Bear Creek Trail v. BOKF

35 F.4th 1277

• Court: Court of Appeals for the Tenth Circuit
• Decided: June 7, 2022
• Docket: 21-8056
• Status: Published

Opinion

Appellate Case: 21-8056 Document: 010110693653 Date Filed: 06/07/2022 Page: 1 FILED United States Court of Appeals PUBLISH Tenth Circuit

UNITED STATES COURT OF APPEALS June 7, 2022

Christopher M. Wolpert FOR THE TENTH CIRCUIT Clerk of Court _________________________________

In re: BEAR CREEK TRAIL, LLC,

Debtor.

------------------------------

BEAR CREEK TRAIL, LLC, No. 21-8056

Appellant,

v.

BOKF, N.A., f/k/a Bank of Texas; THOMAS MCCLINTOCK,

Appellees. _________________________________

Appeal from the United States District Court for the District of Wyoming (D.C. No. 0:21-CV-00079-SWS) _________________________________

Richard D. Gaines, Law Offices of Richard D. Gaines, Greentown, Pennsylvania (Ken McCartney, The Law Offices of Ken McCartney, P.C., Cheyenne, Wyoming on the briefs) for Debtor – Appellant.

Jennifer Salisbury, Markus Williams Young & Hunsicker, LLC, Denver, Colorado, for Appellees. _________________________________

Before HOLMES, MATHESON, and ROSSMAN, Circuit Judges. _________________________________

MATHESON, Circuit Judge. _________________________________ Appellate Case: 21-8056 Document: 010110693653 Date Filed: 06/07/2022 Page: 2

Bear Creek Trail, LLC, (“the Debtor” or “Bear Creek”) filed for Chapter 11

reorganization. The bankruptcy court granted a motion to convert the proceeding to a

Chapter 7 liquidation and appointed a trustee. Bear Creek’s attorney in the

bankruptcy proceedings asked the district court to review the bankruptcy court’s

conversion order. The district court dismissed, holding that only the trustee could

seek review. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.

I. BACKGROUND

A. Texas State Court Case

Marvin Keith failed to repay a mortgage loan from BOKF, N.A. d/b/a Bank of

Texas (“the Bank”). In 2009, the Bank obtained a Texas state court judgment against

Mr. Keith for about $1.3 million.

Several years later, Mr. Keith formed Pine Tree Capital, LLC (“Pine Tree”);

Elk Mountain, Inc.;1 Bear Creek Trail, LLC; and Bear Trail, LLC (“Bear Trail”). Mr.

Keith controls all four entities.2 The Debtor owns a Range Rover and a yacht.

The Texas state court appointed a receiver, Thomas McClintock, to take

possession of and sell all of Mr. Keith’s leviable assets. The court later ordered

Mr. Keith to turn over to Receiver McClintock his interests in Pine Tree, Bear Trail,

1 Elk Mountain purports to be an appellant here, but as explained below, it is not. 2 Mr. Keith owns Pine Tree, which owns Elk Mountain, which owns Bear Creek, the Debtor. Mr. Keith is also the President of Elk Mountain and CEO of Bear Trail, which is the manager of the Debtor. App., Vol. III at 204; App., Vol. IV at 19-20. As noted above, Bear Trail and Bear Creek are different entities.

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and the Debtor; all accounts in the name of these entities and their affiliates; and the

Range Rover and yacht. The turnover order granted the receiver authority to take

exclusive control of and to exercise all of Mr. Keith’s powers and rights over the

foregoing turnover assets.3

B. Bankruptcy Case

The Debtor filed a Chapter 11 voluntary bankruptcy petition. Receiver

McClintock moved on behalf of Elk Mountain to convert the bankruptcy case to

Chapter 7. The motion stated he could do so because the turnover order granted him

authority over Pine Tree, which owns Elk Mountain. The Bank joined Elk

Mountain’s motion to convert.

The bankruptcy court granted the conversion motion. In a separate order, it

appointed an interim trustee, Randy Royal, over the Debtor’s estate. The Debtor and

Elk Mountain then moved for a stay of the conversion and appointment orders. The

bankruptcy court denied the motion and a follow-up motion for reconsideration.

C. District Court Appeal

Attorney Ken McCartney, who represented Bear Creek in the bankruptcy

proceedings, filed a timely notice of appeal to the district court challenging the

3 Pine Tree, Elk Mountain, Bear Creek, and Bear Trail sued the Bank and Receiver McClintock in Wyoming state court seeking to enjoin enforcement of the Texas turnover order. Pine Tree Cap., LLC v. BOKF, N.A., 2021 WL 4521352, at *1 (10th Cir. Oct. 4, 2021) (unpublished). The Bank and Receiver McClintock removed the case to the federal district court, which dismissed it for lack of personal jurisdiction, and in the alternative, under federal abstention doctrines. Id. We affirmed the district court’s dismissal. Id. at *2.

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conversion order. The notice listed the appellant as “Bear Creek Trail, LLC, Debtor

in Possession.” App., Vol. III at 218-20. The Bank and Elk Mountain (by Receiver

McClintock) moved to dismiss the appeal. They argued (1) the conversion order and

trustee appointment ousted the Debtor’s management and attorney from acting on the

Debtor’s behalf, and (2) the trustee had not authorized the appeal. Even though he

had not listed Elk Mountain as an appellant in the notice of appeal, Mr. McCartney

filed a response brief on behalf of the Debtor and Elk Mountain. In that filing, the

Debtor and Elk Mountain also asked the district court to stay the bankruptcy court’s

conversion order and appointment of the Chapter 7 trustee.

The district court dismissed the appeal. It held that under Tenth Circuit

precedent, only the Chapter 7 trustee had authority to file the appeal. The court

explained that “[o]ther individuals, such as Mr. Keith, may have standing to appeal

the conversion order . . . on their own behalf, but that was not done here.” App.,

Vol. IV at 141.

D. Tenth Circuit Appeal

Mr. McCartney filed a timely notice of appeal to this court on behalf of the

Debtor and Elk Mountain challenging the district court’s dismissal. The Debtor and

Elk Mountain further moved for a stay pending appeal of the conversion order and

appointment of the Chapter 7 trustee, which we denied. This court ordered the

parties to file briefs addressing Elk Mountain’s status in this appeal because (1) Elk

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Mountain requested the conversion to Chapter 7 in bankruptcy court, and (2) Elk

Mountain was not listed as a party in the district court.4

II. DISCUSSION

A. Standard of Review

“This appeal presents a purely legal question, which we review de novo.”

In re S. Star Foods, Inc., 144 F.3d 712, 713 (10th Cir. 1998).

B. Legal Background

“When a corporate bankruptcy is converted from Chapter 11 to Chapter 7, a

sea change takes place.” In re C.W. Mining Co., 636 F.3d 1257, 1265 (10th Cir.

2011). Once a corporate entity “enters Chapter 7 bankruptcy and a trustee is

appointed . . . its legal purpose becomes vastly different.” Id. at 1264. Unlike

Chapter 11, which aims to “reorganiz[e] the bankruptcy estate for the shareholders as

well as the creditors,” “Chapter 7 shifts the focus to creditors” alone “and protects

the creditors by appointing a trustee to control the estate.” Id. at 1265 (citation

omitted).

“After [the debtor] enter[s] into Chapter 7 bankruptcy and a trustee [i]s

appointed, [the debtor’s] former management’s only role [i]s ‘to turn over the

corporation’s property to the trustee and to provide certain information to the trustee

and to the creditors.’” Id. at 1263 (quoting Commodity Futures Trading Comm’n v.

4 After receiving the briefs, this court ordered that Elk Mountain could be listed as an appellant on pleadings in this court for procedural purposes only, with the merits panel to determine whether it is a proper appellant.

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Weintraub, 471 U.S. 343, 352 (1985)). “Authority to make legal decisions, like all

other business decisions, passe[s] to the Trustee alone.” Id. “[C]orporate officers are

‘completely ousted’ once a trustee has been appointed.” Id. (quoting Weintraub, 471

U.S. at 353).

In C.W. Mining, the creditors moved to appoint a Chapter 11 trustee or to

convert the case to Chapter 7. 636 F.3d at 1259. After the debtor’s manager testified

that he supported the conversion to Chapter 7, the bankruptcy court granted the

conversion motion and appointed a trustee. Id. We held that once a Chapter 7 trustee

was appointed, the debtor’s former management could no longer appeal on the

debtor’s behalf. Id. at 1260. The “Chapter 7 trustee was the only person authorized to

bring the appeal,” and “[t]he Managers were divested of their authority to appeal by the

appointment of the Chapter 7 trustee, which they did not challenge.” Id. at 1259. “The

rule that only the bankruptcy trustee may appeal an order from a bankruptcy court

was created as a means to control, in an orderly manner, proceedings that often

involve numerous creditors who are dissatisfied with any compromise that

jeopardizes the full payment of their outstanding claims against the bankrupt.”

Id. at 1262 (quotations omitted).

We further explained that after a trustee has been appointed, former

management may still “appeal a bankruptcy court order in their own right.”

Id. at 1266. “If [the debtor’s] managers themselves have been injured pecuniarily,

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they can appeal as ‘persons aggrieved.’” Id.5 But “[s]uch an appeal must be brought

on their own behalf, not on behalf of [the debtor].” Id.

C. Analysis

The district court correctly dismissed the Debtor’s appeal. The Debtor’s

former management, Mr. Keith and Bear Trail, and Mr. McCartney, the attorney who

filed the appeal to the district court, lacked authority to seek review of the conversion

order on the Debtor’s behalf. See id. at 1265.6 C.W. Mining controls. Once the

bankruptcy court converted the case to Chapter 7 and appointed Mr. Royal as trustee,

only he could appeal on the Debtor’s behalf. See id. at 1264.7 “[The Bankruptcy]

Code makes no provision within the structure of Chapter 7 for ‘former management’

5 “[T]his circuit has adopted the rule, derived from the Bankruptcy Act of 1898, that appellate review of a bankruptcy court order is limited to persons aggrieved by that order.” C.W. Mining, 636 F.3d at 1260 (quotations omitted). “To qualify as a person aggrieved, a person’s rights or interests must be directly and adversely affected pecuniarily by the decree or order of the bankruptcy court.” Id. (quotations omitted). 6 Because the appointment of Mr. Royal as trustee transferred authority to him to act on behalf of the Debtor, Bear Creek, we refer to Mr. Keith and Bear Trail as “former management” of Bear Creek. See C.W. Mining, 636 F.3d at 1258 n.1, 1263. 7 Courts have uniformly followed C.W. Mining. See In re Pub.-Sector Sols., Inc., 602 F. App’x 929, 930 (4th Cir. 2015) (unpublished) (affirming dismissal of bankruptcy appeal based on reasoning of the district court, which had cited C.W. Mining to support dismissal of the bankruptcy appeal); S. Edge LLC v. JPMorgan Chase Bank, N.A., 2011 WL 1626567, at *5-6 (D. Nev. Apr. 28, 2011) (unpublished); Quest Ventures, Ltd. v. IPA Mgmt. IV, LLC, 2018 WL 922145, at *2-3 (E.D.N.Y. Feb. 15, 2018) (unpublished); Hardes Holding, LLC v. Sandton Credit Sols. Master Fund, III, LP, 2019 WL 6347775, at *3 (D.S.D. Nov. 27, 2019) (unpublished); In re Cmty. Translator Network LLC, 2018 WL 734403, at *2 (D. Utah Feb. 6, 2018) (unpublished).

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to appear in the proceeding and attempt to . . . assert a separate interest on behalf of

the Debtor.” Log Furniture, Inc. v. Call, 180 F. App’x 785, 787-88 (10th Cir. 2006)

(unpublished).8

Appellant Bear Creek’s counterarguments are not persuasive.

First, Mr. McCartney, joined now by Richard Gaines,9 argues for Bear Creek

that C.W. Mining is distinguishable because the debtor there, unlike here, never

objected to the conversion. Here, they contend, “the conversion order is made

unappealable, as a practical matter” because “[t]here is no chance any Trustee will

challenge the very order by which he or she becomes trustee.” Aplt. Br. at 22. As

the Bank and Receiver McClintock explain, however, “Appellant confuses Debtor’s

right to appeal with former management’s right to assert an appeal on behalf of the

Debtor.” Aplee. Br. at 17.

Under our rationale in C.W. Mining, it is immaterial whether the debtor’s

manager supported or objected to the Chapter 7 conversion. We stated without

qualification “that following the appointment of a trustee in a corporate Chapter 7

bankruptcy, the corporation’s former managers are not authorized to bring the

corporation’s appeal.” C.W. Mining, 636 F.3d at 1265. Permitting someone other

8 Although not precedential, we find the reasoning of unpublished decisions cited in this opinion instructive. See 10th Cir. R. 32.1 (“Unpublished decisions are not precedential, but may be cited for their persuasive value.”); see also Fed. R. App. P. 32.1. 9 Mr. Gaines has served as Mr. Keith’s personal attorney since 2004 and helped set up Mr. Keith’s entities, including Bear Creek.

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than the trustee to litigate or appeal on behalf of the debtor would threaten the

“orderly manner” of bankruptcy proceedings. Id. at 1262. “Instead of an orderly

liquidation of the estate, every move by the Trustee, and every adverse court

decision, could be contested and appealed,” id. at 1265, risking confusion about who

represents the debtor.

District courts have applied C.W. Mining when the debtor’s manager opposed

conversion to Chapter 7 in bankruptcy court. See, e.g., Quest Ventures, 2018 WL

922145, at *1-2 (dismissing appeal of conversion order and citing C.W. Mining in

support). As the district court explained in Community Translator Network, 2018

WL 734403 (D. Utah), our analysis in C.W. Mining “was based solely upon the fact

that the former managers had no authority to act on behalf of the debtor at the point

in time when they filed the notice of appeal. Whether the Chapter 7 trustee was

voluntarily or involuntarily appointed does not affect the reasoning of C.W. Mining.”

Id. at *2.

Also, C.W. Mining and the district court here explained that, even after a

trustee appointment, former managers such as Bear Trail or Mr. Keith still have the

authority to appeal the conversion order on their own behalf. See C.W. Mining,

636 F.3d at 1266. But they did not bring their own appeal. Instead, their counsel,

Mr. McCartney, attempted to appeal to the district court on behalf of the Debtor.

Second, Bear Creek’s attorneys argue that “[s]ince Debtor is solvent, it has

standing as an aggrieved party to challenge the conversion order and appeal that

order.” Aplt. Br. at 24. But “the determinative question in this case is not whether

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[the Debtor] has standing as a ‘person aggrieved’ to appeal, but whether the [the

Debtor’s former management] have authority to appeal on [the Debtor’s] behalf.”

C.W. Mining, 636 F.3d at 1261. They do not.

Third, Bear Creek counsel argue that Elk Mountain is an aggrieved party and

entitled to appeal. Aplt. Br. at 24-28. They contend that despite the omission of Elk

Mountain’s name from the notice of appeal to the district court, “its characteristics

were described” in the notice. Id. at 26. They also say that Elk Mountain is an

appellant because the Debtor and Elk Mountain jointly filed their opposition to the

motion to dismiss the appeal and moved in both bankruptcy court and district court

for a stay of the conversion order. Id. at 26-27; Aplt. Br. Addressing Status of Elk

Mountain, at 7-9.

This third argument fails. Federal Rule of Bankruptcy Procedure 8003(a)(3),

which governs appeals from bankruptcy court orders, states that “[t]he notice of

appeal must: . . . conform substantially to the appropriate Official Form.” The

relevant Official Form here asks to “Identify the appellant(s)” and has a line for

“Name(s) of appellant(s).” App., Vol. III at 218. The notice listed only “Bear Creek

Trail, LLC, Debtor in Possession.” Id. Under the “[p]osition of appellant(s)”

description on the form, Mr. McCartney checked “Creditor,” “Debtor,” and “Other”

and then wrote “Equity Holder.” Id. Nowhere did the notice specify or describe Elk

Mountain as an appellant.10 Even assuming Mr. McCartney could represent Elk

10 Here is an excerpted reproduction of the form: 10 Appellate Case: 21-8056 Document: 010110693653 Date Filed: 06/07/2022 Page: 11

Mountain despite the turnover order, the notice did not comply with Rule 8003(a).

Elk Mountain was thus not an appellant in district court, nor is it an appellant in this

court.

III. CONCLUSION

Bear Creek’s former management and Mr. McCartney lacked authority to

challenge the conversion order in district court on behalf of the Debtor. We affirm

the district court’s judgment dismissing the appeal.

App., Vol. III at 218. 11