In the Matter of: Mortgages Ltd.

An appeal from a bankruptcy order must be dismissed for mootness if an appellant does not seek a stay from the bankruptcy court or district court.

Mortgages Ltd., an Arizona company, used "pass-through" investors to give real estate loans. In 2008, Mortgages Ltd. filed for Chapter 11 bankruptcy and ML Manager LLC was put in place to manage the remaining loans. Following the bankruptcy court confirmation of the bankruptcy plan in 2009, a group of the pass-through investors, Rev Op Group, moved for an order to remove ML Manager as agent. Rev Op Group also asked not to be required to repay the $20 million exit loan that ML Manager took out to pay expenses related to the bankruptcy. In October 2009, the bankruptcy court issued a Clarification Order rejecting both of Rev Op Group’s requests. ML Manager then began liquidating loans once held by Mortgages Ltd. and distributing the proceeds in accordance with the allocation model approved by the court. The bankruptcy court then issued a “Distribution Order,” which Rev Op Group appealed and the district court approved. Rev Op Group appealed both the Clarification Order and the Distribution Order. ML Manager moved to dismiss the appeal as equitably moot on the ground that Rev Op Group never sought a stay from the bankruptcy court or the district court. The Ninth Circuit considered the motion to dismiss because an appeal can be dismissed if “great changes in the status quo occurred after the district court rendered the orders” or a “comprehensive change in the circumstances” occurred, which was the case here because ML Manager already began distributing funds. The panel cited the rule in In re Thorpe Insulation Co., and granted the dismissal, because Rev Op Group never sought a stay or gave a reason why a stay was not sought, which is the first step to evaluate equitable mootness. To allow the appeal would unduly affect third party interests, who may be asked to repay distributions. APPEALS DISMISSED.