Goldin v. Bartholow

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

Nos. 97-20852 & 97-20914

HARRISON J. GOLDIN, Liquidating Trustee;
TRUSTEE FOR THE MCORP TRUST; MCORP MANAGEMENT
TRUST; MCORP FINANCIAL INCORPORATED TRUST,

Plaintiffs-Appellants,

versus

PETER BARTHOLOW; MICHAEL D. MAGILL; CONNIE
COUCH; W. MACK GOFORTH; FRANK W. MCBEE;
THEODORE C. ROGERS; JOEL T. WILLIAMS, JR.;
GENE H. BISHOP; W.J. BOWEN; DOLPH BRISCOE, JR.;
JOHN T. CATER; DURWOOD CHALKER; LEO F. CORRIGAN, JR.;
W. FENTON GUINEE; EDWIN B. JORDAN; HERBERT D.
KELLEHER; MEREDITH J. LONG; BILL O. MEAD;
JERE W. THOMPSON; DWAIN D. HOWARD; JESS T. HAY;
DONALD J. STONE; ROBERT COCHRAN,

Defendants-Appellees.

* * * * * * * * * *

consolidated with

No. 97-20915

HARRISON J. GOLDIN, Liquidating Trustee;
TRUSTEE FOR THE MCORP TRUST; MCORP
MANAGEMENT TRUST,

Plaintiffs-Appellants,

versus

PETER B. BARTHOLOW, ET AL.,
 Defendants,

PETER B. BARTHOLOW; MICHAEL D. MAGILL;
CONNIE COUCH; W. MACK GOFORTH; DWAIN D.
HOWARD; ROBERT COCHRAN,

Defendants-Appellees.

* * * * * * * * * *

consolidated with

No. 97-20927

In re: HARRISON J. GOLDIN, Liquidating Trustee
for the MCorp Trust; MCORP MANAGEMENT TRUST; MCORP
FINANCIAL INCORPORATED TRUST,

Petitioner.

* * * * * * * * * *

consolidated with

No. 97-20946

HARRISON J. GOLDIN; TRUSTEE FOR THE MCORP
TRUST; MCORP MANAGEMENT TRUST; MCORP FINANCIAL
INCORPORATED TRUST,

Plaintiffs-Appellants,

versus

PETER BARTHOLOW; MICHAEL D. MAGILL; CONNIE
COUCH; W. MACK GOFORTH; FRANK W. MCBEE;
THEODORE C. ROGERS; JOEL T. WILLIAMS, JR.;
GENE H. BISHOP; W.J. BOWEN; DOLPH BRISCOE, JR.;
JOHN T. CATER; DURWOOD CHALKER; LEO F. CORRIGAN,
JR.; W. FENTON GUINEE; EDWIN B. JORDAN;
HERBERT D. KELLEHER; MEREDITH J. LONG;
BILL O. MEAD; JERE W. THOMPSON; DWAIN D.

2
 HOWARD; JESS T. HAY; DONALD J. STONE,

Defendants-Appellees.

Appeals from the United States District Court for the
Southern District of Texas

January 26, 1999

Before KING, Chief Judge, and GARWOOD and HIGGINBOTHAM, Circuit
Judges.

GARWOOD, Circuit Judge:

Appellant Harrison J. Goldin (Goldin) was the trustee of the

MCORP Trust (the trust). Appellees served as officers (officer

appellees) and directors (director appellees) of MCORP prior to

Goldin’s appointment. Goldin appeals on behalf of the trust the

district court’s grant of summary judgment to the appellees on the

trust’s misuse of estate property claims and the officer appellee’s

severance benefit claims, the denial of summary judgment on

Goldin’s declaratory judgment motion, the award to defendants of

their attorney’s fees, and the imposition of personal liability on

Goldin individually. We vacate in part and reverse in part.

Facts and Proceedings Below.

These cases originate in the collapse of the MCORP banking

group, which filed for bankruptcy under Chapter 11 in 1989. The

current litigation centers on the actions of the officers and

directors of MCORP in the period following the bankruptcy and prior

3
to the appointment of Goldin as Trustee on July 1, 1994. Goldin

claims that several officer appellees misused assets of the estate

for their own personal benefit, engaging in a variety of prohibited

transactions at its expense. The director appellees are claimed to

be liable for these abuses because they assertedly failed to halt

this alleged misconduct, approved of improper payments to the

officers, and ultimately passed a blanket ratification of the

officers’ actions. The director appellees are also accused of

wrongfully changing the company’s pension plan for the insiders’

benefit and to the creditors’ detriment. Goldin also requested a

declaratory judgment that the officer appellees were not entitled

to severance payments. The appellees deny these allegations, and

the officer appellees contend that they are entitled, as

administrative claims, to severance payments and indemnification.

Goldin initiated the current action as an adversary proceeding

in the bankruptcy court on May 5, 1995. Following consolidation

with appellees’ administrative claims for severance payments, the

reference on the case was withdrawn by the district court on

appellees’ motion. Both parties filed motions for summary

judgment, which the district court heard. The district court also

held a bench trial on the issue of the severance payments. In an

interlocutory order dated August 23, 1996, the district court

granted the appellees’ summary judgment on almost all issues, and

a separate opinion and order in October 1996 found the officer

appellees were entitled to their severance payments. On appeal,

4
this Court found that neither the interlocutory order nor the final

judgment on severance benefits was an appealable final order.

Faced with the approach of the termination date for the trust,

Goldin in May 1997 requested an extension of its term from the

bankruptcy court. The bankruptcy court did not rule on the motion;

and the district court again withdrew the reference, and denied the

trustees’ request on July 14, 1997, one day before the trust was

scheduled to terminate. The district court also ordered that the

trustee turn over all trust assets to the clerk of the district

court, as provided for in the trust instrument. Goldin moved the

district court for clarification of the order and appealed to this

Court. We dismissed the appeal and denied rehearing. In September

1997, Goldin filed in the district court an emergency motion

seeking authority to pay trust expenses.

The district court withdrew the reference from the bankruptcy

court on the entire bankruptcy case in late August 1997. In October

1997, it issued a series of final orders that confirmed summary

judgment in favor of appellees, granted the officer appellees the

severance benefits, granted the appellees their costs as either

indemnification or sanctions, granted appellees further attorney’s

fees pursuant to Rule 54, and again ordered the appellant to

immediately turn over all trust assets. Goldin was additionally

ordered to pay certain trust liabilities out of his own pocket, and

ordered to personally complete certain tasks at his own expense.

Goldin then filed for a writ of mandamus to this Court,

5
challenging the district court’s withdrawal of the reference and

its imposition of liability against Goldin in his personal

capacity. We carried this motion with the case. Goldin also

appealed the merits, claiming that summary judgment on the misuse

of estate property claims was inappropriate and challenging the

award of severance payments to the officer appellees.

Discussion

We are obligated to address issues of jurisdiction, including

mootness, prior to addressing the merits of an appeal. See Sierra

Club v. Glickman, 156 F.3d 606, 613 (5th Cir.1998). See also Steel

Company v. Citizens for a Better Environment, 118 S.Ct. 1003, 1014-

1016 (1998). We must satisfy ourselves of this Court’s and the

district court’s jurisdiction even if the parties have not raised

the issue, and if we find the district court did not have

jurisdiction we have limited jurisdiction to correct the error.

See Arizonans For Official English v. Arizona, 117 S. Ct. 1055,

1072 (1997).

We find that we need not reach the merits of the bulk of the

appeal, since the trust’s termination mooted some or all of the

case even before the lower court rendered a final judgment, and in

any case moots the appeal by Goldin. Since the district court

lacked jurisdiction over the trust’s claims against the appellees,

we must vacate that portion of the judgment. Because Goldin and

6
those creditors having an interest in the trust’s funds have been

denied a chance to appeal an adverse judgment by matters for which

they are largely not at fault, we also vacate the judgment awarding

appellees severance pay and costs.

I. Termination of the Trust

To resolve the question of mootness, we first examine the

terms of the instrument creating the trust. Mootness hinges on

when the trustee’s legal responsibilities terminated, thus

depriving him of a legal interest in the outcome. We interpret

trust instruments as we do contracts. See Askanase v. Livingwell,

Inc., 45 F.3d 103, 106 (5th Cir.1995). The interpretation of a

contract is a question of law which we review de novo, unless the

language of the contract is ambiguous and the lower court resorted

to factual determinations of intent. See Snug Harbor, LTD. v.

Zurich Insurance, 968 F.2d 538, 541 (5th Cir.1992) (review is de

novo to the extent language is coherent and intent is clear on its

face). Therefore, our review of the trust instrument here is de

novo. The trust instrument, by its express terms, is to be

construed under Texas law.

A. Terms of the trust

The district court found that the trust ended, by its own

terms, on July 15, 1997. At the onset, it is crucial to note the

purpose of the trust. While MCORP was in Chapter 11, and had been

since 1989, the trust, established in July 1994, was specifically

7
designed to effectuate the rapid liquidation of the MCORP assets

and distribution of them to the creditors.1 In line with this

expectation, the trust instrument provides “The Trust shall

terminate on the earlier of (1) the third anniversary of the

Effective Date or (2) the date as of which substantially all of its

assets have been reduced to Cash and distributed.”2 This language

amounts to a clear and express statement that the trust would

terminate on the third anniversary of its effective date—i.e. on

July 14, 1997—notwithstanding that by that time substantially all

of its assets had not been reduced to cash or distributed.

Goldin argues that the second sentence of this section, “[i]f

any assets of the Trust remain after termination, they shall be

deposited with the Clerk of the Bankruptcy Court . . . unless the

Trust Board and General Bank Trust Board direct, and the Bankruptcy

Court approves, after notice and a hearing, an alternative

1
The instrument states, “The Trust shall be organized for the
purpose of (i) liquidating and distributing non-Cash assets in an
orderly fashion including litigating in an orderly fashion the
causes of action owned by the Debtor on the Effective Date (ii)
completing resolution of Contested Claims, and (iii) distributing
Cash from the Contested Claims Reserves and the Operating and
Reconciliation Reserve under the Plan.” Goldin contends that the
mention of litigation in this section empowers him to continue any
and all such actions indefinitely. It should be noted, however,
that the present claims were filed after the effective date of the
plans. In any case, litigation is to be pursued as part of the
project of orderly liquidation, not as an end in itself.
2
The effective date was required in the instrument to be no
later than July 15, 1994. Any modification of the effective date,
and thus of the termination date, had to be accomplished through a
full plan modification.

8
procedure,” provides an extension mechanism. However, this

“alternative procedure” provision refers to the establishment of an

alternative to the disposition of residual assets after the

termination of the trust. It does not envision extension of the

trust itself. Indeed, the establishment of a procedure for

distribution of residual assets provides further evidence that the

trust was intended to terminate automatically. We find the

language of the trust instrument unambiguous, and we agree with the

court below that the trust terminated on July 15, 1997.

B. Winding Up Powers

Goldin does not now seriously dispute the above analysis or

that the trust had terminated by July 15, 1997. However, he

contends that although the trust may have then terminated, Texas’

statutory “winding-up” powers apply and allow him to continue as

trustee for a reasonable time, thus preventing mootness.3 The

3
In addition, Goldin argues throughout that the district
court’s withdrawal of the reference from the bankruptcy court was
not correct and constitutes reversible error. However, he fails to
argue that the allegedly wrongful withdrawal touches on the
termination of the trust and his standing to pursue this appeal.
His arguments on withdrawal relate only to the merits, which we do
not reach. Any broader argument has been waived. Failure to brief
and argue an issue constitutes waiver. See Applewhite v. Reichold
Chemicals, 67 F.3d 571, 573 (5th Cir. 1995); Hecchi Exploration
Co., Inc. v. Holloway, 862 F.2d 513, 525 (5th Cir. 1988). Goldin
also argues that the lower court gave him an inadequate hearing
under the bankruptcy laws prior to denying his motion to preserve
trust assets. However, this argument is made only as a reason
sanctions were inappropriate. Goldin does not claim that the
method of denying the motion means the trust is still in existence.
In any case, the terms of the trust are self-executing. No action
by the court was required and no error of the court in handling

9
Texas Property Code explicitly provides for such powers. Tex. Prop.

Code Ann. § 112.052 (Vernon 1995). However, all Texas trust

instruments are governed first and foremost by their own terms.

Section 111.002(a) provides that “[i]f the provisions of this

subtitle and the terms of a trust conflict, the terms of the trust

control . . .”; and, section 112.053 states that “[t]he settlor may

provide in the trust instrument how property may or may not be

disposed of in the event of failure, termination, or revocation of

the trust.” Tex. Prop. Code Ann. (Vernon 1995). Texas courts have

recognized that winding-up powers are subject to the terms of the

instrument: “The rule in such cases is that subject to the

provisions of the trust instrument, the trustee has [winding-up

powers].” Kimble v. Baker, 285 S.W.2d 425, 430 (Tex. Civ. App.--

Eastland 1955, no writ). See also Cogdell v. Fort Worth National

Bank, 537 S.W.2d 304, 307 (Tex. Civ. App.--Fort Worth 1976, writ

dism’d) (“There was nothing in the will creating the trust that is

inconsistent with the trustee exercising such powers as are

necessary to enable the trustee to wind up the trust”). We

conclude that under Texas law, winding-up powers are a default

provision that may be denied to a trustee if the instrument

affirmatively indicates they are not contemplated after a specified

termination date.

Here, we find that the language of the trust instrument is

such a request could affect our disposition of the case.

10
unambiguous in foreclosing the existence of winding-up powers after

its third anniversary date. The instrument is solely focused on the

rapid liquidation and distribution of trust assets. It is not a

typical trust designed to insure preservation and growth of the

corpus. The trust’s entire function is winding-up, and we decline

to find that the Texas default rule applies to provide it with

additional winding-up powers after its stated termination date. In

this case, such an addition would clearly defeat the terms of the

trust.

The cases cited by Goldin invoking statutory wind-up power can

be distinguished based on the nature of the trust instruments. All

of the Texas cases involved testamentary trusts which provide for

immediate distribution upon a set termination date.4 The process

of distribution is not instantaneous, so when the obligation to

distribute does not begin until termination,5 some residual power

is clearly to be inferred. Because the need for such a power is so

obvious in these cases, the statutory provisions are generally

noted as a limitation on the trustee; “Appellant correctly states

that upon termination as to appointed property , a trustee is

4
Some of Goldin’s citations on this issue were simply not on
point. In O’Malley v. Stratton, 831 S.W.2d 35, 38 (Tex. App.--El
Paso 1992, no writ), the appellant conceded that wind-up powers
applied to the instrument in question.
5
Cf. Restatement, Second, Trusts § 344 comment a (“By ‘the time
for the termination of the trust’ is meant the time at which it
becomes the duty of the trustee to wind up the trust.”; emphasis
added).

11
authorized only to ‘wind up the affairs of the trust and to make

distribution of the assets to the appropriate beneficiaries.’”.

Nowlin v. Frost Nat. Bank, 908 S.W.2d 283, 289 (Tex. App.--Houston

1995, no writ), quoting Tex. Prop. Code Ann. § 112.052 (Vernon

1995) (finding trust had not terminated). With these types of

instruments, the grant of winding-up power is merely a recognition

of the powers necessary to effect distribution coupled with a

restriction to a reasonable time.

Here, the instrument is not one which requires the insertion

of the statutory default term. It is a liquidating trust. We find

the imposition of further time for liquidation——winding-

up——inconsistent with its terms. It is specifically designed to

effect liquidation and distribution as soon as practical, and

termination expressly occurs on the earlier of substantial final

distribution or a set date. There is thus not the inevitable

period following termination when the administrative function of

distribution is carried out that is found in the cases cited by

Goldin. Distribution is contemplated throughout, and the

termination date provides the outer limit of the trustee’s powers.

The record indicates that the overwhelming bulk of the trust’s

initial assets were in fact distributed at the time of termination.

Goldin’s own pleadings admitted that the litigation against the

directors and officers, and funds held pending resolution of the

appellees’ severance claims, in essence constituted the trust’s

12
sole remaining assets.

In addition, the instrument provides a mechanism to deal with

the problem of illiquid assets that may remain. Such assets were

to be deposited with the clerk of the bankruptcy court, or another

method could be employed with the approval of the trust board and

the bankruptcy court. This provision for the unitary and

intermediate disposition of trust assets further distinguishes this

instrument from those in which winding-up powers are necessary.

Goldin has not cited, nor have we discovered, any Texas cases

that deal with trusts that contemplated complete liquidation prior

to a set termination date, or that utilized an intermediary to hold

assets prior to final distribution.6 Here, the purpose of the

trust was the liquidation and distribution of the bulk of trust

assets within a set time frame. The record indicates that this

goal was largely met and that the trust design served its purpose.

The trust’s terms and express purpose foreclose any residual grant

of powers to the trustee after its time had expired. We conclude

that Texas law does not provide for wind-up powers for this trust.

6
We are not persuaded by the reasoning of Botsford v. Haskins
and Sells, 81 Cal. App. 3d 780 (Cal. App. 1st Dist. 1978), cited by
Goldin, which held that the trustee of a three-year liquidating
trust had winding-up powers extending after the three years
expired. We also note that the trust in Botsford apparently
contained no language comparable either to that here providing for
trust termination on the earlier of its third anniversary or
conversion to cash and distribution of substantially all its assets
or to that here providing for intermediate disposition of assets
remaining on termination.

13
II. Mootness and Vacatur

Having concluded that the trust terminated July 15, 1997, we

must examine the effects of this determination. Appellees contend

that the termination of the trust stripped the trustee of standing

and mooted the case. The trustee is thus barred from appealing the

judgment, which is left in effect. While we agree that the bulk of

the case is moot, we find that the district court’s decision must

therefore be vacated rather than rendered unappealable by the

termination of the trust.

Mootness in this context is “‘the doctrine of standing set in

a time frame: The requisite personal interest that must exist at

the commencement of the litigation (standing) must continue

throughout its existence (mootness).’” Arizonans For Official

English v. Arizona, 117 S.Ct. 1055, 1069 n.22 (1997), quoting

United States Parole Comm. V. Geraghty, 445 U.S. 388, 397 (1980).

A controversy is mooted when there are no longer adverse parties

with sufficient legal interests to maintain the litigation. See

Chevron, U.S.A. v. Traillour Oil Co., 987 F.2d 1138, 1153 (5th Cir.

1993).7 A moot case presents no Article III case or controversy,

and a court has no constitutional jurisdiction to resolve the

issues it presents. See Hogan v. Mississippi University for Women,

7
“A controversy becomes moot where, as a result of intervening
circumstances, there are no longer adverse parties with sufficient
legal interests to maintain the litigation. . . . A controversy
can also become moot when ‘the parties lack a legally cognizable
interest in the outcome’.” Id.

14
646 F.2d 1116, 1117 n.1 (5th Cir. 1981). When the trust

terminates, the trustee no longer has any personal, substantial

interest in the outcome of the litigation. His lack of standing

would thus render the trust’s claims against the appellees moot

from the moment of termination.8 The termination may have

similarly mooted the claims by the appellees for severance benefits

and costs from the trust. In any case, the termination stripped

Goldin of standing to appeal, thus causing mootness before this

Court.

We have no power under Article III to decide the merits of a

case that is moot when it comes before us. See Manges v. Seattle-

First National Bank, 29 F.3d 1034, 1038 (5th Cir. 1994)

(distinguishing Article III mootness inquiry from equitable

mootness in bankruptcy). We retain authority to order vacatur of

a moot case, however. U.S. Bancorp Mortgage Co. v. Bonner Mall

Partnership, 115 S.Ct. 386, 390 (1994). Our disposition of a moot

case may depend on when mootness occurred.

If mootness occurred prior to the rendering of final judgment

by the district court, vacatur and dismissal is automatic. The

district court would not have had Article III jurisdiction to

render the judgment, and we cannot leave undisturbed a decision

that lacked jurisdiction. See Iron Arrow Honor Society v. Heckler,

8
The exceptions to mootness involving class-actions and actions
capable of repetition but evading review are not applicable to this
case.

15
104 S.Ct. 373, 376 (1983); New Left Education Project v. Board of

Regents of University of Texas System, 472 F.2d 218, 220 (5th Cir.

1973), vacated on other grounds, 414 U.S. 807. (“If the case became

moot before a final adjudication, we must vacate the judgment and

direct that the case be dismissed. The district court has no power

to decide moot causes.”).9

9
See also Blackmar v. Lichtenstein, 578 F.2d 1273 (8th Cir.
1978), and on subsequent appeal, Blackmar v. Lichtenstein, 603 F.2d
1306 (8th Cir. 1979). In these cases, Blackmar, as successor
trustee of employee profit sharing trusts of Liberty Loan
Corporation (Liberty), filed suit against former trustees under
section 10(b) of the Securities Exchange Act of 1934 and also
asserted pendent state law breach of fiduciary duty claims.
Subsequently, and after Blackmar indicated his intention to add
Liberty as a party defendant and assert all those claims against it
also, Liberty for that reason removed him and appointed new
trustees who filed a motion to be substituted as plaintiffs. The
district court assumed arguendo that Blackmar had standing, did not
rule on the motion to substitute, dismissed the section 10(b)
allegations on the merits for failure to state a claim, and
dismissed the state law claims without prejudice. Blackmar timely
filed a motion to alter or amend the judgment and a motion to file
an amended complaint adding Liberty as a defendant. The district
court denied both motions, ruling that the tendered amended
complaint failed to state a section 10(b) claim. On Blackmar’s
appeal, the Eighth Circuit vacated the dismissal and remanded to
the district court, holding that before ruling on the merits the
district court should have first determined whether Blackmar had
standing to pursue the case. Id., 578 F.2d at 1276. The district
court on remand ruled that Blackmar was no longer a proper party,
declined to rule on his motion for instructions as trustee, and
granted the motion of the successor trustees to be substituted as
plaintiffs. Blackmar again appealed, and the Eighth Circuit
affirmed, stating:

“Blackmar’s argument that Liberty has violated its
fiduciary duty under ERISA by displacing him in order to
preclude a suit being filed against Liberty is not
germane to the issue. If Liberty is in collusion with
the successor trustees for an illegal purpose the
successor trustees may be held liable if they fail to

16
 If a case becomes moot on appeal, the general rule is still to

vacate the judgment of the lower court and remand with instructions

to dismiss the case as moot. See, e.g., United States v.

Munsingwear, 71 S.Ct. 104, 106-07 (1950)(leading case); United

States v. Sarmiento-Rozo, 592 F.2d 1318, 1321 (5th Cir. 1979).

However, this Munsingwear doctrine is an equitable one, justified

as a means of avoiding the unfairness of a party’s being denied the

power to appeal an unfavorable judgment by factors beyond its

control. See Northshore Development, Inc. v. Lee, 835 F.2d 580,

583 (5th Cir. 1988). Accordingly, if the mootness can be traced to

the actions of the party seeking vacatur, the decision of the lower

court will usually be allowed to stand. See Bonner Mall, 115 S.Ct.

at 391-92 (party that voluntarily settled case, thus creating

carry on with any fiduciary obligations under the trust.

. . . .

This court cannot deem Blackmar a fiduciary, though he
once was, and allow him to bring a suit in a fiduciary
capacity where the trust instrument provided for a method
of appointing trustees and that method was followed. In
short, Blackmar no longer has an interest in this suit.

Blackmar’s motion for application for instructions
as trustee is moot in view of the district court’s ruling
that he is not a real party in interest.” Id., 603 F.2d
at 1310.

While not directly on point, these cases taken together
indicate that trial courts cannot resolve substantive questions
when the purported trust representative before them has been
replaced during the suit, and that a cause sought to be maintained
for a trust by a former trustee is moot.

17
mootness, is not entitled to vacatur); Arizonans, 117 S.Ct at 1071-

72.

For the reasons stated earlier, we find that the trust

terminated automatically on July 15, 1997. This was prior to the

entry of any final, appealable judgment in the case.10 It is by no

means clear to us that the district court had the power to somehow

maintain the status quo pending final judgment in the face of the

trust instrument’s terms, but in any event its actions demonstrate

without a doubt that it did not intend to do so. The district

judge stated in his final orders that the trust “was dead and has

been dead since July 15th, 1997." He characterized the

continuation of efforts by the trustee after this point as “simple

disobedience.” These statements are inconsistent with an attempt

by the district court to defer termination of the trust past its

allotted time.

We thus need not make an equitable determination under

Munsingwear and Bonner Mall with regard to the trust’s claims

against the appellees, since we find that the case was moot prior

to the district court’s decisions.11 The district court had no

10
The district court had purported to render final judgment on
the officer’s severance benefit claims and interlocutory orders on
other matters, but this Court found the orders were not appealable
final judgments.
11
We note that while Goldin has not linked his request for
vacatur to the Munsingwear doctrine, he has pointed out the
inequity of allowing this unappealable judgment to stand. This is
not a case in which a party fails to request vacatur following a

18
jurisdiction to render judgment on these claims. The district

court’s judgment so far as it disposes of the trust’s misuse of

estate property claims and action for declaratory judgment is thus

vacated and those claims are dismissed as moot for want of a party

plaintiff having a legally cognizable interest in the outcome.

The effect of the termination on appellees’ claims against the

trust is somewhat more difficult to resolve. The classic cases of

mootness due to changed circumstances involve plaintiffs whose

relations to the case have changed. Because of the liberal

allowance for substitution in the federal rules, cases in which a

defendant’s change in status leads to mootness are rare. See 15

Moore’s Federal Practice §101.94[3] (3d ed. 1998).

Here, however, the officer appellees have an undeniable

interest in recovering the severance payments that they claim they

are owed. The difficulty is that the party they seek to recover

from, and which resisted their claims in court, has, as they have

consistently insisted, ceased to exist. They have been in effect

litigating against an inert lump of assets while continuing to

leave the trust—which has terminated and is not a legal entity—as

their named opponent, and without ever seeking a substitution of

parties.

It is a standard truism that “[t]here can be no live

controversy without at least two active combatants.” See Martinez

clear determination of mootness.

19
v. Winner, 800 F.2d 230, 231 (10th Cir. 1986). The standing of

both parties must be inquired into as part of the Article III

jurisdictional inquiry. “Standing to sue or defend is an aspect of

the case or controversy requirement.” Arizonans, 117 S.Ct. at

1067. Generally, the issue of mootness due to the loss of standing

of a party is phrased in the plural so as to require that both

parties to an action have maintained standing. See, e.g., Sierra

Club v. Glickman, 156 F.3d at 619 (“a matter is moot for Article

III purposes if . . . the parties lack a legally cognizable

interest in the outcome.”).

But despite this general language, courts have recognized that

the standing inquiry is fundamentally different in the rare case

where the defendant is its focus. See, e.g., People v. Highland

Irrigation Co., 893 P.2d 122, 127 (Colorado 1995) (en banc)

(finding that defendant had standing to raise affirmative defense,

and noting that “the rules for determining whether a plaintiff has

standing are simply inapplicable to the defendants”). It has been

argued that a standing inquiry involving defendants is really part

of a broader examination of the case’s justiciability. See Natural

Resources Defense Council, Inc. v. Jamison, 787 F.Supp. 231, 235

n.1 (D.C.D.C. 1990) (noting in dicta that the Article III question

when defendant’s standing is involved is whether defendant has

sufficient interest to present the court with a justiciable

controversy). Cases such as in rem actions illustrate that actions

20
in which the plaintiff has valid standing may continue in the

absence of any defendant whatsoever. The trust’s termination and

Goldin’s lack of standing thus arguably may not have automatically

terminated the district court’s jurisdiction of the claims against

the trust, as it did Goldin’s claims against appellees.

However, whatever other effect the termination might have, it

makes it impossible for us to hear an appeal pressed in the name of

the defunct trust by the former trustee on any point, including the

claims made by the appellees as plaintiffs. See Arizonans, 117

S.Ct. at 1067 (“The standing Article III requires must be met by

persons seeking appellate review, just as it must be met by persons

appearing in courts of first instance.”); Diamond v. Charles, 106

S.Ct. 1697, 1708 (1986) (intervenor who lacked standing could not

appeal in place of defendant). All parties, whether defendants or

plaintiffs below, must meet the requirements of Article III

standing when appealing to this Court.12 Since Goldin lacks an

12
The fact that the plaintiff seeks to enforce a judgment
against the defendant will almost always insure that the defendant
has standing to appeal an adverse judgment. However, in the unique
contexts in which the issue arises, courts have uniformly held that
at least one appellant must have Article III standing. Thus while
intervenors may proceed under Rule 24 without meeting the standing
requirements, if they are the sole party to take an appeal they
must independently satisfy Article III. Cf. Ruiz v. Estelle, 1998
WL 809293 at *14 (5th Cir. 1998) (party may intervene without
demonstrating standing when other parties on both sides of the
litigation have standing); United States v. State of Texas, 158
F.3d 299, 304 (5th Cir. 1998) (intervenor defendant may
independently pursue appeal since it had sufficient interest in
reversing adverse judgment below). Similarly, we have barred a
party that was the defendant in an interpleader action from

21
adequate interest to proceed with an appeal, his appeal is moot.

Accordingly, we apply Munsingwear’s equitable vacatur doctrine.

Since we find vacatur warranted under Munsingwear, we need not

determine whether the district court lost jurisdiction over

appellees’ claims against the trust immediately upon its

termination.

Our resolution of this question must begin with a recognition

that dismissing the appeal due to Goldin’s lack of standing, as

appellees argue we should, would lead to the problem at the heart

of the Munsingwear doctrine——that an order may become unappealable

due to no fault of the losing party, thus denying review of a

possibly erroneous decision. See Northshore, 835 F.2d at 583

(finding vacatur not warranted when party requesting it was at

fault, having failed to press its appeal in state court); Bonner

Mall, 115 S.Ct. at 391 (“A party who seeks review of the merits of

an adverse ruling, but is frustrated by the vagaries of

circumstance, ought not in fairness be forced to acquiesce in the

judgment.”).

We recognize that application of Munsingwear has sometimes

been rejected when a party’s change in status robs it of standing

pursuing an appeal when the directly aggrieved party withdrew.
Since the party was not itself asserting a claim to the fund, it
lacked standing to challenge a determination of priority to that
fund, and its interest alone was insufficient to allow an appeal.
See Rohm & Hass Texas, Inc. v. Ortiz Brothers Insulation, Inc., 32
F.3d 205, 208 (5th Cir. 1994).

22
and mootness results from the unwillingness of a successor to

pursue the appeal. See Karcher v. May, 108 S.Ct. 388, 395 (1987)

(former state legislators were not entitled to vacatur since

decision was not unreviewable——their successors could have appealed,

but chose not to). Here, however, the trust has terminated and no

successor has yet emerged. Cf. United States v. Zolin, 109 S.Ct.

2619, 2623 n.3 (1989) (discovery issue related to criminal and

civil IRS investigation was not mooted by defendant’s death since

civil audit could affect liability of estate, represented before

the court by decedent’s widow). We find it unlikely that the

assets themselves can be held responsible for their failure to

appeal. The ability of the creditors to appeal without a

declaration that one or all of them is a successor in interest to

the trust is procedurally unclear. See Karcher, 108 S.Ct. at 392

(“[W]e have consistently applied the general rule that one who is

not a party or has not been treated as a party to judgment has no

right to appeal therefrom.”)

Thus, despite Goldin’s status as a defendant, under the unique

facts of this case he——and the beneficiaries of the trust——have been

denied any meaningful ability to appeal. This result cannot be

traced to any fault on the part of Goldin. He legitimately

advanced a nonfrivolous, if ultimately unsuccessful, argument for

the continuation of his powers in an attempt to stave off mootness.

As for the creditors, a party is under no duty to intervene if the

23
plaintiff has proceeded against the wrong party. See Cheramie v.

Orgeron, 434 F.2d 721, 725 (5th Cir. 1970) (successors in interest

to dead defendant not required to intervene). In any case, we find

the creditors’ failure to attempt to prevent Goldin from continuing

to represent them was not unreasonable under all the circumstances.

The party at fault in creating this situation is not Goldin,

but the appellees. They, unlike Goldin, argued that the trust had

terminated. They seemingly remained oblivious to the necessary

effect this contention had on the propriety of continuing their

litigation solely against the defunct trust. Under the Rules of

Civil Procedure, a party is allowed, and strongly encouraged, to

substitute the proper defendant when circumstances change so as to

render the prior defendant not the real party in interest. See

Fed. R. Civ. P. Rules, 17, 19, 21, and 25. Had the appellees

recognized that their own arguments created doubts about whether

Goldin was properly before the court and simply sought substitution

of the trust assets or other proper defendant or defendants, this

litigation would have become much less troublesome.

Because the district court declined to create a new trust or

other mechanism to handle the suit, the proper course of action

might have been to name the assets themselves as an in rem

defendant. This likely would have allowed the creditor

beneficiaries to intervene directly, and clarified the need for

them to do so. As intervenors with a concrete individual stake in

24
the status of the former trust’s funds, they would presumably have

had standing to appeal a judgment in favor of appellees as

plaintiffs. See United States v. State of Texas, 158 F.3d 299,

303-304 (5th Cir. 1998) (intervenors had standing to appeal federal

court’s decision for plaintiff when the decision deprived them of

a right they had gained in state court). Appellees should have

recognized that the termination they sought raised issues of

standing and mootness that needed to be addressed. Instead,

appellees allowed the district court to erroneously continue to

proceed on the merits.

The district court lacked Article III power to resolve the

trust’s misuse of estate property and declaratory judgment claims,

and we vacate so much of the judgment as disposes of those claims

and direct that they be dismissed as moot. Goldin’s requests for

mandamus relief are denied. We also conclude that the appellees’

claims against the trust, regardless of whether they were moot

before final judgment below, are moot on appeal, and because this

mootness is not traceable to fault on Goldin’s part, we vacate

under Munsingwear.13 We remand with instructions to dismiss the

13
This includes not only appellees’ severance benefits claims,
but also their request for attorneys’ fees. Some of our cases
dealing with the award of fees in civil rights suits have found
that mootness of the underlying action does not moot a controversy
over attorney’s fees already incurred. Nash v. Chandler, 859 F.2d
1210, 1211 (5th Cir. 1988); see Campanioni v. Barr, 962 F.2d 461,
464 (5th Cir. 1992). In such cases, both parties retain an
interest in recovering or retaining the fees even after losing such
interest in the underlying action. The judgment will add to or be

25
consolidated cases as moot.14

III. The Imposition of Personal Liability

In its closing and severance orders, the district court

ordered Goldin individually to pay certain trust expenses in his

personal capacity. This portion of the judgment is clearly not

moot. Goldin personally has suffered an injury in fact that is not

affected by trust termination and his loss of trustee status. The

issue is thus not mooted. Appellees contend that Goldin has waived

this issue due to his failure to appeal in his personal capacity.

We disagree. Rule 3(c) of the Federal Rules of Appellate Procedure

states that an appeal will not be dismissed “for failure to name a

party whose intent to appeal is otherwise clear from the notice.”

Fed. R. App. P. 3(c). Goldin clearly has challenged the imposition

of personal liability on appeal. We reverse the district court’s

imposition of personal liability on the former trustee.

The closing and severance order did not specify the grounds on

which Goldin was held personally liable for trust expenses. Goldin

contends the award constituted an unauthorized modification of the

bankruptcy plan, while appellees defend the award as a sanction.

taken from their funds. Id. Here, however, the terminated trust
and the former trustee had no legally cognizable interest in the
disposition of funds from the former trust——as attorney’s fees or
otherwise——at the time of the appeal.
14
Nothing in this opinion or our mandate addresses whether,
under what circumstances, or when any or all of the cases may be
revived in whole or in part should a proper party appropriately
emerge.

26
While we find the latter interpretation more convincing,15 the

result in either case is the same. If the award was a plan

modification, it had to be labeled and approved as such. It clearly

was not, and nothing on the record indicates any attempt to modify

the plan. If the award was intended as a sanction, on the record

before us it lacked the predicate notice, hearing, and findings our

cases require.

We review the imposition of sanctions for abuse of discretion.

See Riley v. City of Jackson, 99 F.3d 757, 759 (5th Cir. 1996).

The sanctions here might be interpreted as stemming from a sua

sponte Rule 11(c)(1)(B) decision. If so, the district court was

required to afford Goldin notice describing the offending conduct

and allow him an opportunity to show cause why sanctions should not

be imposed. See Merriman v. Security Insurance Co. of Hartford,

100 F.3d 1187, 1191 (5th Cir.1996). The record reveals that Goldin

was given no such notice or opportunity. No formal order was

issued, and we are unconvinced that the district court’s brief

mention of cost shifting provided such notice. The statements in

the record are as consistent with the determination that appellees

are entitled to contractual indemnification as they are with notice

of sanctions, and there is nothing in the record which would give

any notice to Goldin that he might be held personally liable as a

15
At the time, the district court found that Goldin’s lawsuit
was “abusive,” and made other statements indicating his displeasure
with Goldin.

27
sanction for his conduct. We find that imposing Rule 11(c)(1)(B)

sanctions without notice and hearing would constitute an abuse of

discretion by the district court. Moreover, the record here does

not reflect such “unusual circumstances” (see Advisory Committee

notes to 1993 amendments to Rule 11) as would authorize Rule 11

sanctions against a represented party but not his counsel.

Alternatively, the sanctions might be interpreted as an

exercise of the district court’s inherent powers. The imposition

of sanctions using inherent powers must be accompanied by a

specific finding of bad faith. We have reversed sanctions awards

when, as here, the district court merely made general complaints

about the sanctioned party. See Elliot v. Tilton, 64 F.3d 213, 217

(5th Cir.1995) (“Although the district court clearly indicated its

displeasure at Byrd’s conduct of the case, it failed to make a

specific finding of bad faith.”). Cf. Travelers Insurance Co. v.

St. Jude Hospital of Kenner, LA., Inc., 38 F.3d 1414, 1417 n.6 (5th

Cir. 1994) (finding of bad faith for purposes of section 1927

supported by five paragraphs in order specifically addressing

plaintiff’s conduct). Moreover, the standard for the imposition of

sanctions using the court’s inherent powers is extremely high. The

court must find that the “very temple of justice has been defiled”

by the sanctioned party’s conduct. See Boland Marine & Mfg. v.

Rihner, 41 F.3d 997, 1005 (5th Cir. 1995). Nothing in the record

reflects conduct that reaches this level. We find that the

28
imposition of sanctions using the court’s inherent powers when no

bad faith is specifically found and the record does not support the

required high level of culpability constitutes an abuse of

discretion.

We conclude that the district court abused its discretion in

holding Goldin personally liable for trust expenses under any

theory; and we accordingly reverse the district court’s order

requiring Goldin to personally pay any trust expenses.

Conclusion

In conclusion:

(1) we vacate so much of the judgment below as disposes of the

trust’s misuse of estate property and declaratory judgment claims,

and remand those claims to the district court with directions that

they be dismissed as moot;

(2) we vacate so much of the judgment below as disposes of

appellees’ claims against the trust, and remand those claims to the

district court with directions that they be dismissed as moot;

(3) we deny Goldin’s requests for mandamus; and

(4) we reverse the district court’s order requiring that

Goldin personally pay certain trust expenses.

VACATED in part and REMANDED with directions; REVERSED in
part; MANDAMUS DENIED16

16
Except insofar as granted by our action herein, all pending
undisposed of motions are denied as moot.

29