Antelope Technologies, Inc. v. Janis Lowe , 431 F. App'x 272 ( 2011 )

Case: 10-20556 Document: 00511520282 Page: 1 Date Filed: 06/24/2011
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
June 24, 2011
No. 10-20556 Lyle W. Cayce
Clerk
In the Matter of: ANTELOPE TECHNOLOGIES, INC., doing business as
MCC Computer Company,
Debtor
–––––––––––––––––––––––––
ANTELOPE TECHNOLOGIES, INC.,
Appellant
v.
JANIS LOWE; ALAN TAYLOR,
Appellees
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:10-CV-205
Before REAVLEY, GARZA, and SOUTHWICK, Circuit Judges.
PER CURIAM:*
Antelope Technologies, Inc. appeals the district court’s affirmance of the
bankruptcy court’s order dismissing its Chapter 11 bankruptcy petition. We
AFFIRM.
*
The court has determined under 5TH CIR. R. 47.5 that this opinion should not be
published and is not precedent except under the circumstances set forth in 5TH CIR. R. 47.5.4.
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STATEMENT OF FACTS
Janis Lowe and Alan Taylor were minority shareholders of Antelope
Technologies, Inc. In February 2005, a group of minority shareholders filed a
derivative action against Antelope’s controlling shareholders and others who
were acting in concert with them. They alleged violations of the Lanham Act
and of RICO, and a conversion of corporate assets. The defendants included the
management and alleged insiders of Antelope: Thomas Lykos, Jr., Klaus
Genssler, and Scaltech, Inc.
Two years later – while the shareholder litigation was still pending –
Antelope filed a voluntary Chapter 11 petition, a proposed plan of
reorganization, and a disclosure statement. Three minority shareholders
objected to the plan: Stephen Guyer, Janis Lowe, and Alan Taylor. Finding
their objections insufficient, the bankruptcy court entered an order confirming
the debtor’s plan of reorganization on November 21, 2007.
Lowe and Taylor appealed. The district court vacated the order, finding
that the Chapter 11 petition did not appear to have been filed in good faith. It
instructed the bankruptcy court on remand to “(1) hold a hearing on whether to
appoint a Chapter 11 Trustee; and (2) make findings of fact on whether the Plan
was proposed in good faith.”
On remand, the bankruptcy court held an evidentiary hearing on whether
Antelope’s Chapter 11 petition was not filed in good faith and whether it should
therefore be dismissed. The bankruptcy court found that the petition was filed
to gain an advantage in the shareholder litigation rather than for a
reorganization. The bankruptcy court reasoned that “although Lykos (and
perhaps Genssler) saw an opportunity for growth of [Antelope]’s business
through recapitalization, [Antelope]’s near-term capital needs were not so urgent
as to cause the filing of a Chapter 11 petition at the time [Antelope]’s board
authorized and directed Lykos to file it . . . , or for more than two years
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thereafter.” The court found support for its findings in the passage of time
between the board’s authorization to file the bankruptcy petition and the actual
filing. Further support was found in the terms of the proposed plan, which had
released Scaltech, Inc. and other insiders from the shareholder litigation, while
at the same time giving Genssler, through Scaltech, Inc., control over Antelope.
The bankruptcy court dismissed the Chapter 11 petition. On appeal, the
district court affirmed. Antelope timely appealed here.
DISCUSSION
Antelope raises three points of error: (1) the bankruptcy court exceeded the
scope of the district court’s mandate on remand; (2) the Chapter 11 petition
should not have been dismissed because of equitable mootness; and (3) the lack
of good faith finding was not supported by the record.
In considering an appeal in a bankruptcy case, this court applies the same
standard of review as did the district court: “the bankruptcy court’s findings of
fact are reviewed for clear error, and its conclusions of law are reviewed de
novo.” In re Hickman, 260 F.3d 400, 401 (5th Cir. 2001) (citation omitted). “A
bankruptcy court’s determination that a debtor has acted in bad faith is a
finding of fact reviewed for clear error.” In re Jacobsen, 609 F.3d 647, 652 (5th
Cir. 2010). We will sustain that court’s factual findings absent “a firm and
definite conviction that the bankruptcy court made a mistake . . . .” In re Cahill,
428 F.3d 536, 542 (5th Cir. 2005) (quotation marks and citation omitted).
I. Scope of Remand
Antelope argues that the bankruptcy court exceeded the scope of the
district court’s mandate on remand. In its view, the mandate required the
bankruptcy court to hold a hearing on the motion to appoint a trustee and make
factual findings on whether the petition was filed in good faith. Antelope insists
that the bankruptcy court instead dismissed the petition without making any
factual findings. Lowe and Taylor argue there was no violation of the mandate,
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but regardless, the issue was waived because it was not raised in the district
court.
This argument was not well-presented to the district court, but we are
loath to conclude that the issue was not preserved for our review. We conclude
the bankruptcy court did not exceed the scope of the mandate. The district
court’s order indicated that the remand was for the general purpose of
determining whether the petition was filed in good faith. Although all the
ramifications of a determination of bad faith were not identified in the mandate,
the bankruptcy court properly implemented the effect of its findings by
dismissing Antelope’s Chapter 11 petition.
II. Equitable Mootness
Antelope argues that the bankruptcy court’s dismissal of its Chapter 11
petition was erroneous under the doctrine of equitable mootness. This doctrine
“is a recognition by the appellate courts that there is a point beyond which they
cannot order fundamental changes in reorganization actions.” In re Manges, 29
F.3d 1034, 1038-39 (5th Cir. 1994). What is required is a balancing both of
equitable considerations and the finality of judgments on the one hand with the
right of a party to challenge an adverse bankruptcy order on the other. Id. at
1039. “When evaluating whether an appeal of a reorganization plan in a
bankruptcy case is moot, this Court examines 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)
(citation omitted).
Antelope argues that equitable mootness should have precluded the
bankruptcy court from dismissing its petition because Lowe and Taylor did not
obtain a stay pending appeal of confirmation and the plan has been substantially
consummated. It further maintains that the rights of third parties, such as
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employees, tradespeople, and creditors will be affected because it has continued
to operate as a reorganized, ongoing business since the confirmation and it has
developed relationships with such parties in reliance on the confirmation.
A fully-implemented plan of reorganization “should be disturbed only for
compelling reasons . . . .” In re Manges, 29 F.3d at 1039 n.6 (quoting Rochman
v. Ne. Util. Serv. Group (In re Public Serv. Co), 963 F.3d 469, 471-72 (1st Cir.
1992)). Although the plan was substantially consummated, the bankruptcy
court found the petition was filed for an improper purpose. There is a compelling
interest in refusing to apply equitable mootness when the petition was not filed
in good faith. The bankruptcy court struck a proper balance among the interests
of finality, equity, and reviewability of judgments.
III. Lack of Good Faith in Filing
Antelope contends there was no evidence of bad faith in the record, but
instead there was substantial evidence the Chapter 11 petition was filed in good
faith. It insists the claim of bad faith arose from unproven allegations by Lowe
and Taylor of fraud, mismanagement, and self-dealing.
A bankruptcy court may dismiss a Chapter 11 petition if the court
determines that it was not filed in good faith. In re Humble Place Joint Venture,
936 F.2d 814, 816-17 (5th Cir. 1991). The bankruptcy court held an evidentiary
hearing on the issue of possible bad faith, then entered its order detailing its
factual findings and dismissing Antelope’s Chapter 11 petition.
On appeal, the district court wrote a thorough opinion examining the facts
in the record. We will not repeat those findings. We are satisfied, largely for the
reasons stated by the district court, that there was no clear error in the finding
that the purpose of the petition was not primarily to reorganize or respond to
financial crisis but instead was to gain unfair advantage in the shareholder
derivative action. AFFIRMED.
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