United States Court of Appeals, Sixth Circuit
United States Court of Appeals, Sixth Circuit
United States Court of Appeals, Sixth Circuit
3d 1214
On Appeal from the United States District Court for the Eastern District
of Michigan
Sheldon S. Toll, (argued and briefed) Honigman, Miller, Schwartz &
Cohn, Detroit, MI, for 255 Park Plaza Associates Ltd. Partnership.
Robert D. Mollhagen (briefed), Howard & Howard, Bloomfield Hills, MI,
James H. Geary (argued), Howard & Howard, Lansing, MI, for First of
America Bank-Southeast Michigan, N.A.
William T. Burgess, Dickinson, Wright, Moon, Van Dusen & Freeman,
Bloomfield Hills, MI, Clifton R. Jessup, Jr. (argued and briefed), Dixon &
Dixon, Dallas, TX, for Connecticut General Life Insurance Company in
No. 95-1761.
Before: GUY, RYAN, and MOORE, Circuit Judges.
MOORE, J., delivered the opinion of the court, in which GUY and
RYAN, JJ., joined, with GUY, J. (p. 13), also delivering a separate
concurring opinion.
MOORE, Circuit Judge.
The debtor in this single-asset Chapter 11 bankruptcy case, 255 Park Plaza
Associates Limited Partnership ("Debtor"), and First of America Bank-Southeast Michigan, N.A. ("FOA"), a creditor of Debtor, appeal the decision of
the United States District Court for the Eastern District of Michigan, which
affirmed the decision of the United States Bankruptcy Court for the Eastern
District of Michigan. The bankruptcy court confirmed the plan of
reorganization submitted by Connecticut General Life Insurance Company
("Connecticut General") and denied confirmation of Debtor's plan. The
bankruptcy court also voided the claim of FOA for lack of consideration and
lack of a promise by Debtor to pay FOA. Because Debtor's and FOA's appeals
are moot, we dismiss the appeals for lack of jurisdiction.
I. Background
The bankruptcy court next confirmed Connecticut General's plan and denied
confirmation of Debtor's plan. Debtor then appealed to the district court,
alleging numerous deficiencies with Connecticut General's plan and
challenging the denial of its own plan as well as the denial of FOA's claim.
FOA also appealed, challenging the denial of its claim as well as the denial of
Debtor's plan. Simultaneous with its appeal to the district court, Debtor filed a
motion for a stay of the sale of the property pending appeal with the bankruptcy
court. The bankruptcy court denied this motion, finding that Debtor was not
likely to succeed on the merits of its appeal. Debtor appealed this ruling to the
district court, which concluded that "[t]here is no likelihood of success on the
merits of the appeal and no serious issue exists." Order Den. Mot. for Stay at 2;
J.A. at 71. Neither Debtor nor FOA appealed to the Sixth Circuit regarding this
order denying a stay. In fact, FOA never moved in any court for a stay of the
sale of the property. On April 24, 1994, pursuant to Connecticut General's plan,
the property in question was sold at an auction. While there were several
bidders at the auction, including both Connecticut General and Debtor,
Connecticut General was the highest, purchasing the property for $6.7 million.
On June 2, 1995, the district court issued its order that affirmed all of the
decisions of the bankruptcy court. It concluded the following: (1) Debtor's
appeal was not moot, because Michigan state law provided for a right of
redemption that had not elapsed yet; (2) because Connecticut General was an
undersecured creditor, its failure to disclose its legal fees did not violate 11
U.S.C. Section(s) 1129(a)(4); (3) Connecticut General did not act in bad faith
when it purchased claims prior to the vote on Debtor's plan; (4) FOA's claim
was properly disallowed; (5) Connecticut General's plan could properly be
silent on the issue of which taxes were to be paid by the liquidating trust; and
(6) Connecticut General's plan was capable of performance. District Ct. Order;
J.A. at 18-44.
Debtor has appealed conclusions (2), (3), (4), and (6), and FOA has appealed
conclusion (4). Debtor now also contends that because Connecticut General's
plan provided for the sale of the property, it improperly granted Connecticut
General a deficiency claim. In addition to contesting all of these arguments,
Connecticut General alleges that appellants' appeals are now moot. Because we
agree with Connecticut General that Debtor's and FOA's appeals are moot, we
10
11
The Ninth Circuit analyzed this question in depth and answered it in the
negative. In Algeran, Inc. v. Advance Ross Corp., 759 F.2d 1421 (9th Cir.
1985), the court recognized that under former Bankruptcy Rule 805, there was
no language that could potentially limit the application of bankruptcy's
mootness rule to trustees alone. Analyzing the relevance of the 1983
amendments to the Bankruptcy Code, the court stated:
13
In the revision of the Bankruptcy Code and Rules, former Rule 805 was
fragmented, and the mootness rule was incorporated into Section 363(m),
which deals only with conveyances by trustees. Thus the [prior codified
bankruptcy mootness rule] did not in its entirety survive the Code revision.
However, in view of the fact that the mootness rule was judicially established
before the 1976 amendment, and that the policies on which it is based are not
particular to conveyances by trustees as opposed to other parties, we hold that
the omission of the 1976 amendment from the new Code and Rules does not
abrogate the judicial mootness rule.
14
Id. at 1424. See also Miami Ctr. Ltd. Partnership, 838 F.2d at 1553
(recognizing the application in the Eleventh Circuit of the bankruptcy mootness
standard in situations other than transfers by a trustee under Section(s) 363(b)
or (c)). We agree with the Ninth and Eleventh Circuits. There is no principled
reason to distinguish between sales made by trustees and other sales in
bankruptcy. We thus conclude along with our sister circuits that bankruptcy's
mootness rule applies whenever a party in a bankruptcy proceeding fails to
obtain a stay from an order permitting the sale of a debtor's assets and is not
limited to conveyances by trustees.
15
16
17
18
19
The district court similarly agreed that there should not be an exception to the
bankruptcy mootness rule when the property is sold to a creditor who is a party
to the appeal; however, it nevertheless found that Michigan law created an
applicable exception. Because the property interests of parties in bankruptcy are
"created and defined by state law," Butner v. United States, 440 U.S. 48, 55
(1979), state law may provide exceptions to the bankruptcy mootness rule,
unless federal interests mandate different results. Two possible exceptions arise
either when real property is sold, subject to the right of redemption, to a
creditor, and when state law would otherwise permit the transaction to be set
aside. See Mann v. Alexander Dawson Inc. (In re Mann), 907 F.2d 923, 926
(9th Cir. 1990). In the instant case, the district court found that appellants'
appeals were not moot, because Michigan law allows a mortgagor to redeem
commercial property lawfully sold at any time within six months.2 See Mich.
Comp. Laws Section(s) 600.3240, 600.3140. But as Connecticut General points
out, the six-month window for redemption has long since closed, and, as a
result, no state-law exception exists.
20
The final requirement of bankruptcy's mootness rule is that the property must
have been purchased in good faith. To show lack of good faith, the debtor must
demonstrate that there was fraud or collusion between the purchaser and the
seller or the other bidders, or that the purchaser's actions constituted "an
Appellants do, however, allege that Connecticut General acted in bad faith in
purchasing the claims of the other creditors. While these allegations do not
seem to relate to the actual sale of the property, even if we were to decide that
the good-faith-purchaser requirement extends to these allegations, which we
decline to do today, appellants would lose on the merits here as well.
22
23
On request of a party in interest, and after notice and a hearing, the court may
designate any entity whose acceptance or rejection of such plan was not in good
faith, or was not solicited or procured in good faith or in accordance with the
provisions of this title.
24
Under this section, the court can disallow the vote of any creditor who acts in
bad faith in either voting or soliciting votes for or against a plan. As
Connecticut General voted all of the creditors' claims that it purchased against
Debtor's plan, appellants are arguing that these votes should have been
disallowed.
25
The Bankruptcy Code does not define the good-faith requirement in Section(s)
1126(e). The courts, however, have developed various well-reasoned
definitions. In Young v. Higbee Co., 324 U.S. 204 (1945), the Supreme Court
One who casts his vote with a purpose of coercing payment to him of more
than he might reasonably perceive as his fair share of the debtor's estate, does
not cast his vote in good faith.
27
....
28
. . . . A creditor may not cast his vote for an ulterior purpose and expect to have
it counted. Ulterior motives have been held to include "pure malice, strikes and
blackmail, and the purpose to destroy an enterprise in order to advance the
interests of a competing business."
29
Insinger Mach. Co. v. Federal Support Co. (In re Federal Support Co.), 859
F.2d 17, 19 (4th Cir. 1988) (citation omitted).
30
It is clear, however, that the Bankruptcy Code does not require "selfless
disinterest." In re Applegate Property, Ltd., 133 B.R. 827, 834 (Bankr. W.D.
Tex. 1991). Indeed, "the mere fact that a purchase of creditors' interests is for . .
. securing the approval or rejection of a plan does not of itself amount to `bad
faith.'" In re Allegheny Int'l, Inc., 118 B.R. 282, 289 (Bankr. W.D. Pa. 1990)
(alteration in original) (citation omitted). If bad faith could be found any time a
claim is purchased to block approval of a plan, there would be no incentive to
purchase claims. See In re Marin Town Ctr., 142 B.R. 374, 379 (Bankr. N.D.
Cal. 1992) ("Were this court to adopt Debtor's position [that bad faith exists
whenever claims are purchased to block approval of a plan], investors would
have little incentive to purchase claims from any creditor in bankruptcy.").
31
Appellants' first argument, that a plan proponent cannot also purchase claims of
creditors, is meritless. Nothing in the Bankruptcy Code or the case law suggests
such a rule. While a plan-proponent's purchase of votes may shed light on that
proponent's motive, whether bad faith exists can only be decided after an
analysis of the facts of each case. In this case, Connecticut General's actions do
not fall within any of the above-mentioned bad-faith definitions. Connecticut
General certainly did not take advantage of other creditors, since it offered to
purchase for full value the claims of all non-insider unsecured creditors.
Furthermore, there is no indication that it received more than its fair share from
the sale of the property. In fact, while other creditors were paid the full value of
their claims, Connecticut General was not.
32
33
For the foregoing reasons, we hold that appellants' appeals are moot. Therefore,
we DISMISS both appeals for lack of jurisdiction and VACATE the decision of
the district court.
34
35
I concur in the court's opinion, and would only add that had we reached the
merits of this case, I would have voted to affirm the district court.
The district court's order was issued on June 2, 1995, some thirteen months
after the sale of the property. Given this fact, it is not apparent, nor have the
parties advised us, why the district court relied on the six-month provision