To dismiss an appeal from an order approving a settlement, a district judge in Dallas laid down rigorous evidentiary requirements for invoking equitable or statutory mootness.
After deciding that the appeal was not moot, District Judge Jane J. Boyle reached the merits and upheld the settlement.
The corporate debtors operated a stable of nursing homes. The chapter 11 reorganization was premised on rejecting leases for unprofitable locations.
The rejection of the lease for a particular location fomented vigorous and protracted litigation with the landlord. Ultimately, the debtor and the landlord negotiated a global settlement. The guarantor of the lease objected, but the bankruptcy judge approved the settlement, which allowed the bankruptcy court to enter an order approving the transfer of the facility to a new operator.
Around the same time, the bankruptcy court confirmed the chapter 11 plan, which was consummated. The guarantor appealed the settlement order, but not confirmation or the sale orders.
The debtors contended that the appeal of the settlement was equitably and statutorily moot. Judge Boyle was not persuaded.
The Fifth Circuit, Judge Boyle said, is “hesitant” to invoke equitable mootness. Employing the doctrine considers whether a stay was obtained, whether the plan has been substantially consummated, and whether the requested relief would affect the rights of parties not before the court or the success of the plan.
Applying the law to the case at hand, Judge Boyle noted that the appellant was not appealing confirmation. Instead, the appeal challenged a settlement of claims against the estate.
The Fifth Circuit, Judge Boyle said, recognized that some courts in other circuits have applied equitable mootness to settlements in “particularly messy cases,” but the Fifth Circuit declined “to expand equitable mootness into [such a] new frontier.” In re Sneed Shipbuilding Inc., 916 F.3d 405, 409 (5th Cir. 2019).
In the case on appeal, Judge Boyle said it was unclear whether the sale of the nursing home had closed. Even if it had, she said that “unwinding it would simply involve transferring ownership of the nursing home back to the estate.”
Furthermore, the debtor had not shown that “having to litigate with [the landlord] would substantially impact the plan, nor that any specific third parties actually based their support of the plan on the Settlement Order.”
Having decided that equitable mootness did not apply, Judge Boyle turned to statutory mootness under Section 363(m).
The guarantor had not appealed approval of the sale, but the debtors argued that the sale and the settlement were inextricably intertwined, because the settlement was a condition to the sale.
Section 363(m) provides that the “reversal or modification on appeal of . . . a sale or lease of property does not affect the validity of a sale or lease under such authorization to [a good faith purchaser], whether or not [the purchaser] knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal.”
Again, Judge Boyle demanded clarity in the record. The debtors, she said, “only baldly” asserted that the sale had closed. The debtors cited no closing documents to prove there had been a closing.
In other words, the documents “suggest that the sale may have closed; however, they do not establish that it has,” Judge Boyle said. [Emphasis in original.]
Indeed, Judge Boyle found evidence that the sale had not closed. The finality of the settlement order was a condition to the effective date of settlement. Given how the debtor contended that the sale and the settlement were “inextricably intertwined,” she said that the sale “has likely not closed.”
Having found that the appeal was neither equitably nor statutorily moot, Judge Boyle upheld the settlement on the merits.
To dismiss an appeal from an order approving a settlement, a district judge in Dallas laid down rigorous evidentiary requirements for invoking equitable or statutory mootness.
After deciding that the appeal was not moot, District Judge Jane J. Boyle reached the merits and upheld the settlement.
The corporate debtors operated a stable of nursing homes. The chapter 11 reorganization was premised on rejecting leases for unprofitable locations.
The rejection of the lease for a particular location fomented vigorous and protracted litigation with the landlord. Ultimately, the debtor and the landlord negotiated a global settlement. The guarantor of the lease objected, but the bankruptcy judge approved the settlement, which allowed the bankruptcy court to enter an order approving the transfer of the facility to a new operator.
Around the same time, the bankruptcy court confirmed the chapter 11 plan, which was consummated. The guarantor appealed the settlement order, but not confirmation or the sale orders.
The debtors contended that the appeal of the settlement was equitably and statutorily moot. Judge Boyle was not persuaded.
The Fifth Circuit, Judge Boyle said, is “hesitant” to invoke equitable mootness. Employing the doctrine considers whether a stay was obtained, whether the plan has been substantially consummated, and whether the requested relief would affect the rights of parties not before the court or the success of the plan.
Applying the law to the case at hand, Judge Boyle noted that the appellant was not appealing confirmation. Instead, the appeal challenged a settlement of claims against the estate.