In re: Shawnee Hills, Incorporated

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 02-2386
In re: SHAWNEE HILLS, INCORPORATED,
Debtor.
--------------------------------------------
DRAWBRIDGE SPECIAL OPPORTUNITIES FUND, L.P.,
Plaintiff - Appellant,
versus
SHAWNEE HILLS, INCORPORATED,
Defendant,
WEST VIRGINIA DEPARTMENT OF HEALTH AND HUMAN
RESOURCES; PRESTERA CENTER FOR MENTAL HEALTH
SERVICES, INCORPORATED; U. S. DEPARTMENT OF
HEALTH & HUMAN SERVICES; WEST VIRGINIA HOUSING
DEVELOPMENT FUND; WEST VIRGINIA DIVISION OF
REHABILITATION,
Parties in Interest,
DEBRA A. WERTMAN, United States Trustee,
Trustee,
and
H. LYNDEN GRAHAM, JR., Chapter 7 Trustee,
Trustee - Appellee.

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Appeal from the United States District Court for the Southern
District of West Virginia, at Charleston. Joseph Robert Goodwin,
District Judge. (CA-02-872-2; BK-02-20983)
Argued: September 24, 2003 Decided: March 3, 2005
Before WIDENER, TRAXLER, and KING, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Amy Marie Smith, STEPTOE & JOHNSON, P.L.L.C., Clarksburg,
West Virginia, for Appellant. Stephen L. Thompson, BARTH &
THOMPSON, Charleston, West Virginia, for Appellee. ON BRIEF:
Michael L. Bray, STEPTOE & JOHNSON, P.L.L.C., Clarksburg, West
Virginia, for Appellant.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).

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1Huntington has sold its loans and claims to Drawbridge
Special Opportunities, L.P., who is now the appellant. For ease of
reference, we continue to refer to the appellant as Huntington.
3
PER CURIAM:
Huntington National Bank (“Huntington”) appeals from the
district court’s order dismissing its bankruptcy appeal as
equitably moot. For the reasons stated below, we affirm the
district court. 1
I.
Debtor Shawnee Hills, Inc., (“Shawnee Hills”) is a non-profit
corporation that operates mental health, mental retardation, and
alcohol counseling and rehabilitation facilities throughout West
Virginia. On May 1, 2002, Shawnee Hills filed a voluntary petition
for protection under Chapter 7 of the Bankruptcy Code. At the
time, Shawnee Hills had roughly 775 employees and served
approximately ten thousand patients.
On May 2, 2002, Shawnee Hills learned that employee payroll
checks for its employees, written before Shawnee Hills filed its
bankruptcy petition, were not being honored by two separate banks
at which Shawnee Hills had deposit accounts: Huntington and City
National Bank (“City National”). Shawnee Hills estimated that
“when it filed [for bankruptcy,] there were outstanding checks for
employee payroll and withholding taxes in the approximate amount of
$15,000.00 written on its general operating account at Huntington

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National Bank and in the approximate amount of $818,000.00 on its
account at City National Bank.” J.A. 41. Later the same day,
Shawnee Hills filed an emergency motion, seeking an order requiring
Huntington and City National to honor outstanding payroll checks
issued prior to the May 1st bankruptcy filing. The Trustee joined
in the emergency motion, and the bankruptcy court scheduled an
emergency hearing for 4:00 p.m. on May 2, 2002.
At the hearing, City National took no position and stated that
it would take whatever action the court directed. Because of the
short notice, counsel for Huntington could not attend the hearing
in person, but did appear telephonically. Huntington’s counsel
objected to the short notice and argued that an order requiring the
banks to honor the payroll checks written before the bankruptcy
petition was filed would be improper because Huntington held a
perfected security interest in the accounts receivable of Shawnee
Hills, and that this security interest extended to the accounts at
Huntington and City National.
At the conclusion of the emergency hearing, the bankruptcy
court stated that the $15,000 in Huntington’s account had adequate
protection from insurance and other secured property, but stated
that it was providing no protection for the City National account
because it had “no idea how [Huntington] could have an interest in
those funds.” J.A. 55. The court granted the emergency motion and

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2 According to the Trustee, as of July 5, 2002, approximately
$498,136.78 in payroll employee checks had cleared the City
National account, and approximately $15,000 in such checks had
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entered an order requiring Huntington and City National to honor
the pre-petition payroll checks written by Shawnee Hills.
The following day, Huntington filed a motion for
reconsideration, again arguing that it had a perfected security
interest in the funds and that it was not provided sufficient
notice to allow it to advance this argument at the emergency
hearing. Huntington attached copies of security agreements and
filing statements to support its motion for reconsideration.
On May 15, 2002, the bankruptcy court held a hearing on
Huntington’s motion for reconsideration. After the hearing, the
court entered an order denying the motion for reconsideration,
finding that “Huntington Bank may be fully secured by sufficient
real estate and other assets in addition to proceeds from accounts
receivables and the deposit accounts now or formerly held by City
National Bank and Huntington Bank which are the subject of
Huntington Bank’s Motion” and that insurance on Shawnee Hill’s
other properties provided “adequate protection” to Huntington.
J.A. 106. Huntington appealed the bankruptcy court’s decision to
the district court. However, because Huntington did not seek a
stay of the bankruptcy court’s order, by the time its challenge
reached the district court, the payroll checks had been cashed by
the employees and honored by the banks. 2

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cleared the Huntington account.
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On appeal to the district court, Huntington challenged the
bankruptcy court’s entry of the emergency order, arguing that the
court had erred in its application of the Uniform Commercial Code
and Bankruptcy Code, and that its order requiring the banks to
honor the payroll checks had deprived Huntington of its interest in
property without due process of law. The Bankruptcy Trustee
responded by filing a motion to dismiss the appeal, arguing that
the appeal was constitutionally and equitably moot.
Rather than addressing the merits of Huntington’s challenge,
the district court granted the Trustee’s motion to dismiss the
appeal as equitably moot. Noting Huntington’s failure to seek a
stay at any time during the pendency of the emergency order, the
district court cited to the impracticality of recovering the wages
paid to Shawnee Hill’s employees.
Huntington acknowledges that putting into effect a
reversal of the Bankruptcy Court’s order would involve
disgorging funds from the employees who have cashed their
payroll checks. . . . [A]s to the issue of equitable
mootness, the question is . . . whether disgorgement is
practicable. In this case, the cash collateral at issue
has been distributed to many, probably hundreds, of
Shawnee Hills employees. Tracking down these many
employees, determining whether they are entitled to keep
the funds as innocent transferees, and, if not,
determining whether they are able to repay the funds,
would be an impracticable, if not literally impossible,
venture.
J.A. 132 (citation omitted). This appeal followed.

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II.
“[T]he doctrine of equitable mootness is a pragmatic
principle, grounded in the notion that, with the passage of time
after a judgment in equity and implementation of that judgment,
effective relief on appeal becomes impractical, imprudent, and
therefore inequitable.” Mac Panel Co. v. Virginia Panel Corp., 283
F.3d 622, 625 (4th Cir. 2002); see also In re US Airways Group,
Inc., 369 F.3d 806, 809 (4th Cir. 2004). To determine whether a
bankruptcy appeal has become equitably moot, we consider the
following factors:
(1) whether the appellant sought and obtained a stay; (2)
whether the reorganization plan or other equitable relief
ordered has been substantially consummated; (3) the
extent to which the relief requested on appeal would
affect the success of the reorganization plan or other
equitable relief granted; and (4) the extent to which the
relief requested on appeal would affect the interests of
third parties.
Mac Panel, 283 F.3d at 625.
Like the district court, we find that these factors weigh
heavily in favor of a finding of equitable mootness. Most striking
is that Huntington failed to seek a stay of the bankruptcy court’s
order. It is well-settled that the failure of a party to seek a
stay of a bankruptcy order can alone render further appeal moot.
See Taylor v. Austrian, 154 F.2d 107, 108 (4th Cir. 1946) (per
curiam). Huntington did not seek a stay of the bankruptcy court’s
order after the initial emergency hearing or after the subsequent
hearing on its motion to reconsider. The consequences of

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3The parties disagree as to whether we should review the
district court’s order de novo or for an abuse of discretion.
Because we would affirm the district court under either standard,
we need not resolve that question. We likewise express no opinion
as to the merits of the bankruptcy order and note that, in view of
the district court’s dismissal of the appeal, we need not address
Huntington’s claim that the bankruptcy court deprived it of due
8
Huntington’s failure to seek a stay are evident. The bankruptcy
court’s order has been carried out and hundreds of Shawnee Hill
employees have cashed (and likely spent) their payroll checks.
And, it is highly unlikely that any other pre-petition checks
remain outstanding and unpaid at this time. Thus, the bankruptcy
court’s order has been fully consummated. A reversal at this
juncture would substantially affect the equitable relief granted
and could significantly impact the third-party employees, who were
not parties to the appeal and have received no notice that
Huntington might seek to compel them to disgorge their wages. The
district court held that any attempt to grant Huntington relief
“would be impractical and would impose significant hardship on
hundreds of employees who cashed their regular paychecks months ago
and who are not parties to this appeal.” J.A. 134. The district
court’s reasoning is sound and remains applicable -- the months
that had passed since the payroll checks were cashed have now
become years. Accordingly, we hold that the district court
correctly determined that the equities in this case favor a
determination that Huntington’s appeal from the bankruptcy court is
equitably moot.3

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process of law by failing to provide sufficient notice and
opportunity to be heard.
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III.
For the reasons stated, we affirm the district court’s order
dismissing Huntington’s appeal from the bankruptcy court as
equitably moot.
AFFIRMED

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