Opinion
CIVIL ACTION NO: 03-521, BANKRUPTCY NO: 02-16708, SECTION: "J"(2)
August 19, 2003
ORDER AND REASONS
Before the Court is Debtor/Appellant Cheryl Ann Mendy's ("Mendy") appeal from a final order of the United States Bankruptcy Court for the Eastern District of Louisiana making certain findings and dismissing her voluntary Chapter 13 petition pursuant to 11 U.S.C. § 109(e). Mendy has filed an appellant's brief in support. See Rec. Doc. 10. Creditor/Appellee Hibernia National Bank ("Hibernia") has filed an appellee's brief in opposition to Mendy's appeal. See Rec. Doc. 12. In its brief, Hibernia argues that Mendy's appeal of the dismissal of her Chapter 13 petition is moot because she and her husband have subsequently filed a voluntary Chapter 11 petition which has recently been voluntarily converted to a Chapter 7 petition. Hibernia essentially contends that Mendy has elected to have her property rights be addressed in a Chapter 7 proceeding, instead of a Chapter 13 proceeding. Upon consideration of the briefs submitted by counsel, the record, and the applicable law, the Court concludes that the instant appeal should be dismissed as moot since Mendy has voluntarily chosen to proceed under Chapter 7 instead of exhausting her appeal rights in the Chapter 13 proceeding.
Hibernia has also filed a cross-appeal arguing that the bankruptcy court made several erroneous findings in its order dismissing Mendy's Chapter 13 petition. See Rec. Doc. 13. Mendy has not filed an cross-appelle's brief despite a July 28, 2002 deadline to do so. Neither party has addressed whether Hibernia's cross-appeal is also moot under the same line of analysis as that governing Mendy's appeal. However, the Court concludes that the same analysis governs and therefore Hibernia's cross-appeal should also be dismissed as moot.
Background
On September 15, 2002, Mendy filed a voluntary Chapter 13 bankruptcy petition pursuant to 11 U.S.C. § 101 et seq. in the United States Bankruptcy Court for the Eastern District of Louisiana. She subsequently filed a motion to strip excessive liens from her personal residence. On December 17, 2002, the bankruptcy court granted Mendy's motion and, as a result, held that she is ineligible to be a debtor under Chapter 13 because she has more noncontingent, liquidated, and unsecured debt than is allowed under 11 U.S.C. § 109(e). Accordingly, the bankruptcy court dismissed Mendy's Chapter 13 bankruptcy proceeding. Furthermore, in granting Mendy's motion, the bankruptcy court made several findings related to various Hibernia liens attached to Mendy's personal residence, as well as the applicability of the Louisiana Homestead Exemption to Mendy's indebtedness.
Mendy and her husband have been directly involved in four separate bankruptcy proceedings in the past two years. Her husband's two Chapter 13 proceedings have been dismissed by the bankruptcy court. Hibernia contends that Mendy Properties, L.L.C., which is owned by Mendy and her husband, has additionally filed for bankruptcy this past year.
Mendy filed a timely notice of appeal and moved the bankruptcy court for a stay pending the appeal. The bankruptcy court denied Mendy's request for a stay on the grounds that it would be unlikely that she would, prevail on her appeal and that there was no threat of irreparable harm. Hibernia also filed a timely notice of cross-appeal as to the lien and Homestead Exemption findings and then filed its cross-appellant's brief within this Court's imposed deadline.
On March 5, 2003, Mendy sought a stay from this Court which was subsequently denied, Mendy did not appeal the denial to the Fifth Circuit. Hibernia asserts that a foreclosure sale of Mendy's personal residence was then scheduled for April 17, 2003. On that date, Mendy and her husband filed a voluntary joint Chapter 11 petition pursuant to 11 U.S.C. § 1101 et seq. As a result, the foreclosure sale was automatically stayed. 11 U.S.C. § 362 (a). On June 4, 2003, the bankruptcy court entered an in rem order lifting the automatic stay against the personal residence itself, which is effective against the property regardless of the status of any other proceeding involving Mendy or her husband. On that same date, Mendy and her husband filed a motion to voluntarily convert their Chapter 11 petition to a Chapter 7 petition pursuant to 11 U.S.C. § 1112(a). This motion was granted by the bankruptcy court on June 16, 2003. Therefore, Mendy has elected to have the rights to her estate be addressed in a Chapter 7 proceeding.
Due to this separate and voluntary bankruptcy proceeding filed by Mendy, Hibernia argues that her appeal of the bankruptcy court's dismissal of her Chapter 13 petition is moot. Hibernia contends that Mendy cannot be a debtor in a voluntary Chapter 7 proceeding, while at the same time seeking to be a debtor in a voluntary Chapter 13 proceeding. According to Hibernia, Mendy's actions in filing a voluntary Chapter 11 petition and subsequently converting it to a Chapter 7 petition override her prior appeal of the dismissal of her Chapter 13 petition. In her appellant's brief, Mendy requested the Court allow her to convert the Chapter 13 proceeding to a Chapter 11 proceeding should the Court affirm the bankruptcy court's findings. Thus, Hibernia argues that by proceeding with her Chapter 7 petition, Mendy has essentially received the relief that she requested in her appeal. Mendy has failed to file any brief replying to Hibernia's mootness argument despite a July 28, 2002 deadline to do so. Neither side has addressed whether Hibernia's cross-appeal is also moot.
Discussion
The Court has been unable to discover any governing statutory or jurisprudential authority directly on point on the mootness issue. The United States Court of Appeals for the Fifth Circuit has commented that "[g]enerally, the mootness inquiry centers upon the concern that only live cases or controversies be decided by our courts." In re Manges, 29 F.3d 1034, 1038 (5th Cir. 1994). "A controversy becomes moot in the traditional sense when, as a result of intervening circumstances, there are no longer adverse parties with sufficient interests to maintain the litigation." Id. However, the Fifth Circuit has employed a unique definition of mootness in the bankruptcy context separate from the traditional Article III definition. Id. at 1038-39. In a bankruptcy proceeding, mootness "is a recognition by the appellate courts that there is a point beyond which they cannot order fundamental changes in reorganization actions", even if "there may still be a viable dispute between the parties on appeal." Id. at 1039.
Although not directly on point and binding, courts have addressed issues sufficiently analogous to the issue before this Court to be persuasive authority. In In re Robinson , 294 B.R. 198, 2003 WL 1442465 (10th Cir. B.A.P. 2003), the United States Bankruptcy Appellate Panel of the Tenth Circuit dealt with a creditor's appeal of a bankruptcy court judgment dismissing a debtor's voluntary Chapter 13 petition. Some time after the dismissal, the debtor voluntarily filed a second bankruptcy petition, this time under Chapter 7. 2003 WL 1442465 at *1. The appellate panel was required to address whether the debtor's filing of the Chapter 7 petition mooted the creditor's appeal of the dismissal of the Chapter 13 proceeding. Id. at *2. In deciding the issue, the panel stated that "[a bankruptcy] matter is moot if the issues presented are no longer live because [the panel is] incapable of rendering effective relief or restoring the parties to their original position, or the parties lack a legally cognizable interest in the outcome." Id. The panel held that the creditor's appeal was moot and therefore had to be dismissed. Id. In dismissing the appeal, the panel stressed that the bankruptcy court's dismissal order was not stayed, and thus the debtor was able to carry on his normal financial activities and the creditors were free to pursue their collection activities. Id. The panel believed that "[i]t would [have been] difficult, if not impossible, to undo . . . those activities" at the appellate stage. Id. However, most importantly, the panel noted that the debtor's subsequent filing of the voluntary Chapter 7 petition further complicated the panel's ability to restore the debtor and creditors "to the positions they occupied at the time the case was dismissed." Id. Accordingly, the appellate panel dismissed the creditor's appeal as moot. Id.
Furthermore, courts have consistently held that a "conversion of a bankruptcy proceeding from one chapter of the Bankruptcy Code to another generally obviates the need to further litigate the issues in the original proceeding, thereby mooting an appeal from the original proceeding." In re Campbell, 36 Fed. Appx. 388, 390, 2002 WL 1161024 at *1 (10th Cir. 2003). See also In re Roller, 999 F.2d 346, 347 (8th Cir. 1993); In re J.B. Lovell Corp., 876 F.2d 96, 99 (11th Cir. 1989); In re Technical Fabricators, Inc., 65 B.R. 197, 199 (S.D. Ala. 1986). This is so whether the conversion is voluntary or involuntary and whether the appellant is the debtor or the creditor. See In re Campbell, 36 Fed. Appx. at 390, 2002 WL 1161024 at *1 (where subsequent to the creditor's notice of appeal the debtor voluntarily converted the Chapter 13 petition to a Chapter 7 petition); In re Roller, 999 F.2d at 347 (where the bankruptcy court converted a voluntary Chapter 12 petition to a Chapter 7 petition while the debtor's appeal was pending); In re J.B. Lovell Corp., 876 F.2d at 98 (where subsequent to its notice of appeal the debtor voluntarily converted an involuntary Chapter 7 petition to a voluntary Chapter 11 petition).
In In re J.B. Lovell Corp., the Eleventh Circuit stressed that upon conversion, the debtor is "entitled to relief under the chapter to which the proceeding has been converted'". Id. (quoting In re Klein , 77 B.R. 203, 204 (N.D. Ill. 1987)). Conversion renders a debtor's appeal of rulings in the original proceeding moot "because the factual predicates of the appeal [are] no longer relevant." Id. Additionally, a debtor that converts a bankruptcy proceeding gives up his right to appeal because he has voluntarily chosen to pursue remedies under a new chapter rather than exhaust his options in the original proceeding. Id. at 99.
In the instant matter, Mendy has not technically converted her Chapter 13 petition to a Chapter 7 petition. The bankruptcy court dismissed her Chapter 13 petition, thus precluding her from converting her petition had she wanted to. Despite this, Mendy has now elected to file a separate Chapter 11 petition, which was recently converted to a Chapter 7 petition. Her new bankruptcy proceeding has been open for more than four months and the parties, including the trustee, have proceeded to litigate the many issues that have arisen under Chapters 11 and 7. Mendy and her husband have carried on their normal financial activities and their creditors are in the process of pursuing collection activities. Therefore, it is very difficult to see how this Court could begin to put the parties back to the position they were in at the time of the bankruptcy court's dismissal of the Chapter 13 petition.
lt is further difficult to see what remedy could be provided if this Court reached the merits of Mendy's appeal and concluded that the bankruptcy court erred in holding that Mendy failed to meet the requirements of a debtor under Chapter 13. This is so because the majority rule is that a debtor may not have simultaneous ongoing Chapter 7 and Chapter 13 proceedings. In re Turner, 207 B.R. 373, 378 (2d Cir. B.A.P. 1997). The rationale for this rule is that simultaneous proceedings are "contrary to the obvious contemplated function of the Bankruptcy Code to resolve the debtor's financial affairs by administration of a debtor's property as a single estate under a single chapter within the code.'" Id. (quoting In re Kosenka, 104 B.R. 40, 46 (Bankr. N.D. Ind. 1989). Therefore, it seems that the reinstitution of Mendy's Chapter 13 petition is almost impossible given the lack of a stay and subsequent litigation of a separate bankruptcy proceeding involving the same estate.
Mendy had the opportunity to exhaust her litigation options in the Chapter 13 proceeding. She could have appealed this Court's denial of her stay request. Instead, Mendy voluntarily elected to pursue remedies under another chapter of the Bankruptcy Code. Given those options, the Court should analogize her actions to that of a voluntary conversion. Under this analysis, the factual predicates of her appeal are no longer relevant. Her choice to pursue remedies under Chapters 11 and 7 obviates the need for further litigation of the issues unique to Chapter 13. In re J.B. Lovell Corp., 876 F.2d at 99. Therefore, Mendy's appeal is moot and should be dismissed. Hibernia's cross-appeal should also be dismissed because there is no longer a need to litigate the bankruptcy court's Chapter 13 findings in light of the separate and ongoing Chapter 7 proceeding. See In re Campbell, 36 Fed. Appx. at 390, 2002 WL 1161024 at *1 (dismissing as moot a creditor's appeal of a ruling in a Chapter 13 proceeding where the debtor voluntarily converted the proceeding to a Chapter 7 proceeding subsequent to the notice of appeal).
Conclusion
Accordingly;
It is HEREBY ORDERED that Debtor Cheryl Ann Mendy's appeal be dismissed as moot.
It is FURTHER ORDERED that Creditor Hibernia National Bank's appeal be dismissed as moot.