United Surety & Indemnity Co. v. Lopez-Munoz ( 2020 )

United States Court of Appeals
For the First Circuit
No. 19-9003
IN RE: PEDRO LÓPEZ-MUÑOZ,
Debtor.
____________________
UNITED SURETY & INDEMNITY COMPANY,
Appellant,
v.
PEDRO LÓPEZ-MUÑOZ,
Appellee.
APPEAL FROM THE BANKRUPTCY APPELLATE PANEL
FOR THE FIRST CIRCUIT
Before
Thompson and Barron,
Circuit Judges.*
Carlos Lugo-Fiol, with whom Héctor Saldaña-Egozcue and
Saldaña & Saldaña-Egozcue, PSC were on brief, for appellant.
Luisa S. Valle-Castro, with whom Carmen D. Conde-Torres and
C. Conde & Assoc. were on brief, for appellee.
December 21, 2020

Judge Torruella heard oral argument in this matter and
participated in the semble, but he did not participate in the
issuance of the panel's decision. The remaining two panelists
therefore issued the opinion pursuant to 28 U.S.C. § 46(d).
THOMPSON, Circuit Judge. Pedro López-Muñoz ("López-
Muñoz") filed a voluntary petition for chapter 11 bankruptcy in
2013. After five years of litigation, the bankruptcy court
confirmed a reorganization plan in 2018. One of López-Muñoz's
creditors, United Surety & Indemnity Company ("USIC"), appealed to
the Bankruptcy Appellate Panel ("BAP"). The BAP dismissed USIC's
appeal under the doctrine of equitable mootness, and USIC has
appealed that decision to this Court. For the reasons set forth
below, we agree with the BAP that USIC's appeal is equitably moot.
I. Factual Background and Procedural History
This Court has laid out the facts of this case in some
detail in response to a previous USIC appeal. See In re López-
Muñoz, 866 F.3d 487 (1st Cir. 2017). We need not repeat ourselves.
Further, while USIC has raised several claims on appeal, the issue
of equitable mootness is dispositive. We therefore summarize the
pertinent facts only as they relate to the issue of equitable
mootness.
López-Muñoz filed a voluntary petition for chapter 11
bankruptcy on October 1, 2013. Over the course of the next five
years, the bankruptcy court heard evidence and conducted hearings
to develop a reorganization plan under which López-Muñoz could
make payments to creditors. One of those creditors was USIC, which
had an unsecured claim in the amount of $2,700,000.
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López-Muñoz initially submitted a reorganization plan in
2014, but USIC objected to several aspects of that plan. According
to USIC, the reorganization plan failed to comply with the best
interest test under 11 U.S.C. § 1129(a)(7).1 One of USIC's
objections concerned the proper discount factor to determine the
present value of López-Muñoz's assets. Both parties litigated the
issue and provided expert testimony, with López-Muñoz arguing for
a discount factor of 24% and USIC arguing for a discount factor
13%.
On April 12, 2018, the bankruptcy court held a hearing
on this issue and indicated that it favored a 16% discount factor
(instead of the 13% or 24% factors proposed by the parties) based
on the liquidation analysis utilized in In re San Juan Oil Company,
Inc., Ch. 11 Case No. 15-09593-EAG11 (Bankr. D.P.R. Aug. 29, 2016),
ECF No. 74-4. On April 30, 2018, the hearing continued, and López-
Muñoz presented a new liquidation analysis for a 16% discount
factor. USIC argued that López-Muñoz should not be permitted to
advocate for a new liquidation analysis at that point in the
1 See 11 U.S.C. § 1129(a)(7)(A) (requiring that "each
impaired class of claims or interests" either "(i) has accepted
the plan; or (ii) will receive or retain under the plan on account
of such claim or interest property of a value, as of the effective
date of the plan, that is not less than the amount that such holder
would so receive or retain if the debtor were liquidated under
chapter 7 of this title on such date").
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proceeding, but the bankruptcy court disagreed and allowed López-
Muñoz's presentation.
On September 18, 2018, the bankruptcy court entered an
opinion and order confirming the López-Muñoz reorganization plan
pursuant to the best interest test under 11 U.S.C. § 1129(a)(7).
Under the reorganization plan, unsecured creditors receive a set
dividend to be spread out over equal monthly payments. For USIC
and its $2,700,000 unsecured claim, this meant receiving a total
dividend of $243,000 to be paid in monthly installments of $4,500.2
USIC appealed this opinion and order to the BAP on October 2, 2018.
USIC did not, however, move to stay the execution of the
reorganization plan at that time.
In the absence of a stay, López-Muñoz moved forward with
the reorganization plan. On December 14, 2018, almost three months
after the bankruptcy court had confirmed the plan, López-Muñoz
filed a Report of Payments and Request for Final Decree. That
filing detailed how López-Muñoz had been handling assets and making
payments to creditors pursuant to the approved reorganization
plan. On January 4, 2019, USIC filed an opposition to López-
Muñoz's request for final decree and also sought a stay of further
execution of the reorganization plan. Shortly thereafter, to
2
By our math, the total $243,000 dividend would be fully
paid after fifty-four months (four and a half years).
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correct a procedural deficiency, USIC filed an amended opposition
and motion for stay. On March 20 and 21, 2019, the bankruptcy
court denied USIC's amended motion to stay and entered a final
decree. The bankruptcy court found that the reorganization plan
had been "substantially consummated" because, among other reasons,
the transfer or disposition of the property addressed under the
plan had occurred and payments under the plan had commenced.
USIC did not appeal the denial of the stay and instead
relied on its previous appeal to the BAP, with the reorganization
plan continuing in effect. Nor did USIC seek an expedited
determination of that appeal. For his part, López-Muñoz submitted
an amended motion to dismiss USIC's pending appeal to the BAP under
the doctrine of equitable mootness.
The BAP agreed with López-Muñoz and dismissed USIC's
appeal on May 23, 2019. Thereafter, USIC filed a timely notice of
appeal to this Court on June 6, 2019. All along, López-Muñoz has
continued making payments to creditors and otherwise operated
under the approved reorganization plan.
II. Analysis
A. Standard of Review
When considering an appeal from a bankruptcy court,
under most circumstances, "[w]e review the bankruptcy court's
legal conclusions de novo, its findings of fact for clear error,
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and its discretionary rulings for abuse of discretion." In re
López-Muñoz, 866 F.3d at 496–97 (quoting In re Hoover, 828 F.3d 5,
8 (1st Cir. 2016)). A party may appeal bankruptcy court orders to
either the district court or the BAP. See 28 U.S.C. § 158. While
we may find persuasive the analysis conducted at that intermediate
level of review, we typically "cede no special deference to the
intermediate decision itself." In re Hill, 562 F.3d 29, 32 (1st
Cir. 2009). However, with respect to equitable mootness
determinations, there is disagreement between the circuits as to
whether de novo or abuse of discretion review is appropriate. In
re SW Boston Hotel Venture, LLC, 748 F.3d 393, 402 (1st Cir. 2014).
The First Circuit has yet to weigh in on this issue, and we need
not do so here, as we agree with the BAP's equitable mootness
determination under either standard. Id. at 403.
B. Equitable Mootness
In the bankruptcy reorganization context, this Circuit
has long recognized that mootness is not just a matter of
jurisdiction but encompasses "equitable considerations" as well.
In re Pub. Serv. Co. of N.H., 963 F.2d 469, 471 (1st Cir. 1992).
The doctrine of equitable mootness, one that is seemingly unique
to bankruptcy proceedings, In re ICL Holding Co., Inc., 802 F.3d
547, 554 (3d Cir. 2015), is "rooted in the 'court's discretion in
matters of remedy and judicial administration' not to determine a
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case on its merits." PPUC Pa. Pub. Util. Comm'n v. Gangi, 874
F.3d 33, 37 (1st Cir. 2017) (quoting In re Pub. Serv. Co. of N.H.,
963 F.2d at 471). This is at times warranted to further "the
important public policy favoring orderly reorganization and
settlement of debtor estates by affording finality to the judgments
of the bankruptcy court." In re Pub. Serv. Co. of N.H., 963 F.2d
471–72 (internal quotation marks and citation omitted). To that
end, where a reorganization plan has been in place for an extended
period of time after thorough vetting and approval by the
bankruptcy court, there comes a point where "the impracticability
of fashioning fair and effective judicial relief" cautions against
disturbing the reorganization plan. Id. at 471; see also In re
Metromedia Fiber Network, Inc., 416 F.3d 136, 144–45 (2d Cir. 2005)
(holding that when a party does not diligently pursue a stay or
seek expedited appellate review, "the question is not solely
whether we can provide relief without unraveling the Plan, but
also whether we should provide such relief in light of fairness
concerns").
In determining whether an appeal is equitably moot we
consider three factors: "(1) whether the appellant pursued with
diligence all available remedies to obtain a stay of execution of
the objectionable order; (2) whether the challenged plan proceeded
to a point well beyond any practicable appellate annulment; and
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(3) whether providing relief would harm innocent third parties."
PPUC Pa. Pub. Util. Comm'n, 874 F.3d at 37 (internal quotation
marks, citations, emphasis, and alterations omitted). We address
each in turn.
As to the first factor, we agree with the BAP that USIC
clearly failed to diligently pursue "all available remedies to
obtain a stay." In re Pub. Serv. Co. of N.H., 963 F.2d at 473(citation and emphasis omitted). The bankruptcy court entered its
opinion and order confirming the López-Muñoz reorganization plan
on September 18, 2018. Almost three months later, on December 14,
2018, López-Muñoz filed a Report of Payments and Request for Final
Decree. It was only weeks after that filing, on January 4, 2019,
that USIC sought a stay in conjunction with its opposition to
López-Muñoz's Request for Final Decree. When the bankruptcy court
denied USIC's stay request, USIC neither appealed that decision,
see Fed. R. Bankr. P. 8007(b), nor sought an expedited
determination of its already-pending BAP appeal, see, e.g., Fed.
R. Bankr. P. 8013; Fed. R. App. P. 27. This is not the course of
one diligently pursuing all available remedies. See In re Pub.
Serv. Co. of N.H., 963 F.2d at 472 (finding an appeal equitably
moot where "[a]ppellants sought to stay the execution of the order
of confirmation in the bankruptcy court, yet no attempt was made
to appeal the denial of a stay" and "no appellate or mandamus
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relief was ever requested from the court of appeals relating to a
stay of the confirmation order" (emphasis omitted)); see also In
re Roberts Farms, Inc., 652 F.2d 793, 798 (9th Cir. 1981) (finding
an appeal equitably moot where appellants "neglected diligently to
pursue their available remedies to obtain a stay" of the
confirmation order thereby letting transactions in reliance on the
confirmed plan proceed).
We now look to the second and third factors of the
equitable mootness analysis: "whether the challenged plan
proceeded 'to a point well beyond any practicable appellate
annulment,'" and "whether providing relief would harm innocent
third parties." PPUC Pa. Pub. Util. Comm'n, 874 F.3d at 37
(quoting In re Pub. Serv. Co. of N.H., 963 F.2d at 473–75). USIC
has provided stronger arguments on these latter two factors than
on the first. For instance, USIC argues that López-Muñoz has not
firmly demonstrated that the bankruptcy court would be incapable
of undoing the progress of the current reorganization plan. USIC
also argues that it is not clear precisely how "innocent third
parties" would be harmed if we decided the merits of USIC's appeal.
These points are well-taken.
However, under both the second and third factors, we
must also take into account that the bankruptcy court declared the
reorganization plan substantially consummated sixteen months
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before we heard this appeal, after the approved plan had already
been in place for over six months. We have said before that
substantial consummation "raises a 'strong presumption' that an
appellate court will not be able to fashion an equitable and
effective remedy." In re Pub. Serv. Co. of N.H., 963 F.2d at 473
n.13 (quoting In re AOV Indus., Inc., 792 F.2d 1140, 1149 (D.C. Cir.
1986)). Similarly, where "a plan has been substantially
consummated[,] there is a greater likelihood that overturning the
confirmation [order] will have adverse effects on the success of
the plan and on third parties" who have been acting in reliance on
that plan. In re United Producers, Inc., 526 F.3d 942, 948 (6th
Cir. 2008). Particularly when confronted with "a reorganization
plan substantially consummated" in combination with "the absence
of a stay," disrupting the plan tends to "run counter to the
important policy favoring finality in bankruptcy proceedings." In
re Pub. Serv. Co. of N.H., 963 F.2d at 474.
While our sister circuits have adopted different tests
for equitable mootness, all agree that this is a fact-intensive
inquiry.3 Having weighed the facts, we find that USIC's appeal is
3 See, e.g., In re Charter Commc'ns, Inc., 691 F.3d 476, 482
(2d Cir. 2012) (describing equitable mootness as "requir[ing] an
analytical inquiry . . . [that] must be based on facts"); S.E.C.
v. Wealth Management LLC, 628 F.3d 323, 332 (7th Cir. 2010)
(describing equitable mootness as "fact-intensive"); In re AOV
Industries, 792 F.2d 1140, 1147 (D.C. Cir. 1986) (describing
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equitably moot. The substantially-consummated reorganization plan
has continued in place for an extended period of time while USIC
has not pursued its available remedies to obtain a stay. At this
point, over seven years after López-Muñoz filed for bankruptcy and
over two years after López-Muñoz began making payments to creditors
under the approved reorganization plan, we decline to disrupt the
status quo.
Affirmed.
equitable mootness as "requir[ing] a case-by-case judgment").
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