In Re: LSC Communications, Inc., 631 B.R. 818

LSC Communications filed for Chapter 11 on April 13, 2020 after liquidity problems and announced ~1,242 layoffs; it proposed a Key Employee Retention Plan (KERP) paying $8 million to 190 employees to secure retention during the bankruptcy.
The KERP allocated tiers of retention bonuses; the top two tiers (11 employees) could receive up to $1.8 million collectively.
The Trustee objected that six KERP recipients were elected officers (titles include President of Publishing & Deputy GC; several SVPs and VPs) and therefore statutory "insiders" ineligible for retention payments under 11 U.S.C. § 503(c).
The Bankruptcy Court applied a functional test, found the six were "officers in title only," and approved KERP payments.
On appeal the District Court (Oetken, J.) rejected LSC’s equitable-mootness defense and reversed as to the six employees, holding board-appointed officers are officers for Bankruptcy Code purposes absent a strong showing otherwise, so § 503(c) bars their retention payments without the required court findings.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Equitable mootness of the appeal	Trustee: appeal is not equitably moot; effective relief (clawback) remains possible and Chateaugay factors not met	LSC: Trustee failed to seek a stay; payments made; reversal would be inequitable	Court: Appeal is not equitably moot; payments can be clawed back if unlawful and Chateaugay factors do not counsel dismissal
Whether state (Delaware) law / board appointment controls the definition of "officer" under the Bankruptcy Code	Trustee: Delaware law governs corporate status; board appointment makes one an officer for bankruptcy purposes	LSC: Bankruptcy inquiry should be functional; state law is largely irrelevant; titles insufficient	Court: Board appointment and Delaware treatment are dispositive absent a strong showing to the contrary; board-appointed officers are officers for § 101(31) purposes
Whether the six KERP recipients are statutory insiders ineligible for § 503(c) retention payments	Trustee: Six are officers/insiders and thus § 503(c)(1) forbids retention payments absent court findings	LSC: The six lack decisionmaking/managerial authority and are "officers in title only," so not insiders	Court: Reversed Bankruptcy Court; the six are officers/insiders and ineligible for KERP payments absent § 503(c) findings

In re Chateaugay Corp., 988 F.2d 322 (2d Cir. 1993) (equitable mootness doctrine for unstayed orders)
In re Chateaugay Corp., 10 F.3d 944 (2d Cir. 1993) (equitable mootness and substantial consummation framework)
In re Charter Communications, Inc., 691 F.3d 476 (2d Cir. 2012) (application of Chateaugay factors)
In re Bayshore Wire Prods. Corp., 209 F.3d 100 (2d Cir. 2000) (standards of review for bankruptcy appeals)
In re Borders Group, Inc., 453 B.R. 459 (S.D.N.Y. 2011) (functional approach to officer status when board appointment is absent)
In re Foothills Texas, Inc., 408 B.R. 573 (Bankr. D. Del. 2009) (presumption that titled officers are officers subject to rebuttal)
In re Longview Aluminum, LLC, 657 F.3d 507 (7th Cir. 2011) (board appointment and legal rights relevant to insider status)
U.S. Bank Nat’l Ass’n v. Village at Lakeridge, LLC, 138 S. Ct. 960 (2018) (Bankruptcy Code’s insider list is non-exhaustive)