Bank of N.Y. Tr. Co., NA v. Official Unsecured Creditors' Comm. (In re Pac. Lumber Co.) - 584 F.3d 229 (5th Cir. 2009)

Rule:

“Equitable mootness” has evolved in bankruptcy appeals to constrain appellate review, and potential reversal, of orders confirming reorganization plans. Equitable mootness is a kind of appellate abstention that favors the finality of reorganizations and protects the interrelated multi-party expectations on which they rest. Despite its apparent virtues, equitable mootness is a judicial anomaly. Federal courts have a virtually unflagging obligation to exercise the jurisdiction conferred on them. Although the Bankruptcy Code forbids appellate review of certain un-stayed orders, 11 U.S.C.S. §§ 363(m), 364(e), and restricts post-confirmation plan modifications, 11 U.S.C.S. § 1127, it does not expressly limit appellate review of plan confirmation orders. Moreover, equitable mootness cannot claim legitimacy based on U.S. Const. art. III mootness. The latter doctrine, of constitutional origin, prevents adjudication when cases are no longer "live;" the former abdicates appellate review of very real, continuing controversies. U.S. Const. art. III mootness concerns arise when a judicial ruling would have no effect; equitable mootness applies when a judicial ruling might have too much effect on the parties to a confirmed reorganization.

Facts:

Debtors filed separate Chapter 11 bankruptcy petitions. The six petitions were procedurally, but not substantively, consolidated and jointly administered by the bankruptcy court. Creditors appealed the district court’s confirmation of the Chapter 11 plan, arguing they did not receive the allowed amount of their secured claim, deprivation of a post-petition administrative priority claim, and that non-debtor releases were improper. The plan proponents, a new owner/former competitor and another creditor, sought dismissal for equitable mootness due to substantial confirmation.

Issue:

Was the appeal equitably moot and must be dismissed?

Answer:

No.

Conclusion:

Although substantial confirmation created third-party reliance and expectations that would be dislodged upon reversal, but $ 700 million of the creditors' secured debt was reorganized, and 28 U.S.C.S. § 158(d)(2)(ii) provided for direct appeal, equitable mootness was rejected and most claims on appeal could be addressed.