Happy v. Equity Bank SSB , 345 F. App'x 890 ( 2009 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
April 28, 2009
No. 08-51075 Charles R. Fulbruge III
Summary Calendar Clerk
In the Matter of: GREEN AGGREGATES INC, also known as Garland GAI
Inc,
Debtor
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J NELSON HAPPY,
Appellant
v.
EQUITY BANK SSB; PRESIDENTIAL FINANCIAL CORPORATION;
CHIRON EQUITIES LLC,
Appellees
Appeal from the United States Bankruptcy Court
for the Western District of Texas
USDC No. 08-CV-550
Before JOLLY, BENAVIDES, and HAYNES, Circuit Judges.
PER CURIAM:*
*
Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
R. 47.5.4.
No. 08-51075
J. Nelson Happy, pro se, appeals the bankruptcy court’s order to
substantively consolidate debtor Green Aggregates, Inc. with non-debtor
Garland GAI, Inc. We find that the appeal is equitably moot.
I.
J. Nelson Happy was the sole shareholder of Green Aggregates, Inc.
(“Green” or “Debtor”). Green operated a limestone quarry in Cooke County,
Texas and two pavement recycling plants, one in Fort Worth and one in Garland.
After four months of heavy rainfall in early 2007, Green’s quarry operations
came to a halt. On June 6, Green received a notice of default from its largest
creditor, Equity Bank.
At that time, it also became apparent that Green soon would be evicted
from the Garland pavement recycling property. Happy incorporated Garland
GAI, Inc. (“GAI”) to acquire another leasehold, and GAI subsequently signed a
lease agreement with the City of Garland. Happy contends that it was necessary
to incorporate a separate entity because Green’s strained financial condition
frightened off potential lessors. Appellees assert that Happy essentially
transferred Green’s pavement recycling operations to GAI. Happy acknowledges
that there was some operational overlap between Green and GAI, but he asserts
that separate books were maintained and that all revenue and expenses were
accurately apportioned.
Green filed a voluntary petition for bankruptcy on December 31, 2007, and
a Chapter 11 trustee was appointed on March 31, 2008. The trustee entered into
an operating agreement with Congress Materials, LLC, whereby Congress
Materials managed the Debtor’s concerns. On that same day, Happy sold all of
his GAI shares to Sunset Resources, Inc. Sunset entered into a similar
management agreement with Congress Materials regarding GAI.
Soon thereafter, Equity Bank filed a motion requesting substantive
consolidation of Green and GAI. Substantive consolidation “treats separate legal
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No. 08-51075
entities as if they were merged into a single survivor left with all the cumulative
assets and liabilities (save for inter-entity liabilities, which are erased). The
result is that claims of creditors against separate debtors morph to claims
against the consolidated survivor.” In re Owens Corning, 419 F.3d 195, 205 (3d
Cir. 2005). Equity Bank argued that disentangling Green and GAI’s assets and
liabilities would be prohibitively difficult. Equity Bank also described a number
of questionable transactions between the two companies. On April 21, 2008, the
court granted the motion and substantively consolidated Green and GAI.
In October, this court granted Happy’s petition to appeal pursuant to 28
U.S.C. § 158(d). Happy, however, did not obtain a stay of the bankruptcy court
proceedings. Since the filing of this appeal, a plan of reorganization has been
proposed, and the bankruptcy court confirmed the plan on December 31.
II.
As a threshold matter, we must determine whether this appeal is
equitably moot. “The doctrine of equitable mootness should be and often is
applied to forestall bankruptcy appeals from confirmed bankruptcy plans,
because the appellate courts recognize that there is a point beyond which they
cannot order fundamental changes in reorganization cases.” In re Hilal, 534
F.3d 498, 500 (5th Cir. 2008) (internal quotation marks omitted). This court has
developed a three-part test for determining when an appeal is equitably moot.
Id. “[We] examine[] whether (1) a stay has been obtained, (2) the plan has been
substantially consummated, and (3) the relief requested would affect either the
rights of parties not before the court or the success of the plan.” In re GWI PCS
1 Inc., 230 F.3d 788, 800 (5th Cir. 2000).
In this case, factors one and three plainly counsel in favor of mootness.
Happy has failed to obtain a stay to prevent the execution of the reorganization
plan. Moreover, the relief Happy requests, reversal of the substantive
consolidation order, would foil the success of the plan. The plan confirmed by
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No. 08-51075
the bankruptcy court could not go forward and the implementation of the plan
would have to be undone.
The second factor, whether the plan has been substantially consummated,
also weighs heavily in favor of dismissal on equitable mootness grounds.
“Substantially consummated” is defined in the bankruptcy code to mean:
(A) transfer of all or substantially all of the property proposed by the
plan to be transferred;
(B) assumption by the debtor or by the successor to the debtor under
the plan of the business or of the management of all or substantially
all of the property dealt with by the plan; and
(C) commencement of distribution under the plan.
11 U.S.C. § 1101(2). In this case, the effective date of the plan was January 10,
2009. On that day, the Debtor’s old equity was extinguished and new equity was
issued to Congress Materials, LLC. That day also marked the commencement
of all plan distributions. Thus, according to the above definition, the plan of
reorganization has been substantially consummated.
III.
“[T]here is a point beyond which [appellate courts] cannot order
fundamental changes in reorganization actions.” In re Manges, 29 F.3d 1034,
1039 (5th Cir. 1994). Regarding the issues raised by Happy, this case has
reached that point; “effective judicial relief is no longer available.” Id.Accordingly, the appeal is
DISMISSED.
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