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Creditors Must Act Quickly After Plan Confirmation To Avoid Being Stymied By The Equitable Mootness Doctrine on Appeal
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Creditors Must Act Quickly After Plan Confirmation To Avoid Being Stymied By The Equitable Mootness Doctrine on Appeal

What is the doctrine of equitable mootness, and why should a creditor care after a Chapter 11 plan has been confirmed?

The equitable mootness doctrine as applied to bankruptcy matters may ultimately render an appeal of a confirmed plan moot.  While redress may be possible on appeal, it would be inequitable, or unfair, to grant the relief sought by the appellant.  The Ninth Circuit adopted specific guidelines to determine whether equitable mootness should apply in the case of In the Matter of Thorpe Insulation Co., ____ F.3d ____, 2012 WL 178998 *1 (9th Cir. January 24, 2012).

Creditors commonly take one of two positions when faced with a proposed plan of reorganization:  they are either for it or against it.  Once a plan is confirmed, those creditors who were against the plan may choose to appeal the confirmation order.  On the other hand, the creditors who were in favor of the plan may be anxious to see the plan implemented.  After all, an order confirming a plan of reorganization is a final order and the parties may immediately commence carrying out the plan, absent a stay ordered by the court. 

Justice is many things, but speedy is not one of them.  Appeals take time.  This is where the doctrine of equitable mootness comes in.   According to the Ninth Circuit in Thorpe, in deciding whether an appeal is moot, the appellate court must consider (1) whether the appellant sought a stay on appeal (failure to do may weigh heavily against the appellant), (2) what effect a remedy may have on third parties not before the court, and (3) whether the appellate court can fashion a remedy without “completely knocking the props out from under the plan and thereby creating an uncontrollable situation for the bankruptcy court.” Thorpe at *6.

For a creditor who elects to appeal a confirmed plan, time is of the essence and a stay should be requested early and at each stage of the appeal.  Promptly requesting a stay of the order confirming the plan is essential to preserving an argument for lack of mootness.

Alternatively, a creditor in favor of the plan should urge implementation of the plan according to the confirmation order, unless the court grants a stay pending appeal.  Substantial consummation of the plan weighs in favor of mootness, and is defined by Bankruptcy Code Section 1101(c).

In cases where the confirmation order is likely to be appealed, creditors should be prepared to move quickly — either to ensure mootness on appeal, or to preserve the matter for an appellate decision on the merits. 

If you are a creditor on either side of the aisle, keep an eye on your opposition creditors, and be prepared to act in the event of a post-confirmation appeal.  The attorneys at Glass & Goldberg provide high quality and cost-effective legal services and advice for clients in all aspects of business litigation and transactional law.  Call us at (818) 888-2220, email us at info@glassgoldberg.com, or visit us on the web at www.glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

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