In Re Charter Communications: Driving The Equitable Mootness Wedge Deeper?

On the heels of the Third and Ninth Circuits' equitable mootness rulings in In re Philadelphia Newspapers, LLC, 690 F.3d 161 (3d Cir. 2012), and In re Thorpe Insulation Co., 671 F.3d 980 (9th Cir. 2012), amended and superseded on denial of rehearing en banc, 677 F.3d 869 (9th Cir. 2012), the Second Circuit issued its own decision in In re Charter Communications, Inc., 691 F.3d 476 (2d Cir. 2012), which deepens a split among the circuit courts of appeal with respect to the standard of review and burden of proof to be applied in equitable mootness cases. In so ruling, the Second Circuit put itself at odds with several recent equitable mootness decisions from other circuits and made a number of equitable mootness issues ripe for review by the Supreme Court.

EQUITABLE MOOTNESS

"Equitable mootness" is a judge-made doctrine under which an appellate court may dismiss an appeal, even when effective relief could conceivably be fashioned, if it finds that implementation of that relief would be inequitable. In bankruptcy, equitable mootness issues often arise in appeals from orders confirming chapter 11 plans, where plan proponents attempt to preclude appellate review by arguing that the relief sought by the appellant would upset a "substantially consummated" plan and lead to an unraveling of a debtor's restructuring. In these cases, appellate courts have sought to strike the proper balance between the importance of finality in bankruptcy proceedings and a litigant's right to appellate review of, and relief from, a bankruptcy-court order.

The threshold inquiry in applying the equitable mootness doctrine is whether a chapter 11 plan has been "substantially consummated." Pursuant to section 1101(2) of the Bankruptcy Code, substantial consummation occurs when substantially all of the proposed transfers in a plan are consummated, the successor company has assumed control of the debtors' business or property, and the distributions called for by the plan have commenced. Once a plan has been substantially consummated, it often becomes difficult for an appeal to withstand dismissal on equitable mootness grounds.

Several circuit courts have adopted multifactored tests to determine whether the doctrine of equitable mootness should apply in appeals of confirmation orders. These factors typically include an examination of whether: (i) the appellant sought to stay the execution of the objectionable order; (ii) the plan has been substantially consummated; (iii) the court can still order some effective relief; (iv) parties who would be adversely affected by the relief sought in the appeal have notice of the appeal and an opportunity to participate in the proceedings; and (v) the relief would require the unraveling of complex transactions and/or affect the re-emergence of the debtor as a reorganized entity. See, e.g., Charter Communications, 691 F.3d at 482; Thorpe Insulation, 677 F.3d at 881; Nordhoff Invs., Inc. v. Zenith Elecs. Corp., 258 F.3d 180 (3d Cir. 2001); TNB Fin., Inc. v. James F. Parker Interests (In re Grimland, Inc.), 243 F.3d 228 (5th Cir. 2001). The circuits differ, however, with respect to the weight placed on these factors. Compare Charter Communications, 691 F.3d at 582 (appeal presumed moot where plan has been substantially consummated) with In re Philadelphia Newspapers, LLC, 690 F.3d 161, 168-69 (3d Cir. 2012)...