United States: Ninth Circuit Rulings On Equitable Mootness In Transwest And Sunnyslope Impact Third Party Investors

The doctrine of equitable mootness provides that Chapter 11 reorganization plans will be deemed moot, and therefore not subject to appellate review, if a plan has been substantially consummated and granting appellate relief would impair the rights of innocent third parties relying on the confirmation order.  Since the development of the court-created mootness doctrine nearly a quarter century ago, courts have grappled with applying it in such a way as to strike an adequate balance between the need for finality, and the need to exercise the court's jurisdiction and preserve the right to appellate review.  The standard interpretation in bankruptcy was that once the debtor took definitive steps to put the Chapter 11 plan in place (i.e., "substantial consummation"), and the objecting creditor neglected to gain a stay of the plan confirmation order pending appeal, then any appeal was presumed to be "equitably moot" and therefore subject to dismissal by the appellate court.

However, in the recent case of JPMCC 2007-C1 Grasslawn Lodging, LLC v. Transwest Resort Props. Inc. (In re Transwest Resort Props., Inc.), 801 F.3d 1161 (9th Cir. 2015), a divided panel of the U.S. Court of Appeals for the Ninth Circuit (the "Ninth Circuit") ruled that, despite substantial consummation of the subject plan, a creditor's appeal of a Chapter 11 plan confirmation order should not be dismissed on equitable mootness grounds.  In so holding, the Ninth Circuit applied a four-part test to determine that the creditor's appeal was not equitably moot: (1) whether the appellant sought a stay pending appeal; (2) whether substantial consummation of the plan occurred; (3) whether the relief sought would affect third parties not before the court; and (4) whether the relief sought would entirely unravel the plan.  The Ninth Circuit held that, although substantial consummation is a factor that weighs in favor of equitable mootness, the law requires that the court still examine the third and fourth prongs of the equitable mootness test.

In reversing the district court's dismissal of an appeal and remanding to the district court for disposition of the merits, the Ninth Circuit held that review of the creditor's appeal would not unfairly affect third parties or completely unwind the plan.  Specifically, regarding the issue of third party rights, the court determined that the third party at hand was not the type of innocent party that was meant to be protected.  Rather, the third party was a sophisticated investor that funded the plan, and was vocal and active throughout the bankruptcy case, and should have known that appellate review was possible.  Finally, reasoned the majority, the bankruptcy court could devise equitable relief without entirely unraveling the plan.  Even the opportunity for partial relief would render the appeal not moot.

In a dissenting opinion, Judge Milan D. Smith, Jr. argued that the court's ruling was grossly inequitable to the third-party plan sponsor.  According to Judge Smith, the majority's decision will deter future investment in reorganizing debtors, thereby diminishing the value of bankruptcy estates, disadvantaging creditors and hindering reorganization efforts.  Judge Smith instead maintained that considerable weight should be rendered to substantial consummation of a plan and further advocated that the court place greater weight on promoting finality in the bankruptcy process.

More recently, on April 8, 2016, the Ninth Circuit issued its opinion in First Southern Ntl. Bank v. Sunnyslope Housing Ltd. Partnership (In the Matter of: Sunnyslope Housing Ltd. Partnership), No. 12-17241 (9th Cir. 2016), which further extended its holding in Transwest.  Reversing the district court's judgment affirming the bankruptcy court's confirmation of a Chapter 11 plan, the Ninth Circuit held that the creditor's appeal was not equitably moot despite the fact that funding for the reorganization plan had been furnished by an equity investment from a third-party investor, and the plan had been substantially consummated.  The court concluded that the plan was based on an improper valuation of a creditor's secured interest in real property and that the debtor had improperly been permitted to exercise the cram down provisions of section 506(a) of the Bankruptcy Code and retained the property at issue in exchange for a new payment plan that permitted the debtor to pay the creditor an amount equal to the present value of the secured claim at the time of bankruptcy.  The debtor argued that the value of the creditor's secured interest should be determined with certain affordable housing restrictions in place, but the Ninth Circuit disagreed.  Instead, the panel held that all of the restrictive covenants and provisions that the debtor sought to invoke to restrict the project to affordable housing and to the decreased rental income that would consequently be collected, resulted from positions that were junior and expressly subordinated to the creditor's interest.

As in Transwest, the panel in Sunnyslope was unconvinced that the third-party investor was the type of innocent third party intended to be protected by the doctrine of equitable mootness.  Rather, the court found that the third party was a sophisticated investor intimately involved in the development of the plan and was aware that the creditor had filed notices of appeal.  Furthermore, according to the court, the creditor's failure to seek a stay from the Ninth Circuit could not have given the third party reasonable cause to conclude that the creditor had abandoned its challenge, yet the third party made a conscious decision to proceed nonetheless.  The Ninth Circuit ultimately held that the unraveling of the plan would not have a negative impact on parties intended to be protected by the doctrine.  Accordingly, it reversed and remanded to the district court for further proceedings.

The Ninth Circuit's holdings in Transwest and Sunnyslope indicate that an equitable mootness analysis continues to be both circuit-driven and fact-dependent.  Ultimately, the Transwest and Sunnyslope decisions confirm that under the law of the Ninth Circuit, a plan's substantial consummation does not establish a presumption of equitable mootness.  Therefore, even where a Chapter 11 reorganization plan has been substantially consummated (regardless of whether or not the appellant sought a stay of the plan's consummation pending appeal), a court may consider an appeal of the confirmation order on its merits if a remedy could be fashioned that would not entirely unravel the plan or detrimentally impact "innocent" third parties.  Furthermore, the majority in Transwest acknowledges the great discretion that bankruptcy courts have in formulating such a remedy.  Whether that remedy is equitable, however, is contingent upon the structure of the plan, the timing of implementation, and the bankruptcy court's capacity to fashion relief in such a way as to address the appellant's justifiable objections without unwinding the plan.

In the U.S. Court of Appeals of the Third Circuit (the "Third Circuit"), however, the scope and applicability of the equitable mootness doctrine is entirely different than in the Ninth Circuit.  On January 11, 2016, Aurelius Capital Management, LP ("Aurelius") filed its petition for a writ of certiorari in the Supreme Court of the United States.  Aurelius' petition was in response to a decision arising out of the Third Circuit affirming the dismissal of Aurelius' appeal of a plan confirmation order entered in a Chapter 11 proceeding despite Aurelius' objections.  See In re Tribune Media Co., 700 F.3d 272 (3d Cir. 2015).  Remarking that the Supreme Court has never reviewed the equitable mootness doctrine, Aurelius contended that the Supreme Court's review was necessary to achieve uniformity and a certain measure of restraint to the interpretation and application of the doctrine.  Aurelius' petition for certiorari, however, was denied.  As a result, the holdings and analyses in Transwest and Sunnyslope should guide the actions of those contemplating an appeal of a confirmation order in the Ninth Circuit.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
18 Oct 2017, Seminar, San Francisco, United States

Please join us for Sheppard Mullin's Labor & Employment Law Update & Happy Hour Seminar Series. 2017 presents significant developments in California labor and employment laws that will affect the way you run your day-to-day business operations. We will provide analysis and insight on these new laws, as well as offer practical advice and helpful tools for employers to protect their organizations from liability in the workplace.

18 Oct 2017, Seminar, California, United States

Come learn the latest about Labor Law Updates, Healthcare Reform Updates, Federal and State Tax-related issues/credits, Unemployment and Disability Insurance-related issues. Meet face-to-face with Sheppard, Mullin, Richter & Hampton LLP attorneys, government representatives, and other experts in workshops that will educate you on critical and timely issues.

18 Oct 2017, Seminar, San Diego, United States

Data breaches have a devastating impact on business and personal privacy. The Equifax breach is the most recent example of hackers taking advantage of corporate vulnerability. Shows like Mr. Robot have surged in popularity as our curiosity with hacking and cybersecurity continues to grow.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.