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The Security National Bank of Sioux City, IA v. Vera T. Welte Testamentary Trust

Summarizing by Amir Shachmurove


Case Type:
Case Status:
21-8056 (10th Circuit, Jun 07,2022) Published
The attorney for a debtor, and the debtor's former management, do not have standing to appeal an order converting a Chapter 11 to a Chapter 7 case. In re C.W. Mining Co., 636 F.3d 1257 (10th Cir. 2011), establishes that once a Chapter 11 bankruptcy case is converted, all authority to make decisions for the debtor passes to the trustee, except that a former manager or director has standing to appeal.
Procedural context:
Before the debtor filed bankruptcy, a state court entered an order appointing a receiver for an individual who owned all of the equity interests in a company named Elk Mountain, Inc. Elk Mountain indirectly owned all of the equitable interests in the debtor. After the debtor, Bear Creek Trail, LLC, filed a Chapter 11 petition, the receiver, acting through rights granted to him with respect to Elk Mountain, moved to convert Bear Creek Trail's bankruptcy case. The bankruptcy court granted a receiver's motion and appointed a Chapter 7 trustee for the debtor and its assets. The receiver filed the motion in the exercise of his rights of Elk Mountain, Inc., an entity that indirectly owned all of the equitable interests in the debtor. The debtor and Elk Mountain moved for a stay of the conversion order and the order appointing a trustee. The bankruptcy court denied the motion and a following motion for reconsideration. The debtor's bankruptcy attorney filed a timely notice of appeal to the district court. The receiver moved to dismiss the appeal. The district court dismissed the appeal, applying Tenth Circuit precedent. The debtor's attorney appealed to the Tenth Circuit Court of Appeals.
The debtor, Bear Creek Trail, LLC, was indirectly owned by Marvin Keith. Keith formed Bear Creek Trail several years after BOKF ("bank") obtained a judgment in Texas against Keith. The Texas court appointed a receiver to take possession of and sell all of Keith's non-exempt assets. Then the Texas court ordered Keith to turn over his interests in Bear Creek Trail, three other companies, and the companies' accounts. The receivership order granted the receiver authority to take exclusive control of the assets and all of Keith's rights and powers over the companies. Bear Creek Trail then filed a Chapter 11 bankruptcy petition. The receiver, acting through one company that indirectly owned all of the equity interests in Bear Creek Trail, moved to convert the case to a Chapter 7, and the bank joined in the motion. The bankruptcy court granted the motion to convert and appointed a trustee. The debtor's attorney appealed the conversion and trustee orders in the debtor's name.

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