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Third Circuit Clarifies Appeal Process in Settlement and Reorganization Plan Disputes
The Third Circuit recently took a "pragmatic approach" when affirming lower court orders denying a stay of bankruptcy settlement distributions pending appeal. In re S.S. Body Armor I, Inc., 2019 WL 2588533 (3d Cir. June 25, 2019). After holding that the district court's "stay denial order" was "final" for jurisdictional purposes, it also confirmed "the applicable standard of review" on motions for stays pending appeals.
Relevance
The Third Circuit's jurisdictional ruling was timely. First, the Circuit had "no direct precedent on the finality of the" order before it. Second, the U.S. Supreme Court recently granted certiorari in Ritzen Group, Inc., v. Jackson Masonry, LLC, 2019 WL 266853 (May 20, 2019), agreeing to address whether an order denying relief from the automatic stay is "final" under the bankruptcy appeals statute, 28 U.S.C. §158(a)(i). The Sixth Circuit had held in Jackson that an order denying stay relief was "final," rejecting "vague" and "unpredictable" tests adopted by other circuits. 906 F.3d 494, 498 (6th Cir. 2018), citing In re Atlas IT Export Corp., 761 F.3d 177, 185 (1st Cir. 2014)("Everything depends on the circumstances …").
A party appealing from a bankruptcy court's approval of a settlement or confirmation of a reorganization plan must ordinarily seek a stay pending appeal. Otherwise, as the Third Circuit noted in Body Armor, if the "settlement proceeds are distributed before resolution of" the appeal, "that appeal is 'all but assured' to become moot." Id. at 3, quoting In re Revel AC, Inc., 802 F.3d 558, 567 (3d Cir. 2015).
Bankruptcy Code (Code) §363(m) provides that, absent a stay pending appeal, the reversal or modification on appeal of a bankruptcy sale order does not affect the validity of sale to a good faith purchaser. Code §364(e) provides for the same result with a bankruptcy financing order. Drawing on these statutory mandates by analogy, courts have dismissed appeals from non-sale and non-financing orders as equitably moot when the appellant's failure to obtain a stay pending appeal rendered the appellate court unable to fashion a remedy that would restore the interested parties to their former position. See, e.g., In re JMC Memphis, LLC, 655 F. App'x 802, 805 (11th Cir. 2016) (due to party's failure to request a stay from either bankruptcy court or district court, court found it inappropriate to "unwind select portions of the settlement agreement."); In re Allied Nev. Gold Corp., 725 F. App'x 144, 148 (3d Cir. 2018) (appeal from plan confirmation order dismissed as "equitably moot" when appellants sought to unscramble complex reorganization plan; appellants "did not timely seek or obtain a stay."); In re Metromedia Fiber Network, Inc., 416 F.3d 136, 143-45 (2d Cir. 2005) (appeal of plan confirmation order dismissed as equitably moot when appellants never sought stay pending appeal or expedited review; vacatur of confirmation order could potentially unsettle substantially consummated plan).
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