In re United Producers, Inc.

• Decision Date: 28 May 2008
• Docket Number: No. 06-4429.,06-4429.
• Citation: 526 F.3d 942
• Parties: In re UNITED PRODUCERS, INC., Debtor. Curreys of Nebraska, Inc., Gerald Eggerling, James Eggerling, Marcella Eggerling, Nancy Eggerling, Eggerling Farms, Inc., G.E. Cattle Co., Inc., Harry Hayes, Diane Kuchta, Rick Kuchta, Kuchta Farms, Inc., Randy Oertwich, Producers Livestock Credit Corp., R L Financial, Inc., Appellants, v. United Producers, Inc., Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

526 F.3d 942

In re UNITED PRODUCERS, INC., Debtor Curreys of Nebraska, Inc., Gerald Eggerling, James Eggerling, Marcella Eggerling, Nancy Eggerling, Eggerling Farms, Inc., G.E. Cattle Co., Inc., Harry Hayes, Diane Kuchta, Rick Kuchta, Kuchta Farms, Inc., Randy Oertwich, Producers Livestock Credit Corp., R L Financial, Inc., Appellants, v. United Producers, Inc., Appellee.

No. 06-4429.

United States Court of Appeals, Sixth Circuit.

Argued: November 30, 2007.

Decided and Filed: May 28, 2008.

ARGUED: David A. Domina, Domina Law Group, Omaha, Nebraska, for Appellants. Philip F. Downey, Vorys, Sater, Seymour & Pease, Columbus, Ohio, for Appellee. ON BRIEF: David A. Domina, Domina Law Group, Omaha, Nebraska, Elias T. Xenos, Troy, Michigan, for Appellants. Philip F. Downey, Vorys, Sater, Seymour & Pease, Columbus, Ohio, for Appellee.

Before: KENNEDY, MARTIN, and CLAY, Circuit Judges.

CLAY, J., delivered the opinion of the court, in which MARTIN, J., joined. KENNEDY, J. (pp. 952-53), delivered a separate opinion concurring in the judgment.

OPINION

CLAY, Circuit Judge.

Creditors Curreys of Nebraska, Inc., Gerald Eggerling, James Eggerling, Marcella Eggerling, Nancy Eggerling, Eggerling Farms, Inc., G.E. Cattle Co., Inc., Harry Hayes, Diane Kuchta, Rick Kuchta, Kuchta Farms, Inc., Randy Oertwich, Producers Livestock Credit Corp, and R L Financial, Inc. appeal the decision of the Bankruptcy Appellate Panel granting Debtor United Producer's motion to dismiss Creditors' appeal of the bankruptcy court's plan confirmation orders. For the reasons stated below, this Court AFFIRMS the decision of the Bankruptcy Appellate Panel.

BACKGROUND

Debtor United Producers, Inc. ("United Producers") is an agricultural cooperative that provides financing to farmers through its subsidiary Producers Credit Corp. ("PCC"). Creditors Curreys of Nebraska, Inc., Gerald Eggerling, James Eggerling, Marcella Eggerling, Nancy Eggerling, Eggerling Farms, Inc., G.E. Cattle Co., Inc., Harry Hayes, Diane Kuchta, Rick Kuchta, Kuchta Farms, Inc., Randy Oertwich, Producers Livestock Credit Corp, and R L Financial, Inc. ("Creditors") are former investors in United Producers. United Producers and PCC filed for Chapter 11 bankruptcy relief on April 1, 2005 after Creditors were awarded over $17 million in damages for United Producers' breach of contract, fraud, conversion and Packers and Stockyards Act violations regarding cattle marketing. United Producers and PCC created a joint amended plan of reorganization that provided for the cancellation of ownership interests and the issuance of new interests and stock after the plan's confirmation. Under the reorganization plan, Creditors would receive only a fraction of the judgments owed to them by United Producers and PCC. One of Creditors' central objections to the plan was that it left management in place despite management's pre-petition misconduct. Creditors claimed that this plan provision did not protect the interest of creditors and equity security holders and was against public policy. Creditors also claimed that the plan was not proposed in good faith.

The bankruptcy court held a confirmation hearing on September 28 and 29, 2005. On September 30, 2005, the court entered an order finding that the amended plan met all the confirmation standards of the Bankruptcy Code and directing the submission of a separate confirmation order. The court subsequently confirmed the amended plan on October 6, 2005. Creditors timely appealed the September 30 and October 6, 2005 orders to the Bankruptcy Appellate Panel of the Sixth Circuit but did not seek a stay of the confirmation order.

On November 21, 2005, United Producers and PCC filed a motion to dismiss Creditors' appeal as equitably moot because the plan of reorganization had been substantially consummated and the relief sought on appeal would be detrimental to third parties not before the court and to the success of the plan. The motion was accompanied by a memorandum of law and the affidavit of Dennis Bolling, president and chief executive officer of both United Producers and PCC, describing the post-confirmation transactions of the companies. Because Creditors disputed the evidence contained in the affidavit, the Bankruptcy Appellate Panel remanded the matter to the bankruptcy court to determine whether the plan had been substantially consummated and the extent to which third parties relied upon the confirmed plan.

The bankruptcy court oversaw discovery and conducted an evidentiary hearing on June 29, 2006 at which Dennis Bolling was the only witness. At the hearing Creditors conceded that the plan was substantially consummated. Based upon the evidence presented, the bankruptcy court issued supplemental findings of fact and conclusions of law regarding substantial consummation and third-party reliance upon the confirmed plan. The bankruptcy court found that the plan was substantially consummated and that innocent third parties would be adversely affected if the plan were to be vacated due to Creditors' appeal. In support of these conclusions, the bankruptcy court listed thirty findings of fact detailing the extent to which the reorganization had progressed and the possible consequences of the plan's vacation for third parties.

Following remand the Bankruptcy Appellate Panel granted United Producer and PCC's motion to dismiss the appeal as equitably moot. Relying upon the bankruptcy court's findings of fact, the Bankruptcy Appellate Panel concluded that the appeal should be dismissed as equitably moot because the plan had been substantially consummated and vacating the plan as a result of a successful appeal would harm innocent third parties who relied upon the confirmed plan. Creditors filed a timely appeal from the Bankruptcy Appellate Panel's October 6, 2006 judgment.

DISCUSSION

A. Standard of Review

This court independently reviews a decision of the bankruptcy court that has been appealed to the Bankruptcy Appellate Panel. Tidewater Finance Co. v. Curry (In re Curry), 509 F.3d 735, 735 (6th Cir.2007). The bankruptcy court's findings of fact are reviewed for clear error, while its conclusions of law are reviewed de novo. Behlke v. Eisen (In re Behlke), 358 F.3d 429, 433 (6th Cir.2004). While these general principles regarding review of bankruptcy court decisions are well established, the parties disagree regarding the standard of review to be applied to the Bankruptcy Appellate Panel's equitable mootness determination.

As with many aspects of the equitable mootness inquiry, the case law is sparse regarding the standard of review to be applied. The Third Circuit reviews equitable mootness decisions under an abuse of discretion standard because such a decision "involves a discretionary balancing of equitable and prudential factors rather than the limits of the federal courts' authority under Article III." In re Continental Airlines, 91 F.3d 553, 560 (3d Cir. 1996).¹ Such review of equitable mootness determinations is consistent with the standard of review applied to other equitable determinations made by lower courts. See In re Behlke, 358 F.3d at 433 ("[T]he bankruptcy court's equitable determinations are reviewed for an abuse of discretion." (citation omitted)). However, the dissent in In re Continental Airlines espoused the opposite view, arguing that a district court's equitable mootness determination should be reviewed de novo because the district court acts as an appellate court in bankruptcy cases. In re Continental Airlines, 91 F.3d at 568 n. 4 (Alito, J., dissenting). Such a standard of review would be appropriate because the court of appeals is "in just as good a position to make this determination as was the district court." Id.

The standard of review for equitable mootness decisions proposed by the dissent in Continental Airlines is more consistent with this Circuit's precedent than is the Continental Airlines majority's position. Although only clearly setting forth a de novo standard of review for equitable mootness determinations in an unpublished case, Unofficial Committee of Co-Defendants v. Eagle-Picher Indus., Inc. (In re Eagle Picher Indus., Inc.), 172 F.3d 48, 1998 WL 939869, at *3 (6th Cir. 1998) (unpublished table decision), this Court has reviewed determinations of equitable mootness de novo. See, e.g. Bank of Montreal v. Official Comm. of Unsecured Creditors (In re American HomePatient, Inc.), 420 F.3d 559, 564-65 (6th Cir.2005). Such a standard of review is consistent with this Court's plenary review of the decisions of a lower court exercising its appellate jurisdiction. See In re Big Rivers Elec. Corp., 355 F.3d 415, 428-29 (6th Cir.2004) (noting that review for abuse of discretion is appropriate when a district court is exercising its original jurisdiction and not when it is exercising its appellate jurisdiction over a bankruptcy case). See also United States v. GWI PCS 1 Inc. (In re GWI PCS 1 Inc.), 230 F.3d 788, 799-800 (5th Cir.2000) (holding that a district court's dismissal of an appeal as equitably moot is reviewed de novo); First Union Real Estate Equity & Mortgage Invs. v. Club Assocs. (In re Club Assocs.), 956 F.2d 1065, 1069 (11th Cir.1992) (reviewing de novo equitable mootness determination by a district court). As a result, we review the Bankruptcy Appellate Panel's equitable mootness determination de novo.

B. Analysis

The equitable mootness doctrine is applied in appeals from bankruptcy confirmations in order to protect parties relying upon the successful confirmation of a bankruptcy plan from a drastic change after appeal. City of Covington v. Covington Landing Ltd. P'ship, 71 F.3d 1221, 1225 (6th Cir.1995) ("[A] plan of reorganization, once implemented, should be disturbed only for compelling reasons."). Unlike mootness in the constitutional sense, equitable mootness does not follow from Article III standing principles but is an equitable doctrine applied to protect parties' settled expectations...