In re One2One Communications, LLC

In re: One2One Commc’ns, LLC, Case No. 13-3410 (3d Cir. July 21, 2015)
The Third Circuit Court of Appeals ruled that the District Court abused its discretion in dismissing the appeal of a confirmed chapter 11 plan on grounds of equitable mootness.
Procedural context:
The Bankruptcy Court confirmed the Debtor’s chapter 11 plan of reorganization over the creditor’s objection and the creditor appealed to the District Court. After the creditor’s request for a stay pending appeal was denied, the District Court granted the debtor’s motion to dismiss the appeal as equitably moot, and the creditor appealed to the Third Circuit
One2One Communications, LLC (the “Debtor”), a billing services technology company, commenced a voluntary chapter 11 bankruptcy proceeding. The Debtor had only one secured creditor, which held a blanket lien on the Debtor’s assets for less than $100,000, and otherwise had 17 unsecured creditors, excluding insiders. Quad/Graphics Inc. held the single largest claim against the Debtor, a judgment of more than $9 million. Other unsecured claims amounted to less than $1.3 million. The Debtor proposed a plan of reorganization that incorporated a plan support agreement, pursuant to which a third party had the exclusive right to purchase all of the Debtor’s equity for $200,000. Quad/Graphics was the only party to object to confirmation, arguing, among other things, that the plan violated absolute priority by allowing equity holders to retain property without paying unsecured creditors in full. The Bankruptcy Court overruled the objection and confirmed the plan. Quad/Graphics appealed the confirmation order to the District Court and sought a stay of the order pending appeal, which was denied. On appeal, the District Court granted the Debtor’s motion to dismiss the appeal on grounds of equitable mootness, without reaching the merits of that appeal. Quad/Graphics then appealed the dismissal of its confirmation appeal to the Third Circuit Court of Appeals. Accordingly, the issue before the Third Circuit was whether the District Court had erred in dismissing Quad/Graphics’ confirmation appeal as equitably moot. The Third Circuit recognized that the Debtor had engaged in certain post-confirmation transactions in the ordinary course of the reorganized Debtor’s business, including consummating the plan sponsor’s investment, beginning distributions, hiring new employees, and entering into customer agreements. However, such routine transactions occur in almost any reorganization, and the plan did not contemplate any intricate transactions that would be difficult to unravel. The Debtor did not receive new financing or undertake any mergers or dissolutions or any issuance of stock or bonds, and the Debtor’s name, business location, and management all remained unchanged. Although creditors, employees, and third-party workers may have relied on the finality of the confirmation order, as in any reorganization, this was not a case in which the Debtor issued equity or debt that the public at large could have purchased on the open market. As a result, the Third Circuit reversed and remanded.
Chief Judge McKee; Judge Greenway, Jr.; and Judge Krause

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