Mootness Muted? ' Eighth Circuit Circumscribes Use Of Equitable Mootness Doctrine To Bar Bankruptcy Plan Appeals

• Published date: 23 August 2021
• Subject Matter: Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy
• Law Firm: Mayer Brown
• Author: Ms Danielle A. Corn, Sean T. Scott and Aaron Gavant

In its August 5th, 2021 VeroBlue Farms decision,¹ the Eighth Circuit lent its voice to a growing body of criticism of the equitable mootness doctrine contending that its use to bar challenges to confirmed reorganization plans should be circumscribed. Laying out a new investigation that must be undertaken before using the doctrine to bar confirmation order appeals, the Eighth Circuit emphasized that reviewing courts must: (1) make "at least a preliminary review of the merits" of an appeal to determine the strength of the claims at issue; (2) assess the "amount of time that would likely be required" to resolve the merits of such claims on an expedited basis; and (3) consider the potential equitable remedies that might still be available even after a plan's implementation, should the appeal prove successful, which would not undermine the plan or harm third parties.

While it remains to be seen what impact the Eighth Circuit's test will have, and whether other courts will adopt or build off of it, the Eighth Circuit is not the first court to raise concerns with the increased use of the equitable mootness doctrine to deny otherwise legitimate appeals of already-approved reorganization plans without any additional substantive review.² Indeed, the Eighth Circuit itself suggests that, absent increased scrutiny around the application of the doctrine, the Supreme Court is likely to step in and restore what might otherwise be considered an abdication of subject matter jurisdiction from Article III district courts to Article I bankruptcy courts.

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In VeroBlue, the debtors and their affiliates were in the aquaculture business - i.e., farming and selling fish to wholesalers, restaurants and grocery chains. In September 2018, the debtors filed for chapter 11 relief, listing an undisputed, $54 million obligation under their prepetition credit facility which was "well in excess" of the debtors' assets. Over the objection of FishDish - one of the debtors' early shareholders - the bankruptcy court confirmed a plan of reorganization in April 2019 centered around an equity infusion by an entity affiliated with the debtors' prepetition lenders and certain equity investors. FishDish appealed from the confirmation order arguing, among other things, that the plan unfairly discriminated between members of the same class of shareholders, violated the absolute priority rule, was proposed in bad faith, was not in the best interests of creditors, and was not feasible. Without...