,

                                                 Appellees

                   Appeal from the United States District Court
                        for the Northern District of Texas
                             U.S.D.C. No. 3:12-cv-3513

Before REAVLEY, PRADO, and OWEN, Circuit Judges.
PER CURIAM:*
       Before the Court is Defendants–Appellees’ Motion to Dismiss the Appeal
as Moot. For the reasons stated herein, we grant the motion and dismiss the
appeal as moot.

       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
    Case: 13-10468    Document: 00512523153     Page: 2   Date Filed: 02/05/2014

                                 No. 13-10468
         I.   FACTUAL AND PROCEDURAL BACKGROUND
      Defendants–Appellees Gordon Noble, Arlene Dea Deeley, Fredric C.
Mendes, Nancy Rapp, Phillip Cantor, John Emanuele, Irene Lee, and David
Nolan (the “Class Plaintiffs”) filed a consolidated putative class action
complaint (the “Consolidated Complaint”) in California state court against
Plaintiff–Appellant Wells Fargo Capital Finance, L.L.C. (“Wells Fargo”). The
present appeal stems from Wells Fargo’s attempt to attack the Consolidated
Complaint through an action in the United States Bankruptcy Court for the
Northern District of Texas.
      The Class Plaintiffs are former investors in R.E. Loans, LLC (“REL”).
REL is a hard-money lender that raised funds to make real estate secured
loans to real estate developers.   Suffering from a liquidity shortage, REL
entered into a senior secured credit facility with Wells Fargo in July 2007.
Later, in November 2007, REL and its member–investors, including the Class
Plaintiffs, entered into a transaction (the “Exchange Offering”) wherein the
member–investors exchanged their equity interest in REL for junior secured
notes issued by REL.     As the real estate market worsened, so did REL’s
financial condition. Ultimately, REL filed for bankruptcy in the United States
Bankruptcy Court for the Northern District of Texas. Under its Chapter 11
Plan of Reorganization, the REL estate released all claims against Wells Fargo
that were property of the REL estate on the effective date of the plan.
      In their Consolidated Complaint, the Class Plaintiffs allege that they
were induced into participating in the Exchange Offering through
misrepresentations the managers of REL made to them, and that Wells Fargo
provided assistance in the managers’ misrepresentations. Wells Fargo, in
turn, commenced an adversary proceeding in the bankruptcy court, and moved
therein to enjoin prosecution of the Consolidated Complaint on the ground that
the asserted causes of action were property of the REL estate and that the REL
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                                  No. 13-10468
estate had released all claims against Wells Fargo. Specifically, Wells Fargo
argued that the Consolidated Complaint sought recovery for harm to REL and
that the Class Plaintiffs’ injuries were derivative of, and secondary to, the
harm REL allegedly suffered.
      The bankruptcy court denied the motion and dismissed the adversary
proceeding. On appeal, the United States District Court for the Northern
District of Texas affirmed in part and reversed in part. The district court
considered the facial allegations in the Consolidated Complaint and affirmed
the denial of an injunction as to the cause of action stemming from the Class
Plaintiffs’ entry into the Exchange Offering. The district court reasoned that
the cause of action sought to recover for personal injury to the Class Plaintiffs
and, thus, was not property of the REL estate. The district court reversed as
to the other causes of action. Wells Fargo appeals the affirmance.
       II.   THE CLASS PLAINTIFFS’ MOTION TO DISMISS
      On August 2, 2013, after Wells Fargo filed its opening brief, the Class
Plaintiffs filed a Motion to Dismiss the Appeal as Moot. Mootness “is ‘the
doctrine of standing in a time frame. The requisite personal interest that must
exist at the commencement of litigation (standing) must continue throughout
its existence (mootness).’” Ctr. for Indiv. Freedom v. Carmouch, 449 F.3d 655,
661 (5th Cir. 2006) (quoting U.S. Parole Comm’n v. Geraghty, 445 U.S. 388,
397 (1980)). A case may become moot when “an intervening factual event . . .
causes the plaintiff to no longer have a present right to be vindicated or a stake
or interest in the outcome.” Dailey v. Vought Aircraft Co., 141 F.3d 224, 227
(5th Cir. 1998). However, “[a] case should not be declared moot ‘[a]s long as
the parties maintain a “concrete interest in the outcome” and effective relief is
available to remedy the effect of the violation.’” Envtl. Conservation Org. v.
City of Dall., Tex., 529 F.3d 519, 527 (5th Cir. 2008) (quoting Dailey, 141 F.3d
at 227).
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                                    No. 13-10468
      According to the Class Plaintiffs, Wells Fargo’s appeal seeks review of
the district court’s interpretation of the facial allegations in the Consolidated
Complaint. However, the Class Plaintiffs argue, because the Consolidated
Complaint has been superseded in California state court by a “significantly
amended” complaint (the “Third Amended Complaint”) and because the Third
Amended Complaint is not before this Court, 1 the present appeal should be
dismissed as moot.
      Though conceding that the Third Amended Complaint is “different in
several respects from the Consolidated Complaint,” Wells Fargo responds that
“the Third Amended Complaint does not abandon the claims at issue in this
appeal” involving the Exchange Offering. Therefore, Wells Fargo argues, it
has a concrete interest in the outcome and effective relief is available because
the Consolidated Complaint and the Third Amended Complaint “allege the
same theories of harm in connection with the Exchange Offering.”
      We disagree. The crux of this appeal, and of the underlying adversary
proceeding, challenges “[w]hether a specific cause of action belongs to a
bankruptcy estate[—]a matter of law that [the reviewing court will] decide by
reference to the facial allegations in the complaint.”             In re Seven Seas
Petroleum, Inc., 522 F.3d 575, 583 (5th Cir. 2008) (citing In re Educators Grp.
Health Trust, 25 F.3d 1281, 1285 (5th Cir. 1994)). In the adversary proceeding
below, Wells Fargo challenged only the allegations in the Consolidated
Complaint. Similarly, on appeal, Wells Fargo has raised only the causes of
action asserted in the Consolidated Complaint.
      The Consolidated Complaint, however, is no longer the operative
complaint and has no legal effect because the Third Amended Complaint has

      1 Wells Fargo is currently challenging the Third Amended Complaint in a newly filed
adversary proceeding in the United States Bankruptcy Court for the Northern District of
Texas.
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                                 No. 13-10468
superseded it and does not incorporate the Consolidated Complaint. See, e.g.,
King v. Dogan, 31 F.3d 344, 346 (5th Cir. 1994) (“An amended complaint
supersedes the original complaint and renders it of no legal effect unless the
amended complaint specifically refers to and adopts or incorporates by
reference the earlier pleading.”); Foreman & Clark Corp. v. Fallon, 3 Cal. 3d
875, 884 (1971) (“It is well established that an amendatory pleading supersedes
the original one, which ceases to perform any function as a pleading.” (citing
Meyer v. State Bd. of Equalization, 42 Cal. 2d 376, 384 (1954))). We need not
decide whether the amendment of the complaint, alone, is sufficient to moot
this appeal. It suffices to hold that the facts alleged in the Third Amended
Complaint are sufficiently different from those the bankruptcy court and
district court reviewed below. The differences between the two complaints are
such that Wells Fargo no longer has a right to be vindicated or a stake in the
outcome of the Consolidated Complaint. Wells Fargo’s appeal is moot.
                          III.   CONCLUSION
      Accordingly, we GRANT the Class Plaintiffs’ motion to dismiss the
appeal and DISMISS Wells Fargo’s appeal as moot.

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