Karam Inc

Filing 11

MEMORANDUM OPINION AND ORDER by Senior Judge Thomas B. Russell on 6/25/2013. 10 Motion to Dismiss is GRANTED and appellant's appeal is DISMISSED AS MOOT. cc:counsel, USBC (TLB)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCY
PADUCAH DIVISION
CASE NO. 5:13-CV-00027
KARAM, INC.

APPELLANT

v.
BW LOAN HOLDINGS, LLC

APPELLEE

MEMORANDUM OPINION AND ORDER
This matter comes before the Court on the Appellee’s motion to dismiss the Appellant’s
bankruptcy appeal. (Appellee’s Mot., Docket Number (“DN”) 10.) The Appellant has not
responded and the time to do so has expired. The Court will consider the Appellee’s motion
without the benefit of a response from the Appellant. For all of the following reasons the
Appellee’s motion is GRANTED and the Appellant’s bankruptcy appeal is DISMISSED AS
MOOT.
I.
This bankruptcy appeal arises from two bankruptcy cases instituted by Appellant Karam,
Inc. (“Karam” or “Debtor”). The first bankruptcy petition (“Karam I”) was filed on May 2,
2012, in response to a foreclosure action by Appellee BW Loan Holdings, LLC (“BW Loan
Holdings” or “Lender”) in state court. By filing the bankruptcy petition, Karam used the
automatic stay in Section 362(a) of Title 11 to temporarily halt the foreclosure sale of its sole
asset, the Quality Inn hotel located in Murray, Kentucky. The foreclosure sale was scheduled to
take place on May 18, 2012, but was halted by the automatic stay.
During early proceedings in Karam I, BW Loan Holdings moved the bankruptcy court to
lift the automatic stay so that it might complete the foreclosure sale. The court continued the
motion on several occasions while Karam attempted to develop a Chapter 11 reorganization plan.
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None of Karam’s proposed plans were ever approved by its creditors, however. Realizing that its
reorganization plans would not receive approval, Karam moved to dismiss the bankruptcy case
on January 15, 2013. Shortly thereafter, on January 17, 2013, BW Loan Holdings also moved to
dismiss.
On January 24, 2013, the bankruptcy court heard arguments on the Lender’s motion to
lift the stay and the motion to dismiss. The next day, the court granted both motions. Thereafter,
BW Loan Holdings returned to state court and rescheduled the foreclosure sale of the hotel,
which was no longer subject to the automatic stay. The foreclosure sale was rescheduled for
March 14, 2013.
In the interim, two other events occurred. First, on February 7, 2013, Sewa Bhinder
(“Bhinder”), the president of Karam, filed a notice of appeal with this Court. In the notice
Bhinder contends that the bankruptcy court erred when it lifted the automatic stay and granted
the Lender’s motion to dismiss the bankruptcy case. It should be noted that Bhinder filed the
appeal on his own accord on behalf of Karam and not through retained counsel. Second, on
March 11, 2013, just three days prior to the foreclosure sale, Karam, through newly retained
counsel, filed a second bankruptcy petition (“Karam II”). Again, it appears that Karam filed the
second petition to delay the foreclosure sale.
BW Loan Holdings again moved to lift the stay imposed in Karam II. The bankruptcy
judge granted the motion because, pursuant to 11 U.S.C. § 362(n), no automatic stay arose upon
the filing of Karam II. Without a stay to impede the foreclosure sale, the hotel was auctioned on
March 14, 2013. The Lender purchased the hotel with a credit bid. Soon thereafter, on March
25, 2013, Karam moved to dismiss Karam II, and the motion was granted on March 26, 2013.
BW Loan Holdings now moves to dismiss Karam’s appeal from dismissal of Karam I.

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II.
Karam’s appeal must be dismissed because any appeal from Karam I was rendered moot
on March 14, 2013, when the hotel was sold at the foreclosure auction. This outcome is
mandated by the “bankruptcy mootness rule.” The rule is that a bankruptcy “appeal will be
dismissed as moot if a debtor fails to obtain a stay pending appeal of a bankruptcy court order
granting relief from the automatic stay and the moving creditor subsequently conducts a
foreclosure sale, as the appellate court cannot grant any effective relief.” Egbert Dev., LLC v.
Community First Nat’l Bank (In re Egbert), 219 B.R. 903, 905 (B.A.P. 10th Cir. 1998).
“‘Bankruptcy's mootness rule applies when an appellant has failed to obtain a stay from an order
that permits a sale of a debtor's assets.’ The bankruptcy mootness rule differs from general
mootness law because it is based on ‘the general rule that the occurrence of events which prevent
an appellate court from granting effective relief renders an appeal moot, and the particular need
for finality in orders regarding stays in bankruptcy.’” In re 255 Park Plaza Associates Ltd.
P'ship, 100 F.3d 1214, 1216 (6th Cir. 1996) (quoting Onouli-Kona Land Co. v. Estate of Richards
(In re Onouli-Kona Land Co.), 846 F.2d 1170, 1171, 1172 (9th Cir. 1988)).
The bankruptcy mootness rule clearly applies in this case. On January 25, 2013, the
bankruptcy court granted BW Loan Holding’s motion to lift the automatic stay and to dismiss the
bankruptcy petition in Karam I. At that point the automatic stay no longer prevented the
foreclosure sale of the hotel, and the Lender rescheduled the sale for March 14, 2013. On
February 7, 2013, Karam appealed the bankruptcy court’s decisions to the lift that stay and
dismiss the petition in Karam I. Upon filing the appeal Karam did not request that the stay be
reinstituted during the pendency of the appeal, and merely filing the appeal did not revive the
stay or otherwise prohibit the sale.

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On March 11, 2013, Karam filed the second bankruptcy petition in Karam II. Although
the automatic stay typically follows that filing of a bankruptcy petition, the bankruptcy judge
found that the stay was not imposed under the terms of 11 U.S.C. § 362(n). Specifically, the
automatic stay will not attached where a debtor “was a debtor in a small business case that was
dismissed for any reason by an order that became final in the 2-year period ending on the date of
the order for relief entered with respect to the petition.” 11 U.S.C. § 362(n)(2). Because Karam
I was dismissed within two years of Karam II, the automatic stay did not apply upon the filing of
the second case. Therefore, Karam II did not impede or otherwise prohibit the foreclosure sale
of the hotel.
On March 14, 2013, the hotel was sold at a foreclosure auction. The sale was not subject
to the bankruptcy automatic stay. At that point, the asset left the potential bankruptcy estate and
rendered moot Karam’s appeal of the bankruptcy court’s orders in Karam I lifting the stay and
dismissing the case.
In this appeal, the Court cannot grant any effective relief to Karam. Karam failed to
move for relief from the lifting of the automatic stay and the foreclosure sale proceeded. This
rendered moot any appeal from the bankruptcy court’s decisions in Karam I. Karam no longer
owns the hotel and no plan of organization involving that asset can take place. Therefore,
Karam’s appeal is rendered moot by the bankruptcy mootness rule.
CONCLUSION
Appellee BW Loan Holdings, LLC, moved the Court to dismiss Appellant Karam, Inc.’s
appeal. For all of the foregoing reasons, IT IS HEREBY ORDERED that the Appellee’s
motion is GRANTED and the Appellant’s appeal is DISMISSED AS MOOT.

June 25, 2013

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