Skyline Ridge, LLC v. Cinco Soldados, LLC (In re Skyline Ridge, LLC)

Docket NumberBAP AZ-21-1108-LBS,Bk. 4:18-bk-01908-BMW
Decision Date23 March 2022
PartiesIn re: SKYLINE RIDGE, LLC, Debtor. v. CINCO SOLDADOS, LLC; LANDMARK TITLE ASSURANCE AGENCY OF ARIZONA, LLC, as Trustee for Landmark Title Trust No. 1852-T, Appellees. SKYLINE RIDGE, LLC, Appellant, Adv. No. 4:20-ap-00155-BMW
CourtU.S. Bankruptcy Appellate Panel, Ninth Circuit


Appeal from the United States Bankruptcy Court for the District of Arizona Brenda Moody Whinery, Bankruptcy Judge, Presiding.

Before: LAFFERTY, BRAND, and SPRAKER, Bankruptcy Judges.


In the midst of the bankruptcy court's consideration of competing plans of reorganization, debtor-in-possession Skyline Ridge, LLC ("Skyline") (now the reorganized debtor under the confirmed plan filed by Cinco Soldado, LLC ("Cinco")), filed a state court lawsuit against Cinco, asserting claims for breach of contract and judicial foreclosure based on a prepetition note and deed of trust. According to Skyline, the note comprised the estate's largest asset. Cinco removed the state court action to the bankruptcy court. Before the bankruptcy court issued any dispositive rulings in the removed action, it confirmed Cinco's plan of reorganization, which called for settlement of disputes between Skyline and Cinco including the disputes arising out of the same note and deed of trust. The note payment called for under the plan was paid and the deed of trust was reconveyed. After Skyline refused to dismiss the removed action, Cinco moved for summary judgment dismissing it without prejudice, as called for in the plan. The bankruptcy court granted the motion.

Skyline appeals, arguing that: (1) the bankruptcy court should have abstained and remanded the removed action; (2) the bankruptcy court lacked constitutional authority to enter a final order in the adversary proceeding; and (3) because the order confirming Cinco's plan is currently on appeal, Skyline will be prejudiced if the order is reversed because it will be time-barred from collecting the full amount owed to it.

As discussed herein, abstention doctrines do not apply to removed actions, and the bankruptcy court had authority to enter a final order enforcing the terms of the chapter 11 plan. Further, the note and deed of trust that were the subject of the claims in the removed action have been paid and reconveyed, respectively, thus rendering the claims moot.

Skyline's arguments regarding the pending appeal of the confirmation order have been presented and rejected by this Panel in connection with Skyline's request for a stay pending appeal of the confirmation order, which we denied. We therefore AFFIRM.

A. Pre-petition events

Skyline is an Arizona limited liability company formed in 1994 by Ahmad Zarifi, its sole member and manager, to design, build, and sell homes in the Tucson area. Cinco is an Arizona limited liability company formed in 2006 by Zarifi and others to acquire and develop a 160-acre parcel of land known as Rancho Soldados. The purchase of Rancho Soldados was funded in part by a $4 million loan from Skyline, as memorialized in a promissory note (the "Skyline Note"), which was secured by a second position deed of trust on Rancho Soldados ("Skyline DOT").

Although the Skyline Note provided for the payment of interest, Cinco took the position that the parties had orally agreed that the loan would not accrue interest and that Zarifi would convert the Skyline Note into equity when Rancho Soldados was platted. Cinco failed to pay the Skyline Loan on its amended maturity date of June 30, 2016.

B. Skyline's bankruptcy filing and the adversary proceeding

Skyline filed its chapter 11[1] bankruptcy case on March 1, 2018. After the bankruptcy court terminated Debtor's exclusivity period, Debtor and Cinco proposed competing chapter 11 plans. Debtor's plan proposed litigating disputed claims; Cinco's plan (the "Cinco Plan") called for the settlement of disputed claims, including those relating to the Skyline loan.

In February 2020, while the competing plans were under consideration, Skyline filed a complaint against Cinco in the Superior Court of Arizona, Pima County. The complaint contained two claims for relief: (1) breach of contract, based on Cinco's alleged failure to comply with the terms of the Skyline Note; and (2) judicial foreclosure of the Skyline DOT. In May 2020, Cinco removed the state court lawsuit to the bankruptcy court. Skyline promptly filed a motion for abstention and remand ("Remand Motion"). The bankruptcy court deferred ruling on the Remand Motion until after plan confirmation.

In June 2020, after a five-day trial, the bankruptcy court issued a ruling and order denying confirmation of both plans. The parties each filed amended plans, and in November 2020, the bankruptcy court entered an order denying confirmation of Debtor's plan and confirming the Cinco Plan (the "Confirmation Order").

The Cinco Plan provides for compromise and payment of the Skyline Note, release of the Skyline DOT, and dismissal of the removed adversary proceeding. Specifically, the Cinco Plan provides: "In consideration of receipt of the Initial Settlement Payment on the Effective Date, Debtor and Cinco shall exchange mutual releases, dismiss all pending actions without prejudice, each party to bear its own attorneys' fees, and Debtor shall release all liens and claims upon property of Cinco." The Cinco Plan also provides for the retention of bankruptcy court jurisdiction to resolve pending adversary proceedings and to enter orders necessary to implement or consummate the provisions of the Cinco Plan.

On February 19, 2021, Cinco transferred $2, 654, 942 to the disbursing agent in satisfaction of the Skyline Note, as provided in the plan. Thereafter, the disbursing agent executed and delivered and caused to be recorded a Full Deed of Release and Reconveyance of the Skyline DOT, which released Skyline's lien against Rancho Soldados.

In the meantime, Skyline appealed the Confirmation Order to this Panel, which affirmed. Skyline Ridge, LLC v. Cinco Soldados, LLC (In re Skyline Ridge, LLC), BAP Nos. AZ-20-1264-BTL & AZ-21-1000-BTL, 2021 WL 3829311 (9th Cir. BAP Aug. 25, 2021). Skyline has appealed the Panel's decision to the Ninth Circuit Court of Appeals (No. 21-60052); as of the date of this Memorandum, that appeal remains pending. Skyline's requests for a stay pending appeal were denied by the bankruptcy court and this Panel; Skyline has not requested a stay pending appeal from the Ninth Circuit.

Shortly after the reconveyance was recorded, Cinco moved for summary judgment dismissing the adversary proceeding. Cinco argued that the Skyline Note had been paid and the Skyline DOT had been released, thus there was no basis for litigating the claims, and the adversary proceeding must be dismissed pursuant to the confirmed plan.

Skyline opposed the motion, arguing that dismissal was inappropriate because the Confirmation Order was on appeal and might be reversed. Skyline asserted that, even though the proposed dismissal was without prejudice to filing a future action, it would be prejudiced because the six-year statute of limitations would expire with respect to some of the unpaid payments on the Skyline Note. Skyline also objected to the bankruptcy court's entry of a final order disposing of the adversary proceeding, arguing that the court lacked constitutional authority to enter such an order pursuant to Stern v. Marshall, 564 U.S. 462 (2011).

In Cinco's reply, it argued that Skyline was again attempting to obtain a stay pending appeal, which had already been denied. It also suggested that the bankruptcy court treat the adversary proceeding as non-core and enter proposed findings and conclusions for de novo review by the district court.

After a hearing, the bankruptcy court issued a ruling and order ("Dismissal Order") granting Cinco's motion for summary judgment based on the terms of the confirmed Cinco Plan and the fact that the terms of the settlement of the Skyline loan had been satisfied. With respect to its authority to enter a final judgment, the court concluded that it had "related to" jurisdiction over the adversary proceeding, and that it had ancillary jurisdiction to enter an order dismissing it because dismissal was required under the Confirmation Order. The court concluded that, based on its ancillary jurisdiction, it had constitutional authority to enter a final judgment because it was enforcing the Confirmation Order. Nevertheless, the bankruptcy court included a footnote in its ruling stating, "[i]f it is determined that this Court lacks authority to enter a final order disposing of this Adversary Proceeding, the foregoing constitute the Court's proposed findings of fact and conclusions of law." The bankruptcy court did not make any findings or conclusions regarding Skyline's Remand Motion.

Skyline timely appealed. Despite Skyline's assertion that the bankruptcy court lacked constitutional authority to enter the Dismissal Order, it did not elect to have the appeal heard by the district court.


As discussed below, the bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(L) and the retention of jurisdiction provision of the confirmed plan.

We have jurisdiction over final orders and decrees, and from interlocutory orders with leave. 28 U.S.C. § 158(a). Here, the bankruptcy court's order dismissed the adversary proceeding "without prejudice." Orders dismissing adversary proceedings without prejudice are generally interlocutory. Barnes v. Belice (In re Belice), 461 B.R. 564 571-72 (9th Cir. BAP 2011). At the same time, "[a] disposition is final if it contains a complete act of adjudication, that is, a full adjudication...

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