2001 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

6-21-2001

Nordhoff Inv Inc v. Zenith Elec Corp

Precedential or Non-Precedential:

Docket 00-2249

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Recommended Citation

"Nordhoff Inv Inc v. Zenith Elec Corp" (2001). 2001 Decisions. Paper 136.

http://digitalcommons.law.villanova.edu/thirdcircuit_2001/136
Filed June 21, 2001 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

Nos. 00-2249 and 00-2250 

NORDHOFF INVESTMENTS, INC. 

v. 

ZENITH ELECTRONICS CORPORATION 

JOHN D. MCLAUGHLIN, JR., Esq., 

 Trustee 

 (D.C. No. 99-cv-00921) 

OFFICIAL COMMITTEE/EQUITY SECURITY HOLDERS 

v. 

ZENITH ELECTRONICS CORPORATION 

PATRICIA A. STAIANO, 

 Trustee 

 (D.C. No. 00-cv-00031) 

NORDHOFF INVESTMENTS, INC. 

v. 

ZENITH ELECTRONICS CORPORATION 

PATRICIA A. STAINO, 

 Trustee 

 (D.C. No. 00-cv-00032) 

 Official Committee/Equity 

 Security Holders, 

 Appellant at No. 00-2249 

 Nordhoff Investments, Inc., 

 Appellant at No. 00-2250 
APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF DELAWARE 

(D.C. Nos. 99-cv-00921, 00-cv-00031 and 00-cv-00032) 

District Judge: The Honorable Gregory M. Sleet 

Argued January 23, 2001 

BEFORE: NYGAARD, ALITO, and FUENTES, 

Circuit Judges. 

(Filed: June 21, 2001) 

 Arnold S. Albert, Esq. (Argued) 

 Albert & Schulwolf 

 1201 Connecticut Avenue, N.W. 

 Suite 850 

 Washington, DC 20036 

 Thomas G. Macauley, Esq. 

 Zuckerman, Spaeder, Goldstein, 

 Taylor & Kolker 

 1201 Orange Street 

 Suite 650, P.O. Box 1028 

 Wilmington, DE 19899 

 Counsel for Nordhoff Investments, 

 Inc., Appellant at No. 00-2250 

 Thomas D. Schneider, Esq. 

 Suite 616 

 1515 Market Street 

 Philadelphia, PA 19102 

 Counsel for Official Committee of 

 Equity Security Holders, Appellant 

 at No. 00-2249 

 2 
 James H.M. Sprayregen, Esq. 

 Ilana S. Rubel, Esq. 

 David J. Zott, Esq. (Argued) 

 Kirkland & Ellis 

 200 East Randolph Drive 

 Suite 6500 

 Chicago, IL 60601 

 Laura D. Jones, Esq. 

 Pachulski, Stang, Ziehl, 

 Young & Jones 

 919 North Market Street 

 P.O. Box 8705, 16th Floor 

 Wilmington, DE 19899 

 Eric S. Kurtzman, Esq. 

 Pachulski, Stang, Ziehl, 

 Young & Jones 

 10100 Santa Monica Boulevard 

 Suite 1100 Los Angeles, CA 90067 

 Counsel for Appellee 

 Zenith Electronics Corporation 

OPINION OF THE COURT 

NYGAARD, Circuit Judge: 

This case presents the consolidated challenges by 

Nordhoff Investments and the Official Committee of Equity 

Holders to the District Court's order appr oving the 

Bankruptcy Court's order confirming Zenith's bankruptcy 

and restructuring plan. Zenith argues, as it did below, that 

the challenges posed to its restructuring plan are "equitably 

moot" because the plan has already been substantially 

consummated, has been relied upon by various parties, and 

would be very difficult to retract. The District Court 

thoroughly reviewed all of the relevant considerations and 

found the challenges equitably moot. We accept the lower 

court's findings of fact "unless they ar e completely devoid of 

a credible evidentiary basis or bear no rational relationship 

to the supporting data," Moody v. Security Pacific Bus. 

Credit, Inc., 971 F.2d 1056, 1063 (3d Cir. 1992). 

 3 
Furthermore, "[b]ecause the mootness determination we 

review here involves a discretionary balancing of equitable 

and prudential factors rather than the limits of the federal 

court's authority under Article III, using or dinary review 

principles we review that decision generally for abuse of 

discretion." In re Continental Airlines, 91 F.3d 553, 560 (3d 

Cir. 1996) (en banc); see also In r e PWS Holding, 228 F.3d 

224, 235-36 (3d Cir 2000). We find no such abuse of

discretion and therefore will affir m. 

I. Background 

Zenith has suffered critical losses over the past twelve 

years. LG Electronics invested $360 million in Zenith 

during that difficult period, increasing its holdings from five 

percent to fifty-eight percent and occupying six of the 

eleven seats on Zenith's Board of Directors by 1997. Zenith 

attempted to find an outside investor willing to purchase its 

business, but no buyers came forward after Zenith's CEO 

personally met with executives from Micr osoft, Intel, 

General Instruments, and other leaders in the electr onics 

industry. 

Zenith continued to suffer losses and LGE pr oposed a 

major restructuring of Zenith's debt and equity in April of 

1998. A special committee of Zenith's Board of Directors 

negotiated with LGE and agreed to a plan. After forming 

their own advisory committee and obtaining counsel from 

legal and financial advisors, the bondholders also agreed to 

the plan. The plan included: 1) exchanging appr oximately 

$103 million in bonds bearing interest at 6.25 percent for 

$50 million in new bonds bearing interest at 8.19 percent; 

2) canceling Zenith's stock for no consideration; 3) issuing 

new Zenith stock to LGE in exchange for $200 million of 

debt relief forgiving debt owed to LGE; 4) LGE extending a 

new $60 million credit facility to Zenith; 5) canceling 

approximately $175 million in additional debt owed to LGE 

in exchange for $135 million of new debt and ownership of 

the Zenith television plant in Reynosa, Mexico; 6) 

refinancing of debt owed to a consortium of banks led by 

Citicorp; 7) no alteration of debt owed to trade cr editors; 

and 8) releasing LGE, Zenith directors and officers, and the 

 4 
Bondholder's Committee from potential liability to Zenith or 

certain creditors. 

Zenith submitted the plan to the Securities and 

Exchange Commission. The SEC reviewed the plan for 

twelve months and eventually declared it ef fective. Despite 

the reduced face value of their claim, the bondholders 

overwhelmingly voted in favor of the plan. LGE and secured 

lenders, including Citibank, also approved the plan. Zenith 

met often with the Equity Committee during this time and 

provided the Committee with all of the infor mation that it 

requested. Zenith then filed a Chapter 11 bankruptcy 

petition and sought final court approval. 

The plan was submitted to a Bankruptcy Court in the

District of Delaware. Nordhoff, a significant minority 

shareholder in Zenith, and the Equity Committee, which 

represented the interests of the other minority 

shareholders, both opposed the plan and wer e represented 

by counsel at the two-day proceedings. Over Nor dhoff and 

the Equity Committee's objections, the Bankruptcy Court 

approved Zenith's request for an expedited hearing. The 

primary point of contention concerned competing 

valuations of Zenith. Peter J. Solomon, Co. valued Zenith at 

$300 million. That valuation was corroborated by the fact 

that Zenith had been unable to sell at a related price, the 

bondholders' agreement to reduce their claims, and other 

relevant valuations. Ernst and Young, appearing on behalf 

of the Equity Committee, valued Zenith at $1.05 billion, 

which was based on a discount rate the "same as 

Microsoft's" and a higher royalty rate than calculated by 

Solomon. Nordhoff and the Equity Committee attempted to 

discredit Solomon by presenting evidence that Solomon had 

a conflict of interest based upon its pr evious relations with 

Zenith and would receive a $1 million awar d if Zenith's 

plan was successful. 

The Bankruptcy Court ultimately accepted Solomon's 

valuation over Ernst and Young's and decided that: 1) 

"Zenith's Plan [was] proposed in good faith under the 

general requirements of the bankruptcy code"; 2) the plan 

was entirely fair; 3) LGE had acted appr opriately; 4) 

Zenith's disclosure statement contained a wealth of

information, the plan was approved by SEC, and it 

 5 
complied with nonbankruptcy law and the Bankruptcy 

Code; 5) the "shareholders are r eceiving the value of their 

interests under the plan--nothing"; 6) Solomon's valuation 

was not tainted; and 7) this "reorganization is exactly what 

chapter 11 of the Bankruptcy Code was designed to 

accomplish." 

The Bankruptcy Court conditionally confirmed the plan 

and rejected Nordhoff and the Equity Committee's 

objections on November 2, 1999. The Bankruptcy Court 

permitted the release of all claims by Zenith, but refused to 

allow the release of claims by creditors who did not vote in 

favor of the plan. The Court therefore r equired Zenith to 

delete any release by claimants who had not affirmatively 

accepted the plan. The Court granted Zenith ten days to 

make these modifications. 

Nordhoff and the Equity Committee r eceived the 

Bankruptcy Court's opinion on November 3. Zenith 

immediately made the required changes and submitted the 

amended plan to the Court on November 4. Zenith served 

the Equity Committee with the amended plan on November 

4, but, because of what they testified was an"oversight," 

Zenith officials did not serve Nordhof f with the amended 

plan at this time. The Court signed the amended 

confirmation order on November 5, but did not immediately 

notify the parties. Nonetheless, Zenith lear ned that the 

order had been signed via the Court's public web cite on 

November 5. On November 9, Zenith officials faxed a letter 

to Nordhoff and the Equity Committee stating that they 

"understand that the court signed the confir mation order 

on November 5." Zenith received a signed copy of the 

confirmation on November 10 and faxed copies of the

amended plan and the Court's confirmation or der to

Nordhoff and the Equity Committee the same day. Nordhoff 

and the Equity Committee filed notices of appeal to the 

Bankruptcy Court on November 12. At no point, however, 

did either Nordhoff or the Equity Committee seek to stay 

the plan. 

Both the proposed and final plan called for"Immediate 

Effectiveness," and it was clear thr oughout the proceeding 

that Zenith intended to implement the plan immediately 

upon approval. As a result, much of the plan was executed 

 6 
between November 5, when the Court confirmed, and 

November 10, when Nordhoff was first officially notified. 

The following transactions were completed by November 9: 

1) Zenith replaced its debtor-in-possession credit facility 

with a new $150 million facility syndicated by Citicorp; 2) 

Zenith entered into a new $60 million cr edit facility with 

LGE; 3) Zenith canceled old stock and issued new stock to 

LGE; and 4) Zenith canceled certain debt owed to LGE, 

issued new debt to LGE, and canceled some of the new 

debt in exchange for the transfer of the Reynosa plant at a 

later date. Zenith's bondholders, however, did not begin to 

tender their $103.5 million in old bonds for $50 million in 

new publicly traded instruments until November 19, 1999. 

Nearly all of the bonds were exchanged by January 3, 2000, 

and they have been subject to public trading ever since. If 

bondholders did not own a sufficient amount of debt to 

receive a new bond, their holdings were aggregated and 

sold on the open market. The cash proceeds wer e then 

allocated to the fractional holders. Zenith management has 

since been replaced by LGE management, and the Zenith 

executives who devised the plan have departed. 

Nordhoff and the Equity Committee appealed to the 

District Court, challenging the valuation of their shares, the 

reliance on Solomon's valuation, the expedition of the 

proceedings, the lack of evidentiary recor d, and the plan 

provisions releasing LGE and Zenith's dir ectors from 

potential liability. The District Court dismissed the appeal 

as equitably moot. 

II. Discussion 

At least one Bankruptcy Court has characterized 

"equitable mootness" as a misnomer: "Ther e is nothing 

equitable about the equitable mootness doctrine. . .. The 

matter is moot out of necessity, not application of equitable 

principles. In a very real sense the doctrine is more 

accurately denominated as `prudential mootness.' " In re 

Box Brother Holding Corp., 194 B.R. 32, 45 (Bankr. D. Del. 

1996); see also PWS Holding, 228 F.3d at 235-36 (stating 

that "the use of the word `mootness' as a shortcut for a 

court's decision that the fait accompli of a plan 

confirmation should preclude further judicial proceedings 

 7 
has led to the unfortunate confusion between equitable 

mootness and constitutional mootness"). W e do not entirely 

agree. One inequity, in particular, that is often at issue is 

the effect upon innocent third parties. When transactions 

following court orders are unraveled, thir d parties not 

before us who purchased securities in r eliance on those 

orders will likely suffer adverse ef fects. 

We developed the equitable mootness doctrine in In re 

Continental Airlines, 91 F.3d 553 (3d Cir . 1996) (en banc). 

Continental Airlines involved a complex Chapter 11 

reorganization premised upon a $450 million investment by 

two outside parties. Trustees of creditors challenged the 

plan due to the decline in value of the aircraft and jet 

engines securing their investment. This challenge 

jeopardized the plan because the investors had conditioned 

their involvement upon the absence of such liability. The 

Bankruptcy Court rejected the trustees' claim. The trustees 

sought a stay, were denied, and appealed to the District 

Court. Meanwhile, relying on the Bankruptcy Court's

confirmation, the investors committed their capital and 

consummated the plan. Continental then moved to dismiss 

the trustees' appeal on grounds of equitable mootness. The 

District Court granted the motion and dismissed the

appeal. We affirmed, stating that such "an appeal should 

. . . be dismissed as moot when, even though ef fective relief 

could conceivably be fashioned, implementation of that 

relief would be inequitable." Continental Airlines, 91 F.3d at 

559 (citing In re Chateaugay Corp., 988 F.2d 322, 325 (2d 

Cir. 1993)). 

We held that five factors had to be considered when

conducting an equitable mootness analysis: 

 (1) whether the reorganization plan has been

 substantially consummated, 

 (2) whether a stay has been obtained, 

 (3) whether the relief requested would af fect the rights 

 of the parties not before the court, 

 (4) whether the relief requested would af fect the 

 success of the plan, and 

 8 
 (5) the public policy of affording finality to bankruptcy 

 judgments. 

Id. at 560. As we stated in PWS Holding , these "factors are 

given varying weight, depending on the particular 

circumstances, but the foremost consideration is whether 

the reorganization plan has been substantially 

consummated." 228 F.3d at 236. In ef fect, the equitable 

mootness doctrine prevents a court from unscrambling 

complex bankruptcy reorganizations when the appealing 

party should have acted before the plan became extremely 

difficult to retract. We have noted, however, that the 

"doctrine is limited in scope and should be cautiously 

applied . . . ." PWS Holding, 228 F .3d at 236. 

We now consider the elements of the equitable mootness 

doctrine against these facts. 

A. Substantial Consummation of the Plan 

As we stated in Continental Airlines, the substantial 

consummation factor is the "foremost consideration" in an 

equitable mootness analysis, especially when the plan 

"involves intricate transactions . . . or wher e investors have 

relied on the confirmations of the plan." 91 F.3d at 560. 

The Bankruptcy Code defines "substantial consummation" 

to mean: 

 (A) transfer of all or substantially all of the pr operty 

 proposed by the plan to be transferred; 

 (B) assumption by the debtor or by the successor to the 

 debtor under the plan of the business or of the 

 management of all or substantially all of the pr operty 

 dealt with by the plan; and 

 (C) commencement of distribution under the plan. 

11 U.S.C. S 1101(2). 

Appellants concede that the plan has been substantially 

consummated. The Confirmation Order stated that the plan 

would be immediately effective, and many of the key

transactions were completed by November 9, 1999. On

November 19, Zenith began exchanging bonds in 

accordance with the plan, and by January 2000, the only 

 9 
portion of the plan remaining to be consummated was the 

exchange of one percent of the bonds. By that time, all 

property had been transferred, all managerial changes had 

occurred, and virtually all of the distributions had been 

made. As the District Court concluded, there can be little 

question that the plan has been substantially 

consummated. 

Appellants claim, however, that the plan was 

"remarkable" for how little it actually accomplished and 

that it could be easily retracted. Since it did not contain 

intricate transactions, Appellants claim, the plan could be 

reversed in a manner equitable to all parties. Appellants 

argue that although the plan involved debt and asset 

evaluation of large sums, mere quantities do not rise to the 

level of complexity found in Continental Airlines. Further, 

Appellants claim that Zenith could have conducted the plan 

under state law and without the approval of the 

Bankruptcy Court. The only reason Zenith utilized 

bankruptcy law, Appellants argue, was to eliminate 

minority shareholders' rights and expedite the process. 

Because the plan was simple and could be so easily 

reversed, Appellants argue that it is appropriate for us to 

reconsider the valuation question befor e the Bankruptcy 

Court. If the Bankruptcy Court's valuation findings were 

reversed, then a new trial could be conducted to determine 

if LGE paid a fair price. 

The District Court found Appellant's arguments"not 

completely without merit." Compared to the plan in 

Continental Airlines, which entailed numer ous irrevocable 

transactions, the merging of fifty-thr ee debtors, the 

investment of $110 million in cash by two outside 

investors, and the transfer of trade routes by foreign 

governments, the plan here is relatively simple. The District 

Court recognized that the assembly plant could be 

transferred back to Zenith, the exchange of debt for stock 

could be reversed, and that since Citicorp had been the 

major debtor to Zenith before, during, and after the 

transaction its refinancing could be r eversed without great 

difficulty. The District Court found the exchange of bonds, 

however, to present "a more difficult problem." Since the 

bonds are publicly traded, the District Court speculated 

 10 
that "they may have been sold, perhaps mor e than once," 

and it would therefore be difficult, if not impossible, to 

reverse the exchange. Further, "any such reversal would 

almost certainly impact the rights of investors that were not 

involved in the bankruptcy court proceedings." While 

potentially difficult, the District Court nonetheless reasoned 

that "the reversal of these transactions would not likely be 

quite as daunting a task as the unmerging of 54 debtors 

and the return of the outside investors' investments" as 

would have been required in Continental Airlines. The 

District Court concluded that 

 although some of the Plan transactions could

 conceivably be "reversed," this would not be easy to 

 accomplish, and other transactions may not be 

 reversible at all. This factor, ther efore, weighs heavily 

 in favor of dismissal, at least to the extent that the 

 court could not fashion relief that would not r esult in 

 the dismantling of the plan. 

We have no reason to find that the District Court abused 

its discretion in making this determination. The Court 

considered each of Appellants' arguments and prudentially 

balanced the concerns. Although the plan her e is not as 

complex as the plan in Continental Airlines, it is hardly 

simple. The plan required eighteen months of negotiation 

between several parties regarding hundr eds of millions of 

dollars, restructured the debt, assets, and management of 

a major corporation, and successfully rejuvenated Zenith. 

Appellants have not offered any evidence that the plan 

could be reversed without great difficulty and inequity, and 

we have reason to believe that the bond r edistribution is 

unretractable. See In re UNR, 20 F.3d 766 (7th Cir. 1994); 

In re Public Serv. Co. of New Hampshir e, 963 F.2d 469 (1st 

Cir. 1992). The District Court, therefor e, did not abuse its 

discretion in its analysis of this factor of the equitable 

mootness test. 

B. The Failure to Obtain a Stay 

Because of the nature of bankruptcy confir mations, we 

have held that it "is obligatory upon appellant .. . to 

pursue with diligence all available remedies to obtain a stay 

 11 
of execution of the objectionable order (even to the extent of 

applying to the Circuit Justice for relief. . . ), if the failure 

to do so creates a situation rendering it inequitable to 

reverse the orders appealed from." In re Highway Truck 

Drivers & Helpers Local Union #107, 888 F .2d 293, 297 (3d 

Cir. 1989); see also Continental Airlines , 91 F.3d at 566 

("There was a clear possibility the [Appellants'] claims 

would become moot after consummation of the plan, and it 

was therefore incumbent on the [Appellants] to obtain a 

stay."); In re Chateaugay Corp., 988 F.2d at 326 ("[T]he 

party who appeals without seeking to avail himself of that 

[stay] protection does so at his own risk."); In re Crystal Oil 

Co., 854 F.2d 79, 82 (5th Cir. 1988) (finding a claim 

inequitable because the Appellant made no ef fort to obtain 

a stay); In re Roberts Farms, Inc. , 652 F.2d 793, 798 (9th 

Cir. 1981) (dismissing an appeal for lack of equity because 

the Appellant never applied to the bankruptcy court for a 

stay); In re Grand Union Co. v. Saul, Ewing, Remick & Saul, 

200 B.R. 101, 105 (Bankr. D. Del 1996). Appellants did not, 

at any time, seek a stay. As the District Court determined, 

this weighs heavily in favor of dismissing Appellants' 

claims. 

Appellants argue that because Zenith did not provide a 

copy of the revised plan on November 4, and since much of 

the plan was consummated by the time they received notice 

on November 9, it was futile for them to seek a stay in an 

attempt to prevent the plan from being substantially 

consummated. The record does reflect that Zenith learned 

on November 5 that the revised plan had been confirmed 

but did not directly relay this infor mation until November 

9, at which time much of the plan had been consummated. 

Zenith surely realized that the minority shareholders, 

whose shares were nullified without consideration, would 

oppose the confirmation order. The District Court, 

therefore, correctly characterized this "oversight" as 

"suspicious." 

As the District Court correctly reasoned, however, this 

oversight did not foreclose Appellants fr om seeking a stay. 

First, although Zenith did not immediately pr ovide notice to 

Nordhoff, it did provide immediate notice to the Equity 

Committee. Nordhoff was, at all times, a member of the 

 12 
Equity Committee, and therefore Appellants had an 

opportunity to bring a timely request for a stay before the 

plan was consummated. Second, Appellants wer e well

aware that the plan was about to be confir med. All relevant 

versions of the plan called for "Immediate Ef fectiveness," 

and the Bankruptcy Court conditioned its confir mation 

upon only minor modifications. Confirmation was pending, 

the Equity Committee was immediately notified when the 

modified plan was approved, and the confir mation was 

publically posted on November 5 on the Bankruptcy Court's 

web site. If Appellants intended to seek a stay, these 

circumstances afforded them the opportunity to do so 

immediately upon the approval of the plan. Thir d, and most 

importantly, both sets of Appellants were, by all accounts, 

notified by November 9. The bond exchanging, the most 

complex and irreversible element of the plan, did not begin 

until November 19. Appellants have not offer ed any

justification for not seeking a stay between November 9 and 

November 19. "Therefore," the District Court concluded, 

"while the circumstances surrounding the appellant's 

failure to obtain or even seek a stay suggests that this 

factor should receive somewhat less weight than it 

ordinarily would, it does still weigh in favor of a finding of 

equitable mootness." 

The District Court properly weighed the competing 

considerations and therefore its deter mination that the 

failure to obtain a stay weighed in favor of dismissing 

Appellants' claims was within its discretion. 

C. Reliance on Confirmation by Parties not 

Before the Court 

In addition to the first two elements of the doctrine of 

equitable mootness, we stated in Continental Airlines that 

"[h]igh on the list of prudential considerations taken into 

account by courts considering whether to allow an appeal 

following a consummated reorganization is the reliance by 

third parties, in particular investors, on thefinality of the 

transaction." 91 F.3d at 562. As we further explained, the 

"concept of mootness from a prudential standpoint protects 

the interests of non-adverse third parties who are not 

before the reviewing court but who have acted in reliance 

 13 
on the plan as implemented." Id. (citing Manges v. SeattleFirst Nat'l Bank, 29 F.3d 1034, 1039 (5th Cir. 1994)). 

The District Court considered the status of six parties 

who Zenith alleged would have their interests undermined 

by reversal of the confirmation or der: 1) the consortium of 

lenders headed by Citicorp; 2) Zenith's bondholders; 3) 

Zenith's retailers and distributors; 4) Zenith's vendors, 

suppliers, and service providers; 5) LGE; and 6) Zenith's 

former minority shareholders. The District Court found that 

"none [of these parties] appear to merit the same `outside 

investor' status as the investors in Continental ," who 

committed $450 million. To varying degr ees, however, the 

District Court found that some of these parties merit 

protection. 

First, because Citicorp was a secured lender before, 

during, and after the confirmation, it would not suffer an 

adverse impact as a result of appellate r eview. Also, the 

lenders voted in favor of the plan and were r epresented by 

counsel at the proceedings below. Thus, the District Court 

found that Citicorp's $40 million advance on a $150 million 

credit facility at least raised questions as to whether they 

should be viewed as "third parties not befor e the court." 

Second, the District Court found that the inter ests of the 

bondholders were "perhaps mor e strongly implicated." 

Although the bondholders were not true outside parties "in 

the sense that they could walk away from the deal," the 

"bonds are publicly traded and the bondholders today may 

not be the same investors as the bondholders at the time of 

the bankruptcy filing or confirmation." Therefore, the 

District Court reasoned: 

 Many sales of those bonds may have occurred in the 

 reliance on the creditworthiness of the r eorganized 

 debtor. Whether these reliance inter ests will be 

 impaired depends upon the impact of appellate r eview 

 on that creditworthiness. It would seem that the 

 bondholders would likely be harmed only if r eversal of 

 the confirmation order leads to the withdrawal of LGE's 

 support . . . 

We agree that the bondholders maintain a third party 

interest. Third, the District Court found Zenith's claims 

 14 
regarding the retailers, distributors, and suppliers 

"somewhat thin." Apparently, these parties entered into 

commitments with Zenith in reliance on thefinality of the 

reorganization and allocated shelf space, production 

capacity, and credit according to the confirmation, and the 

District Court found that "[a]t least some of these unnamed 

entities are likely to be `third parties' entitled to 

consideration under the equitable mootness analysis." The 

Court found the "potential harm to these parties, however," 

to be "somewhat speculative." Fourth, the District Court 

found Zenith's attempt to characterize LGE as an outside 

party "unpersuasive" since it was the majority shareholder 

prior to bankruptcy and is now the sole shar eholder. Unlike 

the outside investors in Continental Airlines , LGE would 

have incurred massive losses had it walked away from the 

deal. Fifth, the Court found Zenith's claims that the 

minority shareholders may have taken tax deductions

based on their losses without merit since Zenith did not 

produce any evidence that these former shareholders would 

prefer to take the tax deduction instead of r ecovering their 

previous stock holding. 

The District Court concluded that there "ar e third parties 

who have likely relied on confirmation of the plan and who 

could be harmed by reversal of the confirmation order." 

"Although these parties may not be properly characterized 

as `outside investors,' " the Court stated,"such investors 

are not the only types of third parties given considerations 

in an equitable mootness analysis." "Ther efore," the Court 

concluded, "while this factor may not warrant quite as 

much weight as it did in Continental, it does still weigh in 

favor of a finding of equitable mootness." 

Nordhoff also challenges the District Court on this issue 

by claiming that all of the third parties, with the exception 

of the retailers and suppliers, were befor e the Bankruptcy 

Court and therefore are not, as Continental Airlines 

required, "non-adverse third parties who are not before the 

reviewing court." As Zenith points out, however, the 

requirement calls for parties to be befor e the reviewing 

court, and while some of these parties may have been for 

the Bankruptcy Court, they are not befor e us now. See In 

Re Box Brothers, 194 B.R. at 42. Since these parties are not 

 15 
currently before us and relied on the plan confirmation, 

they merit protection under the equitable mootness 

doctrine. 

Although these facts do not present the same extent of 

reliance as found in Continental Airlines , this concern still 

weighs against Appellants' challenges. The District Court 

did not abuse its discretion in its deter mination that "nonadverse third parties who are not befor e the reviewing 

court" relied on the confirmation and therefore merit some 

protection. 

D. Whether the Relief Requested Would Af fect 

the Success of the Plan 

We also consider whether Appellants' concer ns could be 

remedied without unraveling the entirety of the plan or 

whether they seek to "knock the props out fr om under the 

authorization for every transaction that has taken place 

and create an unmanageable, uncontrollable situation for 

the Bankruptcy Court." In re Chateaugay Corp., 10 F.3d at 

952; see also In Re Robert Farms, 652 F.2d 793, 798 (9th 

Cir. 1981). 

Appellants challenge the valuation of Zenith, and this 

price is the very centerpiece of the plan. As the District 

Court noted, the agreed-upon valuation per mitted: 1) LGE's 

emergence as the sole shareholder with no consideration 

paid to the minority shareholders, and 2) the bondholders' 

acceptance of new bonds worth roughly one half the value 

of the old bonds. The plan would no longer be viable 

without these agreements, and the futur e relationship 

between LGE and Zenith would be cast in doubt. W ithout 

LGE, Zenith would likely be forced to liquidate under 

Chapter 7 since their recent recovery is contingent upon 

the plan. Thus, Appellants do not challenge an 

"intermediate" element of the plan that could be altered 

while maintaining the overall integrity of the plan, as in 

PWS Holding Corp., 228 F.3d 224. 

Appellants explicitly indicated during oral ar gument that 

it was their intention to dissolve the plan: "This is one of 

[those plans] where the plan can and should be unravel'ed. 

Okay? I do want to make that clear. Again, if it was vague 

 16 
from my papers, let me make it absolutely clear ." 

Appellants seek "nothing less than a wholesale annihilation 

of the Plan," In re Manges, 29 F .3d at 1043, and this 

proposed relief would affect the r e-emergence of the debtor 

as a revitalized entity." See In r e Club Assocs., 956 F.2d 

1065, 1069 (11th Cir. 1992). The District Court thus 

properly found that this element of the equitable mootness 

doctrine weighs against Appellants. 

E. General Public Policy Affording Finality 

to Bankruptcy Judgments 

As the District Court stated, "the public policy of

affording finality to bankruptcy judgments is better 

described as the lens through which the other equitable 

mootness factors should be viewed." We described this 

rationale in Continental Airlines: 

 Our inquiry should not be about the "reasonableness" 

 of the Investors' reliance or the probability of either 

 party succeeding on appeal. Rather, we should ask 

 whether we want to encourage or discourage r eliance of 

 investors and others on the finality of bankruptcy 

 confirmation orders. The strong public policy in favor 

 of maximizing debtor's estates and facilitating 

 successful reorganization, reflected in the code itself, 

 clearly weighs in favor of encouraging such r eliance. 

 Indeed, the importance of allowing approved 

 reorganizations to go forward in r eliance on bankruptcy 

 court confirmation orders may be the central

 animating force behind the equitable mootness 

 doctrine. Where, as here, investors and other third 

 parties consummate a massive reorganization in 

 reliance on an unstayed confirmation or der that, 

 explicitly and as a condition of feasibility, denied the 

 claim for which appellate review is sought, the 

 allowance of such appellate review would likely 

 undermine public confidence in the finality of 

 bankruptcy confirmation orders and make successful 

 completion of large reorganization like this more 

 difficult. 

91 F.3d 565 (citations omitted). 

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Here, unlike Continental Airlines, LGE is not an outsider 

but rather had independent financial incentive to facilitate 

Zenith's recovery. It is therefore less necessary to encourage 

LGE's reliance on the bankruptcy judgment in this case. 

However, this plan did enable Zenith to negotiate with 

several parties and recover from its decline. Likewise, a 

number of parties relied on the confir mation of the plan, 

and, as the District Court stated, reversal would be 

contrary to the public policy of encouraging actions, by 

outsiders and investors alike, that facilitates successful 

reorganizations. 

The District Court, therefore, did not abuse its discretion 

by determining that the public policy of pr omoting the 

finality of bankruptcy judgements also weighed in favor of 

dismissing Appellants' appeals. 

F. Other Considerations 

1. Expedition of the Confirmation 

Appellants further argue that expediting the plan's

confirmation was unfair since the Appellants had only one 

month to prepare objections, and this was an insufficient 

amount of time. In addition, Appellants complain that the 

plan was consummated between November 4 and November 

9, which was before Nordhoff knew of the confirmation. 

Despite this final push toward consummation, however, all 

parties were aware of the plan during its eighteen-month 

creation and were allowed to review r elevant documents 

and meet with the plan operatives. "Thus," as the District 

Court stated, "despite expedited proceedings in the

Bankruptcy Court, Appellants cannot claim to have been 

denied a meaningful opportunity to engage their own

experts or otherwise oppose the plan." We agree. 

2. Solomon's Valuation 

Appellants also complain that the Bankruptcy Court 

adopted Solomon's valuation despite conflicts of interest. 

First, courts have broad discretion not only to admit expert 

witnesses, but also to weigh their testimony. Kumho Tire 

 18 
Co., Ltd. v. Carmichael, 526 U.S. 137, 153 (1999). Second, 

Solomon's valuation was corroborated by the fact that no 

investors had accepted Zenith's offer to sell at a related 

price, the bondholders' agreement to reduce the value of 

their claims, and other relevant valuations. Third, the 

margin of error between Solomon's valuation and Zenith's 

solvency was $400 million. Fourth, the Bankruptcy Court 

determined that Solomon's compensation was not a mere 

"success fee," but rather was for a "substantial array of 

services: investment banking advice, financial analysis, 

operational restructuring, marketing, as well as valuation 

analysis. The `success fee' was not offer ed for its testimony 

at the confirmation hearing." We will not disturb these 

findings. 

III. Conclusion 

The District Court gave serious consideration to the 

issues of fundamental fairness that Zenith may have

abused. "Because the issues implicate the fair ness of the 

process by which the plan was proposed and confirmed," 

the District Court stated, "the court is somewhat reluctant 

to preclude appellate review of those issues." "Although the 

court will dismiss the appeals," it decided,"it does not do 

so without some hesitation." The District Court concluded: 

"Having considered and weighed the factors discussed 

above, the court is convinced that dismissal of these 

appeals on equitable mootness grounds is appr opriate. In 

particular, Appellants' failure to even seek a stay as the 

plan was being substantially - if not entir ely - 

consummated outweighs the courts concerns identified 

above." 

The District Court accurately analyzed each of the factors 

of the equitable mootness test, appropriately balanced 

these elements, and concluded that the doctrine should 

apply to Appellants' claims. The District Court ther efore did 

not abuse its discretion and we will affir m. 

 19 
ALITO, Circuit Judge, concurring in the judgment: 

I reluctantly concur in the judgment of the court. Under 

In re Continental Airlines, 91 F .3d 553 (3d Cir. 1996) (en 

banc), cert. denied sub nom. Bank of N.Y . v. Continental 

Airlines, 519 U.S. 1057 (1997), I am afraid that we must 

affirm the decision of the District Court holding that the 

appeal is equitably moot. The District Court applied the 

standard adopted in Continental Airlines , and although the 

District Court's decision is debatable, it did not commit an 

abuse of discretion. 

In reaching this conclusion, I am primarily influenced by 

the appellants' failure to seek a stay. It is disturbing that 

Zenith, in a seeming attempt to moot any appeal prior to 

filing, succeeded in implementing most of the plan before 

the appellants even received notice that the plan had been 

confirmed. However, the plan was not entirely 

consummated when the appellants finally lear ned of the 

bankruptcy court's order. Most notably, the exchange of the 

old for the new bonds had still not been carried out. If the 

appellants had promptly applied for a stay, with or without 

posting a bond, when they finally got word of what the 

bankruptcy court had done, I would view this appeal

differently. But the appellants never applied for a stay and 

have not provided an adequate explanation for their failure 

to do so. Under these circumstances, I cannot say that the 

decision of the district court was an abuse of discr etion. 

For the reasons explained in my dissent in Continental 

Airlines, see 91 F.3d at 567-73, however, I continue to 

disagree with the expansive version of the equitable 

mootness doctrine that our court adopted in that case, as 

well as with the abuse-of-discretion standar d of review. See 

id. at 568 n.4 (Alito, J., dissenting). As this case shows, our 

court's equitable mootness doctrine can easily be used as a 

weapon to prevent any appellate review of bankruptcy court 

orders confirming reorganization plans. It thus places far 

too much power in the hands of bankruptcy judges. 

A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

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