Monday, November 10, 2014

Mootness, Equitable Mootness, and Statutory Mootness



The Circuit Court of Appeals of the 3rd Circuit recently issued its opinion in In re SCH Corp., et al, 2014 WL 2724606 involving the doctrine of "equitable mootness" in the bankruptcy context. The District Court had dismissed the appeal from the Bankruptcy Court as being "equitably moot" by applying the five-factor test set forth in In re Continental Airlines, 91 F.3d 553 (3rd Cir. 1996).   In making its decision, the 3rd Circuit reviewed that distinctions between the concepts of "mootness", "equitable mootness", and the "prudence doctrine".  


Constitutional Mootness

The Court explained that the mootness determination it was making in this case, was not that of mootness in the constitutional sense of the limits of the federal courts' authority under Article III, but rather that of  equitable mootness or the application of prudential factors. The Court noted that the Continental decision cited Supreme Court precedent that "an appeal is moot in the constitutional sense only if events have taken place during the pendency of the appeal that make it "impossible for the court to grant ‘any effectual relief whatever.’ ”  The Court noted that a case is not moot merely because a court cannot restore the parties to the status quo ante - but rather,  whether a  court can can fashion some form of meaningful relief, even if it only partially. 

Equitable Mootness 

The Court referred to a 7th Circuit decision that stated: “[t]here is a big difference between inability to alter the outcome (real Article III Constitutional mootness) and unwillingness to alter the outcome (‘equitable mootness') and that these concepts should not be confused.  The Court also noted that another court preferred not to ask whether a case is  "equitably moot", but rather whether it is "prudent" to upset a bankruptcy reorganization plan at a later date.  The Continental Court stated that these “equitable” or “prudential” considerations focus on the following five “concerns unique to bankruptcy proceedings”:  
1.     whether the reorganization 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
5.     the public policy of affording finality to bankruptcy judgments


Statutory Mootness


The Court in SCH Corp. did not reach the concept of "statutory mootness".  This ABI article explains that the concept of statutory mootness is provided for in sections 363(m) and 364(e) of the Bankruptcy Code and are designed to protect capital providers, including purchasers and lenders. 


Further References


Other articles, here  and here, review the Supreme Court denial of cert. in a case involving the issue of equitable mootness in the case of  Law Debenture Trust Co. v. Charter Communications, Inc., No. 12-847.   The doctrine of equitable mootness as applied in the 2nd Circuit is also reviewed in this article by Hunton & Williams, LLP.  
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