Supreme Court of the United States

Transcription

1 No In The Supreme Court of the United States October Term, 2016 IN RE PADCO, INC., Debtor, MEGAN KUZNIEWSKI, Petitioner, v. PADCO, INC., Respondent. ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRTEENTH CIRCUIT BRIEF FOR PETITIONER Team Number P. 38 Counsel for Petitioner

2 QUESTIONS PRESENTED 1. Whether an appellate court has the constitutional authority to use the doctrine of equitable mootness to insulate an Article I bankruptcy court order confirming a chapter 11 plan from Article III review? 2. Whether a chapter 11 plan of reorganization can effect a discharge of a non-debtor through the permanent injunction of a non-consenting creditor s tort claims when they are not derivative of the debtor s claims against the non-debtor and no provision is made for the full payment of the enjoined claims? i

3 TABLE OF CONTENTS QUESTIONS PRESENTED i TABLE OF CONTENTS....ii TABLE OF AUTHORITIES..iv OPINIONS BELOW... vi STATEMENT OF JURISDICTION vi CONSTITUTIONAL AND STATUTORY PROVISIONS...vi STATEMENT OF THE CASE....1 SUMMARY OF THE ARGUMENT...2 ARGUMENT...5 I. Bankruptcy Court Judges Do Not Have the Power to Invoke the Doctrine of Equitable Mootness..5 A. The Doctrine of Equitable Mootness is Unconstitutional....6 B. The Doctrine of Equitable Mootness is Inequitable..13 C. The Doctrine of Equitable Mootness Would Be Inappropriate in This Case 17 II. Chapter 11 Plans May Not Include Non-Consensual Non-Debtor Releases Because These Ignore Procedure and Hurt Vulnerable Creditors A. The Facilitating Sections of the Bankruptcy Code Do Not Overshadow More Specific Procedural Protections. 22 B. Section 524(e) of the Bankruptcy Code Prohibits This Discharge Disguised As a Release...26 C. Even Jurisdictions That Permit Non-Consensual Non-Debtor Injunctions Struggle to Find Sufficient Support in Precedent or Procedural Provisions 28 CONCLUSION.34 APPENDIX A..I APPENDIX B. II APPENDIX C III APPENDIX D....IV APPENDIX E. V APPENDIX F. VI ii

4 APPENDIX G...VII APPENDIX XI iii

5 TABLE OF AUTHORITIES U.S. SUPREME COURT CASES Cohens v. Virginia, 19 U.S. (6 Wheat.) 264, 404 (1821) Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976) Mills v. Green, 159 U.S. 651 (1895).... 7, 9 Stern v. Marshall, 564 U.S. 462 (2011) Travelers Indem. Co. v. Bailey, 557 U.S. 137 (2009) , 30 Wellness Int l Network, Ltd. v. Sharif, 135 S. Ct (2015) U.S. COURTS OF APPEALS CASES ASM Capital, LP v. Ames Dep t Stores, Inc., (In re Ames Dep t Stores, Inc.), 582 F.3d 422 (2d Cir. 2009) Bank of New York Trust Co., NA v. Official Unsecured Creditors Comm. (In re Pacific Lumber Co.), 584 F.3d 229 (5th Cir. 2009).... 7, 18, 21 Chateaugay Corp. v. LTV Steel Co. (In re Chateaugay Corp.), 10 F.3d 944 (2d Cir. 1993) Deutsche Bank AG, London Branch v. Metromedia Fiber Network, Inc. (In re Metromedia Fiber Network, Inc.), 416 F.3d 136 (2d Cir. 2005) , 32 Drexel Burnham Lambert Trading Corp. v. Drexel Burnham Lambert Group, Inc. (In re Drexel Burnham Lambert Group, Inc.), 960 F.2d 285 (2d Cir. 1992) , 32 Feld v. Zale Corp. (In re Zale Corp.), 62 F. 3d 746 (5th Cir. 1995) In re AOV Indus., 792 F.2d 1140 (D.C. Cir. 1986) In re Continental Airlines, 91 F.3d 553 (3d Cir. 1996)... 9 iv

6 In re PWS Holding Corp., 228 F.3d 224 (3d Cir. 2000) In re Specialty Equip. Cos., 3 F.3d 1043 (7th Cir. 1993) , 33 In re UNR Industries, Inc., 20 F.3d 766 (7th Cir. 1994).... 6, 8, 14 JPMCC 2007-C1 Grasslawn Lodging, LLC v. Transwest Resort Properties, Inc. (In re Transwest Resort Properties, Inc.), 801 F.3d 1161 (9th Cir. 2015) MacArthur Co. v. Johns-Manville Corp. (In re Johns-Manville Corps.), 837 F.2d 89 (2d Cir. 1988) , 33 Menard-Sanford v. Mabey (In re A.H. Robins Co.), 880 F.2d 694 (4th Cir. 1989)....32, 33 New England Dairies, Inc. v. Dairy Mart Convenience Stores, Inc. (In re Dairy Mart Convenience Stores, Inc.), 351 F.3d 86 (2d Cir. 2003) One2One Communs., LLC v. Quad/Graphics, Inc., 805 F.3d 428 (3d. Cir. 2015) (Krause, J., concurring) , 16 R<2> Invs., LDC v. Charter Communs., Inc. (In re Charter Communs., Inc.), 691 F.3d 476 (2d Cir. 2012) , 19 Samson Energy Res. Co. v. SemCrude, L.P. (In re SemCrude, L.P.), 728 F.3d 314 (3d Cir. 2013) Tribune Media Co. v. Aurelius Capital Mgmt., L.P., 799 F.3d 272 (3d Cir. 2015) , 17 Trone v. Roberts Farms, Inc. (In re Roberts Farms, Inc.), 652 F.2d 793 (9th Cir. 1981).... 7, 14 Wells Fargo Bank N.A. v. Tex. Grand Prairie Hotel Realty, L.L.C. (In re Tex. Grand Prairie Hotel Realty, L.L.C.), 710 F.3d 324, (5th Cir. 2013) , 20 STATUTES & RULES 11 U.S.C. 105 (2012) v

7 11 U.S.C (2012) , 26, U.S.C (2012) U.S.C. 363(m) (2016) U.S.C. 364(e) (2016) U.S.C. 524 (2012) , 27, 29, U.S.C. 157 (2012) , U.S.C. 158 (2012) Fed. R. Bankr. P. 3016(c) Pub. L. No , 108 Stat SECONDARY SOURCES 7 Collier on Bankruptcy [2], p (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2016).... passim Expressio Unius Est Exclusio Alterius, Black s Law Dictionary (10th ed. 2014) Hon. Joan N. Feeney et al., Bankruptcy Law Manual 968 (5th ed. 2016) , 23, 27, 31 Mark Joseph John Chmielarski, Comment, The Mootness Doctrine in Bankruptcy, 7 Bank. Dev. J. 313, (1990).... 7, 8 vi

8 OPINIONS BELOW The Bankruptcy Judge for the District of Moot entered an order confirming Padco, Inc. and Gadget, Inc. s chapter 11 reorganization plan in January R. at 4-5. The Petitioner, Megan Kuzniewski, requested a stay of the confirmation order in both the Bankruptcy Court and the District Court for the District of Moot, but both of her requests were denied. R. at 5. The plan became effective and two days after the entry of the confirmation order, the plan was substantially consummated pursuant to 11 U.S.C. 1101(2). R. at 5. Kuzniewski appealed to the District Court, but Padco, Inc. moved to dismiss the appeal on equitable mootness grounds. R. at 5. On June 30, 2016, the District Court affirmed the appeal on that basis. R. at 5. The Petitioner appealed to the United States Court of Appeals for the Thirteenth Circuit, but the confirmation order was again affirmed. R. at 6, 14. The Supreme Court of the United States then granted Kuzniewski s petition for a writ of certiorari. STATEMENT OF JURISDICTION The formal statement of jurisdiction is waived pursuant to Competition Rule VIII. STATUTORY PROVISIONS The relevant statutory provisions involved in this case are listed below and are reproduced in Appendices A through H. 28 U.S.C U.S.C U.S.C. 363(m) 11 U.S.C. 364(e) 11 U.S.C. 1127(b) vii

9 11 U.S.C. 105(a) 11 U.S.C U.S.C. 524 viii

10 STATEMENT OF THE CASE The courtroom is an arena where both quiet and booming voices can be heard at the same volume by the same judge, subject to the same rules. Advocates fight for their clients according to the procedure of the court, and courts in turn provide damages to those harmed by another s mistakes in order to make them whole once more. In this way, rules of procedure can be a megaphone for those whose voices might not otherwise be heard. Megan Kuzniewski tried to raise her voice after Padco, Inc. (Padco) made a mistake. During the time Padco was a subsidiary of Gadget, Inc. (Gadget), it developed a defective battery that caused many of its tablet computers to suddenly explode. R. at 2, 4. Trying to avoid impending liquidation, Padco filed chapter 11 bankruptcy in an effort to reorganize its company. R. at 2. But the damage had already been done. Padco, by that time its own independent public company, looked to its former owner for increased funding and a fresh face to make up for its crippled reputation. R. at 2-3. Gadget obliged, sponsoring a reorganization plan in which it invested money to redesign the tablet computer, merge Padco into Gadget, and develop a line of new products. R. at 2-3. However, Gadget conditioned this agreement upon a provision in the reorganization plan that would permanently enjoin victims like Kuzniewski from bringing any claims against Gadget that arose from or were related to the battery defect. R. at 4. Therefore, the proposed plan placed Kuzniewski and other creditors with claims against Gadget into a class that would be given a larger distribution than other unsecured creditors. R. at 4. Kuzniewski, however, stood by her contention that Gadget had owed a duty to prevent Padco from using a battery that Gadget itself should have known was dangerously defective. R. at 4. Instead of agreeing to take the money 1

11 and stay silent, Kuzniewski spoke up as part of the 20 percent of her class that voted to reject the plan. R. at 4. Although outnumbered, Kuzniewski turned to the Bankruptcy Code to help amplify her voice. She objected to confirmation based on the provisions of the Bankruptcy Code that prohibit the injunction that Gadget demanded as a part of the reorganization. R. at 4. Even after the Bankruptcy Court entered an order confirming the plan in January 2015, Kuzniewski persisted and immediately requested a stay of the order. R. at 5. Undaunted by the denial of her request, Kuzniewski yet again requested a stay, this time from the District Court for the District of Moot. R. at 5. Despite her diligence, that court denied her request as well and the plan became effective. R. at 5. Two days after the entry of the confirmation order, the plan was substantially consummated. R. at 5. Kuzniewski kept fighting to have her day in court until the court shut her out entirely. Although she appealed to the District Court, Padco moved to dismiss her appeal as equitably moot, and both the District Court and the United States Court of Appeals for the Thirteenth Circuit affirmed the order on these grounds. R. at 5-6. Kuzniewski now appeals to the Supreme Court of the United States in a final effort to have her voice heard, and in doing so, speak up on behalf of all of those who would be similarly silenced. SUMMARY OF THE ARGUMENT The courts below failed Kuzniewski when they refused to allow her to even question the validity of a reorganization plan provision by dismissing her appeal as equitably moot. This is why Kuzniewski is before the Supreme Court today: because she was wrongfully silenced after she objected to a provision in the plan that the Bankruptcy Code itself prohibits. 2

12 Equitable mootness does not solve bankruptcy courts problems; rather, it hides them from the very authorities that do have the power to fix them. In fact, these Article III authorities have the obligation to review the decisions of Article I judges. This authority is mandated by the United States Constitution and corroborated by judicial procedural rules and the provisions of the Bankruptcy Code. It is true that several laws give discretionary power to Article I judges, but only so long as their decisions are reviewable by Article III courts. Nothing express and specific in case law or code book outshines this clear limit on Article I authority. And while the Respondent would have this Court believe that equitable mootness has its roots in the case-andcontroversy concept, equitable mootness actually violates the Constitution. Ironically, equitable mootness is also inequitable. As a practical matter, appellants requesting the review of substantially consummated chapter 11 reorganization plans must do everything in their power to request a stay of the confirmation order. However, actually obtaining a stay is generally difficult and expensive factors which put individuals like Kuzniewski at a huge disadvantage, especially when contrasted with the prominence and capital of organizations like Padco and Gadget. In contrast with the diligence expected of unsecured creditors in pursuing a chance to appeal, debtors need only sit idly by and wait for the determination of the court. In fact, powerful entities in situations like this are incentivized to act quickly following the entry of the confirmation order. Doing so substantially consummates the plan, making it all the more difficult for objecting petitioners to appeal it. This validity of equitable mootness has been further called into question by the variety of its adaptations throughout the circuits. With no uniform test, Padco cannot be sure that equitable mootness would even be appropriate in this case. In fact, the positive factors considered in 3

13 several other circuits indicate that equitable mootness should not be applied here. The circumstances in this case even fail the SemCrude analysis used by the court below. Team P. 38 Additionally, equitable mootness unjustly precludes the valuable consideration of the second issue in this case. Contrary to the holding of the lower courts, 105 and 1123(b)(6) of the Bankruptcy Code do not grant judges the authority to approve of reorganization plans that contain non-consensual injunctions against direct claims aimed at non-debtor third parties. These provisions use vague facilitating and catch-all language, and so they cannot withstand the specific and express prohibitions against this kind of injunction found in other parts of the Bankruptcy Code. Namely, 524 of the Bankruptcy Code prohibits the injunction that Gadget insisted upon here. Although the Respondent attempts to characterize this provision as a release, it operates as a discharge in substance, and the discharge of Gadget s liability is forbidden by the Bankruptcy Code under these circumstances. While narrow exceptions exist that do insulate certain kinds of injunctions, they do not apply to this case. Furthermore, the specificity of these exceptions impliedly rejects the idea that the bankruptcy court has a broad, overarching power to otherwise permit such discharges of liability. Lastly, other primary authorities pointed to by circuits, which allow non-consensual discharges of non-debtors in chapter 11 plans, do not provide the support that proponents believe they do. Specific, express support for this type of injunction cannot be found in the Federal Rules of Bankruptcy Procedure, nor in cases which refuse to fully embrace this kind of provision. Because of these reasons, the opinions of the courts below should be reversed, and the case should be remanded so that Kuzniewski can finally and equitably voice her valid concerns. 4

14 ARGUMENT When a court evaluates a dismissal on equitable mootness grounds, it applies a de novo standard of review to conclusions of law. JPMCC 2007-C1 Grasslawn Lodging, LLC v. Transwest Resort Properties, Inc. (In re Transwest Resort Properties, Inc.), 801 F.3d 1161, 1168 (9th Cir. 2015). Furthermore, conclusions of law made by a bankruptcy court are also reviewed de novo. ASM Capital, LP v. Ames Dep t Stores, Inc., (In re Ames Dep t Stores, Inc.), 582 F.3d 422, 426 (2d Cir. 2009). Here, Kuzniewski raises both the legal question of whether the equitable mootness doctrine is unconstitutional, and the legal question of whether a chapter 11 plan may permit a non-consensual injunction of direct claims against a non-debtor. R. at 6-7. Because both of these issues center on conclusions of law, this Court applies a de novo standard of review to the dismissal and to the Bankruptcy Court s confirmation order. I. Bankruptcy Court Judges Do Not Have the Power to Invoke the Doctrine of Equitable Mootness. Equitable mootness is like an urban legend: people talk about it as if it were real but have a difficult time explaining where it came from. Proponents of the doctrine have first looked to precedent and the Bankruptcy Code to justify its existence. However, several courts have noted that not only is there no valid precedential or statutory basis for equitable mootness, but the doctrine itself violates the United States Constitution. Moreover, Congress has already given appellate courts the express statutory duty to review the confirmation orders issued by bankruptcy judges precisely to protect unsecured creditors from hasty and inequitable results. Additionally, even if it does exist, the split in circuits as to what test should be applied shows that Padco cannot be sure that equitable mootness would be appropriate here. 5

15 A. The Doctrine of Equitable Mootness Is Unconstitutional. Equitable mootness unconstitutionally silences Kuzniewski by precluding the review of a legitimate controversy. Although the authority that this doctrine gives to bankruptcy judges is considerable, its precedential beginnings are hazy at best. More solid authority lies in the cases which recognize that the duty of appellate review lies firmly in Article III courtrooms. Similarly, certain provisions of Title 28 of the United States Code give limited power to bankruptcy judges, conditioned upon the supervision of Article III judges. And despite its few specific exceptions, the Bankruptcy Code as a whole is consistent with this general rule as well. Padco bases the validity of equitable mootness on so-called jurisprudential abstention factors, but it fails to identify an original case which establishes this doctrine in the first place. R. at 9. In fact, in the first substantive case that the majority opinion cites, the court insulates a confirmation plan from review, but is careful to explain that it is not relying on equitable mootness to do so. In re UNR Industries, Inc., 20 F.3d 766, 769 (7th Cir. 1994). This case from the Seventh Circuit holds: There is a big difference between inability to alter the outcome (real mootness) and unwillingness to alter the outcome ( equitable mootness ). Accordingly, we banish equitable mootness from the (local) lexicon. We ask not whether this case is moot, equitably or otherwise, but whether it is prudent to upset the plan of reorganization at this late date. Id. The court s reluctance to embrace the doctrine suggests that it wanted the benefit of a quick fix without naming, and thereby impliedly approving of, equitable mootness. This evasion casts a significant shadow over the validity of equitable mootness, even in cases where it has been practically, if not officially, used. 6

16 Surprisingly, it is Judge Manley s dissent that provides a hint as to the origins of this doctrine, noting that [i]t is said to arise from the pre-code case of In re Roberts Farm [sic]. R. at 15; 7 Collier on Bankruptcy [2], p (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2016). And indeed, the court in that case dismissed as moot the appeal of a confirmation order of a chapter 11 plan. Trone v. Roberts Farms, Inc. (In re Roberts Farms, Inc.), 652 F.2d 793, 798 (9th Cir. 1981). That court states that reversal of the confirmation order would knock the props out from under the authorization for every transaction that ha[d] taken place and would do nothing other than create an unmanageable, uncontrollable situation for the Bankruptcy Court. Id. at 797. These reasons make up a substantial part of Padco s argument for equitable mootness here. However, the Roberts Farms court performed a subtle sleight of hand by immediately following that statement with a quote from Mills, which deals with constitutional mootness. According to Mills, a court will dismiss an appeal if an event occurs which renders it impossible, if [the court] should decide the case in favor of the plaintiff, to grant him any effectual relief whatsoever. Mills v. Green, 159 U.S. 651, 653 (1895). But Mills is about the case and controversy requirement of the United States Constitution. 1 Whereas these Article III mootness concerns arise when a judicial ruling would have no effect, equitable mootness supposedly applies when a judicial ruling might have too much of an effect on the parties to a confirmed reorganization. Bank of New York Trust Co., NA v. Official Unsecured Creditors Comm. (In re Pacific Lumber Co.), 584 F.3d 229, 240 (5th Cir. 2009). 1 Mark Joseph John Chmielarski, Comment, The Mootness Doctrine in Bankruptcy, 7 Bank. Dev. J. 313, (1990). 7

17 Importantly, then, constitutional mootness is distinct from equitable mootness, as has already been established in UNR and acknowledged by the majority opinion. UNR, 20 F.3d at 669; R. at 8. While it is true that these principles have manifested themselves in the bankruptcy context, they are limited to two narrow provisions of the Bankruptcy Code: 11 U.S.C. 363(m) and 364(e). 2 Section 363(m) protects certain good faith parties from the effect of the modification or reversal of a plan upon appeal, but the text limits the scope of its protection to this specific type of party in the context of asset sales. 11 U.S.C. 363(m) (2012). Similarly, 364(e) provides limited protection to good faith creditors in the context of post-petition financing. 11 U.S.C. 364(e) (2012). The validity of these provisions is not at issue, but they simply do not apply to Kuzniewski s claim. Kuzniewski is not an entity that purchased or leased property in good faith in the context of asset sales. Id. 363(m). Nor is Kuzniewski an entity that extended credit in good faith in the context of post-petition financing. Id. 364(e). Instead, Kuzniewski is a woman who suffered an injury because one of Padco s batteries exploded, and now she wants her day in court to pursue her claim. The two narrow provisions in the Bankruptcy Code that protect plans from appellate review do not apply to her. Therefore, Kuzniewski s appeal should not be dismissed as equitably moot. The Roberts Farms court, the lower courts in this case, and similar holdings cherry-pick the benefits of the constitutional mootness doctrine without adopting the requirements handed down in Mills. In other words, courts precluding appeals on the basis of equitable mootness get to clean up their dockets, but only by sweeping any hint of possible relief under the rug. And 2 Chmielarski, supra, at

18 Mills explicitly prohibits this by conditioning dismissal upon the impossibility of effectual relief. Mills, 159 U.S. at 653. Here, relief for Kuzniewski may be difficult to render but it is certainly possible. Continental Airlines provides a good example of what could be done here. In re Continental Airlines, 91 F.3d 553 (3d Cir. 1996). Justice Alito comments in his dissent that the majority would have to show that the [appellant trustees] could not be awarded any relief not one dollar without upsetting the Continental reorganization, and obviously they cannot do such a thing. Id. at 571 (Alito, J., dissenting). Tellingly, the majority opinion in that case admits as much, noting that the reorganization plan appeared to provide a mechanism for payment of the claim by the reorganized debtor. Id. at 566. Yet that court ultimately decided that its mootness determination was based not on a finding that no effective relief was available, but rather on the finding that in light of all the circumstances, it would be inequitable to grant relief. Id. Although the question of equity is discussed more below, surely ousting Kuzniewski from the courtroom, despite the possibility of relief, cannot be an equitable result. Even if that relief would take the modest form of allowing Kuzniewski to at least attempt to file her complaint against Gadget, then relief is clearly possible. And if the threat posed by Kuzniewski s novel tort theory the one with little chance of being accepted, the one to which a 90 percent probability discount was applied scared Gadget enough to prevent it from funding a remarkably successful product line, then the scales are inequitably tipped in its favor. R. at 3-4. Therefore, the court erred in dismissing Kuzniewski s appeal on the basis of equitable mootness. In contrast with Roberts Farms, several cases have reemphasized the constitutional duty of Article III courts to exercise their appellate jurisdiction. Generally speaking, there is a virtually unflagging obligation of the federal courts to exercise the jurisdiction given them. 9

19 Colorado River Water Conservation District v. United States, 424 U.S. 800, 817 (1976). This means that a federal court must decide even those cases that are doubtful or difficult. Cohens v. Virginia, 19 U.S. (6 Wheat.) 264, 404 (1821). In fact, the Supreme Court has acknowledged that despite the occurrence of questions which it would gladly avoid, the Court must exercise its best judgment and conscientiously perform its duty. Id. Yet in response to the significant constitutional concerns that this doctrine raises, Padco points mainly to Stern a case which it concedes actually requires Article III supervision of the bankruptcy court. R. at 11; Stern v. Marshall, 564 U.S. 462 (2011). Padco asserts that Stern addresses the bankruptcy court s initial power to enter a final order, not the appellate review of such orders. R. at 11. But this diversion fails to answer the constitutional problem that equitable mootness raises, as there is no indication that Congress or the Supreme Court has authorized an exception to [the] virtually unflagging obligation to exercise jurisdiction that supports equitable mootness. One2One Communs., LLC v. Quad/Graphics, Inc., 805 F.3d 428, 446 (3d. Cir. 2015) (Krause, J., concurring). Although Padco apparently acknowledges this well-established supervisory power of Article III courts, it tries to prop up equitable mootness with piecemeal provisions that empower Article I bankruptcy judges. For example, it is true that 28 U.S.C. 157(a) says that Article III district courts may refer matters to bankruptcy judges. 28 U.S.C. 157(a) (2012). It is also true that 157(d) permits Article III district courts to withdraw any matter referred to bankruptcy judges. Id. 157(d). According to the majority opinion, this statutory power fully addresses the Article III concerns that Kuzniewski raises. R. at 11. However, the Respondent s argument mistakes the authority of Article III courts as the answer to its constitutional problem, instead of recognizing it as the source of the constitutional problem itself. 10

20 Padco ignores other key provisions, which show that Congress intended to check Article I judges authority with Article III judges supervision. Section 157(b)(1) says that [b]ankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11 referred under subsection (a) of this section, and may enter appropriate orders and judgments, subject to review under section 158 of this title. Id. 157(b)(1) (emphasis added). Relatedly, 158(a)(1) provides that the district courts of the United States shall have jurisdiction to hear appeals from final judgments, orders, and decrees of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title. Id. 158(a)(1). Section 158(d)(1) further provides that the courts of appeals shall have jurisdiction of appeals from all final decisions, judgments, orders, and decrees entered under subsections (a) and (b) of this section. Id. 158(d)(1). Despite these provisions, Padco looks next to the Bankruptcy Code and claims that it embodies a strong policy of limiting judicial review of consummated transactions. R. at 9. However, it can point to only three narrow provisions of the Bankruptcy Code to support its contention. Two of them both of which were discussed above are 11 U.S.C. 363(m) and 364(e). Again, these are the thin and inapplicable sections of the Bankruptcy Code that codify the limited insulation of confirmation orders under unique circumstances. And while 1127(b) does give strict rules for plan modifications, it does not prevent them so sweepingly that it can be said that the Code tends to limit judicial review. Id. 1127(b). In fact, the specificity of provisions like 363(m) and 364(e) say otherwise. Expressio unius est exclusio alterius is a fundamental canon of construction that says to express or include one thing implies the exclusion of the other. Expressio Unius Est Exclusio Alterius, Black s Law Dictionary (10th ed. 2014). Applying this canon within the context of the Bankruptcy Code, the 11

21 inclusion of the narrow availability of protective measures with the same effect as equitable mootness in these specific subsections implies that their absence in other parts of the Code is intentional. In other words, Congress s explicit instructions as to when and how appellate review should be precluded shows that it did not intend for this measure to be used broadly. It makes more sense that Congress meant to limit the protections against judicial review in the Code rather than expand them. Other authorities have acknowledged this intent as well. Wellness Int l Network, Ltd. described how Congress has allowed Article I bankruptcy judges to ease the pressure on Article III district court judges dockets, provided that [bankruptcy] judges are subject to control by the Article III courts. Wellness Int l Network, Ltd. v. Sharif, 135 S. Ct. 1932, 1946 (2015). Relatedly, permitting Article I judges to decide claims submitted to them by consent of the parties does not violate the separation of powers, so long as Article III courts retain supervisory authority over the process. Id. at This supervisory authority recognized by the courts and woven into the Bankruptcy Code does not excuse equitable mootness. Instead, it prohibits it because this doctrine undermines the very sources that Padco cites for support. Here, the Bankruptcy Court entered the confirmation order pursuant to its express authority in 28 U.S.C. 157(a)(1) and (b)(1). R. at 4-5. By entering this order, the Bankruptcy Court triggered the application of 158(a)(1) and (d)(1), which conferred explicit appellate jurisdiction upon the District Court for the District of Moot and the United States Court of Appeals for the Thirteenth Circuit. Nothing so specific in the Bankruptcy Code insulates this kind of reorganization plan from the appellate review of these courts. Therefore, refusing to hear Kuzniewski s appeal based on equitable mootness was both unconstitutional and in conflict with the plain provisions of the Code. 12

22 So far, what the Respondent mainly offers in support of equitable mootness is a case that uses the doctrine without publicly associating with it, a case that borrows the efficiency of constitutional mootness without adopting its high hurdles, and a few narrow statutory exceptions that do not apply to Kuzniewski. This is slim evidence, especially when it is compared to the vastness of this doctrine s implications for the Petitioner. In fact, it is difficult to see how this doctrine is equitable when Kuzniewski and other unsecured creditors like her have been shut out of the courtroom in violation of the United States Constitution. B. The Doctrine of Equitable Mootness Is Inequitable. Judge Houle states that the Court cannot in fairness and equity simply reverse the confirmation order and return this case to the Bankruptcy Court to unravel the distributions and transactions resulting from the plan so that a new plan could be negotiated. R. at 9. But nowhere in the record does it indicate that this is the relief that Kuzniewski is requesting. Kuzniewski originally objected to confirmation because she believed that the Bankruptcy Code prohibited the injunction against her direct claim. R. at 4. That is why she voted to reject the plan. R. at 4. It was only after the plan had been substantially consummated that her appeal was declared equitably moot, which is why this doctrine is presently being discussed. R. at 5. Yet these two manageable issues have caused plan proponents to believe that the world they know and trust would fall apart if Kuzniewski is allowed to appeal. This panic is unwarranted. Now that the issue is more accurately framed, it is easier to discern where the real risk of inequity lies. As noted by the majority opinion, equitable mootness does not turn on Kuzniewski s diligence. She did all that she could here by seeking a stay. R. at 8 n.2. But this concession provides little comfort when put in the context of just how difficult it is to actually obtain a stay. Even so, the technical availability of this remedy is used to justify equitable 13

23 mootness, even when the chances of a stay actually being obtained are slim. In fact, when one acknowledges the incentive this doctrine gives to powerful parties like Gadget to consummate the plan as quickly as possible, such mootness appears to be anything but equitable. Obtaining a stay can be incredibly difficult, yet it is often practically required of an appellant. Roberts Farms contended that it is obligatory upon appellant to pursue with diligence all available remedies to obtain a stay of execution of the objectionable order if the failure to do so creates a situation rendering it inequitable to reverse the orders appealed from. Roberts Farms, 652 F.2d at 798. In that case, the appellant s failure to seek a stay at all was treated as a separate and independent ground for dismissing the appeal as equitably moot. Id. In contrast, Kuzniewski did seek a stay twice, once from the Bankruptcy Court and once from the District Court. R. at 5. As noted above, even the majority opinion in the court below conceded that she did all that she could here by seeking a stay. R. at 8 n.2. And yet some courts have held that even the unsuccessful pursuit of a stay is enough to shut out an appellant. According to UNR, [a] stay not sought, and a stay sought and denied, lead equally to the implementation of the plan of reorganization. UNR, 20 F.3d at 770. This resultsfocused approach is deeply inequitable. Individual parties are expected to do everything in their power to protect even the glimmer of a chance at appeal, while plan proponents get to patiently wait and see: (a) if the objecting parties seek a stay at all; and if so, (b) if the court sees fit to grant the stay affirmatively requested. Put another way, plan proponents have two shots to get what they want without doing anything. Plan opponents get one shot and they must do everything they can to take it. But even taking the shot is challenging, as stays pending appeal may be difficult or expensive to obtain. Resnick & Sommer, supra, at The expense of obtaining a 14

24 stay is because the appellant is not bonding over a determination of its past liability; rather, it is bonding its future, contingent, liability to the debtor for simply taking an appeal. Id. at The amount of a bond, therefore, could include the entire difference between the liquidation value and the going concern value of the debtor. Id. The record does not disclose the amount that Kuzniewski would have had to shoulder for a chance at an appeal. However, it does show that Gadget invested more than $500 million to redesign the Padco tablet computer alone. R. at 2. And this was just the beginning. The development of new product lines was funded by nearly $2.6 billion in additional borrowing by Gadget. R. at 3. This is bad news for Kuzniewski, because even [a] meritorious appellant can be at a disadvantage seeking a stay from a court which has just confirmed a plan, and the cost of a bond backing any stay is likely to be nothing less than the value of the reorganization itself. Resnick & Sommer, supra, at Given these numbers and the involvement of a large and successful company, it is not hard to imagine that the cost of requesting a stay would be potentially backbreaking for an individual like Kuzniewski. Kuzniewski also had to overcome many other obstacles in her pursuit of a stay. Not only might the bond require the appellant to practically guarantee all of the other parties interests, but bankruptcy courts might be tempted to confirm a plan if there has been lengthy debate, which would likely be the case in large, complex reorganizations like the one here. Id. at Furthermore, the bankruptcy court s determination may simply snowball, as the district court or bankruptcy appellate panel might give this decision weight. Id. The high cost of a stay, the desire to wrap up a confirmation plan, and the momentum of a bankruptcy court s decision all weigh heavily against the small dissenting voice of an individual creditor like Kuzniewski. And yet there is still another factor that she must contend 15

25 with: the incentive for plan proponents to act quickly to consummate the plan and thereby insulate it from review. In her concurrence in One2One Communications, Judge Krause noted with alarm that [p]roponents of reorganization plans now rush to implement them so they may avail themselves of an equitable mootness defense. One2One Communs., 805 F.3d at 446 (Krause, J., concurring). Evidence in the record is consistent with this finding. The plan was substantially consummated merely two days after the entry of the confirmation order, pursuant to 11 U.S.C. 1101(2). R. at 5. It was then that Kuzniewski appealed to the District Court, and then that Padco moved to dismiss the appeal as equitably moot. R. at 5. But between plan confirmation and the District Court s affirmance a year and a half later, Gadget had been busy capturing huge swaths of the market share, investing millions, borrowing billions, and trading stocks and bonds among numerous parties. R. at 2-3. Against this backdrop, it is a small wonder that Gadget keeps pointing to the reliance of third parties to justify its position it is, so the saying goes, easier to ask for forgiveness than permission. Basing the validity of equitable mootness on the possible risk of inequity to third parties is an exaggerated means to draw attention away from Padco s true motives. Certainly, there is a theme that the third parties with interests protected by equitable mootness generally rely on the emergence of a reorganized entity from court supervision. Tribune Media Co. v. Aurelius Capital Mgmt., L.P., 799 F.3d 272, 280 (3d Cir. 2015). This concern is expressly stated in the majority opinion of the court below, which asserted that too much has happened for a court to now upset the expectations of the third parties that have invested in, traded with, and entered into new transactions with Padco. R. at

26 Yet inequity to third parties relying on the finality of a confirmation order is not inevitable. The Third Circuit notes that an important exception exists [w]hen a successful appeal would not fatally scramble a confirmed and consummated plan. Tribune Media Co., 799 F.3d at 280. In such a case, the specific reliance interest of third parties most often is not implicated, as the plan stays in place (with manageable modifications possible) and the reorganized entity remains a going concern. Id. These manageable modifications are possible for Kuzniewski, and they go to show that equitable mootness is simply not suited for the case before the Court today. C. The Doctrine of Equitable Mootness Would Be Inappropriate in This Case. The Fifth Circuit presents several cases that show that even where equitable mootness is recognized as a valid doctrine, it is not always appropriate to apply it in full. Rather, the Fifth Circuit offers a fractional recovery defense that is more compatible with the facts in this case. The Second Circuit presents similar flexibility in its recognition of factors that can be used to overcome a presumption of equitable mootness. These circuits present much more reasonable adaptations of this doctrine, and they demonstrate that equitable mootness would be inappropriate in this case even if the Thirteenth Circuit were to accept its use. And finally, the options presented by these circuits topple the second SemCrude factor that the lower court used to rationalize its inequitable holding. In other words, whether equitable mootness is legitimate or not, Kuzniewski deserves her day in court. The Fifth Circuit has adapted the doctrine of equitable mootness into its jurisprudence, but it also offers a fractional recovery defense as a compromise. Resnick & Sommer, supra, at This means that appellate review need not be declined when, because a plan has been substantially consummated, a creditor could not obtain full relief. Bank of New York Trust 17

27 Co., 584 F.3d at 241. As such, a court may fashion whatever relief is practicable. Id. at 240. The Fifth Circuit also borrows from the D.C. Circuit in that it prohibits a court from avoiding its obligation to scrutinize each individual claim, testing the feasibility of granting the relief against its potential impact on the reorganization scheme as a whole. In re AOV Indus., 792 F.2d 1140, 1148 (D.C. Cir. 1986). This flexibility is appropriate in this case because Kuzniewski is not attacking the entire reorganization plan. The injunctive provision is the sole reason Kuzniewski objected to the confirmation plan in the first place. R. at 4. Therefore, the fractional recovery defense that the Fifth Circuit offers is helpful here because it fairly addresses the problems that Kuzniewski has with one provision that is part of the larger plan. The Second Circuit provides a similar kind of breathing room. In that circuit, there is a presumption of equitable mootness when the plan has already been substantially consummated. R<2> Invs., LDC v. Charter Communs., Inc. (In re Charter Communs., Inc.), 691 F.3d 476, 482 (2d Cir. 2012). However, that presumption is rebuttable if five factors are met: (1) the court can still order some effective relief; (2) the relief will not affect the re-emergence of the debtor as a revitalized corporate entity; (3) the relief will not unravel intricate transactions so as to knock the props out from under the authorization for every transaction that has taken place; (4) the parties who would be adversely affected have notice of the appeal and an opportunity to participate in the proceedings; and (5) the appellant diligently pursued all available remedies to obtain a stay, if the failure to do so makes it inequitable to reverse the orders appealed from. Id. (quoting Chateaugay Corp. v. LTV Steel Co. (In re Chateaugay Corp.), 10 F.3d 944, (2d Cir. 1993)). 18

28 Granted, a full discussion of the applicability of these factors would best be heard in a courtroom. However, the facts in this case suggest that all of the factors would be met. First, the court can still order effective relief for Kuzniewski, as shown by similar cases from other circuits. For example, in Texas Grand Prairie, the court proceeded to the merits of the appeal because it could grant partial relief to the appellant without disturbing the reorganization. Wells Fargo Bank N.A. v. Tex. Grand Prairie Hotel Realty, L.L.C. (In re Tex. Grand Prairie Hotel Realty, L.L.C.), 710 F.3d 324, (5th Cir. 2013). That court noted that partial relief could be given to the appellant by awarding a higher 1129(b) cramdown interest rate, or by granting a small money judgment. Id. at 328. Again, Kuzniewski initially objected to the injunctive provision in the plan, and so allowing Kuzniewski to bring her suit against Gadget in pursuit of a money judgment would be effective relief without unwinding the entire reorganization. R. at 4. It follows that the relief will not affect the re-emergence of the debtor as a revitalized corporate entity. Charter Communs., Inc., 691 F.3d at 482. Similarly, such relief would not unravel intricate transactions, thereby knocking the props out from every transaction that has taken place since confirmation. Id. The party who would be adversely affected that is, Padco would have notice of the appeal and an opportunity to participate in the proceedings. Id. Lastly, it is uncontested that Kuzniewski diligently pursued all available remedies to obtain a stay. Id.; R. at 8 n.2. Because this case satisfies all the factors to rebut the presumption of equitable mootness, Kuzniewski should be allowed to appeal. Padco may contend that the factors and tests outlined above are from other circuits, and are therefore less authoritative than the Third Circuit approach acknowledged by the majority of the court below. However, contrary to Judge Houle s conclusion that the present appeal easily satisfies that test, this case actually fails the SemCrude test s second prong. R. at 10; see 19

29 Samson Energy Res. Co. v. SemCrude, L.P. (In re SemCrude, L.P.), 728 F.3d 314 (3d Cir. 2013). SemCrude offers two analytical steps to help determine whether equitable mootness is appropriate in a particular case: (1) whether a confirmed plan has been substantially consummated; and (2) if so, whether granting the relief requested in the appeal will (a) fatally scramble the plan and/or (b) significantly harm third parties who have justifiably relied on plan confirmation. Id. at 321. The first prong unfairly stacks the odds against Kuzniewski because, as discussed above, stays are generally expensive and difficult to obtain. Furthermore, the desire of plan proponents to insulate the plan from review provides an unjust incentive to substantially consummate the plan as quickly as possible. That being said, the rationale behind the first prong of the SemCrude analysis is not at issue, as it is undisputed that the plan was substantially consummated in compliance with the relevant Bankruptcy Code sections. R. at 5. Rather, Respondent fails to satisfy the second prong. The relief that Kuzniewski is requesting would not fatally scramble the plan, nor would it significantly harm third parties who have relied on the confirmation of the plan. With regard to (2)(a) of the SemCrude analysis, appeals which focus on just one small part of a plan, or which can be cured by a monetary payment, rarely will be held to be equitably moot. Resnick & Sommer, supra, at The cure of a monetary payment is possible, as can be seen in Texas Grand Prairie (discussed above) and PWS Holding, wherein the appeal was not equitably moot because the plan could go forward even if some of the releases were struck from it. Texas Grand Prairie, 710 F.3d at 328; In re PWS Holding Corp., 228 F.3d 224, (3d Cir. 2000). In short, it cannot be said that granting Kuzniewski the ability to bring her sole claim would fatally scramble the reorganization as a whole. 20

30 As for the second part of the second prong, the perceived threat to third parties is overinflated. Even in cases where the court has acknowledged the creation of third-party reliance and the risk of dislodging their expectations, judges have declined to dismiss the appeal as equitably moot. Pacific Lumber Co., 584 F.3d at 243. Nevertheless, the Respondent harps on the issue of equity to the parties whom have relied on the plan without much regard for Kuzniewski, whose opinion was defeated and then ignored. Of course it is impossible is to ensure that every single party leaves an appeal happy. Id. at But shining a spotlight on every single entity that could potentially be harmed if the entire plan is reversed unduly focuses on extremes. Gadget, a sophisticated investor, should have been aware of the possible adverse consequences that could and do happen to anyone who enters the court system. Id. Therefore, equitable mootness would not be appropriate in this case not according to several other circuits, and not according to the circuit relied upon by the majority in the court below. And this is if equitable mootness is even a valid doctrine. It violates the United States Constitution by usurping the power of review from Article III judges, and then it inequitably ousts vulnerable unsecured creditors like Kuzniewski from the judicial process, despite the odds already stacked against her in obtaining a stay and standing her ground against mightier entities. Kuzniewski deserves a day to voice her concerns especially those that call into serious question whether the injunctive provision at issue is even permitted by the Bankruptcy Code. II. Chapter 11 Plans May Not Include Non-Consensual Non-Debtor Releases Because These Ignore Procedure and Hurt Vulnerable Creditors. Procedure uniformly and justly levels the playing field so that all parties can have a fair chance at winning their case. It is in the arena of procedure that subtle yet specific subsections can reign over grander generalizations. The Bankruptcy Code is no exception. It is complex but 21

31 exact in what it requires and prohibits, and it prohibits the kind of injunction in the reorganization plan here. The issue of whether a chapter 11 plan may permanently enjoin non-consenting creditors claims against non-debtor third parties has divided bankruptcy practitioners and circuit courts alike. Hon. Joan N. Feeney et al., Bankruptcy Law Manual 968 (5th ed. 2016). It is true that more federal circuit courts of appeals currently permit the release of liabilities of non-debtors than those that do not, at least in extreme cases. Id. at 959. Namely, courts point to 105(a) and 1123(b)(6) as the most important provisions that supposedly grant the authority to approve the type of injunction in this case. Id. However, the Bankruptcy Code provisions cited in support of this view either are superficially supportive but weak on their own, or are actually incompatible with the majority view, but misinterpreted by the courts. As such, this discussion will begin by addressing and unpacking both of these sections to show that they do not authorize the release of liability of non-debtor third parties. The second part will then discuss 524 of the Bankruptcy Code, which expressly prohibits this injunction and correctly defines it as a discharge, rather than a release. Finally, this brief will acknowledge several other statutes and cases that could be construed to suggest that non-consensual nondebtor discharges are permissible, but which ultimately fail to supersede the provisions of the Bankruptcy Code that were made to protect vulnerable parties like Kuzniewski. A. The Facilitating Sections of the Bankruptcy Code Do Not Overshadow More Specific Procedural Protections. Courts that permit injunctions to protect non-debtors in a chapter 11 plan rely too heavily on the vague language of two main provisions for this vast exercise of power. The circuit courts that have ruled that the bankruptcy court has the power to approve a plan containing a provision 22