Villaje Del Rio, Ltd. v. Colina Del Rio, LP , 283 F. App'x 263 ( 2008 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
June 25, 2008
No. 07-51158
Summary Calendar Charles R. Fulbruge III
Clerk
In the Matter Of: VILLAJE DEL RIO, LTD.
Debtors
-----------------------------------------------------------------------------------------------
VILLAJE DEL RIO, LTD.; GEORGE GEIS
Appellants
v.
COLINA DEL RIO, LP
Appellee
Appeal from the United States District Court
for the Western District of Texas
USDC No. 5:06-CV-1102-WWJ
Before JONES, Chief Judge, and CLEMENT, and SOUTHWICK, Circuit Judges.
EDITH H. JONES:*
The background of this case is convoluted but its disposition is clear. The
district court correctly dismissed the appeal from the bankruptcy court as moot.
*
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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.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. 07-51158
BACKGROUND
Appellant Villaje del Rio (“Villaje”) defaulted on a non-recourse note
exceeding $26 million that it used to finance the construction of a multifamily
apartment complex in San Antonio, Texas. Following the default, Colina del Rio
(“Colina”) purchased the note. Colina noticed a foreclosure sale, and Villaje sued
Colina and Deutsche Bank, the original lender, in state court seeking a TRO to
prohibit Colina from holding the sale.1 Villaje also claimed a right of setoff
against the mortgage note and a right of recoupment against Colina for damages
Villaje suffered at the hands of Deutsche Bank.
After Villaje refused to post the bond upon which the TRO was conditioned
(thus forfeiting the TRO), it filed for chapter 11 bankruptcy relief. Colina then
removed the state court lawsuit to the bankruptcy court, which initiated an
adversary proceeding.
Colina moved the bankruptcy court for an order allowing it to exercise its
state-law right of foreclosure. The bankruptcy court concluded that Villaje was
not entitled to setoff or recoupment and that Colina’s request for a relief from
the automatic bankruptcy stay was appropriate. Villaje’s counsel then requested
a stay pending appeal, which the bankruptcy judge stated he was inclined to
give. But Villaje never formally requested a stay, and it did not appeal the relief
order. Instead, it filed a motion for reconsideration that the bankruptcy court
denied. Colina foreclosed on August 1, 2006, and purchased the property at
auction.
In November 2006, Colina obtained summary judgment on Villaje’s state-
law recoupment and setoff claims. The bankruptcy court concluded Villaje was
not entitled under Texas law to either setoff or recoup any damages Villaje may
1
Villaje alleged Deutsche Bank tortiously interfered with Villaje’s contract with the
general contractor.
2
No. 07-51158
possibly be awarded against Deutsche Bank in the adversary proceeding against
what it owed to Colina under the note.
The adversary proceeding continued against Deutsche Bank, while the
judgment for Colina was certified for appeal. Villaje appealed to the district
court, which granted Colina’s motion to dismiss as moot because the property
had already been sold in the foreclosure sale. Villaje then filed a motion for new
trial under FRCP 59 and 60, which was denied. Villaje now appeals.
DISCUSSION
Villaje makes two main arguments. First, it claims that the district court
erred in applying the equitable mootness doctrine because a remedy could be
fashioned if its legal claims proceeded against Colina.
Villaje’s mootness argument lacks merit. A district court case almost
directly on point explains the application of the mootness doctrine in this
situation. See First Mortgage Atrium Bldg. v. Mut. Life Ins. of N.Y., 92 B.R. 202,
206-07 (E.D. Tex. 1988). Further, this court’s consideration of a very similar
scenario in Sullivan Cent. Plaza I, Ltd. v. BancBoston Real Estate Capital Corp.,
914 F.2d 731, 734 (5th Cir. 1990), reh’g 935 F.2d 723 (5th Cir. 1991), also
disposes of the case. The factual distinctions are without a difference in this
case. Both of those cases hold that equitable mootness exists and an appeal must
be dismissed when a party attacking a bankruptcy order approving foreclosure
fails to obtain a stay of the foreclosure pending appeal. Were it otherwise, the
appellate courts would be able to reverse duly authorized foreclosures and create
havoc in bankruptcy administration. Sullivan Cent., 914 F.2d at 734; see also
11 U.S.C. § 363(m). The courts apply mootness because we are unable to grant
effective relief on appeal. Importantly, Villaje’s goal, acknowledged in its brief,
is to preserve its ability to recover the property by settling Colina’s note through
3
No. 07-51158
damages it hopes to recover from Deutsche Bank. This is precisely the type of
claim foreclosed by equitable mootness.
Villaje nevertheless asserts that a cause of action for wrongful foreclosure
allows the possibility of such recovery. Villaje contends that neither the
bankruptcy nor the district court addressed whether a wrongful foreclosure
action based on claims unrelated to the termination of the automatic stay could
be maintained by a debtor notwithstanding the foreclosure. Theoretically, this
is correct. See Amer. Grain Ass’n v. Lee-Vac, Ltd., 630 F.2d 245, 248 (5th Cir.
1980); Matter of First Mortgage Atrium Bldg., 92 B.R. at 207 (court could refuse
to rescind a foreclosure where no stay had been obtained but could also require
bankruptcy court to make findings as to exact amount of mortgage debt owed).
The record before us does not support Villaje’s contention, however. Villaje
has not been deprived of its potential monetary recovery. Villaje’s severed
litigation against Deutsche Bank continued after its appeal of the judgment for
Colina.2 No claim Villaje may have against Colina has been foreclosed, but
Villaje has never filed such a claim. No such claim was pending before the
bankruptcy or district courts. The only claim alleged in the pleadings sought to
prevent, by means of recoupment or setoff, Colina’s foreclosure before it
occurred. The fact that Villaje may maintain a residual but as-yet unlitigated
and unarticulated money damage claim against Colina does not transform the
present suit or appeal into an exception to the mootness doctrine.3 Thus, the
district court correctly concluded the appeal was moot.
2
Villaje informs us that the bankruptcy court elected to remand this litigation back to
state court following the foreclosure sale, noted in the next section, of Villaje’s assets.
3
We acknowledge Colina’s admission in its brief that, “If Colina has liability
independent of the claims against Deutsche Bank, the assertion of setoff and/or recoupment
. . . is not necessary for a money damages claim directly against Colina [pursuant to Texas
law].” Appellee’s Br. 18-19.
4
No. 07-51158
In the alternative, Villaje argues that the district court should have
abstained and remanded to state court because while its appeal was pending in
the district court, Villaje’s chapter 11 proceeding was converted to a chapter 7
in February 2007, Geis purchased Villaje’s assets, including its legal claims, at
an auction in May 2007, and thus the Villaje bankruptcy estate has no
continuing interest in the case.4 The district court was not required to abstain
from issuing a mootness ruling, because abstention, provided for in 28 U.S.C.
§ 1334(c), does not apply to the court’s exercise of appellate jurisdiction over
bankruptcy court orders pursuant to 28 U.S.C. § 158(a). Edge Petroleum
Operating Co. Inc. v. GPR Holdings, LLC, 483 F.3d 292, 301 (5th Cir. 2007). It
also follows from the grant of statutory appellate jurisdiction to the district court
that it had the power to adjudicate the appeal without restrictions arising from
the conferral of original bankruptcy jurisdiction under 28 U.S.C. § 1334(a) and
(b). There was no jurisdictional impairment to the district court’s disposition of
the appeal as moot.
CONCLUSION
We AFFIRM the district court’s dismissal of the appeal from the
bankruptcy court.
4
The district court never ruled on Geis’s motion to substitute himself as a party,
dismissing it as moot. This order is not challenged on appeal.
5