Rev Op Group v. ML Manager LLC (In Re Mortgages Ltd.)
771 F.3d 1211
| 9th Cir. | 2014Background
- Mortgages Ltd., a private lender, raised investor funds to make secured real-estate loans; investors held "pass-through" fractional interests in the underlying loans and collateral.
- Mortgages Ltd. filed Chapter 11 in June 2008 and confirmed a plan in May 2009; ML Manager LLC was appointed to manage and liquidate the remaining loan portfolio.
- ML Manager obtained $20 million in "exit financing" to pay bankruptcy-related expenses and proceeded to liquidate loans and distribute proceeds under an Allocation Model.
- Rev Op Group (a subset of pass-through investors) objected, arguing ML Manager could not act as their agent and that objecting investors should not fund any portion of the exit loan; the bankruptcy court issued a Clarification Order rejecting these claims and later a Distribution Order approving allocations and distributions.
- Rev Op Group appealed both orders to the district court (which affirmed) and then to the Ninth Circuit, but never sought a stay of the bankruptcy or district-court rulings pending appeal.
Issues
| Issue | Plaintiff's Argument (Rev Op Group) | Defendant's Argument (ML Manager) | Held |
|---|---|---|---|
| Whether appeals are equitably moot | Appeals are timely and present reviewable legal errors; relief should include reversal or reallocation | Appeals are equitably moot because no stay was sought and plan consummation/subsequent distributions make reversal inequitable | Appeals dismissed as equitably moot; Rev Op failed to seek stay and relief would unfairly affect third parties |
| Whether failure to seek a stay alone mandates dismissal | Rev Op contends inability to post bond made seeking a stay impracticable | ML Manager contends stay should have been sought; bankruptcy/district courts set bond amount; inability to post is not an adequate excuse here | Failure to seek a stay is fatal under Roberts Farms; Rev Op's bond argument insufficient |
| Applicability of exceptions (Suter, Sylmar) | Rev Op argues exceptions should apply (e.g., limited remedies or monetary relief available) | ML Manager argues exceptions don't apply because relief would require undoing distributions to third parties | Exceptions in Suter/Sylmar do not apply; relief would require unwinding distributions harming third parties |
| Whether bankruptcy court on remand could fashion equitable relief | Rev Op argues remand could produce practical remedies (e.g., reallocations) | ML Manager contends remedies would be impractical or inequitable (clawbacks, disproportionate reallocation, excessive costs) | Court finds effective equitable relief infeasible; remand cannot reasonably unwind transactions or reallocate without unfairness |
Key Cases Cited
- In re Thorpe Insulation Co., 677 F.3d 869 (9th Cir. 2012) (articulates four-factor equitable-mootness framework)
- In re Roberts Farms, 652 F.2d 793 (9th Cir. 1981) (failure to seek stay usually fatal to bankruptcy appeal)
- Suter v. Goedert, 504 F.3d 982 (9th Cir. 2007) (narrow exception to mootness where state law right to restore status quo exists)
- In re Sylmar Plaza, L.P., 314 F.3d 1070 (9th Cir. 2002) (recognized circumstances where failure to seek stay did not render appeal moot)
- In re Baker & Drake, Inc., 35 F.3d 1348 (9th Cir. 1994) (discusses equitable mootness as jurisdictional/prudential consideration)
- Nordhoff Invs., Inc. v. Zenith Elec. Corp., 258 F.3d 180 (3d Cir. 2001) (failure to seek stay weighs heavily toward dismissal)
- In re Burrell, 415 F.3d 994 (9th Cir. 2005) (vacatur of underlying orders on mootness is an equitable inquiry)
- In re Chateaugay Corp., 988 F.2d 322 (2d Cir. 1993) (stay preserves estate and status quo pending appeal)
- In re Lowenschuss, 170 F.3d 923 (9th Cir. 1999) (precedent emphasizing duty to seek a stay)
- In re Semcrude, L.P., 728 F.3d 314 (3d Cir. 2013) (discusses equitable mootness doctrine)
- In re UNR Indus., Inc., 20 F.3d 766 (7th Cir. 1994) (distinguishes real mootness from equitable mootness)
- Engleson v. Burlington N. R.R. Co., 972 F.2d 1038 (9th Cir. 1992) (arguments supporting affirmed judgment do not require cross-appeal)
- Algeran, Inc. v. Advance Ross Corp., 759 F.2d 1421 (9th Cir. 1985) (party may move to dismiss on mootness grounds even if not raised below)
- Ross Island Sand & Gravel Co. v. Compania Minera Don Pablo, 226 F.3d 1015 (9th Cir. 2000) (panel cannot overrule prior circuit precedent)