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The Security National Bank of Sioux City, IA v. Vera T. Welte Testamentary Trust

Summarizing by Amir Shachmurove

In re Charter Communications, Inc.

In re Charter Communications, Inc., --- F.3d ----, 2012 WL 3764706 (2d Cir. Aug. 31, 2012)
• The Circuit Court AFFIRMED the district court on an abuse of discretion review and HELD that the appeals were equitably moot. • The Circuit stated that equitable mootness in the present case concerned whether “a particular remedy can be granted without unjustly upsetting a debtor's plan of reorganization.” Id. at *3. The Circuit recognized that an appeal is presumed equitably moot where a debtor’s reorganization plan has been substantially consummated, but that the presumption of equitable mootness can be overcome by a showing that “(1) the court can still order some effective relief; (2) such relief will not affect the re-emergence of the debtor as a revitalized corporate entity; (3) such relief will not unravel intricate transactions so as to knock the props out from under the authorization for every transaction that has taken place and create an unmanageable, uncontrollable situation for the Bankruptcy Court; (4) the parties who would be adversely affected by the modification have notice of the appeal and an opportunity to participate in the proceedings; and (5) the appellant pursued with diligence all available remedies to obtain a stay of execution of the objectionable order if the failure to do so creates a situation rendering it inequitable to reverse the orders appealed from.” Id. at *3-4 (citing Frito–Lay, Inc. v. LTV Steel Co. (In re Chateaugay Corp.), 10 F.3d 944, 952–53 (2d Cir.1993)). • The Circuit held that the Appellants had failed to show that the relief requested would not affect the debtors’ emergence as a revitalized entity and would require unraveling complex transactions undertaken by the plan. Id. at *6. • First, the Appellants sought an order directing the principal shareholder to return some or all of his settlement consideration and unwinding the third-party releases in the shareholder’s favor. The Circuit found that both the consideration and the releases were essential to the settlement and formed the cornerstone of the plan, such that the relief requested would raise doubts about the viability of the entire plan. Id. at *6-7. This result would “seriously threaten [the debtors’] ability to re-emerge successfully from bankruptcy.” Id. at *8. The Circuit recognized that the relief requested could not be achieved by a “quick, surgical change” to the confirmation order, but would, as the bankruptcy court found, “cut the heart out” of the reorganization. Id. at *7-8. • The Circuit also quickly rejected the Appellants’ argument that the district court improperly focused on the nonseverability clause contained in the settlement and plan, holding that the district court reviewed a wide range of factors. Id. at *7. • Second, the Appellants sought a reevaluation of the debtor, including a separate valuation of one of the debtor’s affiliates. The Circuit held that such a request would require a “significant revision” of the plan because it would disrupt the bankruptcy court’s determination that a joint plan shared by all the debtor entities was appropriate. Id. at *8. • Third, the Appellants argued that the plan violates the cramdown provisions of section 1129 of the Bankruptcy Code by not according proper seniority to the Appellants’ claims and improperly “gerrymandering” the creditors into separate classes. The Circuit found that, as with the Appellants’ other claims, finding for the Appellants would require unwinding the plan and reclassifying creditors. Id. at *9. This result was “the opposite of a surgical change to the Plan.” Id.
Procedural context:
On appeal from an order of the district court dismissing as equitably moot appeals from bankruptcy court order confirming Chapter 11 reorganization plan of debtor and affiliated entities.
• Debtors and affiliated entities filed a pre-packaged reorganization case in 2008. The case was filed in connection with the debtors’ settlement with their majority shareholder. Appellants, one of which was a former shareholder of the debtor and the other of which was a trustee of notes issued by the debtor prepetition, were not included in the negotiation resulting in the pre-packaged case. • The debtors’ reorganization plan was confirmed and became effective in November 2009. The bankruptcy court denied Appellants’ motions for an emergency stay of the confirmation order, and the Appellants appealed to the district court. • Before the district court, the Appellants objected to the settlement, the bankruptcy court’s valuation of the debtors, and the court’s acompliance with the cramdown provisions of the Bankruptcy Code for approving a plan over the objections of creditors. • The district court dismissed the appeals as equitably moot, and the Appellants appealed to the Circuit Court.
Walker, Lynch, Lohier

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