United States District Court, D. Maine
ORDER ON MOTION TO DISMISS
JON D.
LEVY U.S. DISTRICT JUDGE.
Robert
J. Keach, the Estate Representative of the estate of Montreal
Maine & Atlantic Railway, Ltd. (“MMA”), has
moved to dismiss as moot Wheeling & Lake Erie Railway
Co.'s (“Wheeling”) appeal from a judgment of
the United States Bankruptcy Court for the District of Maine
(the “Bankruptcy Order”), which denied
Wheeling's secured claim against the estate arising from
certain settlement proceeds connected to the 2013
Lac-Mégantic train derailment tragedy. The Estate
Representative argues that Wheeling's appeal should be
dismissed as moot because the parties agreed that a five
million dollar set-aside fund would be the exclusive source
of potential recovery by Wheeling; the funds were
subsequently disbursed by the Estate Representative upon the
issuance of the Bankruptcy Order; and there is therefore no
effective judicial remedy that could provide actual relief to
Wheeling. For the reasons that follow, I conclude that
Wheeling's appeal is not moot and I deny the Estate
Representative's motion.
I.
BACKGROUND
On July
6, 2013, MMA's freight Train 282, which was transporting
crude oil, derailed in Lac-Mégantic, Quebec, Canada,
killing 48 people and causing catastrophic damage to the
town. MMA subsequently filed for bankruptcy in the District
of Maine-as well as in Canadian courts-because of the losses
and liabilities arising from the derailment. After filing for
bankruptcy, the Estate Representative (then serving as the
Estate Trustee) commenced litigation against various parties,
including the shipper of the crude oil, Western Petroleum
Company, together with its corporate affiliates World Fuel
Services Corporation and World Fuel Services, Inc.
(collectively, the “Shipper”), for their
respective roles in causing the disaster. In 2015, the Estate
Representative entered into a global settlement with the
Shipper, whereby the Shipper agreed to contribute 110 million
dollars to a settlement fund in exchange for the release of
all claims against it arising from the Lac-Mégantic
derailment. Wheeling subsequently initiated this litigation
seeking, in relevant part, a declaratory judgment that it
held a valid, perfected, and enforceable security interest in
MMA's contractual and/or statutory and regulatory claims
against the Shipper that were released as part of the
settlement.
In
2015, the Bankruptcy Court entered an order confirming the
Trustee's “Revised First Amended Plan of
Liquidation” (the “Confirmation Plan”).
Paragraph 84 of the Confirmation Plan-which was added to
resolve Wheeling's objection to the plan-required the
Estate Representative to set aside $5, 032, 134.12 (the
“Set-Aside Fund”) “pending further order of
the Bankruptcy Court” to secure payment to Wheeling if
Wheeling was later found to be entitled to payment on its
security interest.
On June
22, 2018, the Bankruptcy Court issued an oral decision ruling
that MMA had no contractual, statutory, or regulatory claims
against the Shipper to which Wheeling's security interest
attached, and even if such claims existed, Wheeling had
failed to establish that they had any net value. Immediately
after the decision was announced, counsel for Wheeling made
an oral motion to stay, which the court denied. Later that
day, the Estate Representative released the money in the
Set-Aside Fund to the Canadian Monitor (essentially the
Estate Representative's Canadian counterpart in the
parallel Canadian bankruptcy proceedings) in keeping with the
Confirmation Plan. There is no evidence before me as to
whether the money from the Set-Aside Fund has been disbursed
by or remains with the Canadian Monitor. Wheeling's
appeal from the Bankruptcy Order to this Court is taken
pursuant to 28 U.S.C. § 158 (2012) and Rule 8003 of the
Federal Rules of Bankruptcy Procedure.
II.
LEGAL ANALYSIS
“Mootness
in bankruptcy appellate proceedings, as elsewhere, is
premised on jurisdictional and equitable considerations
stemming from the impracticability of fashioning fair and
effective judicial relief. Jurisdictional concerns may arise
from the constitutional limitations imposed on the exercise
of Article III judicial power in circumstances where no
effective remedy can be provided, or from a loss of
jurisdiction over the res or the parties, before or
during the appeal, which renders the appellate court
powerless to grant the requested relief.” Rochman
v. Northeast Utils. Serv. Grp. (In re Pub. Serv. Co. of
N.H.), 963 F.2d 469, 471 (1st Cir. 1992) (internal
citations and footnotes omitted). “The
‘equitable' mootness test inquires whether an
unwarranted or repeated failure to request a stay enabled
developments to evolve in reliance on the bankruptcy court
order to the degree that their remediation has become
impracticable or impossible.” Hicks, Musc & Co.
v. Brandt (In re Healthco Int'l, Inc.), 136 F.3d 45,
48 (1st Cir. 1998). “The party arguing for dismissal
bears the burden of establishing equitable mootness.”
Mission Prod. Holdings, Inc. v. Old Cold, LLC (In re Old
Cold, LLC), 558 B.R. 500, 514 (B.A.P. 1st Cir. 2016),
aff'd 879 F.3d 376 (1st Cir. 2018).
The
Estate Representative argues that Wheeling's appeal of
the Bankruptcy Order is moot because Paragraph 84 of the
Confirmation Plan established the Set-Aside Fund as the
exclusive source of Wheeling's potential recovery, and
that because the money has been released to the Canadian
Monitor it is entirely within the jurisdiction of Canadian
courts. Paragraph 84 reads:
In resolution of the Wheeling Objection: (a) nothing in this
Order, the Releases and Injunctions or the Settlement
Agreements shall limit or affect Wheeling's ability to
contend, and the Trustee's ability to contest, that
Wheeling's security interest, if any, attaches to the
Settlement Payments (whether as original collateral,
proceeds, products or otherwise); and (b) in the event the
Bankruptcy Court has not determined, prior to the Initial
Distribution Date, the amount of the Allowed Secured Claim of
Wheeling as of such date, and including, without limitation,
whether any portion of the Settlement Payments constitutes
collateral of Wheeling as of such date, the Trustee shall set
aside, and not distribute pending further order of the
Bankruptcy Court, $5, 032, 134.12 to secure any payment, to
the extent required, with respect to such Allowed Secured
Claim, when and if determined. . . .
ECF No. 2 at 7.
Nothing
in the plain language of Paragraph 84 establishes that the
Set-Aside Fund is the exclusive source of funds from which
Wheeling can recover if successful on its claim. To the
contrary, Paragraph 84 states in part (a) that “nothing
in this Order . . . shall limit or affect
Wheeling's ability to contend . . . that Wheeling's
security interest, if any, attaches to the Settlement
Payments . . . .” Id. (emphasis added). This
language reasonably supports Wheeling's argument,
see ECF No. 8 at 7, albeit indirectly, that the
Set-Aside Fund constituted an additional form of
protection of its interest, rather than a curtailment or
limitation of its existing protections. Part (b) of Paragraph
84 establishes the Set-Aside Fund, but contains no indication
that the fund is the exclusive source from which
Wheeling's claim, if successful, must be satisfied.
Therefore, Paragraph 84 does not itself render Wheeling's
appeal moot.
Next,
the Estate Representative argues that judicial estoppel also
provides a basis for dismissal. During the September 24,
2015, bankruptcy court hearing addressing objections to the
Confirmation Plan, counsel for Wheeling made the following
statement:
Now, the solution, I believe, is fairly simple -- and, again,
I apologize if I haven't been clear in explaining it.
Wheeling is agreeing that if there is a fund set aside in the
amount of its claim, it would look only to that fund to
satisfy any interest that it had. But I simply want the
interests that are within the universe of interests that
Wheeling might establish to include not only interests that
might've attached to settlement proceeds received but
interests that might've attached to claims that were
released -- the other side of the coin. But in any case, if
there's $3 million, for example, or 4 million, whatever
the number is, put aside for Wheeling, we would not look to
recover ...