Algeran, Inc. v. Advance Ross Corp.

• Decision Date: 09 May 1985
• Docket Number: Nos. 84-5761,84-5773,s. 84-5761
• Citation: 13 C.B.C.2d 50,759 F.2d 1421
• Parties: 13 Collier Bankr.Cas.2d 50, Bankr. L. Rep. P 70,525 ALGERAN, INC., Plaintiff-Appellant, v. ADVANCE ROSS CORPORATION, et al., Defendants-Appellees. Stern & Miller, P.C., Davis M. Stern and Andrew S. Pauly, Non-Party Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1421

759 F.2d 1421

13 Collier Bankr.Cas.2d 50, Bankr. L. Rep. P 70,525

ALGERAN, INC., Plaintiff-Appellant, v. ADVANCE ROSS CORPORATION, et al., Defendants-Appellees Stern & Miller, P.C., Davis M. Stern and Andrew S. Pauly Non-Party Appellants.

Nos. 84-5761, 84-5773.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Feb. 5, 1985.

Decided May 9, 1985.

Kevin M. Brandt, Thomas J. McDermott, Jr., Laurence J. Hutt, James I. Ham, Kadison, Pafaelzer, Woodard Quinn & Rossi, Los Angeles, Cal., for plaintiff-appellant.

Barbara A. Reeves, Donald I. Berger, Los Angeles, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before CHAMBERS, BOOCHEVER and BEEZER, Circuit Judges.

CHAMBERS, Circuit Judge:

In late 1982, appellee Advance Ross sold its stock in AMI Industries, Inc., a wholly-owned subsidiary, to appellant Algeran, Inc., taking promissory notes for a portion of the sales price, with the AMI stock pledged as security. Algeran thereafter filed this action in district court claiming damages relating to the stock purchase. Advance Ross counterclaimed.

Discovery was undertaken and by December, 1983, Advance Ross took steps which were meant to protect it from what it asserted was Algeran's siphoning of AMI assets to its own use, in the face of Algeran's questionable financial position. In January, 1984, Advance Ross gave notice of intent to sell the pledged stock at a public foreclosure sale to be held at 8:00 a.m. on Monday, January 30. Algeran sought a temporary restraining order but at the hearing on January 27 its motion was denied. On Sunday, January 29, counsel for Algeran telephoned a U.S. magistrate requesting a one-day stay of the foreclosure sale to permit it to appeal the denial of the TRO. The magistrate consulted the district judge who consented to such a stay for the purpose of the appeal, but also instructed that all counsel meet with him the following morning to clarify the situation and the order.

On Monday morning, January 30, the attorneys appeared and counsel for Algeran submitted a proposed order. Advance Ross, which had delayed the foreclosure sale pursuant to the oral order, suggested that Algeran wished the delay in order to file in bankruptcy. When questioned by the district judge, Algeran's attorneys responded that "the 24 hours is not being utilized for that purpose" and that Algeran might have filed in bankruptcy earlier; it merely needed time to "pursue other avenues" in order to "avoid the stigma of bankruptcy." When pressed, however, counsel refused to give assurance that the 24-hour stay would not be used to file a bankruptcy petition. The district judge then responded that the "sale should go forward" and he would not sign the proposed order for stay. At this point, counsel for Algeran requested that the matter be put to the end of the morning calendar to permit him to obtain instructions from his client. The district judge acquiesced.

A half hour or so later, counsel for Algeran returned and announced to the court that Algeran's Chapter XI petition had been filed. The stay imposed by 11 U.S.C. Sec. 362(a) (hereafter "the automatic stay") was thus activated, precluding, among other things, the Advance Ross foreclosure sale.

Advance Ross proceeded with the foreclosure sale. The exact time of doing so is unclear and it remains unresolved whether the sale came before or after the bankruptcy filing. In any event, Advance Ross purchased the AMI stock at the sale and then promptly petitioned the district court to lift the automatic stay as to the AMI stock and to validate the foreclosure sale. Advance Ross also petitioned for sanctions against Algeran and its trial counsel.

The district judge later annulled the stay and validated the sale, finding cause to do so under 11 U.S.C. Sec. 362(d)(1). He also imposed sanctions of $5,000 against Algeran and its trial counsel, jointly, finding "bad faith" in violation of local rules of court, in their conduct in filing the petition. He granted a temporary stay until March 2 to permit Algeran to apply to this court for a stay pending appeal, but on March 2 counsel for Algeran notified the district court that no stay pending appeal would be sought, and that Algeran was undertaking "an orderly transition of the management and control of AMI" for the good of that company. The AMI directors (Algeran principals) simultaneously submitted their resignations and new directors (Advance Ross principals) replaced them, assuming control over the management of AMI. A few weeks later AMI filed in bankruptcy. ¹

Algeran appeals the orders of the district court lifting the automatic stay and validating the foreclosure sale of the AMI stock. Algeran's trial attorneys appeal the order for sanctions.

Looking to the Algeran appeal first, we need to ask if we have jurisdiction. We conclude that we do not. What, if any, merit there might be to the Algeran appeal, the power of this court is "limited to the adjudication of actual cases and live controversies" and we cannot "give opinions about abstract propositions." Luckie v. E.P.A., 752 F.2d 454 (9th Cir.1985).

Basic principles of mootness preclude our claiming jurisdiction when failure to obtain a stay pending appeal has "permitted such a comprehensive change in circumstances as to render it inequitable for this court to consider the merits of the appeal." In re Roberts Farms, Inc., 652 F.2d 793, 798 (9th Cir.1981). It is clear that great changes in the status quo occurred after the district court rendered the orders appealed from. Those changes were ones which Algeran precipitated by the resignation of its principals as directors of AMI, and by the ensuing bankruptcy of AMI, the stock of which was the subject of the foreclosure sale that Algeran would have us declare invalid. These changes in circumstances make it impossible for us to fashion a remedy that would restore the interested parties to their former position. In re Cook, 730 F.2d 1324 (9th Cir.1984); Valley Nat. Bank of Arizona v. Trustee for Westgate-California Corp., 609 F.2d 1274, 1283 (9th Cir.1979).

In the alternative, we rely on the consistent policy in recent bankruptcy law of assuring finality of judgments relating to the automatic stay. Former Rule 805 of the Rules of Bankruptcy Procedure ² concluded with language, added in 1976, stating:

Unless an order approving a sale of property ... is stayed pending appeal, the sale of a good faith purchaser ... shall not be affected by the reversal or modification to such order on appeal, whether or not the purchaser ... knows of the pendency of the appeal.

We consistently held, in automatic stay cases arising under former Rule 805, that failure to obtain a stay pending appeal required the dismissal of the appeals for mootness. See, e.g., In re Charlton, 708 F.2d 1449, 1454 (9th Cir.1983); In re Royal Properties, Inc., 621 F.2d 984, 986-87 (9th Cir.1980). The Algeran bankruptcy case arises under the Bankruptcy Act of 1978, and also under the new Bankruptcy Rules which went into effect on August 1, 1983. Rule 8005 of the new rules is derived in part from former Rule 805, but it does not contain the language of the 1976 amendment to Rule 805. The Advisory Committee note instead refers us to Section 363(m) of the Bankruptcy Act, 11 U.S.C. Sec. 363(m), which states:

The reversal or modification on appeal of an authorization under subsection (b) or (c) [relating to trustee's sales, etc.] of this section 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 appeal, unless such authorization and such sale or lease were stayed pending appeal.

The requirement of a stay pending appeal, under pain of the appeal being dismissed as moot, is thus carried over into the present Bankruptcy Act, but the wording of Section 363(m) is such that reference is made only to conveyances by trustees. We agree with the Eleventh Circuit, however, that the omission from Section 363(m) of the language of the 1976 amendment of former Rule 805 does not indicate an intent that a conveyance by someone other than a trustee is now outside the general rule of mootness when a stay pending appeal has not been obtained. See In re Sewanee Land, Coal & Cattle, Inc., 735 F.2d 1294, 1296 (11th Cir.1984). The rule that failure to obtain a stay pending appeal renders the issue moot did not originate in the Bankruptcy Rules. Rather, it is a judicial doctrine which developed from the general rule that the occurrence of events which prevent an appellate court from granting effective...