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Holding: The court held that the debtor's shareholder's appeal from an unstayed order confirming the debtor's plan should be dismissed as equitably moot. The court relied on the following factors for equitable mootness: "(1) whether the reorganized plan has been substantially consummated; (2) whether a stay has been obtained; (3) whether the relief requested would affect the rights of parties not before the Court; (4) whether the relief requested would affect the success of the plan; and (5) the public policy of affording finality of bankruptcy judgments." The court found that the plan was substantially consummated by its terms on the effective date. The court also found that the shareholder had not obtained a stay of the confirmation order. The court found that providing the shareholder with relief, particularly by providing him with common stock, would affect and prejudice parties not before the court and could violate the absolute priority rule. The shareholder also essentially requested that the plan be modified to require the debtor to give a 5% distribution and include the shareholders. The court found this to be a material alteration to the substantially consummated plan. The above, along with the public policy favoring finality in bankruptcy decisions, led the court to dismiss the appeal as equitably moot.
i. Wooley v. Haynes & Boone, L.L.P. (In re SI Restructuring Inc.), 714 F.3d 860 (5th Cir. 2013)
Issue: Whether a plan contained the specificity required to reserve the debtor's claims post- confirmation?
Holding: The Fifth Circuit held that the confirmed plan's reservation of "any claims, rights and causes of action that the Debtors or the Estate may hold against any entity" was not specific enough to reserve state law claims against former directors and counsel. The court explained that for a plan to effectively reserve the debtor's claims, the reservation "must be specific and unequivocal." Because the confirmed plan did not specifically reserve the state law claims against former directors and counsel, the Plan Administrator lacked standing to pursue those claims. Because the Plan Administrator lacked standing to bring such claims, the Fifth Circuit affirmed the district court's decision upholding the bankruptcy court's denial of a creditor's post- confirmation motion to pursue the state law claims on behalf of the debtor.
ii. Grossman v. Belridge Group (In re Lothian Oil, Inc.), 531 Fed. Appx. 428 (5th Cir. 2013)
Issue: Whether a bankruptcy court has jurisdiction to enjoin post-confirmation state court actions against debtors' former officers and directors and non-debtor corporations in order to enforce the plan's injunction. Whether a bankruptcy court, through its inherent contempt power, can impose sanctions on claimants for filing pleadings in state court actions after the bankruptcy court enjoined those actions.
©2014 William L. Norton III
