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. e du/thir dc ir c uit_1996/142UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

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No. 94-7748

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IN RE CONTINENTAL AIRLINES:

NATIONSBANK OF TENNESSEE, N.A., f/k/a NationsBank o f Tennessee, as Collateral Trustee under a Secured Equipment In denture and Lease Agreement dated March 15, 1987 ("NationsBank" ); NEW JERSEY NATIONAL BANK, as successor by merger to Constell ation Bank, N.A., f/k/a National State Bank of Elizabeth, N.J.; HARRIS TRUST AND SAVINGS BANK; and BOATMAN'S FIRST NATIONAL BANKOF OKLAHOMA, as First, Second and Third Priority Secured Eq uipment Certificates Trustees thereunder, respectively (t he "Series Trustees" and, collectively with NationsBank, the "Trustees"), Appellants

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On Appeal from the United States District C ourt
for the District of Delaware

C.A. No. 93-195-JJF (Bankruptcy Nos. 90-932 through 90-984)

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Argued September 15, 1995

Before: SLOVITER, Chief Judge, ALITO and SEITZ, Circuit Judges

Reargued in banc May 14, 1996

Before: SLOVITER, Chief Judge, BECKER, STAPLETO N, MANSMANN, GREENBERG, SCIRICA, COWEN, NYGAARD, ALIT O, 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 & SpitzerWoodbridge, 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

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OPINION OF THE COURT

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SLOVITER, Chief Judge.

INTRODUCTION Before the in banc court is an appeal by N ationsBank of Tennessee (Collateral Trustee) and New Jersey Natio nal Bank, Harris Trust and Savings Bank, and Boatman's First National Bank of Oklahoma (First, Second, and Third Priority Secu red Equipment Certificate Trustees), who are collectively referre d to in this opinion as the "Trustees," from the order entered b y the district court in the Chapter 11 bankruptcy proceeding of Co ntinental Airlines, Inc. dismissing as "moot" three appeals b y the Trustees. Those appeals were from orders of the ba nkruptcy court which 1) denied the Trustees' Renewed Motion for ad equate protection, 2) confirmed Continental's revised seco nd amended joint plan of reorganization, and 3) denied the Tru stees' 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 Air lines, Inc.,

defends the district court's decision to dismiss th e Trustees' appeal and argues, in the alternative, that the und erlyingrulings of the bankruptcy court were correct as a m atter of law

and fact.

I.

FACTUAL AND PROCEDURAL HISTORY Continental filed its Chapter 11 bankruptc y petition on December 3, 1990. Appellant Trustees serve as succ essor Collateral and Series Trustees for certificate hold ers who had provided Continental with operating capital. The c ertificates were secured at the time of Continental's petition by a pool of 29 commercial aircraft with engines, and 81 additio nal jet engines which, we were advised, serviced about one- third of Continental's operating fleet. Under the Bankruptc y 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 o f business without notice or a hearing." 11 U.S.C.  363(c)(1). Section 363(e) provides: Notwithstanding any other provision of thi s section, at any time, on request of an entity that has an interest in property used . . . by the [debtor in p ossession], the court, with or without a hearing, shal l prohibit or condition such use . . . as is necessary t o 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 Tr ustee, filed a motion along with many other aircraft lessors and f inanciers 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 Ju ne 28, 1991 it, and the predecessors of the other Appellant Tru stees, filed a motion seeking similar relief. The bankruptcy cour t held an evidentiary hearing on the motion from September 3 through September 6, 1991 limited to the Trustees' assertio n 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 becau se the

Trustees had not filed a motion for relief from the automatic stay, they were not entitled to an award of adequat e protection under section 363(e). The motion remained pending in the bankruptcy court until August 27, 1992 when the cou rt ruled on the Trustees' motion, rejecting Continental's legal argument but finding as a fact, based on the "Blue Books," a pub lication issued by a company that appraises aircraft, that t he market value of the collateral had not declined during the period at issue in the motion. In re Continental Airlines, I nc., 146 B.R. 536 (Bankr. D. Del. 1992) [hereinafter Continental I]. Approximately two weeks before the bankrup tcy court issued that opinion, the Trustees filed their first motion under section 362(d) of the Bankruptcy Code to lift the a utomatic stay ("Lift-Stay Motion"). See 11 U.S.C.  362(d). This section permits a creditor to move for relief from the auto matic stay of delineated activities, such as repossession of coll ateral, effected by section 362(a) of the Bankruptcy Code.On September 14, 1992, the Trustees also f iled a

renewed motion for adequate protection for alleged decline in the collateral's value for the period after September 1 991, when the original 1991 motion was argued ("Renewed Motion"). There were various hearings on the Renewed Motion between Nove mber 3, 1992 and February 5, 1993. Toward the end of that perio d, the Trustees filed a motion dated January 29, 1993, ask ing the bankruptcy court to establish a cash deposit of som e $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' ade quate protection claim if Continental emerged from bankru ptcy as a reorganized debtor ("Deposit Motion"). During this period efforts to reorganize t he debtor continued. On November 9, 1992 Continental enteredinto an Investment Agreement under which the Investors (Air Partners, L.P. and Air Canada) agreed and committed to an inv estment of $450 million in the reorganized entity under a comp lex arrangement and subject to certain conditions. App . at 391 et seq. One of those conditions, and the one most rel evant to this proceeding, was a limitation on the amount and natu re of liabilities and administrative expense claims requi red to be assumed by or attributable to the reorganized compa ny. App. at 408. On January 13, 1993 Continental filed a secon d amended joint plan of reorganization ("Plan") which referen ced that Investment Agreement. The Plan provided, inter ali a, for assumption of "allowed administrative claims" by th e reorganized Continental. App. at 656. The confirmation hearing was held for a nu mber 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 col lateral 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 d ecline in

market value.

At the conclusion of the confirmation hear ing on April 16, 1993, the bankruptcy court denied the Deposit M otion and the Renewed Motion. In a published opinion, the bankru ptcy 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 w ere not entitled to adequate protection due to market decli ne until after the date of their Lift-Stay Motion, i.e. August 14, 1992; and

that no decline in the market value of the collater al had taken place since that date. In re Continental Airlines, Inc., 154 B.R. 176 (Bankr. D. Del. 1993) [hereinafter Contine ntal II]. Also on April 16, 1993, the bankruptcy court signedthe

Confirmation Order. The court made a series of det ailed findings of fact and conclusions of law underlying the Confi rmation Order which will be referred to throughout this opinion w hen pertinent. On April 20, 1993 the Trustees filed three notices ofappeal to the district court from the bankruptcy co urt'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 st ay of the consummation of the Plan ("Conditional Stay Motion" ), but filed that motion in the district court, which referred t hem 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, witho ut explanation or analysis, that the Trustees were likely to preva il on their appeal to the district court, but denied the stay b ecause the

Trustees were "unable to post a bond satisfactory t o the Court." App. at 1755-56. The Trustees did not then make an y effort to seek any emergency relief from this court. With no stay impeding implementation of the Plan which had now been confi rmed, the Investors proceeded to close the transaction by mak ing 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. T he 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) [here inafter Chateaugay II], which the court denied. The Truste es then filed a timely notice of appeal. This court has jurisdic tion pursuant

to 28 U.S.C.  158(d). A panel of this court heard argument on Se ptember 15, 1995 and issued an opinion that affirmed the distri ct court's order by a two-to-one vote. The Trustees petitione d for rehearing, and the in banc court voted to rehear th e appeal. Under this court's Internal Operating Procedures, t he opinion of the panel issued February 7, 1996 was withdrawn.

II.

DISCUSSION

A.
This court has not addressed the interesti ng and challenging questions raised by the bankruptcy cour t's holding

that a creditor must file a motion to lift the auto matic stay as a prerequisite to seeking adequate protection. The Trustees argue that the bankruptcy court erred as a matter o f 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 diminu tion in the market value of the Trustees' collateral after they filed their Lift-Stay Motion was clearly erroneous. Finally, t hey argue that the bankruptcy court erred as a matter of law in de nying their motion for the establishment of a cash deposit. Not surprisingly, Continental, as appellee , defends both the bankruptcy court's legal determination tha t the Trustees could not assert adequate protection claims for all eged market value decline during the period before they moved f or relief fromthe automatic stay and its factual conclusion that there had been

no substantial decline in the value of the collater al since the Lift-Stay Motion was filed. Finally, it argues tha t in any event the Trustees could not recover for adequate protect ion because

the value of the collateral did not decline below i ts value on the petition date, which Continental contends is th e relevant

measure. We would reach these issues only if we wer e satisfied that the district court erred in holding that the T rustees' appeals to it were "moot," a decision as to which t he parties vigorously disagree. Mootness vel non of the appea ls before the district court is closely related to, if not indist inguishable from, the question whether the appeal to this court is moot, an

issue which Continental alludes to in its brief. F or convenience, we will refer to mootness in the distr ict court

unless we state otherwise. Continental does not contend that the appe als to the

district court or to us were moot in the constituti onal sense, implicating the case or controversy requirement of Article III,  1. See, e.g., Preiser v. Newkirk, 422 U.S. 395, 40 1-02 (1975). This is not a situation analogous to those where th e Supreme Court determined that the appeals became moot becau se the law at issue was repealed, see Diffenderfer v. Central Bap tist Church, 404 U.S. 412, 414-15 (1972); the subject of the ele ction 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 r elief whatever.'" Church of Scientology v. United States , 506 U.S. 9, 12, 113 S. Ct. 447, 449 (1992) (quoting Mills v. Gr een, 159 U.S. 651, 653 (1895)). An appeal is not moot "merely be cause 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 prev ailing party, the appeal is not moot." RTC v. Swedeland Dev. Gro up, Inc. (In re Swedeland Dev. Group, Inc.), 16 F.3d 552, 560 (3 d Cir. 1994) (in banc) (quoting Church of Scientology, 113 S. Ct . at 450). Thus, in Isidor Paiewonsky Associates v. Sharp Prop erties, Inc., 998 F.2d 145, 152 (3d Cir. 1993), we concluded that because we could impose at least one of the remedies enumerate d by the appellant, and thereby provide it "some effective r elief," the appeal was not moot. See also Swedeland, 16 F.3d a t 559-60.

That is not the issue in this case. Instead, Continental invokes the broader i nterpretation of mootness applied in bankruptcy cases, often refe rred 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 UnsecuredCreditors of LTV Aerospace & Defense Co. v. Officia l Comm. of

Unsecured Creditors of LTV Steel Co. (In re Chateau gay Corp.), 988 F.2d 322, 325 (2d Cir. 1993) [hereinafter Chate augay I]; Rochman v. Northeast Utils. Serv. Group (In re Publ ic Serv. Co.), 963 F.2d 469, 471-72 (1st Cir.), cert. denied, 506 U.S. 908 (1992); First Union Real Estate Equity & Mortgage I nvs. v. Club Assocs. (In re Club Assocs.), 956 F.2d 1065, 1069 ( 11th Cir. 1992); Central States, Southeast and Southwest Area s Pension Fund v. Central Transp., Inc., 841 F.2d 92, 95-96 (4th C ir. 1988); In re AOV Indus., 792 F.2d 1140, 1147 (D.C. Cir. 1986) ; Trone v. Roberts Farms, Inc. (In re Roberts Farms, Inc.), 65 2 F.2d 793, 796-97 (9th Cir. 1981). Under this widely recogniz ed and accepted doctrine, the courts have held that "[a]n appeal should . . . be dismissed as moot when, even though effect ive relief could conceivably be fashioned, implementation of t hat relief would be inequitable." Chateaugay I, 988 F.2d at 3 25.

The use of the word "mootness" as a shortc ut for a court's decision that the fait accompli of a plan c onfirmation should preclude further judicial proceedings has le d to

unfortunate confusion. In a trenchant discussion o f the issue in a recent decision of the Seventh Circuit, the court noted that denominating the doctrine as "equitable mootness" i s 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 inabi lity to alter the outcome (real mootness) and unwillingness to al ter the outcome ('equitable mootness'). Using one word for two different concepts breeds confusion." Id. (emphasis in origin al). Thus, although the discussions and applications of the co ncept of "mootness" in bankruptcy cases by that court had pr eviously encompassed what is referred to elsewhere as "equit able mootness," see Specialty Equip., 3 F.3d at 1048; In re Andreuccetti, 975 F.2d 413, 418 (7th Cir. 1992), th e court in UNR Industries stated it would now "banish 'equitable m ootness' 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 th e plan of reorganization at this late date." Id. These "equitable" or "prudential" consider ations focus on "concerns unique to bankruptcy proceedings." Ma nges, 29 F.3d at 1038. It is evident that "equitable mootness" i s an inapt description of the doctrine at issue here. Nonethe less, since past cases have used that term, we use it in discus sing them. Therefore, it does not further consideration of thi s appeal to argue, as the dissent does, that we have "fallen in to the trap" of confusing these considerations with Article III mootness. Whether termed "equitable mootness" or a prudence d octrine, 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 prov ides a vehicle whereby the court can prevent substantial harm to n umerous parties. The Trustees have not challenged the viabi lity of the doctrine of equitable mootness or application of pr udentialconsiderations in bankruptcy cases, nor have they c ited 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 chall enging 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 q uarrel 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 Seco nd Circuit, the court once again emphasized the language in Cha teaugay 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 bankr uptcy 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); Internat ional Bhd. of Boilermakers v. Kelly, 815 F.2d 912, 914 (3d Cir. 1 987). However, none of those cases involved a determinati on, like the one we review here, that an appeal following a cons ummated bankruptcy reorganization should be dismissed for e quitable and prudential reasons even though some effective relie f 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 Ind us., 792 F.2d at 1148 (district court's power to dismiss appeal a s moot "discretionary"); Club Assocs., 956 F.2d at 1069 (l egal determinations reviewed de novo, bankruptcy court's factual findings reviewed for clear error).

Because the mootness determination we revi ew here involves a discretionary balancing of equitable andprudential

factors rather than the limits of the federal court s' authority under Article III, using ordinary review principles we review that decision generally for abuse of discretion. C f. General Glass Indus. Corp. v. Monsour Medical Found., 973 F .2d 197, 200 (3d Cir. 1992) (abstention determination reviewed u nder abuse of discretion standard); Bermuda Express, N.V. v. M/V Litsa, 872 F.2d 554, 557 (3d Cir.) (balancing of equities invo lved in application of laches doctrine reviewed for abuse o f discretion), cert. denied, 493 U.S. 819 (1989); Bennett v. White , 865 F.2d 1395, 1402 (3d Cir.) (scope of a remedial order rev iewed for abuse of discretion), cert. denied, 492 U.S. 920 (1 989); 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 ra ise legal and/or factual issues interspersed with the p rudential ones, and then the applicable review standard, plen ary or clearly erroneous, will apply. The dissent argues that the cases cited ab ove are inapposite because the district court acted as an a ppellate court and that we should therefore use plenary review. H owever, the proposition that when an appellate court reviews a lower court's balancing of prudential factors, it does so under a n abuse ofdiscretion standard as long as the factors consider ed are not

inappropriate as a matter of law is a general one a pplicable 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 a n appellate

court. Several different standards of rev iew govern our decision, depending on the nature of t he holdings reviewed. Where the disputed holding invo lves a matter

that is within the district court's discre tion, we will affirm the judgment of a district court ac ting in its appellate role unless the court has clearl y abused its

discretion.

Matter of HECI Exploration Co., Inc., 862 F.2d 513, 519 (citations omitted).

B. Factors that have been considered by court s in determining whether it would be equitable or pruden tial to reach the merits of a bankruptcy appeal include (1) wheth er the reorganization plan has been substantially consumma ted, (2) whether a stay has been obtained, (3) whether the r elief requested would affect the rights of parties not be fore the court, (4) whether the relief requested would affec t 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 give n varying weight, depending on the particular circumstances, the foremost consideration has been whether the reorganization p lan has been substantially consummated. This is especially so w here the reorganization involves intricate transactions, see Rochman, 963 F.2d at 473-74 (performance under plan involved "nu merous complex arrangements"); Roberts Farms, 652 F.2d at 797 (pla n involved "many intricate and involved transactions" and reve rsal of plan's confirmation "would knock the props out from under" such transactions and "create an unmanageable, uncontrol lable situation for the Bankruptcy Court"), or where outs ide investors have relied on the confirmation of the plan, see Ma nges, 29 F.3d at 1039 (equitable mootness "protects the interests of nonadverse third parties who are not before the review ing court but who have acted in reliance upon the plan as impleme nted"); UNR Indus., 20 F.3d at 770 ("[b]y protecting the intere sts of persons who acquire assets in reliance on a plan of reorgan ization, a court increases the price the estate can realize ex ante, and thus produces benefits for creditors in the aggrega te"); Rochman, 963 F.2d at 474 (reorganization involved $1.5 billi on in financing from 100,000 sources); Club Assocs., 956 F.2d at 1070 ("a number of investors, who were not parties to th is case, had committed new funds to the 'reemerged Club' with th e expectation of receiving a preferred return on their investment s").

"Substantial consummation" is defined in t he Bankruptcy Code as: "(A) transfer of all or substantially all of theproperty proposed by the plan to be transferred; (B ) assumption

by the debtor or by the successor to the debtor und er the plan of the business or of the management of all or substan tially all of the property dealt with by the plan; and (C) commen cement of distribution under the plan." 11 U.S.C.  1101(2). In such instances, the strong public interest in the finali ty of bankruptcy reorganizations is particularly compelli ng.

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 consummat ion of the Plan had occurred, the Investors had already made t heir $450 million investment into the reorganized entity, all elements of the Plan, except distributions to the unsecured cre ditors, had been completed, and a reversal of the order confirm ing the Plan likely would put Continental back into bankruptcy. App. at 1873. The court also noted that Continental had implement ed the Plan following its approval by the court because the Tru stees had failed to obtain a stay. The Trustees do not challenge that there h ad 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 on ly to get payment from the reorganized Continental for their adequate protection claim measured by the market value decli ne of the collateral during bankruptcy, the line of cases upo n which Continental relies is inapplicable. We cannot agre e, 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 cl aim, 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 is sue is not constitutional mootness but prudential mootness, we will assume arguendo that even after substantial or total consu mmation of its reorganization, some effective relief would have be en available for the Trustees' claim at the time they appealed t o the district court, and on appeal to this court. Even before th e in banc court, Continental has not challenged that assumpti on. It is quite another matter in light of the substantial, i ndeed irrevocable, change in the status quo that followedconfirmation to determine that it would have been prudent for th e court to
reach the merits of the Trustees' claim. For the d istrict court had before it an unstayed bankruptcy reorganization plan, and many courts have based their prudential decisions t o decline to consider challenges to bankruptcy court orders on t he ground that there has been substantial consummation of a plan o f reorganization in reliance upon an unstayed confirm ation order. See, e.g., Rochman, 963 F.2d at 475. In Chateaugay I, the court noted that alth ough the Bankruptcy Code only requires a stay pending appeal in limitedcircumstances, there is a procedure under Bankruptc y Rule 8005 to

seek to preserve the status quo and "[t]he party wh o appeals without seeking to avail himself of that protection does so at his own risk." 988 F.2d at 326. And in In re Mang es, 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 appe llants failed to seek a stay." 29 F.3d at 1039. Even the seeking of a stay may not be enou gh. The appellants in In re UNR Industries had sought a sta y, 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 reorga nization." 20 F.3d at 770; accord AOV Indus., 792 F.2d at 1144, 1 146-47. Shortly after the confirmation of the Cont inental Plan, the Trustees filed an Emergency Motion for Conditio nal Stay of Order Confirming the Plan pending their appeal to t he district court. The condition the Trustees sought in lieu o f 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 admi tted 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 th e Trustees' general position was that they were "merely the fid uciary of the money of their bondholders" and they suggested no l esser 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 f ailure to post bond to stay confirmation order basis for finding a ppeal 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 declinatio n to delve into the merits of the Trustees' appeal. The Trustees argue that this court has hel d that failure to obtain a stay does not necessarily rende r an appeal moot. The cases to which they refer are not apposi te. In one, In re Joshua Slocum Ltd., 922 F.2d 1081 (3d Cir. 19 90), the issue was the narrow one of the power of the bankruptcy c ourt 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 Trust ees refer, Megafoods Stores, Inc. v. Flagstaff Realty Assocs. (In re Flagstaff Realty Assocs.), 60 F.3d 1031 (3d Cir. 19 95), the appeal also presented a narrow landlord-tenant issu e, 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 deni al of its recoupment claim. In holding that it was not neces sary for thetenant to seek a stay in order to pursue its right to appeal

despite the confirmation in the interim, we noted t he line of cases placing recoupment and setoff in a special ca tegory and stated, "although we recognize the importance of ma intaining the integrity of confirmed plans from later attack, the se unique circumstances permit the plan to be reopened and re adjusted." Id. at 1036. Thus, neither Flagstaff nor Slocum ad dressed the equitable or prudential mootness considerations at issue here. High on the list of prudential considerat ions taken into account by courts considering whether to allowan appeal following a consummated reorganization is the relia nce by third parties, in particular investors, on the finality o f the transaction. See Manges, 29 F.3d at 1039 ("[t]he c oncept of 'mootness' from a prudential standpoint protects th e interests of non-adverse third parties who are not before the re viewing court but who have acted in reliance upon the plan as imp lemented"); Rochman, 963 F.3d at 474-75 (similar). Here, the r ecord is replete with evidence that the Investors relied on the bankruptcy court's unstayed Confirmation Order in making the d ecision to proceed to close the transaction and that an essent ial factor in that decision was the bankruptcy court's disallowan ce of the Trustees' adequate protection claim. The Plan of reorganization provided that t he reorganized Continental would pay "Allowed Administ rative Claims." App. at 656, 691 (Plan  5.5, 10.1). Among the administrative claims that were still disputed at t he time of the confirmation hearing were several large claims, inc luding, in particular, labor claims by airline pilots, large c laims by Eastern Airlines, and the Trustees' claim for adequ ate protection based on alleged market decline of the collateral. App. at 1223,

1346. One of the concerns of the Investors that ne eded 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 s uch large claims. To limit their exposure, the Investment Ag reement provided that the Investors' obligation to proceed with the arrangements was subject, inter alia, to the paymen ts and obligations for administrative claims being no high er 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 admin istrative 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 th erefore urged the court to incorporate its adjudication of the Tr ustees' 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 planconfirmation order." App. at 1400. The Trustees a rgued 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 a pproach urged by Continental, incorporating into its Confirmation Order its decision denying the Trustees' adequate protection claim. As part of its feasibility determination, it explicitl y found that neither the pilots' claims nor the Eastern claims w as entitled to administrative priority, and that the Trustees' ade quate 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 administ rative claims payable at confirmation -- excluding the claims of the pilots, Eastern, and the Trustees -- would be within the sp ecified limit of the cap set forth in the Investment Agreement, App. at 1548, noting that the adjudications of the Trustees' clai m 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' s uggestion, implicit in their briefs and made explicit at oral argument, that the bankruptcy court's ruling on the merits of thei r adequate protection claim was colored by a so-called "ultima tum" from Continental that if the claim were granted the Inve stors would abandon the reorganization. See In Banc Argument Tr anscript at 3. The Trustees offer no evidence in support of this s uggestion, and we certainly would not lightly impute such a motive to the bankruptcy court. In effect, the Trustees are chal lenging the Investors' right to condition their investment on t he amount of approved administrative claims. This was never rai sed 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 suc ceed -- such as, in this case, without being weighed down by exc essive 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 inc orporation to "manufactur[e] the appearance of mootness." Appell ants' Brief at 3; In Banc Argument Transcript at 1. Their charact erization 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 incorporat ion urged by Continental and adopted by the bankruptcy court was reasonable and reflected the inescapable fact that the Trustee s' claim and the confirmation of the Plan were inextricably inte rtwined, rather than an attempt to "manufacture" the appeara nce of equitable mootness.In dismissing the Trustees' appeals as moo t, the

district court specifically found that the Investor s had relied on the bankruptcy court's unstayed Confirmation Ord er and that there was an integral nexus between the investment and the success of the Plan. The court stated, "[t]he Inve stors relied on the unstayed Confirmation Order in making the $4 50 million

investment in Continental's Plan. It is clear that [the Trustees'] requested relief would undermine the gro unds which the Investors relied upon in making their investment an d would require a dismantling of the entire Plan." App. at 1874. Although the Trustees argue that this finding is er roneous, there is support for it in the record. At the hearing in April 1993 before the di strict court on the Trustees' request for the conditional stay o f the Confirmation Order, counsel for the Trustees statedthey had testimony that "as a matter of business judgment, i t would be extremely unlikely for the investors to walk away f rom this deal if . . . a 22-million-dollar deposit was establishe d." App. at 1727. The Trustees' counsel in effect challenged t he Investors to assert otherwise, stating that inasmuch as the I nvestors' counsel were in court they could correct any assert ions that he made. Id. Thereafter, the Investors' attorney ro se "to make clear the [I]nvestors' position, which is that if t he 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 th e transaction." App. at 1744. The representative of the Investors explai ned that in the airline business "there is a great sensitivity to cash and the capital structure of a reorganized entity," andthat the relief that the Trustees sought "could significantl y impair the capital structure that would exist with respect [to ] this reorganized airline." Id. at 1744-45. He reviewedthe negotiations that had occurred for the cap for admi nistrative expense liability, advised that the Investors had m onitored on a monthly basis Continental's performance in that res pect, and explained that the Investors had insisted that the Confirmation

Order address the issue of the Trustees' claim "bec ause we want to make sure if we are putting our money in, we are getting the benefit of our bargain, which is a reorganized enti ty with a capital structure that we contemplated." App. at 1 746. He concluded by stating unequivocally that if a stay w ere 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 maintena nce of the collateral, which has been satisfied) had been appr oved as an administrative claim, the total such administrative claim would have greatly exceeded the cap specified by the Inve stors for that purpose. This would have given the Investors the o ption towithdraw; such withdrawal would have placed the ent ire Plan in

jeopardy. By the time the district court ruled on the appeal, it was no longer possible to restore the parties to th eir earlier positions because the investment had been made, andthe option to withdraw was no longer available to the Investors. See Specialty Equip., 3 F.3d at 1049 (claim held moot when its ac ceptance "would amount to imposing a different plan of reorg anization on the parties"). Thus, the third factor bearing on t he prudential

determination whether to reach the merits of a bank ruptcy appeal after confirmation and in the absence of a stay -- the effect of the requested relief on the rights of parties not b efore the court -- weighs heavily against the Trustees. This factor cannot fairly be recast as whe ther the Investors or others reasonably relied on the predic tion that the Trustees would recover nothing on their claim. Whi le we agree

that reliance of the Investors and others on the un stayed 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, i s necessarily a circular enterprise and therefore of little utili ty. Whether the Investors were reasonable in relying on the ban kruptcy court's order depends on whether this was a case th at would be considered on the merits on appeal or would be dism issed on the basis of the doctrine often referred to as "equitab le mootness." And whether this case would be dismissed on "equita ble mootness" grounds on appeal in turn depends on whether the In vestors reasonably relied. Thus, placing the focus on the reasonableness of the Investors' reliance as measured by the proba bility that Continental would prevail on appeal sets up a strawman which is easily knocked down. Our inquiry should not be about the "reaso nableness" of the Investors' reliance or the probability of eithe r party succeeding on appeal. Rather, we should ask whethe r we want to encourage or discourage reliance by investors and o thers on the finality of bankruptcy confirmation orders. The st rong public policy in favor of maximizing debtors' estates and facilitating successful reorganization, reflected in the Code it self, clearly weighs in favor of encouraging such reliance. Inde ed, the importance of allowing approved reorganizations to go forward in reliance on bankruptcy court confirmation orders ma y be the central animating force behind the equitable mootne ss doctrine. See Rochman, 963 F.2d at 471-72; Metro Property Mgm t. Co. v. Information Dialogues, Inc. (In re Information Dial ogues, Inc.), 662 F.2d 475, 477 (8th Cir. 1981). Where, as here, investors and other third parties consummated a massive reorganiz ation in reliance on an unstayed confirmation order that, ex plicitly and as a condition of feasibility, denied the claim for which appellate review is sought, the allowance of such a ppellate review would likely undermine public confidence in the finality of bankruptcy confirmation orders and make successf ul 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 b asis of

prudential considerations, the Trustees repeatedly rely on their

assertion that the Plan contained "a built-in mecha nism for the [post-confirmation] disposition and payment of Disp uted Administrative Claims." Appellants' Brief at 10. On the basis of this provision, they argue that they had no obli gation to take steps to preserve the status quo through a stay, th at their appeal is not moot because "some effective relief" is available, and that the Plan is contractually "binding" on Con tinental. They conclude that the district court therefore err ed in "permitt[ing] Continental to escape its 'contractua l' obligations under the Plan under the guise of the mootness doct rine." Appellant's Brief at 20. While the Trustees' descr iption of the "mechanism" provided in the Plan is technically cor rect, they overstate the impact of that mechanism. Under the definitions in the Plan, the Tru stees' claim was a "Disputed Administrative Claim" because it so ught 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 Contin ental to pay

allowed administrative claims on the later of: the effective date of confirmation or "the fifth Business Day aft er such Claim is Allowed." App. at 691 (Plan  10.1). Further, the Plan provides that "[a] Disputed Claim shall be an Allow ed Claim if, and only to the extent that, such Disputed Claim ha s 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 revie w or rehearing, and as to which no [such proceeding is] pending," App. at 635 (Plan  1.100). Thus, the Plan imposes an obligation on th e reorganized Continental to pay disputed administrative claims o nce they become allowed by a final order of court, even if s uch 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 m ere availability of such a mechanism, however, which ma y prevent dismissal on the ground of Article III constitution al mootness,

does not warrant reversal of the district court's o rder dismissing it on prudential grounds. As we have no ted, the

district court's "mootness" determination was basednot 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 "contract ual obligation" been violated either by Continental or the district court. Where, as here, there has been no order, fi nal or otherwise, allowing the Trustees' disputed administ rative claim, the Plan imposes no obligation on the reorganized C ontinental to pay it. Finally, the Plan provisions allowing for postconfirmation payment of allowed claims in no way ob viated the Trustees' obligation to seek a stay. Here, where t he confirmation of the Plan and the willingness of the Investors togo forward turned on the bankruptcy court's denial of the

Trustees' claims, and where the denial of those cla ims was in fact incorporated into the Confirmation Order, ther e was a clear possibility that the Trustees' claims would become moot after consummation of the Plan, and it was therefore incu mbent on the Trustees to obtain a stay. Indeed, the record show s that all parties were well aware of the extensive legal prec edent dismissing as moot or on equitable grounds appeals from unstayed consummated reorganizations. See App. at 410 (refe rences in the Investment Agreement); App. at 1729-30, 1741 (argum ent before the district court on the stay). For similar reasons, we fail to see the in consistency charged by the Trustees between Continental's curre nt position as to "equitable mootness" and its argument to the bankruptcy court in response to the Trustees' Deposit Motion t hat 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 Continenta l in the absence of a final order allowing the Trustees' cla im, and the mere availability of a mechanism for granting relie f does not mean the court cannot determine that in light of al l the circumstances it should not even try to unscramble the eggs. Moreover, at the time Continental argued a gainst the Deposit Motion the bankruptcy court had not yet rul ed disallowing the Trustees' claim nor cited that as an explicit b asis for its feasibility determination in confirming the plan. Accordingly, Continental did not yet have reason to know that th e claim would be denied and become subject to "equitable mootness " on appeal. As soon as the basis for this mootness argument bec ame apparent, Continental repeatedly asserted its intention to ma ke such an argument if an appeal was filed and no stay obtaine d. App. at 1691, 1742. The Trustees have not presented us with an y arguments which would weigh against all of the prudential con siderations that dictate that this consummated reorganization m ust be left in place. Following confirmation, Continental was ope rating as a restructured company, and had entered into countles s new relationships and transactions. To convince a cour t to take the action sought by the Trustees which would undermine the basis for the Investors' decision to proceed, the Trustees wo uld have to proffer a powerful reason indeed. They have not ev en attempted

to do so. Arrayed against that silence are the facts that the reorganization plan was consummated, no stay was ob tained, 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 credi tors, the merger of 53 debtors other than Continental with an d into Continental, the investment of $110 million in cash by Air Partners and Air Canada in the reorganized Continen tal, the transfer by foreign governments of various route au thorities, and the assumption by the reorganized Continental of un expired leasesand executory contracts worth over $5.0 billion. T hus, the key

issue really is whether the district court abused i ts discretion in weighing the various equitable factors. We are not prepared to hold that the balance reached by the district co urt was an
abuse of its discretion. Under the circumstances presented here, we can see no prudential considerations that would support an att empt by an appellate court, district or court of appeals, to f ashion even a limited remedy for the Trustees. That would necess arily entail imposing a new debt on the reorganized company, whi ch is a different entity than it was when this case was bef ore the district court. Thus, we agree with the determinat ion 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 see k.

III.

CONCLUSION

For the reasons set forth we will affirm t he 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 creat es a bad precedent for our circuit. The majority adopts the curious doctrine of "equitable mootness," which it interpre ts as permitting federal district courts and courts of ap peals to refuse to entertain the merits of live bankruptcy a ppeals over which they indisputably possess statutory jurisdict ion and in which they can plainly provide relief. According t o the majority, there is no clear rule for determining wh en a bankruptcy appeal is "equitably moot." Instead, th is is said to be a discretionary determination to be made in the first instance by the district court based on a weighing of five f actors that the majority has culled from the opinions of our "s ister circuits." In my view, if the doctrine of "equitab le mootness" has any validity, it is more limited than the major ity holds. The dangers inherent in the majority's ad option and broad interpretation of this doctrine are illustrat ed by this case. In simple terms, this is what happened. Aft er filing for relief under Chapter 11 of the Bankruptcy Code, Con tinental 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 dim inution in value, the Trustees in August 1992 filed a renewed motion in the bankruptcy court seeking "adequate protection" unde r 11 U.S.C.  363(e). During the next eight months, while the Co ntinentalreorganization 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 Trus tees' motion at the same time that it confirmed the plan, and Co ntinental told the bankruptcy judge that unless the motion was den ied, the prospective investors in the reorganized corporatio n would withhold funding, and the reorganization would not go forward. See Continental Br. at 5-6 & n.1. Furthermore, Con tinental took the position that if the plan was confirmed and wen t into effect, any appeal would be moot. See Continental Br. at 2 1. The bankruptcy court then simultaneously denied the Tru stees' motion and entered the order confirming the plan. The Tru stees exercised their statutory right to appeal to the di strict court, and in my view the need for review by an Article II I court is particularly acute when the challenged ruling of th e bankruptcy

court is made under circumstances such as these. The Trustees, however, have been utterly d enied such review. In the initial level of appeal, the distri ct 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, th e majority of our court describes the Trustees' arguments as "int eresting and challenging" (Maj. Op. at 9) but then throws them o ut of court without reaching the merits of their arguments. An d the majority does this even though (a) this case is clearly not "moot" in any proper sense of the term, (b) we unquestionably hav e statutory jurisdiction, and (c) we have a "virtually unflaggi ng obligation" to exercise the jurisdiction that we have been give n. 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 n ot contested the existence of the doctrine of "equitable mootnes s," and in light of the Trustees' position, I think that it is appropriate to assume the existence of this doctrine for purpos es of this appeal. The majority opinion, however, does not si mply assume the existence of this doctrine but adopts it as par t 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 othe r courts of appeals. From these decisions, the majority extrac ts five factors, which are to be weighed by the district co urt in the initial level of appeal for the purpose of determin ing whether the appeal is "equitably moot." Maj. Op. at 14. T hese 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 par ties 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 tes t isconsistent 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 `reorganizatio n plan has been so substantially consummated that effective re lief is no longer available.'" In re Club Associates, 956 F.2 d 1065, 1069 (11th Cir. 1992) (quoting Miami Center Ltd. Partner ship v. Bank of New York, 820 F.2d 376, 379 (11th Cir. 1987)). This inquiry seems quite different from the majority's indetermi nate fivefactor test. But even if the majority's analysis i s supported by the decisions it cites, and even though I think tha t those decisions deserve careful and respectful considerat ion, I think that the in banc majority should have made an indep endent 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 th e majority acknowledges, it does not stem from the "case-or-co ntroversy" requirement of Article III. See Maj. Op. at 10. F or example, it is not argued that the case now before us is moot i n the Article

III sense. Nor does it appear that this doctrine is r ooted in nonArticle III mootness decisions "reflect[ing] avowed ly 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 th e entry of more specific orders, will have some effect in the real world."

Id. at  3533.1 at 226 (footnote omitted). Here, it is cle ar that a determination of the merits of the issues ra ised by the Trustees and the entry of a remedial order on the b asis of such a determination would have "some effect" -- and poten tially quite a substantial effect -- in the real world. (That is precisely why Continental does not want us to entertain the appea l!)

Thus, as this case well illustrates, the d octrine of "equitable mootness" is not really about "mootness" at all in

either the Article III or non-Article III sense. A s the Seventh Circuit stated in a passage that the majority quote s with approval (see Maj. Op. at 12), "[t]here is a big di fference between inability to alter the outcome (real mootne ss) and unwillingness to alter the outcome (`equitable moot ness'). Using one word for two different concepts breeds confusio n." 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 possibl e answers. The first is provided by the earliest cour t of appeals decision cited by the majority, In re Roberts Farms , Inc., 652 F.2d 793, 796-97 (9th Cir. 1981), and several other s. 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 cou rt relied was a provision of former Bankruptcy Rule 805, which co ncerned stayspending appeal. Added by a 1976 amendment to the r ule, the

provision in question stated: Unless an order approving a sale of proper ty
or issuance of a certificate of indebtedne ss is stayed pending appeal, the sale to a go od faith purchaser or the issuance of a certificate to a good faith holder shall n ot be affected by the reversal or modificatio n of such order on appeal, whether or not th e purchaser or holder knows of the pendency of the appeal.

Although I do not find the Roberts Farms o pinion entirely clear, I think that the best reading of th e opinion is that the challenge to the plan of reorganization in that case could not be entertained because no relief was prac ticable as a result of the many post-confirmation transactions t hat were irreversible due to this provision of former Rule 8 05. 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 provisi on of former Bankruptcy Rule 805 on which the Roberts Farms cour t relied or from the analogous provisions now contained in 11 U .S.C.  363(m) and 364(e). If one begins with narrow provi sions such as these -- which merely prevent the upsetting of cert ain specific transactions if stays are not obtained -- I do not see how one can derive the broad doctrine of "equitable mootnes s" that the majority in this case appears to embrace. What apparently happened, however, was tha t the holding of Roberts Farms was gradually extended well beyondanything that could be supported by the authority on which Robert s Farmsrested. Subsequent cases first cited Roberts Farms in suppo rt 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. Late r, Roberts Farms was interpreted more expansively to mean that an appeal

could not be entertained if a court could not awardrelief that was "equitable." See In re Chateaugay Corp., 988 F .2d 322, 324 (2d Cir. 1993) (citing Roberts Farms). And this la tter holding figures prominently in the majority's analysis. Se e Maj. Op. at 12. In my view, this gradual but ultimately quite substantial extension of Roberts Farms cannot be squared with t he narrow authority on which that decision relied. According ly, 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 Indu s., supra, where the Seventh Circuit wrote: Several provisions of the Bankruptcy Code of 1978 provide that courts should ke ep their hands off consummated transactions. For example, 11 U.S.C.  363(m) says that the reversal of an order authorizing the sale orlease of property of an estate "does not

affect the validity of a sale or lease und er 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 o f 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 i n reliance on judicial decisions, and avoidi ng the pains that attend any effort to unscramble an egg -- are so plain and so compelling that courts fill the interstice s 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 cou rt 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 cou rts to declare, as a matter of common law or "judicial leg islation," rules which may be necessary to fill in interstitia lly or otherwise effectuate the statutory patterns enactedin the large by Congress'") (citation omitted). This is an interesting theory, but I find it unnecessary to decide in this case whether it is co rrect. For present purposes, what is important is to note that , even if this theory is correct, it has nothing to do with mootne ss. Instead, it concerns a federal common law rule designed to p romote certain policies of chapter 11 of the Bankruptcy Code. The se policies are the facilitation of reorganizations and the pro tection 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 st atutory jurisdiction and in which meaningful relief can be awarded.

II.A. How can the objective of preserving th e 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 a re due to them pursuant to that plan. Moreover, even if the succe ss of the reorganization might be imperilled if the Trustees obtained the full relief that they are seeking -- an empirical p roposition 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 th e Trustees could not be awarded any relief -- not one dollar - - without upsetting the Continental reorganization, and obvio usly they cannot do any such thing. I do not dispute the des irability of preserving the Continental reorganization, but to m y mind this objective implicates a question of remedy, to be de cided 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 act ually involve

mootness at all. The federal courts are accustomedto considering questions of Article III mootness, and the majority, in my view, has fallen into the trap of thinking th at the question of "equitable mootness" that is now before us must be treated as if it were a question of Article III moo tness. Whether a case is moot in the Article III sense is, of course, a jurisdictional question, see, e.g., Rosetti v. Shal ala, 12 F.3d 1216, 1223 (3d Cir. 1993), and therefore it is a qu estion that we are obligated to resolve before we consider the mer its of an appeal. See, e.g., United Wire Metal and Machine H ealth and Welfare Fund v. Morristown Memorial Hosp., 995 F.2d1179, 1190 (3d Cir.), cert. denied, 114 S. Ct. 382 (1993); Rog in v. Bensalem Tp., 616 F.2d 680, 684 (3d Cir. 1980), cert. denied , 450 U.S. 1029 (1981). Moreover, if we conclude that an appe al is moot in this sense, we have little remedial flexibility; we generally have no choice but to dismiss. See, e.g., U.S. Ban corp 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 s hould decide the case in favor of the plaintiff, to grant him an y effectual relief whatever, the court will not proceed to a fo rmal judgment, but will dismiss the appeal"). By contrast, the doctrine that is involvedhere -- which is not really a doctrine of mootness at all - - does not demand or justify similar treatment. It does not p resent a jurisdictional question; we are not required to con sider it before proceeding to the merits; and even if we fin d that it is applicable, it does not necessarily dictate that we dismiss the appeal or affirm in its entirety a district court o rder of dismissal. Rather, we retain the ability to craft, or to instruct the district or bankruptcy courts to craft , a remedythat is suited to the particular circumstances of t he case.

Thus, a remedy could be fashioned in the present ca se to ensure that the Continental reorganization is not undermin ed. 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 w in on the merits, the need to protect reasonable reliance int erests can be fully taken into account in crafting an appropriate remedy. I thus see no need to resolve the question of reasona ble reliance

interests at this time. The majority, however, not only wrongly tr eats this as a threshold, rather than a remedial, consideration, but engages in an analysis that flies in the face of the langua ge of the plan and seems to assume an extraordinary degree of naiv ete on the part of the Investors and the others who are said t o have relied on the plan.

I will focus on the Investors because thei r plight looms large in the majority's analysis. When the I nvestors decided to invest in the reorganized company, NewCa l, 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 Ne wCal would pay "Allowed Administrative Claims." Moreover, in orde r to persuade the bankruptcy court to reject the Trustees' reques t that a cash reserve be established prior to confirmation to cov er their claim, Continental argued that such a reserve was u nnecessary because if the Trustees' claim was allowed it wouldbe "an Allowed Administrative Claim which would be paid in accordance

with the terms of Section 10.1 of the Plan." JA 10 39. Under these circumstances, any prudent investor, in decid ing whether to invest in NewCal on particular terms, would have ta ken into account the range and likelihood of possible outcom es in the Trustees' appeal, including the possibility that so me or all of the amount sought by the Trustees would have to be paid as an administrative claim pursuant to Section 10.1 of th e plan. No reasonable investor would have proceeded on the ass umption that the Trustees would definitely recover nothing. Andthe same is true of the other parties that relied on the plan. Thus, I am skeptical about the reliance interests that are cla imed 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 remed ial stage, if that stage is ever reached. C. One final aspect of the majority opini on warrants a response, and that is the majority's discussion of the Trustees' failure to seek or obtain a stay. I have two comme nts regarding

this discussion. First, while it might be desirable to have a rule that flatly requires a stay whenever a party takes an ap peal that might upset a plan of reorganization, neither the B ankruptcy 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 r ule, we

should focus on whether the purposes that would be served by a stay require that the Trustees be thrown out of cou rt at the threshold. The purpose of a stay in this context i s to prevent transactions that might otherwise occur in reliance on the plan of reorganization and that would be difficult or pa inful to undo if the appeal were to succeed. Accordingly, the Tr ustees' failure to obtain a stay in this case might limit t he 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 enterta ining that claim would not imperil Continental's reorganizatio n or impair any legitimate reliance interests. If the Trustees ' claim were considered and they won on the merits, any threat t o 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 Tr ustees out of

court before the merits of their claim are even hea rd -- 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.