In the Matter of C.W. Mining Co. v. C.W. Mining Co.

• Decision Date: 19 April 2011
• Docket Number: Nos. 09–0018–,10–4054.,s. 09–0018–
• Citation: 54 Bankr.Ct.Dec. 156,641 F.3d 1235,65 Collier Bankr.Cas.2d 685
• Parties: In the Matter of C.W. MINING COMPANY, d/b/a Co-op Mining Company, Debtor.C.O.P. Coal Development Company, Appellant,v.C.W. Mining Company; Kenneth A. Rushton, Trustee; Aquila, Inc.; Hiawatha Coal Company, Inc., Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

641 F.3d 1235

65 Collier Bankr.Cas.2d 685

54 Bankr.Ct.Dec. 156

In the Matter of C.W. MINING COMPANY, d/b/a Co-op Mining Company, Debtor.C.O.P. Coal Development Company, Appellant,

v.C.W. Mining Company; Kenneth A. Rushton, Trustee; Aquila, Inc.; Hiawatha Coal Company, Inc., Appellees.

Nos. 09–0018–

10–4054.

United States Court of Appeals, Tenth Circuit.

April 19, 2011.

David L. Pinkston (Kim R. Wilson and P. Matthew Cox, with him on the briefs), Snow Christensen & Martineau, Salt Lake City, UT, for Appellant.Michael N. Zundel (Aaron B. Millar, with him on the brief), Prince, Yeates & Geldzahler, Salt Lake City, UT, for Appellee Kenneth A. Rushton, Trustee.Brent D. Wride (Steven W. Call and Elaine A. Monson, with him on the brief), Ray Quinney & Nebeker P.C., Salt Lake City, UT, for Appellee Aquila, Inc.Before KELLY, McKAY, and MATHESON, Circuit Judges.MATHESON, Circuit Judge.

This appeal asks whether the bankruptcy court correctly determined that the Coal Operating Agreement (the “Agreement”) between the debtor, C.W. Mining Company (“CWM”), and appellant, C.O.P. Coal Development Company (“COP”), was property of the debtor's bankruptcy estate and could therefore be assumed and sold by the trustee. COP claims that the Agreement automatically terminated shortly after the bankruptcy petition was filed and that the bankruptcy court erred in determining that the Agreement was property of the estate. During the pendency of this appeal, the trustee filed a motion to dismiss, arguing that the appeal is now moot because the Agreement has been sold from the estate. Exercising our jurisdiction pursuant to 28 U.S.C. § 158(d)(1), we deny the trustee's motion to dismiss for mootness and affirm the bankruptcy court's decision.

I. BACKGROUND

COP and CWM entered into the Agreement in March 1997. The Agreement allowed CWM to mine and remove coal from certain land owned or controlled by COP, and it required CWM to pay royalties to COP on the coal that was removed from the mine.

A. Pre–Bankruptcy Proceedings

On October 30, 2007, the federal district court for Utah entered a $24.8 million judgment against CWM in a breach of contract action brought by appellee Aquila, Inc. On November 9, 2007, COP notified CWM that CWM had defaulted under the terms of the Agreement by failing to make its scheduled royalty payments and to provide an accounting of the coal removed. In the letter, COP identified the steps CWM needed to take to cure the default. The default provision of the Agreement provides:

If [CWM] shall not comply with any of the provisions, or covenants, or agreements herein written and contained, and such default shall continue for a period of 60 days after service of written notice, by certified or registered mail, by [COP] identifying the default and specifying with reasonable particularity the nature and extent thereof, then and in such event this Agreement may be terminated and all of the rights of [CWM] shall cease and be wholly determined and [COP] may at once take possession of any or all of the properties herein described.

Aplt.App., Vol. II at COP512.

Shortly after entry of judgment in its favor, Aquila filed a motion in the district court seeking entry of a supplemental order to help enforce its judgment against CWM. Aquila filed the motion because of the “significant risk that CWM will attempt to transfer its assets to prevent Aquila from executing and recovering its damages.” Id. at COP683. On December 19, 2007, the district court granted the motion and entered an order prohibiting CWM from taking any action to transfer or dispose of its assets or to terminate the Agreement (“the Supplemental Order”).

On January 3, 2008, COP sent a letter to CWM giving notice that “as per the terms of the 1997 Coal Operating Agreement between [COP] and [CWM], the lease will be canceled at the end of the notice period unless the default is cured prior to the end of the 60 day notice period.” Id. at COP525. On January 5, COP sent CWM another letter recounting a conversation between the president of CWM, Charles Reynolds, and the president of COP, J.O. Kingston, about whether CWM could do anything to continue its mine operations. The letter stated that CWM would have to agree to certain terms before COP would consider a new coal operating agreement, including CWM's acknowledging that the Agreement “will cancel if default is not cured by the close of business on January 8th, 2008.” Id. at COP527. The letter instructed that Mr. Reynolds should sign it if the terms were agreeable to CWM. He did so.

On January 6, COP sent a third letter to CWM, thanking CWM for its interest in negotiating a new coal operating agreement. COP reiterated that it would try to negotiate a new coal operating agreement only if CWM agreed to certain terms, including “[i]f CWM fails to pay to COP, by wire transfer, before the close of business on January 8, 2008 all amounts in default under the 1997 Agreement, the 1997 Agreement shall be forever terminated, without further notice.” Id. at COP530. Mr. Reynolds also signed this letter based on COP's instructions.

B. Bankruptcy Proceedings

On January 8, 2008, at 3:36 p.m. MST, Aquila and a group of creditors filed an involuntary Chapter 11 bankruptcy petition against CWM in the Bankruptcy Court for the District of Utah. In November 2008, the case was converted to a Chapter 7 proceeding, and a trustee was appointed.

After his appointment, the trustee filed a motion for an extension of time to decide whether to assume or reject the Agreement under 11 U.S.C. § 365. In response, COP argued that there was no lease for the trustee to assume because CWM did not cure its defaults and the Agreement automatically terminated at the close of business on January 8, 2008. COP also filed a separate motion to require the trustee to assume or reject the Agreement immediately, and repeated the same argument about the Agreement's termination.

The bankruptcy court held four days of evidentiary hearings on the motions and then entered an order granting the trustee's motion and denying COP's motion, thereby concluding that the Agreement was property of the estate that the trustee could assume. COP appealed the bankruptcy court's decision to the Bankruptcy Appellate Panel (“BAP”). While the BAP appeal was pending, on December 10, 2009, the bankruptcy court issued an order in an adversary proceeding between the trustee and COP declaring that the January 5 and 6, 2008 letters had no legal effect and violated the district court's Supplemental Order. On February 3, 2010, the BAP affirmed the bankruptcy court's decision. COP filed its appeal with this court on March 4, 2010.

C. Bankruptcy Proceedings After the Filing of the Notice of Appeal

On May 3, 2010, the trustee agreed to sell the Agreement and other mine assets to Rhino Energy LLC. On the same day, the trustee filed a motion in bankruptcy court seeking approval of the assumption and proposed sale of the Agreement. On August 4, the bankruptcy court entered the Sale Order, which authorized the trustee to assume the Agreement and approved the sale. The Sale Order found that Rhino was a good faith purchaser entitled to the protections of 11 U.S.C. § 363(m). The Sale Order was not final for seven days, but COP did not file a motion to stay the order. On August 25, the sale closed as approved by the Sale Order. The trustee subsequently filed a motion to dismiss this appeal as moot.

II. MOTION TO DISMISS FOR MOOTNESS

We first address the trustee's motion to dismiss this appeal as moot based on 11 U.S.C. § 363(m) or under the equitable mootness doctrine. Although COP's appeal comes perilously close to the edge of the mootness cliff, we do not think it should fall off.

The trustee reasons that this appeal is moot in light of § 363(m) because the Agreement was sold to a good faith purchaser, COP did not seek a stay of the Sale Order, and a ruling for COP in this appeal that the Agreement was not property of the estate would affect the validity of the sale of the Agreement to Rhino.¹ Subsection 363(m) provides:

The reversal or modification on appeal of an authorization under subsection (b) or (c) 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.

We have previously explained the purpose behind § 363(m):

In order to protect the public's interest in finalizing bankruptcy sales to encourage buyers to purchase the debtor's property, to prevent injury to creditors, and to insure that adequate sources of financing remain available, § 363(m) of the Bankruptcy Code protects the validity of certain sales by the trustee from the potential consequences of an appeal, if the order authorizing the sale is not stayed.

Osborn v. Durant Bank & Trust Co. (In re Osborn), 24 F.3d 1199, 1203 (10th Cir.1994) abrogated in part on other grounds by Eastman v. Union Pacific R.R. Co., 493 F.3d 1151, 1156 (10th Cir.2007).

No one disputes that the Agreement was sold from the debtor's estate to a good faith purchaser and that COP did not seek to stay the sale. The mootness question turns on what relief is available to COP if it were to prevail in this appeal. See, e.g., Church of Scientology v. United States, 506 U.S. 9, 12, 113 S.Ct. 447, 121 L.Ed.2d 313 (1992) (noting that appeal should be dismissed as moot if it is “impossible for the court to grant any effectual relief whatever” (quotation omitted)); Osborn, 24 F.3d at 1203 (holding “that because it is not impossible for the court to grant some measure of effective relief, the Osborns' appeal is not moot”). Under our decisions and the facts of this case, § 363(m) forecloses any remedy to COP that would affect the validity of the trustee's sale. But it does not preclude a remedy that...