FILED NOT FOR PUBLICATION NOV 28 2023 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT OF THE NINTH CIRCUIT

In re: BAP No. NC-23-1046-SGB ARTESIAN FUTURE TECHNOLOGY, LLC, Bk. No. 22-40396 Debtor.

BRIAN QUINLIVAN, Appellant, MEMORANDUM* v. ARTESIAN FUTURE TECHNOLOGY, LLC, Appellee.

Appeal from the United States Bankruptcy Court for the Northern District of California Charles D. Novack, Bankruptcy Judge, Presiding

Before: SPRAKER, GAN, and BRAND, Bankruptcy Judges.

INTRODUCTION

Unsecured creditor Brian Quinlivan appeals from an order

confirming debtor Artesian Future Technology, LLC’s (“AFT”) liquidating

plan and approving its compromise under Rule 9019 1 with AFT’s principal

* This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. 1 Unless specified otherwise, all chapter and section references are to the and his parents, as well as the denial of his reconsideration motions. The

compromise was an integral part of the plan.

This appeal is equitably moot. Quinlivan failed to request a stay

pending appeal. Most of the plan’s material provisions have been

consummated and priority creditors have received distributions on their

claims. These creditors would be adversely affected by reversal. Moreover,

it would be impracticable to unwind the plan and compromise by

attempting to claw back the payments made to these creditors required in

any rescission. Accordingly, this appeal is hereby ORDERED DISMISSED

as moot.

FACTS2

A. The rise and fall of AFT.

Prior to its bankruptcy filing, AFT was in the business of

manufacturing custom computers for gaming and cryptocurrency mining.

Noah Katz was AFT’s sole owner, its managing member, and its chief

executive officer. Both parties attribute AFT’s apparently precipitous

downfall to a live-streamed sweepstakes drawing AFT held. During the

event, Noah denied a small internet streamer a prize. The disgruntled

streamer’s complaints about the event resulted in a plague of negative

Bankruptcy Code, 11 U.S.C. §§ 101–1532, and all “Rule” references are to the Federal Rules of Bankruptcy Procedure. 2 We exercise our discretion to take judicial notice of documents electronically filed in the underlying bankruptcy case. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood),

, 233 n.9 (9th Cir. BAP 2003). 2 social media publicity for AFT. As a result, in March 2022, AFT ceased

operations and laid off its employees.

B. AFT’s bankruptcy filing, the retention of a chief reorganization officer, and the sale of AFT’s tangible assets.

AFT filed a subchapter V petition under chapter 11 in April 2022.

Mark Sharf was appointed to serve as subchapter V trustee. With

bankruptcy court approval, AFT retained legal and financial professionals,

as well as a chief reorganization officer, Dr. Edward Webb of BPM, LLC.

Katz’s parents provided AFT with a secured loan to retain Webb and the

legal and financial professionals. The loan was secured by AFT’s remaining

assets, which included its computers and parts inventory and intangible

assets like its name and customer list. According to Katz, there was no

other available funding source to enable AFT to retain the necessary

professionals.

The bankruptcy court approved an auction sale of AFT’s inventory

and equipment for $140,000, with the parents’ lien attaching to the net sale

proceeds.

C. AFT’s plan and compromise with the Katz family.

In July 2022, AFT filed its liquidating plan. Its key terms included:

(1) payment in full of priority wage and benefit claims and consumer

depositor claims; (2) payment in full of priority tax claims over five years;

and (3) pro rata distribution of $50,000 to general unsecured creditors.

Katz’s parents were to fund the plan in exchange for any claims AFT might

3 hold against the Katz family or others.

In conjunction with the plan, AFT moved for authorization to settle

any claims AFT might have against the members of the Katz family or

others. AFT posited that absent the settlement, it would have insufficient

funds to satisfy priority wage and benefit claims of $122,089 and customer

deposit claims of $5,653.00. Moreover, there would be no funds to pay

priority tax claims and general unsecured claims.

As part of the transaction, Katz’s parents agreed to waive their

$843,055.92 general unsecured claim. The parents also agreed to waive

their secured claim of $398,425 and to relinquish their lien on the net

proceeds from sale of AFT’s tangible assets. Additionally, Katz agreed to

waive his $535,597.71 general unsecured claim against AFT. This was said

to represent the amounts he advanced to AFT, plus liabilities of AFT he

guaranteed or assumed, less amounts AFT transferred to Katz. Though

subsequent amendments to the compromise further refined the transaction,

the core of the transaction never materially changed.

Webb filed a declaration in support of the compromise. Based on his

review of AFT’s records he could not identify any claims against the

parents and believed that any claims against Katz would be complicated,

expensive, and time consuming largely because Katz ran AFT’s finances

through his personal accounts ostensibly for tax purposes. Perhaps more

importantly, Katz appeared destitute, lacked a job, and seemed unable to

obtain a new one.

4 D. Quinlivan’s objection, and the confirmation and compromise proceedings.

In August 2022, Quinlivan objected to AFT’s proposed plan.

Quinlivan alleged that the plan and the settlement were nothing more than

a bad faith attempt to wipe out the Katz family’s personal liability to AFT’s

creditors. The objection is somewhat difficult to follow. Quinlivan

contended that Katz’s parents “floated” loans to AFT as part of a scheme to

use a large amount of AFT’s revenue (allegedly never reported) to fund the

family’s lavish lifestyle—instead of using AFT’s revenue to pay its bills as

they came due. He further claimed that the real purpose of the plan and

settlement was to wrongfully enable the Katz family “to buy the alter ego

claims so that Creditors like myself can not seek proper justice in civil court

at a later date.” 3 Quinlivan additionally alleged that AFT’s “overall

estimated profit was somewhere between $4.5m and $6.5m,” though where

all this money went had not been adequately or reasonably explained.

Quinlivan suspected Katz placed AFT’s revenues into undisclosed

3 Quinlivan’s statement regarding alter ego claims makes little or no sense—at least under California law. Alter ego doctrine is not a claim at all. It is a legal theory that sometimes enables a claimant to pierce the corporate veil and extend liability so that the creditor can seek to recover from the business entity’s principal(s) on account of the business entity’s liabilities to the claimant. See Schaefers v. Blizzard Energy, Inc. (In re Schaefers),

, 784–85 (9th Cir. BAP 2020), vacated upon dismissal of subsequent appeal as moot,

(9th Cir. Aug. 31, 2022). By definition, the business entity’s liabilities to creditors would not be claims belonging to the business entity against the principals, which is what the plan and compromise purported to release in exchange for the plan funding. 5 cryptocurrency accounts. 4

As for AFT’s financial records, Quinlivan claimed that he was being

denied access to them and that in any event they must have been fabricated

after the fact, as they “didn’t previously exist in any organized fashion.”5

He further asserted that Webb was the only one permitted to review the

books and records, and Webb had a clear conflict of interest because he

was hired by the Katz family.

Quinlivan further challenged the notion that Katz’s parents were not

involved in the management and control of AFT. He stated that he

personally was aware of the parent’s participation in hiring and firing

decisions. He also maintained that Katz continued to attempt to lure in

additional customers (and their deposits) even as AFT’s business fell apart.

In response to the objection, AFT pointed out in relevant part that

“Mr. Quinlivan's suggestion to turn down Plan funding of some $590,000

by [the parents] in favor of an unfunded investigation of unspecified

claims, is hardly reasonable and should be overruled.” In addition, AFT

represented that it had provided “a substantial volume” of financial

records to Quinlivan’s counsel, who for reasons that were not clear had not

4 Quinlivan posited that AFT’s claims against the Katz family should be “put up for auction.” He also stated he had “reason to believe that no less than $3m of AFT’s business revenue flowed through Noah Katz’s personal [paypal] account. This is more than triple what the Debtor reported [as reflected in Webb’s compromise analysis].” 5 Quinlivan also filed a one-sentence “declaration” stating under penalty of

perjury that his “statement” (presumably the plan objection) was “true and correct.” At the time, this was the only evidence Quinlivan submitted in support of his opposition. 6 filed the plan objection on Quinlivan’s behalf. Rather, Quinlivan had filed

his initial submissions pro se. According to AFT, the same financial records

also were provided to the subchapter V trustee.

The court held its first plan confirmation hearing on September 2,

2022. The subchapter V trustee opined based on the information he

received from AFT and Quinlivan that the settlement appeared to be in the

range of reasonableness. The court then summarized the plan funding

Katz’s parents agreed to provide: (1) an estimated $5,663 per month for five

years to pay off priority tax claims; (2) relinquishment of its lien against the

$140,000 in net sale proceeds from sale of AFT’s tangible assets so that they

could be used to pay off priority wage and benefit claims and customer

deposit claims; and (3) $50,000 to be distributed to general unsecured

creditors. The court also referenced a $50,000 credit balance on a credit card

that Katz was agreeing to contribute to plan funding. The court observed

that without the funding from the Katz family, there were little or no funds

to either pay any creditors or perform a plan.6

The court also noted that Quinlivan could have taken Rule 2004

examinations and submitted evidence to support his positions but that he

failed to do so. Rather, the only evidence submitted indicated that Webb

had reviewed AFTs books and records and concluded that there were no

claims against the Katz family that he was aware of that were both viable

6 Though the court did not mention it at this point, Katz’s parents also evidently committed to fund full payment of all administrative claims. 7 and collectable. The court further remarked that Quinlivan had failed to

specify in his papers the nature of the claims he suspected AFT had against

the Katz family.7 It also noted that absent funding from Katz’s parents, AFT

had little or no money to do anything—including the investigation and

pursuit of any claims against the Katz family.

Ultimately, however, the bankruptcy court stated that it would not

approve the compromise and confirm the plan unless the proponents

submitted a written and fully signed settlement agreement. The court

continued the compromise and confirmation hearing for that purpose.

The parties then filed a series of declarations and supplemental briefs

in which they attempted to flesh out their positions. AFT additionally

submitted to the court the fully executed settlement agreement between

AFT and the Katz family. For his part, Quinlivan claimed that Webb

neither adequately investigated nor disclosed numerous internet sales

transactions that AFT engaged in through various websites including Etsy,

Patreon, and Twitch—or what happened to the proceeds from these

transactions. Quinlivan also maintained that the parents’ role in AFT’s

management was vastly understated.

The court held its second confirmation and compromise hearing on

September 23, 2022. The court noted that the transaction struck it as more

7 At the hearing, Quinlivan’s counsel repeatedly refers to certain alter ego claims and derivative claims. He incorrectly used these terms as if they were interchangeable, and has never coherently explained what these claims are. 8 of a sale of claims than a settlement.8 It also stated that it was unable to

readily identify the claims being sold by the description of claims provided

in the settlement.

At the hearing, Quinlivan argued in relevant part that any attempt to

conduct formal discovery before debtor submitted its plan would have

been premature and a needless waste. The court rejected this argument. It

explained that the concerns Quinlivan raised regarding Webb’s

independence and allegiance gave him every reason to initiate Rule 2004

examinations. Instead, Quinlivan elected to forego the opportunity to

substantiate his allegations that AFT revenues disappeared into the

personal accounts of the Katz family. Still, given the court’s lingering

questions and concerns regarding the scope of the claims being sold, it set

deadlines for further briefing and for AFT to amend the settlement

agreement and plan to resolve the lingering issues. Both parties filed post-

hearing briefs.

E. The bankruptcy court’s confirmation and compromise order.

On December 5, 2022, the bankruptcy court entered its order

approving the compromise and confirming AFT’s third amended plan. The

court first acknowledged the funding offered by Katz’s parents in the

estimated amount of $600,000, which allowed the debtor to pay in full all

8 Counsel for the parents asserted that notice of the compromise went out to the entire creditor body, so anyone who had any interest in making a competing bid had an opportunity to do so. 9 allowed priority and administrative claims, as well as a $50,000 distribution

to unsecured creditors. The court also acknowledged the Katz family’s

agreement to waive their claims against the estate. It then turned its

attention to what the parents were receiving in exchange for the plan

funding. Under the plan, upon completion of all payments AFT would

assign to the parents all claims then held by AFT against anyone else,

including claims against the Katz family, which in turn included claims

that creditors might assert derivatively on behalf of AFT against them.

As to the claims being released, the court relied on the evidence

submitted by AFT that it had reviewed its records for avoidable transfer

claims against the parents but found none. The court conceded that

transfers to Katz were a closer call because of AFT’s bookkeeping practices.

But again, it relied on Webb’s declaration testimony that ascertaining

whether Katz received any avoidable transfers would require a forensic

accountant who the estate had no means of paying.

The court then analyzed the settlement as both a compromise under

Rule 9019 (citing A & C Properties) and as a sale of estate assets under § 363.

It found that the transaction met both standards, relying again on Webb’s

testimony that the parents received no transfers and Katz was insolvent.

According to the court, these factors greatly diminished the prospect of

successful litigation. The court also concluded that the nature of the alleged

claims being released had been adequately identified given the entirety of

the parties’ submissions: Katz and his parents failed to account for revenue

10 AFT received and instead used it for their own personal benefit.

The court also found that the compromise was in the best interest of

creditors. Though the distribution to general unsecured creditors would be

minimal, the court noted that the priority creditors would be paid in full.

Furthermore, no creditors other than Quinlivan had objected to the

compromise.

As for the sale aspects of the transaction, the court observed that no

one, including Quinlivan, had offered any viable alternative to the

settlement and plan. As the bankruptcy court explained: “Artesian is a

defunct entity with no income stream and the bulk of its cash is someone

else’s cash collateral. Simply put, Artesian has no independent means to

pay its creditors, and the bankruptcy estate turned to its only ready source

of funds to propose the Plan.” The court went on to reflect that despite the

broad service of the compromise motion, it did not attract any overbids

and no one had even sought to timely conduct Rule 2004 examinations to

flesh out any suspicions regarding undisclosed and unaccounted for AFT

assets and revenues.

The court further found that all criteria for plan confirmation were

met.

F. Quinlivan’s motions for reconsideration.

Quinlivan filed two separate reconsideration motions, the second one

immediately following denial of the first. Both motions largely

recapitulated Quinlivan’s previous arguments, which were rejected in the

11 court’s confirmation and compromise order. Quinlivan attempted to

submit new evidence with his motions in an effort to demonstrate that the

Katz family had hidden substantial AFT assets and failed to account for

revenue. But the bankruptcy court held that to the extent the evidence

might have supported his position, Quinlivan had failed to demonstrate

why this evidence had not been presented during the confirmation and

compromise proceedings.

The bankruptcy court denied Quinlivan’s first reconsideration

motion on February 13, 2023. Quinlivan timely appealed on February 23,

2023. Quinlivan filed his second reconsideration motion on February 24,

2023, which the court denied on March 10, 2023. 9

JURISDICTION

The bankruptcy court had jurisdiction under

and

157(b)(2)(A), (L) and (N). We have jurisdiction under

.

ISSUE

Should this appeal be dismissed as equitably moot?

STANDARD OF REVIEW

We review questions of equitable mootness de novo. See Todeschi v.

Juarez (In re Juarez),

, 619–20 (9th Cir. BAP 2019), aff'd,

(9th Cir. 2020); Rosenstein & Hitzeman, AAPLC v. Eliminator

9 Quinlivan never amended his notice of appeal to include the denial of the second reconsideration motion. Nor did he order the transcript from the hearing on the second reconsideration motion where the court stated its reasons for the denial. 12 Custom Boats, Inc. (In re Eliminator Custom Boats, Inc.),

, at

*3 (9th Cir. BAP Sept. 23, 2019). When we review a matter de novo, we

consider it anew as if no decision previously had been rendered. Kashikar v.

Turnstile Cap. Mgmt., LLC (In re Kashikar),

(9th Cir. BAP

2017).

DISCUSSION

AFT has filed a motion to dismiss this appeal as equitably moot.

According to AFT, the effective date of its confirmed plan occurred on

December 21, 2022, and Katz’s parents already have paid more than

$580,000 pursuant to the compromise and plan. These funds already have

been used to pay: (1) 27 creditors with priority wage and benefits claims

and consumer deposit claims totaling $159,657.16; (2) multiple priority tax

claimants, with $36,328.48 paid through March 2023 and an additional

$4,600 per month being paid since then; and (3) $370,971.31 in allowed

administrative claims owed to professionals. At no point did Quinlivan

request a stay pending appeal from either the bankruptcy court or this

Panel.

Whereas questions of mootness under Article III of the Constitution

implicate the court’s jurisdiction and ask whether the court has the power

to adjudicate the matter brought before it, equitable mootness is a “judge-

made abstention doctrine.” Rev Op Grp. v. ML Manager LLC (In re Mortgs.

Ltd.),

(9th Cir. 2014). Equitable mootness asks

whether the court equitably should exercise its power to hear and resolve

13 the dispute. See

It permits appellate courts to “dismiss appeals of

bankruptcy matters when there has been a comprehensive change of

circumstances so as to render it inequitable for this court to consider the

merits of the appeal.”

(cleaned up) (quoting Motor Vehicle Cas.

Co. v. Thorpe Insulation Co. (In re Thorpe Insulation Co.),

(9th

Cir. 2012)). This doctrine fosters the public policy interest in the finality of

bankruptcy court judgments and also protects parties not directly involved

in the bankruptcy court litigation but whose interests would be adversely

affected by reversal. See id. at 1218; In re Thorpe Insulation Co,

.

In the plan confirmation context, the Ninth Circuit has held that the

following factors should be considered in determining whether the appeal

of the confirmation order is equitably moot:

(1) whether a stay was sought, for absent that a party has not fully pursued its rights; (2) if a stay was sought and not gained, we then will look to whether substantial consummation of the plan has occurred; (3) we will look to the effect that a remedy may have on third parties not before the court; (4) finally, we will look at whether the bankruptcy court can fashion effective and equitable relief without completely knocking the props out from under the plan and thereby creating an uncontrollable situation before the bankruptcy court.

In re Mortgs. Ltd.,

(cleaned up).10

10 Mortgages Ltd. acknowledged that the Ninth Circuit’s prior precedent was in conflict as to whether the equitable mootness analysis should be considered complete when the appellant fails to seek a stay pending appeal.

. It suggested that 14 In the instant appeal, each of these factors militates in favor of

dismissing this appeal as equitably moot. First, Quinlivan failed to seek a

stay pending appeal. By failing to do so, he slept on his rights and enabled

circumstances to arise where a merits determination in this appeal could

jeopardize the vested interests of innocent third parties, specifically the

priority creditors who received payment of their wage, benefit, and

consumer deposit claims pursuant to the terms of AFT’s confirmed plan.

Under similar circumstances, the Ninth Circuit has held that this factor

militates in favor of dismissing the appeal as equitably moot.

.

Second, no dispute has been raised here regarding substantial

consummation of AFT’s plan. The plan payments made to priority and

administrative creditors militate in favor of equitable mootness. See In re

Juarez,

.

As to the third and fourth equitable mootness factors, we cannot

conceive of how we could fashion effective and equitable relief if Quinlivan

were to prevail on appeal. Reversal would require the bankruptcy court to

unwind both the plan and the compromise on which it is based. This

necessarily would require the return of the settlement funds to Katz’s

parents. But AFT has distributed those funds and is defunct. It has no

means to repay the settlement and realistically no ability to seek the funds

in most instances, the failure to seek a stay should render the appeal of a confirmation order equitably moot.

But it went on to consider all four equitable mootness factors as if the appellant therein had sought a stay pending appeal, even though it did not. Id. at 1217-18. We will follow the same process here. 15 from its creditors. To do so would require AFT to obtain and enforce an

order or judgment against all priority and administrative claimants to

return the funds paid to them. Not only would clawing back these funds

adversely affect the “innocent” priority claimants, it would be

impracticable to recover such funds in many instances. See In re Mortgs.

Ltd.,

.

Quinlivan has opposed the motion to dismiss. But nothing in his

opposition counters the facts and law set forth above in our equitable

mootness analysis. Instead, he largely focuses on the perceived merits of

his appeal and baldly assumes that the claims assigned to Katz’s parents

can be clawed back without returning the plan funds. He further assumes

that his allegations of misconduct and the parents’ status as insiders

justifies the forfeiture of their plan funding. We disagree. We are not aware

of any authority that would support Quinlivan’s position, and he has not

cited any. Consistent with our mootness analysis, we perceive no grounds

that would equitably permit us to unwind the plan and the compromise in

whole or in part.

Quinlivan cites only one case in support of his opposition to the

motion to dismiss—First Southern National Bank v. Sunnyslope Housing Ltd.

Partnership (Sunnyslope Housing Ltd. Partnership),

(9th Cir.

BAP Feb. 1, 2012). He argues that Sunnyslope stands for the proposition that

“[a] stay pending appeal is discretionary and is not a basis for mootness.”

Aplt’s opp. to AFT’s dismissal motion at p. 12. But Sunnyslope does not

16 even mention mootness—equitable or constitutional. Applying the relevant

factors, our equitable mootness analysis demonstrates that each factor

justifies dismissal of this appeal as equitably moot. 11

CONCLUSION

For the reasons set forth above, we DISMISS this appeal as equitably

moot.

11 Even if we were to reach the merits, we would affirm. AFT was a defunct corporation with no unencumbered assets that could be used to fund a plan, finance an investigation, or litigate with the Katz family. In addition, despite ample opportunity to do so, no one demonstrated any interest in committing their own funds to pursue the Katz family on behalf of AFT. Quinlavan is willing to risk the limited plan payment that he and others received under the compromise for a more robust investigation. Yet, the bankruptcy court reasonably concluded that the circumstances of the bankruptcy supported the settlement in the best interests of the creditors, given what was known based on the available information. The debtor elected to pursue chapter 11 and proposed its plan of liquidation. On the record before us, we would not conclude that the court abused its discretion when it confirmed AFT’s plan, approved its compromise, and rejected Quinlivan’s opposition thereto. See generally Spark Factor Design, Inc. v. Hjelmeset (In re Open Med. Inst., Inc.),

, 180 (9th Cir. BAP 2022), aff’d in two separate decisions, Case No. 22-60017,

, Case No. 22-60018,

(9th Cir. Oct. 30, 2023). 17