Rev Op Group v. ML Manager LLC (In Re Mortgages Ltd.), 771 F.3d 623

Mortgages Ltd., a private Arizona real-estate lender, raised funds from investors who received "pass-through" fractional interests in loans secured by real property; investors thus held an actual interest in each underlying loan.
Mortgages Ltd. confirmed a Chapter 11 plan; ML Manager LLC (ML Manager) became manager of the loan portfolio and took $20M in exit financing to support the reorganization.
ML Manager sought to sell certain loans/properties; a subset of investors (Rev Op Group) objected, asserting ML Manager was an agent revocable by any principal-investor and thus could not sell over an investor's objection.
ML Manager maintained it held an "agency coupled with an interest" (irrevocable under Arizona law) and that investors had signed agency-designating documents which had been assigned to ML Manager.
The bankruptcy court treated Rev Op Group’s denials of execution as implausible, granted declaratory relief that ML Manager held irrevocable agency authority, and approved multiple property sales; the district court affirmed.
The Ninth Circuit considered equitable mootness, reversed the declaratory judgment as to investor execution/agency binding, and remanded for further proceedings.

Issue	Plaintiff's Argument (Rev Op)	Defendant's Argument (ML Manager)	Held
Whether the appeal of the declaratory judgment was equitably moot	Rev Op argued it diligently sought a stay and relief remains feasible	ML Manager argued plan substantially consummated and relief would disrupt third parties	Not moot: Rev Op sought a stay, relief could be fashioned without inequitable harm; appeal proceeds
Whether Rev Op’s denials that investors executed agency agreements could be disregarded as implausible/sham	Denials were permissible pleadings that must be tested via normal merits mechanisms; courts cannot strike them absent Rule 11 or Rule 12(f) procedures	Denials were "sham/implausible" and could be disregarded; documents with same names suggested execution	Reversed: bankruptcy and district courts erred in disregarding denials without invoking Rule 11 or Rule 12(f); factual denials must stand for merits adjudication
Whether ML Manager held an irrevocable "agency coupled with an interest" enforceable against objecting investors	If denials are credited, Rev Op not bound; agency not established	ML Manager asserted it held an agency coupled with an interest under Arizona law (irrevocable) and that assignments were proper	Court did not decide merits of irrevocability here; reversed binding finding and remanded for factual/adjudicative proceedings

Phoenix Title & Trust Co. v. Grimes, 416 P.2d 979 (Ariz. 1966) (defines "agency coupled with an interest" under Arizona law)
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading plausibility standard for complaints)
Ashcroft v. Iqbal, 556 U.S. 662 (2009) (applies plausibility standard to pleadings)
PAE Gov’t Servs., Inc. v. MPRI, Inc., 514 F.3d 856 (9th Cir. 2008) (Rule 11 limitations on striking pleadings; factual allegations must be tested on the merits absent bad-faith finding)
Harvey Aluminum, Inc. v. NLRB, 335 F.2d 749 (9th Cir. 1964) (pre-1983 context for striking sham denials under administrative rules; distinguished post-Rule 11 amendments)
Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970 (9th Cir. 2010) (standards for striking pleadings under Rule 12(f))
In re Thorpe Insulation Co., 677 F.3d 869 (9th Cir. 2012) (factors for equitable mootness review in bankruptcy appeals)