Over a vigorous dissent, the Sixth Circuit dismissed an appeal from confirmation of Detroit’s chapter 9 plan, relying on the judge-made doctrine of equitable mootness.
Finding dubious constitutional or statutory basis for the doctrine in either chapter 9 or 11, the dissenter urged the Sixth Circuit to rehear the case en banc. A similar case involving equitable mootness in municipal bankruptcy is pending in the Eleventh Circuit.
Detroit’s Chapter 9 Plan
Detroit confirmed its municipal debt adjustment plan in late 2014. Although the plan reduced municipal workers’ pensions by 4.5%, 73% of city employees voted for the plan because the shortfall in the pension system’s funding would have required a 27% reduction in promised retirement benefits. Increased funding under the plan to enhance workers’ pensions resulted from an $816 million contribution by the city, state and third parties.
Dissenting city workers appealed the confirmation order, but the district court dismissed the appeal, relying on equitable mootness. The majority opinion on Oct. 3 by Circuit Judge Alice M. Batchelder also dismissed the appeal as equitably moot.
The Majority Opinion
The majority easily and adamantly applied equitable mootness, in the process holding that the doctrine is properly extended from chapter 11 to chapter 9. Judge Batchelder said the city had issued $1 billion in debt and consummated countless other “colossal” and irrevocable transactions on the faith of the confirmation order, which had not been stayed pending appeal.
The majority said the case was “not a close call,” in part because the panel was bound by a prior Sixth Circuit opinion that sanctioned equitable mootness in chapter 11 cases.
Judge Batchelder disagreed with Bennett v. Jefferson County, where an Alabama district court held that equitable mootness does not apply in chapter 9 cases. Quoting the Detroit lower court’s decision, she said that “equitable mootness likely applies ‘with greater force to the city’s chapter 9 plan, which affects thousands of creditors and residents.’”
The Dissent
Dissenting, Circuit Judge Karen Nelson Moore conceded that every circuit to visit the issue has invoked equitable mootness but said “its legal foundations are shaky, at best.” Attacking the doctrine head-on, she cited Justice Samuel Alito, who, as an appeals court judge, dissented from the en banc Third Circuit’s 1996 opinion in Continental Airlines embracing equitable mootness.
She criticized other circuits for adopting the doctrine with “minimal exploration of its legal basis.” In the statutes, she found no textual support, while saying that “statutory provisions regarding bankruptcy appeals arguably preclude the doctrine.” She said it “contradicts the relevant appellate-jurisdiction statutes and purports to authorize making of federal common law despite the complete lack of evidence that Congress intended to delegate such authority to the courts.”
Judge Batchelder said that equitable mootness “raises separation of powers concerns” because it renders decisions by Article I bankruptcy courts immune from review by Article III judges. She said that review in an Article III court is the “key” to Supreme Court decisions limiting the powers of bankruptcy courts.
Observing that equitable mootness creates “a new pseudo-jurisdictional rule that appears to be boundless,” Judge Batchelder said it is “high time” for the Sixth Circuit to review the doctrine en banc.
Jefferson County is pending in the Eleventh Circuit on a certified interlocutory appeal. The case has been fully brief since January, but the appeals court has yet to schedule oral argument.
Judge Moore was a magna cum laude graduate from Harvard Law School and a clerk for Supreme Court Justice Harry Blackmun. While teaching at Case Western Reserve Univ. Law School, she was appointed to the circuit court in 1995. Judge Batchelder was a bankruptcy judge before she was appointed to the district court and then to the circuit court in 1991.