OPINION AND ORDER
The appellants, a group of Bondholders who hold approximately $50 million in face amount of Bonds issued by the Kenton County Airport Board (“KCAB”) pursuant to a 1992 Trust Indenture which covered the issuance of over $400 million in Bonds, appeal a Settlement Order entered by the United States Bankruptcy Court for this district approving a Settlement Agreement (the “Settlement”) between Chapter 11 debtor Delta Air Lines (“Delta”), KCAB, and UMB Bank, N.A. (“UMB”) as successor Trustee for the Bondholders under the 1992 Indenture.
See In re Delta Air Lines, Inc.,
The Court has reviewed the Bankruptcy Court’s thorough decision approving the Settlement and the arguments of the parties to this appeal. The Settlement Order is affirmed for substantially the reasons stated by the Bankruptcy Court and for the additional reasons discussed below.
I.
A.
The following facts are undisputed unless otherwise noted.
The KCAB Bonds (“Bonds”) at issue in this appeal relate to Delta’s use of and improvements made to the Cincinnati/Northern Kentucky Airport, which is a hub for Delta’s operations. The KCAB Bonds were issued under a Trust Indenture (the “Indenture”) dated February 1, 1992 between KCAB as issuer and Star Bank, N.A., the predecessor-in-interest to UMB, acting as Trustee. Concurrent with the issuance of the Bonds, Delta and KCAB entered into several interrelated agreements, including a Lease Agreement (the “Lease”) between Delta and KCAB that called for rental payments over thirty years equal to the amounts due on the Bonds. The Indenture indicates that the Bonds are non-recourse with respect to KCAB (Indenture ¶¶ 2.05, 7.01, Ex. A to App. to Appellants’ Br.; see also Lease ¶ 6.15, Ex. D to Appellants’ Br.), and it assigns to the Bond Trustee KCAB’s right to receive rental payments from Delta pursuant to the Lease, which the Indenture expressly references (Indenture preamble; see also Lease ¶¶ 4.03-4.04). Under a separate Guaranty to the Bond Trustee, Delta agreed that it would make all of the payments due on the Bonds. (Guaranty ¶ 1, Ex. B to Appellants’ Br.)
On September 14, 2005, Delta (along with other debtors not parties to this appeal) filed a petition for bankruptcy protection under Chapter 11 of the Bankruptcy Code. In late 2005, Delta informed KCAB and the Bond Trustee that it intended to reject certain of its contracts with KCAB, including the Lease, pursuant to section 365(a) of the Bankruptcy Code.
See
11 U.S.C. § 365(a). On December 30, 2005, Delta, KCAB, and the Bond Trustee entered a Stipulation providing for a 60-
During the negotiations between Delta, KCAB, and the Bond Trustee, the Bond Trustee issued sixteen Notices to the Bondholders that notified them that the Trustee was negotiating a settlement and entering into interim agreements which compromised Delta’s payment of interest on the Bonds and that invited the Bondholders to join an unofficial committee of Bondholders (“Bondholders’ Committee”) to participate in negotiations and strategy discussions. (See Ex. 2 to Decl. of James I. McClammy, June 22, 2007.) The Bondholders’ Committee, consisting of Bondholders holding approximately sixty percent of the outstanding principal amount of the KCAB Bonds, gave a written Direction authorizing the Bond Trastee to agree to the Settlement on February 22, 2007. (See Ex. O to Appellants’ Br.) The parties then announced the principal terms of the Settlement to the Bankruptcy Court at a hearing on February 22, 2007, and the next day the Bond Trustee sent notice of the Settlement terms to all Bondholders.
In summary, the Settlement Agreement provides that the Lease, Guaranty, and certain other agreements would be terminated and that the 1992 Bond Indenture would have no force outside the terms of the Settlement. Delta and KCAB would enter a new lease agreement and Delta would issue a new Note to the Bond Trustee, on behalf of the Bondholders, with the original principal amount of $85 million less amounts paid during the interim negotiations and bearing a fixed eight percent interest rate. The Bond Trustee, on behalf of the Bondholders, would have a $260 million allowed pre-petition, non-priority, unsecured claim against Delta. Delta would reimburse the Bond Trustee up to $2 million for fees and expenses incurred during the bankruptcy negotiations. Finally, Delta, KCAB, the Bond Trustee, and the Bondholders would release any claims or rights that each might have against the others with respect to the Bonds and the related agreements or the negotiated Settlement. The Settlement was expressly conditioned upon the Bankruptcy Court’s entry of a Settlement Order approving the Settlement’s terms and finding the terms fair and reasonable and in the best interest of Delta and its creditors, KCAB, the Bond Trustee, and the Bondholders. The Settlement also provides that the terms of the Settlement are incorporated in Delta’s Joint Plan of Reorganization and subject to creditor approval of the Plan. (See Settlement Agreement, Ex. P to Appellants’ Br.) '
On March 6, 2007, the appellants, an ad hoc group of Bondholders who object to the Settlement, sent a letter informing the Bond Trustee, Delta, and KCAB of their objections. On March 8, 2007, Delta submitted a motion pursuant to Bankruptcy Rule 9019 for the Bankruptcy Court to approve the Settlement. The appellants filed an objection to the Settlement Motion, but after limited expedited discovery and extensive argument, the Bankruptcy Court entered the Settlement Order on
While negotiations related to the Settlement were under way, Delta’s bankruptcy proceedings continued. On February 7, 2007, the Bankruptcy Court entered an Order approving the Disclosure Statement for the Plan of Reorganization, and Delta and the other debtors distributed ballots to vote on their Joint Plan of Reorganization in February of 2007. The ballots were issued before the Settlement was reached, but the Bondholders and other creditors were fully informed of the terms of the Settlement through a variety of means before the voting deadline of April 9, 2007. See Exs. 2 & 3 to McClammy Decl.; Ex. R to Appellants’ Br.) The Bondholders who voted on the Plan overwhelmingly approved of it, with 97.35% in dollar amount and 89.19% in number voting to accept the Plan. 1 After a hearing to consider confirmation of the Joint Plan of Reorganization, the Bankruptcy Court issued an Order confirming the Plan on April 25, 2007. The Plan had an effective date of April 30, 2007, with initial distributions of shares of the reorganized Delta’s stock to follow on May 3, 2007. Under the Settlement’s terms, its “Closing Date” was coordinated to coincide with the May 3, 2007 date of initial distributions under the Plan.
Immediately after the Bankruptcy Court had approved the Settlement, the appellants filed a notice of appeal and a motion requesting an expedited appeal in this Court. On April 26, 2007, the appellants orally moved the Bankruptcy Court for a stay pending appeal, and the court denied that motion orally, with a formal order denying the motion following on April 27, 2007. The appellants then immediately moved this Court for a stay pending appeal, and after extensive argument on May 2, 2007, this Court denied the motion, finding among other things that the appellants had failed to establish a likelihood of success on appeal.
The next day, May 3, 2007, the reorganized Delta issued Notes in the aggregate amount of $65,875,000 pursuant to the Settlement. Delta also made an initial distribution of 5,848,221 shares of stock to the Bondholders in connection with their $260 million pre-petition claim under the Settlement. Delta also entered into a new Lease and other agreements with KCAB pursuant to the Settlement, and the settling parties have to date fully implemented the Settlement in accordance with its terms. (See Aff. of Billy W. Williams ¶¶4.) The new Notes and the shares of reorganized Delta stock are freely tradea-ble, and Delta made the distributions through financial intermediaries without knowing the actual identities of the Bondholders. (Id. ¶¶ 5-6.)
B.
Briefing on the current appeal proceeded according to a Court-ordered stipulated schedule governing both this appeal of the Settlement Order and the same appellants’ related appeal of the Order Confirming the Joint Plan of Reorganziation (docketed as 07 Civ. 4148). (See Stipulation & Order Regarding Appeals, Docket No. 20.) This appeal is opposed by Delta, UMB as the successor Bond Trustee, KCAB, and the Post Effective Date Committee (as successor to the Official Committee of Unsecured Creditors in the Delta bankruptcy).
II.
The Court reviews the Bankruptcy Court’s conclusions of law de novo and its findings of fact for clear error.
Citibank, N.A. v. Vebeliunas,
III.
As an initial matter, the appellees argue that the Court should dismiss the appeal as constitutionally or equitably moot.
An appeal must be dismissed as constitutionally moot when “an event occurs while a case is pending on appeal that makes it impossible for the court to grant ‘any effectual relief whatever’ to a prevailing party.”
Church of Scientology v. United States,
The Court of Appeals has recognized that bankruptcy appeals may be equitably moot in two situations: when an unstayed order has resulted in a “comprehensive change in circumstances,” and when a reorganization is “substantially consummated.”
Allstate Ins. Co. v. Hughes,
(a) the court can still order some effective relief; such relief will not affect the re-emergence of the debtor as a revitalized corporate entity; (c) such relief will not unravel intricate transactions so as to knock the props out from under the authorization for every transaction that has taken place and create an unmanageable, uncontrollable situation for the Bankruptcy Court; (d) the parties who would be adversely affected by the modification have notice of the appeal and an opportunity to participate in the proceedings; and (e) the appellant pursue[d] with diligence all available remedies to obtain a stay of execution of theobjectionable order ... if the failure to do so creates a situation rendering it inequitable to reverse the orders appealed from.
Chateaugay II,
While the Court of Appeals has not expressly formulated a test for when a “comprehensive change of circumstances” renders it inequitable to hear an appeal, courts have found the same five equitable considerations listed above that can defeat a claim of mootness in the context of “substantial consummation” to be instructive as well in the context of a “comprehensive change of circumstances.”
See, e.g., Kassover v. Gibson,
02 Civ. 7978,
The Joint Plan of Reorganization has now been confirmed and appears to be “substantially consummated.” However, because this appeal relates only to the validity of the Settlement Order, and not the full Plan, it is not clear that the “substantially consummated” prong applies. There has certainly been a “comprehensive change in circumstances,” and in any event the distinction makes little difference because the same five factors guide the analysis. The appellants do not contest that the parties have fully implemented the Settlement according to its terms, including entering into several new agreements relating to Delta’s use of the Cincinnati/Northern Kentucky Airport, and that Delta has distributed millions of dollars in fre.ely tradeable stock through financial intermediaries that cannot be reversed. The Court then looks to the five factors listed above to determine whether the appellants can show that the Court should not find their appeal equitably moot.
The first Chateaugay II factor requires that some effective relief be available. The appellants contend that it is not necessary to unwind the financial transactions that have transpired, but that the Court can fashion some relief by vacating the Settlement Order and leaving it to the appellees either to ratify the agreement without Bankruptcy Court approval of the releases or to reform the Settlement in a manner that addresses the appellants’ objections. In effect, this argument says that relief is possible even if the transactions cannot be unwound because a vacatur would nullify the releases and allow the appellants to assert claims for damages against KCAB or UMB as the Bond Trustee. But to nullify the releases while leaving the remainder of the consummated Settlement intact would ignore the tradeoff that allowed the parties to settle in the first instance and would treat a non-sever-able provision of the Settlement Agreement as dispensable.
The cases the appellants rely on do not support the idea that effective relief is available here. In
LTV Corp. v. Aetna Cas. & Sur. Co.,
As for the other
Chateaugay II
factors, The appellees assert that the absence of the vast majority of KCAB Bondholders from this proceeding would render it inequitable to undo the Settlement to benefit a small number of dissenting Bondholders. Courts have found that the effect on creditors who are not party to an appeal in analogous circumstances weighs in favor of finding an appeal moot.
See In re Revere Copper & Brass, Inc.,
Because of the irreversible financial transactions that have occurred, and because Delta has entered into a whole new set of agreements relating to its use of the Cincinnati/Northern Kentucky Airport as a hub of its operations, the appellants cannot show that a vacatur of the Settlement Order, even if it were possible, would not “knock the props out from under the authorization for every transaction that has taken place and create an unmanageable, uncontrollable situation for the Bankruptcy Court.”
Metromedia,
Finally, as to the fifth
Chateaugay II
factor, the appellants did avail themselves of their opportunity to seek a stay of the Settlement Order, both before the Bankruptcy Court and before this Court.
2
But the appellants’ diligence alone is insufficient to avoid equitable mootness in light of the unavailability of effective relief and the other considerations discussed above.
See In re UNR Indus.,
In their reply, the appellants argue that the appellees manipulated the process to render any appeal moot by structuring the Settlement with releases of claims and a rapid Closing. However, the appellees have shown there was a good reason to time the Settlement Closing to coincide with initial distributions under the Joint Plan or Reorganization so that the KCAB Bondholders could have the benefit of freely trading the distributed stock at the same time as other creditors to avoid market risk. Furthermore, the timing of the Settlement did not foreclose the appellants from making strenuous objections before the Bankruptcy Court and indeed seeking a stay before this Court. The timing and structure of the Settlement therefore provides no basis for entertaining an appeal that cannot result in equitable or effective relief.
For all of these reasons, the Court concludes that it would be inequitable to hear this appeal and finds it equitably moot. Nonetheless, the Court considers the merits of the appeal below “so that there is no doubt as to the finality of the Bankruptcy Court’s Order.”
Allstate,
IV.
On the merits of their appeal, the appellants repeat a variety of arguments that the Bankruptcy Court considered and rejected, although they have reformulated several of these arguments. The core of the appellants’ position is (i) that the Bankruptcy Court had no jurisdiction or power to impose a Settlement that released claims against KCAB, Delta, the Trustee, and other Bondholders, and (ii) that the Trustee had no authority in the first instance to bind dissenting Bondholders to a Settlement reducing the principal and interest that would be repaid under the KCAB Bonds. The appellants also devote much attention to alleged rights they have against KCAB to require it to “re-let” Delta’s airport space and to pay the proceeds to the Bondholders. These issues are addressed in turn.
A.
The appellants’ argument that the Bankruptcy Court lacked subject matter jurisdiction to order the Settlement lacks merit for the reasons the Court discussed in its denial of the motion for a stay. The Bankruptcy Court plainly had jurisdiction under 28 U.S.C. §§ 1334(b) to approve this Settlement binding non-debtors because the litigation that was settled had more than a “conceivable effect” on the bankrupt estate; it in fact had a very clear effect on Delta’s obligations.
In re Cuyahoga Equip. Corp.,
The appellants also argue more specifically that the Bankruptcy Court lacked jurisdiction or power to approve the releases of claims against the non-debtors, which are contained in section 3.02(f) of the Settlement Agreement. As the Court found previously in denying the stay, this argument has no merit. A Bankruptcy Court may approve the release of claims against third parties where those releases played an “important part” in a debtor’s
The appellants raise several new arguments that essentially repackage their assertion that the Bankruptcy Court lacked jurisdiction and power to approve this Settlement. First, the appellants assert that the Bankruptcy Court’s actions denied them their constitutional right to due process because the Settlement Order’s release of claims eliminates their ability to bring claims as individual Bondholders against the Bond Trustee, KCAB, or other Bondholders and they were thus never afforded an opportunity to adjudicate those claims. In particular, the appellants point to their alleged right to sue the Bond Trustee for failing to act prudently in accordance with section 10.18 of the Indenture and to their right to hold KCAB accountable for “re-let proceeds” they allege that KCAB must pursue under section 8.07(c) of the Lease, both rights which are expunged under the Settlement.
This due process argument was hot made to the Bankruptcy Court below. Because the argument was raised for the first time on appeal, the Court can decline to hear it.
See, e.g., Adelphia Bus. Solutions, Inc. v. Abnos,
Second, the appellants argue that the Bankruptcy Court failed to abide by certain procedural rules in effectively adjudicating their claims as individual Bondholders without an adversary proceeding. This argument also was not raised below and is therefore waived,
see Gulino,
For all of these reasons, and for the reasons stated by the Bankruptcy Court, the appellants’ arguments that the Bankruptcy Court lacked either jurisdiction or power to approve the Settlement, and in particular to approve the releases, are without merit.
B.
The appellants also continue to argue, as they did before the Bankruptcy Court and before this Court on the stay, that the terms of the Indenture did not authorize the Bond Trustee to settle for less than the full value of the Bonds over the objection of some Bondholders. 4 The appellants contend that so-called “non-impairment” provisions in sections 9.06, 12.03(a), 12.06, and 12.07 of the Indenture protect minority rights by prohibiting the impairment of a Bondholder’s right to receive payment of the principal and interest on a Bond or to institute suit for the enforcement of any past-due payment without the consent of that Bondholder.
Considering all of the relevant provisions of the Indenture, the Bankruptcy Court correctly found that the Indenture did not bar it from approving the Settlement, particularly in view of the agreement by the Bond Trustee at the direction of a majority in principal amount of the Bondholders to enter into the Settlement, the Bankruptcy Court’s independent finding that the Settlement was fair and reasonable and in the interest of all Bondholders, and the approval of the Joint Plan of Reorganization, which incorporates the Settlement, by a large majority of the Bondholders.
See In re Delta,
In reaching this conclusion, the Bankruptcy Court carefully reviewed the Indenture, including all of Article IX relating to “Defaults and Remedies,” and found that “[t]hese provisions, individually and collectively, make absolutely clear that, when there is a default by the issuer, the Bond Trustee alone has the power and authority to commence remedial procedures on behalf of all Bondholders, constrained only by the direction of a majority in amount of the Bondholders.”
Id.
at 548. Furthermore, the power to negotiate and agree upon settlements inheres within this power to commence remedial procedures.
See, e.g., In re Smart World Tech., LLC,
The brief of the amicus curiae ABA further convincingly shows that section 9.06 of the Indenture borrows language from the Trust Indenture Act of 1939 (“TIA”), 15 U.S.C. §§ 77aaa
et seq.,
which was included in indentures to prevent insiders from renegotiating an issuer’s obligations to the detriment of non-insider investors and was never intended to preclude a trustee from procuring a satisfactory compromise, subject to judicial scrutiny and approved by a majority of the bondholders, from a bankrupt issuer.
While KCAB, rather than Delta, is the issuer of the Bonds here, the Bankruptcy Court correctly found that the bonds are non-recourse with respect to KCAB and that Delta provides the only guaranteed source of payments under the Bonds. The appellants have provided no authority holding that a non-impairment provision like section 9.06 requires unanimous Bondholder consent to enter a settlement in the circumstances present here. Delta’s bankruptcy, which compromised the Guaranty and the Lease which are “inextricably related” to the Indenture, also compromised the rights to payment under the Bonds and therefore overrides the protection of section 9.06. In any event, section 10.10 of the Indenture provides that the Bond Trustee may resolve any ambiguities or inconsistencies in the Indenture in good faith, and there is no question that the Bond Trustee’s interpretation that section 9.04 takes precedence over section 9.06 in the circumstances present here is a good faith interpretation.
In summary, the Court concurs with the Bankruptcy Court’s conclusion that the Indenture authorized the Bond Trustee to conduct remedial proceedings at the behest of a majority of the Bondholders, and that the Bond Trustee’s remedial powers included the right to enter the Settlement that was ultimately approved by the Bankruptcy Court.
C.
The appellants’ arguments concerning KCAB’s alleged liability to the Bondholders for “re-let proceeds” under the Lease and Indenture provide no basis for reversal. First, as the Bankruptcy Court found, the issue of re-let proceeds was both a legal and factual question that confronted the parties to the Settlement and that was resolved by the Settlement, which the Court has already concluded the Bond Trustee was authorized to enter on behalf of the Bondholders and which the Bankruptcy Court had the power to approve.
See In re Delta,
Second, even if the Court were to look behind the Settlement and decide whether the governing documents assigned to the Bondholders any claims based on re-let rights, it would conclude that they do not. Delta’s payments under the Lease (and guaranteed in the Guaranty to be paid to the Bond Trustee on behalf of the Bondholders) constituted the only payment stream to which the Bondholders were entitled.
See In re Delta,
Finally, the evidence before the Bankruptcy Court relating to the availability of alternative tenants for the facilities at issue showed that no tenant other than Delta would want to make the airport a hub and that some efforts had been made to find other potential tenants. (See Dep. of Robert F. Holscher 62-63, 73,198-99, 206-07, Ex. 11 to McClammy Decl.) It is thus unrealistic in the extreme to assert that the Bond Trustee could have sought greater recovery for the Bondholder's than they received under the Settlement by attempting to enforce any rights to the re-let provisions.
For all of these reasons, the appellants have failed to show that the Settlement improperly impaired any rights to relet proceeds.
CONCLUSION
The Court has considered the appellants’ remaining arguments and found them to be either moot or without merit. The Settlement Order entered by the Bankruptcy Court is therefore affirmed. SO ORDERED.
Notes
. The appellants contest this tabulation of votes cast by the Bondholders, which the Bankruptcy Court cited, but they have provided no basis for finding that anything other than an overwhelming majority of the voting Bondholders approved the Plan, in keeping with the overwhelming approval from every class of creditors who voted on the Plan. (See Certif. of Jane Sullivan, Ex. 4 to McClammy Deck)
. While the appellants did not seek a stay from the Court of Appeals after this Court denied a stay on the eve of the Settlement’s Closing and the date of initial distributions under the Settlement and the full Joint Plan of Reorganization, the parties agree in light of the time constraints that this fact is not grounds for mootness.
. The Bond Trustee points out the irony that the appellants’ actions in this very case show why parties would rarely agree to settle without being released from claims relating to the settlement itself.
. It should be noted that if the Bond Trustee was so authorized, this is an additional reason that the appellants' other arguments are without merit because the appellants would be parties to a Settlement agreed to by their authorized agent.