Reynolds v. ServisFirst Bank (In re Stanford)

17 F.4th 116

IN RE: Robert Fletcher STANFORD, Sr., Frances Sharples Stanford, Debtors.

Thomas E. Reynolds, trustee for Chapter 7 Estate of Robert F. Stanford, Sr. and Frances S. Stanford, Plaintiffs-Appellant,

v.Servisfirst Bank, Defendant-Appellee.

No. 20-11652

United States Court of Appeals, Eleventh Circuit.

Filed November 1, 2021

Xan Ingram Flowers, Butler Snow, LLP, Birmingham, AL, Frederick M. Garfield, Spain & Gillon, LLC, Birmingham, AL, for Plaintiff-Appellant.

Robert Payne Reynolds, William Ellis McCartney, Gilbert C. Steindorff, IV, Birmingham, AL, Brian R. Walding, Walding, LLC, Birmingham, AL, for Defendant-Appellee.

Before Jordan, Brasher, and Julie Carnes, Circuit Judges.

Brasher, Circuit Judge:

This appeal comes to us from a bankruptcy court by way of an appeal to a district court. The debtors asked the district court to overturn the bankruptcy court's order approving the sale of the debtors’ real estate. The sale was finalized while the appeal was pending, and the district court dismissed the appeal as statutorily moot under 11 U.S.C. § 363(m). That section of the Bankruptcy Code provides that "[t]he reversal or modification on appeal of an authorization ... 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." 11 U.S.C. § 363(m).

Now, the debtors have appealed to us. Although the facts are complicated and the procedural history is tangled, the question for us is relatively straightforward: in light of our inability to undo a completed sale to a good faith purchaser under Section 363(m), can we grant the debtors any relief in this appeal? We hold that the answer is "no." Accordingly, we agree with the district court that the appeal is statutorily moot and affirm.

I. BACKGROUND

This appeal involves transactions in two separate Chapter 11 bankruptcy proceedings. Robert and Frances Stanford were debtors in one of those proceedings. They owned American Printing Company, which was a debtor in the other proceeding. Before the Stanfords and APC declared bankruptcy, they each had borrowed money from ServisFirst, and each served as guarantor for the other's debt. The Stanfords owed ServisFirst around $5 million for which APC was the guarantor; APC owed ServisFirst around $7.2 million, for which the Stanfords were guarantors. The Stanfords had secured their loans from ServisFirst with a piece of real property.

After the Stanfords and APC declared bankruptcy, APC sought permission from the bankruptcy court to acquire a debtor-in-possession loan from ServisFirst of up to $13.2 million. That amount would "roll up" the $12.2 million in debt that APC owed or had guaranteed and provide APC an additional $1 million of working capital. The bankruptcy court authorized the loan. At the time the loan was authorized, neither APC, the Stanfords, nor ServisFirst thought that ServisFirst's loan to APC would affect ServisFirst's lien on the Stanfords’ real property.

About a month later, the Stanfords filed a motion in their bankruptcy proceeding asking the bankruptcy court to approve the sale of that property to ServisFirst for $3.5 million. The Stanfords filed their request under 11 U.S.C. § 363(b), which provides for the sale of a bankruptcy estate's assets outside the normal course of business. The Stanfords knew that ServisFirst planned to purchase the property with a credit bid against the Stanfords’ obligations to ServisFirst. The bankruptcy court held a hearing on the motion and later entered an order approving the sale of the property to ServisFirst "via a credit bid of $3.5 million" under 11 U.S.C. § 363(k). In doing so, the bankruptcy court expressly found that ServisFirst was "a good faith purchaser under Section 363(m) of the Bankruptcy Code." It also found that "the consideration provided for in the Credit Bid constitutes the highest and/or best offer" and "the consideration to be paid by [ServisFirst] under the Credit Bid exceeds the liquidation value" of the property.

It was only at this point, after final approval of the sale, that the Stanfords raised the possibility that ServisFirst's roll-up loan to APC had paid off their own debts to ServisFirst and, therefore, had eliminated ServisFirst's lien on their real property. Shortly after the bankruptcy court approved the sale, the Stanfords filed a motion to amend the sale order and to stay the sale. They argued that APC's roll-up loan had converted ServisFirst's pre-petition claims against the Stanfords and APC into post-petition administrative expense claims against APC alone. They further argued that because ServisFirst never required them to execute a guaranty of the roll-up loan obligations, they had no remaining pre-petition obligations to ServisFirst. Consequently, they argued, ServisFirst no longer held a lien on their property and was no longer a secured creditor that could make a credit bid for that property.

ServisFirst opposed the motion, and the bankruptcy court held another hearing. At that hearing, the Stanfords and one of their unsecured creditors reiterated the arguments contained in the motion to amend. The bankruptcy court rejected their arguments for two reasons.

First, it rejected the Stanfords’ arguments on their merits. It explained that after the roll-up loan, APC still owed ServisFirst the approximately $7.2 million that it had borrowed. And, instead of being a guarantor of the Stanfords’ debt, the bankruptcy court held that APC was now a co-obligor on that debt. It concluded that the roll-up loan had no other effect on the Stanfords’ obligations to ServisFirst—including the lien that ServisFirst held on the Stanfords’ property.

Second, the bankruptcy court explained that the Stanfords were foreclosed from arguing, after final approval of the sale, that ServisFirst lacked a biddable interest in the property. The bankruptcy court noted that either the Stanfords themselves or their attorneys were present at every hearing held in the APC bankruptcy proceeding and had never raised the possibility that the roll-up loan had extinguished ServisFirst's interest in the property. It further noted that the Stanfords had instead given every indication that ServisFirst's lien on the property survived the roll-up loan and that ServisFirst's credit bid was valid. Accordingly, the bankruptcy court held that the doctrines of equitable estoppel, judicial estoppel, and law of the case barred the Stanfords from amending the sale on the ground that ServisFirst lacked a biddable interest in the property.

The bankruptcy court therefore denied the motion to amend the sale order. It concluded that APC's roll-up loan simply "rolled up" all of APC's obligations as a borrower and as a guarantor, making APC an obligor or co-obligor on all debt owed to ServisFirst without eliminating the Stanfords’ obligations to ServisFirst.

The Stanfords appealed the sale order and the order denying their motion to amend the sale order to the district court.

The Stanfords also petitioned the bankruptcy court to stay the sale pending appeal. The bankruptcy court granted a stay conditioned on the posting of a $1.5 million supersedeas bond, which the Stanfords did not post. Ultimately, the Stanfords delivered an executed deed to the property to ServisFirst. The deed was duly recorded.

After consummating the sale, ServisFirst moved to dismiss the Stanfords’ appeal as moot under 11 U.S.C. § 363(m). The district court granted that motion. It explained that, because the Stanfords were unable to obtain a stay or prevent the sale from being completed, it lacked authority to grant effective relief under the Bankruptcy Code, rendering the appeal moot. The Stanfords timely appealed to this Court.

II. STANDARD OF REVIEW

When reviewing a district court's appellate review of a bankruptcy court's decision, we apply the same standards of review as the district court. See In re Walter Energy, Inc. , 911 F.3d 1121, 1135 (11th Cir. 2018). Accordingly, we review conclusions of law drawn by both the district court and the bankruptcy court de novo . We review factual findings for clear error. See id. A factual finding is clearly erroneous if the reviewing court examines the evidence and is "left with the definite and firm conviction that a mistake has been made." In re Feshbach , 974 F.3d 1320, 1328 (11th Cir. 2020).

The Stanfords argue that ServisFirst is not a good faith purchaser under the Bankruptcy Code provision governing sales of debtor assets. Whether a buyer purchases in good faith is a mixed question of fact and law. See In re Gucci , 126 F.3d 380, 390 (2d Cir. 1997). The standard of review for a mixed question depends on "whether answering it entails primarily legal or factual work." U.S. Bank Nat'l Ass'n ex rel. CWCapital Asset Mgmt. LLC v. Vill. at Lakeridge, LLC , ––– U.S. ––––, 138 S. Ct. 960, 967, 200 L.Ed.2d 218 (2018). We review a mixed question de novo when it requires us to "expound on the law, particularly by amplifying or elaborating on a broad legal standard." Id. We review a mixed question for clear error when it requires us to "marshal and weigh evidence, make credibility judgments, and otherwise address ... ‘multifarious, fleeting, special, narrow facts that utterly resist generalization.’ " Id. (quoting Pierce v. Underwood , 487 U.S. 552, 561–62, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988) ).

III. DISCUSSION

Before addressing the Stanfords’ arguments, we begin with background on mootness in the context of bankruptcy appeals. "In bankruptcy, mootness comes in a variety of flavors: constitutional, equitable, and statutory." In re PW, LLC , 391 B.R. 25, 33 (9th Cir. BAP 2008). Constitutional mootness is jurisdictional and derives from the case-or-controversy requirement of Article III. See id. If, during an appeal, a court finds that it can no longer provide a plaintiff with effective relief, the case is usually moot. See Uzuegbunam v. Preczewski , ––– U.S. ––––, 141 S. Ct....