690 F.3d 161 (3rd Cir. 2012), 11-3257, In re Philadelphia Newspapers, LLC

Docket Nº:11-3257.
Citation:690 F.3d 161
Opinion Judge:AMBRO, Circuit Judge.
Party Name:In re PHILADELPHIA NEWSPAPERS, LLC, et al., Debtors. Vahan H. Gureghian, Danielle Gureghian, and Charter School Management, Inc., Appellants.
Attorney:David A. Barnes, Esquire (Argued), Edmond M. George, Esquire, Obermayer, Rebmann, Maxwell & Hippel, Philadelphia, PA, for Appellants. David F. Abernethy, Esquire, Andrew J. Flame, Esquire, Andrew C. Kassner, Esquire, Drinker, Biddle & Reath, Philadelphia, PA, Fred S. Hodara, Esquire, Abid Qureshi...
Judge Panel:Before: AMBRO, FUENTES, and HARDIMAN, Circuit Judges.
Case Date:July 26, 2012
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

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690 F.3d 161 (3rd Cir. 2012)


Vahan H. Gureghian, Danielle Gureghian, and Charter School Management, Inc., Appellants.

No. 11-3257.

United States Court of Appeals, Third Circuit

July 26, 2012

Argued May 23, 2012.

As Amended Oct. 25, 2012.

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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David A. Barnes, Esquire (Argued), Edmond M. George, Esquire, Obermayer, Rebmann, Maxwell & Hippel, Philadelphia, PA, for Appellants.

David F. Abernethy, Esquire, Andrew J. Flame, Esquire, Andrew C. Kassner, Esquire, Drinker, Biddle & Reath, Philadelphia, PA, Fred S. Hodara, Esquire, Abid Qureshi, Esquire, Sunish Gulati, Esquire (Argued), Akin, Gump, Strauss, Hauer & Feld, New York, NY, for Appellee.

Anne M. Aaronson, Esquire, Christie C. Comerford, Esquire, Lawrence G. McMichael, Esquire, Catherine G. Pappas, Esquire, Laura E. Vendzules, Esquire, Dilworth Paxson, Philadelphia, PA, Richard J. Corbi, Esquire, Michael T. Mervis, Esquire, Allison Meyer, Esquire, Proskauer Rose, New York, NY, Paul V. Possinger, Esquire, Mark K. Thomas, Esquire, Peter J. Young, Esquire, Proskauer Rose, Chicago, IL, John M. Elliott, Esquire, Mark J. Schwemler, Esquire, Elliott Greenleaf & Siedlkowski, Blue Bell, PA, for Debtors.

Before: AMBRO, FUENTES, and HARDIMAN, Circuit Judges.

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AMBRO, Circuit Judge.

Vahan H. Gureghian, Danielle Gureghian, and Charter School Management, Inc. (collectively, the " CSMI Parties" ) appeal from the judgment of the District Court affirming the Bankruptcy Court's decision to deny the CSMI Parties' requests for the allowance of administrative expense claims under 11 U.S.C. § 503(b) in the Chapter 11 bankruptcy proceedings of Philadelphia Newspapers, LLC and certain of its affiliates (collectively, the " Debtors" ). 1 In affirming the Bankruptcy Court's decision, the District Court held that the appeal was equitably moot, and alternatively that the CSMI Parties failed to establish their entitlement to administrative expense claims. Though we hold that the appeal is not equitably moot, we affirm the District Court's judgment based on its conclusions regarding the administrative expense requests.

I. Background

Bankruptcy Court Proceedings

This appeal relates to a defamation action filed by the CSMI Parties against Philadelphia Media Holdings, LLC (one of the Debtors), The Philadelphia Inquirer, and several Inquirer employees in the Court of Common Pleas of Delaware County, Pennsylvania. The action concerns certain articles published in print and online by the Inquirer discussing the CSMI Parties' contract management of the Chester Community Charter School (the " Articles" ). After the filing of the action, the Debtors filed for relief under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 101 et seq. The CSMI Parties assert that post-petition the Debtors published an article that links to and endorses the Articles. On August 2, 2010, they timely filed the administrative expense requests based on these allegations.2

Specifically, the CSMI Parties alleged that pre-petition the Debtors published a charter school webpage (the " Charter Page" ) that contained links to various items published by the Inquirer about charter schools, including the Articles. 3 They claimed that these links endorsed the Articles as accurate reporting and misled the public into believing that the CSMI Parties engaged in wrongdoing similar to the improper or illegal conduct alleged in other linked news items. They also highlighted that the Articles were displayed beneath the Charter Page's title bar as a " marquee" enclosed in a separate box containing photographs, thereby drawing attention to the Articles.

They further alleged that post-petition the Debtors published an editorial article titled " Not the Lessons Charters Were Supposed to Teach" by Inquirer columnist Monica Yant Kinney (the " Kinney Article" ). It contained a link to and a statement endorsing the Charter Page. The Kinney Article read: " Some city charter schools— think Mastery, KIPP, Independence,

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Young Scholars— are soaring. But if you follow the remarkable reporting of my colleague Martha Woodall (http:// go. philly. com/ charter), you'll see greedy grown-ups pilfering public gold under the guise of enriching children's lives." The CSMI Parties argue that this link and statement " republished" the Articles.4

Each administrative expense request asserted an estimated claim of $1,800,000 for the Debtors' alleged post-petition act of defamation. Each also sought $147,140 in alleged damages for the Debtors' post-petition conduct and prosecution of claims against the CSMI Parties.5

Three weeks after the CSMI Parties made the administrative expense requests, the Debtors filed on August 23 an objection to the requests along with a motion for an expedited hearing. The next day, the CSMI Parties objected to the Debtors' motion to expedite. The Bankruptcy Court held a hearing on the motion to expedite on August 26. At that hearing, the Debtors stated that they requested an expedited hearing because the closing under the then-current version of the Debtors' confirmed plan of reorganization 6 was scheduled to take place on August 31, and reserving $1.8 million for the requests would affect adversely their post-closing working capital.7 The Bankruptcy Court granted the motion to expedite and scheduled an evidentiary hearing for August 30.

Bankruptcy Judge Stephen Raslavich also made preliminary statements regarding the administrative expense requests. He noted that he could

detect virtually no merit to this assertion of an administrative expense claim.... I didn't want to mislead you as to what my preliminary sense of this is.... [I]t's going to take an enormous amount of persuading to convince me that the allegations of damage ... [provide] some kind of [ongoing] recoverable damage in the nature of a bankruptcy estate administrative claim.

Nonetheless, the Judge worked with the CSMI Parties to establish an acceptable hearing date and time.

At the hearing on the Debtors' objection to the administrative expense requests, Judge Raslavich, after hearing testimony and oral argument, denied the requests. He held that the CSMI Parties had not sustained their burden of proof in establishing entitlement to an administrative expense claim. The CSMI Parties timely appealed to the District Court on September 10.

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The closing did not take place as anticipated because of failed negotiations with the Debtors' labor unions, the acceptable completion of which was a condition to closing. The Debtors conducted another auction of substantially all of their assets on September 23, and the sale was consummated under the terms of the Fifth Amended Joint Chapter 11 Plan (the " Fifth Amended Plan" or " Plan" ) for a purchase price of $105 million in cash.8

District Court Decision

Before the District Court, the CSMI Parties argued that the Bankruptcy Court erred in denying the administrative claims requests because the Kinney Article's link and reference to the Charter Page provided a post-petition tort claim. They also asserted that the Bankruptcy Court prejudged the merits of the requests and infringed on their due process rights by forcing them to proceed on an expedited basis. The Debtors argued that the appeal should be dismissed as equitably moot.9

The District Court held that the appeal was equitably moot, " as the plan has been substantially consummated and no stay was sought," but nonetheless considered the merits. After noting that courts often provide their preliminary impressions on matters to narrow issues and that expedited hearings are " commonplace and often necessary" in bankruptcy proceedings, it considered the claims underlying the administrative expense requests. It affirmed the Bankruptcy Court's denial of the requests based on its holding that " merely post[ing] a link to the charter school webpage that contained the original articles as the courts that have had occasion to consider this issue have uniformly held, is not distinct tortious conduct upon which a defamation claim can be grounded."

In addition to advancing the same arguments regarding the Bankruptcy Court's actions and decisions as they did before the District Court, the CSMI Parties argue to us that the District Court erred in holding that the appeal is equitably moot.

II. Jurisdiction and Standard of Review

The Bankruptcy Court had jurisdiction under 28 U.S.C. § 157(b). The District Court had jurisdiction under 28 U.S.C. §§ 158(a) and 1334. We have jurisdiction under 28 U.S.C. §§ 158(d) and 1291.

Our precedent requires us to review for abuse of discretion a district court's decision that an appeal is equitably moot. In re Cont'l Airlines, 91 F.3d 553, 560 (3d Cir.1996) (en banc) (" Continental I " ). 10 Because a district court sits as an

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appellate court to review a bankruptcy court, we review a bankruptcy court's " legal determinations de novo, its factual findings for clear error, and its exercises of discretion for abuse thereof." In re Goody's Family Clothing Inc., 610 F.3d 812, 816 (3d Cir.2010).

III. Equitable Mootness

Equitable mootness is a way for an appellate court to avoid deciding the merits of an appeal. In this uncommon act, a court dismisses an appeal even if it has jurisdiction and can grant relief if " implementation of that relief would be inequitable." Continental I, 91 F.3d at 559 (quoting In re Chateaugay Corp., 988 F.2d 322, 325 (2d Cir.1993)). The term " mootness" is a misnomer. Unlike mootness in the constitutional sense, where it is impossible for a court to grant any relief, " mootness" here is used " as a shortcut for a court's decision that the fait accompli of a plan confirmation should preclude further judicial proceedings." Id.

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