In re Made in Detroit, Inc., 04-1431.

• Decision Date: 01 July 2005
• Docket Number: No. 04-1517.,No. 04-1431.,04-1431.,04-1517.
• Citation: 414 F.3d 576
• Parties: In re: MADE IN DETROIT, INC., Debtor. Made In Detroit, Inc., Plaintiff-Appellant (04-1431), William T. Merriweather; Gerald E. Johnson; Frank Glover; Wilco Associates, L.L.C.; Shareholders of Made in Detroit, Inc., Plaintiffs-Appellants (04-1517), v. Official Committee of Unsecured Creditors of Made In Detroit, Inc.; Trust for Public Land, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

414 F.3d 576

In re: MADE IN DETROIT, INC., Debtor Made In Detroit, Inc., Plaintiff-Appellant (04-1431) William T. Merriweather; Gerald E. Johnson; Frank Glover; Wilco Associates, L.L.C.; Shareholders of Made in Detroit, Inc., Plaintiffs-Appellants (04-1517), v. Official Committee of Unsecured Creditors of Made In Detroit, Inc.; Trust for Public Land, Defendants-Appellees.

No. 04-1431.

No. 04-1517.

United States Court of Appeals, Sixth Circuit.

Argued: June 2, 2005.

Decided and Filed: July 1, 2005.

COPYRIGHT MATERIAL OMITTED

ARGUED:

Thomas R. Morris, Silverman & Morris, West Bloomfield, Michigan, for Appellants. Robert D. Gordon, Clark Hill, Detroit, Michigan, Barbara Rom, Pepper Hamilton, Detroit, Michigan, for Appellees.

ON BRIEF:

Thomas R. Morris, Silverman & Morris, West Bloomfield, Michigan, Nansi Irene Rowe, Nansi Rowe & Associates, Detroit, Michigan, for Appellants. Robert D. Gordon, E. Todd Sable, Clark Hill, Detroit, Michigan, Barbara Rom, Keith J. Ostrowski, Pepper Hamilton, Detroit, Michigan, for Appellees.

Before: RYAN, MOORE, and COOK, Circuit Judges.

OPINION

MOORE, Circuit Judge.

In this consolidated appeal, Made in Detroit, Inc. ("MID" or the "Debtor") and a group of other parties-in-interest (collectively, the "Appellants") each challenge the district court's dismissal of their claims pursuant to 11 U.S.C. § 363(m). The district court found that because the property at issue was sold to a good-faith purchaser, the appeal of the bankruptcy court's decision confirming the Liquidating Plan of Reorganization was statutorily moot. Upon review, we hold that the liquidation sale was to a good-faith purchaser, and thus, we AFFIRM the district court's decision to dismiss the appeal on statutory grounds.

I. BACKGROUND

On August 29, 1996, MID, a real-estate development company, purchased four hundred acres (the "Property") along the Detroit River in Gibraltar and Trenton, Michigan for approximately $3.1 million. The Property had extensive water frontage along the river and included a wooded island. The Property also contained several acres that were either wetlands or under water, thereby reducing the area available for development to approximately 163 acres. MID purchased the land with the intent to build a high-end residential community which would include such amenities as a golf course, a marina, an equestrian center, and retail shops. MID's development of the Property faced several lengthy delays, however, due to objections raised by local residents, environmentalists, and federal and state regulators.

By 2002, MID still had not obtained the necessary permits required to begin construction. Because of the delay in obtaining the necessary permits and the fact that it was not generating any other income, MID became delinquent in payments to its secured creditors and on its property taxes. In 2002, Standard Federal,¹ the primary secured creditor, commenced foreclosure against MID. As a result, on October 23, 2002, MID filed a voluntary petition for relief under Chapter 11 of the bankruptcy code in the United States Bankruptcy Court for the Eastern District of Michigan. Following the filing of the petition, MID continued to manage the Property as a debtor-in-possession. See 11 U.S.C. §§ 1107(a), 1108.

After its initial two plans were rejected by the bankruptcy court, the Debtor filed its Third Amended Combined Plan of Reorganization (the "Debtor's Plan"), which outlined a financial arrangement by which the Debtor could meet its obligations to the secured creditors as well as continue development of the Property. The Debtor's Plan relied on a $9.0 million loan from Kennedy Funding, Inc. ("Kennedy"), an asset-based lender. The Kennedy loan was conditioned on (1) an up-front payment by the Debtor of a non-refundable commitment fee of $270,000; (2) an appraisal of the Property on an "as is" quick sale basis of at least $15 million; and (3) participation by other investors in the loan. To raise the necessary funds to pay the commitment fee, the Debtor relied on loans from its existing shareholders because the bankruptcy court denied its motion to incur additional unsecured debt pursuant to 11 U.S.C. § 364(b).

Because of the Debtor's repeated delays in putting forth a confirmable reorganization plan, the Official Committee of Unsecured Creditors of Made in Detroit, Inc. (the "Committee") filed a motion for authority to file a competing plan of reorganization pursuant to 11 U.S.C. § 1121(c), which was granted by the bankruptcy court. On July 9, 2003, the Committee filed its Liquidating Plan of Reorganization (the "Committee's Plan"), which proposed to sell the Property immediately to the Trust for Public Land ("TPL"), a non-profit conservation organization, for approximately $4.8 million to settle all of the Debtor's claims. Specifically, the proceeds from the sale would satisfy the secured creditors' claims and the various tax liens, while the residual amount would be distributed to the unsecured creditors pro rata. Under the Committee's Plan, the equity interests in the company would be extinguished.

On September 10 and 12, 2003, the bankruptcy court held a joint evidentiary hearing (the "Confirmation Hearing") to consider the two competing reorganization plans. Following the hearing, the bankruptcy court entered an order confirming the Committee's Plan for liquidation and denying the Debtor's Plan because it was unfeasible and provided too much uncertainty. Specifically, the bankruptcy court held that the Debtor's Plan did "not provide a reasonable assurance of success," but instead was "based on `wishful thinking' and `visionary promises.'" Joint Appendix ("J.A.") at 1426 (Bankr.Ct. Op. at 9). Therefore, the court held that the Debtor's Plan failed to satisfy the requirement specified in 11 U.S.C. § 1129(a)(11). Moreover, given the uncertainty surrounding the Kennedy loan, the court held that the Debtor's Plan failed to satisfy 11 U.S.C. § 1129(a)(9) as well. By contrast, the bankruptcy court held that the Committee's Plan for immediate liquidation did not involve any ambiguity. The court held that the sale of the Property to TPL was not only feasible but also in the best interests of the creditors, despite the Debtor's argument that TPL's purchase price severely undervalued the Property. Therefore, the bankruptcy court confirmed the Committee's Plan to liquidate MID.

Every court which addressed the issue, including this one, denied the Debtor's motion for a stay of the bankruptcy confirmation pending appeal. Accordingly, on September 29, 2003, the liquidating agent conveyed the Property to TPL by covenant deed in exchange for $4.8 million in cash. The deed was submitted to the Wayne County Register of Deeds the same day. Following consummation of the transaction, approximately $3.7 million was disbursed to creditors of the estate and used to pay overdue taxes. A year later, on September 14, 2004, TPL resold the Property to the United States Fish and Wildlife Service (the "Service").

The Debtor and a group of other parties-in-interest each separately appealed the bankruptcy court's confirmation of the Committee's Plan to the United States District Court for the Eastern District of Michigan. The district court consolidated the two appeals, and the Committee filed a motion to dismiss on the ground that the sale of the Property to TPL rendered the consolidated appeal both statutorily moot under 11 U.S.C. § 363(m) and equitably moot. The Appellants responded that its consolidated appeal was not moot because TPL was not a good-faith purchaser. On March 4, 2004, the district court dismissed the consolidated appeal, finding that TPL was in fact a good-faith purchaser, and therefore, the Appellants' claims were moot under § 363(m). This appeal followed.

Though the Appellants raise several claims in their brief regarding the bankruptcy court proceedings as well, we have limited the scope of this appeal to the issue of whether TPL was a good-faith purchaser and if not, whether the doctrine of equitable mootness applies. Made in Detroit, Inc. v. Official Comm. of Unsecured Creditors of Made in Detroit, Inc. (In re Made in Detroit, Inc.), Nos. 04-1431, 04-1517 (6th Cir. Feb. 16, 2005) (order granting the appellees' motion to dismiss in part, and denying in part).

II. ANALYSIS

A. Standard of Review

The bankruptcy court's conclusion that TPL was a good-faith purchaser is a mixed question of law and fact. Licensing by Paolo, Inc. v. Sinatra (In re Gucci), 126 F.3d 380, 390 (2d Cir.1997). We have stated that in reviewing a bankruptcy proceeding, "the district court reviews the bankruptcy court's conclusions of law de novo and upholds its findings of fact unless they are clearly erroneous." 255 Park Plaza Assocs. Ltd. P'ship v. Conn. Gen. Life Ins. Co. (In re 255 Park Plaza Assocs. Ltd. P'ship), 100 F.3d 1214, 1216 (6th Cir.1996). Moreover, "[t]his court, in turn, considers directly the judgment of the bankruptcy court, using the same standards of review as the district court." Id. (internal quotation omitted).

B. Statutory Mootness

The Appellants argue on appeal that the courts below erred in finding that TPL is a good-faith purchaser for statutory mootness purposes. Upon review, we conclude that TPL is a good-faith purchaser and thus the sale of the Property to TPL renders the Appellants' claims moot pursuant to 11 U.S.C. § 363(m).

"Bankruptcy's mootness rule applies when an appellant has failed to obtain a stay from an order that permits a sale of a debtor's assets." Onouli-Kona Land Co. v. Estate of Richards (In re Onouli-Kona Land Co.), 846 F.2d 1170, 1171 (9th Cir.1988). Specifically, § 363(m) states that:

The reversal or modification on appeal of an authorization ... 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...