In the third and last of our reports on the May 13 Boy Scouts of America opinions by the Third Circuit, we’re covering the 16-page concurrence by Circuit Judge Marjorie O. Rendell that reads like a dissent.

Judge Rendell reached the same result — upholding the plan’s nonconsensual, nondebtor releases — by reaching the polar opposite conclusions on statutory mootness and equitable mootness. Where the majority saw the tort claimants’ appeals as statutorily moot under Section 363(m), she said they weren’t. Where the majority didn’t see equitable mootness, she did.

Judge Rendell saw the majority’s statutory mootness opinion as “fundamentally flawed.” Instead, she said she would have dismissed the tort claimants’ appeals as “equitably moot,” because equitable mootness “is firmly rooted in our precedent, and, as counsel for [the debtor] urged at oral argument, if ever there were a case crying out for application of the doctrine, this is it.”

Statutory Mootness

Judge Rendell explained why she was unwilling to “stretch” statutory mootness under Section 363(m). The subsection reads:

The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under 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 such authorization and such sale or lease were stayed pending appeal.

Judge Rendell described the “first fundamental flaw in the majority’s” opinion on Section 363(m) as follows:

[T]he statute’s clear indication [is] that it does not apply to sales in reorganization plans as well as the common sense observation that the non-consensual third-party releases were not accomplished by way of the purported § 363 authorization, but by way of plan confirmation.

Judge Rendell noted it was an “appeal from the confirmation order, not the sale,” and that “the majority’s opinion endorses an end run around Chapter 11’s requirements, including the Supreme Court’s holding in Harrington v. Purdue Pharma L.P.” She said that “§ 363 itself distinguishes between sales under § 363(b) and (c) and sales under a plan.” Citing the Fifth and Eleventh Circuits, she said that “several courts have suggested that sales accomplished under plans do not fall within § 363(m)’s ambit.”

“If that is not enough,” Judge Rendell said, “some of the Settling Insurers constructed the ‘sale’ of their policies such that they will not occur until the Confirmation Order is affirmed on appeal, meaning that the majority’s approach will not finally resolve this case.” She added:

This arrangement was almost certainly crafted in an attempt to insulate the Plan and Confirmation Order from appellate review — otherwise, the buybacks of the insurance policies would have been confirmed, as is typical, by § 1123(a)(5)(D), which allows a plan to sell “all or any part of the property of the estate, either subject to or free of any lien.” 11 U.S.C. § 1123(a)(5)(D).

More succinctly, Judge Rendell said, “Using § 363(m) to avoid an appeal deprives the sale of any real scrutiny,” “goes far beyond what § 363 contemplates,” and “shields from review the non-consensual third-party releases that the Supreme Court invalidated in Purdue.”

Judge Rendell said that the majority’s opinion “sets a dangerous transactional precedent, one that will result in Article III courts not having the capacity to review Confirmation Orders if the parties agree to call key intra-plan transactions ‘sales.’ Indeed, today’s decision relegates the Supreme Court’s holding in Purdue to a mere plan-drafting guide.”

Judge Rendell would have held that “Section 363(m) clearly contemplates not only an authorized sale, but a sale that has occurred.” Observing that “some of the Settling Insurers’ agreements included provisions that their sales will not be completed unless and until there is a successful appeal,” she concluded that the tort claimants’ “appeals are not statutorily moot as applied to those sales.”

Equitable Mootness

Because “statutory mootness does not finally resolve this case” given that the buybacks of the insurance policies “have not occurred,” Judge Rendell said, “[w]e can avoid these complications if we rely instead on equitable mootness,” a “discretionary principle that the circuit courts have unanimously adopted.”

“Even where it is applied,” Judge Rendell said, “the reviewing court has discretion to address the merits of the appeal if it wishes.” By contrast, she said that Section 363(m) operates as an “on-off” switch that can strip courts “of any ability to review that provision.”

Judge Rendell saw “not only error, but mischief, in the majority’s approach.” She concurred in the result “but believe[d] that equitable mootness is the way we should reason through the dismissal of the [tort] Claimants’ appeals.”

Observations

Recall the Serta Simmons decision in late December, where the Fifth Circuit called equitable mootness a “judge-created doctrine of pseudo-abstention,” not a matter of “real mootness” that “implicates our jurisdiction under Article III.” Excluded Lenders v. Serta Simmons Bedding LLC (In re Serta Simmons Bedding LLC), 125 F.4th 555, 585 (5th Cir. Dec. 31, 2024).

Although the Fifth Circuit’s reversal of the Serta Simmons confirmation order might cost some secured creditors millions of dollars, the appeals court said, “We will not save such sophisticated parties from the consequences of their actions.” Id. at 588.

By admitting that the plan flaunted Purdue, were all three Third Circuit judges on the Boy Scouts appeal politely recommending that the Supreme Court rule on equitable mootness?