517 B.R. 409
E.D.N.Y.2014Background
- Fiorano Tile Imports, Inc. (Debtor) filed Chapter 11 in 2010; Cherry Valley Associates (Appellant) is a former landlord and unsecured creditor asserting ~$151,584.27 in claims.
- Debtor filed multiple amended plans reducing unsecured creditor recovery to ~1–1.5¢ on the dollar; Appellant objected repeatedly based on nondisclosures, alleged diversion of funds to affiliated Fiorano Realty, and infeasibility.
- Bankruptcy Court denied earlier plans, warned that failure to satisfy §1129 would lead to dismissal or conversion, but allowed further amendments; several amended plans were proposed through June 2013.
- Debtor’s Seventh Amended Plan (June 2013) memorialized tax arrangements, subordinated management salaries, and funded an escrow to pay unsecured creditors on the effective date; Bankruptcy Court confirmed it on June 20, 2013.
- Debtor began distributions and paid priority tax claims; Appellant did not cash its check and appealed confirmation, seeking reversal and dismissal or conversion to Chapter 7.
- District Court found Appellant had standing but held the appeal equitably moot because the Seventh Amended Plan had been substantially consummated and reversal would inequably disrupt numerous third-party and tax-related interests.
Issues
| Issue | Appellant's Argument | Debtor's Argument | Held |
|---|---|---|---|
| Standing to appeal confirmation | Appellant: reduced recovery is direct pecuniary harm; thus aggrieved | Debtor: Appellant not an "aggrieved person" and lacks prudential standing | Held: Appellant has Article III and prudential standing |
| Whether appeal is equitably moot | Appellant: stay sought; effective relief (reversal + dismissal/conversion) is possible | Debtor: plan substantially consummated; presumption of equitable mootness; Appellant offers no rebuttal | Held: Appeal is equitably moot; confirmation affirmed |
| Feasibility, good faith, compliance with §1129 (merits) | Appellant: plan not feasible; bad faith and §1129(a)(5) noncompliance due to nondisclosures/diversions | Debtor: plan materially improved; payments and subordination cure feasibility and disclosure issues | Held: Not reached on the merits because appeal dismissed as equitably moot |
| Enforcement of prior February 5, 2013 order (dismiss/convert) | Appellant: Bankruptcy Court ignored its prior order and abused discretion by not dismissing/converting | Debtor: Bankruptcy Court permissibly allowed amendments and confirmation | Held: Not addressed on merits due to equitable mootness |
Key Cases Cited
- Charter Commc’ns, Inc. v. Chula, 691 F.3d 476 (2d Cir. 2012) (equitable mootness presumption where plan substantially consummated)
- Chateaugay Corp. v. Official Comm. of Unsecured Creditors (Chateaugay I), 988 F.2d 322 (2d Cir. 1993) (origin of equitable mootness doctrine)
- Frito‑Lay, Inc. v. LTV Steel Co. (Chateaugay II), 10 F.3d 944 (2d Cir. 1993) (five-factor test to rebut equitable mootness)
- Metromedia Fiber Network, Inc. v. FCC, 416 F.3d 136 (2d Cir. 2005) (finality and reliance weigh heavily in equitable mootness analysis)
- DBSD North America, Inc. v. U.S. Trustee, 684 F.3d 79 (2d Cir. 2011) (appellate standing requires an "aggrieved person")
- Kane v. Johns‑Manville Corp., 843 F.2d 636 (2d Cir. 1988) (creditor with potential to do better under alternative plan is aggrieved and may appeal)