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finding an appeal equitably moot where the appellant did not request a stay or expedite its appeal and property was sold in accordance with the appealed order
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CASE NO. 18-CIV-61945-RAR
2020-03-25
IN RE: FISHERMAN'S PIER, INC., Debtor.
ORDER DISMISSING BANKRUPTCY APPEAL
RODOLFO A. RUIZ II, UNITED STATES DISTRICT JUDGE
As aptly stated by Chief Judge Jack Tuter of the Seventeenth Judicial Circuit in and for Broward County, Florida, "the [C]ourt is empathetic to any successor court having to unravel this never-ending saga." See Order Granting Defendant Spiro's Motion to Enforce Mediated Settlement Agreement [ECF No. 18-6] ("Order Resolving Stock Ownership") ¶ 7. This successor Court appreciates Chief Judge Tuter's empathy. But today this saga comes to an end.
Appellant, J.J. Rissell, Allentown, PA Trust, dated January 11, 2018 ("Rissell Trust"), appeals the Order Confirming Second Amended Joint Plan of Reorganization [ECF No. 18-18] ("Order Confirming Plan") entered by the United States Bankruptcy Court for the Southern District of Florida. Specifically, the Rissell Trust alleges the bankruptcy court erroneously confirmed a plan issuing nonvoting stock in violation of 11 U.S.C. section 1123(a)(6) and failing to pay the Rissell Trust the value it would have received in a liquidation in violation of 11 U.S.C. section 1129(a)(7). The Rissell Trust also claims the confirmed plan was proposed in bad faith and contained provisions which were inconsistent with public policy and the interests of the Rissell Trust as equity holder in violation of 11 U.S.C. section 1129(a)(5).
An order confirming a plan for reorganization under Chapter 11 is a final order. See Deutsche Bank Nat'l Trust Co. v. Jackson , No. 15-81506, 2016 WL 5390594, at *1 (S.D. Fla. Sept. 27, 2016) (citing 28 U.S.C. § 158(a)(1) ). Therefore, the Court has jurisdiction to review the Order Confirming Plan.
In response, Appellees, Soneet R. Kapila and Spiro Marchelos (collectively, "Plan Proponents") assert the appeal before the Court is equitably moot because the Rissell Trust failed to obtain a stay during the pendency of the appeal; the confirmed plan is substantially consummated; and reissuing voting common stock would significantly affect third-parties (i.e., creditors of the Debtor) not participating in the appeal. Moreover, Plan Proponents claim that the issuance of nonvoting stock does not violate section 1123(a)(6) if it is required to ensure successful reorganization of the debtor.
Having considered the record from the bankruptcy court proceeding, Rissell Trust's Initial Brief [ECF No. 25] ("Initial Brief"), Plan Proponents’ Response Brief [ECF No. 29] ("Response"), and Rissell Trust's Reply Brief [ECF No. 33] ("Reply"), it is hereby
ORDERED AND ADJUDGED that the appeal is DISMISSED as equitably moot . The Clerk is directed to CLOSE this case. Any pending motions are DENIED as moot .
BACKGROUND
Spiro Marchelos and Elias Marchelos were each fifty-percent shareholders of Fisherman's Pier, Inc. ("Debtor") until Elias had a stroke and became incapacitated. Confirmation Hearing Tr. [ECF No. 18-24] ("Confirmation Tr.") 38:16-20; Response at 6 n.6. Because of his illness, Elias’ wife, Martha Marchelos, acting through a power of attorney, took control of Elias’ equity stake in the Debtor. Confirmation Tr. 38:16-25. There is no hiding that Spiro and Martha do not get along, and their tumultuous relationship has had a negative impact on the Debtor. Id. at 38:21-25. One of their disputes involved back-rent owed by Athena by the Sea Corp. ("Athena")—a restaurant tenant of the Debtor, owned and controlled by Martha. See Mot. for Order of Eviction and to Reject Lease [ECF No. 30-2] ¶¶ 2, 6, 10; Order on Spiro's Mot. Compel Compliance with Court Order [ECF No. 18-2-G]. Another dispute focused on whether Spiro or Martha was the President of the Debtor. See Marchelos v. Fisherman's Pier, Inc. et al. , No. 14-017994-CACE (07). In an effort to resolve these issues, the parties executed a Mediated Settlement Agreement [ECF No. 18-2-B] in which they agreed Spiro and Martha each held 50 percent equity in the Debtor and Spiro was President and Director of the Debtor. See Mediated Settlement Agreement. This Mediated Settlement Agreement was later enforced by Chief Judge Tuter and affirmed by the Fourth District Court of Appeal. Order Resolving Stock Ownership ¶ 5. In addition, Spiro was officially elected as President during a Special Shareholder Meeting ("Meeting"). See Meeting Transcript [ECF No. 18-2-D] 4:25, 5:25, 6:1-17.
More than ten months after the Meeting, Martha, acting on behalf of the Debtor as its alleged President, filed a Voluntary Petition for Chapter 11 Bankruptcy [ECF No. 18-1] ("Petition"). In response, Spiro filed an Emergency Motion to Dismiss the Bankruptcy as a Bad Faith Filing [ECF No. 18-2] ("Motion to Dismiss") alleging Martha filed the Petition to circumvent Chief Judge Tuter's state court orders. Without adjudicating the Motion to Dismiss, the bankruptcy court appointed Trustee Soneet R. Kapila and issued a stay pending the resolution of all disputes concerning ownership and management of the Debtor. See Order Approving Appointment of Chapter 11 Trustee [ECF No. 30-3]; Order Reserving Ruling on Motion to Dismiss and Sua Sponte Granting Stay [ECF No. 30-4]. On January 22, 2018, Chief Judge Tuter entered his Order Resolving Stock Ownership resolving all disputes as to ownership and management of the Debtor and confirming Martha "had no authority to unilaterally act on behalf of [Debtor]." See Order Resolving Stock Ownership ¶ 8.
The bankruptcy court never adjudicated the Motion to Dismiss. Therefore, the Court assumes it was denied as moot.
Relatedly, John A. Moffa, Esq. and his firm Moffa & Breuer, PLLC (collectively, "Moffa Firm") were approved by the bankruptcy court to represent the Debtor at the time Martha filed the Petition. In an attempt to secure payment of legal fees and any other fees and expenses relating to Martha, Elias, and/or Athena (an adverse party to the Debtor), the Moffa Firm created the Rissell Trust and another similarly named trust, the Jeffrey J. Rissell, Allentown, PA Trust, dated January 10, 2018 ("Beneficiary Trust"). See Revocable Trust Agreements for Beneficiary Trust & Rissell Trust [ECF No. 18-3-A] (collectively, "Agreements") ¶ 4.1. The res of both trusts is the same: Martha and Elias’ (through the power of attorney granted to Martha) shareholder interest in the Debtor. See Agreements ¶ 1. The sole beneficiary and trustee of the Rissell Trust is the Beneficiary Trust, and the initial beneficiary and trustee of the Beneficiary Trust is the Moffa Firm. See id. at ¶ 4.1. Thus, while representing the Debtor, the Moffa Firm was trustee and initial beneficiary to the Rissell Trust.
The Rissell Trust, as a shareholder of the Debtor, has an interest in the bankruptcy proceeding. In an effort to protect this interest, the Moffa Firm attempted to represent the Rissell Trust, despite already representing the Debtor. See Not. Appearance [Bkr. ECF No. 160]. However, the bankruptcy court disqualified the Moffa Firm from representing the Rissell Trust and later disqualified the Moffa Firm from representing the Debtor due to the conflict of interest. See Am. Order Granting Spiro's Motion to Disqualify the Moffa Firm from Representing Rissell Trust [ECF No. 20-1] ("First Disqualification Order") at 2 ("Effectively, Attorney Moffa has placed himself in a position where he not only purports to represent the interests of the Debtor and the [Rissell] Trust as an attorney, but Attorney Moffa is now a party to the stockholders’ dispute by virtue of his alleged legal ownership of the Debtor's stock."); Order Granting Spiro's Mot. Disqualify the Moffa Firm from Continuing to Represent the Debtor [Bkr. ECF No. 224] ("Second Disqualification Order").
The Court will refer to docket entries in the bankruptcy proceeding as "Bkr ECF," and docket entries in the instant appeal as "ECF."
In violation of the First Disqualification Order, the Moffa Firm filed a proposed Plan of Reorganization on behalf of the Rissell Trust, Elias, Martha, and the Beneficiary Trust ("Rissell Plan"). See Rissell Plan [ECF No. 20-2]. The Rissell Plan provided, among other things, for Mr. Moffa to become President of the Debtor and manage the reorganized Debtor; the cancellation of all shareholder interests and reissuing 50 shares of nonvoting stock to the Rissell Trust and Spiro (a total of 100 nonvoting shares); and abandoning all pending litigation with Debtor, Elias, Spiro, or Athena, any future claim against Athena for unpaid rent, and all other causes of action against third parties, including potential malpractice claims against the Moffa Firm. Id. at 6-7, 11-12; see also Order Denying Motion to Represent Rissell Trust Due to a Change in Circumstances [ECF No. 20-3] ("Third Disqualification Order") at 4.
A proposal contrary to Chief Judge Tuter's Order Resolving Stock Ownership, "which established and reconfirmed Spiro's 50% ownership interest in the Debtor and entitlement to manage the Debtor as President." See Order Denying Motion to Represent Rissell Trust Due to a Change in Circumstances at 4.
After realizing it violated the First Disqualification Order by filing the Rissell Plan, the Moffa Firm filed a Motion to Represent the Rissell Trust Due to a Change in Circumstances [ECF No. 30-6]. In this motion, the Moffa Firm claimed it could represent the Rissell Trust because it no longer represented the Debtor. See Mot. Represent Rissell Trust Due to Change in Circumstances at 2-3. The bankruptcy court denied the motion, finding the representation violated the Rules of Professional Conduct involving former clients. See Third Disqualification Order at 6-8. Additionally, the bankruptcy court struck the Rissell plan for numerous reasons, including a finding that the Moffa Firm "clearly violated" the court's First Disqualification Order, and would otherwise be "rewarded for masterminding a Chapter 11 filing ... without corporate authority to freeze-out Spiro from his rightful position as President of the Debtor and for the ulterior purposes of circumventing ... [Chief Judge Tuter's Order Resolving Stock Ownership] ...." Id. at 8-9.
Shortly thereafter, the Plan Proponents filed their Second Amended Joint Plan of Reorganization [ECF No. 18-17] ("Confirmed Plan"). The Confirmed Plan provided for the cancellation of all common stock in the Debtor and reissuing nonvoting shares in the Reorganized Debtor to the Rissell Trust and Spiro; issuing a single share of voting stock to Spiro to conform with the Order Resolving Stock Ownership; and retaining all pending litigation involving the Debtor, Martha, Elias, Spiro, and/or Athena, as well as any future claims against the Moffa Firm for malpractice and breach of fiduciary duty, any future claims against Martha for breach of fiduciary duty, and the right to dispute the Rissell Trust's asserted interest in the Debtor. Id. at Article IV, Article VII.
On May 2, 2018, Plan Proponents filed their First Amended Joint Plan of Reorganization [ECF No. 18-8] ("First Amended Plan"). However, the Plan Proponents later modified the First Amended Plan to incorporate changes announced at the Disclosure Statement Hearing. See Modified First Amended Joint Plan of Reorganization [Bkr. ECF No. 336] ("Modified Plan"). And because of a filing error, Plan Proponents refiled the Modified Plan using the title "Second Amended Joint Plan of Reorganization." See Confirmed Plan. No other changes were made; therefore, the Modified Plan and the Confirmed Plan are identical. See Response at 14.
Of significance to this appeal, the Confirmed Plan also assumed various leases, including a new lease with an option to purchase the property post-confirmation. See Order Approving Mot. Approve Option Agreement [ECF No. 30-10] ("Option Order"); Kapila Decl. In Support of Confirmation [ECF No. 18-16] ("Kapila Decl.") 16 ¶ 1. Although Mr. Kapila did not necessarily need permission from the bankruptcy court to assume the new lease, the option to purchase the property required the bankruptcy court's approval. See Mot. Approve Option Agreement [Bkr. ECF No. 404] ("Option Motion") ¶ 10; see also 11 U.S.C. § 363(b). According to the Option Motion, the new lessee placed $500,000 in an escrow account to be released on the effective date of the Confirmed Plan and used to fund effective date distributions. Id. at ¶¶ 8, 11, 14. These funds were considered "key" to the feasibility of the Confirmed Plan and without these funds, required payments could not be made. Id. The bankruptcy court authorized the option agreement on August 2, 2018—seven days before the effective date of the Confirmed Plan. See Option Order.
See 11 U.S.C. § 363(c)(1) ("[T]he trustee may enter into transactions, including the sale or lease of property of the estate, in the ordinary course of business, without notice or a hearing ....").
Every creditor and interested party except for the Rissell Trust voted in favor of the Confirmed Plan. See Trustee's Confirmation Report [ECF No. 18-15-B]. The Rissell Trust filed objections to the Confirmed Plan alleging the same arguments before the Court (i.e., issuance of nonvoting stock, lack of good faith, failing to pay the Rissell Trust the value it would have received in a liquidation, etc.). See Am. Objection to Confirmation of Confirmed Plan and Motion to Dismiss [ECF No. 18-14]. However, these objections were overruled by the bankruptcy court, finding the Plan Proponents acted in good faith; the Confirmed Plan was fair and equitable with respect to each class; the Confirmed Plan was in the best interest of the creditors; the Rissell Trust received property valuing at least the amount it would receive if Debtor was liquidated under Chapter 7 of the Bankruptcy Code; and the amended Articles of Incorporation would prohibit the issuance of nonvoting stock. Confirmation Tr. 52:22-25, 53:1; Order Confirming Plan ¶¶ O, U, Y, FF, LL. Furthermore, the bankruptcy court heard testimony from representatives of various creditors at the Confirmation Hearing. Significantly, each creditor expressed their approval for the Confirmed Plan because it provided management stability. Confirmation Tr. 44:4-23; 46:11-22. In fact, counsel for Bank OVK, Debtor's senior secured creditor, indicated that
According to Mr. Kapila, the Confirmed Plan provides the Rissell Trust with "property of a value, as of the Effective Date, not less than the amount such holder would receive if the Debtor was liquidated under Chapter 7 of the Bankruptcy Code." Kapila Decl. ¶ 18. The Rissell Trust failed to provide evidence indicating anything to the contrary. See Confirmation Tr. 37:19-25, 38:1-11. Therefore, this evidence is undisputed.
The Court assumes the bankruptcy court did not find that the reissuance of nonvoting stock triggered 11 U.S.C. section 1123(a)(6) because it did not adopt the amendment proposed by the Plan Proponents to the Confirmed Plan. See Confirmation Tr. 37:1-6 ("We could ... modify the plan to say that all the shares vote and we give Spiro one extra share because of the management deadlock, and that share doesn't participate in the economics, and economically this plan treats these two shareholders exactly alike.") (emphasis added); id. at 41:9-14 ("If you find that 1123(a)(6) applies here, we can easily modify the plan and make this 50/50 voting. The one extra share that does not participate in the economic value, ... would have the same effect as saying there is only one share of voting stock in this case, and we resolve this whole issue."). Rather, the bankruptcy court found section 1123(a)(6) was satisfied once Debtor amended its Articles of Incorporation to prohibit the issuance of nonvoting shares. See Order Confirming Plan ¶¶ O, 24.
[I]f ... there were to be difficulty in understanding who exactly is in charge ... and able to make decisions on behalf of the [D]ebtor, [the mortgage] extension would not be something ... the bank would be inclined to ... agree to because ... this continued fight between the ... interested parties ... is not something that ... leaves the bank feeling too secure in its position on a going forward basis to this property.
Confirmation Tr. 44:14-23. Counsel for another class of creditors similarly stated that "the certainty and finality that comes out of [the Confirmed Plan] is worth far more than anything [his client has] given up, and ... is one of the reasons why we voted in favor of it and we support it." Id. at 47:7-10.
As of the effective date of the Confirmed Plan, the Reorganized Debtor has paid ten creditors and eight administrative claimants a total of $728,016.75. See Not. Compliance [ECF No. 18-20]; Kapila Decl. ¶ 9. On March 13, 2019, the Reorganized Debtor also executed the option and closed the sale of a portion of its real estate for approximately six million dollars. See Warranty Deed [ECF No. 30-11]; HUD-1 Settlement Statement [ECF No. 30-12]. Additionally, the Reorganized Debtor is currently making monthly payments totaling approximately $70,000 to its three classes of impaired creditors as required by the Confirmed Plan, as well as satisfying its multi-million-dollar mortgage with its largest creditor. See Confirmed Plan §§ 4.02(a)(i), (ii), 4.02(b), (v), 4.02(c)(iii).
At no time did the Rissell Trust request a stay of the Confirmed Plan from either the bankruptcy court or this Court, nor did the Rissell Trust move to expedite its appeal. In its Reply, the Rissell Trust claims an automatic stay was issued pursuant to Rule 6004(h) of the Federal Rules of Bankruptcy Procedure. See Reply at 4, 6-7. However, this allegation misrepresents the record, as well as the purpose and application of Rule 6004(h), and will be addressed further herein.
STANDARD OF REVIEW
"The district court must accept the bankruptcy court's factual findings unless they are clearly erroneous, but reviews a bankruptcy court's legal conclusions de novo. " In re Englander , 95 F.3d 1028, 1030 (11th Cir. 1996) (citation and internal quotations omitted). "A finding is clearly erroneous when although there is evidence to support it, the reviewing court upon examining the entire evidence is left with the definite and firm conviction that a mistake has been committed." Kane v. Stewart Tilghman Fox & Bianchi, P.A. , 485 B.R. 460, 468 (S.D. Fla. 2013) (citing United States v. U.S. Gypsum Co. , 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948) ) (internal quotations omitted). "If the lower court's assessment of the evidence is plausible in light of the record viewed in its entirety, the reviewing court may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently." Id. (citing Anderson v. Bessemer City , 470 U.S. 564, 573–574, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) ). "Under de novo review, this Court independently examines the law and draws its own conclusions after applying the law to the facts of the case, without regard to decisions made by the Bankruptcy Court." In re Brown , No. 08-1517-Orl-18, 2008 WL 5050081, at *2 (M.D. Fla. Nov. 19, 2008) (citing In re Piper Aircraft Corp. , 244 F.3d 1289, 1295 (11th Cir. 2001) ).
ANALYSIS
The Rissell Trust claims the bankruptcy court committed reversible error when it approved a plan issuing nonvoting shares in violation of 11 U.S.C. section 1123(a)(6) and failing to pay the Rissell Trust a value it would have received in a Chapter 7 liquidation in violation of 11 U.S.C section 1129(a)(7). The Rissell Trust also asserts the Confirmed Plan was proposed in bad faith and contained provisions inconsistent with the best interest of the Rissell Trust and against public policy in violation of 11 U.S.C 1129(a)(5). In response, Appellees allege the Court need not reach these issues because the appeal is equitably moot. The Court agrees with the Appellant. As a result, this appeal must be dismissed, and the Court need not reach the merits of this action.
Equitable Mootness
"Equitable mootness is a discretionary doctrine that permits courts sitting in bankruptcy appeals to dismiss challenges (typically to confirmation plans) when effective relief would be impossible." In re Bayou Shores SNF, LLC , 828 F.3d 1297, 1328 (11th Cir. 2016) (citation omitted). "[It] seeks to avoid an appellate decision that would ... create an unmanageable, uncontrollable situation for the bankruptcy court." Id. (citation and internal quotations omitted). "Central to a finding of mootness is a determination by an appellate court that it cannot grant effective judicial relief. Put another way, the court must determine whether the reorganization plan has been so substantially consummated that effective relief is no longer available." First Union Real Estate Equity & Mortg. Invs. v. Club Assocs. (In re Club Assocs.) , 956 F.2d 1065, 1069 (11th Cir. 1992) (citation and internal quotations omitted) (emphasis added). Deciding whether the equitable mootness doctrine applies requires a multifactor analysis:
Has a stay pending appeal been obtained? If not, then why not? Has the plan been substantially consummated? If so, what kind of transactions have been consummated? What type of relief does the appellant seek on appeal? What effect would granting relief have on the interests of third parties not before the court? And, would relief affect the re-emergence of the debtor as a revitalized entity?
Id. at 1069 n.11. "The answers to these questions provide the reviewing court with the backdrop to evaluate the ultimate issue of whether a confirmation plan has progressed to the point where effective judicial relief is no longer a viable option." Id. "No single factor is determinative, and a court must consider all the circumstances of the case to decide whether it can grant effective relief." In re Nica Holdings, Inc. , 810 F.3d 781, 786-87 (11th Cir. 2015) (citation and internal quotations omitted); see also In re Winn-Dixie Store, Inc. , 286 F. App'x 619, 624 (11th Cir. 2008) (noting that substantial consummation of a reorganization plan or failure to obtain a stay will not singularly render an appeal moot). However, "[t]he more substantially the party aggrieved by a judgment has allowed the egg of that judgment to be scrambled ... the less likely [the court] will be willing to consider ordering anyone to countenance the pains that attend any effort to unscramble the egg." Bennett v. Jefferson Cnty, Ala. , 899 F.3d 1240, 1248 (11th Cir. 2018) (citation and internal quotations omitted). Essentially, "[t]he more complex a transaction ... is, and the longer the time that has passed since the confirmation of the plan, the harder it will be to undo the past." Id. Here, the requisite multifactor analysis warrants application of the equitable mootness doctrine. i. Has a Stay Pending Appeal Been Obtained?
Whether the appellant sought a stay of the confirmed plan pending appeal is a principal consideration in determining equitable mootness. See Bennett , 899 F.3d at 1248 (citation and internal quotations omitted); see also In re Metromedia Fiber Network, Inc. , 416 F.3d 136, 145 (2d Cir. 2005) ("In the absence of any request for a stay, the question is not solely whether we can provide relief without unraveling the [p]lan, but also whether we should provide such relief in light of fairness concerns.") (emphasis in original); In re Club Assocs. , 956 F.2d at 1070 (finding appellant's failure to seek a stay pending appeal weighed in favor of finding equitable mootness). Here, the Rissell Trust did not obtain—or even request—a stay of the Confirmed Plan. Realizing it failed to request a stay of the Confirmed Plan, the Rissell Trust attempts to rely on the automatic stay under Rule 6004(h) of the Federal Rules of Bankruptcy Procedure. More specifically, the Rissell Trust asserts that the automatic stay under Rule 6004(h) prevented the Plan Proponents from executing the lease authorized in the Option Order until August 16, 2018. Because the lease was executed a week before the automatic stay expired, the Rissell Trust argues that the assumption of the lease was improper and in violation of the Bankruptcy Code.
Rule 6004(h) states that "[a]n order authorizing the use, sale, or lease of property other than cash collateral is stayed until the expiration of 14 days after entry of the order, unless the court orders otherwise."
However, the Rissell Trust misunderstands the purpose and application of Rule 6004(h). First, the purpose of Rule 6004(h) is to permit "sufficient time for a party to request a stay pending appeal of an order authorizing the use, sale, or lease of property under 363(b) of the Code before the order is implemented." See In re Steffen , No. 12-1053-T-33, 2013 WL 461344, at *2 (M.D. Fla. Feb. 7, 2013) (" Steffen I "). Thus, it is not intended to act as an indefinite stay of a lease or a confirmed plan. Rather, the automatic stay creates a window of time for a party opposing the authorization to seek alternative relief.
Second, the automatic stay imposed by Rule 6004(h) may be curtailed by the bankruptcy court. For example, a bankruptcy court may shorten the automatic stay by authorizing a sale contract with a closing date four days after entering its authorization order. In re Steffen , 552 F. App'x 946, 949 (11th Cir. 2014) (" Steffen II "). In Steffen II , the bankruptcy court was not required to explicitly state it was waiving or curtailing the automatic stay nor was the moving party required to explicitly request a waiver of the automatic stay. Id. at 948-49. Rather, the appellate court found that by authorizing the sale of the property in accordance with the sales contract, the bankruptcy court shortened the automatic stay. Id. at 949.
Like the implicit waiver in Steffen II , the automatic stay was implicitly curtailed by the bankruptcy court in granting the Option Motion. The Option Motion clearly indicated the effective date of the lease, the escrowed funds, and the key role those funds played in the Confirmed Plan. Therefore, when the bankruptcy court approved the Confirmed Plan, the bankruptcy court knew the lease would be executed one week—not fourteen days—after it entered its Option Order and as a result, it implicitly shortened the automatic stay. See Order Confirming Plan ¶ 27 ("[T]he Effective Date of the Plan shall be one business day after entry of this Confirmation Order"). Accordingly, the Rissell Trust had seven days to file a motion to stay the lease before the bankruptcy court approved the Confirmed Plan, but it failed to do so. Instead of requesting a stay, the Rissell Trust appealed the Option Order to the district court. See Not. Appeal [Bkr. ECF No. 463].
The district court dismissed the appeal as moot and for lack of subject matter jurisdiction. See J.J. Rissell, Allentown, PA Trust v. Kapila , No. 18-61927, 2018 WL 5264129, at *3 (S.D. Fla. Oct. 23, 2018).
Moreover, Plan Proponents requested authorization for the option agreement, not the lease. See Option Mot. ¶ 10. The Plan Proponents did not need authorization from the bankruptcy court to lease a piece of Debtor's property so long as it was part of the Debtor's ordinary course of business. See id. ; 11 U.S.C. § 363(c)(1). Therefore, assuming the Option Order was limited to only the option agreement, the automatic stay applies to the possible future sale of the Debtor's property, not the lease. And even assuming the Rissell Trust's allegations are meritorious, it is unclear how a violation of the 14-day automatic stay on the lease of a property imputes an indefinite automatic stay on the entire Confirmed Plan or how the alleged procedural violation should weigh against a finding of equitable mootness.
ii. Has the Plan Been Substantially Consummated?
"Substantial consummation" is defined 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. § 1102(2). Because the Confirmed Plan was never stayed, and the Rissell Trust did not request to expedite their appeal, the Confirmed Plan has continued for more than a year and a half. During this time, the Reorganized Debtor cancelled equity issued in the pre-Petition Debtor and reissued nonvoting shares to Spiro and the Rissell Trust; issued a single share of voting stock to Spiro; paid ten creditors and eight administrative claimants a total of $728,016.75; assumed various leases; executed an option and closed the sale of a portion of its real estate for approximately six million dollars; and made payments totaling approximately $1.25 million to its three classes of impaired creditors as required by the Confirmed Plan. In addition, the Reorganized Debtor continues to make approximately $70,000 monthly payments to these impaired creditors while satisfying its multi-million-dollar mortgage with its largest creditor. Notably, the Rissell Trust does not challenge—or even address—these facts. Accordingly, the Court can conclude that the plan has been substantially consummated. Compare Miami Ctr. Ltd. P'ship v. Bank of New York , 820 F.2d 376, 380 (11th Cir. 1987) (finding the confirmed plan was substantially consummated because the trustee conveyed the project to a good faith purchaser for $250 million in accordance with the reorganization plan and the trustee paid all undisputed claims and reserved funds to resolve the disputed claims); In re Calpine Corp. , 390 B.R. 508, 518 (S.D.N.Y. 2008) (finding the confirmed plan was substantially consummated because most of the property proposed to be transferred had been transferred; the debtors assumed all business operations and all property in accordance with the plan; and distributions under the plan were nearly complete) with In re Nica , 810 F.3d at 787-88 (recognizing the plan was not substantially consummated because no creditors were paid); In re Lett , 632 F.3d 1216, 1226 (11th Cir. 2011) (finding the plan was not substantially consummated because senior creditors would not be affected and the appellant challenging confirmation was "still years from receiving its first payment" under the confirmed plan).
iii. What Type of Relief Does Appellant Seek? What Effect Would Granting Relief Have on Third Parties? Would Relief Affect the Re-Emergence of Debtor as a Revitalized Entity?
The Rissell Trust does not ask the Court to invalidate the Confirmed Plan entirely. Rather, the Rissell Trust requests the Court strike the provision issuing nonvoting shares and require the issuance of voting stock. See Reply at 7-8. In their Response, Plan Proponents assert that reissuing voting stock would eliminate the "core structure" of the Confirmed Plan—management stability. See Response at 24-25. According to Plan Proponents, management stability through the issuance of a single voting share is the reason all creditors voted in favor of the Confirmed Plan. See id. at 25. Plan Proponents argue that ordering equal shares of voting stock is a "prescription for corporate deadlock and resumption of [the Rissell Trust's] discredited efforts to disrupt [the Debtor]." Id.
In its Reply, the Rissell Trust also claims, for the first time, that the Court can strike the injunction order and bar order because it unfairly protects only Spiro and preserves claims against the Moffa Firm, Martha, Elias, and Athena. See Order Confirming Plan ¶ 25 (prohibiting certain causes of action against the Debtor but permitting the "Retained Causes of Action" (defined in Article VII of the Confirmed Plan) to continue). However, the Rissell Trust did not cite a single case or provide any argument to support its allegation. Moreover, the Court need not consider an argument raised for the first time in a reply brief. See U.S. v. Levy , 379 F.3d 1241, 1244 (11th Cir. 2004) (citation omitted) ("As for reply briefs, this Court [has] repeatedly ... refused to consider issues raised for the first time in an appellant's reply brief"). Therefore, the Court will not entertain this conclusory allegation because it is unsupported by case law and initially raised in the Reply.
In support of their argument, Plan Proponents heavily rely on In re Charter Commc'ns, Inc. , 691 F.3d 476 (2d Cir. 2012). There, the Second Circuit found that the limited relief sought by the appellants jeopardized the debtor's emergence as a revitalized entity. Id. at 485. Specifically, the Second Circuit recognized that appellant's proposed changes to the confirmation plan were critical to the debtor's restructuring and undoing those parts of the confirmed plan "would cut the heart out of the reorganization." Id. at 486. This was also supported by various witnesses who testified that the plan was successful because of these arrangements. Id. Furthermore, the court noted that even if the arrangements were in violation of the Bankruptcy Code, they could not be stricken without "seriously threatening [the debtor's] ability to re-emerge successfully from bankruptcy[,]" or causing "the parties ... to enter into renewed negotiations, casting uncertainty over [the debtor's] operations ...." Id. Because of this—and despite the possible code violation—the Second Circuit affirmed the district court's dismissal of the appeal based on the doctrine of equitable mootness.
The Second Circuit did not conduct a de novo review of the district court's decision; the standard of review was an abuse of discretion. Id. at 483 (joining the Tenth and Third Circuit Court of Appeals in applying an abuse of discretion standard when reviewing a determination of equitable mootness). But see Bennett , 899 F.3d at 1246 n.2 (recognizing circuit split in standard of review for applications of the equitable mootness doctrine, but nonetheless applying a de novo standard of review because it was bound by earlier precedent).
In re Winn-Dixie Store, Inc. resolved a similar issue. There, the reorganization plan eliminated appellant's guaranteed claims while preserving the guaranteed claims of noteholders. 286 F. App'x at 621. As a result, appellants alleged that the disparate treatment was unfair and claimed entitlement to additional stock distributions as payment. Id. The Eleventh Circuit affirmed the district court's dismissal of the appeal as equitably moot because the disputed arrangement was "central to the reorganization plan itself" and would cause the court to "modify the terms and conditions of the reorganization plan," which at that point had been substantially consummated. Id. at 623. Because of this, the Eleventh Circuit declined to "permit an appeal that would lead to an alteration or amendment of a substantially consummated plan." Id. at 624 ; see also Bennett , 899 F.3d at 1252 (finding that striking a portion of the confirmed plan would "seriously undermine [the] actions taken in reliance on the confirmation order").
At first glance, it appears that the Court could simply strike the provision issuing nonvoting stock and require the reissuance of voting shares without impacting third party creditors or the re-emergence of the Debtor. However, several creditors agreed to the Confirmed Plan because it provided management stability through the issuance of nonvoting stock. In fact, Bank OVK, Debtor's senior secured creditor, specifically testified that "if ... there were to be difficulty in understanding who exactly is in charge ... and able to make decisions on behalf of the [D]ebtor, [the mortgage] extension would not be something ... the bank would be inclined to ... agree to ...." Based on the testimony provided at the Confirmation Hearing, there is no question that the Debtor's creditors relied on this provision when voting in favor of the Confirmed Plan.
Hence, similar to the arrangement in In re Winn-Dixie Store, Inc. , the issuance of nonvoting stock here was a "central" component of the Confirmed Plan. Without the issuance of nonvoting stock and the consequential stability it provides, creditors may not have agreed to a loss or accepted the Confirmed Plan. Moreover, if the Court issued voting shares, it is likely (based on past conduct) that the battle between Spiro and Martha will reignite, and thus, bring the Debtor back to the position it was in pre-Petition. Therefore, the issuance of voting shares will likely affect the Debtor re-emerging as a vital entity.
Further, like the provisions in In re Charter Commc'ns , the issuance of nonvoting stock, even if deemed legally unsupportable, could not be excised from the Confirmed Plan without "seriously threatening [the Debtor's] ability to re-emerge successfully from bankruptcy[,]" or causing "the parties ... to enter into renewed negotiations, casting uncertainty over [the debtor's] operations ...." Id.
iv. Balance of the Equities
"The test for mootness reflects a court's concern for striking the proper balance between the equitable considerations of finality and good faith reliance on a judgment and the competing interests that underlie the right of a party to seek review of a bankruptcy court order adversely affecting him." In re Club Assocs. , 956 F.2d at 1069. Having carefully considered each of the aforementioned factors, the balance of equities weighs in favor of equitable mootness. The Confirmed Plan took effect more than a year and a half ago. During this time, the Rissell Trust did not once attempt to stay any portion of the Confirmed Plan nor did the Rissell Trust request to expedite its appeal. Because of this, the Confirmed Plan proceeded as expected. To date, the Reorganized Debtor has reissued stock, made monthly payments to impaired creditors in accordance with the Confirmed Plan, sold a piece of its property after executing an option authorized by the bankruptcy court, and assumed various other leases in accordance with the Confirmed Plan. In addition, the relief sought by the Rissell Trust would cut the heart out of the reorganization. Management stability through the issuance of nonvoting stock motivated all creditors to vote in favor of the Confirmed Plan. If the Court provided the Rissell Trust with voting shares, it would surely have devastating consequences on the Reorganized Debtor and likely place the Reorganized Debtor back into a position of uncertainty and instability. Therefore, the Court cannot provide effective judicial relief and must find this appeal equitably moot.
CONCLUSION
For the reasons stated herein, it is hereby
ORDERED AND ADJUDGED that the appeal is DISMISSED as equitably moot and the Court need not reach the merits of this action. The Clerk is directed to CLOSE this case. Any pending motions are DENIED as moot .
DONE AND ORDERED in Fort Lauderdale, Florida, this 25th day of March, 2020.