In Re: Spenlinhauer et al

Filing 13

Judge F. Dennis Saylor, IV: ORDER entered. Memorandum and Order on Appellee's Motion to Dismiss Bankruptcy Appeal. Appellee's motion to dismiss is GRANTED, and Spenlinhauer's bankruptcy appeal is dismissed without prejudice. (Pezzarossi, Lisa)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
_____________________________________
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In re ROBERT J. SPENLINHAUER,
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individually and as trustee and
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beneficiary of RJS REALTY TRUST,
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C.C. CANAL REALTY TRUST, and
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CLASSIC AUTO REALTY TRUST,
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Debtor.
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_____________________________________)
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ROBERT J. SPENLINHAUER,
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Appellant,
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v.
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THE COOPERATIVE BANK OF
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CAPE COD,
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Appellee.
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_____________________________________)

Chapter 11
13-19191-JNF

Bankruptcy Appeal No.
15-14124-FDS

MEMORANDUM AND ORDER ON
APPELLEE’S MOTION TO DISMISS BANKRUPTCY APPEAL
SAYLOR, J.
This is an appeal from an order of the United States Bankruptcy Court for the District of
Massachusetts. In 2006, debtor-appellant Robert Spenlinhauer entered into a $1.2 million
revolving credit agreement with appellee the Cooperative Bank of Cape Cod. The loan was
secured by a mortgage on Spenlinhauer’s property in Osterville, Massachusetts. In December
2013, Spenlinhauer filed a Chapter 11 bankruptcy petition. At that point, he owed the bank
nearly $1.2 million. In February 2014, the bank moved for relief from the automatic stay in

order to foreclose on the property. The bankruptcy court granted that relief, and the bank
scheduled a foreclosure sale.
In October 2015, before the foreclosure sale, the bankruptcy court granted Spenlinhauer’s
motion to reinstate the stay for 90 days, over the bank’s objection. On November 6, 2015, the
bankruptcy court issued an order directing the debtor to file an amended plan that would, among
other things detailed below, provide for a sale of the Osterville property within 120 days after the
plan’s effective date.
Spenlinhauer has appealed that order. Specifically, Spenlinhauer is appealing only the
part of the November 6 order that directs him to present a plan providing for a sale of the
Osterville property. In his appeal, Spenlinhauer asks this Court to vacate “the order of the
bankruptcy court ordering the sale of the [Osterville property] within 120 days of confirmation of
a plan.”
Before the Court is the bank’s motion to dismiss Spenlinhauer’s bankruptcy appeal as
moot, or in the alternative, for an extension of time to respond to his appeal brief.
For the following reasons, the motion to dismiss will be granted.
I.

Jurisdiction and Standard of Review
This Court has jurisdiction to hear appeals from final judgments, orders, and decrees of

the bankruptcy court pursuant to 28 U.S.C. § 158(a)(1). In reviewing the bankruptcy court’s
decision, this Court functions as an appellate court and is authorized to “affirm, modify, or
reverse a bankruptcy judge’s [order] or remand with instructions for further proceedings.” In re
Bernard L. Madoff Inv. Sec., LLC, 2016 WL 183492, at *8 (S.D.N.Y. Jan. 14, 2016).1 The

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As courts have recently noted, the quoted language was found in the former Federal Rule of Bankruptcy
Procedure 8013, but was omitted from the amended Federal Rules of Bankruptcy Procedure, effective December 1,
2014. “Nevertheless, ‘logic still compels the same conclusion with respect to the appellate powers of the District

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bankruptcy court’s conclusions of law are reviewed de novo; its findings of fact are reviewed for
clear error. See Stornawaye Fin. Corp. v. Hill (In re Hill), 562 F.3d 29, 32 (1st Cir. 2009) (citing
In re Healthco Int’l, Inc., 132 F.3d 104, 107 (1st Cir. 1997)). Mixed questions of law and fact
are also reviewed for clear error, “unless the bankruptcy court’s analysis was based on a
mistaken view of the legal principles involved.” In re Carp, 340 F.3d 15, 22 (1st Cir. 2003).
II.

Background
The following facts are drawn from the bankruptcy court filings and the designated

record on appeal.
In April 2006, Robert Spenlinhauer, individually and in his capacities as trustee and
beneficiary of several trusts, executed a $1.2 million revolving credit agreement and note with
the Cooperative Bank of Cape Cod. The note was secured by a mortgage on a property in
Osterville, Massachusetts, owned by Spenlinhauer.
In August 2013, Spenlinhauer stopped making payments on the loan. The bank sent
Spenlinhauer a notice of default, informing him of its intention to begin foreclosure proceedings
on the Osterville property. On December 16, 2013, Spenlinhauer filed a voluntary Chapter 11
bankruptcy petition. As of the bankruptcy filing date, the outstanding principal amount due on
the loan was $1,199,978.
On February 28, 2014, the bank moved in the bankruptcy court for relief from the
automatic stay in order to foreclose on the Osterville property. Spenlinhauer initially opposed
that motion, but later withdrew his opposition. On July 23, 2014, the bankruptcy court granted
the bank relief from the automatic stay in order for it to begin foreclosure proceedings.
After delays due, in part, to disputes between the bank and other creditors over the

Court.’” Madoff, 2016 WL 183492, at *8 n.14 (quoting In re Great Atl. & Pac. Tea Co., 2015 WL 6395967, at *2
n.1 (S.D.N.Y. Oct. 21, 2015)).

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priority of liens on the Osterville property, the bank scheduled a foreclosure sale for November
19, 2015.
Meanwhile, on October 6, 2015, Spenlinhauer filed a disclosure statement and second
amended plan of reorganization in which he stated that he wished to retain the Osterville
property and cure the arrearages to the bank by “making [] payments from future social security
payments or from the anticipated surplus . . . from the sale of [other real estate] or from
insurance proceeds relative to [other real estate].” (B.R. 182).
On October 16, 2015, Spenlinhauer moved to reinstate the stay for a period of 90 days.
(B.R. 216-19). In his motion, Spenlinhauer reemphasized his desire to retain the Osterville
property and cure the arrearages to the bank by other means. He stated that the equity in the
Osterville property was “over and above the claim of the Bank,” and that the property was
necessary for an effective reorganization because it was his current residence. He stated that he
was “hopeful that the Court will approve the disclosure statement on October 28, 2015 [when a
hearing was scheduled] . . . and that a hearing on the confirmation of the second amended plan
will occur sometime in late November or early December 2015.” (B.R. 217). Because the
foreclosure sale was scheduled for November 19, Spenlinhauer requested expedited
consideration of his “request[] that th[e] Court reinstate the automatic stay for a period of 90
days to allow the second amended plan to be considered and hopefully confirmed by th[e] Court,
part of which will fund the curing of arrearages to the Bank.” (B.R. 218).
The bank opposed Spenlinhauer’s motion for reinstatement of the stay, expressing its
desire to proceed with the foreclosure proceedings. Essentially, the bank contended that
Spenlinhauer’s proposed plan to cure his arrearages by selling other property was “[i]nfeasible”
and insufficiently detailed to be confirmable. (B.R. 231-36). On October 28, 2015, the

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bankruptcy court sustained the bank’s objections and ordered Spenlinhauer to file a third
amended plan and disclosure statement by November 13, 2015.
Also on October 28, 2015, the bankruptcy court held a hearing on Spenlinhauer’s motion
to reinstate the stay. On November 6, 2015, the bankruptcy court granted Spenlinhauer’s motion
and reinstated the stay. The bankruptcy court held that the “debtor’s change in circumstances
warrant[ed] interim relief” in the form of a 90-day temporary reinstatement of the stay and
postponement of the foreclosure sale. The bankruptcy court authorized the bank to continue the
foreclosure sale to a date after February 15, 2016, and “as adequate protection for the Bank’s
interest in the property,” set a payment plan ordering Spenlinhauer to pay the bank $35,000 by
November 20, 2015, and $5,000 per month beginning January 1, 2016. The court concluded:
As ordered on October 28, 2015, the Debtor shall file a[] [third] amended plan
and disclosure statement by November 13, 2015, which shall provide for a sale of
the [Osterville] property within 120 days after the effective date of confirmation
of the plan. In the event the plan is confirmed, the Court will enter further orders
respecting adequate protection of the Bank’s interest in the property, including the
appropriate allocation of the adequate protection payments in connection with the
hearing on confirmation of the Chapter 11 plan.
(B.R. 266).
On November 20, 2015, Spenlinhauer moved for clarification of the bankruptcy court’s
November 6 order to “provide for a sale of the Osterville property” in his third amended plan.
Specifically, he contended:
Said portion of the order is vague since there [is] no [] indication of a sale price
nor what will occur if a buyer for the property is not located. In addition, the
debtor’s prior plan had provided for a cure-and-maintain status for the property,
which will be subject to dispute by Cape Cod Cooperative Bank, but the debtor
will present evidence to this court that such a plan will be feasible.
(B.R. 267-68). The bankruptcy court denied Spenlinhauer’s motion for clarification without
comment on November 24, 2015.

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On December 8, 2015, Spenlinhauer filed this appeal, limited to the bankruptcy court’s
November 6, 2015 order directing him to provide a plan for a sale of the Osterville property in
his third amended plan.
On December 15, 2015, the bankruptcy court, based on certain conduct by Spenlinhauer
during the bankruptcy proceedings, appointed a Chapter 11 trustee.2 On January 5, 2016,
Spenlinhauer filed a third amended plan and disclosure statement that did not comply with the
bankruptcy court’s November 6 order to set forth a plan for selling the Osterville property. On
January 27, 2016, Spenlinhauer filed a fourth amended plan and disclosure statement that also
did not comply with the November 6 order. On February 2, 2016, Spenlinhauer moved to extend
the automatic stay so that the bankruptcy court could consider his fourth amended plan. The
bankruptcy court scheduled a hearing on that motion for March 22, 2016.
III.

Analysis
Spenlinhauer’s appeal is somewhat limited. He does not contend that the bankruptcy

court’s 90-day extension of the automatic stay was in error, or that the period was too short. Nor
does he challenge the parts of the bankruptcy court’s November 6 order setting a schedule of
payments to the bank.
Rather, he contends that the “vague and uncertain language” of the bankruptcy court’s
November 6 order––specifically, the part concerning sale of the Osterville property––was in
error. His request for relief is unclear; the appeal concludes “[t]he order of the bankruptcy court
ordering the sale of the real estate within 120 days of confirmation of a plan should be vacated.”

Among other things, Spenlinhauer’s conduct during the bankruptcy proceeding included transferring
insurance proceeds to non-debtor-in-possession bank accounts; paying an insurance adjuster without court approval;
and paying $65,000 to a secured creditor to redeem a recreational vehicle and to purchase another vehicle. (B.R.
76).
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(Appellant Br. 6). The bank contends that Spenlinhauer’s appeal should be dismissed as
equitably moot because no meaningful relief can be granted.3
However, equitable mootness does not appear to be the correct framework for
Spenlinhauer’s appeal, at least for this stage of the proceedings. “The ‘equitable mootness’
doctrine imports both ‘equitable’ and ‘pragmatic’ limitations upon [courts’] appellate jurisdiction
over bankruptcy appeals.” In re Healthco Int'l, Inc., 136 F.3d 45, 48 (1st Cir. 1998). Essentially,
the equitable mootness test “inquires whether an unwarranted or repeated failure [by a debtor] to
request a stay enabled developments to evolve in reliance on the bankruptcy court order to the
degree that their remediation has become impracticable or impossible.” Id. Conversely, the
“pragmatic mootness test” inquires whether “the challenged bankruptcy court order has been
implemented to the degree that meaningful appellate relief is no longer practicable even though
the appellant may have sought a stay with all due diligence.” Id.
Here, where the bankruptcy court has not yet issued a ruling on a proposed plan, and
instead has simply ordered debtor to include certain conditions in his proposed plan, the correct
framework appears to be simple mootness rather than equitable mootness. See Institut Pasteur v.
Cambridge Biotech Corp., 104 F.3d 489, 492 n.5 (1st Cir. 1997) (quoting In re UNR Indus., 20
F.3d 766, 769 (7th Cir. 1994) (“There is a big difference between inability to alter the outcome
(real mootness) and unwillingness to alter the outcome (equitable mootness). Using one word
for two different concepts breeds confusion.” (emphasis in original))).
Spenlinhauer is asking the Court to “vacate” the “order of the bankruptcy court ordering
the sale of the [Osterville] real estate within 120 days of confirmation of a plan.” (Appellant Br.
6). However, the bankruptcy court did not in fact order him to sell the Osterville property within

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In the alternative, the bank requests an extension of time to respond to Spenlinhauer’s appeal.

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120 days of confirmation of a plan––at least not yet. Rather, in its November 6 order, the
bankruptcy court directed Spenlinhauer to “provide for” a sale of the property in his third
amended plan, presumably because, in part, debtor previously indicated that there was equity in
the Osterville property beyond the amount of the debt.
The bankruptcy court has not yet held a hearing on Spenlinhauer’s various proposed
plans, nor has it ordered Spenlinhauer to do anything with, much less sell, the Osterville property
yet. It appears that Spenlinhauer may still propose a reorganization plan that allows him to retain
the Osterville property while satisfying his creditors by other means. The bankruptcy court’s
November 6 order simply ordered Spenlinhauer to provide a plan to sell the property should the
court determine that his proposal to cure his arrearages by other means was infeasible, as the
bank argued in its opposition.
In short, Spenlinhauer’s appeal is problematic because he is requesting relief that cannot
be granted: the Court cannot vacate an order to sell a property when the bankruptcy did not issue
such an order. The 90-day reinstatement of the stay has expired, and the bankruptcy court has
scheduled a hearing on Spenlinhauer’s motion to continue the stay. The case accordingly will be
remanded to the bankruptcy court.
IV.

Conclusion
For the foregoing reasons, appellee’s motion to dismiss is GRANTED, and

Spenlinhauer’s bankruptcy appeal is dismissed without prejudice.
So Ordered.

/s/ F. Dennis Saylor
F. Dennis Saylor IV
United States District Judge

Dated: April 13, 2016

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