In re: Charter Communication, No. 11-1710 (2d Cir. 2012)
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Following the bankruptcy court's confirmation of Charter's proposed plan of reorganization, LDT, as indenture trustee for certain notes issued by CCI, and a CCI shareholder, appealed the confirmation order to the district court. The court affirmed the district court's dismissal of the appeals as moot under the doctrine of equitable mootness.
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11-1710-bk, 11-1726-bk In re Charter Communications, Inc. 1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 August Term 2011 4 (Argued: March 26, 2012 Decided: August 31, 2012) 5 6 Docket Nos. 11-1710-bk, 11-1726-bk --------------------------------------------------------x 7 In re CHARTER COMMUNICATIONS, INC. 8 --------------------------------------------------------x 9 R2 INVESTMENTS, LDC, 10 Appellant, 11 12 13 -- v. -CHARTER COMMUNICATIONS, INC., CCH I, LLC, CCH I CAPITAL CORPORATION, CCH II, LLC, CCH II CAPITAL CORPORATION, 14 15 Debtors-Appellees, PAUL G. ALLEN, OFFICIAL COMMITTEE OF UNSECURED CREDITORS, 16 Appellees. 17 --------------------------------------------------------x 18 LAW DEBENTURE TRUST COMPANY OF NEW YORK, 19 Appellant, 20 21 22 -- v. -CHARTER COMMUNICATIONS, INC., CCH I, LLC, CCH I CAPITAL CORPORATION, CCH II, LLC, CCH II CAPITAL CORPORATION, 23 24 Debtors-Appellees, PAUL G. ALLEN, OFFICIAL COMMITTEE OF UNSECURED CREDITORS, Appellees.* 25 26 --------------------------------------------------------x * The Clerk of the Court is directed to amend the official captions as set forth above, which reflects the true status of the parties. 1 1 B e f o r e : WALKER, LYNCH and LOHIER, Circuit Judges. 2 Appellants Law Debenture Trust Company of New York ( LDT ) and 3 R2 Investments, LDC ( R2 ) appeal from an order of the United States 4 District Court for the Southern District of New York (George B. 5 Daniels, Judge) dismissing as equitably moot their appeals from the 6 bankruptcy court order (James M. Peck, Bankruptcy Judge) confirming 7 the Chapter 11 reorganization plan of Charter Communications, Inc. 8 and its affiliated debtors. 9 Inc. (In re Charter Commc ns, Inc.), 449 B.R. 14 (S.D.N.Y. 2011); See R2 Invs., LDC v. Charter Commc ns, 10 JPMorgan Chase Bank, N.A. v. Charter Commc ns Operating, LLC (In re 11 Charter Commc ns), 419 B.R. 221 (Bankr. S.D.N.Y. 2009). 12 with the district court that it would be inequitable to grant LDT 13 and R2 the relief they seek now that the reorganization plan has 14 been substantially consummated. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 We agree AFFIRMED. LAWRENCE S. ROBBINS (Mark T. Stancil, Matthew M. Madden, on the brief), Robbins, Russell, Englert, Orseck, Untereiner & Sauber LLP, Washington, D.C., for Appellant R2 Investments, LDC. ANDREW W. HAMMOND, White & Case LLP, New York, N.Y., for Appellant Law Debenture Trust Company of New York. JOHN C. O QUINN, Kirkland & Ellis LLP, Washington, D.C. (Richard M. Cieri, Paul M. Basta, Kirkland & Ellis LLP, New York, N.Y., Jeffrey S. Powell, Daniel T. Donovan, Kirkland & Ellis LLP, Washington, D.C., on the brief), for DebtorsAppellees Charter Communications, Inc., CCH I, LLC, CCH I Capital 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Corporation, CCH II, LLC, CCH II Capital Corporation. JEREMY A. BERMAN (Robert E. Zimet, Jay M. Goffman, Sean J. Young, on the brief), Skadden, Arps, Slate, Meagher & Flom LLP, New York, N.Y., for Appellee Paul G. Allen. DAVID S. ELKIND (Mark R. Somerstein, Keith H. Wofford, Darren Azman, on the brief), Ropes & Gray LLP, New York, N.Y., for Appellee Official Committee of Unsecured Creditors. JOHN M. WALKER, JR., Circuit Judge: On March 27, 2009, Charter Communications, Inc. ( CCI and, 18 together with its affiliated debtors, Charter ) filed what the 19 Bankruptcy Court for the Southern District of New York (James M. 20 Peck, Bankruptcy Judge) described as perhaps the largest and most 21 complex prearranged bankruptcies ever attempted, and in all 22 likelihood . . . among the most ambitious and contentious as well. 23 JPMorgan Chase Bank, N.A. v. Charter Commc ns Operating, LLC (In re 24 Charter Commc ns), 419 B.R. 221, 230 (Bankr. S.D.N.Y. 2009). 25 Following the bankruptcy court s confirmation of Charter s proposed 26 plan of reorganization (the Plan ), the Law Debenture Trust 27 Company of New York ( LDT ), as indenture trustee for certain notes 28 issued by CCI, and R2 Investments, LDC ( R2 ), a CCI shareholder, 29 appealed the confirmation order to the District Court for the 30 Southern District of New York. 31 Daniels, Judge) dismissed those appeals under the doctrine of 32 equitable mootness. The district court (George B. R2 Invs., LDC v. Charter Commc ns, Inc. (In re 3 1 Charter Commc ns, Inc.), 449 B.R. 14 (S.D.N.Y. 2011). 2 now appeal that dismissal. 3 LDT and R2 the appeals are equitably moot and affirm. 4 We agree with the district court that BACKGROUND 5 We recite only those facts necessary to this appeal. 6 recitation of the facts may be found in the district court and 7 bankruptcy court opinions. 8 14; In re Charter Commc ns, 419 B.R. 221. 9 A full See In re Charter Commc ns, 449 B.R. In 2008, Charter, the nation s fourth-largest cable television 10 company and a leading provider of cable and a broadband service, 11 was operationally sound but carried almost $22 billion in debt at 12 various levels of its corporate structure.1 13 419 B.R. at 230-31. 14 Brothers and the financial crisis that ensued, Charter could no 15 longer service its debt due to the tightening credit markets, 16 Charter s excessive leverage, and lower valuations of companies in 17 the cable sector. 18 Paul G. Allen, a major investor whose ownership stake gave him 19 control of the company, and a group of junior bondholders (referred 20 to as the Crossover Committee ). 21 in a settlement (the Allen Settlement ) that contemplated In re Charter Commc ns, After the September 2008 collapse of Lehman Id. at 232-33. Charter began negotiating with Id. 1 The negotiations culminated Charter s corporate structure consisted of a publicly traded parent holding company, CCI, sitting atop a chain of subsidiaries. See Br. of Debtors-Appellees at 10. Charter s publicly traded debt was issued by eight holding companies stacked between CCI and Charter Communications Operating, LLC, the primary operating company. Id. 4 1 Charter s prenegotiated reorganization in bankruptcy. 2 then filed for Chapter 11 bankruptcy, using the Allen Settlement as 3 the cornerstone of its prenegotiated Plan. 4 Left out of the negotiations, however, were LDT, the trustee for 5 $479 million in aggregate principal of convertible notes issued by 6 CCI; R2, a CCI shareholder; and J.P. Morgan Chase N.A. ( JPMorgan ), 7 the holder of Charter s senior debt. 8 into the Allen Settlement or the prepackaged Plan. 9 B.R. at 233. 10 Id. Charter Id.; 449 B.R. at 17. These entities had no input Id. at 17; 419 To fully appreciate the key role Paul Allen played in 11 Charter s reorganization requires delving a bit into the weeds of 12 the negotiations underlying the Allen Settlement. 13 reorganization strategy was driven by the goal of reinstating its 14 senior credit facility with JPMorgan--that is, curing any breaches 15 in its contracts with JPMorgan so that JPMorgan would be classified 16 as an unimpaired creditor. 17 wanted to avoid renegotiating its senior debt during the financial 18 turmoil of late 2008 and early 2009 because it believed such 19 renegotiation would at best lead to a higher interest rate and at 20 worst result in Charter being closed off to new financing 21 altogether. 22 needed to structure its reorganization in a way that would avoid 23 triggering a default under the credit agreement with JPMorgan. 24 condition Charter had consented to in the credit agreement was that 25 Allen would retain thirty-five percent of the ordinary voting power Charter s See 11 U.S.C. § 1124(2). In re Charter Commc ns, 419 B.R. at 233. 5 Charter Charter thus One 1 of Charter Communications Operating, LLC ( CCO ), the obligor under 2 the senior credit agreements. 3 reorganization plan to succeed, Charter thus needed to induce Allen 4 to retain these voting rights, even though most of his investment 5 in Charter would be wiped out. 6 Charter to preserve roughly $2.85 billion of net operating losses, 7 a valuable tax attribute, it needed Allen to forgo exercising 8 contractual exchange rights and to maintain a one percent ownership 9 interest in Charter Communications Holding Company, LLC ( Holdco ). Id. at 230, 237-38. Id. at 230-31. For the In addition, for 10 Id. at 253. 11 reinstating its senior debt and obtaining tax savings though 12 preserving net operating losses, required Allen s cooperation, 13 Allen alone was in a position to provide uniquely personal 14 benefits to Charter. 15 Because Charter s main goals in restructuring, namely Id. at 259. Following a spirited negotiation in which sophisticated 16 adversaries and their expert advisors bargained with each other 17 aggressively and in good faith, id. at 241, Charter, the Crossover 18 Committee, and Allen agreed to the Allen Settlement. 19 the Settlement, Allen agreed to retain a thirty-five percent voting 20 interest in CCO and a one percent ownership interest in Holdco, and 21 to refrain from exercising his contractual exchange rights. 22 253-54. 23 million, of which $180 million was classified as pure settlement 24 consideration. 25 for a $1.6 billion rights offering, a stepped-up tax basis in a As part of Id. at In return for these concessions, Allen would receive $375 Id. at 241. The Allen Settlement further provided 6 1 significant portion of [Charter s] assets, and the purchase of 2 [Allen s] preferred shares in CC VIII, LLC, a Charter subsidiary. 3 Id. at 253. 4 release (other third parties, including the management of Charter, 5 were released as well). 6 reorganization Plan that resulted from the Allen Settlement, the 7 CCI noteholders, represented by LDT, would receive approximately 8 32.7 percent of their claims, id. at 242, and R2 and other equity 9 holders of CCI would receive nothing, see Debtor s Disclosure 10 11 Allen also successfully negotiated for a liability Id. at 257-58 & n.26. Under the Statement at 33. On November 17, 2009, after a nineteen-day hearing, the 12 bankruptcy court overruled all objections and confirmed the Plan as 13 submitted by Charter. 14 bankruptcy court denied R2 and LDT s motions for an emergency stay 15 of the confirmation order. 16 Judge, sitting in Part I) denied a stay pending appeal to that 17 court, and the confirmation order and the Plan took effect on 18 November 30, 2009. 19 Charter immediately took actions under the Plan, including 20 cancelling the equity issued by the prepetition Charter, issuing 21 shares in the reorganized Charter, converting notes issued by the 22 prepetition Charter entities into new notes, and issuing warrants 23 to Charter s prepetition noteholders. 24 25 419 B.R. at 271. The following week, the The district court (Sidney H. Stein, See In re Charter Commc ns, 449 B.R. at 21. Id. at 24 nn.19-20. R2 and LDT have objected to the Plan at every stage of these proceedings. Before the district court, they raised several 7 1 overlapping challenges to the Plan s confirmation. 2 objections, viewed broadly, related to the Allen Settlement, the 3 bankruptcy court s valuation of Charter, and compliance with the 4 Bankruptcy Code s cramdown provisions for approving a plan over the 5 objections of creditors. 6 Committee of Unsecured Creditors argued that, whatever the merit of 7 R2 s and LDT s legal claims, the relief they sought could not be 8 granted without upsetting the already-consummated Plan and that the 9 doctrine of equitable mootness barred the appeals. See id. at 21. Their Charter, Allen, and the Id. at 17. The 10 district court agreed and dismissed the appeals as equitably moot. 11 R2 and LDT filed separate appeals from that dismissal, which were 12 argued in tandem. 13 14 DISCUSSION I. 15 Legal Standard for Equitable Mootness This appeal concerns equitable mootness, a prudential doctrine 16 under which the district court may dismiss a bankruptcy appeal 17 when, even though effective relief could conceivably be fashioned, 18 implementation of that relief would be inequitable. 19 Comm. of Unsecured Creditors of LTV Aerospace & Def. Co. v. 20 Official Comm. of Unsecured Creditors of LTV Steel Co. (In re 21 Chateaugay Corp.), 988 F.2d 322, 325 (2d Cir. 1993) ( Chateaugay 22 I ). 23 question of whether a justiciable case or controversy exists, 24 equitable mootness in the context presented here is concerned with 25 whether a particular remedy can be granted without unjustly Official Unlike constitutional mootness, which turns on the threshold 8 1 upsetting a debtor s plan of reorganization. 2 v. Metromedia Fiber Network, Inc. (In re Metromedia Fiber Network, 3 Inc.), 416 F.3d 136, 143-44 (2d Cir. 2005); see also In re UNR 4 Indus., 20 F.3d 766, 769 (7th Cir. 1994) ( There is a big 5 difference between inability to alter the outcome (real mootness) 6 and unwillingness to alter the outcome ( equitable mootness ). ). 7 Equitable mootness in the bankruptcy setting thus requires the 8 district court to carefully balance the importance of finality in 9 bankruptcy proceedings against the appellant s right to review and See Deutsche Bank AG 10 relief. 11 Co., NA v. Official Unsecured Creditors Comm. (In re Pac. Lumber 12 Co.), 584 F.3d 229, 240 (5th Cir. 2009) (noting that equitable 13 mootness is a judicial anomaly because it creates an exception to 14 courts virtually unflagging obligation to exercise jurisdiction 15 (internal quotation marks omitted)). 16 to specific claims, not entire appeals and must be applied with a 17 scalpel rather than an axe. 18 41. 19 See Chateaugay I, 988 F.2d at 325-26; Bank of N.Y. Trust [E]quitable mootness applies In re Pac. Lumber, 584 F.3d at 240- In this circuit, an appeal is presumed equitably moot where 20 the debtor s plan of reorganization has been substantially 21 consummated. 22 Chateaugay Corp.), 94 F.3d 772, 776 (2d Cir. 1996) ( Chateaugay 23 III ); Frito-Lay, Inc. v. LTV Steel Co. (In re Chateaugay Corp.), 24 10 F.3d 944, 952-53 (2d Cir. 1993) ( Chateaugay II ). 25 consummation is defined in the Bankruptcy Code to require that all Aetna Cas. & Sur. Co. v. LTV Steel Co. (In re 9 Substantial 1 or substantially all of the proposed transfers in a plan are 2 consummated; that the successor company has assumed the business or 3 management of the property dealt with by the plan; and that the 4 distributions called for by the plan have commenced. 5 § 1101(2). 6 7 8 See 11 U.S.C. The presumption of equitable mootness can be overcome, however, if all five of the Chateaugay factors are met: (1) the court can still order some effective relief ; 9 10 (2) such relief will not affect the re-emergence of the debtor as a revitalized corporate entity ; 11 12 13 14 15 (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 ; 16 17 18 (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 19 20 21 22 23 (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. 24 Chateaugay II, 10 F.3d at 952-53 (internal citations, quotations, 25 and alterations omitted). 26 necessarily make it impossible or inequitable for an appellate 27 court to grant effective relief. 28 automatically equitably moot if the relief requested would require 29 that a confirmed plan be altered. 30 the district court s overly broad statement that invalidating a 31 plan and remanding for renegotiation renders a request per se Substantial consummation thus does not 10 Id. at 952. Nor is a claim In this regard, we disagree with 1 equitably moot. 2 Chateaugay factors ensure that there is no per se equitable 3 mootness by requiring a court to examine the actual effects of the 4 requested relief. 5 a claim is equitably moot, we cannot rely solely on the debtor s 6 conclusory predictions or opinions that the requested relief would 7 doom the reorganized company. 8 analytical inquiry into the likely effects of the relief an 9 appellant seeks and must be based on facts. In re Charter Commc ns, 449 B.R. at 24 n.21. The Finally, in examining a debtor s contention that Instead, Chateaugay II requires an Only if all five 10 Chateaugay factors are met, and if the appellant prevails on the 11 merits of its legal claims, will relief be granted. 12 II. 13 Standard of Review We turn first to the standard of review in appeals of 14 equitable mootness determinations.2 15 appeals, the district court reviews the bankruptcy court s factual 16 findings for clear error and its conclusions of law de novo. 17 R. Bankr. P. 8013. Generally in bankruptcy Fed. On appeal to this court, we ordinarily review 2 No published Second Circuit decision has addressed this question directly. In a non-precedential summary order we determined that abuse of discretion review was appropriate. See Ad Hoc Comm. of Kenton Cnty. Bondholders v. Delta Air Lines, Inc., 309 F. App x 455, 457 (2d Cir. 2009). In prior decisions we have described the general standard of review in bankruptcy cases, involving de novo review of legal conclusions, and then proceeded to address equitable mootness without further discussion or application of a particular standard of review. See, e.g., In re Metromedia, 416 F.3d at 139; South St. Seaport Ltd. P ship v. Burger Boys, Inc. (In re Burger Boys, Inc.), 94 F.3d 755, 759 (2d Cir. 1996); Resolution Trust Corp. v. Best Prods. Co. (In re Best Prods. Co.), 68 F.3d 26, 29 (2d Cir. 1995). To the extent these cases suggested that de novo review may apply to district court determinations regarding equitable mootness, they did so in dicta. 11 1 the district court s decision de novo. 2 at 139. 3 procedural posture: in an equitable mootness dismissal, the 4 district court is not reviewing the bankruptcy court at all, but 5 exercising its own discretion in the first instance. 6 the district court may rely on the bankruptcy court s factual 7 findings, unless clearly erroneous, and if necessary receive 8 additional evidence. 9 equitable mootness dismissals, the courts of appeals are split over 10 whether a de novo or abuse of discretion standard of review should 11 be applied by a court of appeals. 12 United Producers, Inc. (In re United Producers, Inc.), 526 F.3d 13 942, 946-47 (6th Cir. 2008) (reviewing determination of equitable 14 mootness de novo), Liquidity Solutions, Inc. v. Winn-Dixie Stores, 15 Inc. (In re Winn-Dixie Store, Inc.), 286 F. App x 619, 622 & n.2 16 (11th Cir. 2008) (same), and United States v. Gen. Wireless, Inc. 17 (In re GWI PCS 1 Inc.), 230 F.3d 788, 799-800 (5th Cir. 2000) 18 (same), with Search Mkt. Direct, Inc. v. Jubber (In re Paige), 584 19 F.3d 1327, 1334-1335 (10th Cir. 2009) (reviewing determination of 20 equitable mootness for abuse of discretion), and Nordhoff Invs., 21 Inc. v. Zenith Elecs. Corp., 258 F.3d 180, 182 (3d Cir. 2001) 22 (same). In re Metromedia, 416 F.3d Equitable mootness appeals arise in a somewhat different In so doing, Perhaps because of the unusual nature of Compare Curreys of Neb., Inc. v. 23 We join those circuits that apply an abuse-of-discretion 24 standard, finding it significant that we are reviewing the district 25 court s own exercise of discretion as to whether it is practicable 12 1 to grant relief. 2 Article III mootness turns on the defendant s voluntary cessation 3 of allegedly illegal conduct. 4 bear[s] on whether the court should, in the exercise of its 5 discretion, dismiss the case as moot. 6 Constructors, Inc. v. Cuomo, 981 F.2d 50, 59 (2d Cir. 1992). 7 such a case, because dismissal lies within the sound discretion of 8 the district court, we review for abuse of discretion. 9 Granite State Outdoor Adver., Inc. v. Zoning Bd. of Stamford, 38 F. 10 App'x 680, 683 (2d Cir. 2002); cf. In re Paige, 584 F.3d at 1334-35 11 (reviewing equitable mootness for abuse of discretion in part 12 because of its similarities to prudential mootness, reviewed in the 13 Tenth Circuit for abuse of discretion). 14 mootness determinations involve a discretionary balancing of 15 equitable and prudential factors, the type of determination we 16 usually review for abuse of discretion. In re Cont l Airlines, 91 17 F.3d 553, 560 (3d Cir. 1996) (en banc). Accordingly, we will 18 review the district court s decision for abuse of discretion. 19 20 III. Objections to the Allen Settlement and Third-Party Releases are Equitably Moot 21 A somewhat analogous situation arises when There, the voluntary cessation Harrison & Burrowes Bridge In Id.; More generally, equitable R2 and LDT both challenge the compensation Paul Allen received 22 under the Allen Settlement as contravening the absolute priority 23 rule and Delaware s entire fairness standard. 24 that the third-party releases, which originated in the Allen 25 Settlement and were incorporated into the confirmed Plan, do not 13 They further argue 1 comply with SEC v. Drexel Burnham Lambert Group, Inc. (In re Drexel 2 Burnham Lambert Group, Inc.), 960 F.2d 285, 293 (2d Cir. 1992), 3 limiting third-party releases to unique circumstances. 4 claim that these legal errors can be redressed through a 5 prospective monetary award, without undoing the Allen Settlement or 6 reopening the bankruptcy proceedings. 7 required to disgorge some or all of his $180 million in settlement 8 consideration, or that Charter pay a similar amount directly to 9 LDT. Appellants LDT suggests that Allen be R2 presents a different alternative: that the bankruptcy 10 court determine the lowest payout Allen would have been willing to 11 accept, and order him to disgorge the excess. 12 the third-party releases can be surgically excised from the Allen 13 Settlement and the Plan. And R2 maintains that We begin by noting that LDT and R2 have met their burden with 14 15 respect to several of the Chateaugay factors. 16 impossible to grant LDT and R2 relief, in the sense that the appeals 17 are not constitutionally moot (factor 1). 18 577 F.3d 60, 66 (2d Cir. 2009) (claims for monetary relief 19 automatically avoid constitutional mootness). 20 diligent in seeking a stay of the confirmation order (factor 5).3 21 That LDT and R2 were not granted a stay does not affect the analysis 3 First, it is not See Dean v. Blumenthal, Next, LDT and R2 were Although no stay was sought from this court, under the circumstances we do not fault LDT and R2 for the omission: the district court denied a stay on the evening of Wednesday November 25, 2009, the day before Thanksgiving, and this court was closed until the following Monday when the Plan became effective and was substantially consummated, leaving no time to move this court for a stay. 14 1 under Chateaugay II, which looks only to diligence in seeking a 2 stay. 3 144-45. 4 Chateaugay II, 10 F.3d at 954; In re Metromedia, 416 F.3d at Next, LDT and R2 are correct that the relief they seek would 5 not adversely affect parties without an opportunity to participate 6 in the appeal (factor 4). 7 assuming that the relief requested would send Charter back into 8 bankruptcy, the parties most affected would be Charter itself, 9 Allen, and Charter s creditors, all of whom are either parties to See Chateaugay II, 10 F.3d at 953. Even 10 this appeal or participated actively in the bankruptcy proceedings. 11 Cf. Kenton Cnty. Bondholders Comm. v. Delta Air Lines, Inc. (In re 12 Delta Air Lines, Inc.), 374 B.R. 516, 524 (S.D.N.Y. 2007) (finding 13 appeal of a settlement equitably moot in part because distributions 14 under the settlement had been made to innocent third parties that 15 were not participating in the appeal). 16 Settlement were unlawful, it would not be inequitable to require 17 the parties to that agreement to disgorge their ill-gotten gains, 18 participation in the appeal or not. 19 Thorpe Insulation Co. (In re Thorpe Insulation Co.), 677 F.3d 869, 20 882 (9th Cir. 2012) ( [T]he question is not whether . . . no third 21 party interests are affected but whether any effects on third 22 parties would be inequitable.). 23 releases from the Plan would affect only those third parties that 24 benefited from the releases. 25 534 F.3d 498, 500 (5th Cir. 2008); Gillman v. Cont l Airlines (In In any event, if the Allen See Motor Vehicle Cas. Co. v. Likewise, striking the third-party See Hilal v. Williams (In re Hilal), 15 1 re Cont l Airlines), 203 F.3d 203, 210 (3d Cir. 2000) (finding 2 appeal of third-party releases not equitably moot where the 3 defendant presented no arguments that investors or creditors relied 4 on the presence of releases in supporting the plan). 5 effects may be felt by reorganized Charter s shareholders, since 6 either a limited remand or a payout would affect the value of the 7 company. 8 existence of this appeal and the possibility of an adverse ruling 9 as a risk factor in publicly filed annual and quarterly reports. Less direct However, Charter has regularly and fully disclosed the 10 See, e.g., Charter Communications, Inc., Annual Report (Form 10-K), 11 at 29 (Mar. 1, 2011). 12 information into account before purchasing shares in Charter. 13 In re Cont l Airlines, 91 F.3d at 572 (Alito, J., dissenting). 14 A prudent investor would take this See However, LDT and R2 have failed to establish that the relief 15 they request would not affect Charter s emergence as a revitalized 16 entity and would not require unraveling complex transactions 17 undertaken after the Plan was consummated (factors 2 and 3). 18 Chateaugay II, 10 F.3d at 953. 19 disgorgement by Allen would not impact reorganized Charter s 20 financial health. 21 has been quite successful, with substantial assets and cash flow, 22 access to an $800 million revolving line of credit, and long-term 23 debt structured on favorable terms. 24 payment in the range of $200 million would send it spiraling back 25 into bankruptcy. See R2 and LDT are correct that any And, as Appellants stress, reorganized Charter Charter makes no claim that a LDT and R2 ignore, however, that we must also 16 1 consider the heavy transactional costs associated with the monetary 2 relief they seek. 3 including striking the releases, would be no ministerial task. 4 Allen Settlement was the product of an intense multi-party 5 negotiation, and removing a critical piece of the Allen Settlement 6 such as Allen s compensation and the third-party releases would 7 impact other terms of the agreement and throw into doubt the 8 viability of the entire Plan. 9 145. Modifying the terms of the Allen Settlement, The See In re Metromedia, 416 F.3d at LDT and R2 maintain that in refusing to alter the Allen 10 11 Settlement, the district court gave too much weight to the 12 nonseverability clause contained in the Settlement and the Plan. 13 See In re Charter Commc ns, 449 B.R. at 20, 24-25, 25 n.22, 28-29, 14 30. 15 standing on its own cannot support a finding of equitable mootness. 16 Allowing a boilerplate nonseverability clause, without more, to 17 determine the equitable mootness question would give the debtor and 18 other negotiating parties too much power to constrain Article III 19 review. 20 concurring in the judgment) (expressing concern that the equitable 21 mootness doctrine can easily be used as a weapon to prevent any 22 appellate review of bankruptcy court orders confirming 23 reorganization plans ). 24 clauses in prenegotiated plans, such a rule could moot virtually 25 every appeal where a stay had not been granted. We agree with LDT and R2 that normally a nonseverability clause See Nordhoff Invs., Inc., 258 F.3d at 192 (Alito, J., Given the ubiquity of nonseverability 17 See R2 Br. at 41-42 1 & 42 n.10 (noting that of the top ten prenegotiated bankruptcies 2 filed in 2010 by value of the debtor s assets, each contained a 3 nonseverability clause in either the confirmation order or in the 4 reorganization plan). 5 practical doctrine that requires courts to consider the actual 6 effects of the relief requested on a debtor s emergence from 7 bankruptcy. 8 that a particular term was important to the bargaining parties, a 9 district court cannot rely on such a clause to the exclusion of More importantly, equitable mootness is a While a nonseverability clause may be one indication 10 other evidence.4 11 re Texaco, Inc.), 92 B.R. 38, 47-49 (S.D.N.Y. 1988) (looking to 12 both nonseverability clause and testimony about the importance of 13 release provisions to determine that severing the provisions would 14 undermine both the Settlement Agreement and the Reorganization 15 Plan ); see also Behrmann v. Nat l Heritage Found., 663 F.3d 704, 16 713-14 (4th Cir. 2011) (finding an appeal of a release provision 17 not equitably moot where the bankruptcy court concluded that the 18 releases were important to the Plan without adequate factual 19 support). See Trans World Airlines, Inc. v. Texaco, Inc. (In 4 Reliance on the nonseverability clause alone would be particularly inappropriate here with respect to the third-party releases because the term sheet incorporated into the Allen Settlement expressly provided that the debtors failure to secure the releases as part of the approved Plan would not breach the Allen Settlement. These dueling contractual provisions only underscore the need to examine the totality of evidence to determine the importance of a particular provision. 18 1 In these appeals, however, the district court did not rest its 2 decision exclusively on the nonseverability clause. 3 court found that the compensation to Allen and the third-party 4 releases were critical to the bargain that allowed Charter to 5 successfully restructure and that undoing them, as the plaintiffs 6 urge, would cut the heart out of the reorganization. 7 multiple witnesses, it also found that Allen was in a unique 8 position to create a successful arrangement because only through 9 his forbearance of exchange rights and agreement to maintain voting 10 power could Charter reinstate its senior debt and preserve valuable 11 net operating losses. 12 and Order Confirming Debtors Joint Plan of Reorganization ( Conf. 13 Order ) ¶¶ 32, 43; see also JA 462, 589, 605, 611. 14 like the compensation, were important in inducing Allen to settle. 15 See Conf. Order ¶ 32; see also JA 463, 589, 605, 611. 16 of witnesses representing that the releases and compensation were 17 important to Allen, LDT and R2 can point to no evidence that the 18 settlement consideration paid to Allen or the third-party releases 19 were simply incidental to the bargain that was struck. 20 re Metromedia, 416 F.3d at 145 (request to strike third-party 21 releases equitably moot because it [was] as likely as not that the 22 bargain struck by the debtor and the released parties might have 23 been different without the releases ) with In re Cont l Airlines, 24 203 F.3d at 210-11 (appeal of third-party releases not equitably 25 moot where there was [n]o evidence or arguments . . . that The bankruptcy Crediting See Findings of Fact, Conclusions of Law, 19 The releases, In the face Compare In 1 Plaintiffs appeal, if successful, would necessitate the reversal 2 or unraveling of the entire plan of reorganization ). 3 Even if LDT and R2 are correct that the settlement 4 consideration and releases are legally unsupportable, these 5 provisions could not be excised without seriously threatening 6 Charter s ability to re-emerge successfully from bankruptcy.5 7 could the monetary relief requested be achieved by a quick, 8 surgical change to the confirmation order. 9 willing to give up the benefit he received from the Allen Nor Allen may not be 10 Settlement without also reneging on at least part of the benefit he 11 bestowed on Charter. 12 negotiations, casting uncertainty over Charter s operations until 13 the issue s resolution. 14 in the district court s conclusion that these claims relating to 15 the Allen Settlement are equitably moot. 16 IV. Thus the parties would have to enter renewed We therefore find no abuse of discretion R2 s Claim for the Revaluation of CCI is Equitably Moot R2 s next claim of error relates to the valuation of Charter. 17 18 The bankruptcies of Charter s 131 affiliated entities were 19 consolidated for procedural, not substantive, purposes. 20 at 269-70. 419 B.R. The Plan, however, values all Charter entities as one. 5 This risk supported in the record that the parties might be unable to compromise if the bankruptcy proceedings were reopened, is what we understand the district court to have meant when it wrote that relief would nullify the plan. See 449 B.R. at 24, 25, 26, 27 n.29, 28. Technically speaking, any vacatur of a confirmation order, no matter how limited, would nullify the plan, at least temporarily and in part, but we understand the district court s use of nullification to have referred to a nullification of the ability to reorganize at all. 20 R2, an equity holder in CCI, argues that CCI should have been 1 Id. 2 valued separately, taking into account the value of the net 3 operating losses, which R2 argues belong to CCI. 4 claims that simple relief is available: remand the case to the 5 bankruptcy court for a limited valuation of CCI as a stand-alone 6 entity, and distribute any surplus to CCI s shareholders, R2 among 7 them. 8 9 Here again, R2 As with challenges to the Allen Settlement, R2 has met the Chateaugay factors relating to ability to grant effective relief, 10 diligence in seeking a stay, and effect on third parties. 11 we could not grant the relief R2 seeks without requiring a 12 significant revision of Charter s reorganization. 13 in effect, an attack on the bankruptcy court s determination that 14 it was appropriate for the Plan to consider all the Charter 15 entities together, even though the bankruptcies were never 16 substantively consolidated. 17 of CCI, the district court would have had to overturn the 18 bankruptcy court s determination that a joint Plan was appropriate. 19 That legal conclusion would require not just that CCI be separately 20 valued, but that all the Charter subsidiaries be revalued and the 21 proceeds of the bankruptcy distributed accordingly. 22 Internacional Financiera S.A. v. Calpine Corp. (In re Calpine 23 Corp.), 390 B.R. 508, 519-20 (S.D.N.Y. 2008) (holding that the 24 debtor s valuation was a key issue in a reorganization, and 25 therefore even if a remand resulted in a higher valuation, the plan However, R2 s argument is, In order to grant a separate valuation 21 See Compania 1 would need to be substantially changed), aff d 354 F. App x 479 (2d 2 Cir. 2009). 3 without knocking the props out from under completed transactions or 4 affecting the re-emergence of the debtor from bankruptcy.6 5 Chateaugay II, 10 F.3d at 952-53. 6 abuse its discretion in dismissing this claim for revaluation of 7 CCI as equitably moot. 8 9 V. 10 This is not the type of relief that can be undertaken See Thus, the district court did not LDT s Claim that the Plan Violates 11 U.S.C. § 1129 s Cramdown Provisions is Equitably Moot LDT appeals the bankruptcy court s determination that the Plan 11 complies with the cramdown provisions of 11 U.S.C. § 1129. 12 LDT argues that, as a creditor of CCI, it had a more senior claim 13 to the value of the net operating losses than the Crossover 14 Committee members, who held the debt of other Charter entities. 15 See § 1129(b)(2)(B)(ii). 16 gerrymandered into separate classes to satisfy the provisions of 17 § 1129(a)(10), which requires that at least one class of impaired First, Second, LDT argues that creditors were 6 The district court erred, however, when it held that the relief requested could not be granted because the confirmation order rendered R2 s claims cancelled, released, and extinguished with the holders receiving no distribution under the Plan. 449 B.R. at 28 (internal quotation marks and alteration omitted). When the confirmation order is on appeal, the legal effects of that order such as extinguishing equity cannot themselves preclude review. See Chateaugay II, 10 F.3d at 953-54, (rejecting the argument that because the confirmation order provided that certain assets were to re-vest in the debtor free and clear of all claims and interests we could not correct a legal error in their distribution (internal quotation marks omitted)). Nevertheless, the district court s alternative holding that equitable mootness barred the appeal notwithstanding the this provision was independently sufficient to support its judgment. 22 1 creditors accept a plan. 2 court erred by holding that § 1129(a)(10) was satisfied if an 3 impaired class of any of the debtors accepted the Plan. 4 for all these alleged errors, LDT seeks the payment in full of the 5 CCI notes, at a cost to Charter of about $330 million. 6 29 n.38. 7 It further argues that the bankruptcy As relief 449 B.R. at As with R2 s claims regarding valuation, LDT may be correct 8 that the simple payment of $330 million would satisfy the 9 Chateaugay factors. However, as with R2 s revaluation claim, the 10 legal conclusions required to find for LDT would require much more 11 than simply paying the CCI Noteholders claims in full. 12 errors that LDT alleges, if proven, would require unwinding the 13 Plan and reclassifying creditors. 14 surgical change to the Plan. 15 251 (finding claims of artificial impairment and misclassification 16 of creditors equitably moot because no remedy . . . is practicable 17 other than unwinding the plan ). 18 court s exercise of its discretion in dismissing the claim that the 19 cramdown provisions were violated as equitably moot as well. 20 21 22 The legal This is the opposite of a See In re Pac. Lumber, 584 F.3d at We therefore affirm the district CONCLUSION For the foregoing reasons, the district court s order dismissing LDT and R2 s appeals as equitably moot is AFFIRMED. 23
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