JPMCC 2007-C1 Grasslawn Lodging, LLC v. Transwest Resort Properties Inc. (In Re Transwest Resort Properties, Inc.)

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

IN RE TRANSWEST RESORT No. 12-17176

PROPERTIES, INC.,

Debtor, D.C. Nos. 4:12-cv-00024-

RCC

JPMCC 2007-C1 GRASSLAWN 4:12-cv-00121-

LODGING, LLC, RCC

Appellant,

v. OPINION

TRANSWEST RESORT PROPERTIES

INCORPORATED; SOUTHWEST VALUE

PARTNERS FUND XV LLP; SWVP LA

PALOMA LLC; SWVP HILTON HEAD

LLC,

Appellees.

Appeal from the United States District Court for the District of Arizona Raner C. Collins, Chief District Judge, Presiding

Argued and Submitted January 13, 2015—San Francisco, California

Filed July 1, 2015

Before: J. Clifford Wallace, Milan D. Smith, Jr., and Michelle T. Friedland, Circuit Judges. 2 IN RE TRANSWEST RESORT PROPERTIES

Opinion by Judge Friedland; Dissent by Judge Milan D. Smith, Jr.

SUMMARY*

Bankruptcy

The panel reversed the district court’s decision dismissing on equitable mootness grounds an appeal from the bankruptcy court’s order confirming a Chapter 11 plan of reorganization.

The panel held that even though the plan had been implemented, a lender’s colorable…

Opinion by Judge FRIEDLAND; Dissent by Judge MILAN D. SMITH, JR.

OPINION

We consider whether a lender that made colorable objections to a plan of reorganization in bankruptcy court and then diligently sought a stay in order to litigate those objections may obtain review of its objections on appeal even though the plan has been implemented. Because it would be possible to devise an equitable remedy to at least partially address the lender’s objections without unfairly impacting third parties or entirely unraveling the plan, we hold that the lender’s objections are not equitably moot and should be considered on appeal. We thus reverse the district court’s decision dismissing the appeal on equitable mootness grounds and remand for further proceedings.

I.

A. Background

In 2007, five related entities acquired the Westin Hilton Head Resort and Spa and the Westin La Paloma Resort and Country Club. The five entities (collectively “Debtors”) were: Transwest Hilton Head Property, LLC, and Transwest Tucson Property, LLC (collectively “Operating Debtors”); Transwest Hilton Head II, LLC, and Transwest Tucson II, LLC (collectively “Mezzanine Debtors”); and Tran-swest Resort Properties,…

dissenting:

I respectfully dissent.

The majority wrongly concludes that the interests of Southwest Value Partners (SWVP), a third-party investor with no pre-petition interest in this bankruptcy, should not inform our assessment of whether it would be prudent or equitable to disturb this reorganization plan at this late stage. It is only by ignoring these interests that the majority is able to conclude that any equitable remedies would be available in this case. In reality, the remedies the Lender proposes are grossly inequitable to SWVP and would surely jeopardize the reorganization. More broadly, the majority’s decision discourages potential investors from relying on the finality of bankruptcy court confirmation orders, or from investing in struggling properties until all bankruptcy litigation is concluded, which, as in this case, can take many years. This impedes the Bankruptcy Code’s goal of “maximizing debtors’ estates and facilitating successful reorganization,” to the detriment of both debtors and *1152 creditors. In re Continental Airlines, 91 F.3d 553, 565 (3d Cir.1996).

The majority and I agree that this plan has been substantially consummated, and that this factor…