Filed: Aug. 13, 2021
Latest Update: Aug. 14, 2021
United States Court of Appeals
For the First Circuit
No. 20-9008
IN RE LAXMI SARAH SUNDARAM,
Debtor.
LAXMI SARAH SUNDARAM,
Appellant,
v.
BRIRY, LLC,
Appellee.
APPEAL FROM THE BANKRUPTCY APPELLATE PANEL
FOR THE FIRST CIRCUIT
Before
Thompson, Selya, and Kayatta,
Circuit Judges.
David G. Baker on brief for appellant.
Robert A. Mitson and Mitson Law Associates on brief for
appellee.
August 13, 2021
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 (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."
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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
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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
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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
1 The appellant does not dispute that the balance due on the
Note exceeded the amount of the funds transferred to Briry by the
Trustee.
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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
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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
2 Jurisdictional mootness is sometimes viewed separately from
equitable mootness. See Rochman v. Ne. Utils. Serv. Grp. (In re
Pub. Serv. Co. of N.H.), 963 F.2d 469, 472 (1st Cir. 1992). The
case at hand does not implicate equitable mootness.
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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 (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 underlying bankruptcy case moots a
pending appeal is not without exceptions. That is true as far as
it goes — but it does not take the appellant very far.
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The principal exception to the general rule provides
that an appeal is insulated from mootness following the dismissal
of the underlying bankruptcy case if the issue on appeal is merely
ancillary to the bankruptcy. See, e.g., Spacek v. Thomen (In re
Universal Farming Indus.), 873 F.2d 1334, 1335-36 (9th Cir. 1989)
(holding that question involving status of trust deed was not "so
closely linked to the underlying bankruptcy" as to render appeal
moot); Dahlquist v. First Nat'l Bank in Sioux City (In re
Dahlquist),
751 F.2d 295, 298 (8th Cir. 1985) (holding that
question of reasonable compensation for attorneys was ancillary to
underlying bankruptcy and was not rendered moot by dismissal).
The appellant does not argue in so many words that her appeal
involves an ancillary matter. But in all events, it is clear that
her appeal does not involve an ancillary matter. The insurance-
settlement funds were placed in the hands of the Trustee in the
course of the anticipated reorganization of the bankruptcy estate,
and there is no principled way in which it can be said that the
appellant's claim to those funds is "ancillary" to the putative
reorganization. See In re Dahlquist, 751 F.2d at 298 (noting that
a claim is "ancillary" only if it is not "directly related to any
decision by the Bankruptcy Court in reorganizing the estate").
Nevertheless, the appellant argues on other grounds that
her appeal warrants an exception to the general rule and, thus,
evades the mootness bar. Citing the Ninth Circuit's decision in
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Salomon v. Logan (In re Int'l Env't Dynamics, Inc.), 718 F.2d 322,
326 (9th Cir. 1983) (holding appeal not moot because court could
still "fashion effective relief by remanding with instructions to
the bankruptcy court to order the return of erroneously disbursed
funds"), she reasons that her appeal does not involve the
reorganization of her estate. In her view, the answer to the issue
that she presses on appeal — whether funds were erroneously
disbursed — is a matter of statutory construction, dictated by the
Bankruptcy Code. As the appellant sees it, the distribution to
Briry was in direct contravention of 11 U.S.C. § 1326(a)(2) and 11
U.S.C. § 349(b)(3). The upshot, the appellant contends, is that
the erroneously disbursed funds must be redirected despite the
dismissal of the underlying bankruptcy proceeding.
The appellant's contention has a patina of plausibility.
As a general matter, if a chapter 13 bankruptcy is dismissed prior
to the confirmation of a repayment plan, 11 U.S.C. § 1326(a)(2)
and 11 U.S.C. § 349(b)(3), read together, require the Trustee to
return all funds on hand to the debtor.3 See Jeffrey P. White &
Assocs., P.C. v. Fessenden (Wheaton), 547 B.R. 490, 498 (B.A.P.
1st Cir. 2016) (holding that "§§ 349(b)(3) and 1326(a)(2) govern
3 Section 1326(a)(2) provides that "[i]f a plan is not
confirmed, the trustee shall return any [funds] . . . to the
debtor." Similarly, section 349(b)(3) requires a chapter 13
trustee, following the dismissal of a bankruptcy case, to "revest[]
the property of the estate in the entity in which such property
was vested immediately before the commencement of the case."
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the trustee's disbursement of funds in a chapter 13 case that has
been dismissed pre-confirmation"). The rather large fly in the
ointment, though, is that the appellant's contention blurs the
sequence of events, and this blurring alters the outcome of the
inquiry. We explain briefly.
To trigger either section 1326 or section 349, the funds
in question must be physically in the possession of the chapter 13
trustee at the time the order of dismissal is entered. See 11
U.S.C. § 1326(a)(2) ("If a plan is not confirmed, the trustee shall
return any such payments not previously paid and not yet due and
owing to creditors . . . to the debtor."); see also id.
§ 349(b)(3) (providing that dismissal "revests the property of the
estate in the entity in which such property was vested immediately
before the commencement of the case under this title"); Mass.,
Dep't of Revenue v. Pappalardo (In re Steenstra), 307 B.R. 732,
738 (B.A.P. 1st Cir. 2004) (stating that, once bankruptcy
proceedings are dismissed and bankruptcy estate is terminated by
"docketing of the dismissal order . . . , funds held by the Chapter
13 trustee are generally revested to the debtor"). Fairly viewed,
then, the appellant's claim hinges on whether the funds were in
the Trustee's possession when her underlying bankruptcy case was
dismissed. The record makes manifest that the bankruptcy court
ordered the release of the insurance-settlement funds four days
before the appellant filed her motion to dismiss. So, too, the
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record makes manifest that, pursuant to the court's order, those
funds were disbursed to Briry prior to the entry of the order of
dismissal.
Given this sequence of events, the statutory provisions
cited by the appellant are inapposite. The same is true for the
case law that the appellant cites. In this regard, the appellant
relies primarily on the decisions in Wheaton, 547 B.R. at 493-95,
and in In re Steenstra, 307 B.R. at 735-36. Her reliance is
misplaced: in both instances, the trustee still had possession of
the disputed funds when the bankruptcy case was dismissed. See
Wheaton, 547 B.R. at 493-95; In re Steenstra,
307 B.R. at 735-36.
Neither decision discusses the status of funds already
distributed.
The fact of distribution makes a dispositive difference.
Because the Trustee did not have the disputed funds in his
possession when the case was dismissed, the order of dismissal
rendered the present appeal moot.
The appellant has a fallback position. She submits that
appeals concerning money alone are not rendered moot by the
dismissal of the underlying bankruptcy case because "[i]f there is
any chance of money changing hands," the controversy remains live.
Mission Prod. Holdings, Inc. v. Tempnology, LLC, 139 S. Ct. 1652,
1660 (2019); see Mission Prod. Holdings, Inc. v. Schleicher &
Stebbins Hotels, LLC (In re Old Cold, LLC),
976 F.3d 107, 115-16
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(1st Cir. 2020). This reasoning, the appellant insists, precludes
a finding of mootness even if the money has already changed hands
since the reviewing court can simply unwind any disbursements.
The appellant's invocation of Mission Product Holdings
and In re Old Cold does not assist her cause. Although both courts
found that a claim of erroneously distributed funds engendered a
live controversy, each of them made that statement in the context
of ongoing litigation: the underlying bankruptcy case had not
been dismissed.4 See Mission Prod. Holdings, 139 S. Ct. at 1661;
In re Old Cold, 976 F.3d at 115-16. Although it has sometimes
been said that "nothing [] shows a continuing stake in a dispute's
outcome as a demand for dollars and cents," Mission Prod. Holdings,
139 S. Ct. at 1660, that conventional wisdom does not extend to
cases in which the underlying bankruptcy proceedings already have
been dismissed. In bankruptcy, "federal jurisdiction is premised
upon the nexus between the underlying bankruptcy case and the
related proceedings," In re Stat. Tabulating Corp., Inc.,
60 F.3d
1286, 1289 (7th Cir. 1995), and the jurisdictional calculus changes
once the underlying case is dismissed. So it is here.
We hold, as did the BAP, that the revesting function of
section 349 cannot reach out to grasp funds already distributed
4 The same sequencing renders inapposite the decision in In
re International Environmental Dynamics, 718 F.2d at 326, (another
case relied upon by the appellant).
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prior to the dismissal of a chapter 13 case. Given that
limitation, the BAP was no longer able to offer any meaningful
relief in connection with the appellant's appeal. When the
bankruptcy case was dismissed, the appeal became moot.
We need go no further. For the reasons elucidated above,
the BAP's dismissal of the appeal as moot is
Affirmed.
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