KSB

Judge Karlin

12-40685 H D Gerlach Company Inc (Doc. # 330) - Document Text

SO ORDERED.
SIGNED this 17th day of October, 2013.

 

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re: Case No. 12-40685
HD Gerlach Company, Inc., Chapter 11

Debtor.

Memorandum Opinion and Order Denying Creditor Central National
Bank’s Motion to Vacate

Creditor Central National Bank (“Central”) moves this Court to vacate
its March 27, 2013, Order Granting Second Motion to Use Cash Collateral
(“Cash Collateral Order”),1 pursuant to Federal Rule of Civil Procedure 60(b).2
Central appealed the Cash Collateral Order to the District Court, but, before
the appeal was decided, Central and HD Gerlach Company, Inc. (“Debtor”)
entered a settlement that addressed all of their disputes, including the

1 Doc. 206.
2 Doc. 316.


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appeal. Central argues that because the controversy underlying the order has
become moot due to the settlement, vacating the order is the only way to
preserve the rights of the parties, and ensure that, if necessary, relitigation of
this issue would be possible at a later date. Because the Court finds that
Central does not meet its burden to demonstrate that extraordinary
circumstances justify vacation of the order, the Court denies the motion.

I. Factual and Procedural Background
Debtor filed its Chapter 11 petition on May 9, 2012. Central is3 a
secured creditor of the Debtor by virtue of a promissory note and a real estate
mortgage in the property commonly known as Wanamaker 22 Apartments
(Apartments). Along with the filing of the bankruptcy petition, the Debtor
filed a Motion for Turnover of Estate Property (rents from the Apartments)
and a Motion to Allow Debtor to Use Cash Collateral.4 Central and the Debtor
initially reached an agreement surrounding the treatment of the rents and an
agreed order was entered on June 7, 2012.5

3 It is possible that by now, the proper verb to use in this sentence is “was,” becausethe Court signed a sale order on September 27, 2013 that called for Central to be paid infull from the sale of Debtor’s principal asset—the Apartments. As a result of this sale andpayoff of Central’s note, therefore, it appears highly unlikely that the main basis for this
motion—maintaining the ability of the parties to relitigate this issue—remains as a possible
basis for the motion.

4 Doc. 8.

5 Doc. 45.

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The agreed order expired according to its terms on November 5, 2012,
so Debtor filed a second motion to use cash collateral before that deadline.6
Central objected. Following briefing by the parties, the Court entered its Cash
Collateral Order.7

Central timely appealed that Cash Collateral Order. Around the same
time, the Court ordered the parties to mediation on all issues pending
between Central and the Debtor. Due to the significant progress made at the
mediation, the parties informally agreed to place all pending matters and
disputes on hold while working toward a resolution. Ultimately, the parties
reached a full and final settlement agreement on June 3, 2013; the agreement
resolved all matters pending between the parties both in the bankruptcy
court and in the appeal. Pursuant to the terms of the settlement, the parties
agreed that the controversy addressed in the Cash Collateral Order, together
with the pending appeal of that order, were moot, and Debtor agreed not to
oppose any motion to vacate the underlying Cash Collateral Order that
Central might elect to file.

Central has now filed the contemplated motion to vacate, and, in
accordance with the parties’ settlement agreement, Debtor’s counsel does not

6 Doc. 107.

7 Doc. 206.

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oppose the order Central has requested this Court sign to vacate the Cash
Collateral Order.

II. Analysis
The Supreme Court addressed the question of vacatur of an underlying
order after settlement moots the appeal in U.S. Bancorp Mortgage Co. v.
Bonner Mall Partnership. 8 In Bancorp, U.S. Bancorp Mortgage Co.
(“Bancorp”) sought and was granted a writ of certiorari for an appeal, but
after briefing on the merits was completed, the parties stipulated to a
consensual plan of reorganization. The Bankruptcy Court handling the
underlying bankruptcy case approved the settlement, and the parties agreed
that confirmation of the plan constituted a settlement that mooted the
appeal. As a result, Bancorp requested the Supreme Court vacate the
judgment of the Court of Appeals, which had been adverse to Bancorp. The
appellee Bonner Mall Partnership opposed the motion, so the Supreme Court
came to again write on the topic of vacatur.

The Supreme Court held that “[w]here mootness results from
settlement, . . . the losing party has voluntarily forfeited his legal remedy by

8 513 U.S. 18 (1994). Surprisingly, all the citations upon which movant relies tosupport its vacatur motion predate 1994, the date of this controlling decision, in spite ofample more recent Tenth Circuit precedent and this controlling Supreme Court decision.
This more recent precedent, which Central elected not to provide this Court, does not
support vacatur.

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the ordinary processes of appeal or certiorari, thereby surrendering his claim
to the equitable remedy of vacatur.”9 The Court noted that

[i]t is petitioner’s burden, as the party seeking relieffrom the status quo of the appellate judgment, todemonstrate not merely equivalent responsibility forthe mootness, but equitable entitlement to theextraordinary remedy of vacatur. Petitioner’s voluntaryforfeiture of review constitutes a failure of equity thatmakes the burden decisive, whatever respondent’sshare in the mooting of the case might have been.10

The Court also noted the public interest served by leaving precedent in place,
commenting that such precedents are “valuable to the legal community as a
whole. They are not merely the property of the private litigants.”11 The
Supreme Court held, in response to arguments that the policy of encouraging
settlement required vacatur, that easy access to vacatur “may deter
settlement at an earlier stage. . . . [The Court found it] quite impossible to
assess the effect of [the] holding, either way, upon the frequency or systemic
value of settlement.”12

Finally, the Court held that:

9 Id. at 25.
10 Id. at 26.
11 Id. (quoting Izumi Seimitsu Kogyo Kabushiki Kaisha v. U.S. Philips Corp., 510


U.S. 27, 40 (1993).
12
Id. at 28.
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mootness by reason of settlement does not justifyvacatur of a judgment under review. This is not to saythat vacatur can never be granted when mootness isproduced in that fashion. As we have described, thedetermination is an equitable one, and exceptionalcircumstances may conceivably counsel in favor of sucha course. It should be clear from our discussion,
however, that those exceptional circumstances do notinclude the mere fact that the settlement agreementprovides for vacatur—which neither diminishes thevoluntariness of the abandonment of review nor alters
any of the policy considerations we have discussed. Ofcourse even in the absence of, or before considering theexistence of, extraordinary circumstances, a court ofappeals presented with a request for vacatur of adistrict-court judgment may remand the case withinstructions that the district court consider the request,
which it may do pursuant to Federal Rule of CivilProcedure 60(b).13

Thus the Supreme Court has clearly established that, absent exceptional

circumstances, a court should not vacate a prior order rendered moot by

reason of settlement, and settlement alone does not constitute exceptional

circumstances.

And while the Supreme Court’s summary seems to leave open the

possibility that a district or bankruptcy court might allow vacatur with some

lower burden, the Tenth Circuit has since shut that door. In Rio Grande

Silvery Minnow v. Bureau of Reclamation, the Circuit clarified that

“[a]lthough U.S. Bancorp Mortgage Co. addresses appellate court vacatur, its

13 Id. at 29.

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rationale also governs the district court’s decision whether to vacate its own

judgment pursuant to Fed. R. Civ. P. 60(b).”14 In embracing the overriding

principles of Bancorp, the Tenth Circuit held:

Whether any opinion should be vacated on the basis ofmootness is an equitable question. Following thisconcept, we have held that when the party seekingrelief is the cause of the mootness, vacatur will not be
granted. We have also held when appellants voluntarilycontribute to the cause of mootness, vacatur will be
denied.15

This Court is bound by the Tenth Circuit’s precedent. This Court could only

grant Central’s motion to vacate if Central showed exceptional circumstances

justifying vacatur, and Central has not argued that such circumstances exist.

Further, the Court’s own review of the record does not show exceptional

circumstances meriting vacatur.

This Court also agrees with the Tenth Circuit’s point that an

“additional reason for denying vacutur motions is to make clear to the public

14 601 F.3d 1096, 1129 n.20 (10th Cir. 2010) (citing Valero Terrestrial Corp. v.
Paige, 211 F.3d 112, 118, 121 (4th Cir. 2000)). The Court notes that all requests tovacate inherently rely on Rule 60(b). Summit Financial Resources, L.P. v. Kathy’s
General Store, Inc., No. 08–2145–CM, 2011 WL 3666607 at *1 (D. Kan. Aug. 22,2011).

15 Rio Grande Silvery Minnow v. Keys, 355 F.3d 1215, 1220 (10th Cir. 2004)
(citations omitted). See also Amoco Oil Co. v. U.S. E.P.A., 231 F.3d 694 (10th Cir.
2000) (collecting cases); Summit Financial, 2011 WL 3666607 at *1 (citing Bancorpfor the proposition that “[t]he standard for vacatur on the basis of a settlement is ashowing of exceptional circumstances”).

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that nothing improper motivated the [district court’s] discretion decision.”16 In
addition, because the legal issues that are the subject of the order for which
Central seeks vacatur are highly likely to recur in this Bankruptcy Court
with different litigants, this Court’s factual and legal analysis “may provide a
baseline to inform the debate”17 in further similar proceedings.

 Because Central has voluntarily contributed to the cause of the
mootness and is unable to show exceptional circumstances, the motion to
vacate18 must be denied.

It is so ordered.

# # #

16 Id.. at 1131.
17 Id..
18 Doc. 316.


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