Rich Dad Operating Co. v. Rich GlobalRich Dad Operating Co. v. Rich Global
Case Information
*1 Before BRISCOE , LUCERO , and PHILLIPS , Circuit Judges.
_________________________________
Creditor Rich Dad Operating Company, LLC (RDOC) appeals from the district court’s affirmance of the bankruptcy court’s order approving a settlement agreement *2 between the trustee for the debtor’s estate and another creditor. RDOC obtained a stay of the bankruptcy court’s order pending its appeal to the district court, but it did not seek a stay of the district court’s order pending this appeal. After the automatic stay of the district court’s order expired, the trustee and the creditor performed their obligations under the settlement agreement. Accordingly, they now move this court to dismiss this appeal as moot. Because we are not persuaded that the appeal is moot, we proceed to the merits and review the bankruptcy court’s approval of the settlement agreement. But because we also are not persuaded by RDOC’s challenges to the decision, we affirm.
I. BACKGROUND
RDOC is the sole member and manager of the debtor, Rich Global, LLC (Rich Global). Rich Global lost a lawsuit brought by appellees Learning Annex Holdings, LLC, Learning Annex, LLC, and Learning Annex L.P. (collectively, Learning Annex) in the Southern District of New York. In July 2012, that court entered judgment against Rich Global and in favor of Learning Annex for nearly $23.7 million. Rich Global appealed to the Second Circuit Court of Appeals. Learning Annex cross-appealed the district court’s dismissal of one of its claims, as well as its grant of judgment as a matter of law to another defendant in the action.
The Southern District of New York ordered Rich Global to post a reduced appeal bond, but instead Rich Global filed a Chapter 7 bankruptcy petition in the District of Wyoming. The filing of that petition automatically stayed the Second Circuit appeal and cross-appeal. The bankruptcy court appointed appellee *3 Tracy L. Zubrod as trustee (the Trustee). Two creditors filed proofs of claim: (1) RDOC for approximately $2.2 million, and (2) Learning Annex for the amount of the judgment with interest, almost $23.7 million.
Initially the Trustee intended to abandon Rich Global’s interest in the Second Circuit appeal. She rejected RDOC’s offer to indemnify the estate for the costs of pursuing the appeal. Ultimately, however, the Trustee and Learning Annex entered into the settlement agreement (the Agreement). The principal terms of the Agreement are: (1) Learning Annex would pay the bankruptcy estate $100,000; (2) the Trustee would dismiss the Second Circuit appeal, with prejudice; (3) Learning Annex would dismiss Rich Global as an appellee in its cross-appeal; and (4) “[a] single claim shall be allowed as a general unsecured claim in favor of . . . Learning Annex . . . in the amount of $23,690,999.41,” Aplt. App., Vol. 2 at 467. Over RDOC’s objection, the bankruptcy court approved the Agreement. RDOC moved for and was granted a stay pending its appeal to the U.S. District Court for the District of Wyoming.
On August 18, 2015, the district court affirmed the bankruptcy court’s order. By operation of Fed. R. Bankr. P. 8025(a), the district court’s judgment was automatically stayed for fourteen days. RDOC did not move for a further stay of the district court’s order. After the end of the automatic stay period, the Trustee and Learning Annex performed their obligations under the Agreement. Learning Annex had already paid the Trustee $100,000, so on September 4, the Trustee and Learning Annex filed their agreed-upon stipulation to dismiss Rich Global’s Second Circuit *4 appeal and Learning Annex’s cross-appeal against Rich Global. On September 8, the Second Circuit dismissed the appeal and the cross-appeal against Rich Global, and it issued its mandate. The next week, it lifted the stay of the cross-appeal and set a briefing schedule.
On September 16, RDOC appealed to this court from the district court’s order. In light of their performance of the Agreement, the Trustee and Learning Annex moved to dismiss the appeal as moot.
II. DISCUSSION
A. Mootness
1. Constitutional Mootness
Under Article III of the Constitution, the judiciary has authority to adjudicate
“Cases” and “Controversies.” U.S. Const. art. III, § 2, cl. 1. “A case becomes
moot—and therefore no longer a ‘Case’ or ‘Controversy’ for purposes of Article
III—when the issues presented are no longer live or the parties lack a legally
cognizable interest in the outcome.”
Already, LLC v. Nike, Inc.
,
The Trustee and Learning Annex argue that given the performance of their obligations under the Agreement, particularly the dismissal of the Second Circuit matters, this court cannot afford RDOC any meaningful relief. RDOC asserts, to the contrary, that “the Settlement Agreement and its effects upon the bankruptcy estate can be unwound and modified without substantial difficulty.” Resp. to Mot. to Dismiss at 3. It suggests that the $100,000 payment can be returned to Learning Annex; that “nothing would prevent the parties from requesting that the Second Circuit vacate its recent orders dismissing the Second Circuit Appeal or the cross-appeal against Rich Global and an affiliate,” id. at 8-9; and that “Learning Annex’s allowed general unsecured claim against the bankruptcy estate of Rich Global can be adjusted, discounted, subordinated or disallowed should this Court decide to reverse the decisions made by the district court and the bankruptcy court,” id. at 9.
It appears that the Trustee could return the $100,000. But of course this court
has no ability to compel the Second Circuit to recall its mandate. Moreover, a court
of appeals may exercise its power to recall the mandate “only in extraordinary
circumstances”; “it is [a power] of last resort, to be held in reserve against grave,
unforeseen contingencies.”
Calderon v. Thompson
,
This appeal is not moot, however, if we may offer even partial relief. And the burden of showing the absence of any meaningful relief rests on the Trustee and Learning Annex. Those parties have failed to overcome RDOC’s assertion that, if we were to reverse the decision to approve the Agreement, RDOC would be able to challenge Learning Annex’s claim in ways that it could not do if the Agreement stands. In light of this possibility of relief, the appeal is not constitutionally moot.
2. Equitable Mootness
In the bankruptcy context, equitable mootness may also be a consideration.
Under this doctrine, “equitable, prudential, or pragmatic considerations can render an
appeal of a bankruptcy court decision moot even when the appeal is not
constitutionally moot.”
Paige
,
We apply equitable mootness at our discretion.
See C.O.P. Coal Dev. Co. v.
C.W. Mining Co. (In re C.W. Mining Co.)
,
3. Statutory Mootness
RDOC’s first merits argument also triggers a mootness inquiry—this time statutory mootness. RDOC asserts that the bankruptcy court erred in declining to apply the sale-of-property provisions in 11 U.S.C. § 363(b), instead approving the Agreement solely under Fed. R. Bankr. P. 9019. The Trustee and Learning Annex counter that, if § 363 applies, this appeal is moot under § 363(m), which provides:
The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal.
“[Section] 363(m) forecloses any remedy . . . that would affect the validity of the
trustee’s sale.”
C.W. Mining Co.
,
RDOC asserts that § 363(m) does not apply because the bankruptcy court did not apply § 363. It further asserts that § 363(m) only applies to a “good faith” purchaser, and in this case there has been no determination that Learning Annex acted in good faith.
It seems disingenuous for RDOC to complain about the bankruptcy court’s failure to apply § 363(b) while simultaneously disclaiming the applicability of § 363(m). Nevertheless, we do not consider RDOC’s § 363 argument statutorily moot. By the statute’s plain terms, there must be a determination of “good faith,” and the Trustee and Learning Annex have not shown any such determination.
For these reasons, we do not consider any portion of this appeal to be moot, and we move to the parties’ merits arguments.
B. Merits Arguments
“Even though this appeal comes to us from the district court, we review a
bankruptcy court’s decisions independently, examining legal determinations de novo
and factual findings for clear error.”
FB Acquisition Prop. I, LLC v. Gentry (In re
Gentry)
,
1. 11 U.S.C. § 363
Section 363(b) allows the trustee to sell estate property outside the ordinary course of business. As stated, RDOC argues that the bankruptcy court erred in not applying § 363(b) standards, instead approving the Agreement solely under Fed. R. Bankr. P. 9019. It asserts that a remand is necessary for the bankruptcy court to consider the Agreement under § 363(b) standards, including whether the Agreement is within the Trustee’s sound business judgment.
Although the federal courts are split, the majority have held that a settlement
of claims can also qualify as a sale of property under § 363.
See
3
Collier on
Bankruptcy
¶ 363.02 (Alan N. Resnick & Henry J. Sommer eds., 16th ed.)
.
For
purposes of this appeal, we assume without deciding that this court would adopt the
majority position. But courts have also held that “[w]hether to impose formal sale
procedures is ultimately a matter of discretion that depends upon the dynamics of the
particular situation.”
Goodwin v. Mickey Thompson Enter. Grp., Inc. (In re Mickey
Thompson Enter. Grp., Inc.)
,
In both
Moore
and
Mickey Thompson,
the courts were persuaded that § 363
auctions were required because the tendering of higher offers indicated that an
auction could yield a better result for the estate.
See Moore
,
2. Fed. R. Bankr. P. 7052
RDOC argues that the bankruptcy court’s order fails to satisfy Fed. Bankr. R. 7052, which incorporates Fed. R. Civ. P. 52 into certain bankruptcy proceedings. Under Rule 52(a)(1), “the court must find the facts specially and state its conclusions of law separately.”
“The Rule is designed to provide the appellate court with a clear understanding
of the basis of the trial court’s decision and to aid the trial court in considering and
adjudicating the facts.”
Colo. Flying Acad., Inc. v. United States
,
RDOC complains that the bankruptcy court’s order is insufficient for appellate
review. We disagree. The order is adequate to show this court the basis for the
decision. To the extent that RDOC believes the bankruptcy court should have been
more specific regarding certain points, “[g]eneral findings which realistically meet
and resolve the issues in dispute may be sufficient in the absence of occasion or
request for more specific ones.”
Featherstone
,
3. Fed. R. Bankr. P. 9019
Fed. R. Bankr. P. 9019(a) allows the bankruptcy court to approve a compromise or settlement upon notice and a hearing. RDOC asserts that the bankruptcy court abused its discretion in approving the Agreement under Rule 9019.
In undertaking its analysis, the bankruptcy court applied the following four
factors: (1) the chance of success of the litigation on the merits; (2) possible
problems in collecting a judgment; (3) the expense and complexity of the litigation;
and (4) the interest of creditors.
See W. Pac. Airlines
,
“[A] court’s general charge is to determine whether the settlement is fair and
equitable and in the best interests of the estate.”
W. Pac. Airlines
,
Contrary to RDOC’s assertions, we are not convinced that the bankruptcy court failed to adequately apprise itself of the facts and the law pertaining to the Second Circuit appeal. The court reviewed “the history of the litigation, the counts alleged, . . . the District Court opinions and the supporting documents found on the record.” Aplt. App., Vol. 4 at 860. It was not required to “decid[e] the numerous question of law and fact.” 8 Norton Bankruptcy Law & Practice § 167.2. Nor was it required to conduct a detailed analysis of the underlying law or a risk-adjusted value of continuing litigation, as RDOC urges. And the bankruptcy court did not ignore either the Southern District of New York’s assessment or RDOC’s indemnity offer, as RDOC also asserts. It is apparent that the court was aware of these issues, as it addressed them in the order. We see no abuse of discretion with regard to any of these points.
RDOC states that the bankruptcy court’s failure to reject the Agreement, in
light of its indemnity offer, is per se reversible error. We disagree. In
Reiss
, this
court reversed the rejection of a settlement where the only creditor had offered to pay
the costs of a lawsuit upon which rested the only hope of any recovery for
disbursement to that creditor.
RDOC also asserts that the bankruptcy court erred in concluding that if the Second Circuit appeal were reversed, a third trial would be required. Even if error, however, we do not consider it reversible error. The bankruptcy court’s concern about the potential of an appeal or further litigation dragging on for an extended time was not an invalid one.
Regarding the interests of the creditors, RDOC argues that the bankruptcy court erred in weighing the relative effects of the Agreement on Learning Annex and RDOC—if the Second Circuit were to reverse the judgment, RDOC would be the sole remaining creditor and would be paid a significant portion of its claim. The bankruptcy court, however, was well aware of RDOC’s creditor status (as well as its status as Rich Global’s only member). RDOC also asserts that the bankruptcy court, while expressing concern about RDOC’s proposed indemnity arrangement aligning RDOC and the Trustee against Learning Annex, instead impermissibly allowed the Trustee and Learning Annex to align together against RDOC when it approved the Agreement. But the bankruptcy court was concerned that the indemnity agreement would “put[] the Trustee in the position of working for a creditor and equity shareholder of the estate, against the only other creditor.” Aplt. App., Vol. 4 at 861. The Agreement, in contrast, did not put the Trustee in the position of “working for” Learning Annex.
Having thoroughly reviewed the arguments, the record, and the applicable law,
we cannot conclude that the bankruptcy court abused its discretion. The approval of
*15
the Agreement does not “achieve[] an unjust result amounting to a clear abuse of
discretion.”
Reiss
,
III. CONCLUSION
The motion to dismiss the appeal as moot is denied. The judgment is affirmed. Entered for the Court Gregory A. Phillips Circuit Judge
Notes
[*] After examining the briefs and appellate record, this panel has determined unanimously to honor the parties’ request for a decision on the briefs without oral argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore submitted without oral argument. This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
[1] In addition, these arguments contradict RDOC’s prior statements to the
bankruptcy court in its motion for stay. RDOC asserted that it would suffer
irreparable harm in the absence of a stay because “[t]he Judgment allows Trustee to
dismiss the Second Circuit Appeal
with prejudice
. Once the Second Circuit Appeal
is so dismissed, it is gone forever and Debtor’s estate will have no opportunity to
reduce a $23 million claim against it.” Aplt. App., Vol. 4 at 870. It later stated that
“[d]ismissing the Second Circuit Appeal could also render the . . . [a]ppeal moot
because, even if it reverses the Judgment, it is highly unlikely the [district court] can
revive the Second Circuit Appeal once the Second Circuit dismisses it.”
Id.
at 876
(citing cases). Because we consider untenable RDOC’s current position regarding
the Second Circuit appeal, we need not decide whether judicial estoppel applies. We
note, however, that the courts generally disfavor parties’ changing positions as it may
suit them.
See, e.g.
,
New Hampshire v. Maine
,