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Emerald Equities LLC v. Sonoran Desert Land Investors LLC

United States District Court, D. Arizona

July 26, 2019

Emerald Equities LLC, et al., Appellants,
v.
Sonoran Desert Land Investors LLC, et al., Appellees.

          ORDER

          HONORABLE STEVEN P. LOGAN UNITED STATES DISTRICT JUDGE.

         Appellant Emerald Equities, LLC (“Emerald”) initiated this appeal of several orders issued by the U.S. Bankruptcy Court for the District of Arizona (the “Bankruptcy Court”). (Doc. 1) Appellant CPF Vaseo Associates, LLC (together with Emerald, the “Appellants”) initiated a separate appeal of the same Bankruptcy Court orders, and the two appeals were consolidated into one case before the Court. (Doc. 12) Sonoran Desert Land Investors, LLC, Gray Phoenix Desert Ridge II, LLC, East of Epicenter, LLC, Gray Phoenix Desert Ridge I, LLC, R.O.I. Properties, LLC, and Bruce Gray (collectively, the “Appellees”) have moved to dismiss this appeal (the “Motion”). (Docs. 15, 22) The Court's ruling is as follows.

         I. Background

         In May 2016, Epicenter Partners LLC and Gray Meyer Fannin LLC filed voluntary petitions for bankruptcy protection under Chapter 11 of the Bankruptcy Code. (Doc. 15 at 6) In July 2016, Sonoran Desert Land Investors, LLC, East of Epicenter, LLC, and Gray Phoenix Desert Ridge II, LLC filed voluntary petitions for bankruptcy protection under Chapter 11 of the Bankruptcy Code. (Doc. 15 at 7) The Bankruptcy Court jointly administered the cases. (Doc. 15 at 7)

         CPF Vaseo Associates, LLC (“CPF”) proposed a joint plan of reorganization (the “Plan”) which would create separate liquidating trusts for each group of debtors. (Doc. 15 at 7) The debtors would then sell their real estate assets and deposit the proceeds of those sales into the liquidating trusts in order to pay their creditors. (Doc. 15 at 7) Furthermore, Section 6.7 of the Plan contemplated that a certain piece of property (the “GBSRP I Property”) would be transferred to Emerald and that Emerald would have the opportunity to negotiate the price of the GBSRP I Property with the entity in charge of the liquidating trusts. (Doc. 21 at 4-5) On May 1, 2018, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Plan, and the effective date of the Plan was May 7, 2018. (Doc. 20 at 3) The Appellants did not contest confirmation of the Plan or Confirmation Order. (Doc. 15 at 8)

         On the effective date, the liquidating trusts were created, the debtors' property was transferred to the liquidating trusts, and a trustee (the “Trustee”) was appointed to administer the trusts.[1] (Doc. 20 at 3; Doc. 15 at 8) On May 7, 2018, CPF funded $8.2 million of exit financing as contemplated under the Plan. (Doc. 20 at 4) Section 8.9 of the Plan allowed the debtors to redeem the real property claimed by the liquidating trusts if certain conditions were satisfied. (Doc. 15 at 7) One of the conditions required that the debtors “satisfy all claims against either or both the May and July Debtor estates and the expenses of the [Trustee], ” meaning that the claims of all creditors would have to be paid in full before the debtors could redeem their property (Doc. 15 at 8; Doc. 20 at 3)

         Pursuant to the terms of the Plan, the Trustee informed the debtors of the deadline by which the debtors needed to satisfy all claims in order to redeem their property under Section 8.9 of the Plan. (Doc. 20 at 4) According to the Appellants, the Trustee informed the debtors that the payoff amount was approximately $61, 012, 635.73, and payment was due on August 17, 2018. (Doc. 20 4-5) According to the Appellants, the debtors then tried to negotiate a reduction in the amount due through deferring payments of secured claims and deferring other payments to creditors with the consent of those creditors. (Doc. 20 at 4) While the debtors were negotiating various deferred payments, the Trustee informed the debtors that any settlement would be required to include a payment of approximately $6, 380, 345.00 in undisputed claims. (Doc. 20 at 5) Through a series of negotiations between the Trustee and the debtors, the Trustee accepted a settlement payment of $1.8 million for the $6, 380, 345.00 of claims. (Doc. 20 at 5; Doc. 15 at 10)

         On August 17, 2018, the Trustee filed a motion with the Bankruptcy Court seeking approval of the $1.8 million settlement. (Doc. 15 at 9) The settlement motion did not address the GBSRP I Property. (Doc. 21 at 6) CPF objected to the settlement motion, and the Bankruptcy Court held a hearing on the motion on August 20, 2018. (Doc. 15 at 9; Doc. 20 at 6) Emerald filed its opposition to the settlement motion after the hearing, on August 21, 2018. (Doc. 20 at 6) On August 22, 2018, the Bankruptcy Court issued a signed minute entry entering its ruling in favor of the settlement motion; on August 23, 2018, the Bankruptcy Court issued an order (together with the signed minute entry, the “Settlement Order”) granting the settlement motion. (Doc. 15 at 9; Doc. 20 at 6)

         The transaction contemplated by the Settlement Order closed on August 24, 2018. (Doc. 15 at 10) On that date, the debtors transferred approximately $50, 608, 857.59 to the Trustee, which the Appellees argue was sufficient to pay all of the outstanding claims against the debtors in full. (Doc. 15 at 10) As a result of the settlement payment, the debtors were able to retain all of the property held in their respective liquidating trust. (Doc. 15 at 10) The Trustee also transferred the GBSRP I Property to the debtors, with the intention that the debtors negotiate with Emerald for the transfer of the property pursuant to Section 6.7 of the Plan. (Doc. 21 at 6-7) Also on August 24, 2018, the Trustee transferred payment to various creditors of the debtors to satisfy their claims. (Doc. 15 at 10)

         On that same day, CPF filed an application for a temporary restraining order and an emergency motion for a stay of the Settlement Order. (Doc. 15 at 10-11) Emerald filed a joinder to CPF's motion to stay and filed a separate motion for clarification[2] of the Settlement Order. (Doc. 15 at 11-12) On August 27, 2018, after a telephonic hearing, the Bankruptcy Court denied CPF's request for a temporary restraining order to prevent the closing of the Section 8.9 redemption transaction. (Doc. 15 at 12) The Bankruptcy Court granted Emerald's request for a temporary restraining order staying the Settlement Order's impact on the GBSRP I Property.[3] (Doc. 21 at 8)

         Emerald initiated this appeal seeking enforcement of Section 6.7 of the Plan; specifically, Emerald wants the GBSRP I Property returned to the Trustee so that the Trustee can transfer the property to Emerald. (Doc. 21 at 8) CPF initiated this appeal seeking reversal of the Settlement Order. (Doc. 20 at 15) The Appellees filed a notice seeking to have Emerald's appeal transferred to this Court and for CPF's appeal to be consolidated with Emerald's appeal. (Doc. 21 at 8) Emerald's appeal was transferred to the Court on December 6, 2018, and CPF's appeal was transferred to the Court on January 3, 2019. (Docs. 1, 12) The Appellees filed the Motion seeking dismissal of both appeals. (Doc. 15)

         II. Analysis

         The Appellees seek dismissal of this appeal, arguing (i) the Appellants lack standing to bring this appeal; (ii) this appeal is an impermissible attack on the Plan; and (iii) the appeal is equitably moot. (Doc. 15 at 2) Each issue will be addressed in turn.

         A. Appel ...


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