No._______ In The Supreme Court of the United States -------------------------------- C.O.P. COAL DEVELOPMENT COMPANY, Petitioner, v. KENNETH A. RUSHTON, Trustee, et al., Respondents. -------------------------------- On Petition For A Writ Of Certiorari To The United States Court Of Appeals For The Tenth Circuit -------------------------------- PETITION FOR A WRIT OF CERTIORARI -------------------------------- KIM R. WILSON Counsel of Record DAVID L. PINKSTON P. MATTHEW COX CHRISTOPHER W. DROUBAY SNOW, CHRISTENSEN & MARTINEAU 10 Exchange Place, 11 th Floor P.O. Box 45000 Salt Lake City, UT 84145-5000 801.521.9000 [email protected]
Transcript
No._______
In The
Supreme Court of the United States--------------------------------
C.O.P. COAL DEVELOPMENT COMPANY,
Petitioner,v.
KENNETH A. RUSHTON, Trustee, et al.,
Respondents.--------------------------------
On Petition For A Writ Of CertiorariTo The United States Court Of Appeals
For The Tenth Circuit--------------------------------
PETITION FOR A WRIT OF CERTIORARI
--------------------------------
KIM R. WILSON
Counsel of RecordDAVID L. PINKSTON
P. MATTHEW COX
CHRISTOPHER W. DROUBAY
SNOW, CHRISTENSEN & MARTINEAU
10 Exchange Place, 11th FloorP.O. Box 45000Salt Lake City, UT [email protected]
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QUESTIONS PRESENTED FOR REVIEW
In the Chapter 7 bankruptcy case of C.W. Min-ing Co. (“CWM”), the bankruptcy court interpreteda key provision of the Coal Operating Agreementbetween CWM and Petitioner, C.O.P. Coal Devel-opment Co. (“COP”). COP disagreed with the in-terpretation and appealed to the district court. Be-fore the issues were briefed, the bankruptcy trusteesold the assets of CWM, including the OperatingAgreement. The trustee and the buyer then movedthe district court, pursuant to 11 U.S.C. § 363(m),to dismiss the appeal as moot, which it did, eventhough COP had remedies available (against theestate, not the buyer) that did not affect the validi-ty of the sale. The United States Court of Appealsfor the Tenth Circuit affirmed.
COP and others also appealed the order ap-proving the sale, for the sole purpose of preservingtheir other appeals because several appeal issueswere incorporated into the Sale Order. Nothing inthat appeal sought to affect the validity of the saleitself. The appellants merely sought to prevent awaiver argument. But the district court dismissedthat appeal as moot, as well, and the Tenth Circuitaffirmed.
The question presented is:
Whether the Tenth Circuit erred and deprivedCOP of due process when it affirmed the dismissalof the appeals, as moot, when (a) COP was entitledto relief that did not affect the bankruptcy sale; and(b) the Trustee failed to carry his burden—as estab-lished by Tenth Circuit precedent—to prove thatsuch relief was “impossible”.
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PARTIES TO THE PROCEEDINGS
Petitioner, C.O.P. Coal Development Company,was the defendant and appellant, below.
Respondent, Kenneth A. Rushton, Trustee, isthe former Chapter 7 Trustee of the estate of CWM,and was the Plaintiff–Appellee, below.
Respondent, Rhino Energy LLC; Castle ValleyMining, LLC, were Appellees, below.
RULE 29.6 DISCLOSURE
COP is a Utah corporation. COP does not havea parent corporation, and no publicly held companyowns 10% or more of its stock.
STATEMENT OF THE CASE............................... 3
REASONS FOR GRANTING THEPETITION............................................................ 11
I. The Tenth Circuit Panel Opinion IsAt Odds With Prior EstablishedTenth Circuit Case Law.......................... 11
II. The Tenth Circuit Panel Opinion IsAt Odds With A Prior Tenth CircuitPanel Opinion In The SameUnderlying Bankruptcy Proceeding....... 13
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III. The Lower Courts Are Split On TheQuestion Of If And When 11 USC §363(M) Should Apply To An OrderThat Is Not A Sale Order........................ 17
IV. Dismissing The Appeals As MootDenied COP Due Process........................ 18
Bankruptcy Court Order .......................... App. 95
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TABLE OF AUTHORITIES
Page
CASES
Church of Scientology v. United States, 506U.S. 9, 113 S.Ct. 447 (1992) .............................15
Cinicola v. Scharffenberger, 248 F.3d 110(3rd Cir. 2001) ..................................................17
In re CW Mining, 641 F.3d 1235 (10th Cir.2011)..................................................2, 13, 15, 16
In re Filtercorp, Inc., 163 F.3d 570 (9th Cir.1998)..................................................................17
In re Propex, Inc., 432 B.R. 725(E.D.Tenn.2010) ...............................................16
In re Trism, Inc., 328 F.3d 1003 (8thCir.2003) ...........................................................12
In re Vlasek, 325 F.3d 955 (7th Cir. 2003) .............17
Miami Center Ltd. Partnership v. Bank ofNew York, 838 F.2d 1547(11th Cir.1998), (certiorari denied 109 S.Ct. 69,488 U.S. 823, 102 L.Ed.2d 46) .........................17
Osborn v. Durant Bank & Trust Co. (In reOsborn), 24 F.3d 1199 (10th Cir. 1994),abrogated in part on other grounds byEastman v. Union Pacific R.R. Co., 493F.3d 1151 (10th Cir. 2007) ........................passim
COP respectfully petitions this Court for a writof certiorari to review the judgment and opinion ofthe United States Court of Appeals for the TenthCircuit, in this matter.
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OPINIONS BELOW
The opinion of the Tenth Circuit, reported at740 F.3d 548 (10th Cir. 2014), is attached hereto inthe Appendix (“App.”), at App. 1. The decision ofthe district court is not published but is reprintedin the Appendix at App. 37.
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JURISDICTION
The court of appeals entered its judgment onJanuary 22, 2014. This Court has jurisdiction un-der 28 U.S.C. § 1254(1).
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CONSTITUTIONAL ANDSTATUTORY PROVISIONS
11 U.S.C. Section 363(m) provides as follows:
The reversal or modification on appeal of anauthorization under subsection (b) or (c) ofthis section of a sale or lease of propertydoes not affect the validity of a sale or leaseunder such authorization to an entity thatpurchased or leased such property in good
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faith, whether or not such entity knew ofthe pendency of the appeal, unless such au-thorization and such sale or lease werestayed pending appeal.
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INTRODUCTION
COP recognizes the importance of the finality ofbankruptcy sales, as embodied in the mootnessprovisions of 11 U.S.C. § 363(m). But it also relieson the well-established exception to that rule thatas long as the appellate court can provide some re-lief that does not affect the validity of the underly-ing bankruptcy sale, an appeal is not moot. See,e.g., Osborn v. Durant Bank & Trust Co. (In reOsborn), 24 F.3d 1199, 1203 (10th Cir. 1994).
This fundamental concept was misapplied—orbetter stated, “applied unevenly”—by the TenthCircuit in this case. In a prior appeal in this samebankruptcy case, COP argued that the OperatingAgreement had been terminated pre-petition andwas therefore not an asset of the estate. In re CWMining, 641 F.3d 1235 (10th Cir.2011), After thesale of the Operating Agreement, the Trusteemoved the Tenth Circuit to dismiss the appeal asmoot. One panel of the Tenth Circuit held that aslong as COP had the possibility of some monetaryor equitable relief that did not affect the sale, itsappeal was not moot. Id. at 1238-9. But in thepresent appeal, even though COP identified possi-ble relief that would not affect the sale, a differentpanel of the Tenth Circuit ruled that the presentappeal was moot. Same bankruptcy case, same
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agreement, same sale, same motion (nearly identi-cal, in fact), but different panel and different result.
The Tenth Circuit’s decision improperly splithairs between the two appeals and denied COP’spotential remedy in this appeal. This Court shouldreview the matter and reverse the lower court’s de-termination of mootness.
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STATEMENT OF THE CASE
The underlying bankruptcy case (District ofUtah, Case No. 08-20105) has been pending formore than six years. The docket of the case has ex-panded to more than 2,500 filings, and the Trusteehas filed more than 100 adversary proceedingsagainst COP and others. Given the duration andcomplexity of this case, there are many interrelatedfacts. COP provides only those facts that are rele-vant to the decision on which it now seeks review.
COP is the fee owner of certain real property inCarbon County, Utah. Located on that property isa coal mine known as the Bear Canyon Mine (the“Mine”). COP is also the fee owner of certain coalin the Mine and is also the lessee under federal coalleases, related to coal owned by the United States,Bureau of Land Management. (App. 5, App. 38.)In March 1997, COP and CWM entered into a CoalOperating Agreement (the “Operating Agreement”),whereby COP granted to CWM the right “to oper-ate and control” the Mine. (App. 38, App. 72.) Par-agraph 5 of the Operating Agreement contains a“Continuous Operations Clause” which requires
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CWM to “diligently and continuously operate” theMine “in a good and workmanlike manner and in amanner which will result in the ultimate maximumeconomic recovery of coal from the property.” Theinterpretation of this clause is significant as it re-lates to federal regulations.1 Paragraph 2 of theOperating Agreement also required CWM to paypercentage royalties to COP based on the coal thatCWM removed from the Mine. CWM later becamedelinquent on those royalty payments. (App. 32,App. 38, App. 70.)
On January 8, 2008, creditors filed an involun-tary Chapter 11 bankruptcy petition against CWMin the United States Bankruptcy Court for the Dis-trict of Utah. The case was later converted toChapter 7, and Kenneth A. Rushton was appointedas Chapter 7 Trustee (the “Trustee”).2 (App. 7,App. 37.) The Trustee then initiated multiple ad-versary proceedings against COP and others.Among many other issues, on May 5, 2009, COPtimely submitted a claim, asserting that the
1 See, e.g., 43 C.F.R. § 3481.1; see also, 43 C.F.R. § 3483.1,
(“Diligent development and continued operation require-ment,” requiring an “operator/lessee” to achieve and maintaindiligent development of Federal coal leases). The consequencefor failure to satisfy this obligation, including achieving andmaintaining diligence, is termination of the Federal coal leas-es. See 43 C.F.R. § 3483.2.
2 By Order, dated February 6, 2014, the bankruptcy court
converted the bankruptcy case back to Chapter 11. See OrderConverting this Case to a Case Under Chapter 11 and Ap-pointing a Chapter 11 Trustee, (Case no. 08-20105, doc. No.2456). Gary E. Jubber was appointed as Chapter 11 Trustee(Doc. No 2458).
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amount needed to cure CWM’s defaults under theOperating Agreement was nearly eleven milliondollars. (App. 39.) The Trustee filed an objection.On June 22, 2009, the Trustee also commenced anadversary proceeding, under case no. 09-2248 (“Ad-versary Proceeding 2248”), in which the Trustee ob-jected to COP’s cure claim. The Trustee alsosought, among other things, a judicial declarationas to the scope and meaning of the Continuous Op-erations Clause. (App. 39-40, App. 72-76.)
After numerous motions and a brief trial, onDecember 10, 2009, the bankruptcy court enteredan order, reducing COP’s cure claim to only$1,320,930.89. The court disallowed prejudgmentinterest and, instead, awarded attorney’s fees tothe Trustee, as a discovery sanction. (App. 39.)COP appealed to the United States District Courtfor the District of Utah. Pursuant to stipulation,all appeals related to the cure claim were consoli-dated before the district court into case no. 2-10-cv-00039 (“Appeal 39”).
After a subsequent trial in another adversaryproceeding, the bankruptcy court entered an orderon February 12, 2010, ruling on several additionalissues in Adversary Proceeding 2248, includingwhether COP violated the automatic stay, whetherthe Trustee should be permitted to offset COP’scure claim, whether or not the Trustee had stand-ing, and the interpretation of the Code of FederalRegulations in the context of the Coal OperatingAgreement (the “Offset Order”). The Offset Orderis reprinted in the Appendix at App. 96. The ac-companying Findings of Fact and Conclusions ofLaw are reprinted at App. 67.
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Specifically, in the Offset Order, the Bankrupt-cy Court interpreted the Continuous OperationsClause. Despite the fact that the bankruptcy courtfound that the Clause is not precisely parallel withthe Code of Federal Regulations, it ruled that itshould be defined and interpreted the same way.(App. 72-76.) Thus, on the Trustee’s suggestion,and in reliance upon the CFR, the BankruptcyCourt decided that the Continuous OperationsClause only requires the operator to mine 1% of itsrecoverable coal reserves each year on a three-yearrolling average. (App. 76.) COP had argued thatthe Clause should be interpreted much more broad-ly, consistent with the language of the clause andthe parties’ intent. (App. 72-76.) COP had also ar-gued that there was no need to even engage in theexercise of interpreting the Continuous OperationsClause at that point because of the lack of a truecase or controversy on that question. The bank-ruptcy court, however, rejected COP’s arguments.(App. 76.)
COP appealed the Offset Order to the DistrictCourt, Case No. 2:10-cv-00269 (“Appeal 269”), rais-ing two issues: (1) whether the bankruptcy courterred in determining that COP violated the auto-matic stay and incorrectly awarded damages andoffset based on that alleged violation; and (2)whether the bankruptcy court erred in its interpre-tation of the Continuous Operations Clause. (App.37-42.)
During the pendency of these appeals, on Au-gust 4, 2010, the Bankruptcy Court entered an or-der (the “Sale Order”), authorizing the sale of theMine Assets, including the Operating Agreement,
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to Rhino Energy, LLC and its affiliate, Castle Val-ley Mining, LLC (collectively “Rhino”). (See App.8.) That sale closed on August 25, 2010. The SaleOrder also incorporates the issues raised in Ap-peals 39 and 269. (App.41.) Specifically, the SaleOrder addresses the interpretation of the Continu-ous Operations Clause, as well as the right of theTrustee to offset any damages from supposed stayviolations against the Cure Claim. The Sale Orderalso specifically incorporates the amount of COP’sCure Claim and the time and manner in which it isto be paid. (App. 41.)
Because the Sale Order incorporates the otherOrders discussed herein—final orders that had al-ready been appealed—COP appealed the Sale Or-der, out of an abundance of caution, in order to pro-tect its rights in the other appeals, to the extentnecessary. (App. 35-36.) COP filed its Notice ofAppeal on August 18, 2010, and elected to havethat appeal heard in the District Court, case no.2:10-cv-00922 (“Appeal 922”). COP did not seek astay pending the appeal of the Sale Order becauseit was cost prohibitive.
After the Sale Order was entered, the Trusteemoved the District Court to dismiss Appeal 269 asmoot. This, despite the fact that no briefing hadactually occurred in Appeal 269. The Trustee ar-gued that the appeal of the automatic stay and off-set issues was premature and interlocutory, and heargued that the appeal of the interpretation of theContinuous Operations Clause was moot—under §363(m) and the doctrine of equitable mootness—because of the Sale Order. (App. 48-66.)
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In response, COP clarified that it did not seekto invalidate or affect the validity of the Sale Orderin Appeal 269. It simply sought to correct and re-verse the Bankruptcy Court’s incorrect interpreta-tion of the Continuous Operations Clause. Signifi-cantly, COP also stated that it had a possible mon-etary damage claim against the Estate for thedamages it would incur because of the incorrect in-terpretation, should COP prevail in Appeal 269.Such relief would have been feasible. Around thesame time, the Trustee had represented to thebankruptcy court, in a fee application, that theTrustee was holding undisbursed cash in theamount of $13,511,101.51. These funds would havebeen available to provide COP an effective reme-dy—with no impact whatsoever on the sale order—in the event it prevailed in Appeal 269.
Without the benefit of any briefing on the un-derlying merits of Appeal 269, and without oral ar-gument on the Motion to Dismiss, on June 7, 2012,the District Court entered its Memorandum Deci-sion, dated June 7, 2012, granting the Trustee’sMotion (App. 37.) COP appealed the decision to theTenth Circuit (Appeal No. 12-4112). (App. 1.)
Similarly, on October 15, 2010, the Trusteemoved to dismiss Appeal 922 as moot. As with Ap-peal 269, the parties had submitted no briefing onthe merits, at that point. In their objection, COPand the other appellants clarified that the appealwas not seeking to disrupt the Sale Order or affectits validity but rather to preserve the rights to pro-ceed independently with the other appeals. Otherparties appealed the Sale Order on different bases,and the Trustee moved to dismiss those appeals as
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well. The District Court subsequently consolidatedthe appeals of the Sale Order into case no. 2:10-cv-00920 (“Appeal 920”). (App. 35-36.)
In Appeal 920 the Trustee moved for dismissalon the basis of mootness, both statutory and equi-table. The District Court entered its MemorandumDecision on June 27, 2012, granting the Motion toDismiss. Despite the clarity of COP’s objection,however, the Memorandum Decision does not dis-cuss how the decision affects other appeals, such asAppeal 39. By Judgment entered June 28, 2012,the District Court dismissed Appeal 920. COP ap-pealed that determination to the 10th Circuit. (Ap-peal No. 12-4132).
The Tenth Circuit heard oral argument on ap-peals 12-4112 and 12-4132 (and other related ap-peals) on the same day. In its opinion, dated Janu-ary 22, 2014, the Tenth Circuit affirmed the dis-missal of both appeals on statutory mootnessgrounds under § 363(m). It declined to rule on theissue of equitable mootness. (See, generally, App. 1-36.) The Tenth Circuit ruled the appeals weremoot despite the fact that the purpose of the ap-peals was not to overturn, invalidate or otherwiseaffect the Sale Order. With respect to Appeal 12-4112, COP had identified potential remedies, spe-cifically monetary claims against the estate, whichwould have no affect on the validity of the sale.The Tenth Circuit was not satisfied with the way inwhich COP had raised that issue or explained itsclaims. In essence, the Tenth Circuit required COPto prove its entitlement to those equitable or mone-tary remedies in order to overcome the Motion toDismiss. (App. 32-35.)
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With respect to Appeal 12-4132, the Court pro-vided almost no guidance. The purpose of that Ap-peal is merely to ensure that COP’s other appeals—Appeal 269, Appeal 39, and any others that may beaffected—can proceed independently, on their mer-its, without need to even appeal the Sale Order.Despite upholding the District Court’s determina-tion of mootness, the Tenth Circuit never actuallyanswered that question with respect to any appealother than 269. (App. 35-36.) It is still unclearwhether it was necessary for COP to appeal theSale Order and what effect this dismissal has onthe other appeals.3
Finally, pursuant to Supreme Court Rule14.2(g)(ii), COP makes the following statementsconcerning the subject matter jurisdiction of thecourt below: the Trustee alleged that the bankrupt-cy court had jurisdiction over the adversary pro-ceedings, pursuant to 28 U.S.C. §§1334 and 157.COP appealed to the district court, which had ju-risdiction pursuant to 28 U.S.C. § 158(c)(1). TheTenth Circuit had jurisdiction over the appeal ofthe district court order, pursuant to 28 U.S.C. §158(d)(1).
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3 It should be noted that on January 28, 2013, the district
court entered its Memorandum Decision in Appeal 39, affirm-ing in part and remanding to the bankruptcy court for a de-termination as to prejudgment interest on COP’s cure claimand sanctions.
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REASONS FOR GRANTING THE PETITION
I. The Tenth Circuit Panel Opinion Is AtOdds With Prior Established Tenth Cir-cuit Case Law.
Section 363(m) of the Bankruptcy Code onlyapplies where the remedy sought on appeal is theoverturning or invalidation of a sale or lease underSection 363.
The text of Subsection 363(m) is set forthabove. Generally, it moots an appeal of a sale ofbankruptcy assets, absent a stay. The Tenth Cir-cuit has addressed the purpose and scope of Section363(m). See, e.g., Osborn v. Durant Bank & TrustCo. (In re Osborn), 24 F.3d 1199, 1203 (10th Cir.1994) abrogated in part on other grounds by East-man v. Union Pacific R.R. Co., 493 F.3d 1151, 1156(10th Cir. 2007).
In In re Osborn, debtors appealed the bank-ruptcy court’s rejection of their claim of a home-stead in real estate in Texas. During the appeal tothe district court, the bankruptcy court entered anorder authorizing the trustee to sell the Texasproperty. The Tenth Circuit explained that, “[b]yremoving those remedies that would affect the va-lidity of a sale to a good faith purchaser, § 363(m)moots some appeals, namely, those in cases wherethe only remedies available are those that affectthe validity of the sale.” Id. at 1203-04 (footnoteomitted). The Court continued: “In the context ofbankruptcy, any analysis of mootness must consid-er not only the remedies available under the Bank-
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ruptcy Code but also those that may be availableunder state law.” Id. at 1204.
The Tenth Circuit ultimately agreed with thepetitioners and denied the motion to dismiss theirappeals as moot, explaining that state law mightafford some relief under constructive trust princi-ples. Id. In doing so, the Tenth Circuit directlyaddressed the scope and purpose of § 363(m):
In order to protect the public’s interest infinalizing bankruptcy sales to encouragebuyers to purchase the debtor’s property, toprevent injury to creditors, and to ensurethat adequate sources of financing aremade available, § 363(m) of the BankruptcyCode protects the validity of certain salesby the trustee from the potential conse-quences of an appeal, if the order authoriz-ing the sale is not stayed. Id. at 1203.
Other circuits agree. See In re Trism, Inc., 328F.3d 1003, 1006-07 (8th Cir.2003) (“[W]e have re-jected a per se rule “mooting appeals absent a stayof the sale ... at issue.” ... Instead, we require thesatisfaction of two conditions before an appeal be-comes moot under § 363(m): “(1) the underlyingsale or lease must not have been stayed on appeal,and (2) reversing or modifying the authorization tosell would affect the validity of the sale or lease.”).The Tenth Circuit’s holding in Osborn made it clearthat § 363(m) is not a blanket rule that effectivelymoots every appeal that bears any relation to anauthorized sale. Rather, only appeals that would“affect the validity” of the sale are rendered mootunder § 363(m).
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Notwithstanding its clear prior statements that§ 363(m) does not apply where the proposed reme-dies do not affect the validity of the sale, the TenthCircuit went beyond the mark in the present caseby examining the merits of the proposed remedies(and even the manner in which they were raised tothe district court), even though it was uncontestedthat such remedies would not affect the validity ofthe sale. (App. 32-35.) In essence, the Tenth Cir-cuit effectively shifted the burden of proof from theTrustee to COP to prove its remedies—in the lim-ited context of a Motion to Dismiss. As discussed inthe following section, that burden is clearly on theTrustee, claiming mootness. The Tenth Circuitthen applied § 363(m), even though it was uncon-tested that COP was not attempting to affect thevalidity of the sale. The Tenth Circuit’s holdingwas at odds with its own prior caselaw, as well asthe spirit and purpose of § 363(m). Once COP iden-tified potential remedies that did not affect the va-lidity of the sale, the § 363(m) inquiry should haveconcluded and the case should have been remandedso that COP could have established its remedies inthe proper venue and time.
II. The Tenth Circuit Panel Opinion Is AtOdds With A Prior Tenth Circuit PanelOpinion in the Same Underlying Bank-ruptcy Case.
The applicability and scope of § 363(m) has al-ready been addressed by a different panel of theTenth Circuit in a related appeal in the same bank-ruptcy case. In In re CW Mining, 641 F.3d 1235,1239 (10th Cir.2011), a different panel recognizedthat the purpose behind § 363(m) is “to protect the
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public’s interest in finalizing bankruptcy sales . . . ,to prevent injury to creditors, and to insure thatadequate sources of financing remain available, . ..” and then reasoned that even though § 363(m)“forecloses any remedy . . . that would affect the va-lidity of the trustee’s sale, . . . it does not pre-clude a remedy that would not affect the va-lidity of the sale. [Emphasis added.]
That opinion stemmed from an appeal of a rul-ing from the Tenth Circuit Bankruptcy AppellatePanel, on an appeal taken from the CWM bank-ruptcy case. There, the Tenth Circuit was asked“whether the bankruptcy court correctly deter-mined that the [Operating Agreement] . . . wasproperty of the Debtor’s bankruptcy estate andcould therefore be assumed and sold by the trus-tee.” Id. 1236-37.
COP claimed that the agreement automaticallyterminated shortly after the bankruptcy petitionwas filed, “and that the bankruptcy court erred indetermining that the agreement was property ofthe estate.” Id. Like the appeals at issue here,during the previous appeal, the Trustee filed a mo-tion to dismiss, arguing, “that the appeal is nowmoot because the agreement has been sold from theestate.” Id. Significantly, the Trustee’s motion todismiss and related briefing in the previous appealare nearly identical to that in the present appeal.
In the previous appeal, as in the appeals at is-sue here, the Trustee suggested that the “appeal ismoot in light of § 363(m) because the agreementwas sold to a good faith purchaser, COP did notseek a stay of the Sale Order, and a ruling for COP
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in this appeal that the agreement was not propertyof the estate would affect the validity of the sale ofthe agreement to Rhino.” Id. at 1238. The panel ofthe Tenth Circuit in that case rejected such an ar-gument and held that “the burden of showingmootness is on the trustee, which here meansshowing that COP would not have [any] remedy.”Id. at 1239. Extensively citing from In re Osborn,that panel of the Tenth Circuit court explained that§ 363(m) “does not preclude a remedy that wouldnot affect the validity of the sale.” Id. In fact, theTenth Circuit explained that an appeal should onlybe dismissed as moot if the Trustee establishesthat “it is impossible for the court to grant anyeffectual relief whatever” that does not affect thevalidity of the sale. Id. citing Church of Scientologyv. United States, 506 U.S. 9, 113 S.Ct. 447 (1992)(emphasis added). See also In re Osborn, 24 F.3d at1203 (holding “that because it is not impossible forthe court to grant some measure of effective relief,the Osborns’ appeal is not moot”) (emphasis added).
In addressing appeals 12-4112 and 12-4132, theTenth Circuit panel apparently realized that its de-cision was at odds with the panel’s decision in theprior C.W. Mining case and, as such, attempted todistinguish the prior holding. The Tenth Circuitopinion stated that the procedural posture of thiscase was different than the posture of the priorcase:
We were not reviewing a lower court’s deci-sion on the merits of a motion to dismiss formootness . . . instead, we were reviewing amotion to dismiss the appeal in the first in-stance.
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(App. 14.) This is a distinction without a differ-ence. In the present case, COP was not affordedthe opportunity to file an opening brief (let alonehave the case remanded back to the BankruptcyCourt) where it could have raised whatever argu-ments it thought helpful to avoid mootness. To beconsistent with the prior panel decision, COPshould have been able to raise whatever argumentsit thought helpful to avoid mootness just as was thecase in the prior C.W. Mining case. Moreover, thecase should have been remanded so that COP couldhave addressed its remedies by way of principalbrief (and ultimately on remand in the BankruptcyCourt), rather than in the context of a prematureMotion to Dismiss. At a minimum, the fact thatCOP raised its possible remedies (albeit in a foot-note) should have been sufficient to signal to theCourt that COP did, in fact, have a remedy (even ifnot completely fleshed out) that would not violateor affect the sale. The time for “fleshing out” thatclaim would then come later, if Appeal 269 hadbeen successful and the case remanded back to thebankruptcy court. In reality, the claim would noteven arise until the district court reversed thebankruptcy court’s interpretation of the ContinuousOperations Clause of the Offset Order, which wouldthen mean that COP was entitled to some damagesfrom the estate because the improper interpreta-tion resulted in reduced royalties. But rather thanlet that claim develop in the “natural order” ofthings, the Tenth Circuit penalized COP for notpresenting that claim, full blown, and developed, inresponse to the motion to dismiss.
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Allowing the Tenth Circuit’s holding to standwould create conflicting case law within the TenthCircuit governing Section 363(m). This Court’sconstitutional supervisory powers are needed toclarify the issue for the Tenth Circuit and otherCourts.
III. The Lower Courts Are Split On TheQuestion Of If And When 11 USC § 363(M)Should Apply to an Order that is not aSale Order.
One of the key aspects of the present case isthat the underlying order—the Offset Order—is nota sale order at all. Thus, one question that is ad-dressed differently by lower courts throughout thecountry, is whether—and how—to apply Section363(m) to orders that deal with an asset that is soldbut that are not the actual sale order.
For example, the United States District Courtfor the Eastern District of Tennessee determinedthat 11 U.S.C. § 363(m) did apply to an order thatthe debtor in possession (DIP) repay the loan wherethe “the sales and DIP payment order together con-stituted parts of a single sales transaction, for pur-poses of assessing mootness under [§ 363(m).]” Inre Propex, Inc., 432 B.R. 725 (E.D.Tenn.2010).
Other Courts have found that 11 U.S.C.§ 363(m) applies to appeals that are from an orderseparate from the sale order but only to the extentthat the appeal asks to overturn the sale order, seeIn re Vlasek, 325 F.3d 955 (7th Cir. 2003), or if thesubjects of the appeal were inextricably intertwinedwith the debtor’s sale of assets. See Cinicola v.
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Scharffenberger, 248 F.3d 110 (3d Cir. 2001); see al-so Miami Center Ltd. Partnership v. Bank of NewYork, 838 F.2d 1547(11th Cir. 1998) (cert. denied109 S. Ct. 69, 488 U.S. 823, 102 L.Ed.2d 46).
The Ninth Circuit has held that 11 USC §363(m) does not apply, even if the order is inter-twined with the final sale order, if substantial por-tions of the sales proceeds were undistributed andtherefore effective relief could be fashioned if theappeal were successful. See In re Filtercorp, Inc.,163 F.3d 570, 577-78 (9th Cir. 1998).
The present case illustrates the confusion overif, when and how § 363(m) should apply. Clarifica-tion from this Court will aid bankruptcy courts,trustees, and creditors.
IV. Dismissing The Appeals As Moot DeniedCOP Due Process.
The Tenth Circuit ruled that COP’s appealswere moot because COP failed to establish its en-tire claim for relief in response to a Motion to Dis-miss. Specifically, the Court placed the burden onCOP (when, in fact, it was properly on the Trustee)to establish that it would succeed on a “constructivetrust” theory or other equitable remedy. (App. 32-35.) The procedural posture of this holding is im-portant. The issues of constructive trust, equitableremedies, or monetary remedies were not yet fullydeveloped in the bankruptcy court at the time thecourt interpreted the “diligent and continuousclause”. But COP appealed the bankruptcy court’simproper interpretation of that clause, to prevent
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economic prejudice, as a party to the OperatingAgreement.
In response to the Trustee’s motion to dismissthe appeal in the district court, COP raised a num-ber of arguments, including its potential monetaryremedies against the estate, arising out of the in-correct interpretation of the clause (which interpre-tation had been championed, originally, by theTrustee). The district court recognized that COPraised that potential remedy but ignored it.
COP had already appealed the issue of the in-terpretation of the Continuous Operations Clauseto the district court at the time that the Sale Orderwas entered in the main bankruptcy case. COPshould have been allowed to brief the merits of theappeal to the district court and then, if the error inthe bankruptcy court interpretation was found,COP would have been afforded the opportunity topursue its equitable or monetary remedies againstthe estate.
COP was afforded no such opportunity, despitethe fact that the district court and Tenth Circuitrecognized that COP had raised such a remedy thatwould not disturb the validity of the underlyingbankruptcy sale. Instead, the Tenth Circuit tookissue with the sufficiency of how COP raised theargument; it was raised in a footnote in oppositionto the Trustee’s motion to dismiss, in the districtcourt, which according to the Tenth Circuit, wasnot enough, even though, as stated above, thatclaim would not even arise until, and only until, thedistrict court reversed the Offset Order. (App. 33-34.) Essentially, the Tenth Circuit required COP to
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affirmatively establish its right to equitable reliefin response to that Motion, rather than keeping theburden where it belonged—on the Trustee—toprove COP’s lack of available relief that would notaffect the validity of the sale. See Osborn v. DurantBank & Trust Co. (In re Osborn), 24 F.3d 1199,1203 (10th Cir. 1994). COP identified that possibleremedy. Requiring COP to affirmatively prove itsentitlement to an equitable or monetary remedy,without the opportunity to brief the issue or devel-op it through discovery, turned the burden of thatissue on its head and deprived COP of due process
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CONCLUSION
The petition for a writ of certiorari should begranted.
Respectfully submitted,
KIM R. WILSON,
Counsel of Record
DAVID L. PINKSTON
P. MATTHEW COX
CHRISTOPHER W. DROUBAY
SNOW, CHRISTENSEN & MARTINEAU
10 Exchange Place, 11th FloorP.O. Box 45000Salt Lake City, UT [email protected]
