Third Circuit Reiterates Narrow Application Of Equitable Mootness Doctrine

The United States Court of Appeals for the Third Circuit recently reiterated its position that the doctrine of equitable mootness should only apply if granting relief on appeal would undermine a consummated bankruptcy plan. In In re Philadelphia Newspapers, LLC, the Third Circuit held that the United States District Court for the Eastern District of Pennsylvania abused its discretion when summarily finding that the appeal at issue was equitably moot simply because the appellants failed to seek a stay and the debtors' plan had been substantially consummated. Upon a more careful review of the equitable mootness test enunciated by the Third Circuit en banc in In re Continental Airlines, 91 F.3d 553 (3d Cir. 1996), the Philadelphia Newspapers court found that the appeal should proceed. However, it ultimately affirmed the ruling of the district court that managers of a charter school were not entitled to an administrative expense claim for the debtors' postpetition internet publication of an article that linked to other allegedly defamatory articles that the debtors published prepetition. See In re Philadelphia Newspapers, LLC, 2012 WL 3038578 (3d Cir. July 26, 2012).

Equitable Mootness

The doctrine of "equitable mootness" remains a tricky concept. Unlike constitutional mootness, which requires dismissal of an appeal if it is impossible for the court to grant any effectual relief, equitable mootness occurs when, even though relief could conceivably be fashioned, implementation of such relief would be inequitable. The difference is inability versus unwillingness to alter the outcome on appeal. Thus, equitable mootness is cautiously applied to avoid unnecessarily undermining an appellant's statutory right to appeal.

Courts consider different combinations of prudential factors when determining whether to dismiss an appeal on equitable mootness grounds, including: (i) whether the debtors' bankruptcy plan has been substantially consummated, (ii) whether a stay has been diligently sought and obtained, (iii) whether the relief requested would affect the rights of third parties not before the court, (iv) whether the relief requested would affect the success of the debtor's plan, (v) the policy favoring the finality of bankruptcy decisions, (vi) whether the relief requested will affect the reemergence of the debtor as a revitalized corporate entity, and (vii) whether the appellant's challenge is legally meritorious or equitably compelling. The Third Circuit employs a test using the...