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In re Mortgs. Ltd.

United States Court of Appeals, Ninth Circuit

November 12, 2014

IN THE MATTER OF: MORTGAGES LTD., Debtor, REV OP GROUP; STERNBERG ENTERPRISES PROFIT SHARING PLAN, Appellants,
v.
ML MANAGER LLC, Appellee. REV OP GROUP, Appellant,
v.
ML MANAGER LLC, Appellee

Argued and Submitted, January 16, 2014, San Francisco, California

Page 1212

Appeal from the United States District Court for the District of Arizona. D.C. Nos. 2:09-cv-02698-RCJ, 2:08-bk-07465-RJH. D.C. No. 2:11-cv-00200-RCJ. Robert Clive Jones, District Judge, Presiding.

SUMMARY[**]

Bankruptcy

The panel dismissed, as equitably moot, appeals from two bankruptcy court orders in a Chapter 11 case.

Pursuant to the confirmed plan of reorganization of Mortgages Ltd., a private lender for certain real estate investments in Arizona, ML Manager LLC was the manager of the loans left in Mortgages Ltd.'s portfolio. Mortgages Ltd. raised money from investors to extend loans to real estate purchasers, secured by the purchased real estate, and acted as servicing agent for the loans and properties. The investors received pass-through fractional interests in the real estate that secured the loans and the resulting loan payments. They acquired an actual interest in each underlying loan.

Rev Op Group, a group of pass-through investors, moved for an order ruling that ML Manager could not act as agent for their interests, and that objecting investors like Rev Op Group should not be obliged to pay any share of an exit financing loan taken by ML Manager to pay for expenses related to the completed bankruptcy. The bankruptcy court rejected both arguments in a " Clarification Order." The bankruptcy court also issued a " Distribution Order" approving ML Manager's distribution of the proceeds of its liquidation of the loan portfolio.

The panel held that Rev Op Group's appeals from the Clarification Order and the Distribution Order were equitably moot because the Group did not seek a stay before the bankruptcy or district courts, as required by In re Roberts Farms, Inc., 652 F.2d 793 (9th Cir. 1981). In addition, substantial consummation of the Chapter 11 plan had occurred, the remedy Rev Op Group sought would inequitably harm third parties, and the bankruptcy court on remand would not be able to devise an equitable remedy.

Bryce A. Suzuki (argued), Robert J. Miller, and Justin A. Sabin, Bryan Cave LLP, Phoenix, Arizona, for Appellants.

Cathy L. Reece (argued), Fennemore Craig, P.C., Phoenix, Arizona; Keith L. Hendricks and Joshua T. Greer, Moyes Sellers & Hendricks, Phoenix, Arizona, for Appellee.

Before: J. Clifford Wallace and Jay S. Bybee, Circuit Judges, and Robert W. Gettleman, Senior District Judge.[*]

OPINION

Page 1213

WALLACE, Senior Circuit Judge.

Mortgages Ltd. was a private lender for certain real estate investments in Arizona. Mortgages Ltd. raised money from investors to extend loans to real estate purchasers, secured by the purchased real estate, and acted as servicing agent for the loans and properties. The investors received " pass-through" fractional interests in the real estate that secured the loans and the resulting loan payments. The pass-through investors acquired an actual interest in each underlying loan.

On June 24, 2008, Mortgages Ltd. filed for Chapter 11 bankruptcy. The company was restructured through a confirmed bankruptcy plan. Pursuant to that plan, the entity ML Manager LLC (ML Manager), the appellee here, manages and operates the loans left in Mortgages Ltd.'s portfolio. ML Manager took a $20 million loan in " exit financing" to pay for expenses related to the ...


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