At a conference to be held at the end of the summer recess on September 27, 2021, the United States Supreme Court will consider whether to allow the motions for review during the new term that begins on October 4 of three notable appeals regarding file bankruptcy law issues. Two of these appeals deal with the doctrine of “theoretical fairness”. The third concerns the federal pre-emption of tort interference actions by a non-debtor third party against other non-debtor third parties.
Equity moot court remedy precludes the adjudication of an appeal when an overall change of circumstances has occurred, so that it would be unfair for a reviewing court to consider the merits of the case. ‘call. In bankruptcy cases, respondents often cite theoretical fairness as the basis for preventing appellate review of an order confirming a Chapter 11 plan.
The theory of fairness has been criticized as a repeal of the “virtually unwavering obligation” of federal courts to hear appeals within their jurisdiction. Regarding One2One Commc’ns, LLC, 805 F.3d 428, 433 (3d Cir. 2015); In re Charter Commc’ns, Inc., 691 F.3d 476, 481 (2d Cir. 2012). In this view, dismissing an appeal on grounds of equitable non-compliance “should be the rare exception”. In re Tribune Media Co., 799 F.3d 272, 288 (3d Cir. 2015); agreement In regarding VeroBlue Farms USA, Inc., 2021 WL 3411834, * 1 (8th Cir. 5 Aug 2021) (as in the decisions of the third, tenth and many other circuits, “we conclude that the district court did not apply a sufficiently rigorous test to determine when bankruptcy actions and pragmatics justify waiving Article III judicial review of a bankruptcy court order upholding a Chapter 11 plan ”); In re Pac. Lumber Co., 584 F.3d 229, 240 (5th Cir. 2009) (Theoretical fairness should be applied “with a scalpel rather than an ax”). In VeroBlue, the eighth circuit even went so far as to “ban ‘the theoretical fairness” of the (local) lexicon ”because it is“ misleading ”, considering that, in accordance with the decision of the Supreme Court in Mission Prod. Holdings Inc. v. Tempnology LLC, 139 S. Ct. 1652 (2019), an appeal is “without object, that is to say beyond the jurisdiction of a federal court under Article III, only if it it is impossible for a court to grant an effective remedy of any kind ”. VeroBlue, 2021 WL 3411834, at * 5 (citing Mission Prod., 139 S. Ct. To 1660).
Substantially similar tests (briefly discussed here) have been applied by most circuit appellate courts in determining whether an appeal from a Chapter 11 upholding order should be dismissed under doctrine. These tests, a common element of which is whether a Chapter 11 plan has been substantially consumed, typically focus on whether the appeals court can devise an effective and fair remedy.
Some courts, including the Third and Fifth Circuits, have taken the position that theory of fairness does not apply outside of the context of Chapter 11 Plan Confirmation Orders appeals. See, for example, In re LCI Holding Company, Inc., 802 F.3d 547, 554 (3d Cir. 2015); In re Sneed Shipbuilding, Inc., 916 F.3d 405, 409 (5th Cir. 2019).
Other courts, including the Fourth, Ninth, Tenth and Eleventh Circuits, have been less compelled to rely on doctrine to dismiss appeals. See Myers v. Offit Kurman, Pennsylvania, 773 F. App’x 161, 162 (4th Cir. 2019) (noting that an appeal from a bankruptcy court order granting a Chapter 7 trustee’s motion for approval of a settlement agreement was fairly not applicable given that the agreement had been fully consumed and funds had been distributed accordingly); Stokes vs. Gardner, 483 F. App’x 345, 346 (9th Cir. 2012) (finding that an appeal from an order approving a settlement agreement in a Chapter 7 matter was moot); Ordonez c. ABM Aviation, Inc., 787 F. App’x 533 (10th Cir. 2019) (appeals from a bankruptcy court order relating to a Chapter 7 trustee settlement of the debtor’s employment discrimination claims were fairly moot, since the debtor did not diligently request a stay, the settlement the agreement had been fully consumed, the funds had been distributed, the estate had been fully administered, and the debtor’s challenges were neither legally meritorious nor equitably compelling) ; Regarding JMC Memphis, LLC, 655 F. App’x 802 (11th Cir. 2016) (dismissing as moot an appeal from an unsuspended order approving a settlement between the Chapter 7 trustee and the debtor’s property insurer).
The Second Circuit recently joined this group in Regarding Windstream Holdings, Inc., 838 Fed. App’x. 634 (2d Cir. 2021), ruling in a non-precedent summary order that an appeal from a “critical seller” order ordering payment of pre-bankruptcy claims from sellers deemed essential to the success of a Chapter Debtor Reorganization 11 before the claims of other unsecured creditors was fairly questionable after the confirmation of the debtor’s Chapter 11 plan. In that decision, the Second Circuit noted that: “Our precedent is clear that theoretical fairness can be applied” in a range of contexts “, including appeals involving all kinds of bankruptcy court orders…. [A]An appeal does not need to directly challenge a reorganization plan to have an impact on that plan. ” Identifier. to 637.
A die Wind current The general unsecured creditors of the debtor filed a petition requesting a review of the decision by the Supreme Court on July 21, 2021. See GLM DFW, Inc. v. Windstream Holdings, Inc., n ° 21-78 (United States) (petition for cert. filed July 21, 2021).
In In re Nuverra Environmental Solutions, Inc., 834 Fed. App’x 729 (3d Cir. 2021) (discussed here), a split Third Circuit panel delivered a long-awaited decision that could have addressed, but ultimately did not address, the validity of Chapter 11 “gift” plans under which a category of senior creditors gives part of its legally authorized recovery to one or more junior classes as a means of obtaining consensual confirmation. By avoiding substance and holding that an appeal of an order confirming a “horizontal donation” plan was fairly questionable, Circuit Three sidestepped an issue that continues to linger the day after. Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973 (2017), which invalidated final distributions to Bankruptcy Code priority creditors in a non-consensual “structured rejection” of a Chapter 11 case.
A creditor who opposed the Nuverra The debtor’s Chapter 11 plan filed a motion for review of the decision on July 6, 2021. See Hargreaves v. Nuverra Environmental Solutions Inc., n ° 21-17 (United States) (petition for cert. filed July 6, 2021).
In Sutton 58 Associates LLC v. Pilevsky, 164 NE3d 984 (NY 2020), the highest court in New York ruled by a margin of 4 to 3 that the federal preemption doctrine does not prohibit claims of tort interference by a non-debtor third party against d ” other non-debtor third parties for actions taken in anticipation of a debtor’s Chapter 11 filing. In Pilevski, a lender provided $ 150 million in financing for a housing project that was structured as a bankrupt single-asset real estate entity. However, at the request of the project advisers and in violation of the loan agreement, the developer engaged in behavior, including the sale of a stake in the project to another entity, which disqualified him as a as a “single-asset real estate debtor” in a subsequent Chapter 11 case. After bankruptcy court upheld the Chapter 11 owner’s plan, the lender sued the advisers in New York State court, arguing that their actions amounted to tortious interference with the contract by forcing the project owner to break his agreements with the lender. A trial court ruled that the claims were not preempted by federal bankruptcy law and an intermediate state appeals court overturned, finding the claims to be preempted.
The New York Court of Appeals reversed the Intermediate Court of Appeals, ruling that “[p]the plaintiff’s claims for tortious interference – brought against defendants who were not debtors in the bankruptcy proceedings and which are based on conduct prior to those proceedings – are peripheral to the bankruptcy proceedings and do not attack it. ” Identifier. at 994. In a dissenting opinion, three of the judges of the court expressed “the fear [that] state litigation can deter attorneys and potential secondary lenders from helping debtors who wish to file for bankruptcy but need legal advice and financial assistance to do so. ” Identifier. to 1014.
The defendants asked the Supreme Court to review the decision on April 20, 2021. See Pilevsky v. Sutton 58 Associates LLC, 20-1483 (United States) (petition for cert. filed April 20, 2021).
At a conference later in the next term, the Court will consider whether to grant a request to review a decision of the United States Court of Appeals for the Third Circuit in In re Venoco LLC, 998 F.3d 94 (3d Cir. 2021). In this case, prior to seeking Chapter 11 protection, the debtors leased an offshore oil and gas drilling rig from the State of California and its Lands Commission (collectively, the “State”). After the debtors abandoned the leased rig, the state took charge of decommissioning the rig and plugged the abandoned wells. The liquidator trustee appointed under the confirmed plan of chapter 11 of the debtors filed an adversarial procedure in the bankruptcy court aimed at recovering, according to a reverse conviction theory, compensation from the State for the alleged takeover of the refinery debtors without any compensation. The state decided to revoke on the basis, among other things, of the sovereign state immunity conferred by the Eleventh Amendment to the US Constitution.
The bankruptcy court dismissed the motion to dismiss and a district court upheld on appeal. A panel of three judges from the Third Circuit also asserted. Among other things, the Third Circuit panel ruled that the claims of the liquidating trustee had been filed to implement the bankruptcy court ruling. in rem jurisdiction and, in accordance with the decision of the Supreme Court in Central Virginia Community College c. Katz, 546 US 356 (2006), were therefore allegations that the State had waived its immunity from jurisdiction by ratifying the Bankruptcy Clause of the US Constitution (art. I § 8 cl. 4).
The state asked the Supreme Court to review the decision on July 23, 2021. See Cal. State Lands Comm’n v. Davis, n ° 21-109 (petition for cert. filed July 23, 2021). In its petition, the State argues, inter alia, that the “limited consent” to a waiver of sovereign State immunity contained in Katz should not apply in a case involving claims that do not arise under federal bankruptcy law.