Enough with the Ovoid Metaphors: Equitable Mootness and a Split about Unscrambling Eggs

Equitable mootness prevents an appellate court from reaching the merits of an appeal. Duff v. Cent. Sleep Diagnostics, LLC (7th Cir. 2015). It is a judicially created, prudential doctrine unique to bankruptcy appeals. Specifically, the doctrine applies to appeals from orders confirming chapter 11 reorganization plans (but the circuits are even split on that point). In re Cont’l Airlines (3d Cir. 1996).

Equitable mootness is not Constitutional (Article-III) or statutory mootness. In re UNR Indus., Inc. (7th Cir. 1994). Rather, as Judge Easterbrook recognized in In re UNR Indus., Inc., equitable mootness is an “unwillingness [to] alter the outcome.” (1994). In certain circumstances, the driving force is simply pragmatism. For example, the debtor’s reorganization plan may be near the end, and was so complex that to reverse the plan at such a late date would be impractical and inequitable. In re Manges (5th Cir. 1994). Doing so would cause harm to innocent third parties that relied on the finality of a chapter 11 confirmation order. In re Club Assocs. (11th Cir. 1992). To use the ovoid metaphors of which appellate courts are fond, appellate courts are not Humpty Dumpty repairmen and they cannot unscramble the egg. In re Tribune Media Co. (3d Cir. 2015); In re Cont’l Airlines (3d Cir. 1996).

Equitable Mootness in the Circuits

This doctrine has created controversy for four main reasons. First, the circuits do not apply a uniform test when determining whether an appeal is equitably moot. The Fourth, Fifth, and Sixth Circuits apply a four factor test; the Third and Tenth apply a five factor test; and the Second, Seventh, and Eleventh each have their own specific analyses. Second, the circuits cannot agree on a name for the doctrine, leading Judge Easterbrook to banish the term in the Seventh Circuit:

[T]he doctrine goes under the banner “equitable mootness,” but the name is misleading. There is a big difference between inability to alter the outcome (real mootness) and unwillingness to alter the outcome (“equitable mootness”). Using one word for two different concepts breeds confusion. Accordingly, we banish “equitable mootness” from the (local) lexicon. We ask not whether this case is moot, “equitably” or otherwise, but whether it is prudent to upset the plan of reorganization at this late date.

In re UNR Indus., Inc. (1994).

Third, despite the doctrine’s express limitation to complex reorganizations with intricate transactions, litigants have pressed, and appellate courts have applied, equitable mootness in appeals from relatively simple reorganizations, In re One2One Commc’ns, LLC (3d Cir. 2015) (Krause, J., concurring); liquidation plans, In re BGI, Inc. (2d Cir. 2014); and, as recently as October 3, chapter 9. In re City of Detroit, (6th Cir. 2016).

Fourth, and most importantly, equitable mootness is essentially a “super-finality” rule that binds an appellate court from exercising its jurisdiction—“[A] self-imposed straight jacket [that] contradicts [Article III courts’] virtually unflagging obligation to exercise the jurisdiction we have been given.” In re City of Detroit, (6th Cir. 2016) (Moore, J., dissenting).

This controversy came to a head in the later summer of 2015 when the Third Circuit’s Judge Cheryl Krause issued a call to arms against the doctrine. In re One2One Commc’ns, LLC (3d Cir. 2015) (Krause, J., concurring). In a separate concurrence that was double the length of the actual opinion she pronounced:

We must consider whether to end or endure the mischief of equitable mootness . . . [T]he doctrine has gone virtually unchallenged. This may be because litigants—and bankruptcy attorneys—wield the weapon of equitable mootness just as often as they suffer its blows. But it is time for the challenge, and I am not alone in urging it.

(3d Cir. 2015). Less than a month later, Judge Thomas Ambro wrote a concurrence in In re Tribune Media Co., that was essentially a reply brief to Judge Krause. (3d Cir. 2015) (Ambro, J., concurring). Judge Ambro, relying on the principle that bankruptcy courts are courts of equity, recognized that the equities of a situation sometimes take precedence over a meritous, even legally justifiable, appeal:

The doctrine of equitable mootness recognizes those few situations where the practical harm caused by granting relief would greatly outweigh the benefit. Discretion is no less appropriate in the plan confirmation context than in ordering other equitable remedies; hence we believe that the One2One concurrence’s formal challenge that equitable mootness lacks a basis in law misses the point that it is in the equitable toolbox of judges for that scarce case where the relief sought on appeal from an implemented plan, if granted, would leave the plan in tatters and/or bankruptcy battlefield strewn with too many injured bodies . . .  In a very few cases, shutting an appellant out of the courthouse does substantially less harm than locking a debtor inside.

Looking Forward

To date, the Supreme Court has declined to address equitable mootness three times. See Tribune (2016); BGI (2015); GWI, (2001). Yet given the implications the doctrine has and the lack of uniformity across the circuits, the Court must address this doctrine and provide guidance.