Opinion ID: 2828653
Heading Depth: 2
Heading Rank: 2

Heading: Aurelius’s Appeal is Equitably Moot.

Text: Aurelius concedes that the DCL Plan is substantially consummated, Aurelius Br. at 24 & 26, but it argues that the relief it seeks would neither scramble that Plan nor harm third parties who have relied on consummation. Aurelius asks us to have the confirmation order modified to reinstate the settled LBO-Related Causes of Action. Id. at 58. It argues that it should be allowed to pursue these claims or settle them on more favorable terms and that it can obtain relief from reorganized Tribune, from the LBO lenders themselves, or by 15 redistributing the LBO lenders’ future recovery from the litigation trust. Id. at 27–38. Aurelius’s argument that the relief it ultimately seeks—further recovery on the LBO-Related Causes of Action—can be afforded (at least in part) misses the point of the equitable mootness inquiry. We must also ask whether the immediate relief Aurelius seeks, revocation of the Settlement in the DCL Plan, would “fatally scramble the plan and/or . . . significantly harm third parties who have justifiably relied on plan confirmation.” SemCrude, 728 F.3d at 321. We believe it would do both. To the first concern (fatal scrambling), the Bankruptcy Court noted the obvious: the Settlement was “a central issue in the formulation of a plan of reorganization.” Tribune, 464 B.R. at 142. Though it is within the power of an appellate court to order the Settlement severed from the Plan and keep the rest of the Plan in place—thereby not attempting to “unscramble the eggs,” Continental Airlines, 91 F.3d at 566, or turning a court into a “Humpty Dumpty repairman,” In re Pub. Serv. Co. of New Hampshire, 963 F.2d 469, 475 (1st Cir. 1992), or any other ovoid metaphor—allowing the relief the appeal seeks would effectively undermine the Settlement (along with the transactions entered in reliance on it) and, as a result, recall the entire Plan for a redo. Third-party reliance is related here to the problem of scrambling the Plan, as returning to the drawing board would at a minimum drastically diminish the value of new equity’s investment. That investment no doubt was in reliance on the Settlement, as indeed was the reliance of those who voted for the Plan. Aurelius proposed a Noteholder Plan that didn’t include a settlement of the LBO-Related Causes of Action, and it was overwhelmingly rejected by all but 3 of the 243 creditor classes (the remaining classes were Aurelius’, the 16 PHONES Notes’, and a third “class in which a single creditor holding a claim of $47 voted in favor of both the DCL Plan and the Noteholder Plan,” id. at 207). Revoking the Settlement would circumvent the bankruptcy process and give Aurelius by judicial fiat what it could not achieve by consensus within Chapter 11 proceedings or, we can’t help but add, if it had put up a bond. On appeal, Aurelius proposes no relief that would not involve reopening the LBO-Related Causes of Action. Allowing those suits would “‘knock the props out from under the authorization for every transaction that has taken place,’” thus scrambling this substantially consummated plan and upsetting third parties’ reliance on it. In re Chateaugay Corp., 10 F.3d 944, 953 (2d Cir. 1993) (quoting In re Roberts Farms, Inc., 652 F.2d 793, 797 (9th Cir. 1981)). In this context, the District Court did not abuse its discretion in concluding that Aurelius’s appeal is equitably moot. When determining whether the case is equitably moot, we of course must assume Aurelius will prevail on the merits because the idea of equitable mootness is that even if Aurelius is correct, it would not be fair to award the relief it seeks. One might argue that holding the appeal moot is therefore by definition inequitable: if Aurelius prevails, that means the Bankruptcy Court committed legal error, and it could not be inequitable to correct the Court’s mistakes. The reasons to reject this hypothesis are twofold. First, bankruptcy is concerned primarily with achieving a workable outcome for a diverse array of stakeholders, and the reliable finality of a confirmed and consummated plan allows all interested parties to organize their lives around that fact. See Mark J. Roe, Bankruptcy and Debt: A New Model for Corporate Reorganization, 83 Colum. L. Rev. 527, 529 (1983) (identifying speed as one of 17 “three principal characteristics desirable for a reorganization mechanism”). Second, and relatedly, an important reason we should forbear from hearing a challenge to the order before us is because of Aurelius’s failure to post a bond to obtain a stay pending appeal. Courts may condition stays of plan confirmation orders pending appeal on the posting of a supersedeas bond. The purpose of requiring such a “bond in a bankruptcy court is to indemnify the party prevailing in the original action against loss caused by an unsuccessful attempt to reverse the holding of the bankruptcy court.” In re Theatre Holding Corp., 22 B.R. 884, 885 (Bankr. S.D.N.Y. 1982). Federal Rule of Civil Procedure 62(d) (made applicable to bankruptcy cases by Bankruptcy Rule 7062) provides for stays pending appeal as of right when a bond is posted in damages actions “or where the judgment is sufficiently comparable to a money judgment so that payment on a supersedeas bond would provide a satisfactory alternative to the appellee.” 10 Collier on Bankruptcy ¶ 7062.06 (16th ed. 2015). In this case, the Bankruptcy Court carefully calculated the likely damage to the estate of a stay pending an appeal from its confirmation order. In particular, it analyzed the following costs to Tribune and its creditors that a stay would cause: additional professional fees, opportunity costs to creditors who would receive delayed distributions from the DCL Plan or delayed interest and principal payments from reorganized Tribune, and a loss in market value to equity investors caused by the delayed emergence. Tribune, 477 B.R. at 480–83. We need not go through the opinion in detail, as Aurelius does not squarely argue that the bond requirement was an abuse of discretion, but we note that the valuation was well-considered and as convincing as the alchemy of valuation in bankruptcy can be. 18 As a result of its calculations, the Court determined that Aurelius should post a $1.5 billion bond to guarantee that the estate could be indemnified in the case of an unsuccessful appeal. Id. at 483. We repeat that Aurelius never challenged the bond amount, instead attempting unsuccessfully to modify the order to remove the bond in its entirety. But given the Bankruptcy Court’s findings on the likely substantial loss to Tribune due to an appeal, a supersedeas bond in some amount was appropriate. Aurelius’s failure to attempt to reduce the bond to a more manageable figure (assuming its representations are correct that it would be unable to finance such a large bond on short notice) leads us to conclude that it effectively chose to risk a finding of equitable mootness and implicitly decided that an appeal with a stay conditioned on any reasonable bond amount was not worth it. This riskadjusted choice by such a rational actor makes a finding of mootness not unfair, as it appears from the record before us that Aurelius had the opportunity to obtain a stay that would have foreclosed the possibility of a mootness finding.4 4 To the extent it could be argued that our approach endangers any low-value appeal in a large case (because the cost of a stay would overwhelm any potential recovery), we note that the lower a potential recovery is, the less likely an appeal is to be equitably moot because courts will be more willing to make minor changes to a plan of reorganization than big ones. See Phila. Newspapers, 690 F.3d at 170 (claim worth 1.7% of the price of debtor’s assets not equitably moot); Chateaugay, 10 F.3d at 953 (claim worth up to 10% of a reorganized debtor’s working capital was not equitably moot). 19