NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS MAR 6 2019
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: R&S ST. ROSE LENDERS, LLC, No. 17-15561
Debtor, D.C. No. 2:16-cv-00707-APG
______________________________
BRANCH BANKING AND TRUST MEMORANDUM*
COMPANY,
Plaintiff-Appellant,
and
COMMONWEALTH LAND TITLE
INSURANCE COMPANY,
Plaintiff,
v.
BRIAN SHAPIRO, Trustee of the R&S St.
Rose Lenders, LLC Liquidation Trust; R&S
ST. ROSE, LLC; CREDITOR GROUP;
U.S. TRUSTEE - LV - 11,
Defendants-Appellees.
In re: R&S ST. ROSE LENDERS, LLC, No. 17-15562
Debtor, D.C. No. 2:16-cv-00707-APG
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
______________________________
COMMONWEALTH LAND TITLE
INSURANCE COMPANY,
Plaintiff-Appellant,
and
BRANCH BANKING AND TRUST
COMPANY,
Plaintiff,
v.
BRIAN SHAPIRO, Trustee of the R&S St.
Rose Lenders, LLC Liquidation Trust; R&S
ST. ROSE, LLC; CREDITOR GROUP;
U.S. TRUSTEE - LV - 11,
Defendants-Appellees.
Appeal from the United States District Court
for the District of Nevada
Andrew P. Gordon, District Judge, Presiding
Argued and Submitted February 11, 2019
San Francisco, California
Before: McKEOWN, W. FLETCHER, and MURGUIA, Circuit Judges.
Appellants Branch Banking and Trust Company (“BB&T”) and
Commonwealth Land Title Insurance Company (“Commonwealth”) appeal from
the district court’s order affirming the bankruptcy court’s denial of substantive
consolidation of the estates of R&S St. Rose Lenders, LLC (“Lenders”) and R&S
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St. Rose, LLC (“Rose”). We review the district court’s decision de novo. Eskanos
& Adler, P.C. v. Leetien, 309 F.3d 1210, 1213 (9th Cir. 2002). We affirm.1
1. These appeals are not moot under Article III of the Constitution. See U.S.
Const. art. III, § 2, cl. 1. The Rose and Lenders estates are relatively simple,
involving just one key asset, and approximately $8 million has yet to be distributed
from Lenders. Therefore, there is still “some form of meaningful relief” that we
could fashion. See In re Pattullo, 271 F.3d 898, 901 (9th Cir. 2001). Moreover, we
“could entirely ‘reverse plan confirmation or require modification of the plan.’” In
re Mortgages Ltd., 771 F.3d 1211, 1214 (9th Cir. 2014) (quoting In re Thorpe
Insulation Co., 677 F.3d 869, 880 (9th Cir. 2012)).
2. These appeals are not moot under the discretionary doctrine of equitable
mootness. See Mortgages Ltd., 771 F.3d at 1214 (“[W]e can dismiss appeals of
bankruptcy matters when there has been a comprehensive change of circumstances
so as to render it inequitable for this court to consider the merits of the appeal.”)
(internal quotation marks omitted and alterations incorporated). These appeals do
not present “transactions that are so complex or difficult to unwind that the
doctrine of equitable mootness” should apply. See Thorpe Insulation Co., 677 F.3d
at 880 (quoting In re Lowenschuss, 170 F.3d 923, 933 (9th Cir. 1999)).
1
The unopposed motions to substitute Brian Shapiro, Trustee of the R&S St.
Rose Lenders, LLC Liquidation Trust, for Lenders as appellee in these appeals are
GRANTED.
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3. The bankruptcy court did not err in denying substantive consolidation
under the framework set forth in In re Bonham, 229 F.3d 750 (9th Cir. 2000).
Substantive consolidation is appropriate if “creditors dealt with the entities as a
single economic unit and did not rely on their separate identity in extending
credit[.]” Id. at 766.2 However, substantive consolidation should be used “sparingly
and in keeping with [its] equitable nature.” Id. at 767 (internal quotation marks and
citation omitted). In reviewing a bankruptcy court’s substantive-consolidation
decision, we review legal conclusions de novo and factual determinations for clear
error. Id. at 763.
The bankruptcy court did not commit clear error in its fact-finding. There
was evidence to support the bankruptcy court’s finding that BB&T’s predecessor,
Colonial Bank, N.A., dealt with Rose and Lenders as separate economic units and
relied on their separate identities each time Colonial extended credit to Rose.
Appellants offer a number of alternative interpretations of the evidence, but where
“there are two permissible views of the evidence, the factfinder’s choice between
them cannot be clearly erroneous.” In re Rifino, 245 F.3d 1083, 1086 (9th
Cir. 2001) (quoting Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 574
2
Substantive consolidation is also appropriate when “the affairs of the
debtor are so entangled that consolidation will benefit all creditors.” Id. Appellants
do not argue that the bankruptcy court should have granted consolidation under
this Bonham factor.
4
(1985)).
Nor did the bankruptcy court commit legal error. Appellants primarily argue
that the bankruptcy court should have focused on the individual investors (the
highest number of creditors) instead of BB&T (the creditor with the highest claim
value). But imposing such a bright-line rule would be inappropriate in the context
of substantive consolidation, which is an equitable remedy evaluated on a case-by-
case basis with an eye towards “fairness to all creditors.” Bonham, 229 F.3d at 765.
In this case, the bankruptcy court considered all creditors, but ultimately focused
on the expectations of BB&T—the largest creditor, the creditor seeking substantive
consolidation, and the only creditor who stood to benefit from substantive
consolidation. This was not error.
Appellants also argue that the bankruptcy court failed to honor all creditors’
expectations and improperly weighed the equities. Although substantive
consolidation might have achieved BB&T’s “expectation” of a first-position lien
on the property, this expectation is not the type that substantive consolidation is
intended to restore. See id. at 766 (“The first factor, reliance on the separate credit
of the entity, is based on the consideration that lenders structure their loans
according to their expectations regarding the borrower and do not anticipate either
having the assets of a more sound company available in the case of insolvency or
having the creditors of a less sound debtor compete for the borrower’s assets.”)
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(internal quotation marks omitted and alteration incorporated). Certainly, BB&T’s
circumstances could be characterized as unfair. But the unfairness was not caused
by BB&T’s ignorance of the existence of Lenders or BB&T’s treatment of Rose
and Lenders as one entity. Substantive consolidation is not appropriate under these
circumstances.
We reject Appellants’ remaining arguments, which likewise do not
demonstrate legal or factual error in the bankruptcy court’s decision. The
bankruptcy court correctly denied substantive consolidation.
Accordingly, the Trustee’s motions to dismiss these appeals as moot are
DENIED, and the district court’s order is AFFIRMED.
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