Court Opinion

ID: 2797374
Source: CourtListenerOpinion
Date Created: 2015-04-29 17:01:02.672169+00
Date Added: 2024-06-11T09:32:38.396729
License: Public Domain

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

                                  TENTH CIRCUIT                                April 29, 2015

                                                                           Elisabeth A. Shumaker
                                                                               Clerk of Court

In re: KENNETH RODERICK
ANDERSON,

Debtor.
                                                             No. 13-4063
                                                    (D.C. Nos. 2:12-CV-01205-CW,
KENNETH RODERICK ANDERSON,                               2:12-CV-01206-CW,
                                                          2:12-CV-1207-CW,
             Appellant,                                  2:12-CV-01208-CW)
                                                               (D. Utah)
v.

DAVID C. WEST, Chapter 7 Trustee;
WASHINGTON COUNTY WATER
CONSERVANCY DISTRICT; UNITED
STATES TRUSTEE OFFICE; LEE
TRUST AND LOWNEY TRUST,

             Appellees.

                             ORDER AND JUDGMENT*

Before LUCERO, O’BRIEN, and GORSUCH, Circuit Judges.

      *
         This order and judgment is an unpublished decision, not binding precedent. 10th
Cir. R. 32.1(A). Citation to unpublished decisions is not prohibited. Fed. R. App. 32.1.
It is appropriate as it relates to law of the case, issue preclusion and claim preclusion.
Unpublished decisions may also be cited for their persuasive value. 10th Cir. R. 32.1(A).
Citation to an order and judgment must be accompanied by an appropriate parenthetical
notation B (unpublished). Id.
       In this bankruptcy case the Chapter 7 Trustee abandoned estate real property

known as the Pah Tempe Hot Springs Resort (the Property).1 It was subsequently sold in

state court foreclosure proceedings. Even though the abandonment returned the Property

to him, the Debtor, Kenneth R. Anderson, who owned the Property,2 objected to it. He

did not, however, request a stay of the abandonment or of the foreclosure sale. The

bankruptcy judge concluded the abandonment and sale of the Property rendered this

matter moot. The district court affirmed the abandonment of the Property on the merits

but did not address the jurisdictional issue of mootness. Because the case is, indeed,

moot, we vacate the district court’s judgment and remand with instructions for it to

dismiss the appeal from the bankruptcy court for want of jurisdiction. We also dismiss

this appeal.

       1
        The property abandoned by the Trustee did not include water shares and water
delivery contracts associated therewith. The notice of abandonment described the
property to be abandoned as:

       The Pah Tempe Hot Springs Resort—approximately 215 acres and
       improvements—Parcel Nos. 3313-B-HV, 3407-B-1-HV, 3407-A-HV, LV-42-J,
       LV-42-A-1, LV-163, LV-42-H, but not including approximately 27.92 primary
       shares in the Hurricane Canal Co., approximately 3.432 secondary shares in the
       Hurricane Canal Co., and approximately 8.0 equivalent shares of water delivery
       contracts with LaVerkin City.

(Appellant’s App’x, Vol. 1 at 32.) Since the water shares and water delivery contracts
remained part of the bankruptcy estate, they are irrelevant to the jurisdictional issue.
       2
           Throughout this appeal all parties refer to Anderson as the owner.

                                             -2-
                                          I. Background

       A. The Settlement Agreement

       Anderson owned and operated the Pah Tempe Hot Springs Resort (Property) in

Washington County, Utah, where bathers would come to soak in the Property’s naturally

flowing hot springs. He also lived on the Property. Traversing the Property was a water

pipeline located in an easement owned by the County’s Water Conservancy District

(District). Conflict arose between the District and Anderson—the District claimed the

salt-laden hot springs polluted the nearby Virgin River and Anderson claimed the

District’s pipeline disrupted the flow of the hot springs to the detriment of the resort’s

business. A lawsuit ensued. The parties reached a Settlement Agreement in early 2006.

Relevant here, the Settlement Agreement outlined the legal rights of each party in the

Property. Anderson also promised to undertake expensive improvements to the Property

to increase the flow of the hot springs; this obligation extended to subsequent purchasers.

       B. The Loans from the Family Trusts

       Between February 5 and May 6, 2008, the Lee and Lowney Family Trusts (the

Family Trusts) made three loans to Anderson totaling $1,004,000. Each loan was

evidenced by a promissory note and a deed of trust pledging the Property as collateral

(subject to the District’s rights). Each of the promissory notes required monthly

payments for five years.

       Anderson soon became delinquent in making the monthly payments. At his

urging, the parties modified the notes, making them payable in full one year later (on

November 1, 2009). When Anderson did not pay, the Family Trusts issued a notice of

                                             -3-
default to Anderson and initiated state court foreclosure proceedings. A foreclosure sale

was set. However, on the eve of the sale, Anderson filed a bankruptcy petition resulting

in an automatic stay of all proceedings, including the foreclosure sale. See 11 U.S.C.

§ 362(a).

       C. The Bankruptcy Proceedings and Sale of the Property

       Anderson initially filed for bankruptcy relief under Chapter 113 and, as debtor in

possession, successfully moved to assume the Settlement Agreement.4 See 11 U.S.C.

§ 365. Upon a motion by the Family Trusts, the case was converted to a Chapter 7

proceeding, see 11 U.S.C. § 1112(b), changing the proceedings from a reorganization to a

liquidation. See In re C.W. Mining Co., 740 F.3d 548, 553 (10th Cir. 2014). A Trustee

was appointed.

       The Trustee determined the Property “to be burdensome and of inconsequential

value to the estate” and provided notice of his intent to abandon the Property under 11

U.S.C. § 554(a) and Fed. R. Bankr. P. 6007(a). (Appellant’s App’x, Vol. 1 at 32.) His

reasoning: he had listed the Property with a broker to sell, but no purchase offers were

       3
         While in Chapter 11, Anderson tried to render the Property profitable by
installing a zipline; his efforts failed.
       4
         11 U.S.C. § 365 allows a trustee or debtor in possession to assume or reject an
executory contract. Leasing Serv. Corp. v. First Tenn. Bank Nat’l Ass’n, 826 F.2d 434,
436 (6th Cir. 1987). “The statutory purpose of [§] 365 . . . is to enable the trustee to
assume those executory obligations which are beneficial to the estate while rejecting
those which are onerous or burdensome to perform.” Id. A rejection generally
constitutes a breach of the contract. See 11 U.S.C. § 365(g); see also Int’l Bhd. of
Teamsters, Chauffeurs, Warehousemen & Helpers of Am. v. IML Freight, Inc., 789 F.2d
1460, 1463 (10th Cir. 1986).

                                           -4-
received by the broker. While the Property was listed, the Trustee directly negotiated

with the District about a purchase. The District offered $1.54 million and had

commissioned an appraisal, which valued the Property at $1.49 million.5 But, since the

liens exceeded the appraisals by several hundred thousand dollars, the Trustee did not

consider the Property of value to the bankruptcy estate.

       Anderson objected to the notice of abandonment.6 Apparently wanting the

Property to remain subject to the bankruptcy (and to enjoy the benefits of the automatic

stay), he complained that the Trustee’s notice, first given at the Meeting of Creditors, was

inadequate. He also claimed to be entitled to an evidentiary hearing under 11 U.S.C.

§ 554. At bottom, he questioned the Trustee’s decision to abandon the Property,

contending it could be made valuable to the bankruptcy estate by extracting the rare earth

elements allegedly present in the spring waters.7 He also wanted the Trustee to litigate

with the District over the terms of the Settlement Agreement, which litigation would, in

his view, remove the District’s claims as a cloud on the Property’s title, thereby

       5
        The appraisal included some of the water shares which were not being
abandoned (see supra n.1) and did not consider the Settlement Agreement, which
required Anderson (or any subsequent owner) to make costly improvements to the
Property.
       6
         Even though abandonment removes property from the bankruptcy estate and
returns it to the debtor, see Dewsnup v. Timm (In re Dewsnup), 908 F.2d 588, 590 (10th
Cir. 1990), aff’d, 502 U.S. 410 (1992), Anderson objected. His objection was not timely
under Fed. R. Bankr. P. 6007(a) and 9006(a), but no one complained.
       7
         Anderson made some superficial effort to determine if such a venture could reap
a profit. Nothing came of it. Why he thinks it reasonable for the Trustee to pick up that
cudgel to beat a dead horse is baffling.

                                            -5-
increasing its value.

       Without holding an evidentiary hearing,8 the bankruptcy judge allowed the

abandonment. Anderson filed a timely motion to reconsider, but never sought to stay the

abandonment.

       Relieved of the automatic stay with respect to the Property, see 11 U.S.C.

§ 362(c), the Family Trusts continued their foreclosure efforts in state court. The

foreclosure sale, pretermitted by the stay, was reset to November 8, 2012, and notice of

the sale was provided to Anderson. The Family Trusts purchased the Property at the

foreclosure sale; there were no other bids.9 Although Anderson was represented by

counsel and personally attended the sale, he did not move to stay or otherwise challenge

the foreclosure proceedings in state court. Instead, after the Property was sold to the

Family Trusts, he filed an emergency motion with the bankruptcy court seeking to

extend/impose the automatic stay. In the motion, he sought to invalidate the foreclosure

       8
        The bankruptcy judge had scheduled an evidentiary hearing but conditioned the
holding of the hearing on Anderson obtaining, among other things, property insurance
with a minimum coverage of $1.8 million (the amount owed to the Family Trusts). When
Anderson obtained only $405,000 in property insurance, the judge vacated the scheduled
evidentiary hearing.
       9
         The documents evidencing the loans from the Family Trusts to Anderson
included as collateral 30.92 water shares in the Hurricane Canal Company and 8.0
equivalent shares of water delivery contracts with LaVerkin City, neither of which was
abandoned by the Trustee. See supra n.1. According to the Trustee, the Family Trusts
did not obtain a lien on these water interests and, even if a lien existed, they failed to
perfect their interest in them. It does not appear the water shares or delivery contracts
were part of any subsequent conveyance either when the Family Trusts purchased the
Property at the foreclosure sale or when the Family Trusts later sold it to the District. In
any event, we are only concerned with the abandoned property; what the Family Trusts
bought or sold during and after the foreclosure proceedings is irrelevant.

                                            -6-
sale and to stop the Family Trusts’ efforts to evict him from the Property.10

       The bankruptcy judge denied Anderson’s motion to reconsider as well as his

emergency motion to extend/impose automatic stay. He also dismissed the adversary

proceeding Anderson had initiated against the Trustee and the District in an attempt to

prevent the Trustee from separating the water shares and water delivery contracts from

the Property (thereby devaluing the Property) (see supra n.1) and to have the Settlement

Agreement declared invalid and thus removed as a cloud on the Property’s title. The

judge concluded the matter was moot because the bankruptcy court could no longer

provide meaningful relief after the Property had been abandoned and sold. He also

determined Anderson lacked standing to challenge the abandonment because the

abandonment returned the Property to him and thus he suffered no injury. The Family

Shares eventually sold the Property to the District.

       D. The Appeal to the District Court

       Anderson appealed to the district court for relief.11 See 28 U.S.C. § 158(a)(1),

(c)(1), Fed. R. Bankr. P. 8005(a) (formerly Fed. R. Bankr. P. 8001(e)). The district judge

       10
         Nothing in the record suggests Anderson exercised his rights to redeem the
Property under Utah law. See Utah R. Civ. P. 69C. But, because he refused to leave the
Property after the sale, the Family Trusts initiated a state court proceeding to evict him,
as permitted by Utah law. See Utah Code Ann. §§ 78B-6-801-816. We mention these
matters only to provide context; Utah foreclosure law is not a matter of our concern.
       11
          Anderson filed four separate appeals challenging the bankruptcy judge’s (1)
denial of his motion for reconsideration, (2) denial of his emergency motion to
extend/impose automatic stay; (3) grant of the Trustee’s motion to dismiss the adversary
proceeding; and (4) grant of the District’s motion to dismiss the adversary proceeding.
The appeals were consolidated.

                                             -7-
thought Anderson should have received an evidentiary hearing on the abandonment issue.

But, after allowing the parties to proffer evidence, he ultimately determined any error in

failing to hold the hearing was harmless. He affirmed the bankruptcy court’s decision

allowing abandonment of the Property without direct mention of the jurisdictional

concerns.

                                       II. Discussion

       Anderson wants us to remand the case to the bankruptcy court for a hearing on the

Property’s value and for interpretation of the Settlement Agreement. The Trustee, the

District, and the Family Trusts (hereinafter Appellees) think this court lacks jurisdiction

because the salient issues are moot.

       Mootness is a jurisdictional issue to be decided at the threshold. See Golfland

Entm’t Ctrs., Inc. v. Peak Inv., Inc. (In re BCD Corp.), 119 F.3d 852, 856 (10th Cir.

1997). “Our consideration of this issue is de novo.” Dais-Naid, Inc. v. Phoenix Res. Cos.

(In re Texas Int’l Corp.), 974 F.2d 1246, 1247 (10th Cir. 1992).

       The Constitution gives federal courts the power to adjudicate only “Cases” and

“Controversies.” See U.S. Const. art. III, § 2, cl. 1. “To invoke the jurisdiction of a

federal court, a litigant must have suffered, or be threatened with, an actual injury

traceable to the defendant and likely to be redressed by a favorable judicial decision.”

Lewis v. Cont’l Bank Corp., 494 U.S. 472, 477 (1990). “A case becomes moot . . . when

it is impossible for a court to grant any effectual relief whatever to the prevailing party.”

Knox v. Serv. Emps. Int’l Union, Local 1000, --- U.S. ---, 132 S. Ct. 2277, 2287 (2012)

(quotations omitted).

                                             -8-
       In re Egbert Development informs the debate. In that case the bankruptcy court

issued an order terminating the automatic stay in order for a secured creditor to foreclose

on the debtor’s property. See Egbert Dev., LLC v. Cmty. First Nat’l Bank (In re Egbert

Dev., LLC), 219 B.R. 903, 905 (10th Cir. BAP 1998). The debtor appealed from the

order but did not seek a stay pending appeal. Id. The property was sold in a foreclosure

sale. Id. The Bankruptcy Appellate Panel (BAP) concluded the debtor’s appeal was

moot. Id. at 906. Because the debtor failed to obtain a stay pending appeal, the creditor

was entitled to treat the bankruptcy court’s order lifting the stay as final and to take action

in reliance upon it. Id. The BAP concluded it was powerless to rescind the foreclosure

sale on appeal and reinstatement of the stay would be meaningless given that the sale had

already occurred. Id. Thus, it concluded, even if it reversed the bankruptcy court’s order

lifting the stay, it could grant no effective relief. Id.

       In concluding the case was moot, the BAP relied on the well-established rule “that

an appeal will be dismissed as moot if a debtor fails to obtain a stay pending appeal of a

bankruptcy court order granting relief from the automatic stay and the moving creditor

subsequently conducts a foreclosure sale, as the appellate court cannot grant any effective

relief.” See id. at 905 (collecting cases). The rule is “intended to provide finality to

orders of bankruptcy courts and to protect the integrity of the judicial sale process upon

which good faith purchasers rely.” Id. at 905-06 (quotations omitted). “More

importantly, it serves to insure the integrity of judicial mootness doctrines that the

                                               -9-
occurrence of events which prevent an appellate court from granting effective relief

renders an appeal moot.”12 Id. at 906 (quotations omitted).

       We agree with the BAP’s decision in Egbert and extend its sound reasoning to the

circumstances presented here. Although Egbert involved lifting the automatic stay, in the

context of this case we see no reasoned distinction between lifting the stay (allowing

collection efforts to continue) and abandoning property (severing it from the bankruptcy

estate, returning it to the debtor, and permitting collection efforts to continue). See

Dewsnup v. Timm (In re Dewsnup), 908 F.2d 588, 590 (10th Cir. 1990) (stating

abandoned property is no longer part of the bankruptcy estate), aff’d, 502 U.S. 410

(1992); see also 11 U.S.C. § 362(c) (automatic stay “of an act against property of the

       12
          The Ninth Circuit once recognized an exception to the mootness rule where, like
here, real property is sold to a creditor who is a party to the appeal. Sun Valley Ranches,
Inc. v. The Equitable Life Assurance Soc’y of the United States (In re Sun Valley
Ranches, Inc.), 823 F.2d 1373, 1375 (9th Cir. 1987). It reasoned that where the buyer is
before the court, “it would not be impossible for the Court to fashion some sort of relief.”
Id. (quotations omitted). However, the next year, the court, stressing the need for finality,
circumscribed the exception to cases (like Sun Valley Ranches) where the debtor has a
statutory right of redemption. See Onouli-Kona Land Co. v. Estate of Richards (In re
Onouli-Kona Land Co.), 846 F.2d 1170, 1172-73 (9th Cir. 1988). In noting other circuits
had not permitted an exception for purchaser-parties, the Onouli-Kona court relied on our
decision in Tompkins v. Frey (In re Bel Air Assocs., Ltd.), 706 F.2d 301 (10th Cir. 1983).
Id. at 1173. Unfortunately, Bel Air Associates relied on a bankruptcy rule that has since
been repealed. 706 F.2d at 304-05 & n.10. While that rule was later codified in part in
11 U.S.C. § 363(m), that statute, by its terms, does not apply to state-law foreclosure
sales. See In re Egbert, 219 B.R. at 908 (citing Sullivan Cent. Plaza, I, Ltd. v.
BancBoston Real Estate Capital Corp. (In re Sullivan Cent. Plaza, I, Ltd.), 914 F.2d 731,
734-35 (5th Cir. 1990), and Sewanee Land, Coal & Cattle, Inc. v. Lamb (In re Sewanee
Land, Coal & Cattle, Inc.), 735 F.2d 1294, 1296 n.2 (11th Cir. 1984)). In any event, we
need not rely on any particular statute or rule; this case is moot under constitutional and
judicial mootness principles.

                                            - 10 -
estate . . . continues until such property is no longer property of the estate”). Whether

property is abandoned or the automatic stay is lifted the property is beyond the control of

the bankruptcy court. Equally important, in either case the relevant order is immediately

operative; the bankruptcy code does not provide a reach back remedy for the less than

diligent; doing so could unjustifiably interfere with the rights of bona fide purchasers.

       We do not consider Anderson’s contrary arguments persuasive. First, he suggests

there are other remedies available which do not depend on the propriety of the

foreclosure sale. He asks us to remand to the bankruptcy court and instruct it to interpret

the Settlement Agreement and hold an evidentiary hearing to determine the Property’s

value. According to him, the bankruptcy court has jurisdiction over the Settlement

Agreement because it was assumed and never abandoned.13 But even if the Settlement

Agreement were to be interpreted in Anderson’s favor and the Property valued for more,

that would not retroactively impeach the validity of the foreclosure sale. Anderson

claims removing the Settlement Agreement as a cloud on the Property’s title will benefit

the bankruptcy estate enabling his creditors to enjoy the full value of the Property. Noble

as that sounds, at least superficially, it is unavailing. Bankrupts, as others, have an

obligation to protect their claims and by failing to seek a stay of the abandonment,

Anderson allowed the Property to be sold, putting it beyond the reach of the bankruptcy

court. See In re Dewsnup, 908 F.2d at 590; Gardner v. United States (In re Gardner),

       13
          Anderson also suggests we cannot know what Property was abandoned without
interpreting the Settlement Agreement. But we do know—the Pah Tempe Hot Springs
Resort minus the water shares and water delivery contracts. See supra n.1.

                                            - 11 -
913 F.2d 1515, 1518 (10th Cir. 1990). Without the Property, the bankruptcy court, the

district court, and this court can afford no effective or meaningful relief.14

       Second, Anderson claims the abandonment was not final until the bankruptcy

judge denied his motion to reconsider on December 12, 2012, and therefore the

foreclosure sale occurring on November 8, 2012, was invalid.15 Not so. The bankruptcy

judge’s order declaring the Property abandoned was signed on August 17 and filed on

August 20, 2012, well before the foreclosure sale. Anderson’s motion for reconsideration

of the abandonment order only extended the time for him to appeal from that order, see

Fed. R. Bankr. P. 8002(b). Anderson cites to no authority, and we have found none,

supporting the proposition that a motion to reconsider stays the effectiveness or operation

       14
           We have recognized an exception to the mootness rule when there is a
possibility of equitable relief, such as a constructive trust over the sale proceeds. See,
e.g., In re BCD Corp., 119 F.3d at 856-57; see also Osborn v. Durant Bank & Trust Co.
(In re Osborn), 24 F.3d 1199, 1203-04, 1210 (10th Cir. 1994), abrogated in part on other
grounds by Eastman v. Union Pac. R.R., 493 F.3d 1151, 1156 (10th Cir. 2007).
Anderson has not claimed any right to equitable relief or to the sale proceeds. Indeed, in
both BCD and Osborn, either the Trustee or the debtor in possession sold the property;
thus, the sale proceeds became part of the bankruptcy estate for distribution. See In re
BCD Corp., 119 F.3d at 854-57; In re Osborn, 24 F.3d at 1202. In contrast, the Property
in this case was removed from the bankruptcy estate by abandonment and sold by a
creditor; the sale proceeds are not part of the bankruptcy estate and any excess proceeds
would go to Anderson.
       15
         Other than claiming the foreclosure sale was invalid because it occurred before
the abandonment order was rendered final by the bankruptcy judge’s denial of his motion
to reconsider, Anderson does not challenge the validity of the sale. See BFP v.
Resolution Trust Corp., 511 U.S. 531, 545 (1994) (“We deem, as the law has always
deemed, that a fair and proper price . . . for foreclosed property, is the price in fact
received at the foreclosure sale, so long as all the requirements of the State’s foreclosure
law have been complied with.”).

                                            - 12 -
of the subject order;16 only a stay does so, but one was not requested.

       Next, Anderson argues that even if he was required to request a stay, he did

request a stay pending appeal, albeit unsuccessfully, before the bankruptcy court, district

court, and this court. Not only were the requests denied, they were of no consequence

because they occurred after the Property had already been sold in the foreclosure

proceedings. So too, his emergency motion to extend/impose the automatic stay was not

filed until after the Property had been sold. Anderson does not claim to have requested a

stay of the abandonment order prior to the foreclosure sale and the record reveals none.

An untimely stay request is futile.

       Finally, Anderson argues we have jurisdiction because the district court took

jurisdiction and made a merits decision. Indeed we have jurisdiction to review the

district court’s acts, but at this late stage our jurisdiction is limited to determining

whether the bankruptcy court or the district court could consider a controversy rendered

moot by time and circumstances. Neither could do so. In re Texas Int’l Corp., 974 F.2d

at 1247 (“[T]he existence of a live case or controversy is a constitutional prerequisite to

the jurisdiction of the federal courts.”) (quotations omitted). The bankruptcy court

correctly concluded as much. The district court affirmed “the Bankruptcy Court’s

       16
           Anderson filed his motion to reconsider pursuant to Rules 7052, 9023 and 9024
of the Federal Rules of Bankruptcy Procedure, which in turn apply Rules 52, 59 and 60 of
the Federal Rules of Civil Procedure, respectively. Rule 60(c)(2) provides that a motion
for relief from a final judgment, order or proceeding “does not affect the judgment’s
finality or suspend its operation.” Because no similar provision is present in Rule 52 or
59, it could be inferred that motions under Rule 52 or 59 do suspend the operation of the
underlying order or judgment. But we have found no supporting case law.

                                             - 13 -
decision to allow abandonment of the . . . [P]roperty.” (Appellees’ Supp. App’x, Vol. 1

at 14.) But it should have dismissed the appeal from the bankruptcy court for lack of

jurisdiction. See City Ctr. W., L.P. v. Am. Modern Home Ins. Co., 749 F.3d 912, 913-14

(10th Cir. 2014) (“Mooted cases must be dismissed for lack of jurisdiction.”); see also

Jordan v. Sosa, 654 F.3d 1012, 1023 (10th Cir. 2011) (“The mootness doctrine provides

that although there may be an actual and justiciable controversy at the time the litigation

is commenced, once that controversy ceases to exist, the federal court must dismiss the

action for want of jurisdiction.”).

       We DISMISS this appeal for lack of jurisdiction and REMAND to the district

court and instruct it to vacate its judgment and dismiss the appeal from the bankruptcy

court for lack of jurisdiction. We GRANT Appellee Washington County Water

Conservancy District’s Motion for Summary Disposition. See 10th Cir. R. 27.2.

                                          Entered by the Court:

                                          Terrence L. O’Brien
                                          United States Circuit Judge

                                           - 14 -