Creditors' Rights in Chapter 11: Use Them or Lose Them

The old adage “use it or lose it” applies at every stage of a Chapter 11 case. In the interest of finality, strict deadlines for filing claims, opposing motions, assuming leases, and performing myriad other tasks can impose onerous consequences on parties who fail to heed them. Nowhere is this seemingly harsh ' but essential ' reality more evident than in the ongoing saga of a group of three holders of gift cards, totaling $225.00 in value, issued by the now-defunct Borders bookstore chain. After nearly three years of litigation, the Second Circuit Court of Appeals recently affirmed a district court order dismissing as equitably moot the gift card holders' appeals from an assortment of bankruptcy court orders, and expressly clarified for the first time that the doctrine of equitable mootness applies in liquidating Chapter 11 cases, not just reorganizations. In re BGI, Inc., f/k/a Borders Group, Inc., 772 F.3d 102 (2d Cir. 2014). As a result, the three gift card holders, who waited until seven months after the bar date to attempt to file proofs of claim and move to certify a class of other gift card holders, and who never opposed confirmation or sought to stay the effectiveness of Borders' Chapter 11 plan, are simply too late.