In a recent decision in In re
Hargreaves objected to the plan on the basis that it improperly classified the note and trade claims and unfairly discriminated against claims of equal rank. Following a hearing, the bankruptcy court confirmed the plan over Hargreaves' objection on the basis that the "gift" to trade creditors from the secured creditors was not improper under the Bankruptcy Code's priority scheme, and that the preferential treatment to trade creditors also was appropriate to maintain ongoing business relationships. Hargreaves appealed to the District Court and then moved for a stay of the confirmation order, but the stay request was denied. The debtors substantially consummated the confirmed Chapter 11 plan and moved to dismiss the appeal on the basis of equitable mootness.
A majority of the Third Circuit panel in Nuverra considered whether the appeal was equitably moot, which would be the case if the plan was substantially consummated and if granting the relief requested in the appeal would fatally scramble the plan or significantly harm third parties who justifiably relied on plan confirmation. As the parties agreed that the plan had been substantially consummated, the court needed only to consider the second prong of this analysis. But, in reaching its ruling, the court sidestepped the issue of whether the small sum requested by Hargreaves would frustrate the plan or prejudice other parties, and instead it considered whether Hargreaves could permissibly be made whole while other unsecured notes holders in the same class retained only their six percent dividend. A majority of the panel concluded that such treatment was impermissible, as Hargreaves could not obtain greater benefits under the plan than other members of the same class of creditors, pursuant to Sections 1123(a)(4) and 1129(b)(1) of the bankruptcy code, and, accordingly, it dismissed the appeal.
Hargreaves argued, and the dissenting judge believed it was plausible, that the other unsecured notes creditors consented to the less favorable treatment by failing to object, and waived their unfair discrimination claims by failing to appeal. The dissenting judge also believed that a less strict application of the equitable mootness doctrine would encourage appeals to be decided on their merits (as she intimated this case ultimately was, notwithstanding the majority's framing), and would permit appeals courts to resolve important legal issues, including, as relevant to the Nuverra plan, whether the
Originally Published by
Visit us at mayerbrown.com
© Copyright 2020. The Mayer Brown Practices. All rights reserved.
This
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
IL 60606
Tel: 3127820600
Fax: 3127017711
E-mail: Mnoonan@mayerbrown.com
URL: www.mayerbrown.com
© Mondaq Ltd, 2021 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source