When is an Appeal Equitably Moot?

Introduction

On May 12, 2012, the United States District Court for the District of Delaware (the “District Court”) issued an opinion (the “Decision”) in the SemCrude bankruptcy in response to the SemCrude reorganized debtors’ (“Debtors”) motion to dismiss an appeal. Several of Debtors’ oil producers (the “Producers”) appealed from orders entered by the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Bankruptcy Court’s orders included an Order Establishing Procedures for the Resolution of Liens Asserted Pursuant to Producers’ Statutory Lien or Similar Statutes (the “Lien Procedures Order”) and the Order Confirming Debtors’ Fourth Amended Joint Plan (the “Plan” and “Confirmation Order”). After considering the parties’ positions, the District Court granted the Debtors’ motion to dismiss, finding that the Producers’ appeal was equitably moot. This post will look at the doctrine of equitable mootness and the reasoning for the Court’s Decision.

Doctrine of Equitable Mootness

“The doctrine of equitable mootness provides that an appeal should be dismissed as moot when, even though effective relief could conceivably be fashioned, implementation of that relief would be inequitable.” Decision at *4, citing In re Continental Airlines, 203 F.3d. 203, 209 (3d Cir. 2000)(“Continental II”). Courts considering whether an appeal is equitably moot undertake a “discretionary balancing of equitable and prudential factors.” Id. citing In re Continental Airlines 91 F.3d 533, 560 (3d Cir. 1996)(en banc)(“Continental I”). Under Continental I, the Third Circuit listed five factors courts should consider in deciding whether to dismiss an appeal as equitably moot. Dec. at *5, citing Continental I at 560. These include:

(1) whether the reorganized plan has been substantially consummated; (2) whether a stay has been obtained; (3) whether the relief requested would affect the rights of the parties not before the Court; (4) whether the relief requested would affect the success of the plan; and (5) the public policy of affording finality to bankruptcy judgments.

Id.

Analysis by the Court

Applying the law to the facts before it, the District Court found that Producers neither sought to expedite their appeal, nor seek a stay of the confirmation order while their appeal was pending. Dec. at *6. The failure to either expedite the appeal or stay confirmation were two factors important to the Court, noting that “[b]ecause of the nature of bankruptcy confirmations … it is obligatory upon [an] appellant … to pursue with diligence all available remedies to obtain a stay of execution.” Dec. at *5, citing Nordhoff Invs., Inc. v. Zenith Elecs. Corp., 258 F.3d 180, 186-87 (3d Cir. 2001).

Next, the District Court considered the effect that granting an appeal might have on other parties. The Court noted that the effect that a reversal of the Bankruptcy Court would have on third parties supported a finding of equitable mootness. Dec. at *6. The reasoning behind the doctrine of equitable mootness supported this finding – the doctrine “protects the interests of non-adverse third parties who are not before the reviewing court but who have acted in reliance upon the plan as implemented.” Id., citing Continental I, 91 F.3d at 562 (internal question marks omitted).

The District Court also found that equitable mootness supported dismissal “if the relief requested … would jeopardize the success of the reorganization plan by causing its reversal or unraveling …” Dec. at *6, citing In re Genesis Health Ventures, Inc., 204 F. App’x 144, 146 (3d Cir. Oct. 4, 2006). Were the District Court to grant the Producers the relief they requested, the Court noted that it would “jeopardize the entire reorganization Plan.” Dec. at *7. Finally, the District Court found that dismissal of the appeal was appropriate under public policy considerations. Id. Again citing to Continental I, the District Court recognized “the importance of allowing approved reorganizations to go forward in reliance on bankruptcy court confirmation orders may be the central animating force behind the equitable mootness doctrine.” Dec. at *7, citing Continental I, 91 F.3d at 565.

After considering the factors relevant under the doctrine of equitable mootness, the Court in the SemCrude bankruptcy found that dismissal was appropriate. According to the District Court, the Producers’ failure to seek a stay or expedite an appeal, coupled with the need to keep a confirmed plan intact, supported dismissing the appeal. To do otherwise would unravel a plan that was confirmed over two and a half years ago.

Jason Cornell is a commercial bankruptcy attorney with the law firm of Fox Rothschild LLP. Jason practices before the United States Bankruptcy Court for the District of Delaware. You can reach Jason with questions or comments at [email protected] or by phone at (302) 252-5833.