1996 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

7-31-1996

In Re: Continental

Precedential or Non-Precedential:

Docket 94-7748

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1996

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova

University School of Law Digital Repository. It has been accepted for inclusion in 1996 Decisions by an authorized administrator of Villanova

University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.

Recommended Citation

"In Re: Continental" (1996). 1996 Decisions. Paper 142.

http://digitalcommons.law.villanova.edu/thirdcircuit_1996/142
 UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT 

 ______________ 

 

 No. 94-7748 

 ______________ 

 

 IN RE CONTINENTAL AIRLINES: 

NATIONSBANK OF TENNESSEE, N.A., f/k/a NationsBank of Tennessee, 

 as Collateral Trustee under a Secured Equipment Indenture and 

Lease Agreement dated March 15, 1987 ("NationsBank"); NEW JERSEY 

 NATIONAL BANK, as successor by merger to Constellation Bank, 

N.A., f/k/a National State Bank of Elizabeth, N.J.; HARRIS TRUST 

AND SAVINGS BANK; and BOATMAN'S FIRST NATIONAL BANK OF OKLAHOMA, 

 as First, Second and Third Priority Secured Equipment 

 Certificates Trustees thereunder, respectively (the "Series 

 Trustees" and, collectively with NationsBank, the "Trustees"), 

 Appellants 

 _______________ 

 

 On Appeal from the United States District Court 

 for the District of Delaware 

 C.A. No. 93-195-JJF 

 (Bankruptcy Nos. 90-932 through 90-984) 

 ________________ 

 

 Argued September 15, 1995 

 Before: SLOVITER, Chief Judge, 

 ALITO and SEITZ, Circuit Judges 

 

 Reargued in banc May 14, 1996 

 Before: SLOVITER, Chief Judge, BECKER, STAPLETON, MANSMANN, 

 GREENBERG, SCIRICA, COWEN, NYGAARD, ALITO, LEWIS, 

 MCKEE, SAROKIN and SEITZ, Circuit Judges 

 (Filed July 31, 1996) 

 ________________ 

Gary S. Jacobson (Argued) 

Nicholas J. DiCarlo 

James G. Scotti 

Kelley Drye & Warren 

New York, NY 10178 

 Attorneys for Appellant NationsBank 

 of Tennessee 

Hal L. Baume 

Louis T. DeLucia 

Norman Peer 

Wilentz, Goldman & Spitzer 
Woodbridge, NJ 07095 

 Attorneys for Appellant New Jersey 

 National Bank 

Richard G. Elliott, Jr. 

Daniel J. DeFranceschi 

Richards, Layton & Finger 

Wilmington, DE 19899 

 Attorneys for Appellants Harris Trust 

 and Savings Bank and Boatman's First 

 National Bank of Oklahoma 

Richard P. Schifter (Argued) 

Andrew T. Karron 

Michael L. Bernstein 

Kari M. Desgalier 

Arnold & Porter 

Washington, D.C. 20004 

Laura D. Jones 

Robert S. Brady 

Young, Conaway, Stargatt & Taylor 

Wilmington, DE 19899-0391 

 Attorneys for Appellee 

 ____________________ 

 OPINION OF THE COURT 

 ____________________ 

SLOVITER, Chief Judge. 

 INTRODUCTION 

 Before the in banc court is an appeal by NationsBank of 

Tennessee (Collateral Trustee) and New Jersey National Bank, 

Harris Trust and Savings Bank, and Boatman's First National Bank 

of Oklahoma (First, Second, and Third Priority Secured Equipment 

Certificate Trustees), who are collectively referred to in this 

opinion as the "Trustees," from the order entered by the district 

court in the Chapter 11 bankruptcy proceeding of Continental 

Airlines, Inc. dismissing as "moot" three appeals by the 

Trustees. Those appeals were from orders of the bankruptcy court 

which 1) denied the Trustees' Renewed Motion for adequate 

protection, 2) confirmed Continental's revised second amended 

joint plan of reorganization, and 3) denied the Trustees' motion 

for the establishment of a cash deposit of $123,479,287. In 

essence, the Appellant Trustees seek payment for an asserted 

administrative claim of approximately $117 million against the 

reorganized company. The Appellee, Continental Airlines, Inc., 

defends the district court's decision to dismiss the Trustees' 

appeal and argues, in the alternative, that the underlying 
rulings of the bankruptcy court were correct as a matter of law 

and fact. 

 I. 

 FACTUAL AND PROCEDURAL HISTORY 

 Continental filed its Chapter 11 bankruptcy petition on 

December 3, 1990. Appellant Trustees serve as successor 

Collateral and Series Trustees for certificate holders who had 

provided Continental with operating capital. The certificates 

were secured at the time of Continental's petition by a pool of 

29 commercial aircraft with engines, and 81 additional jet 

engines which, we were advised, serviced about one-third of 

Continental's operating fleet. Under the Bankruptcy Code, the 

debtor in possession, which has most of the rights, powers, 

functions and duties of a trustee, see 11 U.S.C.  1107(a), "may 

use property of the estate in the ordinary course of business 

without notice or a hearing." 11 U.S.C.  363(c)(1). 

 Section 363(e) provides: 

 Notwithstanding any other provision of this section, at 

 any time, on request of an entity that has an interest 

 in property used . . . by the [debtor in possession], 

 the court, with or without a hearing, shall prohibit or 

 condition such use . . . as is necessary to provide 

 adequate protection of such interest. 

11 U.S.C.  363(e). 

 On February 21, 1991, First Fidelity Bank of New 

Jersey, predecessor to NationsBank as Collateral Trustee, filed a 

motion along with many other aircraft lessors and financiers 

alleging, inter alia, a decline in the value of the collateral 

and seeking adequate protection under section 363(e). First 

Fidelity later withdrew from this motion, but on June 28, 1991 

it, and the predecessors of the other Appellant Trustees, filed a 

motion seeking similar relief. The bankruptcy court held an 

evidentiary hearing on the motion from September 3 through 

September 6, 1991 limited to the Trustees' assertion that they 

were entitled to adequate protection payments as a result of the 

collateral's post-petition decline in market value. 

 Continental argued, inter alia, that because the 

Trustees had not filed a motion for relief from the automatic 

stay, they were not entitled to an award of adequate protection 

under section 363(e). The motion remained pending in the 

bankruptcy court until August 27, 1992 when the court ruled on 

the Trustees' motion, rejecting Continental's legal argument but 

finding as a fact, based on the "Blue Books," a publication 

issued by a company that appraises aircraft, that the market 

value of the collateral had not declined during the period at 

issue in the motion. In re Continental Airlines, Inc., 146 B.R. 

536 (Bankr. D. Del. 1992) [hereinafter Continental I]. 

 Approximately two weeks before the bankruptcy court 

issued that opinion, the Trustees filed their first motion under 

section 362(d) of the Bankruptcy Code to lift the automatic stay 

("Lift-Stay Motion"). See 11 U.S.C.  362(d). This section 

permits a creditor to move for relief from the automatic stay of 

delineated activities, such as repossession of collateral, 

effected by section 362(a) of the Bankruptcy Code. 
 

 On September 14, 1992, the Trustees also filed a 

renewed motion for adequate protection for alleged decline in the 

collateral's value for the period after September 1991, when the 

original 1991 motion was argued ("Renewed Motion"). There were 

various hearings on the Renewed Motion between November 3, 1992 

and February 5, 1993. Toward the end of that period, the 

Trustees filed a motion dated January 29, 1993, asking the 

bankruptcy court to establish a cash deposit of some $123 

million, of which $117 million was attributable to alleged market 

decline, to preserve what the Trustees claimed was the 

administrative priority status of the Trustees' adequate 

protection claim if Continental emerged from bankruptcy as a 

reorganized debtor ("Deposit Motion"). 

 During this period efforts to reorganize the debtor 

continued. On November 9, 1992 Continental entered into an 

Investment Agreement under which the Investors (Air Partners, 

L.P. and Air Canada) agreed and committed to an investment of 

$450 million in the reorganized entity under a complex 

arrangement and subject to certain conditions. App. at 391 et 

seq. One of those conditions, and the one most relevant to this 

proceeding, was a limitation on the amount and nature of 

liabilities and administrative expense claims required to be 

assumed by or attributable to the reorganized company. App. at 

408. On January 13, 1993 Continental filed a second amended 

joint plan of reorganization ("Plan") which referenced that 

Investment Agreement. The Plan provided, inter alia, for 

assumption of "allowed administrative claims" by the reorganized 

Continental. App. at 656. 

 The confirmation hearing was held for a number of days 

during the period March 16, 1993 through April 16, 1993. The 

parties reached a settlement on April 12 concerning adequate 

protection due to use and/or maintenance of the collateral by 

Continental, and no issue relating to use decline (the impairment 

in value attributable to the use of the collateral by the debtor 

in possession) is before us. However, the parties did not settle 

the Trustees' adequate protection claims based on decline in 

market value. 

 At the conclusion of the confirmation hearing on April 

16, 1993, the bankruptcy court denied the Deposit Motion and the 

Renewed Motion. In a published opinion, the bankruptcy court 

held that it was necessary for the Trustees to have sought relief 

from the automatic stay to be entitled to adequate protection for 

market value decline; that therefore the Trustees were not 

entitled to adequate protection due to market decline until after 

the date of their Lift-Stay Motion, i.e. August 14, 1992; and 

that no decline in the market value of the collateral had taken 

place since that date. In re Continental Airlines, Inc., 154 

B.R. 176 (Bankr. D. Del. 1993) [hereinafter Continental II]. 

Also on April 16, 1993, the bankruptcy court signed the 

Confirmation Order. The court made a series of detailed findings 

of fact and conclusions of law underlying the Confirmation Order 

which will be referred to throughout this opinion when pertinent. 

 On April 20, 1993 the Trustees filed three notices of 
appeal to the district court from the bankruptcy court's denial 

of the Renewed Motion for Adequate Protection, its denial of the 

Deposit Motion, and its order confirming the Plan. Two days 

later, the Trustees filed a motion for a partial stay of the 

consummation of the Plan ("Conditional Stay Motion"), but filed 

that motion in the district court, which referred them to the 

bankruptcy court. On April 26, 1993, the Trustees filed that 

stay request in the bankruptcy court. Because the bankruptcy 

judge was not available, the hearing on the motion was held the 

next day in the district court, which stated, without explanation 

or analysis, that the Trustees were likely to prevail on their 

appeal to the district court, but denied the stay because the 

Trustees were "unable to post a bond satisfactory to the Court." 

App. at 1755-56. The Trustees did not then make any effort to 

seek any emergency relief from this court. With no stay impeding 

implementation of the Plan which had now been confirmed, the 

Investors proceeded to close the transaction by making their 

promised investment. 

 On May 6, 1993 Continental filed a motion in the 

district court to dismiss the Trustees' appeals as moot, which 

the district court granted on December 30, 1993. The Trustees 

filed a motion for rehearing and reconsideration in light of the 

decision in Frito-Lay, Inc. v. LTV Steel Co., Inc. (In re 

Chateaugay Corp.), 10 F.3d 944 (2d Cir. 1993) [hereinafter 

Chateaugay II], which the court denied. The Trustees then filed 

a timely notice of appeal. This court has jurisdiction pursuant 

to 28 U.S.C.  158(d). 

 A panel of this court heard argument on September 15, 

1995 and issued an opinion that affirmed the district court's 

order by a two-to-one vote. The Trustees petitioned for 

rehearing, and the in banc court voted to rehear the appeal. 

Under this court's Internal Operating Procedures, the opinion of 

the panel issued February 7, 1996 was withdrawn. 

 II. 

 DISCUSSION 

 A. 

 This court has not addressed the interesting and 

challenging questions raised by the bankruptcy court's holding 

that a creditor must file a motion to lift the automatic stay as 

a prerequisite to seeking adequate protection. The Trustees 

argue that the bankruptcy court erred as a matter of law and that 

this court can decide the issue de novo even though it was not 

reached by the district court. They further argue that the 

bankruptcy court's finding that there was no diminution in the 

market value of the Trustees' collateral after they filed their 

Lift-Stay Motion was clearly erroneous. Finally, they argue that 

the bankruptcy court erred as a matter of law in denying their 

motion for the establishment of a cash deposit. 

 Not surprisingly, Continental, as appellee, defends 

both the bankruptcy court's legal determination that the Trustees 

could not assert adequate protection claims for alleged market 

value decline during the period before they moved for relief from 
the automatic stay and its factual conclusion that there had been 

no substantial decline in the value of the collateral since the 

Lift-Stay Motion was filed. Finally, it argues that in any event 

the Trustees could not recover for adequate protection because 

the value of the collateral did not decline below its value on 

the petition date, which Continental contends is the relevant 

measure. 

 We would reach these issues only if we were satisfied 

that the district court erred in holding that the Trustees' 

appeals to it were "moot," a decision as to which the parties 

vigorously disagree. Mootness vel non of the appeals before the 

district court is closely related to, if not indistinguishable 

from, the question whether the appeal to this court is moot, an 

issue which Continental alludes to in its brief. For 

convenience, we will refer to mootness in the district court 

unless we state otherwise. 

 Continental does not contend that the appeals to the 

district court or to us were moot in the constitutional sense, 

implicating the case or controversy requirement of Article III, 

1. See, e.g., Preiser v. Newkirk, 422 U.S. 395, 401-02 (1975). 

This is not a situation analogous to those where the Supreme 

Court determined that the appeals became moot because the law at 

issue was repealed, see Diffenderfer v. Central Baptist Church, 

404 U.S. 412, 414-15 (1972); the subject of the election campaign 

controversy was no longer a candidate, see Golden v. Zwickler, 

394 U.S. 103, 109-10 (1969); or the railroad whose application 

for tariffs was contested withdrew that application, see A.L. 

Mechling Barge Lines, Inc. v. United States, 368 U.S. 324, 329-30 

(1961). 

 Indeed, as the Supreme Court has recently explained, an 

appeal is moot in the constitutional sense only if events have 

taken place during the pendency of the appeal that make it 

"impossible for the court to grant 'any effectual relief 

whatever.'" Church of Scientology v. United States, 506 U.S. 9, 

12, 113 S. Ct. 447, 449 (1992) (quoting Mills v. Green, 159 U.S. 

651, 653 (1895)). An appeal is not moot "merely because a court 

cannot restore the parties to the status quo ante. Rather, when 

a court can fashion 'some form of meaningful relief,' even if it 

only partially redresses the grievances of the prevailing party, 

the appeal is not moot." RTC v. Swedeland Dev. Group, Inc. (In 

re Swedeland Dev. Group, Inc.), 16 F.3d 552, 560 (3d Cir. 1994) 

(in banc) (quoting Church of Scientology, 113 S. Ct. at 450). 

Thus, in Isidor Paiewonsky Associates v. Sharp Properties, Inc., 

998 F.2d 145, 152 (3d Cir. 1993), we concluded that because we 

could impose at least one of the remedies enumerated by the 

appellant, and thereby provide it "some effective relief," the 

appeal was not moot. See also Swedeland, 16 F.3d at 559-60. 

That is not the issue in this case. 

 Instead, Continental invokes the broader interpretation 

of mootness applied in bankruptcy cases, often referred to as 

"equitable mootness." See, e.g., Manges v. Seattle-First Nat'l 

Bank (In re Manges), 29 F.3d 1034, 1038-39 (5th Cir. 1994), cert.denied, 

115 S. Ct. 1105 (1995); In re Specialty Equip. Cos., 3 

F.3d 1043, 1048 (7th Cir. 1993); Official Comm. of Unsecured 
Creditors of LTV Aerospace & Defense Co. v. Official Comm. of 

Unsecured Creditors of LTV Steel Co. (In re Chateaugay Corp.), 

988 F.2d 322, 325 (2d Cir. 1993) [hereinafter Chateaugay I]; 

Rochman v. Northeast Utils. Serv. Group (In re Public Serv. Co.), 

963 F.2d 469, 471-72 (1st Cir.), cert. denied, 506 U.S. 908 

(1992); First Union Real Estate Equity & Mortgage Invs. v. Club 

Assocs. (In re Club Assocs.), 956 F.2d 1065, 1069 (11th Cir. 

1992); Central States, Southeast and Southwest Areas Pension Fund 

v. Central Transp., Inc., 841 F.2d 92, 95-96 (4th Cir. 1988); In 

re AOV Indus., 792 F.2d 1140, 1147 (D.C. Cir. 1986); Trone v. 

Roberts Farms, Inc. (In re Roberts Farms, Inc.), 652 F.2d 793, 

796-97 (9th Cir. 1981). Under this widely recognized and 

accepted doctrine, the courts have held that "[a]n appeal should 

. . . be dismissed as moot when, even though effective relief 

could conceivably be fashioned, implementation of that relief 

would be inequitable." Chateaugay I, 988 F.2d at 325. 

 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 has led to 

unfortunate confusion. In a trenchant discussion of the issue in 

a recent decision of the Seventh Circuit, the court noted that 

denominating the doctrine as "equitable mootness" is misleading. 

In re UNR Indus., 20 F.3d 766, 769 (7th Cir.), cert. denied, 115 

S. Ct. 509 (1994). Judge Easterbrook, writing for the court, 

stated: "[t]here is a big difference between inability to alter 

the outcome (real mootness) and unwillingness to alter the 

outcome ('equitable mootness'). Using one word for two different 

concepts breeds confusion." Id. (emphasis in original). Thus, 

although the discussions and applications of the concept of 

"mootness" in bankruptcy cases by that court had previously 

encompassed what is referred to elsewhere as "equitable 

mootness," see Specialty Equip., 3 F.3d at 1048; In re 

Andreuccetti, 975 F.2d 413, 418 (7th Cir. 1992), the court in UNR 

Industries stated it would now "banish 'equitable mootness' from 

the (local) lexicon." 20 F.3d at 769. Instead, the court 

continued, "[w]e ask not whether this case is moot, 'equitably' 

or otherwise, but whether it is prudent to upset the plan of 

reorganization at this late date." Id. 

 These "equitable" or "prudential" considerations focus 

on "concerns unique to bankruptcy proceedings." Manges, 29 F.3d 

at 1038. It is evident that "equitable mootness" is an inapt 

description of the doctrine at issue here. Nonetheless, since 

past cases have used that term, we use it in discussing them. 

Therefore, it does not further consideration of this appeal to 

argue, as the dissent does, that we have "fallen into the trap" 

of confusing these considerations with Article III mootness. 

Whether termed "equitable mootness" or a prudence doctrine, we 

see no reason why the Third Circuit should part company with our 

sister circuits in their adoption of this doctrine. If limited 

in scope and cautiously applied, this doctrine provides a vehicle 

whereby the court can prevent substantial harm to numerous 

parties. 

 The Trustees have not challenged the viability of the 

doctrine of equitable mootness or application of prudential 
considerations in bankruptcy cases, nor have they cited to a case 

in any circuit that rejects the concept. Instead, they rely most 

heavily on a decision of the Second Circuit holding that even 

though the reorganization plan for the bankrupt LTV Corporation 

had been confirmed, the appeal of tax lessors challenging the 

plan's failure to give their claims administrative priority was 

not moot. See Chateaugay II, 10 F.3d 944 (2d Cir. 1993). 

Significantly, the court in Chateaugay II did not quarrel with 

the doctrine, merely its application in that case. In fact, in 

RTC v. Best Products Co. (In re Best Products Co.), 68 F.3d 26, 

29 (2d Cir. 1995), a more recent case from the Second Circuit, 

the court once again emphasized the language in Chateaugay I that 

even though an appeal may not be moot in the sense of Article III 

of the Constitution, it may be deemed moot in bankruptcy cases 

because of "equitable considerations." 

 We have generally stated that we exercise plenary 

review of a district court's decision on mootness. SeeSwedeland, 16 F.3d 

at 559; Northeast Women's Ctr., Inc. v. 

McMonagle, 939 F.2d 57, 61 (3d Cir. 1991); International Bhd. of 

Boilermakers v. Kelly, 815 F.2d 912, 914 (3d Cir. 1987). 

However, none of those cases involved a determination, like the 

one we review here, that an appeal following a consummated 

bankruptcy reorganization should be dismissed for equitable and 

prudential reasons even though some effective relief is 

available. Surprisingly, we have seen little more than a few 

cursory references to the standard of review in the cases from 

other circuits applying this doctrine. See AOV Indus., 792 F.2d 

at 1148 (district court's power to dismiss appeal as moot 

"discretionary"); Club Assocs., 956 F.2d at 1069 (legal 

determinations reviewed de novo, bankruptcy court's factual 

findings reviewed for clear error). 

 Because the mootness determination we review here 

involves a discretionary balancing of equitable and prudential 

factors rather than the limits of the federal courts' authority 

under Article III, using ordinary review principles we review 

that decision generally for abuse of discretion. Cf. General 

Glass Indus. Corp. v. Monsour Medical Found., 973 F.2d 197, 200 

(3d Cir. 1992) (abstention determination reviewed under abuse of 

discretion standard); Bermuda Express, N.V. v. M/V Litsa, 872 

F.2d 554, 557 (3d Cir.) (balancing of equities involved in 

application of laches doctrine reviewed for abuse of discretion), 

cert. denied, 493 U.S. 819 (1989); Bennett v. White, 865 F.2d 

1395, 1402 (3d Cir.) (scope of a remedial order reviewed for 

abuse of discretion), cert. denied, 492 U.S. 920 (1989); Evans v. 

Buchanan, 555 F.2d 373, 378-79 (3d Cir.) (in banc) (same), cert.denied, 

434 U.S. 880 (1977). A particular case may also raise 

legal and/or factual issues interspersed with the prudential 

ones, and then the applicable review standard, plenary or clearly 

erroneous, will apply. 

 The dissent argues that the cases cited above are 

inapposite because the district court acted as an appellate court 

and that we should therefore use plenary review. However, the 

proposition that when an appellate court reviews a lower court's 

balancing of prudential factors, it does so under an abuse of 
discretion standard as long as the factors considered are not 

inappropriate as a matter of law is a general one applicable in 

all fields, not excluding bankruptcy. As the Fifth Circuit noted 

in a bankruptcy case: 

 In this particular case, we are reviewing the decision 

 of the district court in its capacity as an appellate 

 court. Several different standards of review govern 

 our decision, depending on the nature of the holdings 

 reviewed. Where the disputed holding involves a matter 

 that is within the district court's discretion, we will 

 affirm the judgment of a district court acting in its 

 appellate role unless the court has clearly abused its 

 discretion. 

Matter of HECI Exploration Co., Inc., 862 F.2d 513, 519 

(citations omitted). 

 B. 

 Factors that have been considered by courts in 

determining whether it would be equitable or prudential to reach 

the merits of a bankruptcy appeal include (1) whether the 

reorganization plan has been substantially consummated, (2) 

whether a stay has been obtained, (3) whether the relief 

requested would affect the rights of parties not before the 

court, (4) whether the relief requested would affect the success 

of the plan, and (5) the public policy of affording finality to 

bankruptcy judgments. See Manges, 29 F.3d at 1039; Rochman, 963 

F.2d at 471-72. The Trustees have not taken issue with our 

identification of these factors. 

 Although these five factors have been given varying 

weight, depending on the particular circumstances, the foremost 

consideration has been whether the reorganization plan has been 

substantially consummated. This is especially so where the 

reorganization involves intricate transactions, see Rochman, 963 

F.2d at 473-74 (performance under plan involved "numerous complex 

arrangements"); Roberts Farms, 652 F.2d at 797 (plan involved 

"many intricate and involved transactions" and reversal of plan's 

confirmation "would knock the props out from under" such 

transactions and "create an unmanageable, uncontrollable 

situation for the Bankruptcy Court"), or where outside investors 

have relied on the confirmation of the plan, see Manges, 29 F.3d 

at 1039 (equitable mootness "protects the interests of nonadverse third parties who are not before the reviewing court but 

who have acted in reliance upon the plan as implemented"); UNR 

Indus., 20 F.3d at 770 ("[b]y protecting the interests of persons 

who acquire assets in reliance on a plan of reorganization, a 

court increases the price the estate can realize ex ante, and 

thus produces benefits for creditors in the aggregate"); Rochman, 

963 F.2d at 474 (reorganization involved $1.5 billion in 

financing from 100,000 sources); Club Assocs., 956 F.2d at 1070 

("a number of investors, who were not parties to this case, had 

committed new funds to the 'reemerged Club' with the expectation 

of receiving a preferred return on their investments"). 

 "Substantial consummation" is defined in the Bankruptcy 

Code as: "(A) transfer of all or substantially all of the 
property 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 property dealt with by the plan; and (C) commencement of 

distribution under the plan." 11 U.S.C.  1101(2). In such 

instances, the strong public interest in the finality of 

bankruptcy reorganizations is particularly compelling. 

 

 The district court dismissed the Trustees' appeals to 

it as "moot" based on the conclusions, set forth in its opinion 

dated December 30, 1993, that substantial consummation of the 

Plan had occurred, the Investors had already made their $450 

million investment into the reorganized entity, all elements of 

the Plan, except distributions to the unsecured creditors, had 

been completed, and a reversal of the order confirming the Plan 

likely would put Continental back into bankruptcy. App. at 1873. 

The court also noted that Continental had implemented the Plan 

following its approval by the court because the Trustees had 

failed to obtain a stay. 

 The Trustees do not challenge that there had been 

substantial consummation by December 1993, when the district 

court dismissed the appeals as moot. They suggest that as their 

object is not to disturb the reorganization, but only to get 

payment from the reorganized Continental for their adequate 

protection claim measured by the market value decline of the 

collateral during bankruptcy, the line of cases upon which 

Continental relies is inapplicable. We cannot agree, because the 

rejection of the Trustees' claim by the bankruptcy court was 

inextricably intertwined with the implementation of the 

reorganization. See AOV Indus., 792 F.2d at 1148 (to evaluate 

mootness, court must "scrutinize each individual claim, testing 

the feasibility of granting the relief against its potential 

impact on the reorganization scheme as a whole"). Thus, the 

Trustees cannot avoid the effect of the substantial consummation 

of the reorganization plan so readily. 

 Inasmuch as Continental agrees that the issue is not 

constitutional mootness but prudential mootness, we will assume 

arguendo that even after substantial or total consummation of its 

reorganization, some effective relief would have been available 

for the Trustees' claim at the time they appealed to the district 

court, and on appeal to this court. Even before the in banc 

court, Continental has not challenged that assumption. It is 

quite another matter in light of the substantial, indeed 

irrevocable, change in the status quo that followed confirmation 

to determine that it would have been prudent for the court to 

reach the merits of the Trustees' claim. For the district court 

had before it an unstayed bankruptcy reorganization plan, and 

many courts have based their prudential decisions to decline to 

consider challenges to bankruptcy court orders on the ground that 

there has been substantial consummation of a plan of 

reorganization in reliance upon an unstayed confirmation order. 

See, e.g., Rochman, 963 F.2d at 475. 

 In Chateaugay I, the court noted that although the 

Bankruptcy Code only requires a stay pending appeal in limited 
circumstances, there is a procedure under Bankruptcy Rule 8005 to 

seek to preserve the status quo and "[t]he party who appeals 

without seeking to avail himself of that protection does so at 

his own risk." 988 F.2d at 326. And in In re Manges, the court 

observed, under the descriptive title "Halting the Runaway Train: 

the Motions to Stay," that "in many of the cases in which 

bankruptcy appeals were dismissed as moot, the appellants failed 

to seek a stay." 29 F.3d at 1039. 

 Even the seeking of a stay may not be enough. The 

appellants in In re UNR Industries had sought a stay, albeit 

unsuccessfully, at every opportunity; nonetheless, the court 

noted, "[a] stay not sought, and a stay sought and denied, lead 

equally to the implementation of the plan of reorganization." 20 

F.3d at 770; accord AOV Indus., 792 F.2d at 1144, 1146-47. 

 Shortly after the confirmation of the Continental Plan, 

the Trustees filed an Emergency Motion for Conditional Stay of 

Order Confirming the Plan pending their appeal to the district 

court. The condition the Trustees sought in lieu of a stay was 

the establishment of a segregated account for $117 million, the 

full amount of their adequate protection claim, or alternatively 

at least $22 million, which they claim was the admitted decline 

in the value of the collateral. See App. at 1721. In response 

to the district court's inquiry, they conceded that they were not 

willing to post any bond. The district court never required a 

supersedeas bond in the amount of $450,000,000, as the Trustees 

have suggested. In fact, the district court tried to ascertain 

the amount of bond that would be reasonable, and the Trustees' 

general position was that they were "merely the fiduciary of the 

money of their bondholders" and they suggested no lesser amount. 

App. at 1729. 

 Thus, as one of the reasons for its order denying the 

stay, the district court noted the unwillingness of the Trustees 

to post a bond satisfactory to the court. App. at 1756. See, 

e.g., Central States, 841 F.2d at 95 (appellant's failure to post 

bond to stay confirmation order basis for finding appeal moot). 

Because the failure to post the bond needed to get a stay 

permitted the consummation of the plan, this factor weighs 

heavily in favor of the district court's declination to delve 

into the merits of the Trustees' appeal. 

 The Trustees argue that this court has held that 

failure to obtain a stay does not necessarily render an appeal 

moot. The cases to which they refer are not apposite. In one, 

In re Joshua Slocum Ltd., 922 F.2d 1081 (3d Cir. 1990), the issue 

was the narrow one of the power of the bankruptcy court to excise 

a paragraph from a shopping center lease. There is no indication 

in Slocum that there had been any confirmation of a plan before 

or during the appeal. 

 In the more recent case to which the Trustees refer, 

Megafoods Stores, Inc. v. Flagstaff Realty Assocs. (In re 

Flagstaff Realty Assocs.), 60 F.3d 1031 (3d Cir. 1995), the 

appeal also presented a narrow landlord-tenant issue, i.e. the 

effect of confirmation of the landlord's plan on a tenant's right 

to pursue its appeal of the bankruptcy court's denial of its 

recoupment claim. In holding that it was not necessary for the 
tenant to seek a stay in order to pursue its right to appeal 

despite the confirmation in the interim, we noted the line of 

cases placing recoupment and setoff in a special category and 

stated, "although we recognize the importance of maintaining the 

integrity of confirmed plans from later attack, these unique 

circumstances permit the plan to be reopened and readjusted." 

Id. at 1036. Thus, neither Flagstaff nor Slocum addressed the 

equitable or prudential mootness considerations at issue here. 

 High 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 the finality of the 

transaction. See Manges, 29 F.3d at 1039 ("[t]he 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 upon the plan as implemented"); 

Rochman, 963 F.3d at 474-75 (similar). Here, the record is 

replete with evidence that the Investors relied on the bankruptcy 

court's unstayed Confirmation Order in making the decision to 

proceed to close the transaction and that an essential factor in 

that decision was the bankruptcy court's disallowance of the 

Trustees' adequate protection claim. 

 The Plan of reorganization provided that the 

reorganized Continental would pay "Allowed Administrative 

Claims." App. at 656, 691 (Plan  5.5, 10.1). Among the 

administrative claims that were still disputed at the time of the 

confirmation hearing were several large claims, including, in 

particular, labor claims by airline pilots, large claims by 

Eastern Airlines, and the Trustees' claim for adequate protection 

based on alleged market decline of the collateral. App. at 1223, 

1346. One of the concerns of the Investors that needed to be 

satisfied as a condition of their participation was that the 

total amount that would have to be paid for allowed

administrative claims could be distorted by a few such large 

claims. To limit their exposure, the Investment Agreement 

provided that the Investors' obligation to proceed with the 

arrangements was subject, inter alia, to the payments and 

obligations for administrative claims being no higher than a 

specified amount, or "cap." App. at 408. 

 At the confirmation hearing, Continental's expert 

witness testified that if the claims of the Airline Pilots and 

the Trustees were excluded, the total allowed administrative 

claims payable under the Plan would be close to the cap, and that 

if the Trustees' claim were allowed, the cap would be exceeded, 

allowing the Investors to walk away from the deal. App. at 1223- 

24, 1333-38. Based on this testimony, Continental argued to the 

bankruptcy court that the feasibility determination required for 

confirmation under 11 U.S.C.  1129(a)(11) would turn in part on 

the adjudication of the Trustees' still outstanding

administrative claim. App. at 1400. Continental therefore urged 

the court to incorporate its adjudication of the Trustees' claim 

into the Confirmation Order itself, asserting that the Investors 

would not go forward with the deal "unless there is an order upon 

which they can place reliance, which is going to be a plan 
confirmation order." App. at 1400. The Trustees argued against 

incorporation, taking the position that even though the amount of 

the adequate protection claim allowed by the court would be 

relevant to the court's subsequent determination of feasibility, 

the adjudication of the claim itself was a separate matter from 

plan confirmation. App. at 1401. 

 The bankruptcy court ultimately took the approach urged 

by Continental, incorporating into its Confirmation Order its 

decision denying the Trustees' adequate protection claim. As 

part of its feasibility determination, it explicitly found that 

neither the pilots' claims nor the Eastern claims was entitled to 

administrative priority, and that the Trustees' adequate 

protection claim had no value as an administrative claim. App. 

at 1549-51. On that basis, it found that there was substantial, 

credible and uncontested evidence that the administrative claims 

payable at confirmation -- excluding the claims of the pilots, 

Eastern, and the Trustees -- would be within the specified limit 

of the cap set forth in the Investment Agreement, App. at 1548, 

noting that the adjudications of the Trustees' claim and the 

Eastern claims were "crucial to the willingness of the Investors 

to consummate the Financing Transaction." App. at 1550. 

 We are unwilling to accept the Trustees' suggestion, 

implicit in their briefs and made explicit at oral argument, that 

the bankruptcy court's ruling on the merits of their adequate 

protection claim was colored by a so-called "ultimatum" from 

Continental that if the claim were granted the Investors would 

abandon the reorganization. See In Banc Argument Transcript at 3. 

The Trustees offer no evidence in support of this suggestion, and 

we certainly would not lightly impute such a motive to the 

bankruptcy court. In effect, the Trustees are challenging the 

Investors' right to condition their investment on the amount of 

approved administrative claims. This was never raised below at 

the time of the Investment Agreement, the ultimate confirmation 

or the period between. We know of no statute, rule or precedent 

that would deny investors the right to limit their investments on 

the existence of conditions which they believe give the newly 

reorganized company a reasonable opportunity to succeed -- such 

as, in this case, without being weighed down by excessive 

administrative expenses. 

 The Trustees also argue that Continental's position at 

the confirmation hearing, that the adjudication of the Trustees' 

claim should be incorporated into the Confirmation Order, was a 

"ploy" to "disingenuously" use the fact of such incorporation to 

"manufactur[e] the appearance of mootness." Appellants' Brief at 

3; In Banc Argument Transcript at 1. Their characterization of 

Continental's position as a "ploy" implies that it had no 

legitimate reason. In light of the integral nexus between the 

feasibility of confirmation and the adjudication of the Trustees' 

claim, it appears that the suggestion of incorporation urged by 

Continental and adopted by the bankruptcy court was reasonable 

and reflected the inescapable fact that the Trustees' claim and 

the confirmation of the Plan were inextricably intertwined, 

rather than an attempt to "manufacture" the appearance of 

equitable mootness. 
 In dismissing the Trustees' appeals as moot, the 

district court specifically found that the Investors had relied 

on the bankruptcy court's unstayed Confirmation Order and that 

there was an integral nexus between the investment and the 

success of the Plan. The court stated, "[t]he Investors relied 

on the unstayed Confirmation Order in making the $450 million 

investment in Continental's Plan. It is clear that [the 

Trustees'] requested relief would undermine the grounds which the 

Investors relied upon in making their investment and would 

require a dismantling of the entire Plan." App. at 1874. 

Although the Trustees argue that this finding is erroneous, there 

is support for it in the record. 

 At the hearing in April 1993 before the district court 

on the Trustees' request for the conditional stay of the 

Confirmation Order, counsel for the Trustees stated they had 

testimony that "as a matter of business judgment, it would be 

extremely unlikely for the investors to walk away from this deal 

if . . . a 22-million-dollar deposit was established." App. at 

1727. The Trustees' counsel in effect challenged the Investors 

to assert otherwise, stating that inasmuch as the Investors' 

counsel were in court they could correct any assertions that he 

made. Id. Thereafter, the Investors' attorney rose "to make 

clear the [I]nvestors' position, which is that if the relief is 

granted to [the Trustees] which they seek from the Court this 

morning [the stay conditioned on a deposit of some $22 million to 

$117 million], then we are not prepared to close the 

transaction." App. at 1744. 

 The representative of the Investors explained that in 

the airline business "there is a great sensitivity to cash and 

the capital structure of a reorganized entity," and that the 

relief that the Trustees sought "could significantly impair the 

capital structure that would exist with respect [to] this 

reorganized airline." Id. at 1744-45. He reviewed the 

negotiations that had occurred for the cap for administrative 

expense liability, advised that the Investors had monitored on a 

monthly basis Continental's performance in that respect, and 

explained that the Investors had insisted that the Confirmation 

Order address the issue of the Trustees' claim "because we want 

to make sure if we are putting our money in, we are getting the 

benefit of our bargain, which is a reorganized entity with a 

capital structure that we contemplated." App. at 1746. He 

concluded by stating unequivocally that if a stay were entered 

conditioned upon the bond the Trustees sought, then his client 

"would not be prepared to close this transaction." Id. The 

Trustees' counsel did not thereafter argue that the Investors' 

counsel's statements were insufficiently probative, and therefore 

that suggestion here is less than persuasive. 

 The Trustees have not contested here that if their 

claim for market value decline of the collateral (a claim 

independent of their claim for the use and maintenance of the 

collateral, which has been satisfied) had been approved as an 

administrative claim, the total such administrative claim would 

have greatly exceeded the cap specified by the Investors for that 

purpose. This would have given the Investors the option to 
withdraw; such withdrawal would have placed the entire Plan in 

jeopardy. By the time the district court ruled on the appeal, it 

was no longer possible to restore the parties to their earlier 

positions because the investment had been made, and the option to 

withdraw was no longer available to the Investors. See Specialty 

Equip., 3 F.3d at 1049 (claim held moot when its acceptance 

"would amount to imposing a different plan of reorganization on 

the parties"). Thus, the third factor bearing on the prudential 

determination whether to reach the merits of a bankruptcy appeal 

after confirmation and in the absence of a stay -- the effect of 

the requested relief on the rights of parties not before the 

court -- weighs heavily against the Trustees. 

 This factor cannot fairly be recast as whether the 

Investors or others reasonably relied on the prediction that the 

Trustees would recover nothing on their claim. While we agree 

that reliance of the Investors and others on the unstayed 

Confirmation Order is of central importance to our analysis, to 

focus on the "reasonableness" of that reliance, at least as 

measured by the likelihood of reversal on appeal, is necessarily 

a circular enterprise and therefore of little utility. Whether 

the Investors were reasonable in relying on the bankruptcy 

court's order depends on whether this was a case that would be 

considered on the merits on appeal or would be dismissed on the 

basis of the doctrine often referred to as "equitable mootness." 

And whether this case would be dismissed on "equitable mootness" 

grounds on appeal in turn depends on whether the Investors 

reasonably relied. Thus, placing the focus on the reasonableness 

of the Investors' reliance as measured by the probability that 

Continental would prevail on appeal sets up a straw man which is 

easily knocked down. 

 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 reliance by investors and others on the 

finality of bankruptcy confirmation orders. The strong public 

policy in favor of maximizing debtors' estates and facilitating 

successful reorganization, reflected in the Code itself, clearly 

weighs in favor of encouraging such reliance. Indeed, the 

importance of allowing approved reorganizations to go forward in 

reliance on bankruptcy court confirmation orders may be the 

central animating force behind the equitable mootness doctrine. 

See Rochman, 963 F.2d at 471-72; Metro Property Mgmt. Co. v. 

Information Dialogues, Inc. (In re Information Dialogues, Inc.), 

662 F.2d 475, 477 (8th Cir. 1981). Where, as here, investors and 

other third parties consummated a massive reorganization in 

reliance on an unstayed confirmation order 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 reorganizations like this more difficult. This is true 

regardless of whether the Investors' reliance was "reasonable" or 

based on a 30%, 60%, or 100% probability of success on appeal, an 

issue raised at the oral argument. 
 In arguing against dismissal here on the basis of 

prudential considerations, the Trustees repeatedly rely on their 

assertion that the Plan contained "a built-in mechanism for the 

[post-confirmation] disposition and payment of Disputed 

Administrative Claims." Appellants' Brief at 10. On the basis 

of this provision, they argue that they had no obligation to take 

steps to preserve the status quo through a stay, that their 

appeal is not moot because "some effective relief" is available, 

and that the Plan is contractually "binding" on Continental. 

They conclude that the district court therefore erred in 

"permitt[ing] Continental to escape its 'contractual' obligations 

under the Plan under the guise of the mootness doctrine." 

Appellant's Brief at 20. While the Trustees' description of the 

"mechanism" provided in the Plan is technically correct, they 

overstate the impact of that mechanism. 

 Under the definitions in the Plan, the Trustees' claim 

was a "Disputed Administrative Claim" because it sought adequate 

protection payments, see App. at 623-24 (Plan  1.4(vi)) and was 

the subject of a timely objection, see App. at 632 (Plan 

1.85(a)). The Plan requires the reorganized Continental to pay 

allowed administrative claims on the later of: the effective 

date of confirmation or "the fifth Business Day after such Claim 

is Allowed." App. at 691 (Plan  10.1). Further, the Plan 

provides that "[a] Disputed Claim shall be an Allowed Claim if, 

and only to the extent that, such Disputed Claim has been Allowed 

by a Final Order," App. at 623 (Plan  1.5), and defines a "Final 

Order" as "[a]n order which is no longer subject to appeal, 

certiorari proceeding or other proceeding for review or 

rehearing, and as to which no [such proceeding is] pending," App. 

at 635 (Plan  1.100). 

 Thus, the Plan imposes an obligation on the reorganized 

Continental to pay disputed administrative claims once they 

become allowed by a final order of court, even if such final 

order does not occur until after confirmation. If the bankruptcy 

court's disallowance of the Trustees' claim were to be reversed 

on appeal, the Plan appears to provide a "mechanism" for payment 

of the claim by the reorganized Continental. The mere 

availability of such a mechanism, however, which may prevent 

dismissal on the ground of Article III constitutional mootness, 

does not warrant reversal of the district court's order 

dismissing it on prudential grounds. As we have noted, the 

district court's "mootness" determination was based not on a 

finding that no effective relief was available, but rather on the 

finding that in light of all the circumstances, it would be 

inequitable to grant relief. Nor has any "contractual 

obligation" been violated either by Continental or the district 

court. Where, as here, there has been no order, final or 

otherwise, allowing the Trustees' disputed administrative claim, 

the Plan imposes no obligation on the reorganized Continental to 

pay it. 

 Finally, the Plan provisions allowing for postconfirmation payment of allowed claims in no way obviated the 

Trustees' obligation to seek a stay. Here, where the 

confirmation of the Plan and the willingness of the Investors to 
go forward turned on the bankruptcy court's denial of the 

Trustees' claims, and where the denial of those claims was in 

fact incorporated into the Confirmation Order, there was a clear 

possibility that the Trustees' claims would become moot after 

consummation of the Plan, and it was therefore incumbent on the 

Trustees to obtain a stay. Indeed, the record shows that all 

parties were well aware of the extensive legal precedent 

dismissing as moot or on equitable grounds appeals from unstayed 

consummated reorganizations. See App. at 410 (references in the 

Investment Agreement); App. at 1729-30, 1741 (argument before the 

district court on the stay). 

 For similar reasons, we fail to see the inconsistency 

charged by the Trustees between Continental's current position 

as to "equitable mootness" and its argument to the bankruptcy 

court in response to the Trustees' Deposit Motion that the Plan 

would require payment of the Trustees' claim by the reorganized 

Continental if and when allowed. See App. at 1039. As noted 

above, the Plan imposes no obligation on Continental in the 

absence of a final order allowing the Trustees' claim, and the 

mere availability of a mechanism for granting relief does not 

mean the court cannot determine that in light of all the 

circumstances it should not even try to unscramble the eggs. 

 Moreover, at the time Continental argued against the 

Deposit Motion the bankruptcy court had not yet ruled disallowing 

the Trustees' claim nor cited that as an explicit basis for its 

feasibility determination in confirming the plan. Accordingly, 

Continental did not yet have reason to know that the claim would 

be denied and become subject to "equitable mootness" on appeal. 

As soon as the basis for this mootness argument became apparent, 

Continental repeatedly asserted its intention to make such an 

argument if an appeal was filed and no stay obtained. App. at 

1691, 1742. 

 The Trustees have not presented us with any arguments 

which would weigh against all of the prudential considerations 

that dictate that this consummated reorganization must be left in 

place. Following confirmation, Continental was operating as a 

restructured company, and had entered into countless new 

relationships and transactions. To convince a court to take the 

action sought by the Trustees which would undermine the basis for 

the Investors' decision to proceed, the Trustees would have to 

proffer a powerful reason indeed. They have not even attempted 

to do so. 

 Arrayed against that silence are the facts that the 

reorganization plan was consummated, no stay was obtained, 

numerous other parties have changed their positions, and numerous 

irrevocable transactions have since been completed as a result of 

the consummation of the Plan. Without listing all of such 

transactions set forth by Continental in its brief, we note that 

among those are the distribution to unsecured creditors, the 

merger of 53 debtors other than Continental with and into 

Continental, the investment of $110 million in cash by Air 

Partners and Air Canada in the reorganized Continental, the 

transfer by foreign governments of various route authorities, and 

the assumption by the reorganized Continental of unexpired leases 
and executory contracts worth over $5.0 billion. Thus, the key 

issue really is whether the district court abused its discretion 

in weighing the various equitable factors. We are not prepared 

to hold that the balance reached by the district court was an 

abuse of its discretion. 

 Under the circumstances presented here, we can see no 

prudential considerations that would support an attempt by an 

appellate court, district or court of appeals, to fashion even a 

limited remedy for the Trustees. That would necessarily entail 

imposing a new debt on the reorganized company, which is a 

different entity than it was when this case was before the 

district court. Thus, we agree with the determination of the 

district court to dismiss the Trustees' claim. We base our 

holding on our conclusion that it would be neither prudent nor 

equitable to grant the Trustees the relief they seek. 

 III. 

 CONCLUSION 

 For the reasons set forth we will affirm the order of 

the district court. 

In Re: Continental Airlines 

No. 94-7748 

ALITO, Circuit Judge, dissenting, joined by Judges Becker, 

Greenberg, Lewis, McKee and Sarokin. 

 The majority's decision in this case creates a bad 

precedent for our circuit. The majority adopts the curious 

doctrine of "equitable mootness," which it interprets as 

permitting federal district courts and courts of appeals to 

refuse to entertain the merits of live bankruptcy appeals over 

which they indisputably possess statutory jurisdiction and in 

which they can plainly provide relief. According to the 

majority, there is no clear rule for determining when a 

bankruptcy appeal is "equitably moot." Instead, this is said to 

be a discretionary determination to be made in the first instance 

by the district court based on a weighing of five factors that 

the majority has culled from the opinions of our "sister 

circuits." In my view, if the doctrine of "equitable mootness" 

has any validity, it is more limited than the majority holds. 

 The dangers inherent in the majority's adoption and 

broad interpretation of this doctrine are illustrated by this 

case. In simple terms, this is what happened. After filing for 

relief under Chapter 11 of the Bankruptcy Code, Continental 

Airlines continued to use certain aircraft and jet engines that 

were held as collateral entrusted to the Trustees. Believing 

that their collateral was undergoing a dramatic diminution in 

value, the Trustees in August 1992 filed a renewed motion in the 

bankruptcy court seeking "adequate protection" under 11 U.S.C. 

363(e). During the next eight months, while the Continental 
reorganization plan proceeded toward confirmation, the bankruptcy 

court did not rule on this motion. In March 1993, Continental 

insisted that the bankruptcy court rule on the Trustees' motion 

at the same time that it confirmed the plan, and Continental told 

the bankruptcy judge that unless the motion was denied, the 

prospective investors in the reorganized corporation would 

withhold funding, and the reorganization would not go forward. 

See Continental Br. at 5-6 & n.1. Furthermore, Continental took 

the position that if the plan was confirmed and went into effect, 

any appeal would be moot. See Continental Br. at 21. The 

bankruptcy court then simultaneously denied the Trustees' motion 

and entered the order confirming the plan. The Trustees 

exercised their statutory right to appeal to the district court, 

and in my view the need for review by an Article III court is 

particularly acute when the challenged ruling of the bankruptcy 

court is made under circumstances such as these. 

 The Trustees, however, have been utterly denied such 

review. In the initial level of appeal, the district court 

opined that the Trustees probably would have won if the merits of 

their appeal had been reached (JA 1755-56), but the district 

court dismissed their appeal as moot. Likewise, the majority of 

our court describes the Trustees' arguments as "interesting and 

challenging" (Maj. Op. at 9) but then throws them out of court 

without reaching the merits of their arguments. And the majority 

does this even though (a) this case is clearly not "moot" in any 

proper sense of the term, (b) we unquestionably have statutory 

jurisdiction, and (c) we have a "virtually unflagging obligation" 

to exercise the jurisdiction that we have been given. Colorado 

River Water Conservation District v. United States, 424 U.S. 800, 

817 (1976). I am puzzled and troubled by what the majority has 

done. 

 I. 

 As the majority notes, the Trustees have not contested 

the existence of the doctrine of "equitable mootness," and in 

light of the Trustees' position, I think that it is appropriate 

to assume the existence of this doctrine for purposes of this 

appeal. The majority opinion, however, does not simply assume 

the existence of this doctrine but adopts it as part of the law 

of our circuit. In doing so, the majority does not undertake an 

independent analysis of the origin or scope of the doctrine but 

is instead content to rely on the decisions of other courts of 

appeals. From these decisions, the majority extracts five 

factors, which are to be weighed by the district court in the 

initial level of appeal for the purpose of determining whether 

the appeal is "equitably moot." Maj. Op. at 14. These factors 

are: "(1) whether the reorganization plan has been substantially 

consummated, (2) whether a stay has been obtained, (3) whether 

the relief requested would affect the rights of parties not 

before the court, (4) whether the relief requested would affect 

the success of the plan, and (5) the public policy of affording 

finality to bankruptcy judgments." Maj. Op. at 15.

 I am not convinced that the majority's test is 
consistent with the law of all of the circuits that the majority 

claims to be following. For example, the Eleventh Circuit holds 

that the proper test is "whether the `reorganization plan has 

been so substantially consummated that effective relief is no 

longer available.'" In re Club Associates, 956 F.2d 1065, 1069 

(11th Cir. 1992) (quoting Miami Center Ltd. Partnership v. Bank 

of New York, 820 F.2d 376, 379 (11th Cir. 1987)). This inquiry 

seems quite different from the majority's indeterminate fivefactor test. But even if the majority's analysis is supported by 

the decisions it cites, and even though I think that those 

decisions deserve careful and respectful consideration, I think 

that the in banc majority should have made an independent 

examination of the basis and scope of the doctrine of "equitable 

mootness" before engraving it in our circuit's law.

 What is the basis of this doctrine? As the majority 

acknowledges, it does not stem from the "case-or-controversy" 

requirement of Article III. See Maj. Op. at 10. For example, it 

is not argued that the case now before us is moot in the Article 

III sense. 

 Nor does it appear that this doctrine is rooted in nonArticle III mootness decisions "reflect[ing] avowedly flexible 

doctrines of remedy and judicial administration." 13A Charles 

Alan Wright, Arthur R. Miller, and Edward H. Cooper, Federal 

Practice and Procedure  3533.1 at 222 (1984). These doctrines 

are said to focus on the question whether "granting a present 

determination of the issues offered, and perhaps the entry of 

more specific orders, will have some effect in the real world." 

Id. at  3533.1 at 226 (footnote omitted). Here, it is clear 

that a determination of the merits of the issues raised by the 

Trustees and the entry of a remedial order on the basis of such a 

determination would have "some effect" -- and potentially quite a 

substantial effect -- in the real world. (That is precisely why 

Continental does not want us to entertain the appeal!) 

 

 Thus, as this case well illustrates, the doctrine of 

"equitable mootness" is not really about "mootness" at all in 

either the Article III or non-Article III sense. As the Seventh 

Circuit stated in a passage that the majority quotes with 

approval (see Maj. Op. at 12), "[t]here is a big difference 

between inability to alter the outcome (real mootness) and 

unwillingness to alter the outcome (`equitable mootness'). Using 

one word for two different concepts breeds confusion." In re UNR 

Indus., Inc., 20 F.3d 766, 769 (7th Cir.) (emphasis in original), 

cert. denied, 115 S. Ct. 509 (1994). 

 If the doctrine of "equitable mootness" is not based on 

real mootness principles, on what is it based? The cases cited 

by the majority and the parties suggest two possible answers. 

 The first is provided by the earliest court of appeals 

decision cited by the majority, In re Roberts Farms, Inc., 652 

F.2d 793, 796-97 (9th Cir. 1981), and several others. See In re 

AOV Industries, Inc., 792 F.2d 1140, 1147 (D.C. Cir. 1986); In re 

Information Dialogues, Inc., 662 F.2d 475, 477 (8th Cir. 1981). 

The modest authority on which the Roberts Farms court relied was 

a provision of former Bankruptcy Rule 805, which concerned stays 
pending appeal. Added by a 1976 amendment to the rule, the 

provision in question stated: 

 Unless an order approving a sale of property 

 or issuance of a certificate of indebtedness 

 is stayed pending appeal, the sale to a good 

 faith purchaser or the issuance of a 

 certificate to a good faith holder shall not 

 be affected by the reversal or modification 

 of such order on appeal, whether or not the 

 purchaser or holder knows of the pendency of 

 the appeal. 

 Although I do not find the Roberts Farms opinion 

entirely clear, I think that the best reading of the opinion is 

that the challenge to the plan of reorganization in that case 

could not be entertained because no relief was practicable as a 

result of the many post-confirmation transactions that were 

irreversible due to this provision of former Rule 805. See 652 

F.2d at 797. In any event, whether or not this is what the 

Roberts Farms court meant to say, I do not see how any broader 

rule could reasonably be extracted from the provision of former 

Bankruptcy Rule 805 on which the Roberts Farms court relied or 

from the analogous provisions now contained in 11 U.S.C. 

363(m) and 364(e). If one begins with narrow provisions such as 

these -- which merely prevent the upsetting of certain specific 

transactions if stays are not obtained -- I do not see how one 

can derive the broad doctrine of "equitable mootness" that the 

majority in this case appears to embrace. 

 What apparently happened, however, was that the holding 

of Roberts Farms was gradually extended well beyond anything that 

could be supported by the authority on which Roberts Farmsrested. 

Subsequent cases first cited Roberts Farms in support of 

the proposition that a bankruptcy appeal cannot be entertained if 

the court could not grant "effective relief." See, e.g., In re 

Information Dialogues, Inc., 662 F.2d at 477. Later, Roberts 

Farms was interpreted more expansively to mean that an appeal 

could not be entertained if a court could not award relief that 

was "equitable." See In re Chateaugay Corp., 988 F.2d 322, 324 

(2d Cir. 1993) (citing Roberts Farms). And this latter holding 

figures prominently in the majority's analysis. See Maj. Op. at 

12. In my view, this gradual but ultimately quite substantial 

extension of Roberts Farms cannot be squared with the narrow 

authority on which that decision relied. Accordingly, if 

anything like the majority's decision in this case is to be 

defended, some other foundation for the doctrine of "equitable 

mootness" must be found. 

 The second possible basis for the doctrine of 

"equitable mootness" is suggested in In re UNR Indus., supra, 

where the Seventh Circuit wrote: 

 Several provisions of the Bankruptcy 

 Code of 1978 provide that courts should keep 

 their hands off consummated transactions. 

 For example, 11 U.S.C.  363(m) says that the 

 reversal of an order authorizing the sale or 
 lease of property of an estate "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 the sale is 

 stayed pending appeal, the transaction 

 survives even if it should not have been 

 authorized in the first place. See In re 

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

 Edwards, 962 F.2d 641 (7th Cir. 1992) 

 (concluding that  363(m) does not, however, 

 forbid all forms of collateral attack). 

 Another section of the Code, 11 U.S.C. 

 1127(b), dramatically curtails the power of a 

 bankruptcy court to modify a plan of 

 reorganization after its confirmation and 

 "substantial consummation." Section 1127(b), 

 unlike  363(m), does not place any limit on 

 the power of the court of appeals, but the

 reasons underlying  363(m) and 1127(b) -- 

 preserving interests bought and paid for in 

 reliance on judicial decisions, and avoiding 

 the pains that attend any effort to 

 unscramble an egg -- are so plain and so 

 compelling that courts fill the interstices 

 of the Code with the same approach. 

20 F.3d at 769. Thus, the court seemed to say that the 

Bankruptcy Code contains an "interstice" -- a gap -- regarding 

the circumstances under which an appeal that might upset a plan 

of reorganization may be pursued. Further, the court appeared to 

suggest that the federal courts have the authority to create a 

rule of federal common law to fill this gap. See, e.g., United 

States v. Little Lake Misere Land Co., Inc., 412 U.S. 580, 593 

(1973) (referring to the "`power in the federal courts to 

declare, as a matter of common law or "judicial legislation," 

rules which may be necessary to fill in interstitially or 

otherwise effectuate the statutory patterns enacted in the large 

by Congress'") (citation omitted). 

 This is an interesting theory, but I find it 

unnecessary to decide in this case whether it is correct. For 

present purposes, what is important is to note that, even if this 

theory is correct, it has nothing to do with mootness. Instead, 

it concerns a federal common law rule designed to promote certain 

policies of chapter 11 of the Bankruptcy Code. These policies 

are the facilitation of reorganizations and the protection of 

those who reasonably rely on reorganization plans. As I explain 

below, neither of these policies justifies what has happened in 

this case -- the refusal of the Article III courts to entertain a 

live appeal over which they indisputably possess statutory 

jurisdiction and in which meaningful relief can be awarded. 

 

 II. 
 A. How can the objective of preserving the Continental 

reorganization justify what the majority has done? The Trustees 

are not seeking to upset the plan of reorganization; rather, they 

are attempting to obtain payments that they claim are due to them 

pursuant to that plan. Moreover, even if the success of the 

reorganization might be imperilled if the Trustees obtained the 

full relief that they are seeking -- an empirical proposition 

that is not self-evident -- the courts could surely fashion some 

measure of lesser relief that would not disturb the

reorganization. In order to justify its decision, which slams 

the courthouse door on the Trustees before they are even heard on 

the merits, the majority would have to show that the Trustees 

could not be awarded any relief -- not one dollar -- without 

upsetting the Continental reorganization, and obviously they 

cannot do any such thing. I do not dispute the desirability of 

preserving the Continental reorganization, but to my mind this 

objective implicates a question of remedy, to be decided after 

the merits of the Trustees' arguments are addressed, and not a 

threshold question of "mootness." 

 In treating this as a threshold question, the majority, 

I believe, has been confused by the misleading term "equitable 

mootness," which, as I have discussed, does not actually involve 

mootness at all. The federal courts are accustomed to 

considering questions of Article III mootness, and the majority, 

in my view, has fallen into the trap of thinking that the 

question of "equitable mootness" that is now before us must be 

treated as if it were a question of Article III mootness. 

Whether a case is moot in the Article III sense is, of course, a 

jurisdictional question, see, e.g., Rosetti v. Shalala, 12 F.3d 

1216, 1223 (3d Cir. 1993), and therefore it is a question that we 

are obligated to resolve before we consider the merits of an 

appeal. See, e.g., United Wire Metal and Machine Health and 

Welfare Fund v. Morristown Memorial Hosp., 995 F.2d 1179, 1190 

(3d Cir.), cert. denied, 114 S. Ct. 382 (1993); Rogin v. Bensalem 

Tp., 616 F.2d 680, 684 (3d Cir. 1980), cert. denied, 450 U.S. 

1029 (1981). Moreover, if we conclude that an appeal is moot in 

this sense, we have little remedial flexibility; we generally 

have no choice but to dismiss. See, e.g., U.S. Bancorp Mortgage 

Co. v. Bonner Mall Partnership, 115 S. Ct. 386, 389-90 (1994); 

Mills v. Green, 159 U.S. 651, 653 (1895) (when "an event occurs 

which renders it impossible for this court, if it should decide 

the case in favor of the plaintiff, to grant him any effectual 

relief whatever, the court will not proceed to a formal judgment, 

but will dismiss the appeal"). 

 By contrast, the doctrine that is involved here -- 

which is not really a doctrine of mootness at all -- does not 

demand or justify similar treatment. It does not present a 

jurisdictional question; we are not required to consider it 

before proceeding to the merits; and even if we find that it is 

applicable, it does not necessarily dictate that we dismiss the 

appeal or affirm in its entirety a district court order of 

dismissal. Rather, we retain the ability to craft, or to 

instruct the district or bankruptcy courts to craft, a remedy 
that is suited to the particular circumstances of the case. 

Thus, a remedy could be fashioned in the present case to ensure 

that the Continental reorganization is not undermined. 

 B. Much the same is true with respect to the objective 

of protecting reasonable reliance interests. In my opinion, this 

is also a remedial consideration; if the Trustees win on the 

merits, the need to protect reasonable reliance interests can be 

fully taken into account in crafting an appropriate remedy. I 

thus see no need to resolve the question of reasonable reliance 

interests at this time. 

 The majority, however, not only wrongly treats this as 

a threshold, rather than a remedial, consideration, but engages 

in an analysis that flies in the face of the language of the plan 

and seems to assume an extraordinary degree of naivete on the 

part of the Investors and the others who are said to have relied 

on the plan. 

 I will focus on the Investors because their plight 

looms large in the majority's analysis. When the Investors 

decided to invest in the reorganized company, NewCal, they knew 

or should have known that under the reorganization plan NewCal 

would be required to pay the Trustees' claim if it was ultimately 

allowed. Section 10.1 of the plan provided that NewCal would pay 

"Allowed Administrative Claims." Moreover, in order to persuade 

the bankruptcy court to reject the Trustees' request that a cash 

reserve be established prior to confirmation to cover their 

claim, Continental argued that such a reserve was unnecessary 

because if the Trustees' claim was allowed it would be "an 

Allowed Administrative Claim which would be paid in accordance 

with the terms of Section 10.1 of the Plan." JA 1039. Under 

these circumstances, any prudent investor, in deciding whether to 

invest in NewCal on particular terms, would have taken into 

account the range and likelihood of possible outcomes in the 

Trustees' appeal, including the possibility that some or all of 

the amount sought by the Trustees would have to be paid as an 

administrative claim pursuant to Section 10.1 of the plan. No 

reasonable investor would have proceeded on the assumption that 

the Trustees would definitely recover nothing. And the same is 

true of the other parties that relied on the plan. Thus, I am 

skeptical about the reliance interests that are claimed here, but 

in any event I fail to see why this issue needs to be resolved at 

the threshold of this case rather than at the remedial stage, if 

that stage is ever reached. 

 C. One final aspect of the majority opinion warrants a 

response, and that is the majority's discussion of the Trustees' 

failure to seek or obtain a stay. I have two comments regarding 

this discussion. 

 First, while it might be desirable to have a rule that 

flatly requires a stay whenever a party takes an appeal that 

might upset a plan of reorganization, neither the Bankruptcy Code 

nor the Bankruptcy Rules contain any such sweeping provision; our 

court had not adopted any such rule at the time of the Trustees' 

appeal (and, indeed, still has not done so); and it would 

consequently be unfair to apply such a rule to the Trustees 

retroactively. 
 Second, in the absence of such a blanket rule, we 

should focus on whether the purposes that would be served by a 

stay require that the Trustees be thrown out of court at the 

threshold. The purpose of a stay in this context is to prevent 

transactions that might otherwise occur in reliance on the plan 

of reorganization and that would be difficult or painful to undo 

if the appeal were to succeed. Accordingly, the Trustees' 

failure to obtain a stay in this case might limit the relief that 

would be available to them if they succeeded on the merits of 

their appeal, but it cannot justify the refusal at the outset 

even to consider their arguments. 

 In sum, I believe that the Trustees' claim should be 

entertained on the merits. The mere act of entertaining that 

claim would not imperil Continental's reorganization or impair 

any legitimate reliance interests. If the Trustees' claim were 

considered and they won on the merits, any threat to the 

reorganization or to legitimate reliance interests could be taken 

into account in framing the Trustees' relief. What the district 

court and the majority have done -- throwing the Trustees out of 

court before the merits of their claim are even heard -- is 

unjustified and unjust. 

 For these reasons, I respectfully dissent. I would 

reverse the order of the district court and remand for a decision 

on the merits.