Opinion ID: 2818765
Heading Depth: 3
Heading Rank: 2

Heading: Equitable Mootness Analysis

Text: Following confirmation of a reorganization plan by a bankruptcy court, an aggrieved party has the statutory right to appeal the court’s ruling. Once a bankruptcy appeal has been filed, federal courts have a ‘‘‘virtually unflagging obligation’’’ to exercise the jurisdiction conferred on them. In re Semcrude, L.P., 728 F.3d 314, 320 (3d Cir. 2013) (quoting Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976)). Before there is a basis to avoid deciding the merits of an appeal, we must first determine that granting the requested relief is almost certain to produce a ‘‘perverse’’ outcome— significant ‘‘injury to third parties’’ and/or ‘‘chaos in the bankruptcy court’’ from a plan in tatters. In re Phila. Newspapers, LLC, 690 F.3d 161, 168 (3d Cir. 2012). Only in such circumstances is equitable mootness a valid consideration. A court decides to dismiss an appeal as equitably moot through the consideration of the following ‘‘prudential’’ factors:
substantially consummated, (2) whether a stay has been obtained, (3) whether the relief 10 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. Id. (citing Continental, 91 F.3d at 560). Depending on the circumstances, each factor is given varying weight. Id. (citing In re PWS Holding Corp., 228 F.3d 224, 236 (3d Cir. 2000)). These factors are interconnected and overlapping. Semcrude, 728 F.3d at 320 (citing Phila. Newspapers, 690 F.3d at 168–69). ‘‘The second factor principally duplicates the first in the sense that a plan cannot be substantially consummated if the appellant has successfully sought a stay.’’ Phila. Newspapers, 690 F.3d at 169 (internal quotation marks omitted). In analyzing the first factor, courts have considered ‘‘whether allowing an appeal to go forward will undermine the plan, and not merely whether the plan has been substantially consummated under the Bankruptcy Code’s definition.’’8 Id. at 168–69. This collapses the first and 8 Substantial consummation is defined in the Bankruptcy Code to mean the (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 11 fourth factors. The third factor adds an additional consideration—whether granting relief will undermine ‘‘the reliance of third parties, in particular investors, on the finality of the transaction.’’ Id. at 169 (internal quotation marks omitted). ‘‘Finally, the fifth factor supports the other four by encouraging investors and others to rely on confirmation orders, thereby facilitating successful reorganizations by fostering confidence in the finality of confirmed plans.’’ Id. Taken together, these factors require that the equitable mootness doctrine be applied only to “prevent[] a court from unscrambling complex bankruptcy reorganizations when the appealing party should have acted before the plan became extremely difficult to retract.” Nordhoff Invs., Inc. v. Zenith Elecs. Corp., 258 F.3d 180, 185 (3d Cir. 2001). The party seeking dismissal bears the burden to demonstrate that, weighing the relevant factors, dismissal is warranted. Semcrude, 728 F.3d at 321. In practice, equitable mootness proceeds in two analytical steps: “(1) whether a confirmed plan has been substantially consummated; and (2) if so, whether granting the relief requested in the appeal will (a) fatally scramble the plan and/or (b) significantly harm third parties who have justifiably relied on the plan’s confirmation.” Id. “Satisfaction of [the] statutory standard indicates that implementation of the plan has progressed to the point that turning back may be imprudent.” Id. (C) commencement of distribution under the plan. 11 U.S.C. § 1101. 12 If the confirmed plan has been substantially consummated, a court should next determine whether granting relief will require undoing the plan as opposed to modifying it in a manner that does not cause its collapse. See In re Zenith Elecs. Corp., 329 F.3d 338, 346–47 (3d Cir. 2003) (appeal not equitably moot where disgorgement of professional fees would not unravel plan); United Artists Theatre Co. v. Walton, 315 F.3d 217, 228 (3d Cir. 2003) (appeal not equitably moot where striking indemnification provision would leave the plan otherwise intact); PWS, 228 F.3d at 236 (appeal not equitably moot where plan could go forward even if certain releases were stricken). A court should also consider the extent a successful appeal, by altering the plan or otherwise, will harm third parties who have acted reasonably in reliance on the finality of plan confirmation. Semcrude, 728 F.3d at 321.