West End Associates, LP v. Sea Green Equities
| Decision Date | 21 April 1994 |
| Docket Number | Civ. A. No. 93-3515. |
| Citation | 166 BR 572 |
| Parties | WEST END ASSOCIATES, L.P., Appellant, v. SEA GREEN EQUITIES, Appellee. |
| Court | U.S. District Court — District of New Jersey |
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James O. Guy, Union, NJ, for appellant.
Jerrold I. Langer, Pitney, Hardin, Kipp & Szuch, Morristown, NJ, for appellee.
On January 31, 1994, on the application of appellee Sea Green Equities ("Sea Green"), this Court issued an Order requiring appellant West End Associates, L.P. ("West End"), to show cause why its pending appeal of two orders entered by Judge William F. Tuohey of the United States Bankruptcy Court, District of New Jersey, should not be dismissed on grounds of mootness. The parties have submitted the required papers in accordance with the Order and the Court has considered the pending issues pursuant to Federal Rule of Civil Procedure 78.
The genesis of this matter dates back to August 16, 1991, when Hansen Savings Bank, predecessor in interest to Sea Green, filed a foreclosure action in the Superior Court of New Jersey, based upon a note and mortgage associated with West End's only asset, an apartment complex (the "property") in Long Branch, New Jersey. In April 1992, West End defaulted in the foreclosure action by failing to answer the foreclosure complaint. On November 23, 1992, the state court substituted Hansen Savings Bank with Sea Green, which had previously purchased the subject note. On March 12, 1993, the state court entered a final judgment of foreclosure.
On March 31, 1993, seeking the protection of federal bankruptcy law, West End filed a bankruptcy petition under Chapter 11 of the United States Bankruptcy Code. The bankruptcy proceeding was assigned to Judge Tuohey.
On July 15, 1993, Judge Tuohey issued an opinion and order granting Sea Green relief from the automatic stay provision of the Bankruptcy Code (11 U.S.C. § 362) and authorizing Sea Green to proceed with its foreclosure action (the "July 15 Order"). During the pendency of Sea Green's stay relief application before Judge Tuohey, West End moved before the state court to vacate the final judgment of foreclosure. The motion was denied.
With the automatic stay lifted by Judge Tuohey, thus began the somewhat tortuous procedural history of the matter before this Court. On August 11, 1993, West End filed a notice of appeal of the July 15 Order ("first appeal"). Subsequently, West End filed in the bankruptcy court a motion for reconsideration of the July 15 Order, which was denied by Judge Tuohey in an order dated October 4, 1993 (the "October 4 Order"). On October 13, 1993, West End filed a notice of appeal of the October 4 Order ("second appeal").
A sheriff's sale of the property was scheduled for October 18, 1993. On October 13, West End filed an emergency motion to stay the sale pending appeal. This Court denied the motion in an opinion and order dated October 14, 1993 — West End had neglected to seek a stay from the bankruptcy court prior to bringing its petition before this Court.
Following two adjournments, the sheriff's sale was rescheduled for December 13, 1993. West End returned to the bankruptcy court to request a stay pending appeal. With Judge Tuohey then on vacation, Judge Novalyn Winfield heard West End's motion and granted a temporary stay until December 16, 1993, when Judge Tuohey could address the application on the merits. By opinion and order dated December 16, 1993, Judge Tuohey denied West End's request for a stay. The sheriff's sale was rescheduled for January 10, 1994.
With a cover letter dated January 7, 1994, West End submitted to this chambers an emergency motion for a stay pending appeal. This emergency motion was never filed with the Clerk of the Court, nor was permission sought to file the motion directly with this Court's chambers. On January 10, 1994, the property was sold at the sheriff's sale to Sea Green for $100.
By an order dated January 18, 1994, the Court consolidated West End's first and second appeals. On January 31, 1994, the Court issued the pending order to show cause.
Sea Green contends that the absence of a stay pending West End's appeal and the consequent sale of the property render the appeal moot. West End argues to the contrary. The questions raised by this order to show cause are matters of first impression in the Third Circuit. The Court must determine whether principles of mootness apply to the instant case, and if so, whether any exceptions should be recognized and employed here to allow West End's appeal to proceed. Courts in other circuits have addressed these issues and the Court turns to them for guidance in determining the appropriate standards.
As a preliminary reminder, the issue before the Court is mootness, not the merits of West End's appeal of the July 15 and October 4 Orders.1 A number of cases addressing the question of mootness emanate from the courts of the Ninth Circuit and state this general principle: Where a property is sold pursuant to a bankruptcy court order and the "property is sold because a stay pending the appeal of the bankruptcy court's order has not been secured by the debtor, an appellate court is powerless to grant effective relief, and the appeal must be considered moot." Landry v. Chevy Chase Fed. Sav. Bank, 1994 WL 14086, at *1 (9th Cir. Jan. 20, 1993); In re Mann, 907 F.2d 923, 926 (9th Cir.1990); In re Onouli-Kona Land Co., 846 F.2d 1170, 1173-74 (9th Cir. 1988); In re Sun Valley Ranches, Inc., 823 F.2d 1373, 1374-75 (9th Cir.1987).
Other circuits have adopted this general principle. In re March, 988 F.2d 498, 499 (4th Cir.), cert. denied, ___ U.S. ___, 114 S.Ct. 182, 126 L.Ed.2d 141 (1993); In re Sullivan Central Plaza, I, Ltd., 914 F.2d 731, 733 (5th Cir.1990); 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). Given its general acceptance in the federal courts, the mootness rule should apply in the instant case. Thus, West End's failure to obtain a stay of Judge Tuohey's July 15 and October 4 Orders and the ensuing sale of the property may render the pending appeal moot.
However, the Court will not summarily apply the mootness rule and finds that any application here requires further analysis. The Court acknowledges that the mootness rule may not be without exception. Other courts have recognized and considered certain exceptions to the mootness rule. See, e.g., Onouli-Kona, 846 F.2d at 1173. Whether certain exceptions exist appears to depend upon (1) the policies underpinning a court's adoption of the mootness rule and (2) the interplay of the relevant provisions of the bankruptcy code under which a bankruptcy court may authorize the foreclosure or sale of a debtor's assets. An assessment of the current case law reveals that there is not a consensus among the courts on these particular issues.
The mootness rule has been invoked for either of two different reasons. The Ninth Circuit has concluded that the mootness rule serves the "`particular need' for finality in bankruptcy." Onouli-Kona, 846 F.2d at 1172 (quoting Algeran, Inc. v. Advance Ross Corp., 759 F.2d 1421, 1423 (9th Cir.1985)). The Onouli-Kona court also noted that the mootness rule also derives from the inability to fashion relief after a property has been sold, but that relief may be available in certain circumstances, including where the purchaser is a party to the subject appeal. Id. Thus, while the purpose of finality may have been the impetus for the Ninth Circuit's early decisions involving the mootness rule, the ability of an appellate court to provide relief may create an exception to the rule's application.
The Fifth Circuit has concluded that mootness rule does not derive from the need for finality, but from the lack of available relief from the appellate court. Sullivan Central Plaza, 914 F.2d at 734 & n. 7. While these two circuits may disagree on the policies underpinning the development of the mootness rule, they appear to reach the same result: an exception to the mootness rule may apply where the appellate court has the ability and power to fashion relief following a sale of property in the absence of a stay pending appeal.
This Court speculates that the apparent disagreement between the two circuits may be explained by existence of two different bankruptcy code provisions from which questions concerning the applicability of the mootness rule generally arise. In one instance, the foreclosure or sale of a debtor's asset may occur subsequent to a bankruptcy court order pursuant to 11 U.S.C. § 362(d), wherein the bankruptcy court may authorize a party in interest to enforce a judgment obtained "against the debtor or against property of the estate . . . obtained before the commencement of the Chapter 11 case." 11 U.S.C. § 362(a)(2). Such are the circumstances in the instant case, where Judge Tuohey lifted the automatic stay to allow Sea Green to enforce its final judgment of foreclosure obtained in a New Jersey court prior to West End's petition for bankruptcy protection under Chapter 11.
The mootness rule also may be implicated where the sale of a debtor's asset is authorized under 11 U.S.C. § 363, wherein the bankruptcy court may authorize the bankruptcy trustee to sell property of the estate with or without notice, depending upon the circumstances of the debtor's business operations during the pendency of the bankruptcy proceedings. 11 U.S.C. § 363(b), (c). Section 363 was not the statutory vehicle by which the property was sold in the instant case.
In assessing the applicability of the mootness rule, the Ninth Circuit deemed irrelevant to its analysis whether the subject sale occurred following a bankruptcy court order under section 362 or 363. See Onouli-Kona, 846 F.2d at 1171 (...
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