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FishDish, LLC v. VeroBlue Farms USA, Inc.

United States District Court, N.D. Iowa, Central Division

October 4, 2019

FISHDISH, LLC, Appellant,


          C.J. Williams United States District Judge

         This matter is before the Court on VeroBlue Farms USA, Inc., Broadmoor Financial L.P., and Alder Aqua, Ltd.'s (collectively “appellees”) jointly filed Motion to Dismiss Appeal and Partial Motion to Dismiss Appeal. (Docs. 9 & 10). FishDish, LLC (“appellant”) appeals the Bankruptcy Court for the Northern District of Iowa's Order Confirming a Chapter 11 Plan (“Plan Confirmation”) and four related Orders. (Doc. 4, at 1). Appellees' Motion to Dismiss Appeal seeks to dismiss appellant's appeal of the Plan Confirmation and the related Orders. (Doc. 9). Appellees' Partial Motion to Dismiss is directed only at one of the four related Orders, namely the Order denying FishDish's Objection to Broadmoor Finance LC's Claims. (Doc. 10). Appellant timely resisted both the Motion to Dismiss and the Partial Motion to Dismiss in an omnibus response. (Doc. 28). Appellees timely filed replies and appellant timely filed an omnibus surreply. (Docs. 34, 36, 37, & 41). For the following reasons, appellees' Motion to Dismiss and Partial Motion to Dismiss are granted.

         I. BACKGROUND

         Appellant alleges VeroBlue Farms USA, Inc. (individually “debtor”) is “in the business of farming fish . . . and selling those fish through wholesalers to restaurants and grocery chains.” (Doc. 28, at 4). Appellant alleges debtor relied on both debt and equity financing to develop and grow its business. (Id.). Despite securing debt and equity financing, debtor was unable to sufficiently sustain the company and voluntarily filed Chapter 11 Bankruptcy petitions on September 21, 2018. (Id., at 6). Following bankruptcy proceedings in the Northern District of Iowa Bankruptcy Court, appellant alleges a Bankruptcy Plan (“Plan”) was confirmed on April 22, 2019, and the final confirmation order was entered on May 7, 2019, with an effective date of May 22, 2019. (Id., at 13). Appellant alleges that on May 30, 2019, debtor reported making payments to several claims under the Plan and that debtor subsequently made additional payments to creditors on June 14, 2019. (Id., at 14). In addition, appellant alleges debtor sent notifications cancelling outstanding shares of preferred stock on June 13, 2019. (Id., at 16).

         Alder Aqua, Ltc. (individually “Alder Aqua”) and Broadmoor Financial, L.P. (individually “Broadmoor”) are also included as appellees in this appeal. Appellant alleges Alder Aqua helped finance debtor by purchasing $28 million of preferred shares. (Doc. 28, at 4). After debtor entered bankruptcy proceedings, Alder Aqua agreed to provide the equity necessary for debtor to make payments in exchange for all equity interests in the reorganized debtor. (Id., at 15). Broadmoor, as a creditor of debtor, submitted a claim during debtor's bankruptcy proceeding. (Id., at 5). Debtor had originally obtained a loan from Amstar Group, LLC. (Id., at 5). “The Amstar loan was guaranteed by the other [debtor] and secured by substantially all [debtor's] assets.” (Id.). Amstar transferred its rights under the loan agreement to Broadmoor in 2017. (Id.). Appellant now challenges Broadmoor's claim as part of this appeal.

         Appellant was a preferred shareholder and owned approximately $6 million of equity in the debtor's company. (Doc. 28, at 36). Under the Plan confirmed by the Bankruptcy Court, appellant was unable to recover any of its investment because debtor did not have enough funds to pay equity holders. (Id.). The Bankruptcy Court found debtor was so insolvent that even under alternative plans there would likely not be enough funds to pay equity holders. (Doc. 9, at 6). Appellant alleges, however, that it was unable to recover any of its investment during the bankruptcy proceedings because the Plan Confirmation process was not conducted in good faith, lacked adequate discovery, and miscategorized certain categories of claims.

         Appellant raises several specific issues on appeal. First, appellant argues the Bankruptcy Court improperly denied discovery requests during the bankruptcy proceeding that would have revealed information essential to resolving its claims. (Doc. 3, at 2). Second, appellant asserts the Bankruptcy Court improperly denied a request to challenge Broadmoor's claim, which may have recharacterized the nature of the claim. (Id.). Third, appellant argues the Bankruptcy Court did not provide the requisite notice and opportunity to object to the Disclosure Statement. (Id.). Fourth, appellant asserts the Bankruptcy Court erred in entering the Confirmation Order confirming the Plan because the appellees failed to treat equity holders equally and prove the Plan was confirmed in good faith, in the best interest of creditors, and feasible. (Id., at 3-4).

         Appellant further alleges that throughout the Bankruptcy proceeding there were several hearings, decisions, and orders issued by the Bankruptcy Court that wrongly contributed to the Plan's confirmation. (Id., at 10-15). These orders include the Order Approving Amended Disclosure Statement, Order Denying Protective Motion of the Ad Hoc Committee, Order Denying Motion of Preferred Equity Shareholder FishDish for Leave to Initiate Limited Discovery, and Order on FishDish's Objection to Broadmoor Finance, LC's Claims. (Doc. 1, at 164-65).


         Title 28, United States Code, Section 158 provides: “The district courts of the United States shall have jurisdiction to hear appeals (1) from final judgments, orders, and decrees . . . of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges.” An appeal to a district court “shall be taken only to the district court for the judicial district in which the bankruptcy judge is serving.” 28 U.S.C. § 158(a). “To elect to have an appeal heard by a district court, a party must: (1) file a statement of election that conforms substantially to the appropriate Official Form; and (2) do so within the time prescribed by 28 U.S.C. § 158(c)(1).” Fed. R. Bank. P. 8005. Appellant elected to appeal to the district court pursuant to 28 U.S.C. § 158(a)(1) and complied with the requirements for appeal. Thus, jurisdiction in this Court is proper.

         “When a bankruptcy court's judgment is appealed to the district court, the district court acts as an appellate court and reviews the bankruptcy court's legal determinations de novo and findings of fact for clear error.” In re Falcon Prods., Inc., 497 F.3d 838, 840 (8th Cir. 2007). In appealing to the district court, appellant challenges the determination made by the Bankruptcy Court and asks the district court to review the Bankruptcy Courts determinations.

         Appellees argue the appellant's appeal to this Court should be dismissed for three reasons. First, appellees argue the appeal should be denied as equitably moot. (Doc. 9, at 1-4). Second, appellees assert appellant lacks standing to bring this claim because it does not have a pecuniary interest that has been harmed. (Id., at 4-7). Third, appellees argue appellant did not properly preserve its objection to the Disclosure Statement and cannot raise an objection for the first time on appeal. (Id., at 7). Appellees submit a fourth argument in the Partial Motion to Dismiss directed at the Order denying FishDish's Objection to Broadmoor Finance, LC's Claims. Appellees argue the appeal for the Order was not timely filed and should be denied. (Doc. 10, at 2-5).

         A. Equitable Mootness

         Appellees first argue appellant's appeal should be dismissed as equitably moot because debtor has already paid substantial claims to creditors and mailed cancellation of share notifications to equity holders. (Doc. 9, at 3-4). Appellees further argue that because debtor has already substantially performed, it may be impossible to grant effective relief even if appellant could prevail on the merits. (Doc. 9, at 1-4).

         The doctrine of equitable mootness applies in bankruptcy proceedings to “promote an important policy of bankruptcy law that court-approved reorganizations be able to go forward in reliance on such approval unless a stay has been obtained.” In re Info. Dialogues, Inc., 662 F.2d 475, 477 (8th Cir. 1981). In equitable mootness cases, the term “moot” does not apply in the traditional Article III sense involving cases and controversies where a judicial ruling would have no effect. In re Pacific Lumber Co., 584 F.3d 229, 240 (5th Cir. 2009). Instead, “equitable mootness applies when a judicial ruling would have too much effect on the parties to a confirmed reorganization.” Id. “[A] mootness concern arises when . . . it may be impossible for a court to grant effective relief because the disputed assets have been transferred pursuant to the reorganization plan.” In re Info. Dialogues, Inc., 662 F.2d at 477. The equitable mootness doctrine must be weighed against a strong competing interest of a party “in securing review of a bankruptcy order which adversely affects” the party. Id. An appellate court should only apply the doctrine of equitable mootness when “grant[ing] the relief requested will undermine the finality and reliability of consummated plans of reorganization.” In re Tribune Media Co., 799 F.3d 272, 277 (3d Cir. 2015).

         Appellees argue that courts within the Eighth Circuit “consider five factors when determining whether an appeal is equitably moot in the context of a bankruptcy plan.” (Doc. 36, at 3) (citing In re President Casinos, Inc., No. 4:08CV1976 CDP, 2010 WL 582794, at *6 (E.D. Mo. Feb. 16, 2010)). The five factors are: “(1) whether the reorganization has been substantially consummated; (2) whether a stay has been obtained; (3) whether the relief requested would affect the rights of parties not before the court; (4) whether the relief requested would affect the success of the plan; and (5) the public policy of affording finality of bankruptcy judgments.” Id. (citing In re Williams, 256 B.R. 885, 896 n.11 (8th Cir. 2001)).

         Appellant, however, argues there is no binding Eighth Circuit precedent and the Court should adopt the Third Circuit's approach to equitable mootness. (Doc. 28, at 19). The Third Circuit uses a two-step analysis which examines: “(1) whether a confirmed plan has been substantially consummated; and (2) if so, whether granting the relief requested in the appeal will (a) fatally scramble the plan and/or (b) significantly harm third parties who have justifiably relied on plan confirmation.” (Id. (citing In re ...

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