Opinion ID: 6931473
Heading Depth: 2
Heading Rank: 1

Heading: Halting the Runaway Train: the Motions to Stay

Text: As the Manges debtors correctly observe, in many of the cases in which bankruptcy appeals were dismissed as moot, the appellants failed to seek a stay. E.g., Crystal Oil, 854 F.2d at 82 (noting the objecting creditor should have sought a stay so the reviewing court could consider the plan's propriety before implementation led third parties to make commitments in reliance on the plan); Cleveland, Barrios, 166 B.R. at 286-87 (observing that the failure to seek a stay warrants dismissal of appeal on mootness grounds if the lack of stay has permitted a comprehensive change in circumstances or substantial consummation of the plan); see also Trone v. Roberts Farms, Inc. (In re Roberts Farms, Inc.), 652 F.2d 793, 798 (9th Cir.1981) (dismissing an appeal on equitable grounds where appellant never applied to bankruptcy court for stay). By contrast, the Manges debtors argue, they diligently — albeit unsuccessfully — pursued a stay at every turn. 8 Thus, they appear to conclude, they have preserved their right to a merits review. However, in rejecting a similar argument, Judge Easterbrook aptly pointed out that the failure to seek a stay is not “a censurable event to be punished by refusal to adjudicate the merits”; rather, [t]he significance of an application for a stay lies in the opportunity it affords to hold things in stasis, to prevent reliance upon the plan of reorganization while the appeal proceeds. A stay not sought, and a stay sought and denied, lead equally to the implementation of the plan of reorganization. And it is the reliance interests engendered by the plan, coupled with the difficulty of reversing critical transactions, that counsels against attempts to unwind things on appeal. Every incremental risk of revision on appeal puts a cloud over the plan of reorganization and derivatively over the assets of the reorganized firm. In re UNR Industries, 20 F.3d at 769-70; see also In re AOV Indus., Inc., 792 F.2d 1140, 1147 (D.C.Cir.1986) (recognizing that unsuccessful attempt to obtain stay had same result as failure to seek stay). In short, the failure or inability to obtain a stay pending appeal carries the risk that review might be precluded on mootness grounds. Although we recognize that, in many situations, the reviewing court’s decision whether to grant a stay is essentially dispositive of the ease — considering the average length of time for an appeal 9 — we note that several provisions of the Bankruptcy Code preordain such a consequence. See, e.g., 11 U.S.C. § 363(m) (mandating that the reversal of an unstayed order authorizing the sale or lease of estate property “does not affect the validity of the sale or lease under such authorization to an entity that purchased or leased such property in good faith ... unless such authorization and such sale or lease were stayed pending appeal”); 11 U.S.C. § 1127(b) (curtailing significantly bankruptcy court’s ability to modify plan of reorganization after its confirmation and “substantial consummation”); see also Bankruptcy Rule 805 (“Unless an order approving a sale of property ... is stayed pending appeal, the sale to a good faith purchaser ... shall not be affected by the reversal or modification of such order on appeal, whether or not the purchaser knows of the pendency of the appeal.”). As the Ninth Circuit recognized in In re Roberts Farms, “the principle of dismissal of an appeal for lack of equity ... places a heavy burden on aggrieved party-appellants in bankruptcy cases. It is justified to prevent frustration of orderly administration of estates under various provisions of the Bankruptcy Act.” 652 F.2d at 798. It is undisputed that the Manges debtors did not obtain a stay, and we must thus examine the transactions which have taken place as a consequence to determine whether the confirmation challenge has become equitably or prudentially moot.