Second Circuit Adopts Abuse Of Discretion Standard Of Review For Equitable Mootness Decisions

On August 31, 2012, the United States Court of Appeals for the Second Circuit published its first decision expressly adopting an abuse of discretion standard for reviewing equitable mootness determinations by district courts. In In re Charter Communications, Inc., the Second Circuit followed the Third and Tenth Circuits, while also reaffirming the Second Circuit's rebuttable presumption of equitable mootness upon substantial consummation of a debtor's plan. The Charter court ultimately held that the presumption applied but was not overcome and therefore dismissed the appeal at issue as equitably moot. In re Charter Commc'ns Inc., 2012 WL 3764706 (2d Cir. Aug. 31, 2012).

Equitable Mootness Revisited

We have recently written about the complexities of the equitable mootness doctrine here. As discussed in that post, courts of appeals are split as to what prudential factors should be considered, what standard of review should be applied, and who has the burden of persuasion.

The Second Circuit's standard for equitable mootness is fairly well-established: an appeal is presumed equitably moot where the debtor's plan has been substantially consummated; however, the presumption can be rebutted if each of the following five factors are satisfied – the so-called Chateaugay factors: (1) the court can still order some effective relief, (2) the relief will not affect the re-emergence of the debtor as a revitalized corporate entity, (3) the relief will not unravel intricate transactions so as to knock the props out from under the authorization for every transaction that has taken place and create an unmanageable, uncontrollable situation for the bankruptcy court, (4) the parties who would be adversely affected by the modification have notice of the appeal and an opportunity to participate in the proceedings, and (5) the appellant pursued with diligence all available remedies to obtain a stay of execution of the objectionable order if the failure to do so creates a situation rendering it inequitable to reverse the order subject to the appeal. Aetna Casualty & Surety Co. v. LTV Steel Company, Inc. (In re Chateaugay Corp.), 94 F.3d 772, 776 (2d Cir. 1996).

This rebuttable presumption is unique among the circuits and often places the burden on parties opposing equitable mootness rather than those asserting it. As discussed in our previous post, the Third Circuit, on the other hand, recently reiterated its narrow approach towards equitable mootness whereby...