South Edge, LLC et al v. JPMorgan Chase Bank, N.A. et al
Filing
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ORDERED that the appeals in 2:11-CV-00240-PMP-RJJ and 2:11-CV-00301-PMP-RJJ are hereby DISMISSED. Signed by Judge Philip M. Pro on 4/28/11. (Copies have been distributed pursuant to the NEF - MMM)
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UNITED STATES DISTRICT COURT
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DISTRICT OF NEVADA
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SOUTH EDGE LLC,
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Appellant,
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v.
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JPMORGAN CHASE BANK, N.A.;
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CREDIT AGRICOLE CORPORATE AND )
INVESTMENT BANK; WELLS FARGO )
BANK, N.A.; AND U.S. TRUSTEE,
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Appellees.
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2:11-CV-00240-PMP-RJJ
2:11-CV-00301-PMP-RJJ
ORDER
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Presently before the Court is the Emergency Motion for Leave to Intervene in
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Appeal (Doc. #6), filed on February 21, 2011, by proposed intervenors KB Home Nevada
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Inc., Coleman-Toll Limited Partnership, Pardee Homes of Nevada, Meritage Homes of
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Nevada, Inc., and Beazer Homes Holding Corp. (the “Builder Members”). Appellees
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JPMorgan Chase Bank, N.A. (“JPMorgan”) and Credit Agricole Corporate and Investment
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Bank (“Credit Agricole”) filed Oppositions (Doc. #19, #20) on February 24, 2011. The
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Chapter 11 Trustee, Cynthia Nelson, filed a Joinder to JPMorgan’s Opposition (Doc. #36)
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on March 8, 2011. JPMorgan filed a Reply (Doc. #56) on March 31, 2011.
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Also before the Court is the Trustee’s Motion to Dismiss Appeals of Order of
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Relief and Order Directing Appointment of Chapter 11 Trustee (Doc. #33) with supporting
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declaration (Doc. #34), filed on March 4, 2011. Appellee JPMorgan filed a Joinder (Doc.
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#39) on March 15, 2011. Appellee Credit Agricole filed a Response (Doc. #41) on March
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16, 2011. Appellant South Edge, LLC filed an Opposition (Doc. #43) and Evidentiary
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Objections (Doc. #44) on March 21, 2011. Proposed intervenors Builder Members filed an
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Opposition (Doc. #46) on March 21, 2011. Appellee JPMorgan filed a Reply (Doc. #56) on
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March 31, 2011. The Trustee filed a Reply (Doc. #62) with supporting declaration (Doc.
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#63), and Response to Evidentiary Objections (Doc. #61) on April 4, 2011. The Trustee
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filed a Request for Hearing on Trustee’s Motion to Dismiss Appeals (Doc. #68) on April 6,
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2011.
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I. BACKGROUND
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This is an appeal from an involuntary petition for bankruptcy filed against the
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Debtor, Appellant South Edge, LLC (“South Edge”). In December 2010, three of South
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Edge’s creditors, JPMorgan, Credit Agricole, and Wells Fargo Bank, N.A., filed an
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involuntary chapter 11 petition against South Edge and filed a motion seeking appointment
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of a chapter 11 trustee. South Edge opposed the petition and the motion for appointment of
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a trustee. The Bankruptcy Court held a four-day evidentiary hearing on the matter in late
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January and early February 2011. (Notice of Appeal (Doc. #2),1 Ex. 1.) On February 3,
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2011, the Bankruptcy Court entered an Order of Relief, granting relief under chapter 11
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against South Edge. (Id.) The Bankruptcy Court also entered an Order Directing
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Appointment of Chapter 11 Trustee, directing the United States Trustee to appoint an
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independent trustee for South Edge. (Notice of Appeal, Ex. 2.)
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On February 11, 2011, South Edge filed a Notice of Appeal. (Notice of Appeal.)
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On February 21, 2011, Builder Members filed an Emergency Motion for Leave to Intervene
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in Appeal (Doc. #6). On February 23, 2011, Builder Members filed a Notice of Appeal of
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their own. (Notice of Appeal (Doc. #1 in 2:11-CV-00301-PMP-RJJ).)
On February 20, 2011, the U.S. Trustee appointed Cynthia Nelson as Trustee for
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South Edge. (Statement of the Chapter 11 Trustee, Cynthia Nelson (Doc. #17).) On
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February 24, 2011, the Trustee filed a Statement with this Court requesting the Court not to
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Docket numbers refer to 2:11-CV-00240-PMP-RJJ unless otherwise indicated.
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proceed further on this appeal until she could review the matter and decide what action to
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take with respect to the appeal. (Id.) In the meantime, JPMorgan and Credit Agricole
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opposed the Builder Members’ motion to intervene.
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The Court vacated the appellate briefing schedule to permit the Trustee time to
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review the matter and decide whether to pursue South Edge’s appeal. (Order (Doc. #22).)
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The Trustee thereafter moved to dismiss the appeals brought by South Edge and by Builder
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Members. Generally, the Trustee argues she is the only person authorized to bring an
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appeal on South Edge’s behalf, and she has determined such an appeal is not in South
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Edge’s best interests. The Trustee further contends the Builder Members lack standing to
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appeal in their own right because they did not object to the motion to appoint a trustee
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below. South Edge and Builder Members oppose the motion to dismiss and Builder
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Members move to intervene in South Edge’s appeal, generally contending a debtor always
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has a right to defend itself against an involuntary petition and, in any event, Builder
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Members are persons aggrieved entitled to appeal in their own right.
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II. DISCUSSION
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A. Trustee’s Motion to Dismiss Appeal (Doc. #33)
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The Trustee moves to dismiss the appeals by South Edge and Builder Members,
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arguing that only the Trustee has the power to pursue an appeal on behalf of South Edge.
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The Trustee also contends that Builder Members have no basis to appeal the Order of Relief
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in their own right, as only the Debtor may oppose an involuntary bankruptcy petition. The
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Trustee further contends that while the Builder Members could have opposed and then
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appealed the Order Directing Appointment of Chapter 11 Trustee, Builder Members chose
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not to oppose that motion in their individual capacities, chose not to seek a stay of that
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order, and thus may not now raise their individual interests for the first time on appeal.
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Finally, the Trustee argues Builder Members are not entitled to appeal as “persons
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aggrieved” because they hold out-of-the-money equity interests and claims which are so
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deeply underwater that there is no possibility of any of their pecuniary interests being
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affected.
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South Edge and Builder Members respond that South Edge as Debtor retains an
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independent right of self defense to appeal an order granting an involuntary bankruptcy
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petition regardless of the appointment of a trustee. South Edge and Builder Members also
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argue there is a difference between the estate, which is controlled by the Trustee, and the
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debtor out-of-possession, which is not, and the debtor out-of-possession owns the post-
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petition right to appeal an order granting an involuntary petition. South Edge and Builder
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Members further contend that allowing the Trustee the sole power to decide whether to
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appeal the order directing her own appointment is circular and likely unconstitutional
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because it would insulate an Article I judge’s ruling on an involuntary petition from review
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by an Article III judge, including for some issues which would be subject to de novo
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review. South Edge and Builder Members contend the motion to dismiss itself is proper
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only if the Trustee validly was appointed, and that question is the subject of the appeal.
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South Edge and Builder Members distinguish the authority upon which the Trustee relies on
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various grounds, and contend that their appeal notice divested the Bankruptcy Court of
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jurisdiction over any matter that is the subject of the appeal, including the appointment of
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the Trustee. Builder Members argue that in the event the Court concludes only the Trustee
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may pursue the appeal on South Edge’s behalf, they ought to be permitted to intervene.
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1. South Edge’s Appeal (2:11-CV-00240-PMP-RJJ)
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Under certain conditions, creditors may commence an involuntary bankruptcy
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case by filing a petition under chapter 11. 11 U.S.C. § 303(a)-(b). Commencement of a
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case creates a bankruptcy estate comprised of “all legal or equitable interests of the debtor
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in property as of the commencement of the case.” Id. § 541(a)(1). The bankruptcy estate
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also includes all “[p]roceeds, product, offspring, rents, or profits of or from property of the
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estate,” and “[a]ny interest in property that the estate acquires after the commencement of
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the case.” Id. § 541(a)(6)-(7). Property interests include “tangible or intangible causes of
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action.” In re Chappel, 189 B.R. 489, 493 (9th Cir. BAP 1995).
The bankruptcy court is empowered to appoint a trustee for the bankruptcy estate
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after the case commences. 11 U.S.C. § 1104. Upon appointment, the trustee becomes the
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representative of the estate, and has the capacity to sue and be sued. Id. § 323. If a trustee is
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appointed, “the trustee is substituted automatically for the debtor in possession as a party in
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any pending action, proceeding, or matter.” Fed. R. Bankr. P. 2012. Additionally, the
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trustee “may operate the debtor’s business,” unless the bankruptcy court orders otherwise.
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11 U.S.C. § 1108. Thus, upon appointment of a trustee in a chapter 11 corporate
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reorganization, “the appointment of a trustee divests the management of the debtor of
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authority to execute its former role as head of the debtor,” and the debtor acts through the
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trustee’s authority. In re Fid. Am. Fin. Corp., 63 B.R. 995, 998 (Bankr. E.D. Pa. 1986). The
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trustee, in turn, acts as a fiduciary, and in chapter 11 cases, owes duties to the equity holders
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as well as to the creditors. Biltmore Assocs., LLC v. Twin City Fire Ins. Co., 572 F.3d 663,
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673 (9th Cir. 2009). If the trustee violates those duties, or other grounds exist, the
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bankruptcy court may remove the trustee for cause. 11 U.S.C. § 324(a). “At any time
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before confirmation of a plan, . . . the court may terminate the trustee’s appointment and
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restore the debtor to possession and management of the property of the estate and of the
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operation of the debtor’s business.” Id. § 1105.
The debtor may file an answer to an involuntary bankruptcy petition. 11 U.S.C.
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§ 303(d); Fed. R. Bankr. P. 1011. Because an order for relief adjudicating a debtor’s status
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as bankrupt “effectively divests the debtor of his assets, creating an estate controlled by the
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bankruptcy court,” the order is subject to immediate appeal due to its “great potential for
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irreparable injury if immediate appeal is not allowed.” In re Mason, 709 F.2d 1313, 1317
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(9th Cir. 1983).
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///
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Although the debtor has standing to appeal an order for relief in an involuntary
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bankruptcy, the United States Court of Appeals for the Ninth Circuit has not addressed
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whether a corporate debtor in a chapter 11 involuntary case has the authority to appeal
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through its ousted management where a trustee has been appointed and objects to the ousted
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management bringing an appeal on the debtor’s behalf. The parties have been able to locate
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only one circuit which directly has addressed this question. See In re C.W. Mining Co., ---
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F.3d ----, 2011 WL 490666, *1 (10th Cir. Feb. 14, 2011).
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In C.W. Mining, creditors commenced an involuntary chapter 11 proceeding
against the debtor. Id. at *1. The case was converted to a chapter 7 liquidation, and a
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chapter 7 trustee was appointed without objection by the debtor. Id. The debtor’s former
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managers appealed to the Bankruptcy Appellate Panel (“BAP”) on the debtor’s behalf. Id.
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The trustee moved to dismiss the appeal, contending that the former managers could not
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bring an appeal on the debtor’s behalf over the trustee’s objection. Id. The Tenth Circuit
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BAP concluded that the former managers could bring the appeal because “[a] putative
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debtor must have standing to bring a bankruptcy court’s involuntary order for relief before
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an appellate court.” Id. (quotation omitted).
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The Tenth Circuit reversed the BAP’s ruling that the managers could bring the
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appeal on the debtor’s behalf. Id. at *2. The Tenth Circuit assumed the debtor had standing
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to appeal as a person aggrieved, but the question was not whether the debtor had standing to
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appeal, but whether the former managers had the authority to appeal on the debtor’s behalf.
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Id. at *2-3. Because the debtor was a corporation, it could act “only through its authorized
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agents.” Id. at *3. Once a trustee was appointed over a corporate debtor, the trustee
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“assumes control of the business, and the debtor’s directors are ‘completely ousted.’” Id. at
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*4 (quoting Commodity Futures Trading Comm’n v. Weintraub, 471 U.S. 343, 352-53
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(1985)). “‘In contrast, the powers of the debtor’s directors are severely limited. Their role
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is to turn over the corporation’s property to the trustee and to provide certain information to
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the trustee and to the creditors.’” Id. (quoting Weintraub, 471 U.S. at 352-53). The Tenth
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Circuit thus concluded that the debtor’s former managers could not “usurp the corporation’s
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right to appeal, which may be exercised by the trustee alone.” Id. (emphasis omitted).
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However, the Tenth Circuit noted three “limits” on its holding. Id. at *7. First,
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the Tenth Circuit clarified that there are times when a bankrupt corporation’s managers may
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appeal on the corporation’s behalf. Id. For example, because control of a corporation
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remains with its managers before a trustee is appointed, the managers could appeal on the
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debtor’s behalf prior to appointment of a trustee. Id. The Tenth Circuit also noted that a
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chapter 11 bankruptcy trustee “has a much different role than in Chapter 7,” and a chapter
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11 trustee “takes up the fiduciary duties of the former managers and has an interest in
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reorganizing the bankruptcy estate for the shareholders as well as the creditors.” Id. The
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Tenth Circuit noted that the former managers also could have appealed conversion of the
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chapter 11 case to a chapter 7 case, but they could not “atone” for their failure to appeal the
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conversion “by appealing other determinations over a trustee’s objection.” Id.
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Second, the rule in C.W. Mining does not apply to individuals in chapter 7
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bankruptcy. Id. Third, the Tenth Circuit noted that former managers could appeal a
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bankruptcy court order “in their own right” if they qualified as persons aggrieved. Id. at *8.
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However, such an appeal “must be brought on their own behalf, not on behalf of [the
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debtor].” Id.
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South Edge, through its former managers the Builder Members, urges the Court
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not to adopt C.W. Mining because it is not binding authority, and it conflicts with Ninth
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Circuit cases which have permitted debtors to appeal to preserve their right of self defense
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in an involuntary case. However, the cases upon which South Edge relies do not raise the
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issue presented here. The Ninth Circuit, and other courts, have permitted debtors to appeal
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even where a trustee has been appointed, and thus implicitly found the debtor had standing
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to appeal. However, as the C.W. Mining Court points out, the question is not whether the
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debtor has standing to challenge an order granting relief adjudicating it a bankrupt. The
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question is who may decide whether to bring that appeal on the debtor’s behalf. None of the
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cases South Edge cites involves a situation where the trustee challenged the former
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managers’ authority to bring the appeal on the debtor’s behalf. The Ninth Circuit has never
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squarely addressed the issue. The Court concludes that if the Ninth Circuit did address the
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issue, it would follow the reasoning in the Tenth Circuit’s opinion in C.W. Mining.
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South Edge contends that even if C.W. Mining applies, that case itself recognizes
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exceptions which would apply to South Edge. Specifically, South Edge contends that C.W.
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Mining noted a difference between chapter 7 and chapter 11 bankruptcies, that the managers
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can appeal before a trustee is appointed as South Edge did here, and that former managers
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can appeal in their own right as persons aggrieved.
While the C.W. Mining Court noted the difference between chapter 7 and chapter
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11 trustees, it did not state that former managers could bring an appeal over a chapter 11
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trustee’s objection. Instead, it noted that unlike chapter 7 trustees, chapter 11 trustees owe
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fiduciary duties to equity holders which may impact the decision whether to appeal in a way
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that a chapter 7 trustee would not have to consider. A chapter 11 trustee displaces former
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management just as a chapter 7 trustee does, and no basis exists to permit ousted
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management to appeal over the chapter 11 trustee’s objection anymore than in a chapter 7
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case.
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As to the notion that the former managers could appeal prior to appointment of a
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trustee, that is a power of the debtor-in-possession, which South Edge exercised here prior
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to appointment of the Trustee. However, upon appointment, the Trustee was substituted for
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the debtor in all pending litigation as the real party in interest, and the authority to decide
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whether to continue to pursue the appeal on South Edge’s behalf transferred from the
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debtor-in-possession to the Trustee.
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///
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Finally, the fact that the former managers may appeal in their own right does not
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impact the question of whether the former managers may appeal on South Edge’s behalf.
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Whether the Builder Members here may intervene or appeal in their own right are separate
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questions from whether Builder Members may pursue the appeal on South Edge’s behalf.
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Upon the Trustee’s appointment, they no longer had that authority.
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South Edge argues that the rule in C.W. Mining ignores the separateness of a
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debtor and its estate in the chapter 11 context. However, the rule in C.W. Mining does not
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ignore this principle. It merely recognizes that upon appointment, the trustee becomes the
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representative of the estate and may operate the debtor’s business, subject to its fiduciary
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duties to both equity holders and creditors. Nor is the right to appeal post-petition property
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of the debtor. See 11 U.S.C. §§ 541(a)(6)-(7), 542(a); Martin v. Monumental Life Ins. Co.,
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240 F.3d 223, 232 (3d Cir. 2001) (“The right to appeal is part of the debtors’ estates.”).
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South Edge has not identified an available exemption for the right to appeal, nor has the
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trustee abandoned the authority to decide whether to pursue the appeal. See 11 U.S.C.
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§§ 522, 554(a).
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South Edge’s constitutional concerns, and the purported circularity of the
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Trustee’s position, do not provide grounds for the Builder Members to appeal on South
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Edge’s behalf. Permitting only the Trustee to pursue an appeal on South Edge’s behalf does
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not deprive South Edge, the entity, of its right to appeal. Rather, it merely provides who
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may decide whether to pursue an appeal on South Edge’s behalf. Although South Edge
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argues a trustee never will appeal the order granting relief, as that will undermine the
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trustee’s own appointment in which the trustee has a pecuniary interest, such an argument
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presumes trustees will breach their fiduciary duties. To the extent South Edge has any
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evidence that the Trustee has breached her fiduciary duties by failing to pursue an appeal in
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this case, the proper remedy is to seek removal of the Trustee, not to pursue an appeal on
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South Edge’s behalf. 11 U.S.C. § 324(a); Estate of Spirtos v. One San Bernardino County
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Superior Court Case Numbered SPR 02211, 443 F.3d 1172, 1176 (9th Cir. 2006).
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Further, any constitutional concerns regarding Article III review of the Article I
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judge’s decisions are illusory. Former managers of a debtor may contest appointment of a
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trustee in the first place in an effort to remain the debtor-in-possession with the authority to
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appeal, may seek to stay and appeal any such order appointing a trustee, or may appeal in
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their own right as persons aggrieved. Such mechanisms of Article III review undercut any
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constitutional concerns. See Matter of Axona Int’l Credit & Commerce Ltd. (Formerly
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Bancom Int’l Ltd.), 924 F.2d 31, 35-36 (2d Cir. 1991).
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Finally, South Edge argues that because it filed its notice of appeal after the order
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appointing the trustee, but before the Trustee was appointed, the notice of appeal divested
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the Bankruptcy Court of jurisdiction to enter the order appointing the Trustee. However,
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“[a]bsent a stay or supersedeas, the trial court . . . retains jurisdiction to implement or
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enforce the judgment or order but may not alter or expand upon the judgment.” In re
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Padilla, 222 F.3d 1184, 1190 (9th Cir. 2000). The Bankruptcy Court’s appointment of the
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Trustee implemented the prior order directing appointment of a trustee, did not alter or
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expand upon the judgment, and South Edge failed to request or obtain a stay or to post a
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bond. The Bankruptcy Court therefore was not divested of jurisdiction to appoint the
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Trustee by virtue of South Edge’s notice of appeal. Such a rule would permit appellants to
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obtain a de facto stay of the appointment of a trustee without ever having to meet the
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requirements and burdens of obtaining a stay pending appeal. See In re Wymer, 5 B.R. 802,
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806 (9th Cir. BAP 1980) (setting forth standards for obtaining stay pending appeal as
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likelihood of success on the merits, irreparable injury, lack of substantial harm to appellee,
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and lack of harm to the public interest); Fed. R. Bankr. P. 8005 (permitting court to
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condition stay pending appeal on filing of bond or other appropriate security).
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The Court therefore will grant the Trustee’s motion to dismiss the appeal filed by
South Edge in 2:11-CV-00240-PMP-RJJ. The Court also will deny as moot the Builder
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Members’ motion to intervene in this appeal, as there no longer is an appeal in which
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Builder Members can intervene. United States v. Ford, 650 F.2d 1141, 1143 (9th Cir.
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1981).
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2. Builders’ Appeal (2:11-CV-00301-PMP-RJJ)
Although the Trustee did not file a motion to dismiss in the Builder Members’
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separate appeal, by her motion in this case, the Trustee moves to dismiss that appeal. (Mot.
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to Dismiss (Doc. #33 in 2:11-CV-00240-PMP-RJJ) at 2 n.1.) The Trustee argues the
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Builder Members do not have standing to appeal the Order of Relief because only the
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Debtor has standing to challenge that order. The Trustee further argues the Builder
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Members had standing to challenge the order appointing the Trustee, but they waived their
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right to appeal by failing to formally appear separately below to challenge the order. The
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Trustee contends the Builder Members are not “persons aggrieved” with standing to appeal
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because they are out-of the money equity holders whose claims are hopelessly underwater.
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Builder Members respond they are persons aggrieved because they lost their management
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rights in South Edge and they are creditors of South Edge. Builder Members further
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contend that their failure to file separate briefs or a joinder below is not fatal to their appeal
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because their interests were aligned with and represented by South Edge.
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Only a “person aggrieved” has standing to appeal an order of a bankruptcy court.
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Matter of Fondiller, 707 F.2d 441, 442-43 (9th Cir. 1983). A person is aggrieved if he is
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“directly and adversely affected pecuniarily by an order of the bankruptcy court.” Id. at 442.
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Generally this requires a showing that the bankruptcy court’s order diminished the person’s
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property, increased his burdens, or detrimentally affected his rights. Id. “Prerequisites for
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being a ‘person aggrieved’ are attendance and objection at a bankruptcy court proceeding.”
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In re Weston, 18 F.3d 860, 864 (10th Cir. 1994) (quotation omitted). However, attendance
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and objection may be excused under certain circumstances, such as where the person did not
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receive proper notice and an opportunity to be heard. In re Commercial W. Fin. Corp., 761
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F.2d 1329, 1334-35 (9th Cir. 1985).
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South Edge filed a notice of appearance in the bankruptcy proceedings below
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through counsel Klee, Tuchin, Bogdanoff & Stern LLP (“Klee”) and The Schwartz Law
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Firm, Inc. (“Schwartz”). (Doc. #89 in Bankr. Pet. #10-32968-BAM.) Builder Members
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filed notices of appearance in the bankruptcy proceedings through separate counsel.2 (Doc.
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#72, #77, #176 in Bankr. Pet. #10-32968-BAM.) Builder Members also appeared through
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separate counsel at a status conference on December 13, 2010, and corporate representatives
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for Meritage Homes Corporation also were present. (Doc. #131 in Bankr. Pet. #10-32968-
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BAM.)
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In the bankruptcy proceeding, Focus South Group, LLC and Holdings Manager,
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LLC filed a motion to remove South Edge’s counsel and to appoint a “responsible officer”
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to act on South Edge’s behalf to determine if South Edge should oppose the involuntary
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petition. (Doc. #139 in Bankr. Pet. #10-32968-BAM.) South Edge, through Klee and
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Schwartz, opposed the motion. (Doc. #172 in Bankr. Pet. #10-32968-BAM.) Builder
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Members filed a joinder to South Edge’s opposition. (Doc. #177 in Bankr. Pet. #10-32968-
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BAM.) The Bankruptcy Court denied this motion. (Doc. #209 in Bankr. Pet. #10-32968-
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BAM.)
South Edge opposed the involuntary petition and moved to dismiss the case
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through Klee and Schwartz. (Doc. #185, #188 in Bankr. Pet. #10-32968-BAM.) South
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Edge also opposed JPMorgan’s motion to appoint a trustee through Klee and Schwartz.
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(Doc. #7, #206 in Bankr. Pet. #10-32968-BAM.) Builder Members did not file any separate
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oppositions or motions, and did not file a joinder to South Edge’s opposition to the
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involuntary petition, motion to dismiss, or opposition to the motion to appoint a trustee.
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///
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The Court takes judicial notice of the bankruptcy court proceedings. In re Tuma, 916 F.2d
488, 491 (9th Cir. 1990).
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The Bankruptcy Court held a hearing on the petition, the motion to dismiss, and
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the motion to appoint trustee on January 24 and 25, and February 2 and 3, 2011. (Doc. #400
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in Bankr. Pet. #10-32968-BAM).) The record does not reflect that Builder Members
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participated in the hearing.
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Builder Members are not persons aggrieved because they did not object to the
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motion to appoint a trustee, either directly or through joining South Edge’s opposition.
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Builder Members contend they did not do so because they did not anticipate the rule in C.W.
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Mining, and therefore they concluded that filing “me too” briefs in the bankruptcy
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proceedings would not be a wise use of resources. However, Builder Members filed a
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joinder to an earlier motion by Focus South Group, LLC which likewise sought to appoint a
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“responsible officer” to decide whether South Edge would oppose the involuntary petition.
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Builder Members thus knew they had interests separate from South Edge that required them
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to attend and object, and they did so when they sought to protect those interests.
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Further, filing a joinder to South Edge’s opposition would not have been
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burdensome, either to Builder Members or the Bankruptcy Court. However, such a joinder
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would have notified everyone involved that Builder Members objected in their own right
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and were seeking to protect their interests, in addition to South Edge’s interests. South Edge
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defended its use of counsel selected by Builder Members in part by assuring the Bankruptcy
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Court that counsel would serve South Edge’s interests rather than the Builder Members’
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interests. (Doc. #172, #201 in Bankr. Pet. #10-32968-BAM.) South Edge is a separate legal
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entity from Builder Members, and had separate legal representation below. It does not
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elevate form over substance to hold distinct legal entities to the consequences of legal
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separateness. Builder Members did not formally appear at the evidentiary hearing, did not
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question any witnesses, and did not make any argument to the Bankruptcy Court regarding
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appointment of a trustee. Having failed to attend and object, Builder Members are not
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persons aggrieved.
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Builder Members argue the Court should overlook this failure when constitutional
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rights are implicated. However, the case upon which Builder Members rely stands for the
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unremarkable proposition that a person who received no notice or opportunity to be heard in
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the bankruptcy proceeding cannot be denied status as a person aggrieved due to a failure to
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attend and object. In re Commercial W. Fin. Corp., 761 F.2d at 1335. Such a rule would
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implicate due process concerns. Here, in contrast, Builder Members filed notices of
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appearance in the bankruptcy proceedings, filed a joinder to another opposition, and were
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well aware of the pending motions and evidentiary hearing. They chose not to join in South
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Edge’s opposition, file their own opposition, or otherwise participate in the briefing or
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hearing.
Having failed to attend and object below, Builder Members are not persons
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aggrieved entitled to appeal in their own right. The Court therefore will grant the Trustee’s
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motion to dismiss the Builder Members’ appeal.
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III. CONCLUSION
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IT IS THEREFORE ORDERED that the Emergency Motion for Leave to
Intervene in Appeal (Doc. #6) is hereby DENIED.
IT IS FURTHER ORDERED that the Request for Hearing on Trustee’s Motion to
Dismiss Appeals (Doc. #68) is hereby DENIED.
IT IS FURTHER ORDERED that the Trustee’s Motion to Dismiss Appeals of
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Order of Relief and Order Directing Appointment of Chapter 11 Trustee (Doc. #33) is
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hereby GRANTED.
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IT IS FURTHER ORDERED that the appeals in 2:11-CV-00240-PMP-RJJ and
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2:11-CV-00301-PMP-RJJ are hereby DISMISSED.
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DATED: April 28, 2011
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_______________________________
PHILIP M. PRO
United States District Judge
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