In re Servico, Inc., 93-1376-CIV-ATKINS. Bankruptcy No. 90-36655-BKC-AJC. Adv. No. 92-0687-BKC-AJC-A.
| Citation | 161 BR 297 |
| Decision Date | 07 October 1993 |
| Docket Number | No. 93-1376-CIV-ATKINS. Bankruptcy No. 90-36655-BKC-AJC. Adv. No. 92-0687-BKC-AJC-A.,93-1376-CIV-ATKINS. Bankruptcy No. 90-36655-BKC-AJC. Adv. No. 92-0687-BKC-AJC-A. |
| Parties | In re SERVICO, INC., et al. Sunyoung CHANG, as Special Administrator for the Estate of Fernando Chang, deceased, Appellant, v. SERVICO, INC., et al., Appellees. |
| Court | U.S. District Court — Southern District of Florida |
L. Louis Mrachek, Gunster, Yoakley & Stewart, PA, West Palm Beach, FL, Alan R. Gordon, Saul, Ewing, Remick & Saul, Philadelphia, PA, for appellant.
John K. Olson, Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson, P.A., Tampa, FL, Harold D. Moorefield, Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson, P.A., Miami, FL, for appellees.
ORDER GRANTING DEFENDANTS-APPELLEES' MOTION TO DISMISS APPEAL AS MOOT
THIS MATTER is before the court on Appellees' Motion to Dismiss Appeal as Moot (D.E. 8). After careful consideration of the motion, memorandum of law in support thereof, responses and replies thereto, the parties' oral argument and the record, it is
ORDERED AND ADJUDGED that Appellees' Motion to Dismiss Appeal as Moot is GRANTED. It is further ORDERED AND ADJUDGED that the above-referenced bankruptcy appeal is hereby DISMISSED.
This case involves an appeal from an order of Bankruptcy Judge Jay Cristol granting defendants Servico, Inc., et al.'s Motion for Summary Judgment. This court is confronted with the issue of whether plaintiff Sunyoung Chang's (as Special Administrator for the Estate of Fernando Chang) appeal in this 11 U.S.C. § 1144 case has been rendered moot.
Servico, Inc. and its 66 affiliate entities ("Servico") filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code on September 18, 1990. The Servico case represented one of the largest and most complex reorganizations ever filed in the United States Bankruptcy Court for the Southern District of Florida, involving more than 5,000 creditors and equity interest holders.
Prior to the bankruptcy proceedings, plaintiff Fernando Chang ("Chang") was the majority shareholder of FCD/Chang, Inc. ("FCD/Chang"). FCD/Chang owned one hundred percent of the outstanding stock of FCD Hospitality, Inc. ("FCD Hospitality"). Through these corporations, Chang controlled the equity interests in Servico. Chang was a party in interest in Servico's bankruptcy proceedings pursuant to section 1109 of the Bankruptcy Code.1
Chang, as a party in interest, was duly noticed regarding every evidentiary hearing in the Servico bankruptcy proceedings, including the hearings on the Disclosure Statement and the Order Confirming the Reorganization Plan ("Confirmation Order" or "Plan"). Chang, in the instant action, is claiming that both the Disclosure Statement and the Confirmation Order in the Servico bankruptcy proceedings were procured fraudulently. However, Chang never took any action on either the Disclosure Statement or the Confirmation Order. Chang never appealed the Order Approving the Disclosure Statement. Chang never appealed the Confirmation Order. In fact, Chang and his counsel remained silent at the hearing on the Confirmation Order. Chang never attempted to stay the effectiveness of the Confirmation Order. Chang took no action whatsoever in any of the bankruptcy proceedings despite his opportunity and obligation to do so; Chang only filed a Proof of Claim and cast a ballot rejecting the Plan.
Indeed, Chang never took any action in the Servico case until after his negotiations with Servico's President to purchase all the assets and stock of the Reorganized Debtors broke down. Apparently, Chang threatened to bring this suit during the negotiations. When Servico's President refused to negotiate further, Chang did bring the threatened suit. Chang's suit sought to revoke the Confirmation Order under 11 U.S.C. § 1144 ("§ 1144")2 on the basis of fraud regarding the Disclosure Statement and the Plan, neither of which Chang had objected to before.
Defendants filed a Motion for Summary Judgment in the § 1144 action. The Bankruptcy Judge granted Defendants' Motion for Summary Judgment on the grounds of res judicata, collateral estoppel, estoppel, waiver, and laches on November 24, 1992. Plaintiff Chang appeals that order.
The effective date for the Plan was August 5, 1992 ("Effective Date"). Since that date, several corporate mergers have taken place to form the Reorganized Debtors. Almost 6.5 million shares of the 7 million to be issued under the Plan have been issued to approximately 3,600 creditors. More than 3.6 million shares have been publicly traded on the American Stock Exchange. Payments totalling over $4 million have been made to creditors and only 186 (less than 2%) of the 10,000 claims remain unresolved. The Reorganized Debtors have commenced making payments on the long-term indebtedness. Most of the properties to be transferred under the Plan have been transferred.
The Bankruptcy Judge ruled in his Order Granting Defendants' Motion for Summary Judgment that the Plan had been substantially consummated as a matter of law. See Order Granting Defendants' Motion for Summary Judgment at p. 6. Since the date of the Order Granting Defendants' Motion for Summary Judgment, more has been accomplished under the Plan. Further, the Bankruptcy Judge stated that he will not revoke the Confirmation Order, even if Chang could prove fraud because there is no relief under § 1144 that he can fashion to protect those parties who have relied in good faith on the Confirmation Order. See Order Granting Defendants' Motion for Summary Judgment at p. 6, 17; Order Denying Motion for Rehearing of Order Granting Defendants' Motion for Summary Judgment at p. 2.
The principal issue here is whether Chang's appeal is moot and should thus be dismissed. Several related considerations dictate that this appeal should be dismissed: constitutional principles of mootness; the substantial consummation of the Plan; the lack of effective relief available in this case; and, the inaction of Chang prior to this § 1144 action.
Mootness is premised on the constitutional jurisdictional notion that federal courts can only hear live controversies. U.S. Const. art. III. An "actual controversy must be extant at all stages of review, not merely at the time the complaint is filed." Preiser v. Newkirk, 422 U.S. 395, 401-402, 95 S.Ct. 2330, 2334-35, 45 L.Ed.2d 272 (1974) (quoting Steffel v. Thompson, 415 U.S. 452, 459 n. 10, 94 S.Ct. 1209, 1215 n. 10, 39 L.Ed.2d 505 (1974)). If a court finds in favor of the plaintiff, but it is impossible to grant any effectual relief, the court will not proceed to formal judgment and will dismiss the appeal as moot. Mills v. Green, 159 U.S. 651, 16 S.Ct. 132, 40 L.Ed. 293 (1895). Therefore, even if Chang presented a live controversy at the time he filed his § 1144 action, if the appeal is moot, it must be dismissed.
The constitutional principle of mootness retains its vitality in the context of a bankruptcy appeal. Miami Center Ltd. Partnership v. Bank of New York, 838 F.2d 1547, 1553-1556 (11th Cir.), cert. denied, 488 U.S. 823, 109 S.Ct. 69, 102 L.Ed.2d 46 (1988) ("Miami Center II"). It is appropriate for a court to dismiss a bankruptcy appeal when the reorganization plan has been substantially consummated and it has "become legally and practically impossible to unwind the consummation of the plan or otherwise to restore the status quo before the confirmation." Miami Center II, 838 F.2d at 1557; See also In re Club Associates, 956 F.2d 1065, 1069 (11th Cir.1992).
Chang's argument that mootness does not apply to § 1144 cases fails. Chang argues that since § 1144 provides a 180-day statute of limitations, the legislature created the absolute right to bring such an action within that period regardless of whether effective relief can be granted. While there is a slight difference between appeals from confirmation orders and appeals in § 1144 cases,3 that difference does not render meaningless the constitutional requirement that federal courts may only hear live controversies. Therefore, the doctrine of mootness does apply in § 1144 cases if the reorganization plan has been substantially consummated and no effective relief can be fashioned. See Miami Center II, supra; Club Associates, supra; See also In re Seeburg Corp., 10 B.R. 326 (N.D.Ill.1981).
Confirmation plans eventually reach a point of completion where to reverse the confirmation order would be to "knock the props out from under the authorization for every action that has taken place" under the plan. Miami Center II, 838 F.2d at 1555. This is the point of substantial consummation. "Substantial consummation" is specifically defined by the Bankruptcy Code as:
(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). When a plan that is being appealed has been substantially consummated, it becomes impossible to unwind the consummation or otherwise restore the status quo and the appeal is moot. Miami Center II, 838 F.2d at 1557.
In this case, the Bankruptcy Judge ruled, as a matter of law, that the Plan had been substantially consummated. Order Granting Defendants' Motion for Summary Judgment at p. 6; See also 11 U.S.C. § 1101(2). Of course, conclusions of law are reviewed de novo. U.S. v. Goolsby, 908 F.2d 861, 863 (11th Cir.1990). However, after an independent review of what has been accomplished under the Plan, this court finds that the Plan has been substantially consummated.4
All three prongs of § 1101(2) have been met here. First, all or substantially all of the hotel properties to be transferred under the Plan have been transferred. See 11 U.S.C. § 1101(2)(A). Second, a new Board of Directors and management team have...
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