583 B.R. 682
6th Cir. BAP2018Background
- Debtor (NHL player earning ~$5M/yr) filed Chapter 11; amassed ~$21.3M debt; several large creditors (~$14M) contested.
- Debtor negotiated compromises with most large creditors; Confirmed Plan (Third Amended) created Class 5A Escrow and a Creditor Trust (Class 5B) funded by accumulated post-petition earnings and future earnings for several years.
- RFF refused to settle, asserted its claim might be nondischargeable and brought an adversary; RFF had no currently allowed claim pending resolution of nondischargeability.
- Bankruptcy court confirmed the Plan on Nov. 23, 2016; Effective Date Dec. 8, 2016; distributions and transfers (escrow, trust, trustee appointments) commenced and continued post-confirmation.
- Plan expressly kept post-confirmation earnings and specified funds as property of the estate (did not vest in debtor) and preserved the automatic stay during the plan term; debtor’s budget and living expenses were approved as necessary to generate future income.
- RFF appealed confirmation arguing (a) appeal is moot and (b) plan is not feasible under 11 U.S.C. §1129(a)(11) because it fails to protect RFF’s potential nondischargeable claim.
Issues
| Issue | RFF's Argument | Debtor's Argument | Held |
|---|---|---|---|
| Constitutional mootness of appeal | Appeal should be dismissed because effective relief is impossible given plan implementation | No events make relief impossible; claim of disruption is not constitutional mootness | Not constitutionally moot (dismissal on this ground denied) |
| Equitable mootness of appeal | Reversal would not substantially disrupt plan; plan is a "pot plan" and other creditors knew of RFF dispute when settling | Plan substantially consummated; reversal would unwind multi-creditor compromises and harm third-party reliance interests | Appeal dismissed as equitably moot (Panel agrees with debtor) |
| Feasibility under §1129(a)(11) re: nondischargeable claim | Plan is infeasible because it doesn't address RFF's potential nondischargeable claim and debtor may need further reorganization | Plan treats nondischargeable claim as pro rata unsecured during plan; post-confirmation earnings remain estate property and stay prevents collection outside plan; budget is necessary to fund plan | Even if not moot, bankruptcy court did not err; plan is feasible and RFF bound by plan during its term |
| Whether nondischargeable creditor may collect from estate property during plan | RFF contends nondischargeability allows post-confirmation collection from debtor income/property | Debtor: plan leaves earnings as estate property and automatic stay bars such collection until plan ends; nondischargeability does not trump plan terms keeping assets in estate | RFF cannot collect from estate property during plan term; may attempt collection after plan if claim held nondischargeable |
Key Cases Cited
- Iron Arrow Honor Society v. Heckler, 464 U.S. 67 (U.S. 1983) (Article III case-or-controversy requirement for judicial power)
- Church of Scientology v. United States, 506 U.S. 9 (U.S. 1992) (events during appeal can render relief impossible — constitutional mootness rule)
- Calderon v. Moore, 518 U.S. 149 (U.S. 1996) (partial remedies can prevent constitutional mootness)
- In re Am. HomePatient, Inc., 420 F.3d 559 (6th Cir. 2005) (adopts three-factor equitable-mootness test)
- Curreys of Nebraska, Inc. v. United Producers, Inc. (In re United Producers, Inc.), 526 F.3d 942 (6th Cir. 2008) (equitable mootness protects settled expectations after plan confirmation)
- In re Manges, 29 F.3d 1034 (5th Cir. 1994) (framework for assessing equitable mootness and substantial consummation)
- Copeland v. Fink (In re Copeland), 742 F.3d 811 (8th Cir. 2014) (nondischargeability does not require full payment during plan; pro rata treatment may be sufficient)
- Hillis Motors, Inc. v. Hawaii Auto. Dealers' Assoc., 997 F.2d 581 (9th Cir. 1993) (plan can provide that assets remain property of the estate post-confirmation and stay continues to apply)