In re SEMCRUDE L.P.

Summarized by Stephen Falanga , Walsh Pizzi O'Reilly Falanga LLP
14 years 1 month ago

Citation:

No. 11-1724 (3rd Cir. 2011) 2012 U.S. App. LEXIS 34

Tag(s):

Ruling:

A creditor’s appeal of a bankruptcy court order confirming a chapter 11 plan of reorganization and disallowing an objection by the creditor with respect to payment of an alleged $50 million claim between two of the debtors was dismissed as equitably moot because the plan had been substantially consummated and, even if relief to the creditor was warranted, granting relief would undermine the plan’s foundation and require modification of the plan and increased risks not bargained for by creditors of the reorganized debtors. Also of significance to the Third Circuit was the fact that after the bankruptcy court denied the creditor’s oral request for a stay, the creditor did not file a motion for a stay of the confirmation order, despite being invited to do so by the bankruptcy court. Apparently, the creditor expressed concerns about the amount of a bond that might need to be posted but the Third Circuit rejected that argument given the creditor did not assert that it made any effort to ascertain the amount of bond it would have been required to post and citing to earlier Third Circuit precedent that requires an appellant to pursue with diligence all available remedies to obtain a stay of execution of the objectionable order if the failure to do so would create a situation rending it inequitable to reverse the order appealed from. Lastly, the court found that equitable mootness applied because permitting the creditor’s appeal would affect the rights of parties not before the court including the various financial institutions that had issued lines of credit to the reorganized debtors in reliance on the bankruptcy court’s decision rejecting the creditor’s substantial claim.

Procedural context:

The bankruptcy court disallowed a creditor's objection to a plan's treatment of an alleged $50 million claim between two debtor affiliates and entered an order confirming the debtors' chapter 11 plan of reorganziation. On appeal, the United States District Court for the District of Deleware dismissed the appeal on equitable mootness grounds. The Third Circuit now affirms the district court's order.

Facts:

Manchester Securities Corp. ("Manchester") is the largest creditor of SemGroup Holdings, L.P. ("Holdings"), which filed a voluntary petition for bankruptcy under Chapter 11 in October 2008. Manchester contended that Holdings was owed $50 million by SemCrude Pipeline, L.L.C. ("Pipeline"), an affiliated company that was part of a separately administered Chapter 11 proceeding. Pipeline's bankruptcy proceeding involved a number of related companies (collectively "Debtors"), and was resolved through a confirmed plan of reorganization (the "Plan"). Manchester objected to the confirmation of the Plan on the ground that it did not provide for the payment of Pipeline's purported $50 million dollar debt to Holdings. The Bankruptcy Court overruled this objection, finding that the alleged obligation was illusory and solely the result of a computerized accounting error. Manchester subsequently moved orally for a stay, which the Bankruptcy Court denied without prejudice to Manchester's right to make a written motion for a stay on a full record. Manchester did not make any further request for a stay. On November 30, 2009, the Plan became effective and was substantially consummated through various transactions by which the Debtors became the "Reorganized Debtors." Subsequently, Manchester filed a timely appeal to the District Court, challenging the Bankruptcy Court's approval of the Plan and asserting that Holdings had either an administrative priority claim or a general unsecured claim for $50 million against Pipeline. The District Court dismissed Manchester's appeal as equitably moot. Manchester timely appealed.

Judge(s):

SLOVITER , VANASKIE , Circuit Judges and Lawrence F. Stengel , United States District Court for the Eastern District of Pennsylvania, sitting by designation.

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