Petition for Writ of Certiorari — Ginther v. Ginther Trusts

|_j Supreme Court, U.S.

FILED

001666 APR 30 2001

No. 00-

IN THE

Supreme Court of the United States

In the Matter of: THE GINTHER TRUSTS,

A Texas Joint Venture.

FERGUS M. GINTHER,

Petitioner,

~ v.

THE GINTHER TRUSTS, A Texas Joint Venture;

and REDSTONE EL DORADO ACQUISITION LP,

Respondents.

On PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES Court OF APPEALS FOR THE FIFTH CIRCUIT

PETITION FOR A WRIT OF CERTIORARI

BRADLEY WESTMORELAND Berry DUNBAR BOWEN

Of Counsel Counsel of Record

2700 Post Oak Boulevard 3333 West Alabama

Suite 950 Suite 100

Houston, Texas 77056 Houston, Texas 77098

(713) 960-1314 (713) 521-3525

Attorneys for Petitioner

_

i

QUESTION PRESENTED

The problem in this case is that the bankruptcy court

lacked subject matter jurisdiction. Petitioner challenged the

bankruptcy court’s assumption of subject matter jurisdiction

on the grounds that a trust may not seek federal bankruptcy

protection. The purported basis for jurisdiction was that the

trust was actually a joint venture, which could seek such

' protection.

This jurisdictional claim is a flagrant example of

“manufactured, convoluted federal subject matter theory,”

see Ruhrgas AG v. Marathon Oil Company, 526 U.S. 574,

587 (1999), because it is settled law that trusts may not invoke

bankruptcy protection and that this trust is not a joint venture

that can.

Petitioner argued lack of subject matter jurisdiction at

every step of the proceeding below. He was denied his day

in court on the issue, because in the first instance the courts

ducked the jurisdictional issue and reached the merits instead,

holding that he was not entitled to a stay of the sale of the

El Dorado Ranch.

In the second instance, he was denied his day in court

on the issue of subject matter jurisdiction because of rulings

under the “absolute mootness” doctrine that because he had

not actually obtained a stay of the sale, his appeal was moot.

But the “absolute mootness” rule, upon which the Circuits

are split, is contrary to this Court’s mootness teachings.

Effectual relief — namely, dismissal of the bankruptcy

proceeding — could have been rendered. Thus, the prime

threshold issue of subject matter jurisdiction was never

reached due to reliance upon a bad rule of law.

il

In Ruhrgas this Court held that there is no hierarchy to

threshold issues; that a district court has discretion to

consider personal jurisdiction before subject matter

jurisdiction and should generally choose the more

straightforward issue. When the “absolute mootness”

doctrine developed in appeals from orders authorizing the

sale of assets in bankruptcy cases is applied to a record in

which the application for stay raising the challenge to subject

matter jurisdiction was denied without comment, the right

to challenge subject matter jurisdiction unconstitutionally

disappears, we contend, from the case, or becomes, in the

words of the Fifth Circuit here, “irrelevant.” The threshold

issue of subject matter jurisdiction is thus neatly avoided at

the outset by the exercise of “hypothetical jurisdiction” —

contrary to Steel Co. v. Citizens for a Better Environment,

523 U.S. 83, 101 (1998) — and the very fact that it was

avoided at the outset becomes the premise for the appearance

of the second threshold issue of mootness which, as Ruhrgas

teaches, will always prove to be more straightforwardly

determinable under an “absolute mottness” rule that requires

the reviewing court only to consider whether a stay was

obtained.

The question presented is:

“Does the doctrine of ‘absolute mootness’, upon which

the Circuits are split, permit covert expansion of the

subject matter jurisdiction of the bankruptcy courts under

the guise of procedural efficiency?”

iii

LIST OF PARTIES

The caption of the case contains the names of parties to the

appeal before The Fifth Circuit. Various other parties to the

bankruptcy court’s Final Judgment participated in the

proceedings seeking a stay but not in the appeal. All parties to

the bankruptcy court’s judgment are listed in that judgment,

which appears in the Appendix. (Pet. App. 38a-41a). .

iv

TABLE OF CONTENTS

I IONS | vin k 6. h 5a Kew bab eckevewes

Rr SR 6-8 fbn God v 8wkees eee

Fee Oe Ge I bk 66d cab ck Kher ces

Be Or I i eke cSs5 Se esinsin ees

TPP EE eT CPE Se ee ree

Statement of Jurtediction ........ccccccccccses

Constitutional Provisions and Statutes Involved ..

I oi hi ok i ok vekeen ks

Reasons for Granting the Writ .................

I.

An Absolute Mootness Doctrine In Appeals

Governed By 11 U.S.C. § 363(m) Perverts

The Rule In Ruhrgas And Allows The Issue

Of Subject Matter Jurisdiction To Be

POE 6b a AT ei

Steel Co. Requires That Subject Matter

Jurisdiction Be Determined Before The

Merits Of The Request For Stay May Be

13

Contents

Page

III. Absolute Mootness As Applied In This Case

Cannot Be Squared With Vacatur ......... 20

IV. There Are Two Obvious Solutions To The

PROMI fo oib io ki kas Skee ee 22

V. This Court Is Called Upon To Police The

Crime Of A “Drive-By” Jurisdictional

Ruta 623 OTE RRBEISSS 24

Comets so 2 RS ee ee 28

vi

TABLE OF CITEDAUTHORITIES

Page

Cases:

Adams v. Terrell, 4 Fed. 796 (C.C.W.D. Tex. 1880)

asdiscccecbutienecsecssauvesbceaek veunerel 25

Advent Trust Co. v. Hyder, 12 S.W.3d 534 (Tex.

App.-San Antonio 1999, writ denied) ......... 9

Anthony v. Butler, 38 U.S. 423 (1839) .......... 21

Associated Cemetery Management, Inc. v. Barnes,

BGS RBG Or Gee GU, BRED wc cccccccecccesss 25

Brush v. Ware, 40 U.S. 93 (1841) .............. 21

Cantor v. Wilbraham and Monson Academy, 609

oe bef is |) rer rrr ee 25

Celotex Corp. v. Edwards, 514 U.S. 300 (1995) .. 11

Church of Scientology of California v. United States,

et St Re rere re err oo 15, 16

Hobbs v. McLean, 117 U.S. 567 (1886) ......... 17

In re Action Roofing & Supply Co., 137 B.R. 217

GUE Ti ells BOD candosacccakeasccees 25

In re Armstead and Margaret Wayson Trust, 29 B.R.

Fe SE, Oe Bn bs Shin ereetiewcks, 26

vii

Cited Authorities

Page

In re Associated Cemetery Management, Inc.,

Employers Profit Sharing Trust, 170 F. Supp. 298

(W.D. Missouri 1958), aff'd sub nom. Associated

Cemetery Management, Inc. v. Barnes, 268 F.2d

97 (Oth Coe, 1959) on es ci sitivesstecdmeewat 26, 27

In re BCD Corp., 119 F.3d 852 (10th Cir. 1997) .. 16

In re Cahill, 15 B.R. 639 (Bankr. E.D. Penn. 1981)

Sec eStWe toe beet hedssavenntundocenen 25

In re Cohen, 4 B.R. 201 (Bankr. S.D. Fla. 1980) .. 25

In re Filtercorp, Inc. 163 F.3d 570 (9th Cir. 1998)

lieve tnncneeeetdesk bad nakeeiensanedress 15, 16

In re Goerg, 844 F.2d 1562 (11th Cir. 1988),

cert. denied, 488 U.S. 1034 (1989) ........... 25

In re Johnson, 82 B.R. 618 (Bankr. S.D. Fla. 1988)

basis ees cueucdébeseaiuddivaddcvessatuet 25, 26

In re L&V Realty Trust, 61 B.P.. 423 (Bankr. D. Mass.

ED. SG a sone bed anda vascunssbeacesenares 26

In re Lloyd, 37 F.3d 271 (7th Cir. 1994) ......... 16

In re Margaret E. DeHoff Trust I, 114 B.R. 189

Se, CE DD oda ctcntennescdweaue 25

vill

Cited Authorities

Page

In re Old Second National Bank of Aurora, 7 B.R.

PT Ge Be ae ED Sa edcckecstnedaes 25

In re Onouli-Kona Land Co., 846 F.2d 1170 (9th

Gh Sako ob teikeawdec code kosee bassnene 15

In re Osborn, 24 F.3d 1199 (10th Cir. 1997) ..... 16

In re Sanders, 91 B.R. 317 (Bankr. E.D. Penn.

SEE -ddisntancecidebucdameubtet panes sik abe 25

In re Sax, 796 F.2d 994 (7th Cir. 1986) .......... 22

In re UNR Industries, 20 F.3d 766 (7th Cir. 1994) .. 15

In re Walker, 79 B.R. 59 (Bankr. M.D. Fla. 1987) ... 26

Matter of 299 Jack-Hemp Associates, 20 B.R. 412

SE Sa ee SD bn oc cesutes cnevsns 25, 27, 28

Mills v. Green, 159 U.S. 651 (1895) ............ 15, 16

Oliver v. Piatt, 44 U.S. 333 (1839) ............. 21

Pope & Cottle Co. v. Fairbanks Realty Trust,

EG Fe Cae Ce eee BOE ib 68 caw de Kas tines 25

Ruhrgas v. Marathon Oil Co., 526 U.S. 574 (1999)

acti cddubadWasevieodsrdestaenas i, ii, 12, 13, 14

ix

Cited Authorities

Page

Steel Co. v. Citizens for a Better Environment,

$23 U.S. £3 CAPGGR ckiesasas ii, 13, 14, 17, 18, 23, 24

U.S. Bancorp Mortgage Co. v. Bonner Mall

Partnership, 513 U.S. 18 (1994) ............. 20, 24

United States v. Munsingwear, Inc., 340 U.S. 36

CRE os 6:4 bik wedded ibaa 64 « BEES ea ae 20, 21

United States Constitution:

RE EB pay aie meee ny ee eee 3,15

Statutes:

a ee 4

bE ES i 2s” SEAR Pony ces Sp aaa ee 25

Ee nS tlh TTBS SRE Oe ESR) ag prep ee BEEN 4, 25

Oe WAC os Vegas be ei ee aes 8,9, 18

[Gee te eR Ree oige eae em 4, 13, 16, 17

Pe Gs 556d ss Bok en es denndes cel 12

pS Cm ER ese, ee a 3

28 U.S.C. § 1335 2.0... e eee rece eee eee eeees 11

x

Cited Authorities

Page

Tex. Rev. Civ. Stat. Ann. art. 6132b-2.02 ........ 5

Tex. Rev. Civ. Stat. Ann. art. 6132b-2.02(a) ...... 27

Tex. Rev. Civ. Stat. Ann. art. 6132b-2.02(c) ...... 27

Rule:

a A OD eee rererr ere rey ry erry. er 9

Other Authorities:

H. Rep. No. 595 95th Cong. Ist Sess. 313 (1997) ... 25

S. Rep. No. 989, 95th Cong., 2nd Sess. 25 (1978) ... 25

U.S. Code Cong. & Admin. News 1978 ......... 25

xi

TABLE OF APPENDICES

Appendix A — Per Curiam Opinion Of The United

States Court Of Appeals For The Fifth Circuit

Dated And Filed January 29, 2001 ............

Appendix B — Order Of The United States District

Court For The Southern District Of Texas,

Houston Division Dismissing The Appeal As

Moot Dated And Entered June 27, 2000 .......

Appendix C — Order Of The United States Court

Of Appeals For The Fifth Circuit Denying Motion

For Stay Pending Appeal Dated And Filed March

Re re Ce Pr ey reer eT re

' Appendix D — Order Of The United States District

Court For The Southern District Of Texas,

Houston Division Denying Motion For Stay

Pending Appeal Dated March 17, 2000 ........

Appendix E — Final Judgment Of The United States

Bankruptcy Court For The Southern District Of

Texas, Houston Division Dated March 1, 2000

And Entered March 2, 2000 .................

Appendix F — Order Of The United States

Bankruptcy Court For The Southern District Of

Texas, Houston Division On Motion To Dismiss

Dated And Entered June 24, 1998 ............

Page

la

8a

9a

lla

13a

xii

Appendices

Appendix G — Order Of The United States

Bankruptcy Court For The Southern District Of

Texas, Houston Division Affirming “Order

Rescinding Order” And “Order Dispersing Funds”

Dated January 3, 2001 And Entered January 4,

BE ACR ee ee ns RATES Ree

Appendix H — Order Of The United States District

Court For The Southern District Of Texas,

Houston Division Denying Motion For Stay

Pending Appeal Dated And Entered April 11,

Bg bec EUS Cae) Ea ge Pe

Appendix I — Order Of The United States

Bankruptcy Court For The Southern District Of

Texas, Houston Division Dispersing Funds Dated

And Batered Agri 10, 2000 oo. cnc cciccescs

Appendix J — Order Of The United States

Bankruptcy Court For The Southern District Of

Texas, Houston Division Rescinding Order Dated

And Entered April 10, 2000 .................

Appendix K — Order Of The United States

Bankruptcy Court For The Southern District Of

Texas, Houston Division Depositing Interpleader

Funds Into The Registry Of The Court In An

Interest-Bearing Account Dated And Entered April

WE A555 kha RR Aaa ee

Page

46a

54a

55a

57a

xili

Appendices

Page

Appendix L — Excerpts From Fifth Amended And

Restated Revocable Trust Agreement Dated April

pe ee Pai Gy y ely API: Serre Dr ey 6la

1

OPINIONS BELOW

1. The opinion of the United States Court of Appeals for

the Fifth Circuit in No. 00-20593; In re The Ginther Trusts,

A Texas Joint Venture, 238 F.3d 686 (Sth Cir. 1/29/01), is set

forth in the Appendix hereto (Pet. App. 1a).

2. The order of the United States District Court for the

Southern District of Texas, Houston Division, in No. 00-1295;

Fergus M. Ginther and Adriana N. Ginther v. The Ginther Trust,

A Texas Joint Venture and Redstone El Dorado Acquisition,

L.P., dismissing the appeal as moot, entered June 27, 2000, is

set forth in the Appendix hereto (Pet. App. 8a).

3. The order of the United States Court of Appeals for the

Fifth Circuit in No. 00-20216; In re The Ginther Trusts, A Texas

Joint Venture, denying the motion for stay pending appeal,

entered March 22, 2000, is set forth in the Appendix hereto

(Pet. App. 9a).

4. The order of the United States District Court for the

Southern District of Texas, Houston Division, in No. H-00-

925; Fergus M. Ginther and Adriana N. Ginther v. The Ginther

Trust, A Texas Joint Venture and Redstone El Dorado

Acquisition, L.P., denying the motion for stay pending appeal,

entered March 17, 2000, is set forth in the Appendix hereto

(Pet. App. 11a).

5. The Final Judgment of the United States Bankruptcy

Court, Southern District of Texas, Houston Division, in

No. 98-32663-H4-11, Adversary No. 99-3058; Jn re the Ginther

Trusts, A Texas Joint Venture, entered March 3, 2000, is set

forth in the Appendix hereto (Pet. App. 13a).

6. The order on the motion to dismiss of the United States

Bankruptcy Court, Southern District of Texas, Houston

Division, in No. 98-32663-H4-11; Jn re the Ginther Trusts,

2

A Texas Joint Venture, entered June 24, 1998, is set forth in the

Appendix hereto (Pet. App. 42a).

7. The order of United States District Court for the

Southern District of Texas, Houston Division, in No. H-00-

1691, Fergus M. Ginther and Adriana N. Ginther v. Charter

Title Company; NuCorp, Inc.; and Don J. Davis, entered

January 4, 2001, affirming the bankruptcy court’s “Order

Rescinding Order” and “Order Dispersing Funds” the is set forth

in the Appendix hereto (Pet. App. 46a).

8. The order of the United States District Court

for the Southern District of Texas, Houston Division, in

No. MC-00-110, Fergus M. Ginther and Adriana N. Ginther v.

Charter Title Company; NuCorp, Inc.; and Don J. Davis,

denying the motion for stay pending appeal, entered April 11,

2000, is set forth in the Appendix hereto (Pet. App. 54a).

9. The Order Disbursing Funds of the United States

Bankruptcy Court, Southern District of Texas, Houston

Division, in No. 98-32663-H4-11, Adversary No. 99-3058;

In re the Ginther Trusts, A Texas Joint Venture, (Fergus M.

Ginther and Adriana N. Ginther v. Charter Title Company;

NuCorp, Inc.; and Don J. Davis) entered April 10, 2000, is set

forth in the Appendix hereto (Pet. App. 55a).

10. The “Order Rescinding Order” of the United States

Bankruptcy Court, Southern District of Texas, Houston

Division, in No. 98-32663-H4-11, Adversary No. 99-3058;

In re the Ginther Trusts, A Texas Joint Venture, (Fergus M.

Ginther and Adriana N. Ginther v. Charter Title Company;

NuCorp, Inc.; and Don J. Davis) entered April 10, 2000, is set

forth in the Appendix hereto (Pet. App. 57a).

11. The order depositing interpleader funds of the United

States Bankruptcy Court, Southern District of Texas, Houston

Division, in No. 98-32663-H4-11, Adversary No. 99-3058;

3

In re the Ginther Trusts, A Texas Joint Venture, (Fergus M.

Ginther and Adriana N. Ginther v. Charter Title Company;

NuCorp, inc.; and Don J. Davis) entered April 10, 2000, is set

forth in the Appendix hereto (Pet. App. 60a).

STATEMENT OF JURISDICTION

The Court of Appeals entered its opinion and order on

January 29, 2001. Petitioner invokes this Court’s jurisdiction

under 28 U.S.C. § 1254(1).

CONSTITUTIONAL PROVISIONS

AND STATUTES INVOLVED

U.S. Const. art. ITI:

Section 2. The Judicial Power shall extend to all

Cases, in Law and Equity, arising under this

Constitution, the Laws of the United State, and

Treaties made, or which shall be made, under their

Authority; — to all Cases affecting Ambassadors, |

other public Ministers and Consuls; — to all Cases |

of admiralty and maritime Jurisdiction; — to |

Controversies to which the United States shall be a

Party; — to Controversies between two or more

States; — between a State and Citizens of another

State; — between Citizens of different States, —

between Citizens of the same State claiming Lands

under Grants of different States, and between a State,

or the Citizens thereof, and foreign States, Citizens

or Subjects.

11 U.S.C. § 101:

Section 101. Definitions

In this title —

(15) “entity” includes person, estate,

trust, governmental unit, and United

States trustee;

11 U.S.C. § 109: ;

Section 109. Who may be a debtor

iad

(a) Notwithstanding any other provision of this

section, only a person that resides or has a domicile,

a place of business, or property in the United States,

or a municipality, may be a debtor under this title.

11 U.S.C. § 363(m):

Section 363. Use, sale, or lease of property

(m) The reversal or modification on appeal of an

authorization under subsection (b) or (c) of this

section of a sale or lease of property does not affect

the validity of a sale or lease under such

authorization to an entity that purchased or leased |

such property in good faith, whether or not such |

entity knew of the pendency of the appeal, unless 7

such authorization and such sale or lease were stayed {

pending appeal.

5

Tex. Rev. Civ. Stat. Ann. art. 6132b-2.02:

Art 6132b-2.02 Partnership Defined; Application

to Joint Venture and Limited Partnership;

Capacity as Partner; Mergers; Medical Professions

(a) Association to Carry on Business for Profit.

Except as provided by Subsections (b) and (c), an

association of two or more persons to carry on a

business for profit as owners creates a partnership,

whether the persons intend to create a partnership

and whether the association is called a “partnership,”

“joint venture,” or other name ...

(c) Person with Capacity as Partner. A Person

may be a partner unless the person lacks capacity

apart from this Act.

STATEMENT OF THE CASE

Petitioner Fergus M. Ginther owns a one-quarter beneficial

interest in a majority (51.45%) undivided interest in a 2000

acre tract of real property, known as the El Dorado Ranch. This

interest in the E] Dorado Ranch had been conveyed in trust by

his parents, Mr. and Mrs. N.C. Ginther, to the trustee under an

express inter vivos trust agreement entitled the Ginther

Revocable Trust Agreement.' N.C. Ginther had been quite

1. For all that follows concerning the issue of subject matter

jurisdiction, it is important to note that the Ginther Revocable Trust

Agreement provided that, after the death of the first settlor to die, the

trust estate would be split into two shares, to be held and administered

separately by the trustee and to be known as the deceased grantor’s

trust and the surviving grantor’s trust. Thus, when N.C. Ginther died in

1989, trust estates known as the N.C. Ginther Trust and the Minnie

Lee Ginther Trust were born. After the death of the surviving grantor,

the trust estates were to be reunited under the deceased grantor’s trust

(Cont'd)

6

successful in the oil and gas business, and he and his wife

accumulated a substantial estate. As part of their estate planning

scheme, Mr. and Mrs. N.C. Ginther contributed the bulk of

their property to several different trust estates created under

various trust agreements, including the Ginther Revocable Trust

Agreement. Mr. N.C. Ginther died in September 1989, and

Mrs. N.C. Ginther died in July 1999.

In 1994, a group of working interest owners in certain oil

and gas leases sued the executor of the Estate of

N.C. Ginther, deceased, and the trustee under one of the trusts

created by the Ginthers, claiming that N.C. Ginther had

negligently and fraudulently failed to file certain oil and gas

production reports with the Texas Railroad Commission.

The suit was filed and heard in the probate court in Harris

County, Texas, in the proceeding in which N.C. Ginther’s will

had been admitted to probate. By the time the case went to

trial, a Texas chartered trust company, Advent Trust Company,

having been appointed in the same probate proceeding, occupied

the offices of sole successor executor and sole successor

trustee under each of the trust agreements created by Mr. and

Mrs. N.C. Ginther.

The jury awarded the plaintiff group $4,281,000 in

damages, and, in 1997, judgment against the executor and

trustee, jointly and severally, was entered on the verdict.

(Cont'd)

estate. (Pet. App. 6la-63a). It is also worthy of note that the Ginther

family acquired the El Dorado Ranch, on which a golf course was

developed and operated, in the early 1950’s. Original ownership was

50% by Mr. and Mrs. N.C. Ginther, and 12'2%, by each of their four

children, including Petitioner. By the time of trial, through mesne

conveyances of the various interests over the intervening 45 years,

including the conveyance in trust at issue here, there were sixteen

separate owners of undivided interests in the El Dorado Ranch.

7

The executor and trustee appealed. Pending appeal, the probate

court denied their request to post alternate security and granted

the plaintiffs’ application for turnover of all estate and trust

assets to a receiver.

In response to this state of affairs, on March 11, 1998, a

Debtor styling itself the Ginther Trusts, a Texas Joint Venture,

filed a petition for relief under Chapter 11 in the bankruptcy

unit of the United States District Court for the Southern District

of Texas. The Debtor claimed to be a de facto joint venture

composed of Advent Trust Company, as trustee under six

different trust agreements established by Mr. and Mrs. N.C.

Ginther. The probate court judgment creditors moved to dismiss.

On June 24, 1998, the bankruptcy court entered its order on the

motion to dismiss, specifically ruling as follows:

ORDERED, that this case shall be dismissed

without further order of the Court unless Debtor, on

or before June 26, 1998; (a) amends the Petition,

Schedules and Statement of Financial Affairs to

provide that it is a joint venture composed solely of

the Noble C. Ginther Trust a/k/a/ N.C. Ginther

Grantor Trust and the Minnie Lee Ginther Grantor

Trust a/k/a M.L. Ginther Trust; and (b) amends its

Schedules and Statement of Financial Affairs to

provide that the only property of the joint venture

comprising Debtor’s bankruptcy estate is its interests

in or relating to the Eldorado Golf Club, Inc. and

the real estate known as the “El Dorado Ranch”

described in Debtor’s existing Schedules as

“undivided interest in approximately 2,033 acres of

real property located in Harris County, Texas”. It is

further,

ORDERED, that no other property, whether

listed in the Debtor’s existing Schedules or

8

otherwise, is property of the Debtor’s bankruptcy

estate or subject to the automatic stay pursuant to

11 U.S.C. § 362.

(Pet. App. 42a-43a). No party sought leave to appeal, and the

Debtor filed the required amendments.

The bankruptcy case continued. The judgment creditors and

several other working interest owners, whose claims against

N.C. Ginther were pending in separate causes before the probate

court, filed claims as unsecured creditors. In April 1999, the

Debtor applied for authority to sell a large parcel, more that

1600 acres, of the El Dorado Ranch pursuant to 11 U.S.C.

§ 363. The application was brought as an adversary proceeding

naming co-owners as defendants. Petitioner and his wife were

named as defendants in the Third Amended Complaint filed in

the adversary proceeding on October 14, 1999.7

2. A digression here. In 1992, Petitioner, himself mired in a an

involuntary Chapter 7 bankruptcy proceeding that lasted from 1982

until 1997, entrusted management of his residual assets, including any

residual interest in his remaining 9.375% individual interest in the

El Dorado Ranch, to his ex-business partner Davis. To hold title to the

assets, they created a corporation, NuCorp, Inc., which Davis controlled.

A compensation agreement controlled how recovered assets were to

be distributed. In 1996, the court in Petitioner’s Chapter 7 proceeding

recognized the assignment and awarded the residual of Petitioner’s

Chapter 7 estate to NuCorp, Inc.

Davis negotiated and brokered the sale of the Ranch to Redstone

and was awarded a commission in the Final Judgment. (Pet. App.

19a). After the initial contracts with Redstone were executed, Davis

claimed that the commission to be paid would be all his and that the

remaining proceeds from the sale of the 9.375% had been eaten up in

fees and expenses charged to the corporation (mainly, as it turned out,

a $10,000.00 a month management fee secretly being accrued by Davis

since 1992). Accordingly, in July 1999, Petitioner filed suit for breach

(Cont’d)

9

Meanwhile, the probate court judgment on the $4,281,000

jury verdict was reversed and rendered by a Texas appellate

court or: November 30, 1999. See Advent Trust Co. v. Hyder, 12

S.W.3d 534 (Tex. App.-San Antonio 1999, writ denied).* After

reversal of the judgment, the bankruptcy court was urged, but

declined again, to dismiss the case, and the Debtcr, deeming it

expedient and in accordance with the purchaser’s wishes,

particularly considering the number of co-owners, proceeded

to prosecute the adversary proceeding seeking authority to sell

the El Dorado Ranch pursuant to 11 U.S.C. § 363.

The case was tried to the bankruptcy court on January

27 and 28, 2000. During the trial, it was conceded that the

Debtor, The Ginther Trusts, a Texas Joint Venture, owned no

interest of record in the El Dorado Ranch. Final Judgment

authorizing the sale of the Ranch was entered March 2, 2000.

(Pet. App. 13a). On March 13, 2000, Petitioner timely filed

post-trial motions pursuant to Rule 52, Fed. R. Civ. P. These

were denied the same day, and Petitioner filed his notice of

(Cont'd)

of fiduciary duty in a Texas state district court in Harris County, Texas,

and filed a lis pendens as to the 9.375% interest owned of record by

NuCorp, Inc. The Debtor joined Petitioner as a defendant because of

the /is pendens filed as to the 9.375% interest. After the sale closed,

Petitioner sought to prevent Davis from receiving outright the proceeds

attributable to the commission and the 9.375% interest. The course of

the dispute over these proceeds in subsequent proceedings before the

bankruptcy court and in the reviewing courts is detailed below.

3. The Texas appellate court had also ultimately acted (but only

well after the bankruptcy petition was filed) to preserve the status quo

pending appeal, thus granting effective relief from the turnover order.

See 12 S.W.3d at 544 n.5. In hindsight, the trustee should have had

faith in the Texas judicial system rather than in a convoluted theory of

federal bankruptcy jurisdiction designed to wrench the case from state

court.

10

appeal on March 15, 2000. An emergency motion to stay

enforcement of the judgment was lodged in the bankruptcy

court, in the district court, and in the Fifth Circuit. This motion

-was denied by the bankruptcy court on March 13, 2000, by the

district court on March 17, 2000, (Pet. App. 11a), and by the

Fifth Circuit on March 22, 2000. (Pet. App. 9a).

The sale of the 1600 acre parcel of the El Dorado Ranch to

Redstone El Dorado Acquisition, LP for $10,000,000 in cash

closed on March 23, 2000. The Debtor received $4,787,313.21

as net proceeds for the 51.45% owned of record by the trustee

under the Ginther Revocable Trust Agreement. The trustee, who

did not appear in the adversary proceeding, ratified the

transaction and executed the deed, but received nothing for the

conveyance of the property entrusted to it.

By order dated June 27, 2000, the district court dismissed

Petitioner’s appeal as moot. On January 29, 2001, the Fifth

Circuit affirmed the district court’s dismissal of the appeal as

moot.

Immediately after the closing of the sale, Petitioner followed

the dictates of the Final Judgment (Pet. App. 32a) and filed in

the bankruptcy case his objection to distribution of the proceeds

to certain parties, including the Debtor. Petitioner also obtained

a temporary restraining order in his pending state court action

against his ex-partner Davis restraining the title company from

distributing the net procceds attributable to the sale of the

9.375% interest and the amount payable as commission

(together amounting to approximately $1,100,000.00) to

Petitioner’s ex-partner Davis or the corporation formed to hold

Petitioner’s assets. In advance of an injunction hearing, the title

company agreed to pay these disputed funds into the registry of

a court.

11

On March 27, 2000, the title company filed an interpleader

action in the bankruptcy court, under the same cause number

as the recently concluded and appealed adversary proceeding,

and tendered the disputed funds into the registry of the United

States District Court for the Southern District of Texas.

Over objection,‘ the bankruptcy court exercised jurisdiction over

the interpleader action and entered an order authorizing deposit

of the disputed funds into the registry of the federal district

court. Later that same day, without further notice or hearing,

the bankruptcy court entered two orders rescinding its previous

order and granting immediate disbursement of the funds which

were the subject of the interpleader action to the ex-partner Davis

and the corporation controlled by him. Petitioner appealed the

last two orders as final orders disposing of the interpleader action

and again sought a stay, which again was denied by the district

court. After the stay was denied, the appeal was transferred to

the district judge assigned to hear the appeal of the March 3,

2000 Final Judgment, and who had already heard and denied

the motion to stay enforcement of that judgment. On February

28, 2001, the district court affirmed, holding that Petitioner’s

proper course to seek redress was through appeal of the March

3, 2000 Final Judgment, an appeal the district court had

previously dismissed as moot. (Pet. App. 52a-53a). In so holding,

the district court again did not address the threshold issue of

subject matter jurisdiction of the bankruptcy court. That order

has now been appealed to the Fifth Circuit.

4. The bankruptcy unit of the district court lacked subject matter

jurisdiction over this interpleader action for the additional reason that

it had no effect on the debtor, its estate or the administration thereof.

See Celotex Corp. v. Edwards, 514 U.S. 300, 309-11 (1995). However,

because Petitioner is a citizen of Missouri and Davis a citizen of Texas,

the district court did have original jurisdiction of the interpleader action.

28 U.S.C. § 1335.

12

On January 18, 2001, the bankruptcy court entered an order

on its own motion determining “that a plan must be confirmed

within 120 days or this case shall be converted to Chapter 7.”

Petitioner continues before the bankruptcy court, seeking

recovery of his equitable estate pursuant to 11 U.S.C. § 541(d),

that reclamation action now and pending as an adversary

proceeding, No. 00-3748, in the bankruptcy court. A liquidating

plan of reorganization was confirmed over Petitioner’s

objections at a hearing held on April 26, 2001.

REASONS FOR GRANTING THE WRIT

Yet again, “[t]his case concerns the authority of the federal

courts to adjudicate controversies.” Ruhrgas v. Marathon Oil

Co., 526 U.S. 574, 577 (1999). This case unquestionably

presents a “manufactured, convoluted federal subject matter

theor[y] designed to wrench [the] case from state court.”

Ruhrgas, 526 U.S. at 587. And the issue of subject matter

jurisdiction here presented squarely comports with this Court’s

observation “that in most instances subject matter jurisdiction

will involve no arduous inquiry.” /d. Yet this threshold issue

has evaded review at each of six opportunities, despite this

Court’s admonition “that subject-matter delineations must be

policed by the courts on their own initiative even at the highest

level.” Jd. at 583.

The failure of the reviewing courts to address the issue of

subject matter jurisdiction when that issue was the sole threshold

issue is excused and obscured by the subsequently arising

threshold issue of mootness, which arises only because the same

reviewing courts failed to address subject matter jurisdiction in

ruling on a motion to stay enforcement of the judgment.

Something is wrong with our judicial system when review of a

challenge to subject matter jurisdiction can be avoided

repeatedly.

13

In Ruhrgas, the backdrop for the issue before the Court

was Steel Co. v. Citizens for a Better Environment, 523 U.S. 83

(1998). Jd. 526 U.S. at 577. In the present case, Ruhrgas and

Steel Co. together provide the backdrop for the issue presented.

Does the right of a federal appellate court, articulated in

Ruhrgas, to pick and choose threshold issues on which to deny

an audience on the merits, unwittingly provide a rationale for

evading the subject matter jurisdiction issue altogether, at every

stage of the proceeding, even at those stages of the proceeding

in which subject matter jurisdiction is the only threshold issue?

I. AN ABSOLUTE MOOTNESS DOCTRINE IN

APPEALS GOVERNED BY 11 U.S.C. § 363(m)

PERVERTS THE RULE IN RUHRGAS AND

ALLOWS THE ISSUE OF SUBJECT MATTER

JURISDICTION TO BE EVADED

Unquestionably, a federal court has the power to dismiss

for mootness without reaching the issue of subject matter

jurisdiction. Ruhrgas, 526 U.S. 574, 584-85. There is

no absolutely dictated sequencing of jurisdictional issues.

“It is hardly novel for a federal court to choose among

threshold grounds for denying audience to a case on the merits.”

Id. at 585.

But in Ruhrgas, this Court, following Steel Co., also

reiterated that:

Article III generally requires a federal court to satisfy

itself of its jurisdiction over the subject matter before

it considers the merits of a case . . . Subject-matter

limitations on federal jurisdiction serve institutional

interests. They keep the federal courts within the

bounds the Constitution and Congress have

prescribed. Accordingly, subject-matter delineations

_

must be policed by the courts on their own initiative

even at the highest level.

Ruhrgas, 526 U.S. at 583 (citing Steel Co., 523 U.S. at 94-95,

101-102 (1998)).

The writ should be granted because the course of this

proceeding calls for the exercise of this Court’s supervisory

powers: it calls for the policing of subject matter jurisdiction

at the highest level because obviously it will be policed in this

case in no other way.

There have been six opportunities for reviewing courts to

pass on the “non-arduous” jurisdictional issue presented in this

case. That issue is simply whether a family trust instrument,

created by a husband and wife for the benefit of their children,

which separates the trust res into two trust estates for a period

of time after the death of the first of them to die, allows a

bankruptcy court to avoid well recognized limitations on the

Congressional grant of subject matter jurisdiction to federal

bankruptcy courts and to view the trust scheme as a de facto

joint venture business entity eligible to seek relief in bankruptcy.

The issue is determined solely from construction of a trust

instrument and the application of well-settled law thereto.

Yet, this simple and fundamental issue has repeatedly evaded

review in what is becoming almost Kafkaesque fashion.

The stage is now set for another round of orders confirming

a plan of liquidation, more appeals, more applications for stays

and denials thereof, and more consequent dismissals of appeals

as moot. Through it all, unless this Court intervenes, the

challenge to subject matter jurisdiction may never be heard.

Meanwhile, the assets of a trust are being withered by

administrative claims of the Debtor, the unsecured creditors

committee, and the liquidation plan proponent, and by claims

of “unsecured creditors”, whose only claims are stale claims

against the late N.C. Ginther personally.

15

The mechanism by which this feat has been accomplished

is the “absolute mootness” doctrine developed in the Ninth

Circuit, and now applied in exemplary fashion by the Fifth

Circuit in this case. The “absolute mootness” rule was first

articulated by the Ninth Circuit in Jn re Onouli-Kona Land

Co., 846 F.2d 1170, 1172 (9th Cir. 1988) and reiterated and

extended by that court in Jn re Filtercorp, Inc. 163 F.3d 570,

576 (9th Cir. 1998). The Ninth Circuit’s articulation of the rule

is that:

Finality in bankruptcy has become the dominant

rationale for our decisions; the trend is towards an

absolute rule that requires appellants to obtain a stay

before appealing a sale of assets.

The Ninth Circuit makes no secret that its “absolute

mootness” rule exalts the particular need for finality in

bankruptcy cases’ over the general Article III mootness analysis,

first articulated by this Court in Mills v. Green, 159 U.S. 651,

653 (1895) and reiterated in Church of Scientology of California

5. Perhaps the most succinct statement of the policy for respecting

finality in bankruptcy cases, and the role of a stay in furthering that

policy, is provided by Judge Easterbrook:

[t]he significance of an application for a stay lies in the

opportunity it affords to hold things in stasis, to prevent

reliance . . . while the appeal proceeds. A stay not sought,

and a stay sought and denied, lead equally to the

implementation of the plan of reorganization. And it is the

reliance interest engendered by the plan, coupled with the

difficulty of reversing critical transactions, that counsels

against attempts to unwind things on appeal. Every

incremental of revision on appeal puts a cloud over the

plan of reorganization and derivatively over the assets of

the reorganized firm.

In re UNR Industries, 20 F.3d 766, 769-70 (7th Cir. 1994).

16

v. United States, 506 U.S. 9, 12 (1992), which requires a court

considering the question of whether an appeal is moot to

determine whether it is impossible to grant the prevailing party

any effectual relief whatsoever. Indeed, in Filtercorp, Inc. the

Ninth Circuit expressly held that under its espoused “absolute

mootness” rule for appeals governed by 11 U.S.C. § 363(m),

the issue of whether the appellate court can fashion effective

relief-is immaterial. 163 F.3d at 517.

The Circuits are divided on this important issue. The Tenth

Circuit, in a very well reasoned opinion citing Mills v. Green

and Church of Scientology, has held that “where state law or

the Bankruptcy Code provides remedies that do not affect the

validity of the sale, § 363(m) does not moot the appeal”.

In re Osborn, 24 F.3d 1199, 1204 (10th Cir. 1997); see also

In re BCD Corp., 119 F.3d 852 (10th Cir. 1997). The Seventh

Circuit in Jn re Lloyd, 37 F.3d 271, 273 (7th Cir. 1994) likewise

held that inability to recover the land sold does not render the

entire appeal moot where — as here — the appellant claims an

interest in the proceeds.

In this case, Petitioner’s claim as cestui que trust has been

asserted continuously and is currently pending before the

bankruptcy court. Petitioner wants return of his trust property

either to himself through reclamation or to a proper trustee

through dismissal of the case for lack of subject matter

jurisdiction. Petitioner could have been given effectual relief at

any stage of the proceeding by dismissal of the case for want of

subject matter jurisdiction.°®

6. Petitioner is 64 years old, is unemployed and lives in straitened

circumstances outside of Branson, Missouri. He has had recent health

problems, but has no insurance. His requests for help in defraying

medical expenses to his trustee have gone unanswered while hundreds

of thousands of dollars in interim administrative fees have been paid

(Cont'd)

17

The present case presents a salient example of the “absolute

mootness” rule, allegedly codified in 11 U.S.C. § 363(m), being

given its intended mechanical application: if a stay is not

obtained, the case becomes automatically moot. The question

of whether any effectual relief may be had is rendered

immaterial; not even addressed by the reviewing court.

The statutory language of 11 U.S.C. § 363(m) itself is all to the

contrary of an absolute mootness rule. The statute is clear that

reversal or modification on appeal of orders authorizing sales

may be had even though the validity of the sale to a good faith

purchaser may not be affected by such reversal or modification.

The statute expressly contemplates the very appeals which the

absolute mootness rule forecloses. This Court should grant the

writ because the clear wording and import of 11 U.S.C. § 363(m)

is being stood on its head in the developing case law. ‘

Il. STEEL CO. REQUIRES THAT SUBJECT MATTER

JURISDICTION BE DETERMINED BEFORE THE

MERITS OF THE REQUEST FOR STAY MAY BE

REACHED

Petitioner’s challenge to subject matter jurisdiction was

certainly not moot when the district court and the Fifth Circuit

ruled on his motion to stay enforcement of the judgment pending

appeal. Yet neither court considered whether this entire

proceeding had carried the court “beyond the bounds of

authorized judicial action.” Steel Co. v. Citizens for a Better

Environment, 523 U.S. 83, 94 (1998).

(Cont'd)

from the proceeds available from the sale of the El Dorado Ranch.

Dismissal would return the property to the trust, for which achievement

Petitioner would be entitled to reimbursement. See Hobbs v. McLean,

117 U.S. 567, 582 (1886). Relief from the expenses and claims attendant

to a bankruptcy proceeding itself would be, and will be, effectual relief.

18

A reviewing court’s denial of a motion to stay without

addressing the issue of subject matter jurisdiction is tantamount

to an exercise of hypothetical jurisdiction. See id., 523 U.S. at

101. In this case hypothetical jurisdiction appears to have

produced more than a hypothetical result: the bankruptcy court’s

order becomes immune from any challenge.

The federal courts may not hypothesize jurisdiction to rule

on the merits of a motion to stay any more than they may do so

to rule on the merits of any other issue. “Without jurisdiction,

the court cannot proceed at all in any cause.” /d., 523 U.S. at

94. Here the Congressionally proscribed limits of bankruptcy

jurisdiction have been directly challenged at every stage, and

yet the question of whether this entire proceeding is out of

bounds has never been addressed.

It is apparent from the course of this appeal that the

application for stay is the crucial step in appealing orders

authorizing sales of assets under 11 U.S.C. § 363. The reviewing

court’s inquiry into the familiar four issues to be considered on

the merits of a motion to stay in itself presupposes and depends

on the existence of subject matter jurisdiction in the court from

which the judgment issued. The power and duty of a court to

protect its jurisdiction involves the power and duty to police its

limited jurisdiction from unauthorized, expedient and

consensual uses. In requesting a stay from the Fifth Circuit, on

March 21, 2000, Petitioner put the issue directly to the Court:

In sum, in the interest of justice, in the interest of all

concerned, this Court should stay enforcement of

the Final Judgment in this case only so long as is

necessary to rule on the subject matter jurisdiction

issue. It is this Court’s responsibility to consider the

question of subject matter jurisdiction and to dismiss

the action if such jurisdiction is lacking. This Court

has a responsibility to act on that issue and has the

19

power to do so within the context of this appeal. See

Magnolia Marine Transport v. LaPlace Towing

Corp., 964 F. 2d 1571, 1580 (5th Cir. 1992).

Moreover:

It is to be presumed that a cause lies

outside this limited jurisdiction, Turner

v. Bank of North-America, 4 Dall. 8, 11

(1799), and the burden of establishing the

contrary rests upon the party asserting

jurisdiction, McNutt v. General Motors

Acceptance Corp., 298 U.S. 178, 182-183

(1936).

Kokkonen v. Guardian Life Ins. Co. of America,

511 U.S. 375, 377 (1994).

These impatient parties will surely cooperate in a

most truncated schedule to be fashioned by the Court

which will allow them the opportunity to bring

forward anything from the record to discharge their

burden of proving that subject matter jurisdiction

exists. Appellants are ready to submit the case on

the basis of (1) the trust agreement itself, (2) the

undisputed fact that there is only one trustee and

thus there cannot be a joint venture, and (3) the

undisputed and conclusively proved fact that the

alleged joint venture owns no title to the Eldorado

Ranch. Why cannot this case be submitted either

now or within a matter of several more days by all

interested parties? Then we will have it up or down

to the final relief of all the parties.

In sum, in a society governed by the rule of law,

the limits of the powers of courts and of parties

acting in those courts need to be clearly defined and

% bs tn 6 pn

ea ee yes st

——

20

scrupulously observed. This Court clearly has the

power and duty to act on the issue and the power to

preserve the status quo to protect its power to so

act.

Despite this plea, the Fifth Circuit denied the motion

for stay without comment on March 22, 2000. (Pet. App. 9a).

The sale of the El Dorado Ranch to Redstone El Dorado

Acquisition LP closed the following day. From that point on,

the absolute mootness rule has operated to foreclose any review

of the fundamental issue of subject matter jurisdiction.

Ill. ABSOLUTE MOOTNESS AS APPLIED IN THIS

CASE CANNOT BE SQUARED WITH VACATUR

The Court should also consider that, as applied in this case,

an absolute mootness rule hopelessly conflicts with the remedy

of vacatur. See U.S. Bancorp Mortgage Co. v. Bonner Mall

Partnership, 513 U.S. 18, 22-25 (1994); United States v.

Munsingwear, Inc., 340 U.S. 36 (1950). In this case, absolute

mootness pretermitted even the issue of good faith. The disute

over a 12.86% undivided interest is subject to the equitable

remedy of vacatur as announced by this Court by reason of an

overagressive mootness analysis. For the subject matter

jurisdiction issue to be rendered “irrelevant”, merits issues must

be avoided at all cost.

The policy of finality which spawned the absolute mootness

rule is trumped by the rule that prevents “a judgment,

unreviewable for mootness, from spawning any legal

consequences”. Munsingwear, 340 U.S. at 41. The good faith

purchaser, whose interest is to be protected by the policy of

finality. is frustrated if the finding of good faith is subject to

vacatur. The Fifth Circuit per curiam opinion’s discussion of

good faith, a sort of a sticking the foot in to test the waters in

21

the pool of merits issues, at best muddies the issue.’ As the case

now stands, if the Court denies this Petition, Petitioner will move

to vacate the finding of good faith and the other findings in the

judgment in the bankruptcy court. This motion will Be denied.

The bankruptcy court has already announced its conclusion that

all issues are res judicata by virtue of the Fifth Circuit’s

“affirmation” of the judgment. This case could be back, the

jurisdictional issue still unresolved. “Denial of a motion to vacate

could bring the case here. Our supervisory power over the

judgments of the lower federal courts is a broad one.”

Munsingwear, 340 U.S. at 40.

7. The Fifth Circuit observed that “Appellants challenged the

Venture’s record title to the Ranch. . . .”. (Pet. App. 4a). Actually, the

seller’s lack of title was conceded at trial. This, of course, was the

dispositive fact on the issue of good faith. Protecting good faith

purchasers by providing notice is the very reason we have developed

throughout the land the systematic apparatus for the recordation of

deeds of real property. See Brush v. Ware, 40 U.S. 93, 110-114 (1841);

see also Anthony v. Butler, 38 U.S. 423, 434 (1839) (object of recording

act is to give notice to subsequent purchasers.) It is impossible under

this system for a purchaser of real estate to be in good faith when he

knows his seller does not own the property. Redstone had notice

of Petitioner’s claim and therefore was not in the predicament of a

good faith purchaser for value without notice. See Brush v. Ware, id.:

see also Oliver v. Piatt, 44 U.S. 333, 401 (1839). The Fifth Circuit’s

treatment of the bankruptcy court’s express finding of good faith as an

“argument” or “claim” which Petitioner allegedly failed to raise in the

bankruptcy court could be argued to be a ruling on the merits. However,

in the final analysis, perhaps even mindful of the need to avoid all merits

issues in order to render jurisdiction “irrelevant,” the Court of Appeals

simply declared: “we need not address the issue”, and then indicated

what it would likely do if it were to reach the good faith issue.

(Pet. App. Sa).

22

IV. THERE ARE TWO OBVIOUS SOLUTIONS TO THE

PROBLEM

Procedurally, this case presents the compelling situation

where a stay of the bankruptcy court’s orders was timely sought

in the bankruptcy court, the district court and the Fifth Circuit.

In each instance, Petitioner challenged subject matter

jurisdiction, and in each instance the application for stay was |

denied without the court expressly ruling on the issue of subject |

matter jurisdiction. Thereafter, the appeal itself was dismissed ;

as moot by the district court and the Fifth Circuit, each court

again declining to reach the issue of subject matter jurisdiction, )

the Fifth Circuit ultimately finding the issue “irrelevant.”* |

Another round of orders which finally disposed of the

interpleader action were then appealed. A stay again was denied

without comment, and the orders affirmed by the district court |

on the basis that Petitioner should have sought redress in the ;

appeal already dismissed as moot. And, as stated above, the

8. It is particularly bitter to consider the Fifth Circuit’s reliance

on Jn re Sax, 796 F.2d 994 (7th Cir. 1986) in holding that mootness

rendered the challenge to subject matter jurisdiction irrelevant. In Sax,

the appellant failed to seek or obtain a stay. The Seventh Circuit held:

Despite the maxim that “subject matter jurisdiction can be

raised at any time,” valid procedural rules cannot be

ignored just because the jurisdictional decision is being

challenged rather than the decision on the merits. To accept

Three Rivers ‘argument would be to ignore valid procedural

requirements.

796 F.2d at 998. (Emphasis added).

Unlike the appellant in Sax, Petitioner in this case diligently pursued

review of the subject matter jurisdictional issue in advance of the sale.

Diligent attention to procedural rules prevented the maturation of

reliance interests and obviated the need to respect finality at the stage

where Petitioner sought to stay enforcement of the judgment both in

the district court and in the Court of Appeals.

lial

23

stage is set for another round in connection with the anticipated

order from the bankruptcy court announced in court last

Thursday, April 26, 2001, confirming a plan of liquidation.

Yet through it all, the issue of subject matter jurisdiction has

never been addressed.

There are two ways out of this dilemma. In dismissing this

appeal as moot, the Court of Appeals never addressed

Petitioner’s argument that dismissal of the case for want of

subject matter jurisdiction would grant effectual relief to

Petitioner because he claimed an interest in the proceeds. Rather,

the Court of Appeals simply held that because Petitioner failed

to obtain a stay of the order authorizing the Ranch sale and

because the sale occurred pending the appeal of the order to the

district court, the district court properly dismissed the appeal

as moot. Petitioner submits that traditional mootness analysis

still applies to appeals of such orders and that this Court should

act to foreclose advance of an “absolute mootness” rule, which

appears to be gaining momentum in the overburdened courts,

as reflected in this decision from the Fifth Circuit and in previous

decisions from the Ninth Circuit.

Alternatively, following Steel Co., this Court should hold

that in bankruptcy cases, in which the motion to stay has

assumed such central importance, the issue of subject matter

jurisdiction must be addressed prior to ruling on the merits of

the motion to stay. Whatever the range of powers which may

be exercised by a court without first passing on subject matter

jurisdiction, denial of a motion to stay enforcement of a

judgment authorizing the sale of assets in bankruptcy should

not be included.

24

V. THIS COURT IS CALLED UPON TO PCLICE THE

CRIME OF A “DRIVE-BY” JURISDICTIONAL

RULING

The Fifth Circuit, after holding that the issue of subject

matter jurisdiction was “irrelevant,” let it be known that:

Moreover, we are persuaded, as was the bankruptcy

court, that the Venture’s resulting co-ownerships

following the division of the original trust on the

death of the first settlor to die is [sic] a de facto joint

venture under Tex. Civ. Code [sic] Ann. § [sic]

6132b.

(Pet. App. 6a-7a).

This is a lovely example of a “drive-by jurisdictional

ruling’’ in a per curiam disposition, which this Court has

indicated it will view “with its customary skepticism.”’’°

In fact, the statement is obviously nonsensical, at best a

tautology. The resulting ownership by the venture is a venture.

Already this meaningless dicta has prejudiced Petitioner in

the continuing proceedings in the bankruptcy court. Its almost

as if this statement was thrown out gratuitously with the

knowledge that the case was not moot.

Throughout the entire course of this proceeding, all

the parties and, one assumes, all the reviewing courts have

accepted the principle that Congress has withheld federal

bankruptcy court jurisdiction over estates and trusts. This

has always been the case with the purely statutory bankruptcy

9. See Steel Co., 523 U.S. at 101.

10. See U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership,

513 U.S. 18, 24 (1994).

25

jurisdiction. See, e.g., Adams v. Terrell, 4 Fed. 796, 801-02

(C.C.W.D. Tex. 1880). This understanding motivated the

concoction of the joint venture theory.

In decisions under the current Bankruptcy Code, many

courts have pointed to the specific legislative history'’ of

11 U.S.C. § 109 and concluded that “this legislative history,

if not the express words of the statute, indicate that ‘the

definition [of “person”] does not include an estate or trust.’ ”

In re Sanders, 91 B.R. 317, 321 (Bankr. E.D. Penn. 1988);

see also, e.g., In re Goerg, 844 F.2d 1562, 1566 (11th Cir.

1988), cert. denied, 488 U.S. 1034 (1989); Matter of 299

Jack-Hemp Associates, 20 B.R. 412, 413 (Bankr. S.D.N.Y.

1982); In re Cahill, 15 B.R. 639, 640 (Bankr. E.D. Penn.

1981); In re Old Second National Bank of Aurora, 7 B.R. 37

(Bankr. N.D. Ill. 1980); Jn re Cohen, 4 B.R. 201, 201-05

(Bankr. S.D. Fla. 1980). Some of these courts also focused

on the definition of entity in 11 U.S.C. § 101(15) as

reinforcement for the conclusion that estates and trusts are

not “persons” entitled to seek relief. '?

11. H. Rep. No. 595 95th Cong. Ist Sess. 313 (1997); and

S. Rep. No. 989, 95th Cong., 2nd Sess. 25 (1978), U.S. Code Cong. &

Admin. News 1978, pp. 5787, 5811, 6270.

12. Other courts, on various grounds, have distinguished family,

testamentary, personal and spendthrift trusts from business trusts, or so

called “Massachusetts Trusts”, over which Congress has expressly

bestowed federal bankruptcy jurisdiction, e.g. See e.g., Cantor v.

Wilbraham and Monson Academy, 609 F.2d 32, 33 (1st Cir. 1979);

Associated Cemetery Management, Inc. v. Barnes, 268 F.2d 97, 101-

102 (8th Cir. 1959); Pope & Cottle Co. v. Fairbanks Realty Trust, 124

F.2d 132, 135 (1st Cir. 1941); In re Action Roofing & Supply Co., 137

B.R. 217, 219 (Bankr. S.D. Tex. 1991); Jn re Margaret E. DeHoff Trust,

114 B.R. 189, 191 (Bankr. W.D. Mo. 1990); Jn re Johnson, 82 B.R.

(Cont’d)

26

Let’s finally face it — here at the highest level — the

emperor has no clothes! As noted at the outset, the trust

instrument at issue provided that the corpus of the trust was to

be split into two shares after the first of the couple died, to

be separately held and administrated by the trustee until the

death of the survivor, when the two shares were to be reunited.

(Pet. App. 61a-63a). This feature of the trust instrument cannot

and does not convert this express trust relationship into a

de facto partnership or joint venture business entity under Texas

or any other law.

This instrument cannot be read to reveal an intent to create

a trust relationship over property for only so long as the husband

and wife were living which then converts to a partnership

business entity to be managed by the trustee during the

survivor’s remaining life, then only to convert once again into

a trust relationship after the survivor’s death. In reality, the share

splitting feature of the trust instrument is simply a very common

feature of marital living trusts drafted in community property

states such as Texas. It is also consistent with the general tax

motivated features of the trust instrument.

(Cont'd)

618,619 (Bankr. S.D. Fla. 1988); Jn re Walker, 79 B.R. 59, 61-62 (Bankr.

M.D. Fla. 1987); Jn re L&V Realty Trust, 61 B.R. 423, 424-25 (Bankr.

D. Mass. 1986); Jn re Armstead and Margaret Wayson Trust, 29 B.R.

58, 59 (Bankr. D. Md. 1982).

Several courts have also focused on the fundamental legal

proposition that an ordinary trust is not a legal entity and has no legal

existence separate and apart from the trustee. E.g., Jn re Associated

Cemetery Management, Inc., Employers Profit Sharing Trust, 170

F. Supp. 298, 302 (W.D. Missouri 1958), aff’d sub nom. Associated

Cemetery Management, Inc. v. Barnes, 268 F.2d 97 (8th Cir. 1959);

In re Armstead and Margaret Wayson Trust, 29 B.R. 58, 59 (Bankr. D.

Md. 1982).

27

Even so, under Texas law, a partnership is an association

of two or more persons to carry on a business for profit. Each

of these persons must have legal capacity. Tex. Rev. Civ. Stat.

Ann. art. 6132b — 2.02(a) and (c). Shares of a trust estate, even

though given names, are not legal entities, and are not persons

with capacity to enter into partnerships in the eyes of the law.

See In re Associated Cemetery Management, Inc., Employers

Profit Sharing Trust, 170 F. Supp. 298, 302 (W.D. Missouri

1958), aff'd sub nom., Associated Cemetery Management, Inc.

v. Barnes, 268 F.2d 97 (8th Cir. 1959). (“Although the trust

instrument here creates a resulting ‘entity’ under which the

Trustees are to maintain the trust . . . it is transparent from all

other provisions thereof that such entity ... has no legal

existence separate and apart from the trustee”.) The separation

of the shares were mere bookkeeping entries. As managing agent

of the joint venture, from which two principals does the sole

trustee take direction? The only person to be found here is the

trustee, and, at all times material, there has been only one trustee.

Clearly, this de facto joint venture theory is nothing but a

manufactured, convoluted federal subject matter theory designed

to create the mere appearance of jurisdiction where none in fact

exists in order to wrench the case from state court at a strategic

and desperate moment and then later to use the procedures and

perceived protections of the bankruptcy court to sell the property.

One case bears particular attention because of its similarities

with the instant case. Matter of 299 Jack-Hemp Associates, 20

B.R. 412 (Bankr. S.D.N.Y. 1982). In that case, co-executors of

a decedent’s estate, faced with a foreclosure action by the

mortgagee on real property, formed a partnership on the eve of

filing. The bankruptcy court gave this scheme short shrift:

This court therefore holds that where its process has

been utilized by a specially created entity which only

the day before was barred from access to this court

28

and where nothing can be achieved by recourse to

that process, the attempt to do so can only be

characterized as disingenuous in the last degree.

More need not be shown to afford this court the cause

to dismiss with prejudice.

20 B.R. at 413.

In the case at bar, there aren’t even co-fiduciaries present

to form the venture. As said at the outset, this subject matter

jurisdiction issue involves no “arduous inquiry’.

CONCLUSION

El Dorado is gone; Poe’s gallant knight will ever ride in

vain. But the proceeds remain, the purchaser’s good faith is

unresolved, and the case continues. This appeal is not moot,

and this case must be dismissed for lack of subject matter

jurisdiction.

Respectfully submitted,

BRADLEY WESTMORELAND BERRY DUNBAR BOWEN

Of Counsel Counsel of Record

2700 Post Oak Boulevard 3333 West Alabama

Suite 950 Suite 100

Houston, Texas 77056 Houston, Texas 77098

(713) 960-1314 (713) 521-3525

Attorneys for Petitioner