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indicating that the bank's security interest only attached to post-petition assets to the extent of the debtors' actual use of $100,000 of cash collateral, or so the creditor argued.
Treating the stipulation as an ordinary contract between the creditor and the debtors, the district court found the stipulation to be clear and unambiguous. The stipulation made no indication of the parties' intent to limit the bank's security interest to post-petition use of cash collateral. And even if the bank's lien on post-petition assets was limited to the order allowing the debtors' use of cash collateral, said the district court, that cash collateral order did not limit the debtors' use to $100,000, as the unsecured creditor argued. The creditor's argument amounted to a collateral attack on the cash collateral order itself, and the court found that argument to be without merit because the creditor failed to raise that objection to the debtors' use of cash collateral, despite having the opportunity to do so. Finding this legal argument to be without merit, and concluding that the bankruptcy court did not err in finding that the bank was fully secured, the district court affirmed the confirmation orders.
* Kenton County Bondholders Comm. v. Delta Air Lines, Inc. (In re Delta Air Lines, Inc.),
374 B.R. 516 (S.D.N.Y. Aug. 2007) (Koeltl, J.) Individual bondholders' appeal was both equitably moot and without merit. As part of the debtor's chapter 11 plan, the debtor entered into a settlement agreement: terminating the existing lease, guaranty, and trust agreements; entering into a new lease agreement with the county airport board; and issuing a new note to the indenture trustee in exchange for several releases from causes of action arising from the settlement. A small group of individual bondholders objected to the settlement, but the bankruptcy court, over the objection, approved. The agreement was incorporated into the plan of reorganization, which was approved by an overwhelming majority of the bondholders. The minority group of bondholders appealed, but the bankruptcy court declined stay the settlement agreement pending the appeal.
The district court affirmed the bankruptcy court's approval and concluded that the appeal was equitably moot. This equitable mootness conclusion, however, did not come as a result of the substantial consummation of the plan -- the court found the appeal to be narrowly tailored so that the consummation of the plan was irrelevant to the appeal. Instead, the court held that the appeal was moot because the unstayed settlement order had resulted in "comprehensive changes in circumstances" which could not be remedied in a reasonable fashion. In any event, the court applied the five Chateaugay II factors and reasoned that the bondholders' diligence in attempting to stay the execution of the settlement order did not, by itself, prevent the appeal from becoming equitably moot in light of the other factors. Distributions under the settlement terms had been made, and vacating the releases, said the court, would be unreasonable and would only complicate the debtor's vitality as a reorganized entity. Mootness notwithstanding, the court quickly dispensed of the appeal on the merits as well and found all grounds of the appeal (even those offered for the first time on appeal) to be without merit. Specifically, the court held that the bankruptcy court had jurisdiction to approve the settlement and did so correctly; the indenture trustee had the authority to enter into the settlement notwithstanding certain non-impairment clauses; and the bondholders did not have rights in "re-let proceeds" from an entity other than the debtor.
