Opinion
1:22-CV-03482-ELR
2023-08-25
Payam KATEBIAN and Morteza Katebian, Appellants, v. Tamara Miles OGIER, Chapter 11 Trustee, et al., Appellees.
Maxwell William Bowen, Michael D. Robl, Robl Law Group, LLC, Tucker, GA, for Appellants. Tamara Miles Ogier, Decatur, GA, Appellee, pro se. William Lee Rothschild, Ogier, Rothschild & Rosenfeld, P.C., Sandy Springs, GA, for Appellee Tamara Miles Ogier. Joseph Kelsey Grodzicki, Richard John Capriola, Winter Capriola Zenner, LLC, Atlanta, GA, for Appellees 1590 Adamson, LLC, 1590 Adamson DIP, LLC. David Scott Weidenbaum, Office of the United States Attorney, Office of the United States Trustee, Atlanta, GA, for Trustee.
Maxwell William Bowen, Michael D. Robl, Robl Law Group, LLC, Tucker, GA, for Appellants. Tamara Miles Ogier, Decatur, GA, Appellee, pro se. William Lee Rothschild, Ogier, Rothschild & Rosenfeld, P.C., Sandy Springs, GA, for Appellee Tamara Miles Ogier. Joseph Kelsey Grodzicki, Richard John Capriola, Winter Capriola Zenner, LLC, Atlanta, GA, for Appellees 1590 Adamson, LLC, 1590 Adamson DIP, LLC. David Scott Weidenbaum, Office of the United States Attorney, Office of the United States Trustee, Atlanta, GA, for Trustee.
ORDER
Eleanor L. Ross, United States District Judge
Presently before the Court is Appellee Tamara Miles Ogier's ("Appellee Trustee") "Motion to Dismiss This Appeal" [Doc. 18] and "Motion to Take Judicial Notice or Alternatively to Supplement the Bankruptcy Record." [Doc. 19]. The Court sets out its reasoning and conclusions below.
I. Background
This consolidated appeal arises from a bankruptcy proceeding involving Debtor Morrow GA Investors, LLC. [See Doc. 2-1]. In 2019, Debtor obtained a commercial bridge loan from Greenlake Real Estate Fund LLC in the amount of $2,400,000.00 (the "Loan") to purchase property located at 1590 Adamson Parkway, Morrow, Georgia 30260 (the "Property"). [See Doc. 2-20 at 28]. Appellants Morteza and Payam Katebian (the "Katebian Appellants") are guarantors of the Loan. [See id.] In conjunction with the Loan, Debtor executed a "First Priority Deed to Secure Debt, Security Agreement, Assignment of Rents and Leases and Fixture Filing" with Greenlake by which Debtor pledged the Property as collateral to secure repayment of the Loan. [See id. at 58]. On January 31, 2021, the Loan matured. [See id. at 28]. When Debtor failed to repay the Loan in full, Greenlake initiated non-judicial foreclosure proceedings. See "Unsworn Declaration of Paul Diamon Pursuant to 28 U.S.C. § 1746" ¶¶ 11-12 [Doc. 2-2]. Soon thereafter, Greenlake assigned its interest in the Loan to Appellee 1590 Adamson, LLC ("Appellee Adamson"). [See Doc. 2-49 at 5-6].
The Court cites to documents from the Bankruptcy Court transmitted to this Court and filed on the docket in this case where available. Otherwise, the Court cites to the docket in the underlying bankruptcy proceeding and takes judicial notice of those filings. See United States v. Rey, 811 F.2d 1453, 1457 n.5 (11th Cir. 1987) ("A court may take judicial notice of its own records and the records of inferior courts."); LR 83.7(A), NDGa. ("Bankruptcy judges are judicial officers of this Court[.]"). Because Appellee Trustee's unopposed "Motion to Take Judicial Notice or Alternatively to Supplement the Bankruptcy Record" requests this same relief, the Court grants it. [See Docs. 19; 20 at 6 n.4 (noting that the Katebian Appellants do not oppose this motion)].
Subsequently, on July 31, 2021, Debtor filed its "Voluntary Petition for Non-Individuals Filing for Bankruptcy" in the United States Bankruptcy Court for the Northern District of Georgia (the "Bankruptcy Court") pursuant to 11 U.S.C. § 301, et seq. (the "Bankruptcy Code"). [Doc. 2-1]. Debtor's commencement of bankruptcy proceedings created a bankruptcy estate (the "Estate"). See 11 U.S.C. § 541(a). The Property makes up the vast bulk of Debtor's Estate. [See Doc. 2-1 at 8 (listing Debtor's assets as $5,500,000.00 in real property and $2,000.00 in personal property), 10 (representing that Debtor owns or has an interest in the Property worth $5,500,000.00)]. By an Order dated September 13, 2021, the Bankruptcy Court appointed Appellee Trustee to oversee the Estate as its Chapter 11 trustee pursuant to 11 U.S.C. § 1104. [See Doc. 2-6].
A Chapter 11 trustee, such as Appellant Trustee here, "has the statutory duty to protect and preserve the property of the estate for the purpose of maximizing a distribution to creditors" and "owes a fiduciary duty to each creditor of the estate." See In re Ngan Gung Rest., 254 B.R. 566, 577 (Bankr. S.D.N.Y. 2000); see also 11 U.S.C. §§ 704(a), 1106(a).
On September 14, 2021, Appellee Adamson filed proof of its secured claim in the amount of $4,698,270.21 for various debts owed to it by Debtor in relation to the Loan, including $2,400,000.00 in principal owed on the Loan; $240,000.00 for "late fees on acceleration"; $158,000.00 for "[p]rotective [a]dvance, cash infusion for borrower shortfall"; $497,475.46 for "[a]dditional advances and disbursements"; $547,929.75 in attorneys' fees; and $854,865.00 in interest. [See Doc. 2-20 at 24-27]. Debtor and Appellee Trustee lodged objections to Appellee Adamson's proof of secured claim. [See Docs. 2-7, 2-9, 2-17]. Following negotiations regarding Appellee Adamson's claim, on May 20, 2022, Appellee Trustee filed a "Motion to Approve Compromise, to Waive the 14 Day Requirement of F.R.B.P. 6004(h), and to Approve Employment of Broker." [Doc. 2-30]. By that motion, Appellee Trustee requested in relevant part that the Bankruptcy Court approve a compromise valuing Appellee Adamson's secured claim at $3,999,000.00 and permit Appellee Trustee to begin the process of selling the Property. [See id.] After the chiller in the heating, ventilation, and air conditioning ("HVAC") unit at the Property stopped working, Appellee Trustee filed a new motion on June 22, 2022, by which she sought the same relief as the May 20, 2022 motion, with the additional request that the Bankruptcy Court allow Appellee Trustee to obtain post-petition financing through an affiliate of Appellee Adamson in order to purchase a new HVAC chiller for the Property (the "Settlement Motion"). [See Doc. 2-34].
The next day—June 23, 2022—the Bankruptcy Court held a hearing at which it indicated that it would grant the Settlement Motion. [See Doc. 2-45 at 4-84:4-7]. On July 8, 2022, the Bankruptcy Court entered an interim Order approving the Settlement Motion, and, after a final hearing on that motion, entered a Final Order approving the same on August 23, 2022 (the "Settlement Order"). [See Docs. 2-36, 2-49]. In relevant part, the Settlement Order (1) provides Appellee Adamson a "legal, valid, binding, perfected, and enforceable first-position security interest in the Property" in the amount of $3,999,000.00; (2) permits Appellee Trustee to market the Property for no less than $3,999,000.00 and sell it following a motion, hearing, and approval by the Bankruptcy Court; and (3) allows Appellee Trustee to obtain financing of up to $1,500,000.00 from an affiliate of Appellee Adamson in order to purchase and install a new HVAC chiller for the Property. [See Docs. 18-1 at 3-4; 20 at 5-6]; [see also generally Doc. 2-49].
This security interest requires that proceeds from the sale of the Property first be used to satisfy Appellee Adamson's $3,999,000.00 claim. [See Doc. 2-30 at 10].
Shortly thereafter, on August 26, 2022, the Katebian Appellants filed their instant appeal of the Settlement Order to this Court. [See Doc. 1-1]. However, because no Party moved for a stay of the underlying bankruptcy proceedings during the pendency of the Katebian Appellants' appeal, Appellee Trustee pursued sale of the Property as authorized by the Settlement Order. On March 3, 2023, Appellee Trustee filed her "Motion for Entry of an Order (I) Authorizing the Sale of Debtor's Property Free and Clear of Liens, Claims, Interests, and Encumbrances[;] (II) Approving Omnibus Assumption and Assignment of Executory Contracts and Unexpired Leases[;] and (III) Granting Related Relief" (the "Sale Motion") requesting that the Bankruptcy Court approve sale of the Property to Appellee Adamson for $3,999,000.00. See Sale Motion, In re Morrow GA Investors, LLC, No. 21-55706-JRS ("Morrow Bankruptcy") (Bankr. N.D. Ga. Mar. 3, 2023), ECF No. 276. Following a hearing, the Bankruptcy Court granted the Sale Motion in an Order dated April 21, 2023 (the "Sale Order"). See Morrow Bankruptcy, No. 21-55706-JRS, slip op. (Bankr. N.D. Ga. Apr. 21, 2023). According to Appellee Trustee, the Katebian Appellants "through counsel attended the Sale Motion hearing," but did not object to that motion or appeal the Sale Order. [See Doc. 18-1 at 5]. On August 21, 2023, Appellee Trustee filed a "Report of Sale" indicating that sale of the Property had closed. See Report of Sale, Morrow Bankruptcy (Bankr. N.D. Ga. Aug. 21, 2023), ECF No. 323.
The Katebian Appellants previously filed a "Notice of Appeal" on July 22, 2022, with regard to the Bankruptcy Court's July 8, 2022 interim Settlement Order. See Notice of Appeal, Katebian v. Ogier, Civil Action No. 1:22-CV-02904-ELR (N.D. Ga. July 22, 2022), ECF No. 1. This Court consolidated that appeal with the instant appeal by an Order dated January 17, 2023. See Katebian, Civil Action No. 1:22-CV-02904-ELR, slip op. at 2-3 (N.D. Ga. Jan. 17, 2023).
Appellee Adamson bid on the Property via credit bid. See Sale Motion at 5, In re Morrow GA Investors, LLC, No. 21-55706-JRS (Bankr. N.D. Ga. Mar. 3, 2023), ECF No. 276. Pursuant to 11 U.S.C. § 363(k), the holder of a secured claim may "credit bid" at a sale of property subject to its lien conducted by a trustee and "offset such claim against the purchase price of such property." See 11 U.S.C. § 363(k). Put differently, a credit bid permits a lender "to bid for the property using the debt it is owed to offset the purchase price[.]" See RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. 639, 642, 132 S.Ct. 2065, 182 L.Ed.2d 967 (2012).
The Katebian Appellants premise their appeal on the following two (2) issues:
In their initial brief on the merits of this appeal, the Katebian Appellants raise a third issue regarding the Settlement Order's provision allowing the Property to be conveyed to a secured lender via a deed in lieu of foreclosure. [See Doc. 4 at 3]. However, in their response brief to Appellee Trustee's instant motion to dismiss, the Katebian Appellants represent that they "no longer intend to argue" this third issue. [See Doc. 20 at 8].
1. Whether it was error for the Bankruptcy Court to enter the [Settlement] Order[ ] when the [Settlement] Order provides that all of the real property owned by [Debtor] can be sold for a price below the appraised value of the [P]roperty, which would leave a loan deficiency negatively affecting [the Katebian Appellants].[See Doc. 4 at 3-4]. Following multiple stays in this case due to the Parties' attempted (and ultimately failed) mediation [see Docs. 7, 8, 9, 10, 11, 12], Appellee Trustee filed her present "Motion to Dismiss This Appeal" on May 12, 2023. [Doc. 18]. The Katebian Appellants oppose that motion. [Doc. 20]. Having been fully briefed, Appellee Trustee's motion is now ripe for the Court's review.
2. Whether it was error for the Bankruptcy Court to enter the [Settlement] Order, which approved a settlement between [Appellee] Trustee and [Appellee Adamson], when the [Settlement] Order provides that the Proof of Claim of [Appellee Adamson] would be allowed in an amount that exceeds amounts due under applicable law, applicable loan documents, and evidence submitted by the [P]arties.
II. Legal Standard
"In an appeal of a [b]ankruptcy [c]ourt decision, the district court sits as an appellate court of review." Arnall Golden Gregory LLP v. Stroud, Civil Action No. 1:18-CV-03755-LMM, 2019 WL 12529177, at *2 (N.D. Ga. Jan. 28, 2019). In its appellate capacity, a district court may "affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings." See FED. R. BANKR. P. 8013. The district court reviews findings of fact for clear error and legal conclusions de novo. See In re Nica Holdings, Inc., 810 F.3d 781, 786 (11th Cir. 2015); accord Bagwell v. Bank of Am., N.A., Civil Action No. 1:17-CV-00539-LMM, 2018 10149414, at *1 (N.D. Ga. Jan. 4, 2018).
III. Discussion
In her motion to dismiss this appeal, Appellee Trustee contends that the Katebian Appellants (1) lack standing and (2) their appeal is equitably moot. [See Doc. 18-1]. The Court assesses each of Appellee Trustee's arguments in turn.
A. Standing
Appellee Trustee first contends that the Katebian Appellants lack standing to bring the instant appeal. [See Doc. 18-1 at 7]. Specifically, Appellee Trustee argues that the Katebian Appellants cannot demonstrate an injury in fact because the Settlement Order is not a final judgment with preclusive effect. [See id. at 7-12]. In response, the Katebian Appellants argue that the Settlement Order's $3,999,000.00 valuation of Appellee Adamson's claim caused an injury to them because "if the Bankruptcy Court set the proper claim amount at a lower number, then the difference between the credit bid and the claim w[ould] go to the [E]state rather than [Appellee] Adamson." [See Doc. 20 at 9].
Similar to other federal appellate courts, the U.S. Court of Appeals for the Eleventh Circuit has adopted the "aggrieved person" standard to determine who has standing to appeal a bankruptcy court order. See In re Westwood Cmty. Two Ass'n, Inc., 293 F.3d 1332, 1335 (11th Cir. 2002). This test is more restrictive and difficult to satisfy than Article Ill's traditional injury in fact standing requirement. See In re Bay Circle Props., LLC, 955 F.3d 874, 879 (11th Cir. 2020); In re Abdo, 848 F. App'x 877, 879 (11th Cir. 2021). Pursuant to the "aggrieved person" standard, a person has standing to appeal a bankruptcy court order only where they are "directly and adversely affected pecuniarily by the order" such that it "diminishes their property, increases their burdens, or impairs their rights." See Bay Circle Props., 955 F.3d at 879; see also In re Vick, 233 F. App'x 897, 899 (11th Cir. 2007) (noting that standing to appeal a bankruptcy court order "is limited to persons with a financial stake in the order being appealed"). Moreover, "for a person to be aggrieved, the interest they seek to vindicate on appeal must be one that is protected or regulated by the Bankruptcy Code" and "further[s] the goals of bankruptcy." See In re Ernie Haire Ford, Inc., 764 F.3d 1321, 1326 (11th Cir. 2014).
The Court notes that neither Party provided authority or argument with regard to the "aggrieved person" standard. [See Docs. 18, 20, 21].
Because (1) standing in this context is more stringent than Article III's injury in fact standing requirement and (2) the Court finds that the Katebian Appellants satisfy the "aggrieved person" standard, the Court addresses the issue of standing with regard to the more exacting "aggrieved person" standard rather than Article Ill's injury in fact standard. See In re Abdo, 848 F. App'x 877, 879 (11th Cir. 2021) (reciting the Article III standing requirements before discussing the "aggrieved person" test as the standard to determine if an appellant has standing to appeal a bankruptcy court order and evaluating the appellant in that case pursuant to the "aggrieved person" test); Westwood Cmty. Two Ass'n, 293 F.3d at 1335 ("Bankruptcy's person aggrieved doctrine restricts standing more than Article III standing"); see also In re 22 Fiske Place, LLC, Nos. 22-1788, 22-1793, 2023 WL 4278189, at *3 (2d Cir. June 30, 2023) (noting that the "aggrieved person" standard "is more exacting than injury in fact under Article III").
Standing in the bankruptcy appeals context is more limited than Article III standing because "bankruptcy litigation . . . almost always involves the interests of persons who are not formally parties to the litigation" but who are "to some degree interested," and, therefore, "[e]fficient judicial administration requires that appellate review be limited to those persons whose interests are directly affected." See In re Fondiller, 707 F.2d 441, 443 (9th Cir. 1983); see also Ernie Haire Ford, 764 F.3d at 1326 ("the purpose of adopting this heightened standard was to ensure that the goals of bankruptcy were not derailed by a flood of appeals"); McGuirl v. White, 86 F.3d 1232, 1235 (D.C. Cir. 1996) (noting that courts limit standing to appeal bankruptcy court orders because "to do otherwise might overwhelm bankruptcy courts with claims by the many parties indirectly affected by bankruptcy court orders").
Pursuant to the "aggrieved person" standard, debtors generally do not have standing to appeal a bankruptcy court order because they lack a direct pecuniary interest in the proceedings, given that their "estate[ ] pass[es] on to a trustee in bankruptcy and because bankruptcy proceedings absolve debtors of any liability to creditors[.]" See McGuirl, 86 F.3d at 1234; see also, e.g., In re Andreuccetti, 975 F.2d 413, 417 (7th Cir. 1992) (collecting cases supporting that a "hopelessly insolvent debtor" generally does not have standing to appeal bankruptcy court orders because such orders do not diminish the debtor's property, increase his burdens, or detrimentally affect his rights given that he has "no pecuniary interest in the distribution of his assets among his creditors"). However, a debtor "who will have a surplus in their estate after the termination of bankruptcy proceedings will have appellate standing" because they may be "directly and adversely affected pecuniarily" by an order of the bankruptcy court. See McGuirl, 86 F.3d at 1234. Similarly, courts have found that shareholders of a debtor or corporate creditor lack standing because they only have an indirect, derivative interest given that they "have no immediate right to the surplus" and instead the "officers and directors[ ] will decide whether to retain the capital or distribute it[.]" See In re Cent. Ice Cream Co., 62 B.R. 357, 360 (N.D. Ill. 1986); see also Bay Circle Props., 955 F.3d at 879 (applying this principle to a member of a LLC).
Conversely, "creditors ordinarily have standing to appeal bankruptcy court orders that effect a disposition of estate property" because "that sort of order directly affects the funds available to meet their claims." See In re Ashford Hotels, Ltd., 235 B.R. 734, 738 (S.D.N.Y. 1999) (quoting In re Gucci, 126 F.3d 380, 388 (2d Cir. 1997)). Indeed, the "primary goal of the Bankruptcy Code in general . . . is to minimize the injury to creditors[.]" Ernie Haire Ford, 764 F.3d at 1326 (quoting In re LTV Steel Co., 560 F.3d 449, 454 (6th Cir. 2009)); accord In re Harwald Co., 497 F.2d 443, 444 (7th Cir. 1974) (noting that the Bankruptcy Code seeks to protect creditors as supported by the fact that "sale by public auction, where all interested parties can be brought together for open, competitive bidding, will result in the highest price which could be obtained on behalf of the creditors for the bankrupt's property.").
As an initial matter, for purposes of evaluating standing in the instant appeal, the Court considers the Katebian Appellants as creditors of the Estate because they are guarantors of the Loan. [See Doc. 2-20 at 28]; In re Ne. Contracting Co., 187 B.R. 420, 422 (Bankr. D. Conn. 1995) ("Generally, a guarantor is a 'creditor' in a debtor's bankruptcy estate by virtue of the guarantor's contingent right to payment from the debtor which will come to full fruition when the guarantor makes payment to the creditor under the guaranty giving the guarantor a claim recognized by the Bankruptcy Code."); In re Alfes, 709 F.3d 631, 636 (6th Cir. 2013) ("It is well-settled that when a debtor successfully obtains a discharge through bankruptcy, the guarantor holds a 'claim against the debtor, and as such, [is considered] a creditor' for purposes of the bankruptcy proceedings." (quoting United States v. Erkard, 200 B.R. 152, 154 (N.D. Ohio 1996))).
Upon review, the Court finds that the Katebian Appellants are "aggrieved persons" and, thus, that they possess standing to pursue the instant appeal. In relevant part, the Settlement Order values Appellee Adamson's secured claim at $3,999,000.00 and authorizes the Trustee to begin the process of selling the Property for no less than that amount. [See Doc. 2-49]. The Bankruptcy Court subsequently approved Appellee Trustee's Sale Motion by which she sought approval to sell the Property to Appellee Adamson via credit bid for $3,999,000.00. See Morrow Bankruptcy, No. 21-55706-JRS, slip op. (Bankr. N.D. Ga. Apr. 21, 2023). The valuation of Appellee Adamson's claim affected both the Property's minimum and actual sale price and, in turn, impacted what surplus might be left for the Estate to apportion amongst Debtor's creditors, including the Katebian Appellants. Put differently, if Appellee Adamson's secured claim was less than the Settlement Order's valuation—as the Katebian Appellants maintain it should be—then the sale of the Property might have resulted in excess funds for the Estate following resolution of Appellee Adamson's priority secured claim that would then flow to Debtor's creditors, including the Katebian Appellants.
Thus, the Settlement Order's valuation of Appellee Adamson's claim and the minimum bid for the Property necessarily affected the ability of the Katebian Appellants to receive payment from the Estate as one of Debtor's creditors. Therefore, because the Settlement Order directly pecuniarily affected the Katebian Appellants in that it diminished the value of their claim in the Estate by purportedly providing too high a valuation of Appellee Adamson's secured claim, the Court finds that the Katebian Appellants are "aggrieved persons" and have standing to pursue the instant appeal. See Westwood Cmty. Two Ass'n, 293 F.3d at 1335; Ashford Hotels, Ltd., 235 B.R. at 738; see also Kane v. Johns-Manville Corp., 843 F.2d 636, 642 (2d Cir. 1988) (finding that the appellant-creditor was a "person aggrieved" by a bankruptcy court order confirming a reorganization plan because that order "determine[d] the extent to which each creditor [was] to be paid," his recovery was "subject to the [estate] being sufficiently funded," and his "economic interests . . . [were] directly impaired"); Ernie Haire Ford, 764 F.3d at 1326 (noting that the "primary goal of the Bankruptcy Code in general . . . is to minimize the injury to creditors" (quoting LTV Steel, 560 F.3d at 454)).
Appellee Trustee's only argument in support of her motion to dismiss for lack of standing is that the Katebian Appellants did not sustain a cognizable injury because the Settlement Order "does not constitute a final decision on the merits" regarding Appellee Adamson's claim and has "no preclusive effect on future litigation." [See Doc. 18-1 at 7]. The Court finds this argument to be unsupported and unconvincing. Although Appellee Trustee repeatedly maintains that the Settlement Order is not a final decision on the merits and has no preclusive effect, she fails to provide any supporting authority or explanation for the critical assumption of her argument—that the Settlement Order must be a final decision with preclusive effect in order for the Katebian Appellants to demonstrate a cognizable injury or pecuniary damage for standing to pursue this appeal. Instead, the Court finds that the Settlement Order caused a pecuniary injury to the Katebian Appellants because, as they note in their response brief, "[i]f the Bankruptcy Court had fixed [Appellee] Adamson's claim at a lower amount[ ] and [Appellee] Adamson bid beyond that amount—which [it] has now done—there would have been a benefit to Debtor's creditors, including [the Katebian] Appellants." [See Doc. 20 at 10].
In her reply brief, Appellee Trustee does not respond to the Katebian Appellants' above contention or further press her standing argument. [See Doc. 21].
In sum, the Court finds that the Katebian Appellants have standing to pursue the instant appeal because they are "aggrieved persons." Accordingly, the Court denies Appellee Trustee's motion to dismiss on that basis.
B. Equitable Mootness
Next, Appellee Trustee contends that this appeal should be dismissed because it is equitably moot given that the "post-petition financing has been lent and spent" and that Appellee Trustee "has now completed the marketing [of the Property], chosen a winning bid, submitted that bid to the Bankruptcy Court through the Sale Motion, and received approval to close through its entry of the Sale Order." [See Doc. 18-1 at 15-17]. In response, the Katebian Appellants maintain that their appeal is not equitably moot because they "seek[ ] to obtain a determination of the proper claim amount of [Appellee] Adamson" and that the Court can still provide them the relief they seek because a lower valuation of Appellee Adamson's secured claim might result in an overbid for the Property, the excess funds of which would "go to [Appellee] Trustee to administer for the [E]state." [See Doc. 20 at 10-16].
The doctrine of equitable mootness is a creature of the judiciary. See Bennett v. Jefferson Cnty., 899 F.3d 1240, 1247 (11th Cir. 2018). Despite its name, equitable mootness "bears no relation to 'mootness.' Indeed, in an equitably moot appeal, the relief sought is the opposite of moot—the consequences of granting it would be so great that they are deemed inequitable." See In re City of Detroit, 838 F.3d 792, 806 (6th Cir. 2016) (Moore, J., dissenting); Bennett, 899 F.3d at 1247 (noting that equitable mootness "turns on equitable and prudential concerns which focus on whether it is reasonable to entertain the contentions of the parties challenging an order of the bankruptcy court" where "rulings have gone into effect and would be extremely burdensome . . . to undo"). Equitable mootness is a "discretionary doctrine that permits courts sitting in bankruptcy appeals to dismiss challenges . . . when effective relief would be impossible." See In re Bayou Shores SNF, LLC, 828 F.3d 1297, 1328 (11th Cir. 2016). The purpose of the doctrine is to avoid appellate decisions that "would knock the props out from under the authorization for every transaction that has taken place and create an unmanageable, uncontrollable situation for the [b]ankruptcy [c]ourt." See Mia. Ctr., Ltd. P'ship v. Bank of N.Y., 838 F.2d 1547, 1555 (11th Cir. 1988) (quoting In re Roberts Farms, Inc., 652 F.2d 793, 797 (9th Cir. 1981)); In re Citation Corp., 371 B.R. 518, 522 (N.D. Ala. 2007) (stating that equitable mootness is "grounded in the notion that, with the passage of time after a judgment in equity and implementation of that judgment, effective relief on appeal becomes impractical, imprudent, and therefore inequitable" (quoting MAC Panel Co. v. Va. Panel Corp., 283 F.3d 622, 624 (4th Cir. 2002))).
A determination of equitable mootness is fact-sensitive, and a court may consider a number of factors in making that that determination. See Bennett, 899 F.3d at 1248-49.
The facts will weigh in favor of finding equitable mootness when allowing an appeal to go forward will impinge upon actions taken to one's detriment in good faith reliance on a final and unstayed judgment . . . . The more substantially the party aggrieved by a judgment has allowed the egg of that judgment to be scrambled—the more that people have acted in ways that render inequitable the relief sought by the aggrieved party—the less likely [a court] will be to consider ordering anyone to countenance
the pains that attend any effort to unscramble the egg. The more complex a transaction (or a series of transactions) is, and the longer the time that has passed since the confirmation of the plan, the harder it will be to undo the past.
Conversely, if the relief sought does not undermine actions that may have been taken in reliance on the judgment, or if no such actions have been taken, then there will be no reason to conclude that an appeal is equitably moot. [Courts] are sensitive to the interests that underlie the right of a party to seek review of a bankruptcy court order adversely affecting him. Consequently, courts will be less likely to find an appeal equitably moot if the aggrieved party sought a stay (especially if it did so promptly), if a stay was unjustifiably denied or was justifiably not requested, or if appellate review was sought reasonably promptly.
Id. (cleaned up); see also In re Club Assocs., 956 F.2d 1065, 1069 n.11 (11th Cir. 1992) (noting factors to consider in evaluating equitable mootness such as whether the appellant obtained a stay pending appeal, the type of relief the appellant seeks, and the effect of such relief on third parties). In conducting the equitable mootness analysis, "[n]o 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, 810 F.3d 781, 786-87 (11th Cir. 2015). In sum, "[t]he 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." See Club Assocs., 956 F.2d at 1069.
Here, the Court finds that the Katebian Appellants' instant appeal is equitably moot for at least three (3) reasons. First, and most importantly, the Katebian Appellants did not obtain—or even request—a stay of the underlying bankruptcy proceedings pending their appeal of the Settlement Order. See FED R. BANKR P. 8007(a)-(b) (requiring a party to file a motion with either the bankruptcy court or the district court in order to obtain "a stay of a judgment, order, or decree of the bankruptcy court pending appeal"); Bennett, 899 F.3d at 1251 ("First, and critically, the ratepayers here have never asked any court to stay the implementation of the plan that the bankruptcy court confirmed"); 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 plan, but also whether we should provide such relief in light of fairness concerns" (emphasis in original)). Nor did the Katebian Appellants request that their appeal be expedited in light of the fact that the Settlement Order permitted Appellee Trustee to initiate the sale of the Property—the proceeds of which will make up almost the entirety of the Estate from which the Katebian Appellants seek to obtain payment—for no less than Appellee Adamson's disputed first priority secured claim. See FED. R. BANKR P. 8013(a)(2)(B) (permitting motions to expedite an appeal). Instead, despite knowing that proceeds from the sale of the Property (which could be and were equal to Appellee Adamson's disputed secured claim) would first be used to satisfy Appellee Adamson's priority secured claim, potentially leaving the Estate with few excess funds to pay to other creditors, the Katebian Appellants took no action to hasten this appeal, stay the underlying proceedings, or attempt to secure repayment. [See Docs. 2-30 at 10 (noting that proceeds from the sale would first be used to satisfy Appellee Adamson's claim); 2-49 at 6 (ordering that Appellee Adamson holds a "legal, valid, binding, perfected, and enforceable first-position security interest in the Property")]; In re Sanders, 341 B.R. 47, 52 (Bankr. N.D. Ala. 2006) ("Secured claims are first priority claims in bankruptcy cases." (quoting In re Perez, 339 B.R. 385, 408 (Bankr. S.D. Tex. 2006))).
Second, and related to the first reason, others have taken action in reliance on the minimum Property bid and Appellee Adamson's claim valuation since the Settlement Order's issuance one year ago. See Bennett, 899 F.3d at 1248-49 (noting that an appeal may be equitably moot where permitting it to go forward would "impinge upon actions taken to one's detriment in good faith reliance on a final and unstayed judgment"). The Settlement Order valued Appellee Adamson's claim at $3,999,000.00 and required that the Property be sold for no less than that amount. [See Doc. 2-49]. Appellee Adamson then bid the value of its secured claim via credit bid which the Bankruptcy Court accepted and approved. See Morrow Bankruptcy, No. 21-55706-JRS, slip op. (Bankr. N.D. Ga. Apr. 21, 2023). Appellee Adamson's credit bid for the Property, Appellee Trustee's Sale Motion contending that the credit bit should be accepted "in the best interests of the . . . [E]state[ ] and stakeholders," and the Bankruptcy Court's Sale Order approving sale of the Property to Appellee Adamson in the amount of its secured claim all relied on the value of Appellee Adamson's secured claim as set in the Settlement Order. See id.; see also Sale Motion, Morrow Bankruptcy (Bankr. N.D. Ga. Mar. 3, 2023), ECF No. 276. According to the Bankruptcy Court, Appellee Adamson's bid was the "highest and best offer for the Property" based on its current value and timely completion of the sale was paramount to "maximize the value . . . and preserve the viability of" the Property because "there is a risk of deterioration of the value of the Property[.]" See Morrow Bankruptcy, No. 21-55706-JRS, slip op. (Bankr. N.D. Ga. Apr. 21, 2023); [see also Doc. 2-34] (Appellee Trustee's Settlement Motion contending that "[a]ny valuation of a partly-filled office building in a post-Covid world of office space leasing is highly uncertain . . . . So absent [the compromise regarding Appellee Adamson's secured claim], [Appellee] Trustee could win the battle of the secured claim amount through a determination that the secured claim is much lower than [Appellee] Adamson asserts[ ] but lose the war because the [Property] brings a sale price even lower than that.").
Although they promptly initiated the instant appeal, the events of the intervening twelve (12) months and the Katebian Appellants' failure to act consistent with their appeal make it impracticable and inequitable for the Court to provide them the relief they seek. Indeed, in light of their appeal, the Katebian Appellants could have sought a stay of the Settlement Order or the Sale Order, objected to the Sale Motion, appealed the Sale Order, or expedited the present appeal. They did not. Instead, the Katebian Appellants allowed the underlying bankruptcy proceedings to move forward toward a nearly complete resolution—the approved and completed sale of practically the only asset in the Estate, the proceeds of which will almost entirely be used to satisfy Appellee Adamson's priority secured claim—in an effectively uncontested fashion. Put simply, in the year since they initiated this appeal, the Katebian Appellants have "allowed the egg of [the Settlement Order] to be scrambled," and the Court is therefore not inclined to "order[ ] anyone to countenance the pains that attend any effort to unscramble the egg." See Bennett, 899 F.3d at 1248-49, 1252 (reversing the district court and finding equitable mootness in part because the relief sought "would seriously undermine actions taken in reliance on the" bankruptcy court order); see also Musilino v. Ala. Marble Co., Inc., 534 B.R. 820, 830 (N.D. Ala. 2015) ("Courts are more inclined to invoke the doctrine of equitable mootness when . . . real property has been transferred as part of an approved Settlement Agreement").
Third, the Katebian Appellants' requested relief is incongruent with fundamental notions of equity and fairness. See Bennett, 899 F.3d at 1253 (discussing "equitable determinations based on notions of fairness"). "It is a principle in chancery[ ] that he who asks relief must have acted in good faith. The equitable powers of [a] court can never be exerted [o]n behalf of one who . . . [by] unfair means has gained an advantage. To aid a party in such a case would make [a] court the abett[o]r of iniquity." Bein v. Heath, 47 U.S. 228, 247, 6 How. 228, 12 L.Ed. 416 (1848). "A court of equity acts only when and as conscience commands; and, if the conduct of the plaintiff be offensive to the dictates of natural justice, then, whatever may be the rights he possesses, and whatever use he may make of them in a court of law, he will be held remediless in a court of equity." See Deweese v. Reinhard, 165 U.S. 386, 390, 17 S.Ct. 340, 41 L.Ed. 757 (1897); see also Carter-Jones Lumber Co. v. Dixie Distrib. Co., 166 F.3d 840, 846 (6th Cir. 1999) ("Federal courts are courts in law and in equity, and a court of equity has traditionally had the power to fashion any remedy deemed necessary and appropriate to do justice in a particular case.").
Here, the Katebian Appellants request that the Court remand this case to the Bankruptcy Court to reevaluate and lower Appellee Adamson's secured claim, potentially leaving the Estate with a surplus of funds from the sale of the Property to be distributed to Debtor's creditors. [See Doc. 20 at 12]. However, the Katebian Appellants do not seek to rescind the Sale Order; rather, they wish to hold Appellee Adamson to its $3,999,000.00 credit bid purchase of the Property while reducing Appellee Adamson's secured claim to create a deficit owed to the Estate. [See id. at 11-12, 16]. In their response brief, the Katebian Appellants make plain the relief they seek: "As an example, if [Appellee] Adamson's [secured] claim is fixed by the Bankruptcy Court—on remand—at $3,500,000[.00], rather than [the] $3,999,000[.00] approved in the [Settlement] Order, there would be $499,000[.00] available to the [E]state and its creditors." [See id. at 12]; [see also Doc. 18-1 at 3-4] ("[T]he Katebian[ Appellants] posit this set of relieving events: the District Court reverses the Settlement Order; the Bankruptcy Court then fixes the amount of [Appellee] Adamson's secured claim at less than its settlement amount of $3.999 million; and since that settled-on value is also the purchase price, and would remain so, [Appellee] Adamson would still be obligated to buy the Property for that price, but now must fork over the difference.").
Although the Katebian Appellants maintain in their response brief that they only wish to revise Appellee Adamson's claim as set in the Settlement Order rather than "overturn [Appellee] Adamson's bid or approval of the sale" [see Doc. 20 at 11], their instant appeal directly raises the issue of "[w]hether it was error for the Bankruptcy Court to enter the [Settlement] Order[ ] when the [Settlement] Order provides that all of the real property owned by [Debtor] can be sold for a price below the appraised value of the [P]roperty, which would leave a loan deficiency negatively affecting [the Katebian Appellants]." [See Doc. 4 at 3-4]. Given that the Property was sold for the minimum amount set in the Settlement Order and equal to Appellee Adamson's secured claim, it is unclear to the Court how this issue does not implicate "Appellee Adamson's bid or approval of the sale." Further complicating matters is the fact that any reversal or modification of Appellee Trustee's sale of the Property pursuant to 11 U.S.C. § 363(b) "does not affect the validity of [the] sale or lease . . . to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal[.]" See 11 U.S.C. § 363(m). The Katebian Appellants' inconsistent actions and arguments since initiating their appeal have created a legal thicket that they fail to clarify, further bolstering the Court's conclusion that equitable considerations weigh against granting the relief they seek. See Mia. Ctr., Ltd. P'ship, 838 F.2d at 1555 (noting that the purpose of equitable mootness is to avoid decisions on appeal that "would knock the props out from under the authorization for every transaction that has taken place and create an unmanageable, uncontrollable situation for the [b]ankruptcy[c]ourt"); [see also Doc. 21 at 7 n.3] ("[I]f a trustee cannot assure an adverse party that the normal federal rules of terms and finality apply to settlements, then the entire settlement process within bankruptcy courts is threatened.").
The Court finds that the Katebian Appellants' requested relief defies principles of equity. Holding Appellee Adamson to its credit bid purchase of the Property while retroactively reducing its related secured claim amount and requiring it to pay the difference would be antithetical to notions of fairness and "deprive the [P]arties of the benefit of the bargain to which they consented." See In re Hazan, 10 F.4th 1244, 1254 (11th Cir. 2021). The Katebian Appellants essentially request that the Court unilaterally impose new terms on Appellee Adamson, requiring it to purchase the Property in excess of its secured claim amount; pay the unanticipated, non-negotiable difference to the Estate; and create a windfall for the Estate and its creditors. Even the Katebian Appellants appear to recognize the inequity inherent in such a proposal. [See Doc. 20 at 14-15] (noting that "it is relatively uncommon for a creditor to bid more than the amount of its valid debt at a foreclosure sale" and supporting the Katebian Appellants' requested relief by only citing to a case in which a creditor was held liable where it "mistakenly submit[ted] a credit bid at a foreclosure sale in excess of the amount owed"). As Appellee Trustee argues, if the Court grants the Katebian Appellants' requested relief, Appellee Adamson will be required "to relitigate [the] ultimate cost of what it had already purchased" and be forced "into an open-ended element of risk as part of a settlement" to which it did not consent and cannot retreat from. [See Doc. 21 at 7]. The Katebian Appellants make almost no attempt to justify this untenable scheme, and the Court will not serve as an "abett[o]r of iniquity" by approving of it. See Bein, 47 U.S. at 247.
In sum, the Court concludes that the facts of this case weigh in favor of finding the Katebian Appellants' appeal to be equitably moot. See Bennett, 899 F.3d at 1251-53 (finding equitable mootness where the appellant did not request or obtain a stay, others had taken action in reliance on the unstayed bankruptcy court order, and because of "other equitable determinations based on notions of fairness"); In re Matos, 790 F.2d 864, 865-66 (11th Cir. 1986) (holding a bankruptcy appeal moot where the appellant did not move for a stay, the creditor foreclosed on the property, and the property was sold to the lender); In re Fisherman's Pier, Inc., 460 F. Supp. 3d 1345, 1357-58 (S.D. Fla. 2020) (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); Musilino, 534 B.R. at 834 (finding an appeal equitably moot because "if [a]ppellants were granted the relief that they seek and the court attempted to unwind all or part of the Settlement Agreement, the relief would undermine the reasonable expectations of the parties who carefully negotiated and relied on the deal"). As such, the Court dismisses the instant appeal.
IV. Conclusion
For the foregoing reasons, the Court GRANTS Appellee Trustee's "Motion to Take Judicial Notice or Alternatively to Supplement the Bankruptcy Record" [Doc. 19] and GRANTS IN PART AND DENIES IN PART her "Motion to Dismiss this Appeal." [Doc. 18]. Specifically, the Court GRANTS that motion with respect to the argument that the Katebian Appellants' appeal is equitably moot and DENIES the motion in all other respects. Accordingly, the Court DISMISSES this appeal and DIRECTS.
SO ORDERED, this 25th day of August, 2023.