Sundaram v. Briry, LLC (In re Sundaram)

9 F.4th 16

IN RE Laxmi Sarah SUNDARAM, Debtor.

Laxmi Sarah Sundaram, Appellant,

v.Briry, LLC, Appellee.

No. 20-9008

United States Court of Appeals, First Circuit.

August 13, 2021

David G. Baker on brief for appellant.

Robert A. Mitson and Mitson Law Associates on brief for appellee.

Before Thompson, Selya, and Kayatta, Circuit Judges.

SELYA, Circuit Judge.

Article III of the Constitution grants the federal judiciary the authority to adjudicate cases and controversies, see U.S. Const. art. III, § 2, cl. 1, but that authority extends only to live cases and controversies, not to those which are or have become moot, see Chafin v. Chafin, 568 U.S. 165, 172, 133 S.Ct. 1017, 185 L.Ed.2d 1 (2013). This appeal, which poses a question of first impression for this court, offers a paradigmatic example of that principle. The Bankruptcy Appellate Panel for the First Circuit (the BAP) dismissed this appeal as moot, and we affirm.

We briefly rehearse the relevant facts and travel of the case. On July 5, 2016, Briry, LLC (Briry) made a commercial loan to Global Investments/India Portfolio, Inc. (Global), a corporation wholly owned by debtor-appellant Laxmi Sarah Sundaram. To memorialize the loan, the appellant, on behalf of Global, executed an interest-bearing promissory note (the Note) in the face amount of $120,000. The appellant personally guaranteed payment of the Note. Additionally, the Note was secured by a mortgage on the appellant's home in North Providence, Rhode Island (title to which was then in Global's name). By its terms, the Note was payable in installments, but contained a balloon-payment provision making the entire balance payable at the noteholder's option "upon the earlier of: 1) the transfer of the real property secured by the [N]ote or 2) the maturity date of January 7, 2017."

On January 6, 2017 (one day before the maturity date specified in the Note), the appellant executed a quitclaim deed purporting to transfer title of her home from Global to herself. This transfer, made without Briry's knowledge or consent, constituted a default under the Note. On October 25, 2017, Briry notified the appellant that the Note was in default and demanded payment of the outstanding balance, plus accrued interest, costs, and attorneys' fees. The appellant did not comply.

Less than three months later (on January 18, 2018), a water pipe burst and rendered the appellant's home uninhabitable. The appellant submitted a claim for the resulting damage to United Property Casualty Insurance Company (United). According to the policy documents, the appellant was named as an insured party and Briry, qua mortgagee, was named as an additional party in interest.

The appellant retained a public adjuster to handle her insurance claim. When the claim was settled, United initially issued a draft in the amount of $62,323.90 for interior structural damage, payable to the appellant, Briry, and the public adjuster. This draft was not negotiated, though, and grew stale while in the possession of the appellant's lawyer. On July 12, 2019, United issued a replacement draft, making it payable to the appellant, the appellant's lawyer, and Briry's lawyer.

Meanwhile — on September 3, 2018 — the appellant filed for chapter 13 bankruptcy in the United States Bankruptcy Court for the District of Massachusetts. Her initial petition was dismissed without prejudice and — on September 9, 2019 — the appellant refiled for chapter 13 bankruptcy protection. This petition, too, was filed in the District of Massachusetts but was later transferred to the District of Rhode Island (after the appellant's home had become habitable and she had resumed her residency there). The insurance funds were paid over to John Boyajian, the chapter 13 trustee (the Trustee), to be held in escrow pursuant to an order of the bankruptcy court.

On December 6, 2019, Briry filed a motion in the bankruptcy case, seeking payment to it of the insurance funds. Briry premised its motion on a provision in the mortgage documents stipulating that any home-insurance proceeds be paid directly to Briry should the Note be in default. On December 26 — without any objection from the appellant — the bankruptcy court granted Briry's motion and ordered the Trustee to pay over the insurance funds to Briry.

The appellant did not seek to stay this order but, rather, moved for reconsideration. In support, she noted, among other things, that Briry was listed on the policy as an "additional interest" and not as an "additional insured" or "co-insured." Building on this foundation, she argued that Briry was a stranger to the insurance contract and had no legitimate claim to the insurance settlement. On December 30 — while her motion for reconsideration was pending — the appellant moved to dismiss her bankruptcy case. See 11 U.S.C. § 1307(b).

On January 22, 2020 — while the appellant's motion to dismiss was still pending — the bankruptcy court held a hearing on the motion for reconsideration. Briry informed the court that the Trustee already had released the funds to it and that it had applied the funds to reduce the balance due on the Note.¹ Pointing out that it previously had found (and the appellant had admitted) that Briry had a lien on the funds, the court denied the motion for reconsideration. At the same time, the court advised the parties that it was prepared to grant the appellant's motion to dismiss. Without objection, the appellant's bankruptcy case was dismissed that very day. No plan for the repayment of the appellant's debts was ever confirmed.

The appellant appealed to the BAP. Her appeal challenged both the bankruptcy court's order releasing the insurance funds to Briry and the court's denial of the appellant's motion for reconsideration. It did not purport to challenge the order of dismissal.

The BAP ordered the appellant to show cause as to why her appeal had not been rendered moot by the dismissal of the bankruptcy case. The appellant responded that her appeal was not one of the "certain types of appeals" that are rendered moot by dismissal because it did not concern the "reorganization of [her] estate." See Castaic Partners II, LLC v. DACA-Castaic, LLC (In re Castaic Partners II ), 823 F.3d 966, 969 (9th Cir. 2016) ("In a bankruptcy appeal, when the underlying bankruptcy case is dismissed ... , there is likely no longer any case or controversy ‘with respect to issues directly involving the reorganization of the estate.’ " (quoting Olive St. Inv., Inc. v. Howard Sav. Bank, 972 F.2d 214, 215 (8th Cir. 1992) (per curiam))). Because her appeal concerned only erroneously disbursed funds, she averred, it was not moot. The BAP was not persuaded: it proceeded, in an unpublished judgment, to dismiss the appeal as moot. This timely second-tier appeal followed.

The correctness of the BAP's determination that the appeal has become moot presents a pure question of law. Further appellate review is, therefore, de novo. See Hower v. Molding Sys. Eng'g Corp., 445 F.3d 935, 937-38 (7th Cir. 2006) ; Ramírez v. Sánchez Ramos, 438 F.3d 92, 96 (1st Cir. 2006).

Our analysis begins — and ends — with a threshold question. That threshold question is jurisdictional in nature. Federal courts lack jurisdiction to adjudicate moot cases, see Barr v. Galvin, 626 F.3d 99, 104 (1st Cir. 2010), and the threshold question here turns on whether the appeal has been rendered moot by the appellant's voluntary dismissal of the underlying bankruptcy case.

Jurisdictional mootness (also known as Article III mootness) occurs when a court can no longer provide any meaningful relief.² See Rochman v. Ne. Utils. Serv. Grp. (In re Pub. Serv. Co. of N.H. ), 963 F.2d 469, 471-72 (1st Cir. 1992). A live case may become moot in this sense when a court loses jurisdiction over the subject matter of the litigation due to some intervening event. See, e.g., Matt v. HSBC Bank USA, N.A., 783 F.3d 368, 372-73 (1st Cir. 2015). A prime example is when the issue on appeal is directly related to an underlying bankruptcy case and the underlying case is itself dismissed. See, e.g., Neidich v. Salas, 783 F.3d 1215, 1216 (11th Cir. 2015) ; United States Internal Revenue Serv. v. Pattullo (In re Pattullo ), 271 F.3d 898, 901 (9th Cir. 2001). As long as the issue involves matters pertaining to the attempted reorganization of the debtor's estate, the appeal is moot because no live case or controversy persists. See In re Castaic Partners II, 823 F.3d at 968-69 ; Melo v. GMAC Mortg., LLC (In re Melo ), 496 B.R. 253, 256 (B.A.P. 1st Cir. 2013).

The rationale for this rule is straightforward. Once the underlying bankruptcy proceeding is dismissed, the possibility of reorganization evaporates. Thus, the goal of reorganizing the debtor's affairs is no longer attainable, and the parties no longer have a live or continuing interest in the outcome. See Olive St. Inv., 972 F.2d at 216. At that point, any opinion that a reviewing court might provide would be merely advisory, as there is no longer any underlying bankruptcy proceeding to which the case could be remanded. See In re Melo, 496 B.R. at 256 ("In the absence of a chapter 13 case and the prospect of such reorganization, it no longer serves any purpose to determine whether the bankruptcy court properly entered summary judgment."); see also Chafin, 568 U.S. at 172, 133 S.Ct. 1017 (holding that federal courts cannot issue advisory opinions).

This appeal appears to fit seamlessly into that taxonomy. After all, the insurance funds were paid over to Briry as part of the anticipated reorganization of the debtor's estate, and there is now no pending bankruptcy proceeding or bankruptcy estate to which the funds could be restored for redistribution. See Viegelahn v. Lopez (In re Lopez ), 897 F.3d 663, 670 (5th Cir. 2018) (explaining that "the bankruptcy estate ceases to exist upon dismissal").

Here, however, the appellant tries to throw a wrench into the works. She strives to take advantage of the fact that the rule that dismissal of an...