Update on Bankruptcy Appellate Practice: Part Two — Equitable Mootness

Equitable mootness is premised on the notion that practical considerations and fairness to third parties may justify the court's decision not to decide a case on the merits. In other words, even when the court could conceivably fashion some effective relief, "implementation of that relief would be inequitable." In re Chateaugay Corp., 988 F.2d 322, 325 (2d Cir. 1993). This limited doctrine purportedly enables the court to prevent harm to third parties. Courts ask whether they can grant relief without undermining the reorganization plan and affecting third parties. See, e.g., In re Nordhoff Invs. v. Zenith Elecs. Corp., 258 F.3d 180, 185 (3d Cir. 2001) ("doctrine prevents court from unscrambling complex reorganization plans"). Whether the "confirmed plan has been substantially consummated, and, if so, whether the relief sought would affect third parties not before the court" are critical considerations. In re Transwest Resort Properties, Inc., 791 F.3d 1140, 1142 (9th Cir. 2015) (2-1).

Appeal from Plan Confirmation Order

The Third Circuit dismissed an appeal by an individual creditor from an order confirming a reorganization plan that allegedly discriminated unfairly between classes of creditors. In re Nuverra Environmental Solutions, Inc., 834 Fed. App'x 729 (3d Cir. Jan. 6, 2021), cert. denied, 142 S. Ct. 337 (Oct. 12, 2021). The court held the appeal to be equitably moot not only because the creditor sought "a personal payout that was disallowed by" the Code, but also because any other "form of relief would require unwinding the confirmed plan." Id. at 731. According to the court, equitable mootness is "a narrow doctrine … by which an appellate court deems it prudent for practical reasons to forebear deciding an appeal when to grant the relief requested will undermine the finality and reliability of consummated plans of reorganization." Id. at 733. But there is a "strong presumption that appeals from confirmation orders of reorganization plans … need to be decided." Id. A "court may fashion whatever relief is practicable instead of declining review simply because full relief is not available." Id. Here, however, the plan had been substantially consummated and the appealing individual creditor only sought a "relatively small sum," but the Code does not permit such relief. Id. It would "contravene the purpose of the unfair discrimination provision [§1129(b)(1)], which applies only to classes of creditors, not the individual creditors that comprise them." Id. at 734. The appellant was barred from seeking payment for himself only "but not to others in his class because §1123(a)(4) bars individualized treatment." Id. at 735.