In a challenge to pension reductions in the city of Detroit’s bankruptcy plan, the 6th U.S. Circuit Court of Appeals has found equitable mootness applies and prohibits plaintiffs’ challenges to the bankruptcy court’s Confirmation Order.
The court explained that equitable mootness is not technically “mootness”—constitutional or otherwise—but is instead “a prudential doctrine that protects the need for finality in bankruptcy proceedings and allows third parties to rely on that finality” by “prevent[ing] a court from unscrambling complex bankruptcy reorganizations when the appealing party should have acted before the plan became extremely difficult to retract.”
It further clarified that unlike conventional mootness, equitable mootness is not concerned with the court’s ability or inability to grant relief; it is concerned with protecting the good faith reliance interests created by implementation of the bankruptcy plan from being undone afterwards. “More akin to waiver or forfeiture (or perhaps estoppel) than to conventional mootness, equitable mootness is ‘grounded in the notion that, with the passage of time after a judgment in equity and implementation of that judgment, effective relief on appeal becomes impractical, imprudent, and therefore inequitable,’” the court wrote in its opinion.
The court analyzed equitable mootness under a three-part test: (1) whether a stay has been obtained; (2) whether the plan has been “substantially consummated”; and (3) whether the relief requested would significantly and irrevocably disrupt the implementation of the plan or disproportionately harm the reliance interests of other parties not before the court.
The 6th Circuit concluded that all three factors favor the application of equitable mootness: the appellants did not obtain a stay; the bankruptcy plan has been substantially consummated, “inasmuch as numerous significant—even colossal—actions have been undertaken or completed, many irreversible;” and the requested relief of omitting the bargained-for (and by majority vote agreed-upon) pension reduction would necessarily rescind the bargain, its $816 million in outside funding, and the series of other settlements and agreements contingent upon the Global Retiree Settlement, “thereby unravelling the entire plan and adversely affecting countless third parties, including, among others, the entire City population.” NEXT: Implementation of the bankruptcy plan