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  • Writer's pictureKirk Hartley

Equitable Mootness – Yet Another Due Process Violation in Chapter 11 Proceedings

Every litigant faces the possibility of trial and appeal. But Wall Street finds that risk annoying. So, bankruptcy courts invented the doctrine of “equitable mootness” to cut off appeals. The doctrine is still alive and kicking in the east coast circuits, but took at least a flesh wound in a recent Ninth Circuit ruling. The story is told – and bankruptcy gripes are expressed – in a July 13, 2015 post at the Weil Bankruptcy blog.

The gripes start early and continue throughout the post:

“As a reminder, “equitable mootness” is a doctrine that enables a court to dismiss an appeal from a bankruptcy confirmation order where, as a result of the plan going effective, granting the requested relief would be inequitable because the transactions are complex and difficult to unwind, and doing so would impact the rights of innocent third parties.

The take-away here is location matters. Fortunately for plan investors, not all circuits hold the same view as the Ninth Circuit on the issue of equitable mootness. Read some of our prior posts on equitable mootness here! And for those who might think that you will never ever invest in a chapter 11 plan when the bankruptcy case is pending in the Ninth Circuit, think again. As we describe below, there are ways for investors to protect themselves even in the Ninth Circuit.

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