JMC Memphis, LLC v. Kapila
Filing
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ORDER DISMISSING Bankruptcy Appeal And AFFIRMING Bankruptcy Court. Closing Case. Signed by Judge Darrin P. Gayles on 9/29/2015. (alt) NOTICE: If there are sealed documents in this case, they may be unsealed after 1 year or as directed by Court Order, unless they have been designated to be permanently sealed. See Local Rule 5.4 and Administrative Order 2014-69.
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
MIAMI DIVISION
Case No. 14-62386-CIV-GAYLES/TURNOFF
JMC MEMPHIS, LLC,
Appellant,
vs.
SONEET R. KAPILA, Chapter 7 Trustee for the
Bankruptcy Estate of Geoffrey Edelsten,
Appellee.
/
ORDER
THIS CAUSE comes before the Court upon Appellant JMC Memphis LLC’s (the
“Appellant” or “JMC”) Initial Brief (“Brief”) [ECF No. 10]. The Court has reviewed the Brief,
the Answer Brief filed by Trustee Soneet Kapila (“Trustee”), all supporting filings, and the
record in this case, and is otherwise fully advised in premises. For the reasons set forth
below, the Bankruptcy Court’s Order is AFFIRMED.
I. BACKGROUND
Appellant brings this appeal from the United States Bankruptcy Court for the Southern
District of Florida, pursuant to 28 U.S.C. § 158, and timely filed its Notice of Appeal on October
17, 2014.
Geoffrey Edelsten (“the Debtor”) owned membership interests in Investments Australia,
LLC (“Investments Australia”), along with two other members, David Levy (“Levy”) and Isaac
Mawardi (“Mawardi”) (collectively, “the members”). In 2012, Investments Australia owned an
apartment complex located in Memphis, Tennessee (“the Property”). Between May 2012 and
June 2012, there were fires that occurred to different apartment buildings on the Property. As a
representative of Investments Australia, the Debtor entered into a Sale-Purchase Agreement with
JMC on August 29, 2012, whereby Investments Australia contracted to sell the Property to JMC
for approximately $1,700,000.1 There was an additional fire on the Property on September 22,
2012, before the closing on the Property, causing severe damage to at least one of the buildings.
After the fires, JMC and Investments Australia executed the Buyers and Seller’s Second
Amendment to the Contract Relating to Issues Impacting the Closing (the “Second
Amendment”) to compensate JMC for the fire damage to the Memphis Property. Section 2 of
the Second Amendment states that “Seller assigns to Purchaser all right, title, and interest in any
payment made to Seller in connection with the September 22, 2012 claim.”2 [ECF. No. 20-9]
(emphasis added). Additionally, Section 3 of the Second Amendment states that “[i]f for any
reason, the carrier does not make a payment which is subsequently paid over to Purchaser, Seller
shall pay to Purchaser $85,000 . . . ” [ECF. No. 20-9]. Thus, from the plain language of the
Second Amendment, JMC was only entitled to claims related to the September 22, 2012, fire and
not any claims related to the prior fires.
Investments Australia insured the Property through International Hanover LTD
(“Hanover”). Investments Australia filed an action against Hanover to recover for all claims
related to the fires that occurred on the Property in 2012. The Debtor then filed for bankruptcy
on January 9, 2014.3
1
Within the bankruptcy action, the members4 dissolved Investments
Mawardi challenged the Debtor’s authority to bind Investments Australia to the Sale-Purchase Agreement vis-à-vis
a lis pendens purportedly inhibiting closing between Investments Australia and JMC.
2
The Second Amendment notes that “the Property appears to be covered by a policy of insurance issued by
International Hanover LTD,” however, the insurance company, International Hanover LTD, asserts that the
insurance policy was cancelled on September 18, 2012.
3
The Debtor originally filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. On August 4,
2014, the Debtor moved to convert the bankruptcy case to one under chapter 7 of the Bankruptcy Code.
Australia. In their efforts to dissolve the company, the members participated in mediation with
Hanover and counsel for Investments Australia. Pursuant to the mediation, the parties entered
into a settlement agreement, including Hanover’s agreement to pay $750,000.00 to the Trustee in
exchange for full release and preclusion from any person bringing any actions or claims against
Hanover related to the Investments Australia insurance policy, including, but not limited to,
claims for the September 22, 2012, fire.5 JMC did not receive notice of the mediation and did
not attend.
The Bankruptcy Court scheduled a hearing on the Trustee’s motion to approve the
settlement on August 7, 2014. On August 5, 2014, JMC formally appeared in the bankruptcy
action and filed its objection to the settlement agreement because “Investments Australia
assigned all right, title, and interest to the insurance proceeds to JMC,” and requested that the
hearing be continued. Objection at ¶¶’s 6 and 7. Dennis McLamb (“McLamb”) also filed an
objection to the settlement agreement, making his own separate claim to portions of the proceeds
on the grounds that he had not been compensated for his services as an insurance adjuster. The
Bankruptcy Court denied JMC’s motion to continue the hearing. At the hearing, JMC and
McLamb argued their objections to the settlement before the Bankruptcy Court.
After
considering their objections, the Bankruptcy Court approved the settlement but required setting
aside $100,000.00 each for JMC and McLamb’s claims.6 JMC did not make a contemporaneous
objection to the Bankruptcy Court’s pronounced Order or request a stay of the Bankruptcy
Court’s Order. To date, McLamb has not objected to the Bankruptcy Court’s findings.
4
Trustee Soneet Kapila represented the Debtor at all times during the underlying bankruptcy action.
Hanover challenged its liability for the fires because of misrepresentations of losses, limitations to coverage after
the property has been sold, and a cancelation notice terminating coverage on September 18, 2012. Bankr. Hr’g Tr.
66 Aug. 7. 2014.
6
The Bankruptcy Court set aside that amount for JMC’s claim because it found that JMC would only be entitled to
$85,000 for any claim it could bring against the Debtor or Investments Australia, according to Section 3 of the
Second Amendment.
5
JMC now appeals the Bankruptcy Court’s Order approving the settlement of the Property
insurance claim which bars future claims against the insurer arising from the same controversy.
JMC filed the instant appeal on five grounds: 1) violation of due process; 2) lack of subject
matter jurisdiction;7 3) violation of Florida law; 4) misinterpretation of contract; and 5)
misapplication of law.
However, a review of the record shows that JMC has effectively waived its appeal. At
the hearing, after the Bankruptcy Court approved the settlement agreement, JMC did not make a
contemporaneous objection or request a stay of the execution of the settlement agreement.
Likewise, JMC did not file a motion for reconsideration following the Bankruptcy Court’s
decision. Other than filing the instant appeal, JMC has made no attempt to prevent the execution
of the settlement and disbursement of the settlement proceeds. Accordingly, for the reasons set
forth below, the appeal is dismissed and the Bankruptcy Court’s decision is affirmed.
II. WAIVER AND MOOTNESS
The Trustee first asserts that JMC’s due process and Florida law claims are waived
because JMC failed to properly object to the Bankruptcy Court’s Order and, therefore, those
issues are not preserved for appeal. Additionally, the Trustee argues that JMC’s appeal should
be dismissed in its entirety as equitably moot. The Court agrees with both.
A. Waiver
Generally, an issue is waived if a party fails to object at the trial level. An appellate court
may consider issues for the first time on appeal in five exceptional circumstances. See Dean
Witter Reynolds, Inc. v. Fernandez, 741 F.2d 355, 360–61 (11th Cir. 1984). The courts of
7
The Bankruptcy Court had subject matter jurisdiction to approve the stipulation for settlement and Bar Order. See
In re Ryan, 276 Fed, App’x 963, 966 (11th Cir. 2008) (The Bankruptcy Court has “related to” subject matter
jurisdiction of collateral disputes between third parties “when the resolution of that dispute could conceivably have
an impact the amount of money in the bankruptcy estate.”)
appeals have identified certain exceptional circumstances in which it may be appropriate to
exercise this discretion and deviate from this rule of practice. Id. at 360. First, an appellate court
will consider an issue not raised in the [trial] court if it involves a pure question of law, and if
refusal to consider it would result in a miscarriage of justice. See Id. at 360-61. Second, the rule
may be relaxed where the appellant raises an objection to an order which he had no opportunity
to raise at the [trial] court level. See Id. Third, the rule does not bar consideration by the
appellate court in the first instance “where the interest of substantial justice is at stake.” Id.
Fourth, “a federal appellate court is justified in resolving an issue not passed on below ... where
the proper resolution is beyond any doubt.” Id. Finally, it may be appropriate to consider an
issue first raised on appeal if that issue presents significant questions of general impact or of
great public concern. Id. The Court finds that none of these exceptional circumstances apply.
In its Reply Brief, JMC argues that the Court has the discretion to consider arguments not
raised at the lower court. In support of this argument, JMC refers to Dean Witter Reynolds,
supra. While the Court may consider issues raised on appeal in these specific circumstances, it
does not excuse a party’s obligation to make timely objections. The Court finds that JMC had
ample opportunity to make contemporaneous objections and to request a stay of the settlement
agreement before the Bankruptcy Court and this Court when the appeal was filed. JMC failed to
do so. Even if one of the Dean Witter Reynolds exceptions did apply here, as JMC noted, the
decision to consider arguments not raised at the lower court is discretionary. See Id. The Court
does not find that such an extraordinary measure is warranted here, particularly where JMC’s
failure to raise timely objections resulted in the consummation of the settlement agreement
which affects the rights and interest of several parties.
B. Equitable Mootness
At the heart of JMC’s appeal is the desire to disapprove a settlement agreement that has
already been consummated. As noted above, JMC seeks this extraordinary relief without having
taken any steps to prevent the consummation of the settlement and the distribution of funds to the
parties. Notably, JMC did not seek a stay of execution from the Bankruptcy Court or this Court.
Therefore, this Court does not find good cause to undo what has already been done.
Equitable mootness occurs in bankruptcy cases “when implementation of the plan has
created, extinguished or modified rights, particularly of persons not before the court, to such an
extent that effective judicial relief is no longer practically available.” Central States, Southeast
and Southwest Areas Pension Fund v. Central Transport, Inc., 841 F.2d 92, 96 (4th Cir.1988).
See, e.g., In re Mountain Laurel Resources Co., No. 5:99–0180-CIV, 1999 WL 33542427, at *4
(S.D. W.Va June 9, 1999). The difference between constitutional and equitable mootness has
been described as an “inability” versus an “unwillingness” to affect the outcome of a case. See,
e.g., McLean Square Assoc. v. J.W. Fortune, Inc. (In re McLean Square Assoc.), 200 B.R. 128,
132 (E.D. Va. 1996). The equitable mootness doctrine seeks to “strike the proper balance
between the equitable considerations of finality and good faith reliance on a judgment and the
competing interests that underlie the right of a party to seek review of a bankruptcy court order
adversely affecting him.” In re Lett, 632 F.3d 1216, 1226 (11th Cir. 2011). Here, the Trustee
argues that both constitutional and equitable mootness apply. The Court finds, however, that it
need not reach the issue of constitutional mootness because the concept of equitable mootness
clearly prevents JMC from relief on appeal.
Under the equitable mootness inquiry in the Eleventh Circuit, an appeal of an order
confirming a chapter 11 plan may be dismissed where the order has already been “so
substantially consummated that effective relief is no longer available.” Id. at 1225 (quoting In re
Club Assocs., 956 F.2d 1065, 1069 (11th Cir. 1992)). “Even if substantial consummation has
occurred, a court must still consider all the circumstances of the case to decide whether it can
grant effective relief.” Id. at 1225 (quoting In re Club Assocs., 956 F.2d at 1069). According to
the Eleventh Circuit, such circumstances include, but are not limited to, the Court’s consideration
of the following questions:
Has a stay pending appeal been obtained? If not, then why not? Has the plan been
substantially consummated? If so, what kind[s] of transactions have been
consummated? What type of relief does the appellant seek on appeal? What effect
would granting relief have on the interests of third parties not before the court?
In re Club Assocs., 956 F.2d at 1069. In the present case, all of the answers to these
questions weigh in favor of dismissal of JMC’s appeal. A stay of the settlement agreement was
not issued by the Bankruptcy Court or this Court because it was not requested by JMC. As a
result, funds have since been distributed to multiple parties, including third parties.
Appellant now seeks to undo the entire settlement agreement in an effort to obtain the
entire proceeds of the settlement, which would require the Court to disgorge funds from various
third parties.
This Court declines to take such extraordinary steps due to JMC’s lack of
diligence. Importantly, Hanover originally refused to provide coverage for the fires at the
Property, asserting that Investments Australia’s insurance policy was terminated before the
September 22, 2012, fire. Hanover would not have settled with any party without the bar order
that JMC now wants reversed.
III. CONCLUSION
For these reasons, JMC effectively waived its substantive arguments when it failed to
take steps to further prevent the consummation of the settlement after the Bankruptcy Court’s
approval. The Court further finds that JMC’s appeal must also be dismissed as equitably moot.
Accordingly, it is
ORDERED AND ADJUDGED that Appellant’s appeal shall be DISMISSED. It is
further
ORDERED that the Order of the Bankruptcy Court’s Order approving the settlement and
Bar Order is AFFIRMED.
The Clerk is directed to CLOSE this case. All pending motions are DENIED as moot.
DONE AND ORDERED in Chambers at Miami, Florida, this 29th day of September,
2015.
________________________________
DARRIN P. GAYLES
UNITED STATES DISTRICT JUDGE
cc:
All Counsel of Record
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