The Tenth Circuit held that the doctrine of equitable mootness applies to appeals from confirmation of liquidating chapter 11 plans, not just conventional reorganizations.
Although the doctrine applies, some factors are more important when the plan is a liquidation, the appeals court said.
The debtor owned a plant that filed a chapter 11 petition in Kansas. An affiliate had provided millions in financing. The affiliate was in its own chapter 11 case in Missouri.
Over the affiliate’s objection, the trustee for the Kansas debtor confirmed a liquidating chapter 11 plan that subordinated the affiliate’s claim to the claims of all other creditors. The plan meant that the affiliate would receive nothing.
The affiliate appealed and unsuccessfully sought a stay pending appeal. The district court dismissed the appeal for equitable mootness. The affiliate appealed again to the Tenth Circuit.
Applying abuse of discretion as the standard of review, the Tenth Circuit dismissed the appeal for equitable mootness in an opinion on May 5 by Circuit Judge Timothy M. Tymkovich.
The affiliated wanted the appeals court to rule as a matter of law that equitable mootness does not apply to cash-only liquidations in chapter 11. The circuit court declined the invitation.
Judge Tymkovich characterized equitable mootness as “a judicially-created doctrine of abstention” arising from the “practical concern” that overturning confirmed plans “might disrupt the confirmed plan or otherwise harm the interests of third parties who have justifiably relied upon plan confirmation.” He observed that every circuit, including the Tenth, “has adopted some variation of the equitable-mootness doctrine.” In the Tenth Circuit, see Search Market Direct Inc. v. Paige (In re Paige), 584 F.3d 1327 (10th Cir. 2009).
Judge Tymkovich noted how some judges and academics have criticized equitable mootness. Since the Supreme Court has not addressed the issue, he said the Tenth Circuit would continue to “apply” Paige.
Judge Tymkovich declined to “erect a categorical bar” to application of equitable mootness to liquidating plans. In fact, he saw “no reason” to treat a liquidating plan “any differently than a more conventional plan of reorganization.” He also recognized that the Second and Fifth Circuits have applied equitable mootness to liquidating plans.
Nonetheless, Judge Tymkovich said that three of the five factors laid down by Paige “permit courts to consider the specific attributes of a confirmed plan of liquidation.” He was referring to the effect on innocent third parties, public policy needs, and, “most especially,” the impact on reorganization.
Having rejected the appellant’s categorical bar, Judge Tymkovich proceeded to apply the Paige factors to the case on appeal and upheld dismissal of the appeal as equitably moot.
The Tenth Circuit held that the doctrine of equitable mootness applies to appeals from confirmation of liquidating chapter 11 plans, not just conventional reorganizations.
Although the doctrine applies, some factors are more important when the plan is a liquidation, the appeals court said.
The debtor owned a plant that filed a chapter 11 petition in Kansas. An affiliate had provided millions in financing. The affiliate was in its own chapter 11 case in Missouri.
Over the affiliate’s objection, the trustee for the Kansas debtor confirmed a liquidating chapter 11 plan that subordinated the affiliate’s claim to the claims of all other creditors. The plan meant that the affiliate would receive nothing.
The affiliate appealed and unsuccessfully sought a stay pending appeal. The district court dismissed the appeal for equitable mootness. The affiliate appealed again to the Tenth Circuit.
Applying abuse of discretion as the standard of review, the Tenth Circuit dismissed the appeal for equitable mootness in an opinion on May 5 by Circuit Judge Timothy M. Tymkovich.