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In re JSS of Albuquerque, LLC

United States District Court, D. New Mexico

February 1, 2019

In Re JSS of Albuquerque, LLC Debtor.
v.
JSS of Albuquerque, LLC, Appellee. State of New Mexico, Appellant,

          PROPOSED FINDINGS AND RECOMMEND DISPOSITION

          Laura Fashing United States Magistrate Judge.

         THIS MATTER is before the Court on the parties' briefing regarding whether this bankruptcy appeal is moot. Following a status conference on September 14, 2018, the Court ordered the parties to brief the issue of whether this appeal is moot in light of the settlement of the underlying bankruptcy case. Doc. 15. The parties submitted simultaneous briefs on the issue on October 26, 2018. Docs 16, 17.[1] The Honorable Judith C. Herrera referred this case to me “to conduct hearings, if warranted, including evidentiary hearings, and to perform any legal analysis required to recommend to the Court an ultimate disposition of the case.” Doc. 2. Pursuant to that order, having reviewed the parties' submissions and the applicable law, and being otherwise fully advised, I find that the Court can fashion no meaningful relief and that this case is moot. I also find that the State is not entitled to vacatur of the Bankruptcy Court's decision. I therefore recommend that the case be dismissed for lack of jurisdiction, and that the Court take no further action.

         I. Background Facts and Procedural Posture

         This case arises from an enforcement action filed in the Second Judicial District Court, Bernalillo County, New Mexico in December 2016. See I Record on Appeal (“ROA”)[2] at 18-71. The State of New Mexico (“State”) alleged that JSS of Albuquerque, LLC and its principals (collectively “JSS”) had violated various New Mexico consumer protection laws. See id. In that enforcement action, the State sought injunctive relief, statutory penalties, and restitution as authorized by statute. See Id. JSS responded by filing a petition for relief in the Bankruptcy Court under chapter 11 and taking advantage of the automatic stay imposed by 11 U.S.C. § 362. See I ROA at 4-7; see also State of New Mexico v. JSS of Albuquerque, LLC, No. D-202-CV-2016-07636 (2d Judicial Dist. Ct. N.M. Jan. 18, 2017) (Notice of Automatic Stay, attached as Exh. 1); I ROA at 114-15 (memorandum opinion and order describing the background). The State took the position that enforcing its consumer protection laws was a police and regulatory matter not subject to the automatic stay. See I ROA at 8. Nevertheless, the Second Judicial District Court requested that the State obtain an order from the Bankruptcy Court (sometimes called a “comfort order”) to assure the state court that it was not violating the federal law by proceeding. See id. The State then sought a determination from the Bankruptcy Court as to whether the state court proceeding was stayed. I ROA at 8-16. On August 1, 2017, Chief Bankruptcy Judge Robert Jacobvitz issued a Memorandum Opinion and Order holding that the § 362(b)(4) exception[3] to the automatic stay did not encompass the fixing of the State's statutory restitution remedy, and he granted the State's motion only in part. I ROA at 114-33.

         Specifically, Chief Judge Jacobvitz held:

The State's prosecution of the State Court Action, including the adjudication of its requests for declaratory and injunctive relief and liquidation of civil penalty amounts under the NMUPA, NMMLO and NMREB, constitutes a proper exercise of the State's police and regulatory powers to protect the citizens of the State of New Mexico. Such claims are excepted under § 362(b)(4) from the operation of the automatic stay. The State's requests for restitution, disgorgement, and rescission, however, primarily adjudicate private rights. Consistent with New Mexico case law, such claims fail to satisfy the public policy test under Eddleman. Consequently, those claims do not fall within § 362(b)(4)'s exception. The State has not met its burden to show that enforcement of the provision in the Permanent Injunction that requires the JSS to obtain further orders from the State Court to collect wrap around real estate contract payments after February 2017 falls within § 362(b)(4)'s exception. The State may file a motion in this Court requesting relief from the automatic stay to pursue its claims for restitution, disgorgement, and rescission or to seek other relief in in the State Court Action. If the State obtains a money judgment for civil penalties in the State Court Action, the State must return to the Bankruptcy Court; collection of any money judgment for civil penalties is stayed under § 362(a).

         I ROA at 132-33. The State timely appealed this decision on August 25, 2017 and elected to have the appeal heard by the District Court rather than by the Bankruptcy Appellate Panel. I ROA at 138-39. The issue presented for appeal was whether the Bankruptcy Court erred “in determining that the police and regulatory power exception to the automatic stay set out in 11 U.S.C. § 362(b)(4) did not apply to the State of New Mexico's efforts to fix the amount of victim restitution, a remedy available to the Attorney General under both the Unfair Trade Practices and Mortgage Loan Origination Acts?” I ROA at 140.

         The Court set a briefing schedule, Doc. 6, and the State filed its motion to remand on November 1, 2017, Doc. 7. JSS did not respond to the State's motion. Briefing on the merits of the appeal was complete on December 12, 2017. Doc. 10.

         In August of 2018, it came to the Court's attention that the parties in the underlying bankruptcy case had reached a mutually agreeable settlement.[4] See Doc. 11. The Court ordered the parties to provide the Court with a joint status report, and the Court set a status conference. Id. At the status conference on September 14, 2018, the parties advised the Court that the underlying bankruptcy case had settled and “implementation of the settlement is imminent.” The parties agreed that the settlement of the bankruptcy case would result in dismissal with prejudice of the chapter 11 bankruptcy and termination of the automatic stay, as well as resolution of the pending state court case. See Doc. 14. Accordingly, the Court ordered briefing on whether the termination of the underlying bankruptcy and state court case rendered this appeal moot. See Doc. 15. The parties filed their simultaneous briefing on the issue on October 26, 2018, Docs. 16, 17, and again JSS took no position on either the appeal or the mootness question, see Doc. 17. On December 13, 2018, the Bankruptcy Court notified this Court that it had dismissed the underlying bankruptcy case on October 26, 2018. Doc. 18.

         II. Discussion

         The State makes two arguments it is brief. First, the State argues that although there is no dispute that the settlement of the underlying cases renders the appeal moot, an exception to the mootness doctrine-that the case is “capable of repetition, yet evading review”-applies. Doc. 16 at 3-5. Second, the State argues that if the Court finds that no exception to the mootness doctrine applies, justice requires that the Court direct the Bankruptcy Court to vacate its opinion and order because otherwise “the New Mexico legal community as a whole will move forward with an erroneous understanding of § 362(b)(4)'s exemption of the exercise of government's police and regulatory powers in bankruptcy cases.” Doc. 16 at 7; see generally Id. at 5-7. Neither of the State's arguments has merit.

         A. Mootness

         “The mootness doctrine ‘derives from the requirement of Article III of the Constitution under which the exercise of judicial power depends upon the existence of a case or controversy.' ” Ghalani v. Sessions, 859 F.3d 1295 (10th Cir. 2017) (quoting DeFunis v. Odegaard, 416 U.S. 312, 316 (1974)). An “actual controversy must be extant at all stages of review, not merely at the time the complaint is filed.” Brown v. Buhman, 822 F.3d 1151, 1165 (10th Cir. 2016) (quoting Genesis Healthcare Corp. v. Symczyk, 569 U.S. 66, 71 (2013)). “If an intervening circumstance deprives the plaintiff of a personal stake in the outcome of the lawsuit, at any point during litigation, the action can no longer proceed and must be dismissed as moot.” Id. (internal quotation and citation omitted); see also WildEarth Guardians v. Pub. Serv. Co. of Colorado, 690 F.3d 1174, 1182 (10th Cir. 2012) (“Mootness usually results when a plaintiff has standing at the beginning of a case, but, due to intervening events, loses one of the elements of standing during litigation. . . .”). “A case will be rendered moot if ‘the issues presented are no longer live or the parties lack a legally cognizable interest in the outcome.' ” Wyoming v. United States Dep't of Agric., 414 F.3d 1207, 1212 (10th Cir. 2005) (quoting City of Erie v. Pap's A.M., 529 U.S. 277, 287 (2000)). “The crucial question is whether granting a present determination of the issues offered will have some effect in the real world.” Id. “Put another way, a case becomes moot when a plaintiff no longer suffers actual injury that can be redressed by a favorable judicial decision.” Ind v. Colo. Dep't of Corr., 801 F.3d 1209, 1213 (10th Cir. 2015). “Mootness deprives federal courts of jurisdiction.” Brown, 822 F.3d at 1165.

         There are two exceptions to the mootness doctrine that would allow a court to hear a case after the controversy between the parties has been extinguished. The first exception involves issues that are “capable of repetition, yet evading review.” Brown, 822 F.3d at 1166. This exception to the mootness doctrine applies when “(1) the challenged action is in its duration too short to be fully litigated prior to cessation or expiration, and (2) there is a reasonable expectation that the same complaining party will be subject to the same action again.” Id. The exception is narrow and ...


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