Mac Panel Co. v. Virginia Panel Corp.

• Decision Date: 06 March 2002
• Docket Number: No. 01-1068.,01-1068.
• Citation: 283 F.3d 622
• Parties: MAC PANEL COMPANY, Plaintiff-Appellee, v. VIRGINIA PANEL CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 622

283 F.3d 622

MAC PANEL COMPANY, Plaintiff-Appellee, v. VIRGINIA PANEL CORPORATION, Defendant-Appellant.

No. 01-1068.

United States Court of Appeals, Fourth Circuit.

Argued January 24, 2002.

Decided March 6, 2002.

ARGUED:

Rory D. Whelehan, Womble, Carlyle, Sandridge & Rice, P.L.L.C., Greenville, South Carolina, for Appellant. John Herbert Small, Brooks, Pierce, Mclendon, Humphrey & Leonard, Greensboro, North Carolina, for Appellee.

ON BRIEF:

H. Arthur Bolick, II, Brooks, Pierce, McLendon, Humphrey & Leonard, Greensboro, North Carolina, for Appellee.

Before WIDENER, WILKINS, and NIEMEYER, Circuit Judges.

Affirmed by published opinion. Judge NIEMEYER wrote the opinion, in which Judge WIDENER and Judge WILKINS joined.

OPINION

NIEMEYER, Circuit Judge.

Challenging a Chapter 11 plan of reorganization of MAC Panel Company, Virginia Panel Corporation, the largest creditor, appealed the bankruptcy court's order confirming the plan to the district court. Because no stay of the bankruptcy court's order had been obtained and because the plan had been substantially consummated, the district court dismissed the appeal as "equitably moot." The court concluded that any reversal of the bankruptcy court order would "require the undoing of financial transactions involving third parties" and would "create an unmanageable ... situation for the bankruptcy court." For the reasons that follow, we affirm.

I

MAC Panel Company ("MAC Panel"), a North Carolina corporation operating in High Point, North Carolina, and Virginia Panel Corporation ("VPC"), a Virginia corporation operating in Waynesboro, Virginia, are virtually the only significant competitors in the manufacture and sale of high performance electronic interface connector systems. In 1993, VPC sued MAC Panel for infringing two patents and for related claims. After lengthy litigation, VPC obtained a final judgment against MAC Panel for over $1.91 million. Before completing that litigation, VPC also commenced a parallel action in August 1994 against Joseph Craycroft and John Craycroft, the president and former president of MAC Panel, respectively, alleging that they induced MAC Panel's patent infringement and thereby seeking an alternative source for VPC's patent infringement damages.

After MAC Panel unsuccessfully exhausted its appeals of the patent infringement judgment, it filed this Chapter 11 bankruptcy proceeding on April 14, 1998. Shortly thereafter, it commenced an adversary action in the bankruptcy court against VPC, seeking to enjoin VPC from continuing the separate litigation against Joseph Craycroft. MAC Panel alleged that the injunction was necessary to enable Craycroft to devote the time and attention necessary to prepare a plan of reorganization for the company. That complaint was later amended to extend the injunction request to include the claims against John Craycroft and to request that the injunction be made permanent as a condition of a proposed plan of reorganization under which the Craycrofts would voluntarily pay into the bankruptcy estate the amounts necessary to pay all creditors in full, including VPC.

More particularly, the proposed plan of reorganization called for a cash payment in full to all priorities on its effective date. Unsecured creditors with claims less than $2,000, as well as those who were willing to reduce their claims to $2,000, would receive 50% of their claims on the effective date, with payment of the remainder six months later. Other unsecured creditors, including VPC, would be given the choice of receiving either an initial distribution of 35% of their claims on the effective date, with periodic payments of the remainder to follow, or a one-time lump sum payment of 60%. Because implementation of the plan required that MAC Panel have $1,217,000 on the effective date, of which MAC Panel projected to have only $430,000, Joseph Craycroft committed, as part of the plan, to pay to the estate at least $1.1 million. In exchange for this voluntary contribution, Craycroft demanded a permanent injunction, prohibiting VPC from pursuing its suit against the Craycrofts individually. The injunction would be dissolved only if MAC Panel defaulted on its payments to VPC.

Following opposition from VPC and confirmation hearings, the proposed plan for reorganization was denied. The principal problems were that the plan failed to pay VPC a sufficient rate of interest on the deferred part of its unsecured claim and that the provision releasing the Craycrofts was unacceptable. MAC Panel then filed an amended plan. The only significant change in the amended plan relevant to VPC was the payment of 9% interest, a rate that was acceptable to VPC. Despite VPC's continued objection — principally due to the release of the Craycrofts — the bankruptcy court approved the amended plan by order dated February 24, 2000. In denying VPC's request for a stay of that order, the bankruptcy court discounted VPC's opposition to the plan:

In addition to the debtor-creditor relationship between the two companies ... MAC Panel is the only competitor of VPC. In most Chapter 11 cases, a creditor faced with a plan under which it was to be paid its entire indebtedness plus 9% interest, with an immediate payment of $744,000.00, would be motivated to support the plan to the extent that such creditor was guided by the instincts of a creditor.

VPC appealed the bankruptcy court's order and judgment of confirmation and filed a motion in the bankruptcy court for a stay pending appeal. When the bankruptcy court refused to grant the stay, VPC chose neither to appeal that denial nor to seek an independent stay from the district court.

On the effective date of the plan, March 27, 2000, MAC Panel acquired the $1.1 million of Craycroft funds; it made payments to certain creditors of $137,372; and it placed $1,095,329 in an interest-bearing "Reserve Account" for other payments due on the effective date, for claims being disputed, and for claims not yet liquidated for creditors. This Reserve Account also included $210,000 for professional fees and expenses.

After the effective date, MAC Panel continued the process of paying off creditors, most of whose disputed claims were resolved by settlement or by the bankruptcy court. Twelve unsecured creditors elected to receive a one-time lump sum payment equal to 60% of their allowed claims in full satisfaction of their claims. Seven other unsecured creditors elected to reduce their claims to $2,000. By August 2000, MAC Panel had paid out approximately $1 million, of which over $750,000 had been paid to VPC in respect of its judgment against MAC Panel.

After the effective date of the plan, MAC Panel succeeded in continuing its business anew. It secured a new loan for operations as well as a revolving line of credit from Bank of America; it assumed 17 executory contracts in unexpired leases; it cured existing defaults under these contract leases; and it entered into a substantial new equipment lease with a creditor, that had a value in excess of $175,000. It also began taking orders from customers and incurred trade debt with creditors who assumed that MAC Panel had successfully emerged from bankruptcy.

Noting all that had transpired since the effective date of the plan, the district court concluded on VPC's appeal that it would not be prudent—some eight months after the effective date—to revisit MAC Panel's plan of reorganization and to risk "the undoing of financial transactions involving third parties, not participants in this litigation." The court concluded that it would be impractical to reverse the consummation of the plan and accordingly dismissed the appeal, invoking the doctrine of equitable mootness. This appeal followed.

II

Unlike the constitutional doctrine of mootness, which bars consideration of appeals because no Article III case or controversy remains, the doctrine of equitable mootness is a pragmatic principle, grounded in the notion that, with the passage of time after a...