Beeman v. BGI Creditors' Liquidating Trust (In re BGI, Inc.)
772 F.3d 102
2d Cir.2014Background
- Borders (BGI Inc.) filed Chapter 11 in Feb 2011; later shifted from attempted reorganization to a Chapter 11 liquidation and closed all stores by Sept 2011.
- Bankruptcy court set a bar date for prepetition claims and required notice by publication in the New York Times and by mail to known creditors; no appeal taken from that Bar Date Order.
- The Bankruptcy Court confirmed a liquidating Plan in Dec 2011; the Plan became effective in Jan 2012 and the Liquidating Trust began making distributions (approximately $17 million by Aug 2012).
- Three appellants (holders of unredeemed Borders gift cards) first appeared after confirmation and sought (1) leave to file untimely proofs of claim and (2) class certification; one filed an unauthorized late claim.
- The Bankruptcy Court denied the late-claim motions and disallowed the late claim, finding gift cardholders were "unknown" creditors entitled only to publication notice and that the Plan was substantially consummated; the District Court dismissed appeals as equitably moot and the Second Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does equitable mootness apply in Chapter 11 liquidations? | Appellants initially argued it should not apply (later abandoned at argument). | Trustee: equitable mootness applies to liquidation as well as reorganization. | Court: equitable mootness doctrine and Chateaugay analysis apply to Chapter 11 liquidations. |
| Did the Plan reach substantial consummation (triggering presumption of equitable mootness)? | Appellants did not contest substantial consummation on appeal. | Trustee: Plan was substantially consummated; distributions made. | Court: Bankruptcy finding of substantial consummation upheld. |
| Can appellants rebut the presumption of equitable mootness under Chateaugay factors? | Appellants argued effective relief was possible and sought leave to file late claims/class certification. | Trustee argued relief would disrupt distributions, tardy claimants lacked diligence and gave inadequate notice to affected parties. | Court: Appellants failed to satisfy Chateaugay factors 4 and 5 (notice to affected parties and diligence/stay efforts); thus presumption not rebutted. |
| Were gift card holders entitled to individual (actual) notice of the bar date? | Appellants argued they lacked adequate notice and thus excusable neglect for late filing. | Trustee: gift card holders were "unknown" and publication satisfied notice requirements. | Court: Bankruptcy court properly found gift card holders were unknown creditors entitled to publication notice only; no excusable neglect. |
Key Cases Cited
- FritoLay, Inc. v. LTV Steel Co. (In re Chateaugay Corp.), 10 F.3d 944 (2d Cir. 1993) (articulates five-factor test for overcoming presumption of equitable mootness)
- In re Charter Commc’ns, Inc., 691 F.3d 476 (2d Cir. 2012) (plan substantial consummation creates presumption of equitable mootness)
- Deutsche Bank AG v. Metromedia Fiber Network, Inc. (In re Metromedia Fiber Network, Inc.), 416 F.3d 136 (2d Cir. 2005) (describes equitable mootness as pragmatic doctrine tied to finality and implementation)
- Babitt v. Vebeliunas (In re Vebeliunas), 332 F.3d 85 (2d Cir. 2003) (substantial consummation is a factual finding reviewed for clear error)
- Florida Dep’t of Revenue v. Piccadilly Cafeterias, Inc., 554 U.S. 33 (2008) (Chapter 11 can encompass liquidations)