Argued and Submitted, San Francisco, California:
January 13, 2015.
Appeal from the United States District Court for the District of Arizona. D.C. Nos. 4:12-cv-00024-RCC, 4:12-cv-00121-RCC. Raner C. Collins, Chief District Judge, Presiding.
The panel reversed the district court's decision dismissing on equitable mootness grounds an appeal from the bankruptcy court's order confirming a Chapter 11 plan of reorganization.
The panel held that even though the plan had been implemented, a lender's colorable objections to the plan were not equitably moot because the lender had diligently sought a stay, and it would be possible to devise an equitable remedy to at least partially address the lender's objections without unfairly impacting third parties or entirely unraveling the plan. The panel remanded the case for further proceedings.
Dissenting, Judge M. Smith wrote that the district court's decision should be affirmed because the remedies the lender proposed would be grossly inequitable to a third-party investor and would surely jeopardize the reorganization.
David M. Neff (argued) and Eric E. Walker, Perkins Coie LLP, Chicago, Illinois, for Appellant.
Susan G. Boswell (argued), Quarles & Brady LLP, Tucson, Arizona; Kasey C. Nye, Mesch, Clark & Rothschild, Tucson, Arizona; E. King Poor, Quarles & Brady LLP, Chicago, Illinois, for Appellees.
Before: J. Clifford Wallace, Milan D. Smith, Jr., and Michelle T. Friedland, Circuit Judges. Opinion by Judge Friedland; Dissent by Judge Milan D. Smith, Jr.
FRIEDLAND, Circuit Judge:
We consider whether a lender that made colorable objections to a plan of reorganization in bankruptcy court and then diligently sought a stay in order to litigate those objections may obtain review of its objections on appeal even though the plan has been implemented. Because it would be possible to devise an equitable remedy to at least partially address the lender's objections without unfairly impacting third parties or entirely unraveling the plan, we hold that the lender's objections are not equitably moot and should be considered on appeal. We thus reverse the district court's decision dismissing the appeal on equitable mootness grounds and remand for further proceedings.
In 2007, five related entities acquired the Westin Hilton Head Resort and Spa and the Westin La Paloma Resort and Country Club. The five entities (collectively " Debtors" ) were: Transwest Hilton Head Property, LLC, and Transwest Tucson Property, LLC (collectively " Operating Debtors" ); Transwest Hilton Head II, LLC, and Transwest Tucson II, LLC (collectively " Mezzanine Debtors" ); and Transwest Resort Properties, Inc. (" Holding Company Debtor" ). The Holding Company Debtor was the sole owner of each of the Mezzanine Debtors. The Mezzanine Debtors, in turn, were each the sole owners of the Operating Debtors, which owned and operated the respective hotels.
The 2007 acquisition of the hotels was financed by two loans: first, a $209 million loan to the Operating Debtors secured by liens on the two hotels (the " mortgage loan" ); and, second, a $21.5 million loan to the Mezzanine Debtors secured by liens on the ownership interests in the Operating Debtors (the " mezzanine loan" ).
The Mezzanine Debtors and the Operating Debtors defaulted on the mezzanine and mortgage loans, respectively. In 2010, all five Debtors filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the District of Arizona. The bankruptcy cases for the five entities were jointly administered.
JPMCC 2007-C1 Grasslawn Lodging, LLC (" Lender" ), which had acquired the mortgage loan before the Debtors filed for bankruptcy, filed a proof of claim in the ...