Court Opinion

ID: 4193022
Source: CourtListenerOpinion
Date Created: 2017-08-03 17:03:49.373709+00
Date Added: 2024-06-11T14:40:25.454314
License: Public Domain

FILED
                                                         JUL 25 2014
 1                         NOT FOR PUBLICATION
 2                                                   SUSAN M. SPRAUL, CLERK
                                                       U.S. BKCY. APP. PANEL
                                                       OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )      BAP No. CC-13-1316-PaKuBl
                                   )
 6                                 )      Bankr. No. 10-41455-DS
     PAUL PHILLIP BARDOS,          )
 7   dba CADMUS CONSTRUCTION CO., )
                                   )
 8                  Debtor.        )
     ______________________________)
 9                                 )
     TWENTY-NINE PALMS ENTERPRISES )
10   CORPORATION,                  )
                                   )
11                                 )
                    Appellant,     )
12                                 )
     v.                            )      M E M O R A N D U M1
13                                 )
     PAUL PHILLIP BARDOS,          )
14                                 )
                    Appellee.      )
15   ______________________________)
16                   Argued and Submitted on June 26, 2014
                            at Pasadena, California
17
                             Filed - July 25, 2014
18
              Appeal from the United States Bankruptcy Court
19                for the Central District of California
20      Honorable Deborah J. Saltzman, Bankruptcy Judge, Presiding
21
     Appearances:     Richard M. Freeman of Sheppard, Mullin, Richter &
22                    Hampton, LLP, argued for appellant Twenty-Nine
                      Palms Enterprises Corporation; Martha A. Warriner
23                    argued for appellee Paul Phillip Bardos; Maria J.
                      Nunez argued for Leslie T. Gladstone, Proposed
24                    Successor Liquidating Agent.
25
26
          1
27           This disposition is not appropriate for publication.
     Although it may be cited for whatever persuasive value it may
28   have (see Fed. R. App. P. 32.1), it has no precedential value.
     See 9th Cir. BAP Rule 8013-1.
 1   Before: PAPPAS, KURTZ and BLUMENSTIEL,2 Bankruptcy Judges.
 2
 3        Appellant Twenty-Nine Palms Enterprises Corporation
 4   (“29 Palms”) appeals the bankruptcy court’s order approving a
 5   modification of debtor Paul Phillip Bardos’ (“Bardos”) confirmed
 6   chapter 113 plan, and authorizing the sale of Bardos’ residence
 7   for $625,000.   We DISMISS this appeal as MOOT.
 8                                   FACTS
 9        Bardos was a contractor.   In February 2007, Bardos entered
10   into an agreement with the Twenty-Nine Palms Band of Mission
11   Indians of California (the “Band”) to oversee a number of
12   development and construction projects undertaken by the Band and
13   its corporate entity, 29 Palms,4 related to the Spotlight 29
14   Casino and associated grounds in Riverside County.   Bardos
15   apparently functioned both as an owner’s representative on behalf
16   of 29 Palms for all these projects, as well as served as the
17   contractor on one or more of them, doing so under various names,
18   including his wholly owned proprietorship, Cadmus Construction
19   Co. (“Cadmus”).
20
          2
21           Hon. Hannah L. Blumenstiel, United States Bankruptcy
     Judge for the Northern District of California, sitting by
22   designation.
23        3
             Unless otherwise indicated, all chapter and section
24   references are to the Bankruptcy Code, 11 U.S.C. §§ 101–1532, all
     Rule references are to the Federal Rules of Bankruptcy Procedure,
25   Rules 1001–9037, and all Civil Rule references are to the Federal
     Rules of Civil Procedure 1–86.
26
          4
27           Unless necessary to distinguish them, we will refer to
     either the Band or 29 Palms as 29 Palms.
28
                                      -2-
 1               The Cadmus State Court Action and Judgment
 2        On July 23, 2009, 29 Palms filed a complaint in California
 3   state court against Cadmus and, indirectly, Bardos.       Twenty-Nine
 4   Palms v. Cadmus Construction Co., et al., CIVRS908132 (San
 5   Bernardino Superior Court).   In it, because Cadmus was not a
 6   licensed contractor in California, 29 Palms alleged two counts
 7   for violation of Cal. Bus. & Prof. Code §§ 7031 and 17200, and
 8   asked the court to order that Cadmus disgorge all of the fees
 9   29 Palms had paid it, amounting to approximately $750,000, plus
10   interest.   The California court entered a summary judgment
11   awarding 29 Palms a judgment against Cadmus for $917,043.09 plus
12   post-judgment interest (the “Judgment”).       Bardos appealed the
13   Judgment to the California Court of Appeals.       In a published
14   opinion, the court ruled against Bardos and affirmed the
15   Judgment, noting that Bardos was fully responsible for the acts
16   of his proprietorship, Cadmus.   Twenty-Nine Palms Enters. Corp.
17   v. Bardos, 210 Cal. App. 4th 1435, 1454 (2012).
18        Bardos filed a petition asking the Supreme Court of
19   California to review the Court of Appeals decision.       The petition
20   was denied on February 20, 2013.       Bardos then filed a petition
21   for certiorari (the “Cert. Petition”) with the United States
22   Supreme Court.   As discussed below, Bardos voluntarily withdrew
23   the Cert. Petition on June 25, 2013.       Bardos v. Twenty-Nine Palms
24   Enters. Corp., 133 S.Ct. 2884 (2013).       We refer to these three
25   appeals collectively as the “Cadmus Appeals.”
26                The Bankruptcy Case and Chapter 11 Plans
27        Bardos filed a petition seeking relief under chapter 11 of
28   the Bankruptcy Code on September 29, 2010, about three weeks

                                      -3-
 1   after filing the appeal with the California Court of Appeals.
 2   Based upon the stipulation of the parties, the bankruptcy court
 3   granted relief from the automatic stay in the bankruptcy case so
 4   that the appeal could proceed.
 5        Bardos filed his initial proposed Plan of Reorganization and
 6   Disclosure Statement (the “First Disclosure Statement”) on
 7   March 29, 2012.   In the plan, Bardos offered alternative
 8   approaches he called “Plan A” and “Plan B” to dealing with his
 9   financial challenges.   Plan A proposed a fairly unremarkable
10   reorganization of Bardos’ financial affairs, with Bardos
11   proposing to pay his creditors’ claims out of the business income
12   generated by his construction businesses.   However, if Bardos was
13   unsuccessful in the Cadmus Appeals, Plan B provided for
14   liquidation of his assets.   29 Palms objected to the First
15   Disclosure Statement arguing that it failed to provide sufficient
16   information about Bardos’ and his companies’ incomes, any
17   information about a pending grand jury investigation of Bardos,
18   or a liquidation analysis to show the results of Bardos’ proposed
19   asset liquidation under Plan B.
20        In response, Bardos filed a First Amended Plan of
21   Reorganization (the First Amended Plan) and First Amended
22   Disclosure Statement.   The First Amended Plan contained minor
23   changes to address 29 Palms’ objections but, importantly, added a
24   provision stating that if Bardos were convicted in any criminal
25   proceedings, any criminal conviction would act as a second
26   “trigger” requiring him to liquidate under Plan B.    The
27   bankruptcy court allowed Bardos to submit a slightly modified
28   Disclosure Statement (the “Second Amended Disclosure Statement”),

                                       -4-
 1   providing additional information about Bardos’ recent federal
 2   criminal indictment.   The bankruptcy court approved Bardos’
 3   Second Amended Disclosure Statement on May 29, 2012, and it
 4   remained the operative disclosure statement at the time of plan
 5   confirmation.
 6        One of the focal points of the bankruptcy case and this
 7   appeal concerns Bardos’ residence in Rancho Cucamonga, California
 8   (the “Property”).   The Second Amended Disclosure Statement listed
 9   the Property as a Bardos asset, and represented that it had a
10   value of $750,000, subject to a first mortgage in favor of Wells
11   Fargo with a balance due of $328,000.
12        Bardos filed Second and Third Amended Plans of
13   Reorganization.   The amended plans contained only minor changes.
14   Shortly thereafter, Bardos and 29 Palms resolved their remaining
15   differences in the bankruptcy case in a stipulated agreement
16   allowing Bardos to confirm the Third Amended Plan according to
17   the terms of the stipulation.   There were no objections to
18   confirmation, and the bankruptcy court approved the parties’
19   stipulation, and entered an order confirming the Third Amended
20   Plan on October 28, 2012 (the “Confirmed Plan” and “Confirmation
21   Order”).   Like his prior plans, the Confirmed Plan provided two
22   means for Bardos to pay creditors:    Plan A, the reorganization
23   option, provided that all creditors would be paid in full from
24   income generated over time by Bardos’ wholly owned corporation,
25   Bardos Construction, Inc., together with the proceeds from a
26   successful outcome to the Cadmus Appeals; and Plan B, the
27   liquidation option, required that Bardos’ assets be sold and the
28   sale proceeds distributed to creditors if any one of three events

                                     -5-
 1   occurred: (1) if he lost or withdrew the Cadmus Appeals; (2) if
 2   he were convicted in the pending federal criminal case;5 or
 3   (3) if Bardos were to otherwise default under Plan A.      In
 4   addition, the Confirmation Order provided that, if Bardos were
 5   convicted, a liquidating agent would be appointed to oversee the
 6   liquidation of the assets.
 7                Bardos’ Motion to Modify the Confirmed Plan
 8        By early May 2013, none of the events that would trigger
 9   Plan B had occurred.    Bardos decided to implement Plan B
10   immediately, rather than to await the events which would “force
11   his hand.”    Since the Confirmed Plan did not allow him to
12   implement Plan B without a triggering event, Bardos filed a
13   motion to modify the Confirmed Plan (the “Modification Motion”).
14   The Modification Motion provided for the immediate implementation
15   of Plan B under the Confirmed Plan, including termination of
16   Bardos’ business operations that had supported plan payments
17   under Plan A.    Of particular interest in this appeal are the
18
19        5
             In an opposition to Bardos’ motion to dismiss this
20   appeal, 29 Palms asks the Panel to take judicial notice of a
     “First Superseding Indictment” entered against Bardos and his
21   alleged co-conspirators in the criminal case, which alleges that
22   Bardos engaged in conspiracy, bribery, money laundering and tax
     evasion in dealings with 29 Palms. Since none of these
23   allegations are relevant to the issues on appeal, 29 Palms’
     request for judicial notice is DENIED.
24
          Of course, under the Confirmed Plan, were Bardos convicted
25   in the federal case, that conviction would trigger implementation
     of Plan B, including the appointment of a liquidating agent. The
26   parties have informed the Panel that Bardos eventually entered a
27   guilty plea to one count of the indictment (income tax evasion).
     Therefore, because he stands convicted in the federal case,
28   Plan B was triggered under the Confirmed Plan.

                                      -6-
 1   Modification Motion’s provisions relating to liquidation of the
 2   Property:
 3        Plan B provides for, among other things, the listing
          and sale of the [Property], which is Debtor’s
 4        residence. That [P]roperty has been listed for sale
          for the sum of $625,000; the Plan requires that escrow
 5        be closed within 6 months. It is also Debtor’s desire
          that this [P]roperty be sold as quickly as is
 6        reasonable in the present real estate market.
 7   Modification Motion at ¶ II(5).
 8        The [Property] shall be sold at a market price within
          6 months pursuant to Plan B, listed by the Debtor at
 9        $625,000 in consultation with a qualified local real
          estate broker[.]
10
11   Modification Motion at ¶ VI(C).
12        29 Palms objected to the Modification Motion, raising two
13   arguments:
14        29 Palms is not opposed to the Debtor implementing
          Plan B[;] however, [Debtor] should be required to
15        abandon his appeal to the [U.S.] Supreme Court as
          indicated in the motion. Additionally, 29 Palms is
16        opposed to the Debtor’s proposal to sell his primary
          residence at a discount to the detriment of his
17        unsecured creditors. The Debtor is proposing to list
          and sell the [Property] for $625,000, which may be
18        substantially below fair market value and well below
          the value he stated in the Plan ($750,000).
19
20        Attached to the 29 Palms opposition was the Declaration of
21   Bram Hanono, one of its attorneys.       The Hanono Declaration in
22   turn attached two screen prints from internet sites Hanono
23   attested he had recently visited.       One printout was from
24   zillow.com, ostensibly containing information about the value of
25   the Property.   The second attachment was from dqnews.com, a
26   website operated by the Los Angeles Times, with information
27   regarding the average year-to-year sale price of homes located in
28   the same zip code as the Property.

                                       -7-
 1        Bardos responded to 29 Palms’ opposition to the Modification
 2   Motion.    Bardos disagreed with 29 Palms that he should be
 3   compelled to abandon his appeal to the Supreme Court, suggesting
 4   that it was only an option that he might take.    Bardos also
 5   argued in favor of the $625,000 listing price for the Property
 6   and submitted documentary evidence, including a local broker’s
 7   assessment of the value of the Property based upon comparable
 8   sales of similarly situated houses.    Bardos argued that the
 9   Zillow estimate and other website printout were not admissible
10   evidence.
11        The bankruptcy court conducted a hearing on the Modification
12   Motion on June 6, 2013.    Early on, the court sustained Bardos’
13   objection to 29 Palms’ attempt to submit the zillow.com and other
14   website printout, noting that “[t]he Zillow and other website
15   printouts are not evidence.”    Hr’g Tr. 5:13-15, June 6, 2013.
16        The court also agreed with Bardos concerning his proposal to
17   list and sell the Property for $625,000:
18        The evidence that is here suggests that the value that
          the [P]roperty was listed for and appears to be about
19        to be sold for is an appropriate value, notwithstanding
          the older appraisal and the amount set forth in the
20        disclosure statement.
21   Hr’g Tr. 5:17-21.    However, the bankruptcy court also advised the
22   parties:
23        I don’t have as much of an issue with the sale price of
          the house as I do with the appeal. It seems to me that
24        the stipulation and the plan were very clear on the
          conditions that would trigger the implementation of
25        Plan B, and now what the Debtor’s asking for is what I
          view as a material modification of the plan. . . . I
26        don’t see how I can grant the motion. The []
          conditions [of the Confirmed Plan] haven’t been
27        satisfied.
28   Hr’g Tr. 10:22–11:6.

                                      -8-
 1        During a recess, the parties apparently reached a compromise
 2   concerning Bardos’ pending Cert. Petition and some other issues
 3   not involved in this appeal.      After the bankruptcy court
 4   reconvened, the following colloquy ensued:
 5        WARRINER [Bardos’ Counsel]: And we would also assume
          that in granting the motion, obviously you are letting
 6        the sale [of the Property to] proceed without a
          liquidating agent.
 7
          THE COURT: Uh-huh.
 8
          WARRINER: — and sustaining our evidentiary objection
 9        and approving the values for the other assets. If all
          of those are approved by the Court, Mr. Bardos will
10        withdraw the petition for cert.
11        THE COURT: Okay.   Mr. Warum:
12        WARUM [29 Palms’ Counsel]: That is satisfactory, Your
          Honor. . . .
13
          WARRINER: And the only other thing that I’ve added to
14        the [proposed order granting the Modification Motion]
          is an abstract of judgment that showed up on the title
15        report in favor of [29 Palms], and [Mr. Warum] has
          agreed that his client will withdraw that. I’d like to
16        include that in the order.
17        THE COURT: Okay. . . .      Mr. Warum, does that work for
          you?
18
          WARUM: That’s fine, Your Honor.      No objections.
19
20   Hr’g Tr. 13:24–15:7.
21        The bankruptcy court concluded the hearing by instructing
22   Bardos’ counsel to prepare an agreed order that “will be entered
23   right away.”    Hr’g Tr. 16:1.    Bardos submitted an order bearing
24   the endorsement of counsel for 29 Palms as “approved as to form
25   and content.”    The bankruptcy court entered the order granting
26   the Modification Motion on June 19, 2013 (the Modification
27   Order”).   It provided, in relevant part:
28        The [Modification] Motion is granted, subject to the

                                        -9-
 1        following:
 2        A. The Debtor shall dismiss his appeal to the United
          States Supreme Court in the matter of Paul Bardos,
 3        Petitioner v. Twenty-Nine Palms Enters. Corp,
          Respondent. . . .
 4
          B. The Debtor may proceed with the sale of the
 5        [Property], as proposed in the Motion, on behalf of the
          Bankruptcy Estate, free and clear of the abstract of
 6        judgment in favor of 29 Palms, which abstract shall be
          released by 29 Palms prior to the close of escrow[.]
 7
 8   Modification Order at 2.
 9        Consistent with the Modification Order, the Supreme Court
10   appeal was dismissed upon stipulation of the parties on June 25,
11   2013.   However, on July 3, 2013, 29 Palms filed a timely appeal
12   of the Modification Order.    29 Palms did not seek a stay of the
13   Modification Order in the bankruptcy court or from this Panel.
14                     Events Occurring During This Appeal
15        Bardos filed a motion to dismiss this appeal on August 15,
16   2013, arguing that, because 29 Palms had benefitted from the
17   Modification Order, it was estopped from appealing it (the “First
18   Dismissal Motion”).    29 Palms opposed the First Dismissal Motion.
19   A BAP motions panel denied the First Dismissal Motion in an order
20   entered October 15, 2013.
21        Bardos filed a second dismissal motion (the Second Dismissal
22   Motion”), representing that, on December 4, 2013, the Property
23   had been sold as allowed in the Modification Order to unrelated
24   third parties, and that the sale proceeds had been distributed to
25   creditors as provided in the Confirmed Plan shortly thereafter.
26   Thus, Bardos argued, the 29 Palms appeal of the Modification
27   Order was now moot.    29 Palms opposed the Second Dismissal
28   Motion, arguing that, even if the sale of the Property could not

                                       -10-
 1   be undone (which it challenges), the Panel could still grant
 2   29 Palms effective relief.    The BAP motions panel referred the
 3   resolution of the Second Dismissal Motion to this merits Panel.
 4                                JURISDICTION
 5        The bankruptcy court had jurisdiction under 28 U.S.C.
 6   §§ 1334 and 157(b)(2)(L).    The Panel has jurisdiction over
 7   appeals from the bankruptcy court’s final orders under 28 U.S.C.
 8   § 158, and the Modification Order was a final order.     Everett v.
 9   Perez (In re Perez), 30 F.3d 17, 20 (9th Cir. 1994).     However, we
10   lack jurisdiction to decide moot appeals.     United States v.
11   Patullo (In re Patullo), 271 F.3d 898, 900 (9th Cir. 2001).      If
12   an appeal becomes moot while it is pending before the Panel, we
13   must dismiss it.   Id.   Even so, the Panel always has jurisdiction
14   to determine its own jurisdiction, including a determination of
15   mootness.   Hupp v. Educ. Credit. Mgmt. Corp. (In re Hupp),
16   383 B.R. 476, 478 (9th Cir. BAP 2008).
17                                   ISSUE
18        Whether this appeal is moot.
19                            STANDARD OF REVIEW
20        We review our own jurisdiction, including questions of
21   mootness, de novo.   Silver Sage Partners, Ltd. v. City of Desert
22   Hot Springs (In re City of Desert Hot Springs), 339 F.3d 782, 787
23   (9th Cir. 2003).
24                                 DISCUSSION
25                   Status of the Parties to the Appeal
26        As a preliminary matter, we address a procedural anomaly
27   about which the Panel was first informed at the oral argument in
28   this appeal.   Apparently, on April 9, 2014, after briefing was

                                      -11-
 1   completed in this appeal, a liquidating agent had been appointed
 2   by the bankruptcy court because Bardos had entered a guilty plea
 3   in the federal criminal case.
 4        Counsel for Bardos informed the Panel that the parties had
 5   stipulated to the appointment of a successor liquidating agent in
 6   the bankruptcy case and that an order had been submitted to the
 7   bankruptcy court for its entry.     Thus, Bardos’ counsel conceded
 8   that the successor liquidating agent should likely be substituted
 9   as the real party in interest in the place of Bardos in this
10   appeal.6
11        Counsel for the proposed successor liquidating agent, who
12   also appeared at the argument, informed the Panel that the
13   successor liquidating agent intended to join 29 Palms in
14   requesting that the bankruptcy court’s Modification Order be
15   reversed.   Counsel for Bardos indicated that while Bardos did not
16   dispute the successor liquidating agent’s standing to participate
17   in the appeal, Bardos did not agree with the successor
18
          6
19           The Confirmation Order required that a liquidating agent
     be appointed if Bardos was convicted in the federal criminal
20   case. Bardos was convicted, and the bankruptcy court approved
     the appointment of Squar Milner, LLP, as liquidating agent on
21   April 9, 2014 (the “Liquidating Agent Order”). The Liquidating
22   Agent Order directed Debtor to turn over all assets of the estate
     to the liquidating agent “to liquidate and administer in
23   accordance with the provisions of the Plan and the Bankruptcy
     Code.” Liquidating Agent Order at 1, April 9, 2014.
24
          On June 23, 2014, Bardos, 29 Palms and Squar Milner
25   submitted a stipulation to the bankruptcy court informing the
     court that Squar Milner desired to be replaced as liquidating
26   agent. The parties requested appointment of Leslie Gladstone as
27   successor liquidating agent.
          The bankruptcy court approved the stipulation appointing
28   Leslie Gladstone as successor liquidating agent on July 23, 2014.

                                       -12-
 1   liquidating agent’s position regarding the merits of this appeal.
 2        Despite these somewhat perplexing and surprising
 3   developments about the status of the parties to this appeal, the
 4   Panel directed that oral argument proceed, hearing from counsel
 5   for Bardos, the proposed successor liquidating agent, and
 6   29 Palms.   We conclude that questions concerning the parties are,
 7   under the circumstances, not an impediment to the Panel’s
 8   disposition of this appeal.   Because we decide below that this
 9   appeal is equitably moot, the Panel lacks jurisdiction to
10   consider the merits of this appeal, including whether or not to
11   reverse the decision of the bankruptcy court.   In re Patullo,
12   271 F.3d at 900 (a federal court cannot exercise jurisdiction
13   over a moot appeal).   Thus, even assuming the proposed successor
14   liquidating agent is a proper party to the appeal, we do not
15   address the implications of the joint request of the liquidating
16   agent and 29 Palms for reversal.
17                                 Mootness
18        We cannot exercise jurisdiction over a moot appeal.
19   In re Pattullo, 271 F.3d at 900; GTE Cal., Inc. v. FCC, 39 F.3d
20   940, 945 (9th Cir. 1994) ("The jurisdiction of federal courts
21   depends on the existence of a ‘case or controversy' under Article
22   III of the Constitution.").   A moot case is one where the issues
23   presented are no longer live, and no case or controversy exists.
24   Pilate v. Burrell (In re Burrell), 415 F.3d 994, 998 (9th Cir.
25   2005).   The test for mootness is whether an appellate court can
26   still grant effective relief to the prevailing party if it
27   decides the merits in his or her favor.   Id.   If a case becomes
28   moot while the appeal is pending, an appellate court must dismiss

                                     -13-
 1   the appeal.   In re Pattullo, 271 F.3d at 900.
 2        Constitutional mootness, in the strict sense, occurs when an
 3   appellate court cannot give the appellant any relief whatsoever
 4   in the event that it decides in appellant’s favor.       Felster
 5   Publ’g v. Burrell, 415 F.3d 994, 998 (9th Cir. 2005).       This
 6   appeal is not moot in the Constitutional sense because the Panel
 7   has the authority to grant the relief requested, that is, we
 8   could reverse the bankruptcy court’s decision approving the plan
 9   modification and sale of the Property.
10        However, the case law recognizes that practical and
11   equitable factors should be taken into consideration in
12   determining if an appeal is moot.       This is the doctrine of
13   equitable mootness.    An appeal becomes equitably moot when:
14        appellants have failed and neglected diligently to
          pursue their available remedies to obtain a stay of the
15        objectionable orders of the Bankruptcy Court, thus
          "permitting such a comprehensive change of
16        circumstances to occur as to render it inequitable
          . . . to consider the merits of the appeal." Trone v.
17        Roberts Farms, Inc. (In re Roberts Farms, Inc.),
          652 F.2d 793, 798 (9th Cir. 1981).
18
19   Focus Media, Inc. v. NBC (In re Focus Media, Inc.), 378 F.3d 916,
20   922 (9th Cir. 2004).    In other words, equitable principles may
21   require dismissal of the appeal when the appellant neglects to
22   obtain a stay pending appeal and the rights of third parties
23   intervene.    Spirtos v. Moreno (In re Spirtos), 992 F.2d 1004,
24   1006 (9th Cir. 1993); Darby v. Zimmerman (In re Popp), 323 B.R.
25   260, 271 (9th Cir. BAP 2005).
26        The party asserting equitable mootness must demonstrate that
27   the case involves transactions "so complex or difficult to
28   unwind" that equitable mootness applies.       Lowenschuss v. Selnick

                                      -14-
 1   (In re Lowenschuss), 170 F.3d 923, 933 (9th Cir. 1999).   In
 2   deciding whether an appeal is equitably moot, the Ninth Circuit
 3   instructs that we must consider the consequences of the remedy on
 4   appeal, and the number of third parties who have changed their
 5   position, in reliance on the validity of the order on appeal.
 6   Kaonohi Ohana, Ltd. v. Sutherland (In re Kaonohi Ohana, Ltd.),
 7   873 F.2d 1302, 1306 (9th Cir. 1989).   The Ninth Circuit recently
 8   provided guidelines for our inquiry into equitable mootness:
 9        We endorse a test similar to those framed by the
          circuits that have expressed a standard: We will look
10        first at whether a stay was sought, for absent that a
          party has not fully pursued its rights. If a stay was
11        sought and not gained, we then will look to whether
          substantial consummation of the plan has occurred.
12        Next, we will look to the effect a remedy may have on
          third parties not before the court. Finally, we will
13        look at whether the bankruptcy court can fashion
          effective and equitable relief without completely
14        knocking the props out from under the plan and thereby
          creating an uncontrollable situation for the bankruptcy
15        court.
16   Motor Vehicle Cas. Co. v. Thorpe Insulation Ins. Co.
17   (In re Thorpe Insulation Ins. Co.), 677 F.3d 869, 881 (9th Cir.
18   2012).
19        In Thorpe Insulation, and the other circuit opinions it
20   cites, the first and most important consideration is if the party
21   seeking to appeal failed to seek a stay.   Id. at 881 (appellant
22   may not “sit on its rights”);   Nordhoff Invs. v. Zenith Elecs.
23   Corp., 258 F.3d 180, 186 (3d Cir. 2001) ("It is obligatory upon
24   appellant . . . to pursue with diligence all available remedies
25   to obtain a stay of execution of the objectionable order (even to
26   the extent of applying to the Circuit Justice for relief)[.]");
27   Chateaugay Corp. v. LTV Steel Co. (In re Chateaugay Corp.),
28   10 F.3d 944 (2d Cir. 1993) (appellant must “pursue[] with

                                     -15-
 1   diligence all available remedies to obtain a stay of execution of
 2   the objectionable order”).    Here, 29 Palms did not seek a stay of
 3   the bankruptcy court’s order pending appeal either in the
 4   bankruptcy court or with this Panel; instead, it “sat on its
 5   rights.”
 6        In its opening brief, 29 Palms attempted to excuse its
 7   failure to request any stay pending appeal concerning a sale of
 8   the Property by explaining that:
 9        29 Palms has been informed by Bardos that the Property
          has not been sold and that it cannot be sold until this
10        appeal is resolved because the title company will not
          issue a clean title report; therefore there are no
11        issues of mootness or need for stay pending appeal.
12   29 Palms Op. Br. at 2, n.1.   Apparently, 29 Palms elected not to
13   seek a stay of the Modification Order believing that, as a
14   practical matter, the Property could not be sold because this
15   appeal prevented Bardos from providing insurable title to a
16   buyer.   Even assuming there may have been some communication
17   between 29 Palms and Bardos concerning difficulties obtaining a
18   title policy, 29 Palms has not argued that Bardos agreed not to
19   sell the Property during the pendency of the appeal.      To the
20   contrary, the Modification Order expressly empowered Bardos to
21   sell the Property, and so he did.       29 Palms, on the other hand,
22   had the right to seek a stay of that sale; it did not.      Simply
23   put, while Bardos exercised his rights, 29 Palms did not
24   “diligently” pursue its rights to stay a sale of the Property.
25        The other relevant inquiries7 in Thorpe focus on the rights
26
27        7
             Because 29 Palms never requested a stay pending appeal,
28   we do not consider the second Thorpe element, substantial
     consummation.

                                      -16-
 1   of third parties, and whether intervening transactions have taken
 2   place that are "so complex or difficult to unwind" as to create
 3   an uncontrollable situation for the bankruptcy court.   In this
 4   case, 29 Palms asserts that the purchasers of the Property would
 5   not be prejudiced by an order voiding the sale because they would
 6   have recourse to reimbursement from the title insurance company
 7   that insured their good title in the sales transaction.
 8   29 Palms’ Opposition to Motion for Mootness at 1-2.    We disagree.
 9        Of course, neither the Property purchasers nor their title
10   insurer are parties to this appeal, nor did they participate in
11   the proceedings before the bankruptcy court.   Under these facts,
12   we simply cannot be certain as to the impact of our possible
13   decision reversing the bankruptcy court’s order approving the
14   sale.   Presumably, both the purchasers and title company relied
15   upon 29 Palms’ failure to seek a stay of that order in proceeding
16   to close the sale.
17        In addition, 29 Palms must remember that the title insurer’s
18   contract is with the purchasers, not Bardos.   We therefore cannot
19   know whether the title company would be obliged to compensate the
20   purchasers for any damages or expenses they might incur if the
21   sale of the Property by Bardos to them is rescinded.    As can be
22   seen, then, 29 Palms takes a cavalier approach to evaluating the
23   relative equities and potential consequences to third parties of
24   any decision to undo the sale.
25        Moreover, the impact and efficacy of an order in this appeal
26   requiring that the distributions from the sale proceeds be
27   disgorged would be, at best, uncertain.   Indeed, proceedings by
28   the bankruptcy court to compel the several creditors who have

                                      -17-
 1   received full payment of their claims to return approximately
 2   $620,000 to the estate may be problematic, lengthy and expensive.
 3   And although the mortgage creditor and bankruptcy case
 4   administrative creditors would continue to hold claims senior to
 5   29 Palms if the sale is undone, there is no guarantee that any
 6   future sale of the Property would generate as much for them as
 7   they have already received.
 8        Finally, we are concerned that if the Property is put back
 9   onto the market, the prospects for another sale are unclear and
10   additional holding costs will be incurred until another sale can
11   be arranged.
12        All things considered, we conclude that undoing the sale of
13   the Property and recovery of the sale proceeds at this late stage
14   of the proceedings could adversely impact the rights of third
15   parties and could require potentially extensive, expensive, and
16   lengthy proceedings in the bankruptcy court.   Since 29 Palms did
17   not diligently seek a stay pending appeal, and the relief
18   requested by 29 Palms would be complex and difficult for the
19   Panel to provide, we conclude this appeal is equitably moot.
20        In response to Bardos’ mootness contention, 29 Palms argues
21   that since the bankruptcy court did not enter an order that the
22   buyers of the property were good faith purchasers for purposes of
23   § 363(m), any protections against reversal or modification of a
24   sale order on appeal are not available to the buyers, relying on
25   the Ninth Circuit’s decision in Algeran, Inc. v. Advance Ross
26   Corp., 759 F.2d 1421, 1423-24 (9th Cir. 1985).   29 Palms’
27   argument lacks merit.
28        While, admittedly, no § 363(m) finding was made by the

                                    -18-
 1   bankruptcy court in connection with the sale of the Property in
 2   this case, it is of no consequence to determining whether this
 3   appeal is equitably moot.   Vista del Mar Assocs., Inc. v. W.
 4   Coast Land Fund (In re Vista del Mar Assocs, Inc.), 181 B.R. 422,
 5   424 (9th Cir. BAP 1995).    29 Palms offers us no case law clearly
 6   holding that § 363(b) or (m) applies to a sale of property made
 7   pursuant to a confirmed chapter 11 plan.     Such sales are not
 8   subject to § 363, but are authorized by another Code provision
 9   which requires that “[n]otwithstanding any otherwise applicable
10   nonbankruptcy law, a plan shall . . . provide adequate means for
11   the plan's implementation, such as . . . transfer of all or any
12   part of the property of the estate to one or more entities,
13   whether organized before or after the confirmation of such plan.”
14   § 1123(a)(5)(B); see also In re Smurfit-Stone Container Corp.,
15   2010 Bankr. LEXIS 1971, at *26 (Bankr. D. Del. 2010) (a sale
16   pursuant to a plan may be approved by a bankruptcy court without
17   reference to the requirements of § 363).
18         In sum, when it elected not to seek a stay of the bankruptcy
19   court’s order authorizing Bardos to sell the Property and
20   distribute the sale proceeds, 29 Palms assumed the risk that this
21   appeal would become equitably moot.     At this point, even if
22   possible, unwinding the sale and distribution of the sale
23   proceeds would be complex, impractical, and would potentially
24   prejudice the rights of third parties.     Therefore, the appeal is
25   equitably moot.
26   ///
27   ///
28   ///

                                      -19-
 1                              CONCLUSION
 2        This appeal is DISMISSED.8
 3
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 5
 6
 7
 8
 9
10
11
12
13
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15
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25
          8
             Because our decision is founded upon mootness, we do not
26   reach the merits. We also express no opinion concerning whether
27   the successor liquidating agent could seek some form of relief
     from the Modification Order in the bankruptcy court via motion
28   under Rule 9024 (incorporating Civil Rule 60(b)).

                                       -20-