Matter of Manges ( 1994 )


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  •                    United States Court of Appeals,
    Fifth Circuit.
    No. 93-7328.
    In the Matter of Clinton MANGES, Debtor.
    Clinton MANGES, Duval County Ranch C and Man-Gas Transmission,
    Appellants-Cross Appellees,
    v.
    SEATTLE-FIRST NATIONAL BANK and SeaFirst American Corporation,
    Appellees-Cross Appellants.
    In the Matter of DUVAL COUNTY RANCH C, Debtor.
    Clinton MANGES, Duval County Ranch C and Man-Gas Transmission,
    Appellants-Cross Appellees,
    v.
    SEATTLE-FIRST NATIONAL BANK and SeaFirst American Corporation,
    Appellees-Cross Appellants (Two Cases).
    In the Matter of MAN-GAS TRANSMISSION, Debtor.
    Aug. 29, 1994.
    Appeals from the United States District Court for the Southern
    District of Texas.
    Before KING and SMITH, Circuit Judges, and KENT*, District Judge:
    KING, Circuit Judge:
    Appellants,    the   debtors       in     a    consolidated      bankruptcy
    proceeding, appeal from the district court's order affirming the
    bankruptcy   court's   confirmation       of       the   principal    creditor's
    proposed plan of reorganization.             By way of cross-appeal, the
    creditors request that we dismiss the appeal as moot.                On the basis
    of the facts before us, we agree with the creditors and, upon
    *
    District Judge of the Southern District of Texas, sitting
    by designation.
    1
    finding the issues presented to be moot, dismiss the appeal.
    I. Background
    Appellant Duval County Ranch Company (the "Ranch Company")
    owned the surface estate of a 99,000-acre ranch in Duval County,
    Texas.    Appellant Man-Gas Transmission Company ("Man-Gas") owned
    the mineral rights under the ranch property.                  Both of these
    companies were wholly owned by the individual debtor and appellant,
    Clinton Manges ("Manges").1         The ranch was undisputedly and by far
    the largest asset of the Manges debtors.             Seattle First National
    Bank ("Seattle") made a loan to the Ranch Company in 1980, which
    was   secured   by   a   mortgage    on    the   ranch   surface   estate   and
    personally guaranteed by Manges.
    A. The Agreed Judgment and Foreclosure
    The loan went into default, and Seattle filed suit against the
    Ranch Company and Manges in the United States District Court for
    the Western District of Texas, San Antonio Division, to recover the
    sums owed. Eventually, in August of 1988, the parties entered into
    an agreed judgment pursuant to which the Ranch Company and Manges
    would make periodic payments on the loan.
    After the Ranch Company and Manges subsequently failed to make
    one of the scheduled payments under the agreed judgment, the Ranch
    Company filed a voluntary Chapter 11 bankruptcy petition to prevent
    foreclosure under the agreed judgment. Soon after, Manges and Man-
    Gas also entered Chapter 11 proceedings.
    1
    Collectively, we refer to these appellants as the "Manges
    debtors."
    2
    Seattle requested relief from stay, but agreed to abandon that
    request temporarily if certain conditions were met.                         The court
    signed   an    "Agreed    Order   On    Motion       For   Relief    From   Stay"    on
    September 5, 1990. Pursuant to that order, the Manges debtors were
    to obtain insurance coverage for improvements to the ranch within
    ten days of the order's entry.               When the Ranch Company failed to
    obtain   the    requisite     binder     for    coverage      within     the    agreed
    time-period, Seattle gave notice of default.                        After the Ranch
    Company received the notice and failed to cure the default, the
    automatic stay was lifted, and the San Antonio court entered an
    order of sale of the ranch property on October 30, 1990.                     Although
    this order was stayed temporarily, the ranch was eventually sold at
    auction by federal marshals on January 16, 1991 (the "January 16
    foreclosure"), and was purchased by SeaFirst American Corporation
    ("SeaFirst"), a wholly-owned subsidiary of Seattle.                            The San
    Antonio court confirmed the sale on January 17, 1991, and the
    Manges debtors appealed both the order of sale and confirmation of
    sale to this court.2
    B. The Plan of Reorganization
    The Manges debtors proposed several plans of reorganization,
    but the bankruptcy court refused to confirm any of the debtors'
    proposed plans.        Instead, by order entered June 10, 1991, the
    bankruptcy     court     confirmed     the    plan    proposed      by   Seattle    and
    SeaFirst (the "Plan") after balloting and a four-day confirmation
    2
    We dismissed that appeal as moot after the bankruptcy court
    confirmed the creditor plan of reorganization as discussed below.
    3
    hearing. In connection with the confirmation order, the bankruptcy
    court issued findings of fact and conclusions of law, including the
    following:      (i) that the Plan complied with all requirements of 11
    U.S.C. §§ 1123 and 1129, as well as other applicable law;              (ii)
    that the Plan "was proposed in good faith and not by any means
    forbidden by law";      (iii) that "[t]he principal purpose of the [ ]
    Plan is not the avoidance of taxes ...";         and (iv) that the debtors
    had "no equity in any of the property of the estates subject to the
    liens."3
    Under the Plan, a liquidating trust would be created to hold
    legal title to the debtors' assets for sale and distribution of
    proceeds   to    the   various    creditors   (the   "Trust").   The   Plan
    appointed a vice-president of Seattle to serve as liquidating
    trustee, overseeing the payment of approximately $80 million in
    creditors' claims with approximately $35 million in trust assets.
    The Manges debtors were required to execute the trust agreement
    creating the Trust as well as a "blanket conveyance" transferring
    all of their assets to the Trust.          In the event the Manges debtors
    failed to do so, third parties were authorized to execute the
    appropriate documents.           The Plan also provided that, upon its
    confirmation, the January 16 foreclosure would be rescinded and all
    liens existing prior to the foreclosure would be reinstated.
    Another important aspect of the Plan was that SeaFirst would create
    a $1.3 million creditor fund to pay administrative expenses,
    3
    With respect to this finding, the bankruptcy court further
    decreed that "[t]he value of the secured claims shall be
    determined by the sales price for the collateral."
    4
    priority wage claims, and general unsecured claims.                 Additionally,
    SeaFirst      voluntarily      subordinated      its   estimated     $36   million
    unsecured claim to those of the remaining unsecured creditors, and
    Seattle    and    SeaFirst      waived   their   approximately      $1.7   million
    administrative expense claims.
    With     respect     to    tax   consequences,    the   Plan   specifically
    provided that the Trust would be a non-taxable grantor trust—i.e.,
    that the Trust would not be liable for any taxes resulting from the
    sale of property.        The Plan included an express provision that the
    trustee was under no duty to file federal tax returns or to pay
    income taxes of any kind.             Nor was the trustee obligated to make
    available trust assets or sale proceeds to satisfy the tax claims.
    The IRS, one of the Manges' creditors, at first lodged objections,
    but, during the confirmation hearings, withdrew any objections it
    had to the Plan.        Interestingly, the bankruptcy court, in its June
    10 findings and conclusions, specifically found that "[t]here
    should    not     be    any    significant     post-confirmation      income     tax
    liability to Manges due to the availability of tax attributes, the
    value    of     the    collateral,     the    availability   of     subchapter    S
    termination,4 and the lack of personal liability to Manges for [the
    Ranch Company's] taxes."5
    4
    Although Man-Gas was created as a subchapter S corporation,
    and consequently tax liabilities could be funnelled through to
    its owner, Manges, the bankruptcy court deferred entry of its
    written confirmation order so that Manges could convert Man-Gas
    to a subchapter C corporation, thus immunizing him from personal
    liability.
    5
    The bankruptcy court further observed that "[e]ven in the
    event that the debtors are faced with post-confirmation tax
    5
    C. The Appellate Efforts
    The Manges debtors took an appeal from the confirmation order
    to the district court and unsuccessfully applied for a stay of the
    Plan pending appeal from both the bankruptcy court and the district
    court.   They also sought a writ of mandamus from this court to
    compel the district court to issue the stay, but that request was
    similarly denied. Seattle and SeaFirst urged the district court to
    dismiss the   appeal   as   moot,   but   the   district   court   refused,
    concluding that the Plan had not been substantially consummated.
    Specifically, the court below found that the most substantial asset
    of the debtors—the ranch property—had not been sold, though it
    recognized that a substantial amount of the Trust property had
    otherwise been alienated.    Reaching the merits, the district court
    affirmed the confirmation order by order entered May 4, 1993 (the
    "May 4 order").
    The Manges debtors then commenced the instant appeal.             Two
    days after filing their notice of appeal, on May 14, 1993, the
    Manges debtors sought and were denied an emergency stay from the
    district court of its May 4 order pending appeal to this court.
    This court denied a similar motion for stay on May 25, 1993.            On
    September 7, 1993, the Manges debtors filed an amended motion to
    stay the Plan pending appeal, but that motion was also denied a
    week later.
    D. The Administration of the Trust
    liability, the [ ] Plan is not unfair or inequitable since the
    debtors have had the benefit of the prepetition use of money and
    property without the burden of paying taxes."
    6
    As a consequence of the failure to obtain a stay, numerous
    events have taken place pursuant to the Plan.    The Trust has been
    created, and, soon after the Plan was confirmed, SeaFirst funded
    the creditor fund, much of which was subsequently disbursed to
    administrative claimants and priority wage claimants. According to
    affidavits filed in the district court while the first tier of this
    appeal was before that court, the Trust paid over $1.5 million in
    creditors' claims and over $2.5 million in repairs and operating
    expenses relating to the ranch property.    Those affidavits also
    reflect that the Trust litigated several unsecured claims and was
    poised to distribute fifty percent of the remaining monies to the
    allowed, general unsecured creditors by the time of the district
    court appeal.    The Trust additionally sold working interests,
    executed oil and gas leases, entered into gas purchase contracts,
    and leased almost all of the surface area of the ranch for grazing
    and hunting purposes. It began reducing significant ad valorem tax
    liabilities which had not been paid for years.
    Most significant, however, is the fact that the ranch property
    and all remaining mineral interests have been sold to non-creditor
    third parties as of December 16, 1993 (the "December 16 sale"),
    during the pendency of this appeal.   Although we are not informed
    of what additional, administrative measures have been taken during
    the course of this appeal, we can only presume that the trustees
    have continued to implement the unstayed Plan.
    II. Analysis
    The Manges debtors claim that the Plan as confirmed deprives
    7
    them of their ability to have a "fresh start" because they will be
    saddled with significant post-confirmation tax liabilities and will
    have       no    estate     assets   with   which   those   liabilities    can    be
    satisfied.         Seattle and SeaFirst counter that the controversy is
    moot because the Plan has been so substantially consummated that
    this court can no longer provide effective relief.
    Generally, the mootness inquiry centers upon the concern that
    only live cases or controversies be decided by our courts.                        See
    Powell v. McCormack, 
    395 U.S. 486
    , 496 n. 7, 
    89 S. Ct. 1944
    , 1951 n.
    7, 
    23 L. Ed. 2d 491
    (1969) (recognizing that the Court's inability to
    consider the merits of a moot case "is a branch of the [U.S. CONST.
    art. III] constitutional command that the judicial power extends
    only to cases or controversies") (citing Sibron v. New York, 
    392 U.S. 40
    , 57, 
    88 S. Ct. 1912
    , 
    20 L. Ed. 2d 917
    (1968)).                  A controversy
    becomes         moot   in   the   traditional   sense   when,   as   a   result    of
    intervening circumstances, there are no longer adverse parties with
    sufficient interests to maintain the litigation.                 Chevron U.S.A.,
    Inc. v. Traillour Oil Co., 
    987 F.2d 1138
    , 1153 (5th Cir.1993).
    Many courts, including our own, however, have employed the concept
    of "mootness" to address equitable concerns unique to bankruptcy
    proceedings.6          In this context, "mootness" is not an article III
    6
    See, e.g., In re UNR Indus., Inc., 
    20 F.3d 766
    , 769 (7th
    Cir.1994) (recognizing the virtually universal principle that "a
    plan of reorganization, once implemented, should be disturbed
    only for compelling reasons" and collecting cases); Rochman v.
    Northeast Util. Serv. Group (In re Public Serv. Co.), 
    963 F.2d 469
    , 471-72 (1st Cir.) (noting that the mootness doctrine
    facilitates the "important public policy favoring orderly
    reorganizations and settlement of debtor estates by "affording
    finality to the judgments of the bankruptcy court' ") (quotation
    8
    inquiry as to whether a live controversy is presented;                      rather, it
    is a recognition by the appellate courts that there is a point
    beyond       which      they    cannot     order      fundamental          changes    in
    reorganization actions. See In re AOV Indus., Inc., 
    792 F.2d 1140
    ,
    1147 (D.C.Cir.1986) (recognizing that "[e]ven when the moving party
    is not entitled to dismissal on article III grounds, common sense
    or equitable considerations may justify a decision not to decide a
    case    on     the   merits")    (citations       omitted).       Consequently,       a
    reviewing       court    may    decline    to     consider      the   merits     of   a
    confirmation order when there has been substantial consummation of
    the    plan    such     that   effective       judicial   relief      is    no   longer
    available—even though there may still be a viable dispute between
    the parties on appeal.          Halliburton Serv. v. Crystal Oil Co. (In re
    Crystal Oil Co.), 
    854 F.2d 79
    , 82 (5th Cir.1988);                      Brite v. Sun
    Country Dev., Inc. (In re Sun Country Dev., Inc.), 
    764 F.2d 406
    ,
    406-07    n.    1    (5th   Cir.1985).         The   Eleventh    Circuit      cogently
    described the competing interests which must be considered in this
    regard:
    The test for mootness reflects a court's concern for striking
    the proper balance between the equitable considerations of
    finality and good faith reliance on a judgment and the
    competing interests that underlie the right of a party to seek
    review of a bankruptcy order adversely affecting him.
    First Union Real Estate Equity and Mort. Inv. v. Club Assoc. (In re
    omitted), cert. denied, --- U.S. ----, 
    113 S. Ct. 304
    , 
    121 L. Ed. 2d 226
    (1992); Trone v. Roberts Farms, Inc. (In re Roberts Farms,
    Inc.), 
    652 F.2d 793
    , 798 (9th Cir.1981) (holding that reversal of
    the confirmation order "would knock the props out from under the
    authorization for every transaction that has taken place, [and]
    would do nothing other than create an unmanageable,
    uncontrollable situation for the Bankruptcy Court").
    9
    Club       Assoc.),   
    956 F.2d 1065
    ,    1069   (11th    Cir.1992)    (citation
    omitted).       The concept of "mootness" from a prudential standpoint
    protects the interests of non-adverse third parties who are not
    before the reviewing court but who have acted in reliance upon the
    plan as implemented.            As the Seventh Circuit aptly framed the
    issue, we must determine "whether it is prudent to upset the plan
    of reorganization at this late date."               In re UNR Indus., Inc., 
    20 F.3d 766
    , 769 (7th Cir.1994).
    This court has historically examined three factors in making
    this assessment—(i) whether a stay has been obtained, (ii) whether
    the plan has been "substantially consummated," and (iii) whether
    the relief requested would affect either the rights of parties not
    before the court or the success of the plan.                      Ronit, Inc. v.
    Stemson Corp. (In re Block Shim Dev. Co.), 
    939 F.2d 289
    , 291 (5th
    Cir.1991) (citing Crystal 
    Oil, 854 F.2d at 81-82
    );                       Cleveland,
    Barrios,       Kingsdorf    &   Casteix     v.   Thibaut,   
    166 B.R. 281
    ,   286
    (E.D.La.1994).7        We evaluate each in turn.
    A. Halting the Runaway Train:              the Motions to Stay
    As the Manges debtors correctly observe, in many of the cases
    in which bankruptcy appeals were dismissed as moot, the appellants
    failed to seek a stay.          E.g., Crystal 
    Oil, 854 F.2d at 82
    (noting
    the objecting creditor "should have sought a stay so the reviewing
    court could consider the plan's propriety before implementation led
    7
    The Eleventh Circuit, in a recent opinion on the subject,
    listed an additional inquiry—whether the relief sought would
    affect the reemergence of the debtor as a revitalized entity.
    See First Union Real Estate Equity and Mort. Inv. v. Club Assoc.
    (In re Club Assoc.), 
    956 F.2d 1065
    , 1069 n. 11 (11th Cir.1992).
    10
    third parties to make commitments in reliance on the plan");
    Cleveland, 
    Barrios, 166 B.R. at 286-87
    (observing that the failure
    to seek a stay warrants dismissal of appeal on mootness grounds if
    the   lack   of    stay   has    permitted        a     comprehensive   change   in
    circumstances or substantial consummation of the plan);                   see also
    Trone v. Roberts Farms, Inc. (In re Roberts Farms, Inc.), 
    652 F.2d 793
    , 798 (9th Cir.1981) (dismissing an appeal on equitable grounds
    where appellant never applied to bankruptcy court for stay).                     By
    contrast,    the    Manges      debtors        argue,    they   diligently—albeit
    unsuccessfully—pursued a stay at every turn.8                Thus, they appear to
    conclude, they have preserved their right to a merits review.
    However, in rejecting a similar argument, Judge Easterbrook aptly
    pointed out that the failure to seek a stay is not "a censurable
    event to be punished by refusal to adjudicate the merits"; rather,
    [t]he significance of an application for a stay lies in the
    opportunity it affords to hold things in stasis, to prevent
    reliance upon the plan of reorganization while the appeal
    proceeds. A stay not sought, and a stay sought and denied,
    lead equally to the implementation of the plan of
    reorganization. And it is the reliance interests engendered
    by the plan, coupled with the difficulty of reversing critical
    transactions, that counsels against attempts to unwind things
    on appeal. Every incremental risk of revision on appeal puts
    a cloud over the plan of reorganization and derivatively over
    the assets of the reorganized firm.
    8
    The district court denied the debtors' request for a stay
    because it was not persuaded that the Manges debtors had the
    requisite likelihood of success on appeal. The bankruptcy court
    more fully elaborated its grounds for denial of stay, reasoning
    that, even if execution of the Plan were stayed, overwhelming
    circumstances would compel it to lift the automatic stay to allow
    foreclosure upon the estate's assets. Because foreclosure upon
    the debtors' assets would leave little to be divided among the
    remaining claimants, the bankruptcy court concluded that the most
    fair and equitable result was to confirm the Plan and deny the
    stay.
    11
    In re UNR 
    Industries, 20 F.3d at 769-70
    ;           see also In re AOV
    Indus., Inc., 
    792 F.2d 1140
    , 1147 (D.C.Cir.1986) (recognizing that
    unsuccessful attempt to obtain stay had same result as failure to
    seek stay).    In short, the failure or inability to obtain a stay
    pending appeal carries the risk that review might be precluded on
    mootness grounds.
    Although we recognize that, in many situations, the reviewing
    court's decision whether to grant a stay is essentially dispositive
    of   the   case—considering   the   average   length   of   time   for   an
    appeal9—we note that several provisions of the Bankruptcy Code
    preordain such a consequence.         See, e.g., 11 U.S.C. § 363(m)
    (mandating that the reversal of an unstayed order authorizing the
    sale or lease of estate property "does not affect the validity of
    the sale or lease under such authorization to an entity that
    purchased or leased such property in good faith ... unless such
    authorization and such sale or lease were stayed pending appeal");
    11 U.S.C. § 1127(b) (curtailing significantly bankruptcy court's
    ability to modify plan of reorganization after its confirmation and
    "substantial consummation"); see also Bankruptcy Rule 805 ("Unless
    an order approving a sale of property ... is stayed pending appeal,
    the sale to a good faith purchaser ... shall not be affected by the
    reversal or modification of such order on appeal, whether or not
    the purchaser knows of the pendency of the appeal.").        As the Ninth
    9
    See In re UNR 
    Industries, 20 F.3d at 768
    (noting that
    "[t]he long delay between the bankruptcy court's confirmation of
    the plan and the district court's disposition of objections to
    that action laid the foundation for the conclusion that the plan
    is beyond challenge").
    12
    Circuit recognized in In re Roberts Farms, "the principle of
    dismissal of an appeal for lack of equity ... places a heavy burden
    on aggrieved party-appellants in bankruptcy cases. It is justified
    to prevent frustration of orderly administration of estates under
    various provisions of the Bankruptcy 
    Act." 652 F.2d at 798
    .             It is
    undisputed that the Manges debtors did not obtain a stay, and we
    must thus examine the transactions which have taken place as a
    consequence to determine whether the confirmation challenge has
    become equitably or prudentially moot.
    B. Unscrambling the Eggs:        Substantial Consummation
    "Substantial       consummation"       is    a    statutory           measure    for
    determining      whether   a   reorganization         plan   may      be    amended    or
    modified by the bankruptcy court.                11 U.S.C. § 1127(b).10              This
    court,    in     addressing    the   mootness      issue,       has     borrowed      the
    "substantial       consummation"     yardstick        because      it      informs    our
    judgment as to when finality concerns and the reliance interests of
    10
    The statutory definition of "substantial consummation" is
    as follows:
    "[S]ubstantial consummation" means—
    (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). The district court focused only upon
    subpart (A) of the test in denying the motion to dismiss,
    and the parties appear to dispute only that requirement.
    13
    third parties upon the plan as effectuated have become paramount to
    a resolution of the dispute between the parties on appeal.          E.g.,
    Block 
    Shim, 939 F.2d at 291
    ;       accord Club 
    Associates, 956 F.2d at 1069
    .
    The district court concluded that the Plan had not been
    "substantially consummated," and, as a result, the relief sought
    was not moot.     The principal basis for this conclusion was the fact
    that the ranch had yet to be sold at the time the district court
    entered its order.       Of course, that event has now occurred, and we
    must determine as a threshold matter whether we may properly
    incorporate the December 16 sale into our mootness analysis.             If
    so, we will then evaluate the effect the sale has upon that
    determination, in addition to the other transactions which are
    contended to evidence substantial consummation of the Plan.
    1. Evidence of December 16 sale
    The Manges debtors have long recognized the significance of
    this transaction and the consequent effect it would have on the
    mootness question.        In fact, in requesting a stay during the
    pendency of this appeal, they represented that:
    The trustee is currently involved in negotiations to sell the
    property, having received written offers to purchase the
    property.   An order preventing such sale is necessary to
    prevent the sale from rendering moot the appellants' appeal.
    A sale of this property would leave the bankruptcy estate with
    few assets and would render this appeal moot (emphasis added).
    As noted above, this court denied the stay.
    Now that the ranch has been sold and the threat of mootness
    looms   larger,    the   Manges   debtors   challenge   the   December   16
    sale—apparently for the first time—on the basis that there is no
    14
    evidence that   the   sale   was   made   to   a   good-faith   third-party
    purchaser, a requirement that they contend has been incorporated
    into the first prong of the substantial consummation determination.
    They also speculate that "discovery could conceivably reveal ...
    that [the sale] was not a good faith transfer for value, or was
    conditioned on the outcome of this appeal" (emphasis added).
    Reasoning from that assumption, the debtors argue that the recent
    sale might be subject to rescission in the event their appeal was
    successful. Therefore, the Manges debtors previously asked that we
    remand the case to the district court for discovery on the mootness
    issue;   however, this court denied the request.                Although we
    recognize that the "substantial consummation" test is generally
    fact-driven such that an evidentiary hearing on the issue would be
    necessary, there is a very important distinction in the case
    presented.   Substantial consummation here is merely a sub-part of
    the overall mootness balancing test, as discussed above.           Mootness
    is evaluated by the reviewing court, which may take notice of facts
    not available to the trial court if they go to the heart of the
    court's ability to review.         See Board of License Comm'rs v.
    Pastore, 
    469 U.S. 238
    , 240, 
    105 S. Ct. 685
    , 686, 
    83 L. Ed. 2d 618
    (1985) ("When a [post-appeal] development ... could have the effect
    of depriving the Court of jurisdiction due to the absence of a
    continuing case or controversy, that development should be called
    to the attention of the Court without delay.");           Clark v. K-Mart
    Corp., 
    979 F.2d 965
    , 967 (3d Cir.1992) (Unless reviewing court can
    receive facts relevant to mootness, "there [is] no way to find out
    15
    if an appeal has become moot.").                 Thus, this court may review
    evidence as to subsequent events not before the courts below which
    bears upon the issue of mootness.             E.g., Crystal 
    Oil, 854 F.2d at 81
    ;    Roberts 
    Farms, 652 F.2d at 796
    .
    Problems can arise, however, where the party opposing a motion
    to    dismiss   on    mootness    grounds     contests      the   newly   submitted
    evidence, as do the debtors here.11              However, we need not concern
    ourselves with resolving any such evidentiary dispute in the
    context of our mootness determination—or remanding it to the
    bankruptcy      court     for    resolution—because         there    is   no     real
    controversy as to the "facts" regarding the sale of the ranch.
    Seattle and SeaFirst have filed authenticated copies of the deeds
    of sale and sales agreements respecting the December 16 sale, and
    the    co-trustees      have    stated   under    oath     that   these   documents
    constitute      the   entire     agreement       between    the   Trust    and    the
    third-party buyers. Conspicuously absent from the papers before us
    is    any   affidavit     or     documentary      evidence—other      than     sheer
    speculation by the debtors in their motion to remand—that the sale
    11
    One district court, acting in its appellate function, was
    faced with a potentially viable challenge to certain affidavit
    evidence submitted in support of a motion to dismiss on the basis
    of mootness. See Huddleston v. Nelson Bunker Hunt Trust Estate,
    
    102 B.R. 71
    (N.D.Tex.1989). The court determined that the
    affidavit evidence was appropriately submitted and observed that:
    There may be disputes regarding evidence on the
    mootness question that are inapposite to the court's
    decision. If these disputes do not stand in the path
    of the district court's resolution of the mootness
    issue, the court need not remand the matter to the
    bankruptcy court.
    
    Id. at 76
    n. 9.
    16
    was somehow     compromised    in   order   to    facilitate    a   finding   of
    mootness.     This silence is even more suspect in light of the fact
    that the debtors filed motions to stay in this court to suspend the
    sale at issue, never once having lodged the charges they make
    today.12
    Seattle and SeaFirst urge us to take judicial notice of the
    unimpeached certified copies of the deeds and assignments executed
    by the Trust to the third-party purchasers contained in Seattle and
    SeaFirst's Record Excerpts, an invitation we accept.                E.g., Pratt
    v. Kelly, 
    585 F.2d 692
    , 696 (4th Cir.1978);            see also FED.R.EVID.
    201;    cf. Landy v. FDIC, 
    486 F.2d 139
    , 151 (3d Cir.1973) (taking
    judicial notice of court documents), cert. denied, 
    416 U.S. 960
    , 
    94 S. Ct. 1979
    , 
    40 L. Ed. 2d 312
    (1974).               We also take note of the
    properly authenticated sales agreements which fail to evidence any
    contingency upon the outcome of this appeal. From these documents,
    it appears that the "centerpiece" of this litigation has been
    irreversibly    sold   to   third   parties.       Therefore,   "it    is   very
    doubtful that effective relief could be afforded even if [the
    Manges debtors] prevailed on the merits."               In re Information
    Dialogues, Inc., 
    662 F.2d 475
    , 476 (8th Cir.1981) (per curiam).
    This factor alone weighs heavily in favor of a finding of mootness.
    2. Other evidence of "substantial consummation"
    12
    We cannot more accurately summarize the situation than did
    SeaFirst:
    For two years, the Manges Debtors played Cassandra,
    prophesying the fall of their kingdom should the ranch
    be sold; once the sale happened, they became King
    Lear, refusing to accept the fate they foresaw.
    17
    Even prior to the sale, the Trust spent millions of dollars
    improving,     upgrading,   and   preparing        the   property    for   sale,
    countless hours in negotiation of the conveyance, and substantial
    amounts in appraisals, surveys, and other closing costs. The Trust
    additionally engaged in negotiations to renew gas production on the
    ranch mineral estate, to lease both the surface estate and mineral
    rights, and to dispose of litigation involving Trust assets.
    Significant amounts were paid to state taxing authorities to reduce
    the outstanding liability for property taxes on the ranch which had
    not been paid for several years.            Millions of dollars in claims
    have been paid to date from the creditor fund established by
    Seattle and SeaFirst.
    In sum, (i) the Trust "has transferred all or substantially
    all of the property proposed by the [P]lan to be transferred";
    (ii)   the    liquidating   trustees    have   assumed     the    business   and
    management of all the property dealt with by the Plan;                and (iii)
    the Trust has "commence[d] distribution under the [P]lan."                    11
    U.S.C. § 1101(2).        Accordingly, the "substantial consummation"
    factor counsels convincingly against reviewing the merits of the
    debtors' challenge to the Plan.
    C. The Effect upon Parties not before us
    As    several   courts   have      made     clear,      "[s]ubstantial
    consummation of a reorganization plan is a momentous event, but it
    does not necessarily make it impossible or inequitable for an
    appellate court to grant effective relief." Frito-Lay, Inc. v. LTV
    Steel Co., Inc. (In re Chateaugay Corp.), 
    10 F.3d 944
    , 952 (2d
    18
    Cir.1993) (citing AOV 
    Industries, 792 F.2d at 1148
    ). Thus, we must
    also evaluate the other factors relevant to the mootness issue.
    With respect to the mootness factor relating to third parties, we
    reiterate that the ranch property and attendant mineral rights—by
    far the most substantial assets—have been sold to purchasers who
    are not before this court.     Furthermore, as noted above, millions
    of dollars in administrative and priority claims have been paid to
    claimants not parties to this appeal.            Millions more have been
    expended in preparing the property for the sale consummated in
    December of 1993.    The Trust has significantly reduced ad valorem
    tax liabilities by entering into settlements with, and making
    distributions to, the claimant taxing authorities not participating
    in the appeal.
    We   must   evaluate   these   transfers,    many   of   which   appear
    irreversible, against the backdrop of the relief sought—nothing
    less than a wholesale annihilation of the Plan.13             All of these
    13
    At oral argument, the Manges debtors' counsel argued for
    the first time that we might simply strike the offensive portion
    of the Plan without completely unravelling it. See Bill Roderick
    Distrib., Inc. v. A.J. Mackay Co. (In re A.J. Mackay Co.), 
    50 B.R. 756
    , 759-60 (D.Utah 1985) (holding that a bankruptcy court
    may modify a Chapter 11 plan after confirmation by deleting
    provisions that it did not have the jurisdiction to confirm). We
    disagree. The Bankruptcy Code provides that a plan may not be
    modified or amended after substantial consummation has taken
    place. 11 U.S.C. § 1127(b); cf. Trans World Airlines, Inc. v.
    Texaco, Inc. (In re Texaco, Inc.), 
    92 B.R. 38
    , 46 (S.D.N.Y.1988)
    (observing that " "the piecemeal dismantling of [a plan of
    reorganization] ...' is, in practical terms, if nothing else, a
    virtually impossible task") (quoting AOV Indus., Inc., 
    792 F.2d 1140
    , 1149 (D.C.Cir.1986)). In light of the facts that the Plan
    has been substantially consummated and that the tax provision is
    integral to the Plan as implemented, the requested modification
    is simply not possible.
    19
    third-party recipients and many others have relied upon the Plan,
    and   the     irretrievable             depletion       of      estate     assets     would
    correspondingly decrease the amounts available to all claimants.
    In short, we doubt seriously that we could place the estate or the
    parties     back    into    the    status       quo     as   it   existed      before    the
    confirmation order if we were to unravel the Plan at this time.
    Therefore, we conclude that this factor weighs heavily against our
    interference at this late date.
    D. Other Factors
    Other factors particular to this case also counsel against our
    intervention.         See In re AOV 
    Industries, 792 F.2d at 1147-48
    ("Determinations of mootness ... require a case-by-case judgment
    regarding the feasibility or futility of effective relief should a
    litigant prevail.").         For example, even assuming the sale of the
    ranch and mineral rights could somehow be set aside, there is no
    reason to believe that the property would return to the debtors in
    the event we reversed the bankruptcy court's confirmation order on
    appeal.      Rather,       the    ranch     would     return      to     SeaFirst,    which
    voluntarily        surrendered      it    to    the     Trust     in   order   to    obtain
    confirmation of the Plan, and the potential tax liability to the
    debtors occasioned by the sale on foreclosure would be resurrected.
    Moreover, Seattle and SeaFirst have expended millions of their
    own funds—both in cash infusions and forbearance of administrative
    expenses—in    reliance          upon    the    Plan,    much     of   which    cannot    be
    recovered.     See, e.g., Crystal 
    Oil, 854 F.2d at 82
    (considering
    important the fact that a creditor which had made significant
    20
    sacrifices to obtain confirmation would lose benefits obtained in
    exchange if appellant successfully overturned plan).              Further, if
    we were to reverse the Plan, the unsecured creditors would likely
    receive nothing   for     their   claims    because   the   portion   of   the
    creditor fund which remains will revert to Seattle and SeaFirst.
    Additionally, we presume that SeaFirst will reurge its $2 million
    administrative    expense     claims       and   rescind    its     voluntary
    subordination of its substantial unsecured debt.              The extensive
    dismantling of this successfully executed Plan would be nothing
    short of a disaster for the bankruptcy court and the parties before
    it.   These circumstances further persuade us that the instant
    appeal is prudentially moot.
    III. Conclusion
    To summarize, the Plan has been virtually fully implemented,
    and, at this point, unravelling it would be virtually impossible.
    For the foregoing reasons, we hold that "it would be plainly
    inequitable for this court to consider the merits of [the Manges
    debtors' appeal]."    Crystal 
    Oil, 854 F.2d at 82
    .          Accordingly, we
    dismiss the appeal.
    APPEAL DISMISSED.
    21
    

Document Info

Docket Number: 93-07328

Filed Date: 8/26/1994

Precedential Status: Precedential

Modified Date: 3/3/2016

Authorities (21)

In Re Club Associates, Debtor. First Union Real Estate ... , 956 F.2d 1065 ( 1992 )

Bankr. L. Rep. P 74,609 in Re Public Service Company of New ... , 963 F.2d 469 ( 1992 )

Susan Clark v. K-Mart Corporation , 979 F.2d 965 ( 1992 )

Otis Elwood Pratt, Administrator of the Estate of Mary ... , 585 F.2d 692 ( 1978 )

fed-sec-l-rep-p-94094-eugene-w-landy-in-72-1202-v-federal-deposit , 486 F.2d 139 ( 1973 )

in-re-chateaugay-corporation-reomar-inc-ltv-corporation-ltv-steel , 10 F.3d 944 ( 1993 )

in-re-information-dialogues-inc-fka-mustang-investment-corporation-a , 662 F.2d 475 ( 1981 )

Chevron U.S.A., Inc., Cross-Appellant v. Traillour Oil ... , 987 F.2d 1138 ( 1993 )

In Re Aov Industries, Inc., Hubert R. Bruce, Appeal of ... , 792 F.2d 1140 ( 1986 )

Bankr. L. Rep. P 72,627 in the Matter Of: Crystal Oil ... , 854 F.2d 79 ( 1988 )

In the Matter Of: Unr Industries, Inc., Debtors. Appeals of ... , 20 F.3d 766 ( 1994 )

bankr-l-rep-p-70633-in-the-matter-of-sun-country-development-inc , 764 F.2d 406 ( 1985 )

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Sibron v. New York , 88 S. Ct. 1889 ( 1968 )

Powell v. McCormack , 89 S. Ct. 1944 ( 1969 )

Board of License Comm'rs of Tiverton v. Pastore , 105 S. Ct. 685 ( 1985 )

Huddleston v. Nelson Bunker Hunt Trust Estate , 102 B.R. 71 ( 1989 )

Trans World Airlines, Inc. v. Texaco, Inc. (In Re Texaco, ... , 92 B.R. 38 ( 1988 )

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