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General Elec. Capital Corp. v. Torres Concrete Pumping Ser.

United States District Court, W.D. Texas
Apr 15, 2004
Civil Action No. SA-04-CA-56-XR, Bankruptcy Case No. 02-54645-LMC (W.D. Tex. Apr. 15, 2004)

Opinion

Civil Action No. SA-04-CA-56-XR, Bankruptcy Case No. 02-54645-LMC

April 15, 2004


ORDER ON MOTION TO DISMISS APPEAL AS MOOT


On this date, the Court considered Appellee Torres Concrete Pumping Service's Motion to Dismiss Appeal as Moot, filed February 17, 2004, and Appellant's Response, filed March 5, 2004. After careful consideration, the Court will grant the motion (docket no. 5) and dismiss the appeal as moot.

Facts and Procedural Background

Debtor Torres Concrete Pumping Services, Inc. filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code on September 27, 2002. Torres was a party to a number of leases for mack trucks and concrete pumps with GE, a creditor in the bankruptcy proceeding. GE filed a motion to compel assumption or rejection of the leases in the bankruptcy court, arguing that although Torres had failed to make payments under the leases, it retained possession of the trucks and pumps. On January 3, 2003, GE moved the bankruptcy court to require Torres to assume the leases and cure all pre- and post-petition defaults due under the leases or to deem the leases rejected and allow GE to recover the equipment. On March 17, 2003, based on an agreement by the parties, the Bankruptcy Judge entered an order on the motion that Torres would have until confirmation of its reorganization plan to assume or reject the GE leases with respect to three mack trucks with concrete pumps. Torres was also ordered to make payments continuing until the assumption or rejection of the three leases. With regard to a fourth truck, the Bankruptcy Judge ordered that Torres should treat GE's claims as to the lease as a financing transaction and should make monthly payments for a period of twenty-two months.

Debtor Torres filed its Second Amended Plan of Reorganization on April 7, 2003. Under the plan, Torres would assume three of the leases and treat the fourth lease as a secured transaction paid out over time. The plan proposed to cure arrearages due to GE on the first three leases by payment of $135,298.28. GE objected to the plan, asserting that the arrearages on the first three leases were in excess of $350,000, and objected to the proposal to limit GE's administrative claim.

On June 20, 2003, Debtor Torres filed a motion to assume executory leases of concrete pumps with GE and to cure pre- and post-petition arrearages. Torres proposed to assume the first three leases and to cure both the pre- and post-petition defaults and to exercise buy-out options at set prices. Torres alleged that assumption of the leases was in the best interest of the bankruptcy estate and of the creditors because the pumps are necessary for Torres to continue its business operations and to fund its plan.

The Bankruptcy Judge held a hearing on the Second Amended Plan and Torres's Motion to assume the leases on July 9, 2003. It confirmed the Second Amended Plan over GE's objection and Granted Torres's Motion to assume the leases, but did not issue orders to that effect. On August 27, 2003, GE filed a Motion to Modify Second Amended Plan of Reorganization, arguing that the motion to assume and the Second Amended Plan would severely prejudice GE and did not comply with 11 U.S.C. § 365(a), 365(b)(1) and 11 U.S.C. § 1129(a)(3) because they failed to provide for the prompt payment of the defaults under the October 7, 1998 lease agreement, they allowed the debtor to assume an expired lease; they contradicted the earlier agreed order with regard to lease number 4; they added terms to the October 7, 1998 lease agreement by unilaterally extending the lease term under the various equipment schedules; and they added terms to the October 7, 1998 lease by allowing Debtor to purchase the leased equipment at the end of the bankruptcy plan at set prices, despite the fact that the lease is a true lease and provides for a fair market value purchase or return at the end of the lease term. GE moved the bankruptcy court to modify the plan to provide for the surrender of the equipment under the expired lease term, prompt payment of arrearages, payments set forth in the March 18, 2003 agreed order, disallowance of the extended lease term, and disallowance of the exercise of the set price purchase options.

On August 28, 2003, the Bankruptcy Judge issued an Order Granting Motion to Assume Executory Leases, ordering that Torres would assume the first three leases, cure pre- and post-petition defaults, and exercise its buyout option on each lease. The Order included the Judge's finding that "the assumption of these leases is in the best interest of the estate and of the creditors" and the "pumps are necessary for Debtor to continue its business operations and to fund its plan." That same day, the Bankruptcy Judge issued an Order Confirming the Second Amended Plan of Reorganization, which essentially incorporated the order granting the motion to assume the executory leases. The Bankruptcy Judge held a hearing on October 8, 2003, at which it denied GE's Motion to Modify Second Amended Plan of Reorganization. The Judge issued his Order on November 4, 2003. GE timely filed its Notice of Appeal. In lieu of a response brief on the merits, Appellant filed the instant motion to dismiss, arguing that the appeal is moot because the plan of reorganization has been substantially consummated. This Court has jurisdiction over this appeal pursuant to 28 U.S.C. § 158(a).

Analysis

Appellee's motion to dismiss is premised on the doctrine of equitable mootness. Equitable mootness "is not an Article III inquiry as to whether a live controversy is presented; rather, it is a recognition by the appellate courts that there is a point beyond which they cannot order fundamental changes in reorganization actions." In re Manges, 29 F.3d 1034, 1038-39 (5th Cir. 1994). "Consequently, a reviewing court may decline to consider the merits of a confirmation order when there has been substantial consummation of the plan such that effective judicial relief is no longer available — even though there may still be a viable dispute between the parties on appeal." Id. at 1039 (citations omitted). To determine whether an appeal of a reorganization plan is moot, the Court evaluates three factors: (1) whether a stay has been obtained; (2) whether the plan has been substantially consummated; and (3) whether the relief requested would affect either the rights of parties not before the court or the success of the plan. In the Matter of GWI PCS 1 Inc., 230 F.3d 788, 800 (5th Cir. 2000). 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 order adversely affecting it. In re Manges, 29 F.3d at 1039.

The first question in a mootness inquiry is whether Appellant secured a stay to prevent execution of the reorganization plan. "The requirement of a stay encapsulates the fundamental bankruptcy policy of reliance on the finality of confirmation orders by the bankruptcy court." In re Berryman Prods., 159 F.3d 941, 944 (5th Cir. 1998). Failure to seek a stay is not "a censurable event to be punished by refusal to adjudicate the merits. . . ." In re Manges, 29 F.3d at 1040. Rather, the significance of an application for stay lies in the opportunity it affords to hold things in stasis, to prevent reliance upon the plan of reorganization while the appeal proceeds. Thus, the failure to seek a stay carries the risk that review might be precluded on mootness grounds. It is undisputed that Appellant did not seek or obtain a stay. Thus, this factor weighs in favor of dismissal for mootness.

The second question is whether the plan has been substantially consummated. The Fifth Circuit has adopted the bankruptcy code's "`substantial consummation'" yardstick because it informs the court's judgment as to when finality concerns and the reliance interests of third parties upon the plan as effectuated have become paramount to a resolution of the dispute between the parties on appeal." In re GWIPCS 1 Inc., 230 F.3d at 801 (quoting In re Manges, 29 F.3d at 1041). The standard requires only substantial consummation, not absolute or complete consummation. In re GWI PCS 1 Inc., 230 F.3d at 802. Torres contends that the plan has been substantially consummated and payments have been made on the assumed executory contracts. Appellant does not dispute Appellee's assertion that the plan has been substantially consummated. Thus, this factor also weighs in favor of a finding of mootness.

The third inquiry is whether the relief requested would affect either the rights of parties not before the court or the success of the plan. Although the plan has been substantially consummated, this "does not necessarily make it impossible or inequitable for an appellate court to grant effective relief." In re Manges, 29 F.3d at 1042-43. Rather, the court must evaluate the transactions that have occurred under the reorganization plan against the backdrop of relief sought by Appellants. In re GWI PCS 1 Inc., 230 F.3d at 802-3. In its appeal, GE challenges the Bankruptcy Judge's denial of its motion to modify the second amended plan of reorganization, its confirmation of the second amended plan, and its granting of Torres's motion to assume executory leases and cure pre- and post-petition arrearages. GE claims that the second amended plan violates the Bankruptcy Code and impermissibly divests GE of its interest in three trucks with concrete pumps and booms. GE asks the Court to reverse the Bankruptcy Judge's order denying the motion to modify and remand the case to the Bankruptcy Judge with directions to modify the plan of reorganization consistent with the Code. GE asks that Torres be allowed to assume the unexpired leases on the condition that the defaults be promptly cured and that the purchase options be struck from the plan of reorganization. GE further asks that Torres be directed to immediately deliver possession of the truck under the expired lease to GE.

Debtor Torres submitted the affidavit of its president, Christina Torres, stating that "If Torres Concrete Pumping Services, Inc. was required to pay the administrative claim and monthly payments requested by GE Capital in their two motions on appeal and/or return concrete pumps to GE Capital, Torres Concrete Pumping Services, Inc. could not pay other creditors under the plan and the plan would no longer be feasible. Torres Concrete Pumping Services, Inc. would then have to convert to Chapter 7 (if possible, since the case has been closed) and not pay any unsecured creditors or go out of business." Further, as noted, the Bankruptcy Judge's Order included the finding that "the assumption of these leases is in the best interest of the estate and of the creditors" and the "pumps are necessary for Debtor to continue its business operations and to fund its plan." Thus, the Court concludes that the relief requested by GE would substantially affect the success of the plan in that it would jeopardize fundamental aspects of the plan as approved by the bankruptcy court. Allowing Torres to lease and buy the pumps under the terms of the plan was essential to the plan and Torres's ability to reorganize and emerge from bankruptcy as a viable concern. To unravel the plan at this point would not only jeopardize but eviscerate the plan and thwart Torres's ability to reorganize.

GE argues that it seeks only a modification of the plan regarding the buy-out options, the return of one truck and pump, and timely cure of the assumed leases, and that Torres has not shown that this relief would affect third parties. However, a plan may not be modified or amended after substantial completion has taken place. 11 U.S.C. § 1127(b); In re Manges, 29 F.3d at 1043 n. 13. Thus, the plan would have to be unraveled and the parties returned to the status quo before confirmation. Although it is unclear whether the transactions that have taken place are reversible, even if they are, all other creditors have relied upon the plan, and GE's requested relief would diminish the estate's assets and correspondingly decrease the amounts available to all claimants. See In re Manges, 29 F.3d at 1043 n. 13 ("In light of the facts that the plan has been substantially consummated and that the tax provision is integral to the Plan as implemented, the requested modification is simply not possible."). The Court concludes that this factor also weighs in favor of dismissal for mootness.

Accordingly, the Court concludes that it would be inequitable for the Court to consider the merits of GE's appeal. The Court GRANTS Appellee's motion and DISMISSES THE APPEAL AS MOOT.


Summaries of

General Elec. Capital Corp. v. Torres Concrete Pumping Ser.

United States District Court, W.D. Texas
Apr 15, 2004
Civil Action No. SA-04-CA-56-XR, Bankruptcy Case No. 02-54645-LMC (W.D. Tex. Apr. 15, 2004)
Case details for

General Elec. Capital Corp. v. Torres Concrete Pumping Ser.

Case Details

Full title:GENERAL ELECTRIC CAPITAL CORP., Appellant, VS. TORRES CONCRETE PUMPING…

Court:United States District Court, W.D. Texas

Date published: Apr 15, 2004

Citations

Civil Action No. SA-04-CA-56-XR, Bankruptcy Case No. 02-54645-LMC (W.D. Tex. Apr. 15, 2004)