In re Egbert Development, LLC

• Decision Date: 02 April 1998
• Docket Number: Bankruptcy No. 97-20672.,BAP No. WY-97-090
• Citation: In re Egbert Development, LLC, 219 B.R. 903 (B.A.P. 10th Cir. 1998)
• Parties: In re EGBERT DEVELOPMENT, LLC, Limited Liability Company, Debtor. EGBERT DEVELOPMENT, LLC, Appellant, v. COMMUNITY FIRST NATIONAL BANK, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Tenth Circuit

219 B.R. 903 (1998)

In re EGBERT DEVELOPMENT, LLC, Limited Liability Company, Debtor EGBERT DEVELOPMENT, LLC, Appellant, v. COMMUNITY FIRST NATIONAL BANK, Appellee.

BAP No. WY-97-090, Bankruptcy No. 97-20672.

United States Bankruptcy Appellate Panel of the Tenth Circuit.

April 2, 1998.

Georg Jensen, Cheyenne, WY, for appellant.

John C. Patton, Patton & Davidson, Cheyenne, WY, for appellee.

Before CLARK, PEARSON, and CORNISH, Bankruptcy Judges.

ORDER GRANTING MOTION FOR SUMMARY DISPOSITION FOR MOOTNESS AND DISMISSING APPEAL

CLARK, Bankruptcy Judge.

The matter before the Court is a Motion for Summary Disposition for Mootness ("Motion"), filed by Community First National Bank ("Appellee"), seeking an order dismissing the above-captioned appeal. The Appellee contends that this appeal, from an order of the United States Bankruptcy Court for the District of Wyoming granting the Appellee relief from the automatic stay to foreclose on certain real property, is moot because the Appellant, the chapter 11 debtor ("Debtor"), failed to obtain a stay pending appeal and the property has been sold at a foreclosure sale. The Debtor responds that the appeal is not moot because it has a right to redeem the property under Wyoming law. For the reasons set forth below, the Court hereby GRANTS the Motion and DISMISSES this appeal.

I. Background

It is undisputed that, after the Debtor filed for relief under chapter 11 of the Bankruptcy Code, the bankruptcy court entered an Order Modifying Stay (the "Relief Order") terminating the automatic stay under 11 U.S.C. § 362(d) to allow the Appellant to foreclose on real property located in Wyoming that secured the Appellant's lien against the Debtor. See Appellee's Appendix, Order Modifying Stay. The Debtor filed a notice of appeal from the Relief Order, commencing this appeal. However, the Debtor did not seek a stay pending appeal. See Fed. R. Bankr.P. 8005; 10th Cir. BAP L.R. 8005-1. Relying on the Relief Order, the Appellee moved forward with its foreclosure proceedings and, on January 21, 1998, the property was sold to the Appellee at a foreclosure sale. Appellee's Appendix, Sheriffs Certificate of Purchase at Foreclosure Sale, p. 1. The Appellee recorded its Sheriff's Certificate on that same day. Appellee's Appendix, Sheriffs Certificate of Purchase at Foreclosure Sale, p. 1. According to the Sheriffs Certificate, the Debtor has twelve months and thirty days from the date of the foreclosure sale to redeem the property. See id.; Movant's Memorandum in Support of Motion for Summary Disposition for Mootness, Exhibit, Wyo. Stat. Ann. § 1-18-103(b) (debtor has 12 months to redeem "agricultural property").

II. Discussion

The Court has an obligation to satisfy itself that it has jurisdiction to hear this appeal. Arizonans for Official English v. Arizona, 520 U.S. 43, ___, 117 S.Ct. 1055, 1071, 137 L.Ed.2d 170 (1997). In addition to determining whether an order is "final" as required under 28 U.S.C. § 158(a)(1), or an interlocutory order that is proper for review under 28 U.S.C. § 158(a)(2)-(3), we must be sure that the appeal is not moot. See U.S. Const., Art. III, § 2, cl. 1. "`A case is moot when the issues presented are no longer `live' or the parties lack a legally cognizable interest in the outcome.'" County of Los Angeles v. Davis, 440 U.S. 625, 631, 99 S.Ct. 1379, 1383, 59 L.Ed.2d 642 (1979) (quoting Powell v. McCormack, 395 U.S. 486, 496, 89 S.Ct. 1944, 1950-51, 23 L.Ed.2d 491 (1969)). A controversy is no longer "live" if the reviewing court is incapable of rendering effective relief or restoring the parties to their original position. Mills v. Green, 159 U.S. 651, 653, 16 S.Ct. 132, 132-33, 40 L.Ed. 293 (1895); see Church of Scientology v. United States, 506 U.S. 9, 12, 113 S.Ct. 447, 449-50, 121 L.Ed.2d 313 (1992); Osborn v. Durant Bank & Trust Co. (In re Osborn), 24 F.3d 1199, 1203 (10th Cir.1994). "For that reason, if an event occurs while a case is pending on appeal that makes it impossible for the court to grant `any effectual relief whatever' to a prevailing party, the appeal must be dismissed." Osborn, 24 F.3d at 1203 (quoting Church of Scientology, 506 U.S. at 12, 113 S.Ct. at 449-50 (quoting Mills, 159 U.S. at 653, 16 S.Ct. at 132-33)).

It is well established that an appeal will be dismissed as moot if a debtor fails to obtain a stay pending appeal of a bankruptcy court order granting relief from the automatic stay and the moving creditor subsequently conducts a foreclosure sale, as the appellate court cannot grant any effective relief. See, e.g., Farmers Bank v. Kittay (In re March), 988 F.2d 498, 499 (4th Cir.), cert. denied, 510 U.S. 864, 114 S.Ct. 182, 126 L.Ed.2d 141 (1993); Oakville Dev. Corp. v. FDIC, 986 F.2d 611, 613-15 (1st Cir.1993); Sullivan Central Plaza I, Ltd. v. BancBoston Real Estate Capital Corp. (In re Sullivan Central Plaza, I, Ltd.), 914 F.2d 731, 733 (5th Cir. 1990); Lashley v. First Nat'l Bank (In re Lashley), 825 F.2d 362, 364 (11th Cir.1987), cert. denied, 484 U.S. 1075, 108 S.Ct. 1051, 98 L.Ed.2d 1013 (1988); Van Iperen v. Production Credit Ass'n (In re Van Iperen), 819 F.2d 189, 191 (8th Cir.1987); Hope v. General Fin. Corp. (In re Kahihikolo), 807 F.2d 1540, 1542 (11th Cir.1987) (collecting cases); Algeran, Inc. v. Advance Ross Corp., 759 F.2d 1421, 1423-25 (9th Cir.1985); West End Assocs., L.P. v. Sea Green Equities, 166 B.R. 572, 575 (D.N.J.1994); see also In re Highway Truck Drivers & Helpers Local Union # 107, 888 F.2d 293, 298 (3rd Cir.1989). This rule is "`intended to provide finality to orders of bankruptcy courts and to protect the integrity of the judicial sale process upon which good faith purchasers rely.'" Lashley, 825 F.2d at 364 (quoting Markstein v. Massey Assoc. Ltd., 763 F.2d 1325, 1327 (11th Cir.1985)). More importantly, it serves to insure the integrity of judicial mootness doctrines "that the occurrence of events which prevent an appellate court from granting effective relief renders an appeal moot." Algeran, 759 F.2d at 1424, quoted in Onouli-Kona Land Co. v. Estate of Richards (In re Onouli-Kona Land Co.), 846 F.2d 1170, 1172 (9th Cir.1988); see Sullivan Central Plaza, 914 F.2d at 733-34 & n. 7.

The Tenth Circuit has not published an opinion on the issue before this Court. But see Coones v. Mutual Life Ins. Co. (In re Coones), 56 F.3d 77, 1995 WL 316153, at *3 (10th Cir.1995) (table) ("`The classic example of mootness in the bankruptcy context is a case in which the debtor has failed to seek a stay of foreclosure and the debtor's property has been sold.'" (quoting Baker & Drake, Inc. v. Public Serv. Comm'n (In re Baker & Drake, Inc.), 35 F.3d 1348, 1351 (9th Cir. 1994))); see also Pueblo Bank & Trust Co. v. Steele, 110 F.3d 74, 1997 WL 153777, at *5 (10th Cir.1997) (table) (issue of whether district court applied the appropriate redemption period in a mortgage foreclosure action was moot as appellant's did not obtain a stay pending appeal and a third party redeemed the property within the redemption period held applicable by the district court); Jim Walters Homes, Inc. v. Switzer (In re Switzer), 70 F.3d 123, 1995 WL 675509, at *1 (10th Cir.1995) (table) (creditor's appeal from order denying attorney's fees was dismissed as moot because after filing its notice of appeal, the property securing the creditor's lien was surrendered to it and sold at foreclosure sale). In the absence of binding precedent, we find that rule should apply. Because of the Debtor's failure to obtain a stay pending appeal, the Appellee was entitled to treat the Relief Order as a final order and take action in reliance upon that Order. This Court is powerless to rescind the foreclosure sale on appeal, and reinstatement of the stay would be meaningless. Since this Court would be unable to grant any effective relief even if we were to reverse the bankruptcy court's Relief Order, we conclude that the appeal is moot.

We note that the Ninth Circuit has "carved out a narrow exception" to the general rule that a foreclosure sale moots an appeal of an order lifting the automatic stay absent a stay pending appeal, "where real property is sold to a creditor who is a party to the appeal." Sun Valley Ranches, Inc. v. Equitable Life Ass. Soc'y of the United States (In re Sun Valley Ranches, Inc.), 823 F.2d 1373, 1375 (9th Cir.1987). In that case, the court stated that under such circumstances it is "`not . . . impossible for the Court to fashion some sort of relief.'" Id. (quoting Matter of Springpark Assoc., 623 F.2d 1377 (9th Cir.), cert. denied, 449 U.S. 956, 101 S.Ct. 364, 66 L.Ed.2d 221 (1980)). The court went on to explain that:

This exception to the rule is especially appropriate here, where the foreclosure sale is subject to statutory rights of redemption. . . . Based on equitable principles, redemption has long provided a means for reversing sales of real property. Where, as here, the creditor-purchaser is before the court, the court could exercise similar equitable principles and reverse the sale. We decline to follow the Eleventh Circuit\'s contrary position. See In re Matos, 790 F.2d 864, 866 (11th Cir.1986); In re Sewanee Land, Coal & Cattle, Inc., 735 F.2d 1294, 1296 (11th Cir.1984).

Id.; accord Onouli-Kona Land Co., 846 F.2d at 1172-73 (reaffirming Sun Valley); see Sullivan Center Plaza, 914 F.2d at 734; but see Oakville Dev. Corp., 986 F.2d at 615. The Debtor essentially argues that this exception applies, claiming that this appeal is not moot because it has a right to redeem the property that was sold at the foreclosure sale from the Appellee.

We reject both the Debtor's argument and the holding in Sun Valley. The court in Sun Valley bases its ability to afford relief, i.e., setting aside a foreclosure sale, on redemption rights or "equitable principles" similar to redemption rights. To the extent that the court in Sun Valley found that it could fashion a remedy based on "equitable principles," its rationale is contrary to the...