Hiawatha Coal Company v. Rushton et al
MEMORANDUM DECISION and ORDERgranting 26 Motion to Dismiss Appeal as Moot. Signed by Judge Ted Stewart on 05/16/2012. (tls)
IN THE UNITED STATES COURT FOR THE DISTRICT OF UTAH
HIAWATHA COAL COMPANY,
Appellant and Cross Appellee,
MEMORANDUM DECISION AND
ORDER GRANTING MOTION TO
DISMISS APPEAL AS MOOT
KENNETH A. RUSHTON, Trustee
KENNETH A. RUSHTON, Trustee,
Case No. 2:10-CV-267 TS
HIAWATHA COAL COMPANY, C.O.P.
COAL DEVELOPMENT COMPANY, ANR
COMPANY, INC., PAUL KINGSTON,
CHARLES REYNOLDS, AQUILA, INC.,
JOHN DAVID KINGSTON, JR., WORLD
INDUSTRIES, FIDELITY FUNDING,
SECURITY FUNDING, ABM, JOSEPH O.
KINGSTON, and JOHN T. MORGAN,
This matter is before the Court on appellee Kenneth A. Rushton, Chapter 7 Trustee of the
Estate of C.W. Mining Company (“Trustee”), and Interested Parties Rhino Energy LLC
(“Rhino”) and Castle Valley Mining LLC’s (“Castle Valley”) (collectively referred to hereinafter
as “Movants”), Joint Motion for Dismissal of Appeal as Moot.1 For the reasons discussed more
fully below, the Court will grant the Motion.
This dispute arises out of the involuntary Chapter 7 bankruptcy proceeding of C.W.
Mining Company (“CWM”). Before entering bankruptcy, CWM was in the business of mining
coal. CWM’s primary asset was an underground coal mine located in Emery County, Utah—the
Bear Canyon mine. CWM’s assets also included miscellaneous mining equipment, two coal
mining agreements, and mining permits. At issue in this appeal is a coal mining agreement
entered into in 1997 by CWM and C.O.P. Coal Development Company (“COP”) (the “COP
Agreement”) and various coal mining assets used at the Bear Canyon mine.
Hiawatha Coal Company (“Hiawatha”) is also in the business of mining coal. In June
2008, COP attempted to terminate the COP Agreement with CWM and enter into a new mine
operating agreement with Hiawatha. In addition, CWM attempted to sell virtually all of CWM’s
mine assets to Hiawatha under a conditional sales agreement that never closed. Hiawatha took
possession of the mine and began operating it in anticipation of closing on the transfer.
The attempted transfer of assets to Hiawatha and the new COP agreement entered into
with Hiawatha all occurred during the “gap period” between the CWM petition of involuntary
Docket No. 26.
bankruptcy filed January 8, 2008, and the entry of order for relief issued September 26, 2008.
The CWM bankruptcy case was converted to a Chapter 7 case on November 13, 2008, and, on
November 19, 2008, Kenneth A. Rushton (the “Trustee”) was appointed as Chapter 7 Trustee of
On December 30, 2008, the Trustee filed an adversary action (the “Adversary Action”)
against Hiawatha seeking to unwind the transfer of assets to Hiawatha. On May 7, 2009, the
bankruptcy court entered a memorandum decision and order in the Adversary Action denying a
motion by Hiawatha that sought dismissal of the case and/or joinder of a number of ancillary
parties. On May 8, 2009, the bankruptcy court granted summary judgment for the Trustee in the
Adversary Action.2 In granting summary judgment for the Trustee, the bankruptcy court
established that a transfer of mere possession was a transfer that could be avoided and found that
the Trustee had satisfied his burden to avoid the transfer of the mine assets to Hiawatha.
Pursuant to an order issued February 12, 2010, the bankruptcy court denied Hiawatha’s
claim for an improver’s lien against the mine assets and interpreted the continuous operations
clause under the COP Agreement. By orders entered February 11, 2010, and March 2, 2010, the
bankruptcy court granted the Trustee’s claim to recover possession of the mine assets from
Hiawatha. On February 12, 2010, Hiawatha surrendered possession of the Bear Canyon mine
and most of the mine assets to the Trustee.
In the same Memorandum Decision and Order, the bankruptcy court denied a Motion for
Summary Judgment filed by Hiawatha and rejected Hiawatha’s argument that the Trustee was
legally unable to assume the COP Agreement.
On August 4, 2010, the bankruptcy court entered a sale order (the “Sale Order”)
approving the sale of CWM’s mine assets to Rhino for $15 million. The Sale Order expressly
found that Rhino was a good faith purchaser and provided that:
If, in the absence of any person or entity obtaining a stay pending appeal, the
Debtor and the Buyer close under the Sale Agreement, the Buyer shall be deemed
to be acting in “good faith” and shall be entitled to the protection of § 363(m) of
the Bankruptcy Code as to all aspects of the transaction under and pursuant to the
Sale Agreement if this Order or any authorization contained herein is reversed or
modified on appeal.3
Pursuant to its terms, the Sale Order closed on August 25, 2010. At the closing Rhino
paid the purchase price to the Trustee, and the Trustee conveyed the mine assets to Castle Valley,
Rhino’s wholly owned subsidiary. Pertinent to this appeal, Hiawatha did not object to, or seek to
stay, the closing of the Sale Order. Since that time, Rhino and Castle Valley have expended
substantial sums of money and time in reliance on the conveyance they received through the Sale
In its Opposition to the instant Motion, Hiawatha identifies the following four issues it is
raising on appeal:4
Issue 1: whether the bankruptcy court committed reversible error by failing to join
required parties under Rule 19;
Docket No. 27 Ex. 2, at 12.
In its Designation of Record and Statement of Issues on Appeal, Hiawatha provided the
Court a list of nine issues to be raised on appeal. The four issues included in Hiawatha’s
Opposition appear to be a summary of the same nine issues and pertain to the same objections to
the bankruptcy court’s orders. Therefore, for purposes of this Motion, the Court will consider the
issues provided in the briefing by Hiawatha. See Docket No. 3, at 5-6.
Issue 2: whether the bankruptcy court’s summary judgment that Hiawatha gave no
“value” for purposes of §549(b) for the transferred assets (including the disputed
assets) was reversible error;
Issue 3: whether the bankruptcy court’s ruling that post-petition improvements for
purposes of 11 USC §550(e) are automatically “property of the estate” for
purposes of 11 USC §550(a) [was] reversible error; and
Issue 4: whether the bankruptcy court’s ruling that Hiawatha was not a good faith
transferee or improver under 11 USC §550(e) was an abuse of discretion.
Movants assert that the Court is without jurisdiction to determine this appeal because the
relief sought by Hiawatha would affect the validity of the Sale Order in contravention of the
mootness doctrine found in 11 U.S.C. § 363(m). In the event the Court finds § 363(m)
inapplicable, Movants argue that the Court should apply the doctrine of equitable mootness and
dismiss Hiawatha’s appeal.
11 U.S.C. § 363(m)
Subsection 363(m) provides:
The reversal or modification on appeal of an authorization under subsection (b) or
(c) of this section of a sale or lease of property does not affect the validity of a sale
or lease under such authorization to an entity that purchased or leased such
property in good faith, whether or not such entity knew of the pendency of the
appeal, unless such authorization and such sale or lease were stayed pending
Here, Hiawatha does not dispute that Rhino is a good faith purchaser. It is also
undisputed that Hiawatha did not seek to stay the Sale Order. Thus, “[t]he mootness question
turns on what relief is available to [Hiawatha] if it were to prevail in this appeal.”5 “[Section]
C.O.P. Coal Dev. Co. v. C.W. Mining Co. (In re C.W. Mining Co.), 641 F.3d 1235, 1239
(10th Cir. 2011) (citing Church of Scientology v. United States, 506 U.S. 9, 12 (1992) (noting
that an appeal should be dismissed as moot if it is “impossible for the court to grant any effectual
363(m) forecloses any remedy . . . that would affect the validity of the trustee’s sale. But it does
not preclude a remedy that would not affect the validity of the sale.”6 Furthermore, “[t]he burden
of showing mootness is on the trustee, which here means showing that [Hiawatha] would not
have such a remedy.”7
Movants assert that the crux of Hiawatha’s appeal is an attempt to reverse the bankruptcy
court’s orders that established the Trustee’s ownership of the mine assets and permitted the
Trustee to recover CWM’s mine assets from Hiawatha. The reversal of those orders would
conflict with the sale of the mine assets to Rhino. To the extent Hiawatha is seeking to reverse
the transfer of the mine assets to Rhino, such a reversal would directly affect the validity of the
Sale Order and, therefore, would violate § 363(m).
Hiawatha contends that the Court may grant it meaningful relief because pertinent
provisions of the Asset Sale Agreement constitute admissions by Movants that Hiawatha’s
appeal is not moot.8 According to Hiawatha, the sale of the CWM mine assets to Rhino was, to a
significant degree, engineered around Hiawatha’s claims. Hiawatha asserts that the documents
relief whatever”) and Osborn v. Durant Bank & Trust Co. (In re Osborn), 24 F.3d 1199, 1203
(10th Cir. 1994) (holding “that because it is not impossible for the court to grant some measure
of effective relief, the Osborns’ appeal is not moot”)).
A number of documents from the bankruptcy case pertain to the sale of CWM’s mine
assets to Rhino, including the following: the Asset Sale Agreement, dated May 3, 2010; the First
Amendment to the Asset Sale Agreement, dated May 13, 2010; the Second Amendment, dated
June 2, 2010; and the Sale Order, dated August 4, 2010. Movants question the relevancy of the
Asset Sale Agreement and Amendments after the closing of the Sale Order. For purposes of this
Motion, however, the Court will review and apply the terms of each of the agreements.
referencing the sale embody contingencies in the event Hiawatha is eventually able to prevail on
its claims. Hiawatha specifically identifies six provisions of the Assets Sale Agreement that it
believes demonstrate that the sale itself is not jeopardized by its appeal.
After thorough review of the relevant agreements, the Court finds Hiawatha’s reliance on
the six provisions of the Asset Sale Agreement unavailing. The provisions cited by Hiawatha are
representative of the protections afforded all buyers in bankruptcy proceedings. It appears that
Hiawatha would have this Court read the provisions designed to protect the buyer in such a way
as to infer a tacit invitation to seek redress from the Trustee regarding any allegedly unsettled
claims to the mining assets. It is clear from the sale agreements that the bankruptcy court was
aware of, and ruled on, each of Hiawatha’s claims to the property before including each asset in
the Sale Order. The bankruptcy court expressly excluded assets from the Sale Order that it found
were not a part of the CWM estate. In this manner, Hiawatha was able to receive a number of
assets to which Hiawatha had an ownership right.9
Hiawatha’s claim that the sale agreements somehow anticipate the “continuing litigation
of Hiawatha’s claims to the mine assets by appeal or otherwise” is unsupported by the
documentation memorializing the sale. The very title of the Sale Order—“Order Authorizing
Sale of Mine Assets Free and Clear of Liens, Claims, Encumbrances, and Interests and
Authorizing the Assumption and Assignment of Executory Contracts under 11 U.S.C. §§ 363 and
See Docket No. 35, at 15-16 and Docket No. 28 Ex. 2, at 12 (“The Mine Assets exclude,
among other things, the following assets . . . “Hiawatha Equipment List”, and “Hiawatha
Equipment List / AFAB Leased to HCC for CW Mining”).
365”—contradicts Hiawatha’s interpretation of the agreements.10 For these reasons, the Court
rejects Hiawatha’s interpretation of the Asset Sale Agreement.
Hiawatha also asserts that the Court can fashion meaningful relief without affecting the
Sale Order because, as to each of the issues it raises on appeal, the Court may simply grant
Hiawatha a claim to the proceeds of the sale to Rhino. Movants contend that such a recovery
would be improper because the “proceeds of the sale were not segregated in order to allow
Hiawatha to preserve its claim to those proceeds.”11
In Freightliner v. Central Refrigerated Service (In re Simon Transportation Services),12
the Tenth Circuit addressed “the limited ability for third parties to recover the proceeds of an
asset sale in certain circumstances, while strictly applying the rule that the sale itself cannot be
reversed.”13 The Freightliner court held that equitable relief is only available “in the absence of
a stay, when the proceeds of the sale have not been commingled with the rest of the bankruptcy
estate’s funds.”14 The court provided the following factors as favoring its conclusion.
First, Congress intended a sale of assets under § 363 to be final unless the sale is
stayed pending appeal. The segregation of funds displays the parties’ recognition
that the sale is not yet final, placing all interested parties on notice. Allowing the
proceeds of a sale to pass to a third party absent a stay or segregation of funds fails
to place parties on notice, thereby reintroducing uncertainty to asset sales—a
result Congress clearly sought to avoid. Second, allowing the proceeds of a sale
See Docket No. 35, at 15.
Docket No. 36, at 10.
138 F. App’x. 52 (10th Cir. June 2, 2005) (unpublished).
Id. (internal citations omitted).
Id. at 56.
to pass to a third party absent a stay or segregation of funds hampers the
bankruptcy estate’s ability to finalize payments to outstanding creditors. Without
some mechanism—such as a stay or segregation of funds—for placing creditors
on notice as to the total amount of funds available to satisfy obligations, final
payments to creditors would remain uncertain. Finally, these requirements,
staying the auction or segregating funds, are not overly burdensome
Here, the Trustee has provided evidence that—besides the $1,916,707.77 distributed to
lien holders and the $2,145,329.05 set aside pursuant to the Sale Order—the proceeds of the sale
to Rhino have been commingled with other funds in the general account for this case.16 It is also
undisputed that Hiawatha did not seek to segregate any amount of the proceeds to put other
creditors on notice of its claims to the proceeds. The Court finds the reasoning of Freightliner
persuasive and will therefore dismiss any claim by Hiawatha against the proceeds of the Sale
Order as moot.
In sum, because the relief Hiawatha seeks in this appeal would necessarily affect the
validity of the Sale Order or would improperly seek recovery from commingled sale proceeds,
the Court finds that Movants have met their burden to establish mootness under § 363(m). For
these reasons, the Court is without jurisdiction to hear Hiawatha’s appeal.
As an alternative ground for granting the instant Motion, the Court will consider whether
this appeal is moot under the doctrine of equitable mootness. In a recent decision in a related
matter, the Court addressed the issue of whether the doctrine of equitable mootness should apply
See Docket No. 36 Ex. A, at 3.
in the Chapter 7 context.17 For the same reasons provided in that case, the Court will apply the
doctrine of equitable mootness to this appeal.
“The equitable mootness doctrine allows a court to decline to hear a bankruptcy appeal,
even when relief could be granted, if implementing the relief would be inequitable.”18 The Tenth
Circuit formally adopted the doctrine of equitable mootness in In re Paige.19 In Paige, the court
set out the following six-part test for determining whether an appeal is equitably moot:
(1) Has the appellant sought and/or obtained a stay pending appeal? (2) Has the
appealed plan been substantially consummated? (3) Will the rights of innocent
third parties be adversely affected by reversal of the confirmed plan? (4) Will the
public-policy need for reliance on the confirmed bankruptcy plan—and the need
for creditors generally to be able to rely on bankruptcy court decisions—be
undermined by reversal of the plan? (5) If appellant’s challenge were upheld, what
would be the likely impact upon a successful reorganization of the debtor? And
(6) based upon a quick look at the merits of appellant’s challenge to the plan, is
appellant’s challenge legally meritorious or equitably compelling? These six
factors are not necessarily conclusive, nor will each factor always merit equal
The Court will address each of the six factors in turn.
“The first question in an equitable mootness inquiry is whether the appellant
secured a stay to prevent execution of the reorganization plan.” This inquiry
really involves two questions: (1) Did the party seeking reversal try to obtain a
See ANR Co., Inc. v. Kenneth A. Rushton, Trustee, et al., No. 2:10-CV-79 (D. Utah May
C.O.P. Coal, 641 F.3d at 1239-40 (internal citation omitted).
584 F.3d 1327 (10th Cir. 2009).
Id. at 1337-39.
stay? (2) Assuming the party seeking reversal sought a stay, was that party
successful in obtaining a stay pending appeal?21
The Tenth Circuit has instructed that “both of these questions are significant.”22 “On the one
hand, an appellant’s complete and unjustified failure to seek a stay will often make it unfair for
the court to grant relief—especially if that relief may affect third parties.”23 “On the other hand,
[the Court] will be more inclined to accommodate an appellant who has diligently but
unsuccessfully pursued a stay pending appeal, even if awarding him relief may adversely affect
third parties.”24 “Thus, [the Court] will not only look to whether a stay has been obtained; [but]
will also inquire into whether the appellant has sought a stay pending appeal.”25
Here, it is undisputed that Hiawatha did not seek a stay of either the Sale Order or,
indeed, of any order of the bankruptcy court giving rise to this appeal. Because Hiawatha failed
to take any action in this regard, this factor weighs in favor of finding this appeal equitably moot.
Id. at 1341 (quoting United States ex rel. FCC v. GWI PCS 1 Inc. (In re GWI PCS 1
Inc.), 230 F.3d 788, 800 (5th Cir. 2000)).
Id. (citing Trone v. Roberts Farm, Inc. (In re Roberts Farms, Inc.), 652 F.2d 793, 798
(9th Cir. 1981) (“An entirely separate and independent ground for dismissal has also been
established because Appellants have failed and neglected diligently to pursue their available
remedies to obtain a stay of the objectionable orders of the Bankruptcy Court and have permitted
such a comprehensive change of circumstances to occur as to render it inequitable for this court
to consider the merits of the appeal.”)).
Id. (citing Deutsche Bank AG v. Metromedia Fiber Network, Inc. (In re Metromedia
Fiber Network, Inc.), 416 F.3d 136, 144 (2d Cir. 2005) (stating that “[w]e insist that a party seek
a stay even if it may seem highly unlikely that the bankruptcy court will issue one”)).
“The second consideration in the mootness inquiry is whether the reorganization plan has
been substantially consummated.”26 “In determining whether a plan has been substantially
consummated, [the Court will] apply the Bankruptcy Code’s three-part definition.”27
The Bankruptcy Code defines “substantial consummation” of a reorganization
“(A) transfer of all or substantially all of the property proposed by the plan to be
(B) assumption by the debtor or by the successor to the debtor under the plan of
the business or of the management of all or substantially all of the property dealt
with by the plan; and
(C) commencement of distribution under the plan.”28
The very nature of a sale order in a liquidation proceeding contemplates such actions
provided in the Bankruptcy Code’s definition of “substantial consummation.” Once a sale order
becomes effective, it is contemplated that there will be a transfer of all or substantially all of the
property and a commencement of distribution. Unlike the majority of reorganization plans, the
assets are not restructured; rather, they are liquidated.
In this case, CWM’s assets were conveyed to Rhino in exchange for $15,000,000.
Movants assert that this transaction has been substantially consummated because: “Payments
have been made, possession and control of highly regulated properties have been assumed,
Sutton v. Weinman (In re Centrix Fin. LLC), 394 F. App’x 485, 487 (10th Cir. 2010)
Paige, 584 F.3d at 1341-42 (quoting 11 U.S.C. § 1101(2)).
millions of dollars of equipment and repairs have been ordered, people have been hired, and
extensive work has already gone into preparing to mine coal.”29
“Hiawatha does not dispute Movants’ characterization of the sale as being
consummated,” rather, Hiawatha asserts that the degree of completeness of the sale is of no
consequence to this appeal because the Asset Sale Agreement allows for Hiawatha’s pursuance
of its claims without creating a circumstance which would upset the sale. Hiawatha’s arguments
on this point are premised on its contention that the provisions of the Asset Sale Agreement
allow the return of the mining assets to Hiawatha without violating the Sale Order. The Court
finds Hiawatha’s asserted interpretation of the Asset Sale Agreement equally unavailing in the
context of equitable mootness.
Hiawatha has alleged as an alternative form of relief that it should be allowed to collect
money damages from the proceeds of the sale to Rhino. To the extent Hiawatha were able to
recover from the sale proceeds this factor would be inapplicable.
Because the principal form of relief Hiawatha seeks through this appeal is the return of
property included among the CWM mining assets and transferred to Rhino, Hiawatha’s assertion
that it is not creating a circumstance that would affect the sale is disingenuous. For this reason,
this factor weighs in favor of finding this appeal equitably moot.
Docket No. 27, at 19-20 (citing Docket No. 28 Exs. 3, 16).
EFFECT ON THIRD-PARTIES
“The effects that reversal will have on non-party creditors is probably the foremost
concern in [the Court’s] analysis of equitable mootness.”30
The Trustee has provided evidence that $1,916,707.77 of the sale proceeds have been
distributed to lienholders and other creditors of CWM.31 If the Sale Order were to be reversed,
the Trustee would be tasked with recovering these funds. This would necessarily cause a
hardship to those non-party creditors who would be required to re-pay the amount of the proceeds
each has received.
Though not necessarily third-party creditors, it is under this factor that Rhino and Castle
Valley have intervened in this Motion. As interested parties—the purchasers of the CWM
mining assets—Rhino and Castle Valley are concerned with how this Court’s ruling may affect
property they have rightfully purchased. After expending considerable sums of money and time
in reliance on the Sale Order, Rhino and Castle Valley are compelled to defend the assets they
The Court’s foremost concern in this appeal is for the rights of Rhino, Castle Valley, and
those third-party creditors who have received payment from the proceeds of the sale. Because
these parties stand to lose the value of their exchange through this appeal, this factor weighs in
favor of finding this appeal equitably moot.
Paige, 584 F.3d at 1343 (quoting Wooley v. Faulkner (In re SI Restructuring, Inc.), 542
F.3d 131, 136 (5th Cir. 2008) (“The ultimate question to be decided is whether the Court can
grant relief without undermining the plan and, thereby, affecting third parties.”)).
Docket No. 36 Ex. A, at 3.
“This factor ‘reflects a court’s concern for striking 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
In [Paige], [the Tenth Circuit] acknowledged that “completed acts in accordance
with an unstayed order of the bankruptcy court must not thereafter be routinely
vulnerable to nullification if a plan of reorganization is to succeed.” And [further]
found it “equally important that a court not reverse a bankruptcy plan if an
appellate reversal . . . would create a nightmarish situation for the bankruptcy
court on remand and make reconstructive relief extremely improbable.” But [the
Tenth Circuit] also considered the seriousness of the appeal allegations as a
“countervailing concern” that could weigh against a determination of equitable
As has been discussed previously, Rhino, Castle Valley, and CWM’s creditors have an
interest in the finality of the unstayed Sale Order. They have exercised good faith reliance on the
Sale Order being a valid judgment of the bankruptcy court entitling them to the proceeds for
which they have provided value or, in the case of the creditors, for which they are owed for past
value provided. While cognizant of Hiawatha’s right to seek review of the bankruptcy court’s
orders—which, undoubtedly, have an effect on Hiawatha—here, the Court is persuaded that
Hiawatha, in a delinquent fashion, is seeking a second day in court.
Paige, 584 F.3d at 1347 (quoting First Union Real Estate Equity & Mortg. Inv. v. Club
Assocs. (In re Club Assocs.), 956 F.2d 1065, 1069 (11th Cir. 1992)).
In re Centrix, 394 F. App’x at 492 (quoting Paige, 584 F.3d at 1347).
Furthermore, the issues raised in this appeal are not “troubling allegations” of bad faith
dealings or a lack of disinterestedness on the part of the Trustee.34 The majority of issues raised
by Hiawatha relate to the bankruptcy court’s classification of assets. These allegations are not of
themselves troubling allegations that “bring to light some issue that [speaks] to the integrity of
the bankruptcy process.”35 For these reasons, the Court find this factor weighs in favor of finding
this appeal equitably moot.
IMPACT ON NEW REORGANIZATION
“The fifth factor a court should consider in determining whether an appeal is equitably
moot is the impact of reversal upon the likelihood of a new, successful reorganization.”36
Movants assert that a reversal of the orders resulting from the Adversary Action could
“have the chaotic and useless effect of putting Hiawatha back into possession of valuable and
sensitive assets, title to which is irrevocably vested in Castle Valley by virtue of the asset sale
and Section 363(m).”37 Hiawatha does not dispute this outcome.
The Court notes however that to the extent Hiawatha merely seeks money damages from
the proceeds of the sale to Rhino, this factor is inapplicable. If Hiawatha were able to recover
Paige, 584 F.3d at 1347 (“[T]here are countervailing concerns that outweigh the public
policy interest in finality of bankruptcy court decisions in this case. [Appellant] raises troubling
allegations of bad-faith dealings between the debtor . . . and the trustee, and of a lack of
disinterestedness on the part of the trustee.”).
In re Centrix, 394 F. App’x at 493.
Docket No. 27, at 22.
from the proceeds of the sale, such would not cause a reversal of the Sale Order and, thus, a new
sale would not be necessary.
Based on the foregoing, the Court finds that this factor does not favor either party and is
inapplicable to the case at hand.
“The final factor in evaluating whether an appeal is equitably moot involves a ‘quick look
at the merits of appellant’s challenge to the plan’ to determine if it is ‘legally meritorious or
Movants assert that this appeal is close to frivolous. The instant appeal involves CWM’s
efforts to transfer its mining assets to Hiawatha during the gap period between the date of
involuntary petition and entry of the order for relief and appointment of the Trustee. According
to Movants, this is an indefensible transaction because—without court approval—CWM sought
to defeat the effect of the involuntary bankruptcy proceedings by transferring all of its mining
assets to Hiawatha for no money and the mere assumption of a minor part of CWM’s pre-petition
debt. The Court would further note that the relationship between CWM and Hiawatha casts
suspicion on the attempted transfer. Hiawatha and CWM are closely related entities, having
several officers and shareholders in common, sharing the same registered address and agent, and
each having shareholders who are members of the Kingston family and the Davis County
In re Centrix, 394 F. App’x at 493-94.
Hiawatha contends that this factor weighs heavily in its favor. According to Hiawatha,
“[t]he whole of the transfer of assets to Hiawatha was set aside by the bankruptcy court based
upon what Hiawatha asserts was its finding that Hiawatha had not given ‘value’ for purposes of
§549(b) because the assumption of the debt by Hiawatha was of . . . [CWM]’s pre-petition
obligations.”39 Hiawatha is confident this finding will be set aside as clearly erroneous, in part,
because “Hiawatha paid literally millions of dollars to maintain and operate the mine, to say
nothing of the millions of dollars in liabilities (all post-petition, incidentally) owed by . . .
[CWM] it assumed and paid.”40
The Court is mindful of the resources expended by Hiawatha in reliance on its attempted
purchase of the mining assets from CWM. Nonetheless, the timing of the attempted purchase
and details of the exchange cause the Court to question, even at this early stage, the merits of
Hiawatha’s claims. On balance of these considerations, the Court finds that this factor supports a
finding that this appeal is equitably moot.
EQUITABLE MOOTNESS CONCLUSION
In sum, the Court finds that review of the above factors supports a finding that this appeal
is equitably moot.
Docket No. 35, at 23.
For the foregoing reasons, it is hereby
ORDERED that the Trustee, Rhino, and Castle Valley’s Joint Motion for Dismissal of
Appeal as Moot (Docket No. 26) is GRANTED. The Clerk of Court is directed to close this case
DATED May 16, 2012.
BY THE COURT:
United States District Judge
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?