Opinion
NOT FOR PUBLICATION
Argued and Submitted at San Francisco, California, March 24, 2006
Appeal from the United States Bankruptcy Court for the Northern District of California. Bk. No. 04-53874. Honorable Arthur S. Weissbrodt, Bankruptcy Judge, Presiding.
Before: BRANDT, RYAN[ and KLEIN, Bankruptcy Judges.
Hon. John E. Ryan, United States Bankruptcy Judge for the Central District of California, sitting by designation.
MEMORANDUM
The bankruptcy court granted debtor's motion for limited relief from the automatic stay of § 362 of the Bankruptcy Code to pursue certification of an interlocutory appeal of an adverse district court ruling in federal patent litigation. Appellants then moved for limited relief from stay to pursue concurrently their motion for terminating sanctions for debtor's alleged discovery abuses in the same litigation. The bankruptcy court denied the motion without prejudice, primarily because debtor did not at that time have counsel to defend the sanctions motion. This appeal ensued.
Absent contrary indication, all " Code, " chapter and section references are to the Bankruptcy Code, 11 U.S.C. § § 101-1330 prior to its amendment by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, 119 Stat. 23, as the case from which the adversary proceeding and these appeals arise was filed before its effective date (generally 17 October 2005).
We conclude that the appeal is moot, and dismiss it.
I. FACTS
In July 2003 Excel Innovations, Inc. filed a federal patent infringement suit against Indivos Corporation and Solidus Networks, Inc. in U.S. District Court for the Northern District of California (the " Litigation"). Appellants counterclaimed against Excel, its principal, Ned Hoffman, and Hoffman's other corporation, Aviv LLC, for declaratory relief for patent ownership, and for patent infringement regarding the same 15 patents that are the subject of Excel's claims. Excel moved for partial summary judgment on the issue of ownership; Appellants cross-moved for partial summary judgment on the same issue.
After argument but before the district court issued its ruling, Appellants moved for terminating sanctions against Excel, Hoffman, Aviv, and their counsel, alleging that they had deliberately fabricated, altered, concealed and destroyed evidence and committed forgery and perjury. Appellants sought to dismiss Excel's claims, to strike Excel's answer to their counterclaims, and monetary damages.
On summary judgment, the district court ruled in favor of Appellants, determining that they own the patents at issue, but before the district court ruled on the sanctions motion, Excel, Hoffman, and Aviv filed bankruptcy petitions. Excel sought chapter 11 relief, listing as its primary asset the patents at issue in the Litigation, which it valued at $100 million. Upon receiving notice of the bankruptcy filings, the district court denied Appellants' motion for sanctions without prejudice.
Appellants moved to lift the stay to proceed with Litigation; in response, Excel requested limited relief to allow it to seek certification for an interlocutory appeal of the summary judgment. At the bankruptcy court's invitation, Excel filed a separate motion for relief from stay, which the bankruptcy court granted. Appellants sought review; we dismissed that appeal (BAP No. 05-1257) as moot, reasoning that relief from stay was not necessary to allow the debtor to pursue pre-petition litigation that would inure to the benefit of the bankruptcy estate. Rule 6009; Parker v. Bain, 68 F.3d 1131, 1138 (9th Cir. 1995).
In the meantime, Appellants moved for limited relief from stay to proceed with only that portion of their sanctions motion which sought dismissal of Excel's claims. Excel opposed, and the bankruptcy court denied the motion without prejudice. The bankruptcy court noted that debtor did not then have counsel who could defend the sanctions motion, and was concerned that lifting the stay would result in putting debtor to " death or potential death" because it could not adequately defend. Transcript, 2 June 2005, pages 3-4. The bankruptcy court rejected Appellants' argument that the sanctions issue should be decided first as it could potentially dispose of the case, and noted that Appellants had made the strategic decision to pursue the merits before filing their sanctions motion. Id. at 14-15. The court denied relief, without prejudice, on 21 June 2005, and Appellants timely appealed.
On 28 September 2005, the district court denied Excel's FRCP 54(b) certification motion, stating:
[E]quitable considerations do not weigh in favor of a partial judgment herein, given the very serious allegations raised in defendants' motion for terminating sanctions, which the Court is not permitted to address at this time due to the automatic stay of those proceedings against Excel, and which ultimately could result in the dismissal of plaintiff's infringement claims.
Order Denying Plaintiff's Motion for Reconsideration, USDC Case No. C-03-3125-MMC, page 3.
II. JURISDICTION
The bankruptcy court had jurisdiction via 28 U.S.C. § 1334 and § 157(b)(1) and (b)(2)(G), and we do, if at all, under 28 U.S.C. § 158(c).
III. ISSUES
1. Whether we should grant Appellants' request for judicial notice; and2. Whether the appeal should be dismissed for lack of jurisdiction as moot.
IV. DISCUSSION
A. Judicial Notice
On 10 January 2006 Appellants filed a Request for Judicial Notice, asking us to take notice of three orders entered in the Litigation: (1) the Notice of Reference; Order Denying Without Prejudice Defendants' Motions to Shorten Time & For Expedited Discovery; Order to Hold a Rule 26(f) Conference, entered 29 September 2003; (2) the Order Denying Without Prejudice Motion to Lift Stay and for Entry of Judgment Pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, entered 11 July 2005; and (3) the Order Denying Plaintiff's Motion for Reconsideration, entered 28 September 2005. In addition, Appellants request we take judicial notice of our own order dismissing No. NC-05-1257 as moot. These orders were not before the bankruptcy court when it ruled.
We will deny the motion as to our order, which adds nothing respecting the merits or the analysis of mootness in this appeal, and grant it as to the district court's orders, which are relevant to mootness, addressed below.
B. Jurisdiction
Although the parties have not questioned it, we must independently determine our jurisdiction. In re Aheong, 276 B.R. 233, 238-39 (9th Cir. BAP 2002).
1. Finality
An order granting or denying relief from stay is normally final and appealable. In re Cimarron Investors, 848 F.2d 974, 975 (9th Cir. 1988). Here, however, the denial was without prejudice, and in fact the bankruptcy judge indicated that he intends eventually to grant stay relief to Appellants. Transcript, 5 January 2005, page 9.
But an order denying relief from stay without prejudice may still be a final order. In In re CGE Shattuck, LLC, 255 B.R. 334, 336 (1st Cir. BAP 2000), the court held the order on appeal final because denying a motion for relief from stay was the equivalent of the imposing of a preliminary injunction, important rights of the parties might be preserved or dissipated, and there would be irreparable harm done while the stay remained in effect, nothing remained for the bankruptcy court to do, and any change of circumstances would provide a new, independent ground for relief. Similarly, the court in In re West Electronics, Inc., 852 F.2d 79, 82 (3d Cir. 1988), following a functional finality approach, deemed the order denying relief from stay without prejudice final because it was based on the bankruptcy court's rejection of movant's legal position, rather than an incomplete record, ongoing discovery, or a need for further research.
The Ninth Circuit follows a pragmatic approach to finality, emphasizing the need for immediate review rather than whether the order is technically interlocutory. A bankruptcy order is appealable if it " resolves and seriously affects substantive rights and . . . finally determines the discrete issue to which it is addressed." In re Frontier Properties, Inc., 979 F.2d 1358, 1363 (9th Cir. 1992) (citation omitted).
The order here appealed indefinitely prevents Appellants from pursuing their sanctions motion, thus resolving and seriously affecting substantive rights. To the extent the order implicitly determined that the relief they sought was prohibited by the automatic stay, it finally determined the discrete issue to which it was addressed. Accordingly, the order is final and appealable.
2. Mootness
But an appeal is moot when it is impossible to fashion effective relief. In re Gotcha Int'l, L.P., 311 B.R. 250, 253-54 (9th Cir. BAP 2004). Here, reversal of the order would accomplish nothing: the relief requested by Appellants is not prohibited by the automatic stay, which prohibits the continuation of judicial, administrative, or other proceedings relating to a pre-petition claim against the debtor, § 362(a)(1). But it does not prohibit the debtor from continuing to prosecute a pre-petition claim nor, generally, a defendant from defending against that claim: " The automatic stay should not tie the hands of a defendant while the plaintiff debtor is given free rein to litigate." In re Merrick, 175 B.R. 333, 338 (9th Cir. BAP 1994).
Of course, that an action was initiated by the debtor does not necessarily mean that it is entirely exempt from the automatic stay: where multiple claims and parties are involved, the litigation must be disaggregated to analyze which claims are subject to the stay. Parker, 68 F.3d at 1137; In re Miller, 397 F.3d 726, 731 (9th Cir. 2005). In Parker, the Ninth Circuit concluded that defendant's counterclaim for breach of fiduciary duty, conversion, fraud, and negligent misrepresentation were stayed because it was, from inception, an action against the debtor. 68 F.3d at 1137. In contrast, debtor's appeal from the dismissal of his claim against another defendant was not stayed, as it was " a claim by, not against, the debtor, and its successful prosecution would 'inure to the benefit of the bankruptcy estate.'" Id. at 1138 (citation omitted).
Here, the limited relief requested by Appellants in their terminating sanctions motion is not subject to the automatic stay. It seeks only dismissal of Excel's claims, and is a defense to those claims, the prosecution of which is not stayed. Merrick, 175 B.R. at 338. Our reversal of an order denying relief from the automatic stay to pursue a course of action which is not stayed would accomplish nothing: we cannot grant effective relief.
V. CONCLUSION
Treating the order on appeal as final, the issues raised in this appeal are nevertheless moot. Accordingly, we DISMISS the appeal.
All " Rule" references are to the Federal Rules of Bankruptcy Procedure, and all " FRCP" references are to the Federal Rules of Civil Procedure.