Just for the name, FishDish is a case that no one will forget.
If you remember the name but forgot the holding, the Eighth Circuit in FishDish came one step short of altogether banning equitable mootness on appeal from confirmation of a chapter 11 plan. FishDish LLP v. VeroBlue Farms USA Inc. (In re VeroBlue Farms USA Inc.), 6 F.4th 880 (8th Cir. Aug. 5, 2021).
To be brief, the Eighth Circuit reversed and remanded, barring the invocation of equitable mootness without a preliminary analysis of the appellant’s claims.
On remand, you will be relieved to know that the world did not come to an end. District Judge C.J. Williams of Cedar Rapids, Iowa, upheld confirmation after a thorough, albeit tedious, review of the merits.
The Chapter 11 Plan and the Reversal in the Circuit
The chapter 11 debtor had first-lien debt of $54 million, more than the assets were worth, and a $2 million priming “DIP” loan made by the largest equity holder. The debt was secured by all the assets.
The creditors’ committee reached a settlement on a chapter 11 plan. In return for a dollop of consideration for unsecured creditors, the committee dropped its objection to the secured claim. One of the smaller equity holders objected to the disclosure statement and to allowance of the secured claim. The bankruptcy court confirmed the plan and denied the objection to the secured claim.
In consummating the plan, the dominant equity holder funded the plan with $13.5 million, existing stock was cancelled, cash distributions were made to creditors, and the secured lender received $6 million.
The smaller equity holder appealed the confirmation order without a stay pending appeal. Like virtually every appellate court would do throughout the country, the district court dismissed the appeal as equitably moot, but the equity holder appealed to the Eighth Circuit.
Reversing and remanding, the Eighth Circuit barred dismissal of an appeal from confirmation of a chapter 11 plan without
at least a preliminary review of the merits of [the appellant’s] appeal to determine the strength of [the appellant’s] claims, the amount of time that would likely be required to resolve the merits of those claims on an expedited basis, and the equitable remedies available — including possible dismissal — to avoid undermining the plan and thereby harming third parties.
Id. at 890. [Emphasis in original.] To read ABI’s report of FishDish, click here.
However, the St. Louis-based court of appeals did ban further use of the term “equitable mootness” in the Eighth Circuit, telling courts instead to say “equitable dismissal.”
The Affirmance on Remand
On remand in district court, the appealing equity holder took issue with virtually every finding of fact and legal conclusion made by the bankruptcy court regarding confirmation under Section 1129(a). District Judge Williams was not persuaded in his 25-page opinion on April 12.
Judge Williams said that the appellant’s arguments were “weak.” Rather than invoke equitable dismissal to dispose of the appeal, he ruled on every one of the appellant’s arguments on the merits.
As the appellant, the smaller equity holder claimed there was a violation of the absolute priority rule because the dominant shareholder got the new stock while the appellant got zilch. Judge Williams saw no clearly erroneous findings of fact and no legal error because the dominant shareholder was the only party willing to put up millions to buy the debtor.
Judge Williams also found no clear error in the bankruptcy court’s good faith finding nor in the findings associated with the best interests and other confirmation standards. He upheld the confirmation order on the merits.
Observations
Most district judges probably dislike appeals from confirmation orders and would prefer to avoid acquainting themselves with the intricacies of Section 1129(a). Still, parsing the requirements of equitable mootness (or equitable dismissal) is not an easy undertaking.
Perhaps FishDish is an example well taken. Why not review the merits the first time around? Ninety percent of the time, the district court will uphold confirmation.
If the district court finds a mistake, why not remand for the bankruptcy court to decide whether some relief could be awarded without prejudice to the great body of creditors who were not parties to the appeal?
Many aspects of chapter 11 plans, like third-party releases, are hotly debated by scholars but seldom resolved on appeal. Loosening the bounds on equitable mootness would soon answer most of the gray areas in chapter 11 law.
And by the way, if there is another FishDish appeal, the opinion by Judge Williams would entitle the Eighth Circuit to invoke equitable dismissal in a brief per curiam opinion.
Just for the name, FishDish is a case that no one will forget.
If you remember the name but forgot the holding, the Eighth Circuit in FishDish came one step short of altogether banning equitable mootness on appeal from confirmation of a chapter 11 plan. FishDish LLP v. VeroBlue Farms USA Inc. (In re VeroBlue Farms USA Inc.), 6 F.4th 880 (8th Cir. Aug. 5, 2021).
To be brief, the Eighth Circuit reversed and remanded, barring the invocation of equitable mootness without a preliminary analysis of the appellant’s claims.
On remand, you will be relieved to know that the world did not come to an end. District Judge C.J. Williams of Cedar Rapids, Iowa, upheld confirmation after a thorough, albeit tedious, review of the merits.