2010 Norton Annual Survey of Bankruptcy Law
"Pacific Lumber and the Doctrine of Equitable Mootness"
Only in a bankruptcy case may an appellate court refuse to address the merits of an appeal from a final order properly brought and presenting perfectly appropriate issues for review. Under the judicially-created doctrine of equitable mootness, an appellate court reviewing a confirmation order may decide that it is impractical to address the merits of the appeal, notwithstanding that all other requirements for an appeal are satisfied, because the plan of reorganization has passed "the point of no return" and considering the merits may threaten the reorganization.
Almost all circuit courts of appeal have recognized this doctrine; some delineate specific considerations that a court is required to consider, while others establish a more general standard. Indeed, some courts have questioned whether the doctrine should ever be applied given an appellate court's obligation to review issues that are ripe for appeal.
In re Pacific Lumber Company, decided by the Court of Appeals for the Fifth Circuit on September 29, 2009, exemplifies the competing interests an appellate court must consider in determining those issues to resolve on their merits and those to leave undisturbed because they would materially alter the consummation of the plan of reorganization. Issues pertaining to the treatment of certain creditors' secured claim, an unpaid inter-company administrative claim and non-debtor exculpation and releases found in the plan of reorganization were found ripe for appellate decision, while those pertaining to impairment, classification of claims and unfair discrimination were found to be equitably moot.
As the Pacific Lumber court demonstrated through its ruling, appellate courts "generally apply equitable mootness with a scalpel rather than an axe." Accordingly, as in Pacific Lumber, whether a particular appellate contention will be found equitably moot will rest not only on a case-by-case, but an issue-by-issue analysis.