On April 29, 2013, the Supreme Court of the United States declined to hear an appeal of the Second Circuit's decision dismissing, as equitably moot, appeals arising out of the bankruptcy of Charter Communications and let stand the opinion in In re Charter Communications, Inc., 691 F.3d 476 (2d Cir. 2012). As a result, the application of the equitable mootness doctrine, as it applies to bankruptcy appeals, will continue to vary among jurisdictions.
Certain creditors of Charter Communications sought appellate review of the bankruptcy court's confirmation of a pre-arranged chapter 11 plan of reorganization. The plan allowed for the restructure of Charter's debt through the implementation of a settlement involving Microsoft co-founder Paul Allen and certain junior bondholders while reinstating certain senior loans that held favorable terms for the debtor. The plan also eliminated the equity in the company. The plan was confirmed following a 19-day hearing, after which certain objecting creditors sought, but were denied, a stay of the confirmation order pending appeal. The debtor moved swiftly to consummate the plan and sought to dismiss the pending appeals under the doctrine of equitable mootness.
Equitable mootness is a concept that has developed in the courts allowing for dismissal of appeals when granting any effective relief at the appellate level, while possible, would be inequitable. Often equitable mootness occurs in connection with a bankruptcy plan of reorganization where many parties have relied upon the confirmation order and the implementation of the plan. Some courts have likened equitable mootness to attempts to unscramble an egg. The United States Circuit Courts of Appeal have wrestled with this concept and have established differing standards for equitable mootness.
In the Second Circuit, an appeal is presumed to be equitably moot where a plan of reorganization has been substantially consummated and the plan provisions carried out. This presumption is also used by the First, Sixth and D.C. Circuit Courts. However, five of the other circuits use other standards to consider equitable mootness, typically placing the burden on the party seeking dismissal of an appeal. Courts of Appeal are also divided on the applicable standard of review. The Second, Third and Tenth Circuits review a decision of the district court dismissing an appeal for equitable mootness under an abuse of discretion standard, while other courts exercise the lower standard of de novo review.
In Charter Communications, the Second Circuit agreed that an appeal of the confirmation order was moot. While the court acknowledged that it could grant effective relief, and that the appellants had diligently sought a stay pending appeal in an effort to prevent equitable mootness, it found that the appellants could not overcome the presumption of equitable mootness. Specifically, the Second Circuit concluded that the appellants could not establish that the relief requested would not affect the company's emergence as a revitalized entity, nor could they establish that the relief would not require the unraveling of complex transactions occurring after consummation of the plan. In essence, the egg could not be unscrambled. In particular, the court noted that the plan was the result of complex and multifaceted negotiations and that removing any one piece would likely impact the terms of the entire settlement and place the viability of the plan in doubt.
Appellants sought review in the Supreme Court to address whether the appeals were properly dismissed and sought to raise whether courts had the authority to dismiss appeals under the doctrine of equitable mootness, and if so, (i) whether to presume mootness with respect to a confirmation order and (ii) the appropriate standard of review.
The Supreme Court's decision not to accept the case means that the concept of equitable mootness and the manner in which it is applied will continue to vary among the Circuit Courts of Appeal. In addition, the decision highlights the importance for any party opposing a bankruptcy plan to (i) timely oppose confirmation, (ii) promptly seek a stay of an adverse ruling and (iii) seek to expedite any appeal of a stay that is denied in the hope that a ruling could be obtained prior to consummation of the plan. Moreover, because obtaining a stay of a confirmation order often requires posting a substantial bond, appeals of such orders will continue to become subject to the equitable mootness doctrine.