In Green v. Nosek, No. 22-CV-972, 2022 WL 16857106 (Nov. 10, 2022), the U.S. District Court for the District of Minnesota dismissed an appeal of orders granting motions to sell real property and of orders denying a motion for reinstatement of the debtor as the possessor of those properties and for a related evidentiary hearing.
The debtor owned 15 residential rental properties. The debtor filed a chapter 11 bankruptcy petition in July 2021, and a subchapter V trustee was appointed. After the United States Trustee moved to remove the debtor from possession of the properties pursuant to 11 U.S.C. § 1185 and for the appointment of a trustee to assume the debtor’s duties, the subchapter V trustee was appointed to assume the debtor’s duties.
The sole shareholder of the debtor filed a motion for reinstatement or, in the alternative, for dismissal of the bankruptcy. The motion was denied. The shareholder then filed a second motion for reinstatement or, in the alternative, for dismissal (the “Second Reinstatement Motion”). The shareholder also filed a related motion requesting an evidentiary hearing (the “Evidentiary Hearing Motion”). The Second Reinstatement Motion and the Evidentiary Hearing Motion were both denied.
The subchapter V trustee assumed possession of the properties and began efforts to sell the properties. The subchapter V trustee entered into purchase agreements and filed motions to sell the assets free and clear of liens, claims, and encumbrances. When two of those motions (the “Motions to Sell”) were filed in March 2022, the shareholder did not file objections or appear at the related hearing. The court entered orders granting the Motions to Sell.
The shareholder filed an appeal of the orders granting the Motions to Sell and the orders denying the Second Reinstatement Motion and the Evidentiary Hearing Motion. He requested that the appeal be heard by the district court. Creditor Wilmington Trust N.A., which held liens on all 15 residential rental properties, moved to dismiss the shareholder’s appeal.
The district court first considered the appeal of the orders granting the Motions to Sell. Wilmington Trust argued that the shareholder had waived his right to appeal these orders when he failed to object to the underlying motions when they were before the bankruptcy court. The shareholder responded that he had objected to the relief in his appeals of prior orders granting motions to sell other properties. The district court found that though the shareholder had objected to two earlier motions to sell, he did not object to the Motions to Sell underlying the specific orders currently on appeal to the district court. Accordingly, the district court held that the shareholder had forfeited his right to appeal those specific orders.
The district court also held that the appeal of the orders granting the Motions to Sell was statutorily moot because the sales had been consummated. The shareholder had requested a stay of the sales pending his appeal, but that request had been denied. In addition, the shareholder had not alleged that the purchasers of the properties were not acting in good faith. Therefore, the district court held that the requirements for statutory mootness under 11 U.S.C. § 363(m) were met.
The district court next considered the shareholder’s appeal of the orders denying the Second Reinstatement Motion and the Evidentiary Hearing Motion. Wilmington Trust argued that the district court lacked jurisdiction over the appeal of those orders because the orders were not final orders. The district court agreed and found that both orders were interlocutory orders. Because the district court only has jurisdiction to hear appeals from interlocutory orders with leave of the court and because the shareholder had not sought leave to appeal those orders, the district court held that it lacked jurisdiction to hear the appeal.
Having held that the shareholder had forfeited his right to appeal the orders granting the Motions to Sell, that the appeal of the orders granting the Motion to Sell was statutorily moot, and that the district court did not have jurisdiction to hear the appeal of the orders denying the Second Reinstatement Motion and the Evidentiary Hearing Motion, the district court granted Wilmington Trust’s motion to dismiss and dismissed the appeal.
C.J. Harayda, Stinson LLP
David M. Tanabe, Winthrop & Weinstine, P.A.