In re: ZCO Liquidating Corporation

Filing 21

MEMORANDUM ORDER remanding matter to the Bankruptcy Court with instructions to VACATE its November 10, 2014, Order Enforcing Automatic Stay (D.I. 1 -1) and DISMISS Appellee's Motion as Moot (***Civil Case Terminated). Signed by Judge Richard G. Andrews on 8/3/2015. (nms)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
Chapter 11
Bankruptcy Case No. 13-13126-LSS

In re: ZCO Liquidating Corporation (f/k/a/
Technology Group, Inc.),
Debtor.
Leo Jegen, Vincent M. Monnier, Shih Leng
Tan, and Len C. Villacres,
Appellants,

Civil Action No. 14-1448-RGA

v.
Liquidation Trustee of the ZCO Trust,
Appellee.

MEMORANDUM ORDER
At Wilmington on this

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day of August 2015, this matter before the Court on the

appeal of Leo Jegen, Vincent M. Monnier, Shih Leng Tan, and Len C. Villacres (D.I. 1) from the
November 10, 2014 Order of the United States Bankruptcy Court for the District of Delaware,
and having considered the parties' responses submitted to the Court's questions regarding
mootness (D.I. 17, 18, 20),
IT IS HEREBY ORDERED that:
1.

This matter is remanded to the Bankruptcy Court with instructions to VACATE

its November 10, 2014 Order Enforcing the Automatic Stay (D.I. 1-1) and DISMISS Appellee's
Motion (Bankr. Case No. 13-13126, D.I. 709) as MOOT.
Background. Appellants initiated a class action lawsuit in the United States District
Court for the Northern District of California against Debtor for alleged violations of the
Securities Exchange Act of 1934. (Id.,

at~

6; see In re OCZ Technology Group, Inc.

Shareholder Derivative Litigation, C.A. No. 12-cv-5556-RS). Debtor filed for chapter 11

bankruptcy relief on December 2, 2013, which stayed the class action under 11 U.S.C. § 362(a).
(D.1. 11, at p. 2). On July 30, 2014, the Bankruptcy Court confirmed Debtor's Plan of
Liquidation, which took effect on August 18, 2014. (D.I. 11, at if 19). On September 11, 2014,
Appellants filed a notice of voluntary dismissal of Debtor and a motion to approve a settlement
in the California Court. (Id., at ml 20-21; D.I. 13, at if 33). The Trustee, convinced that the§
362 automatic stay still remained in effect, filed a motion in the Bankruptcy Court to enforce the
stay and award damages against Appellants for violating the stay under 11 U.S.C. § 362(k).
(Bankr. Case No. 13-13126, D.I. 709). The Bankruptcy Court issued the November 10, 2014
Order staying the California securities class action for 120 days, but did not rule on the damages
issue. (D.1. 1-1, at 2-3). Appellants filed a timely notice of appeal from that Order in this Court.
(D.1. 1). The 120-day stay expired on March 10, 2015. The Court then directed the parties to
respond to whether the expiration of that stay mooted this appeal. (D.I. 16).
Contentions. The Trustee argues that since the 120-day stay has expired, the Court can
no longer provide meaningful relief and the appeal is therefore moot. (D.1. 17). Appellants
claim that since the Trustee has renewed the motion for damages for violating the stay in the
Bankruptcy Court, whether the stay was properly in effect is still a live issue. (D.I. 18, at p. 2).
Standard of Review. Constitutional mootness is a threshold question for determining
whether this Court has proper appellate jurisdiction. Rendell v. Rumsfeld, 484 F.3d 236, 240 (3d
Cir. 2007). This jurisdictional prerequisite arises from the "case or controversy" requirement of
Article III of the United States Constitution. Id.; see U.S. Const. art. III,§ 2, cl. 1. "[A]n appeal
is moot in the constitutional sense only if events have taken place during the pendency of the
appeal that make it 'impossible for the court to grant any effectual relief whatever."' In re Cont'/

Airlines, 91 F.3d 553, 558 (3d Cir. 1996) (quoting Church of Scientology v. United States, 506
U.S. 9, 12 (1992)).
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Discussion. Bankruptcy appeals from orders granting a stay are particularly susceptible
to constitutional mootness when the stay terminates before the district court can engage in
appellate review. See, e.g., Jn re Ponton, 446 F. App'x 427, 429 (3d Cir. 2011). In this case, the
120-day stay terminated automatically. Opining on whether the Bankruptcy Court correctly
granted that stay would be merely advisory since the 120-day stay will remain terminated despite
the outcome of this Court's review. Appellants' argument regarding the Trustee's renewed
motion for damages does not upset this conclusion. The alleged violations occurred on
September 11, 2014, prior to the Bankruptcy Court's issuance of the 120-day stay on November
10, 2014. (Banla. Case No. 13-13126, D.I. 767, at iMf 37, 51). If Appellants are liable for a stay
violation, it will be for violating the § 362 automatic stay, which was arguably still in effect on
September 11, 2014. The Bankruptcy Court's subsequent November 10, 2014 Order did not
determine whether the automatic stay had been in effect on September 11, 2014 or whether
Appellants had committed a violation. Upholding or reversing that Order will have no impact on
the issue of 11 U.S.C. § 362(k) damages. The Court concludes that this appeal is therefore moot.
"The proper disposition when a case becomes moot on appeal is an order vacating the lower
court's judgment." Main Line Fed. Sav. & Loan Ass'n v. Tri-Kell, Inc., 721 F.2d 904, 907 n.4
(3d Cir. 1983). This procedure "prevent[s] a judgment, unreviewable because of mootness, from
spawning any legal consequences." United States v. Munsingwear, Inc., 340 U.S. 36, 41 (1950).
Conclusion. The Court will remand this matter to the Bankruptcy Court with instructions
to vacate the November 10, 2014 Order (D.I. 1-1) and dismiss the Trustee's Motion to Enforce
the Stay. (Bankr. Case No. 13-13126, D.I. 709).

3_,

August
2015
Wilmington, Delaware

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