In re: Charter Communication

Filing

OPINION, Affirmed , by JMW GEL RJL , FILED.[708141] [11-1710]

Case: 11-1710

Document: 154-1

Page: 1

08/31/2012

708141

23

11-1710-bk, 11-1726-bk
In re Charter Communications, Inc.

1

UNITED STATES COURT OF APPEALS

2

FOR THE SECOND CIRCUIT

3

August Term 2011

4

(Argued: March 26, 2012

Decided: August 31, 2012)

5
6

Docket Nos. 11-1710-bk, 11-1726-bk
--------------------------------------------------------x

7

In re CHARTER COMMUNICATIONS, INC.

8

--------------------------------------------------------x

9

R2 INVESTMENTS, LDC,

10

Appellant,

11
12
13

-- v. -CHARTER COMMUNICATIONS, INC., CCH I, LLC, CCH I CAPITAL
CORPORATION, CCH II, LLC, CCH II CAPITAL CORPORATION,

14
15

Debtors-Appellees,
PAUL G. ALLEN, OFFICIAL COMMITTEE OF UNSECURED CREDITORS,

16

Appellees.

17

--------------------------------------------------------x

18

LAW DEBENTURE TRUST COMPANY OF NEW YORK,

19

Appellant,

20
21
22

-- v. -CHARTER COMMUNICATIONS, INC., CCH I, LLC, CCH I CAPITAL
CORPORATION, CCH II, LLC, CCH II CAPITAL CORPORATION,

23
24

Debtors-Appellees,
PAUL G. ALLEN, OFFICIAL COMMITTEE OF UNSECURED CREDITORS,
Appellees.*

25
26

--------------------------------------------------------x

*

The Clerk of the Court is directed to amend the official captions
as set forth above, which reflects the true status of the parties.
1

Case: 11-1710

1

B e f o r e :

Document: 154-1

Page: 2

08/31/2012

708141

23

WALKER, LYNCH and LOHIER, Circuit Judges.

2

Appellants Law Debenture Trust Company of New York (“LDT”) and

3

R2 Investments, LDC (“R2”) appeal from an order of the United States

4

District Court for the Southern District of New York (George B.

5

Daniels, Judge) dismissing as equitably moot their appeals from the

6

bankruptcy court order (James M. Peck, Bankruptcy Judge) confirming

7

the Chapter 11 reorganization plan of Charter Communications, Inc.

8

and its affiliated debtors.

9

Inc. (In re Charter Commc’ns, Inc.), 449 B.R. 14 (S.D.N.Y. 2011);

See R2 Invs., LDC v. Charter Commc’ns,

10

JPMorgan Chase Bank, N.A. v. Charter Commc’ns Operating, LLC (In re

11

Charter Commc’ns), 419 B.R. 221 (Bankr. S.D.N.Y. 2009).

12

with the district court that it would be inequitable to grant LDT

13

and R2 the relief they seek now that the reorganization plan has

14

been substantially consummated.

15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34

We agree

AFFIRMED.
LAWRENCE S. ROBBINS (Mark T.
Stancil, Matthew M. Madden, on the
brief), Robbins, Russell, Englert,
Orseck, Untereiner & Sauber LLP,
Washington, D.C., for Appellant R2
Investments, LDC.
ANDREW W. HAMMOND, White & Case LLP,
New York, N.Y., for Appellant Law
Debenture Trust Company of New York.
JOHN C. O’QUINN, Kirkland & Ellis
LLP, Washington, D.C. (Richard M.
Cieri, Paul M. Basta, Kirkland &
Ellis LLP, New York, N.Y., Jeffrey
S. Powell, Daniel T. Donovan,
Kirkland & Ellis LLP, Washington,
D.C., on the brief), for DebtorsAppellees Charter Communications,
Inc., CCH I, LLC, CCH I Capital

2

Case: 11-1710

Document: 154-1

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17

Page: 3

08/31/2012

708141

23

Corporation, CCH II, LLC, CCH II
Capital Corporation.
JEREMY A. BERMAN (Robert E. Zimet,
Jay M. Goffman, Sean J. Young, on
the brief), Skadden, Arps, Slate,
Meagher & Flom LLP, New York, N.Y.,
for Appellee Paul G. Allen.
DAVID S. ELKIND (Mark R. Somerstein,
Keith H. Wofford, Darren Azman, on
the brief), Ropes & Gray LLP, New
York, N.Y., for Appellee Official
Committee of Unsecured Creditors.

JOHN M. WALKER, JR., Circuit Judge:
On March 27, 2009, Charter Communications, Inc. (“CCI” and,

18

together with its affiliated debtors, “Charter”) filed what the

19

Bankruptcy Court for the Southern District of New York (James M.

20

Peck, Bankruptcy Judge) described as “perhaps the largest and most

21

complex prearranged bankruptcies ever attempted, and in all

22

likelihood . . . among the most ambitious and contentious as well.”

23

JPMorgan Chase Bank, N.A. v. Charter Commc’ns Operating, LLC (In re

24

Charter Commc’ns), 419 B.R. 221, 230 (Bankr. S.D.N.Y. 2009).

25

Following the bankruptcy court’s confirmation of Charter’s proposed

26

plan of reorganization (the “Plan”), the Law Debenture Trust

27

Company of New York (“LDT”), as indenture trustee for certain notes

28

issued by CCI, and R2 Investments, LDC (“R2”), a CCI shareholder,

29

appealed the confirmation order to the District Court for the

30

Southern District of New York.

31

Daniels, Judge) dismissed those appeals under the doctrine of

32

equitable mootness.

The district court (George B.

R2 Invs., LDC v. Charter Commc’ns, Inc. (In re
3

Case: 11-1710

Document: 154-1

Page: 4

08/31/2012

1

Charter Commc’ns, Inc.), 449 B.R. 14 (S.D.N.Y. 2011).

2

now appeal that dismissal.

3

708141

23

LDT and R2

the appeals are equitably moot and affirm.

4

We agree with the district court that

BACKGROUND

5

We recite only those facts necessary to this appeal.

6

recitation of the facts may be found in the district court and

7

bankruptcy court opinions.

8

14; In re Charter Commc’ns, 419 B.R. 221.

9

A full

See In re Charter Commc’ns, 449 B.R.

In 2008, Charter, the nation’s fourth-largest cable television

10

company and a leading provider of cable and a broadband service,

11

was operationally sound but carried almost $22 billion in debt at

12

various levels of its corporate structure.1

13

419 B.R. at 230-31.

14

Brothers and the financial crisis that ensued, Charter could no

15

longer service its debt due to the tightening credit markets,

16

Charter’s excessive leverage, and lower valuations of companies in

17

the cable sector.

18

Paul G. Allen, a major investor whose ownership stake gave him

19

control of the company, and a group of junior bondholders (referred

20

to as the “Crossover Committee”).

21

in a settlement (the “Allen Settlement”) that contemplated

In re Charter Commc’ns,

After the September 2008 collapse of Lehman

Id. at 232-33.

Charter began negotiating with

Id.

1

The negotiations culminated

Charter’s corporate structure consisted of a publicly traded
parent holding company, CCI, sitting atop a chain of subsidiaries.
See Br. of Debtors-Appellees at 10. Charter’s publicly traded debt
was issued by eight holding companies stacked between CCI and
Charter Communications Operating, LLC, the primary operating
company. Id.
4

Case: 11-1710

Document: 154-1

Page: 5

08/31/2012

708141

23

Id.

Charter

1

Charter’s prenegotiated reorganization in bankruptcy.

2

then filed for Chapter 11 bankruptcy, using the Allen Settlement as

3

the cornerstone of its prenegotiated Plan.

4

Left out of the negotiations, however, were LDT, the trustee for

5

$479 million in aggregate principal of convertible notes issued by

6

CCI; R2, a CCI shareholder; and J.P. Morgan Chase N.A. (“JPMorgan”),

7

the holder of Charter’s senior debt.

8

into the Allen Settlement or the prepackaged Plan.

9

B.R. at 233.

10

Id.; 449 B.R. at 17.

These entities had no input
Id. at 17; 419

To fully appreciate the key role Paul Allen played in

11

Charter’s reorganization requires delving a bit into the weeds of

12

the negotiations underlying the Allen Settlement.

13

reorganization strategy was driven by the goal of reinstating its

14

senior credit facility with JPMorgan--that is, curing any breaches

15

in its contracts with JPMorgan so that JPMorgan would be classified

16

as an unimpaired creditor.

17

wanted to avoid renegotiating its senior debt during the financial

18

turmoil of late 2008 and early 2009 because it believed such

19

renegotiation would at best lead to a higher interest rate and at

20

worst result in Charter being closed off to new financing

21

altogether.

22

needed to structure its reorganization in a way that would avoid

23

triggering a default under the credit agreement with JPMorgan.

24

condition Charter had consented to in the credit agreement was that

25

Allen would retain thirty-five percent of the ordinary voting power

Charter’s

See 11 U.S.C. § 1124(2).

In re Charter Commc’ns, 419 B.R. at 233.

5

Charter

Charter thus

One

Case: 11-1710

Document: 154-1

Page: 6

08/31/2012

708141

23

1

of Charter Communications Operating, LLC (“CCO”), the obligor under

2

the senior credit agreements.

3

reorganization plan to succeed, Charter thus needed to induce Allen

4

to retain these voting rights, even though most of his investment

5

in Charter would be wiped out.

6

Charter to preserve roughly $2.85 billion of net operating losses,

7

a valuable tax attribute, it needed Allen to forgo exercising

8

contractual exchange rights and to maintain a one percent ownership

9

interest in Charter Communications Holding Company, LLC (“Holdco”).

Id. at 230, 237-38.

Id. at 230-31.

For the

In addition, for

10

Id. at 253.

11

reinstating its senior debt and obtaining tax savings though

12

preserving net operating losses, required Allen’s cooperation,

13

Allen alone was in a position to provide “uniquely personal”

14

benefits to Charter.

15

Because Charter’s main goals in restructuring, namely

Id. at 259.

Following “a spirited negotiation in which sophisticated

16

adversaries and their expert advisors bargained with each other

17

aggressively and in good faith,” id. at 241, Charter, the Crossover

18

Committee, and Allen agreed to the Allen Settlement.

19

the Settlement, Allen agreed to retain a thirty-five percent voting

20

interest in CCO and a one percent ownership interest in Holdco, and

21

to refrain from exercising his contractual exchange rights.

22

253-54.

23

million, of which $180 million was classified as pure settlement

24

consideration.

25

for a “$1.6 billion rights offering, a stepped-up tax basis in a

As part of

Id. at

In return for these concessions, Allen would receive $375

Id. at 241.

The Allen Settlement further provided

6

Case: 11-1710

Document: 154-1

Page: 7

08/31/2012

708141

23

1

significant portion of [Charter’s] assets, and the purchase of

2

[Allen’s]” preferred shares in CC VIII, LLC, a Charter subsidiary.

3

Id. at 253.

4

release (other third parties, including the management of Charter,

5

were released as well).

6

reorganization Plan that resulted from the Allen Settlement, the

7

CCI noteholders, represented by LDT, would receive approximately

8

32.7 percent of their claims, id. at 242, and R2 and other equity

9

holders of CCI would receive nothing, see Debtor’s Disclosure

10
11

Allen also successfully negotiated for a liability

Id. at 257-58 & n.26.

Under the

Statement at 33.
On November 17, 2009, after a nineteen-day hearing, the

12

bankruptcy court overruled all objections and confirmed the Plan as

13

submitted by Charter.

14

bankruptcy court denied R2 and LDT’s motions for an emergency stay

15

of the confirmation order.

16

Judge, sitting in Part I) denied a stay pending appeal to that

17

court, and the confirmation order and the Plan took effect on

18

November 30, 2009.

19

Charter immediately took actions under the Plan, including

20

cancelling the equity issued by the prepetition Charter, issuing

21

shares in the reorganized Charter, converting notes issued by the

22

prepetition Charter entities into new notes, and issuing warrants

23

to Charter’s prepetition noteholders.

24
25

419 B.R. at 271.

The following week, the

The district court (Sidney H. Stein,

See In re Charter Commc’ns, 449 B.R. at 21.

Id. at 24 nn.19-20.

R2 and LDT have objected to the Plan at every stage of these
proceedings.

Before the district court, they raised several
7

Case: 11-1710

Document: 154-1

Page: 8

08/31/2012

708141

23

1

overlapping challenges to the Plan’s confirmation.

2

objections, viewed broadly, related to the Allen Settlement, the

3

bankruptcy court’s valuation of Charter, and compliance with the

4

Bankruptcy Code’s cramdown provisions for approving a plan over the

5

objections of creditors.

6

Committee of Unsecured Creditors argued that, whatever the merit of

7

R2’s and LDT’s legal claims, the relief they sought could not be

8

granted without upsetting the already-consummated Plan and that the

9

doctrine of equitable mootness barred the appeals.

See id. at 21.

Their

Charter, Allen, and the

Id. at 17.

The

10

district court agreed and dismissed the appeals as equitably moot.

11

R2 and LDT filed separate appeals from that dismissal, which were

12

argued in tandem.

13
14

DISCUSSION
I.

15

Legal Standard for Equitable Mootness
This appeal concerns equitable mootness, a prudential doctrine

16

under which the district court may dismiss a bankruptcy appeal

17

“when, even though effective relief could conceivably be fashioned,

18

implementation of that relief would be inequitable.”

19

Comm. of Unsecured Creditors of LTV Aerospace & Def. Co. v.

20

Official Comm. of Unsecured Creditors of LTV Steel Co. (In re

21

Chateaugay Corp.), 988 F.2d 322, 325 (2d Cir. 1993) (“Chateaugay

22

I”).

23

question of whether a justiciable case or controversy exists,

24

equitable mootness in the context presented here is concerned with

25

whether a particular remedy can be granted without unjustly

Official

Unlike constitutional mootness, which turns on the threshold

8

Case: 11-1710

Document: 154-1

Page: 9

08/31/2012

708141

23

1

upsetting a debtor’s plan of reorganization.

2

v. Metromedia Fiber Network, Inc. (In re Metromedia Fiber Network,

3

Inc.), 416 F.3d 136, 143-44 (2d Cir. 2005); see also In re UNR

4

Indus., 20 F.3d 766, 769 (7th Cir. 1994) (“There is a big

5

difference between inability to alter the outcome (real mootness)

6

and unwillingness to alter the outcome (‘equitable mootness’).”).

7

Equitable mootness in the bankruptcy setting thus requires the

8

district court to carefully balance the importance of finality in

9

bankruptcy proceedings against the appellant’s right to review and

See Deutsche Bank AG

10

relief.

11

Co., NA v. Official Unsecured Creditors’ Comm. (In re Pac. Lumber

12

Co.), 584 F.3d 229, 240 (5th Cir. 2009) (noting that equitable

13

mootness is “a judicial anomaly” because it creates an exception to

14

courts’ “virtually unflagging obligation to exercise jurisdiction”

15

(internal quotation marks omitted)).

16

to specific claims, not entire appeals” and must be applied “with a

17

scalpel rather than an axe.”

18

41.

19

See Chateaugay I, 988 F.2d at 325-26; Bank of N.Y. Trust

“[E]quitable mootness applies

In re Pac. Lumber, 584 F.3d at 240-

In this circuit, an appeal is presumed equitably moot where

20

the debtor’s plan of reorganization has been substantially

21

consummated.

22

Chateaugay Corp.), 94 F.3d 772, 776 (2d Cir. 1996) (“Chateaugay

23

III”); Frito-Lay, Inc. v. LTV Steel Co. (In re Chateaugay Corp.),

24

10 F.3d 944, 952-53 (2d Cir. 1993) (“Chateaugay II”).

25

consummation” is defined in the Bankruptcy Code to require that all

Aetna Cas. & Sur. Co. v. LTV Steel Co. (In re

9

“Substantial

Case: 11-1710

Document: 154-1

Page: 10

08/31/2012

708141

23

1

or substantially all of the proposed transfers in a plan are

2

consummated; that the successor company has assumed the business or

3

management of the property dealt with by the plan; and that the

4

distributions called for by the plan have commenced.

5

§ 1101(2).

6
7
8

See 11 U.S.C.

The presumption of equitable mootness can be overcome,
however, if all five of the “Chateaugay factors” are met:
(1) “the court can still order some effective relief”;

9
10

(2) “such relief will not affect the re-emergence of the
debtor as a revitalized corporate entity”;

11
12
13
14
15

(3) “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”;

16
17
18

(4) “the parties who would be adversely affected by the
modification have notice of the appeal and an opportunity
to participate in the proceedings”; and

19
20
21
22
23

(5) “the appellant pursued with diligence all available
remedies to obtain a stay of execution of the
objectionable order if the failure to do so creates a
situation rendering it inequitable to reverse the orders
appealed from.”

24

Chateaugay II, 10 F.3d at 952-53 (internal citations, quotations,

25

and alterations omitted).

26

necessarily make it impossible or inequitable for an appellate

27

court to grant effective relief.”

28

automatically equitably moot if the relief requested would require

29

that a confirmed plan be altered.

30

the district court’s overly broad statement that invalidating a

31

plan and remanding for renegotiation renders a request “per se

Substantial consummation thus “does not

10

Id. at 952.

Nor is a claim

In this regard, we disagree with

Case: 11-1710

Document: 154-1

Page: 11

08/31/2012

708141

23

1

equitably moot.”

2

Chateaugay factors ensure that there is no per se equitable

3

mootness by requiring a court to examine the actual effects of the

4

requested relief.

5

a claim is equitably moot, we cannot rely solely on the debtor’s

6

conclusory predictions or opinions that the requested relief would

7

doom the reorganized company.

8

analytical inquiry into the likely effects of the relief an

9

appellant seeks and must be based on facts.

In re Charter Commc’ns, 449 B.R. at 24 n.21.

The

Finally, in examining a debtor’s contention that

Instead, Chateaugay II requires an

Only if all five

10

Chateaugay factors are met, and if the appellant prevails on the

11

merits of its legal claims, will relief be granted.

12

II.

13

Standard of Review
We turn first to the standard of review in appeals of

14

equitable mootness determinations.2

15

appeals, the district court reviews the bankruptcy court’s factual

16

findings for clear error and its conclusions of law de novo.

17

R. Bankr. P. 8013.

Generally in bankruptcy

Fed.

On appeal to this court, we ordinarily review

2

No published Second Circuit decision has addressed this question
directly. In a non-precedential summary order we determined that
abuse of discretion review was appropriate. See Ad Hoc Comm. of
Kenton Cnty. Bondholders v. Delta Air Lines, Inc., 309 F. App’x
455, 457 (2d Cir. 2009). In prior decisions we have described the
general standard of review in bankruptcy cases, involving de novo
review of legal conclusions, and then proceeded to address
equitable mootness without further discussion or application of a
particular standard of review. See, e.g., In re Metromedia, 416
F.3d at 139; South St. Seaport Ltd. P’ship v. Burger Boys, Inc. (In
re Burger Boys, Inc.), 94 F.3d 755, 759 (2d Cir. 1996); Resolution
Trust Corp. v. Best Prods. Co. (In re Best Prods. Co.), 68 F.3d 26,
29 (2d Cir. 1995). To the extent these cases suggested that de
novo review may apply to district court determinations regarding
equitable mootness, they did so in dicta.
11

Case: 11-1710

Document: 154-1

Page: 12

08/31/2012

708141

23

1

the district court’s decision de novo.

2

at 139.

3

procedural posture: in an equitable mootness dismissal, the

4

district court is not reviewing the bankruptcy court at all, but

5

exercising its own discretion in the first instance.

6

the district court may rely on the bankruptcy court’s factual

7

findings, unless clearly erroneous, and if necessary receive

8

additional evidence.

9

equitable mootness dismissals, the courts of appeals are split over

10

whether a de novo or abuse of discretion standard of review should

11

be applied by a court of appeals.

12

United Producers, Inc. (In re United Producers, Inc.), 526 F.3d

13

942, 946-47 (6th Cir. 2008) (reviewing determination of equitable

14

mootness de novo), Liquidity Solutions, Inc. v. Winn-Dixie Stores,

15

Inc. (In re Winn-Dixie Store, Inc.), 286 F. App’x 619, 622 & n.2

16

(11th Cir. 2008) (same), and United States v. Gen. Wireless, Inc.

17

(In re GWI PCS 1 Inc.), 230 F.3d 788, 799-800 (5th Cir. 2000)

18

(same), with Search Mkt. Direct, Inc. v. Jubber (In re Paige), 584

19

F.3d 1327, 1334-1335 (10th Cir. 2009) (reviewing determination of

20

equitable mootness for abuse of discretion), and Nordhoff Invs.,

21

Inc. v. Zenith Elecs. Corp., 258 F.3d 180, 182 (3d Cir. 2001)

22

(same).

In re Metromedia, 416 F.3d

Equitable mootness appeals arise in a somewhat different

In so doing,

Perhaps because of the unusual nature of

Compare Curreys of Neb., Inc. v.

23

We join those circuits that apply an abuse-of-discretion

24

standard, finding it significant that we are reviewing the district

25

court’s own exercise of discretion as to whether it is practicable
12

Case: 11-1710

Document: 154-1

Page: 13

08/31/2012

708141

23

1

to grant relief.

2

Article III mootness turns on the defendant’s voluntary cessation

3

of allegedly illegal conduct.

4

“bear[s] on whether the court should, in the exercise of its

5

discretion, dismiss the case as moot.”

6

Constructors, Inc. v. Cuomo, 981 F.2d 50, 59 (2d Cir. 1992).

7

such a case, because dismissal “lies within the sound discretion of

8

the district court,” we review for abuse of discretion.

9

Granite State Outdoor Adver., Inc. v. Zoning Bd. of Stamford, 38 F.

10

App'x 680, 683 (2d Cir. 2002); cf. In re Paige, 584 F.3d at 1334-35

11

(reviewing equitable mootness for abuse of discretion in part

12

because of its similarities to prudential mootness, reviewed in the

13

Tenth Circuit for abuse of discretion).

14

mootness determinations involve “a discretionary balancing of

15

equitable and prudential factors,” the type of determination we

16

usually review for abuse of discretion.

In re Cont’l Airlines, 91

17

F.3d 553, 560 (3d Cir. 1996) (en banc).

Accordingly, we will

18

review the district court’s decision for abuse of discretion.

19
20

III. Objections to the Allen Settlement and Third-Party Releases
are Equitably Moot

21

A somewhat analogous situation arises when

There, the voluntary cessation

Harrison & Burrowes Bridge
In

Id.;

More generally, equitable

R2 and LDT both challenge the compensation Paul Allen received

22

under the Allen Settlement as contravening the absolute priority

23

rule and Delaware’s entire fairness standard.

24

that the third-party releases, which originated in the Allen

25

Settlement and were incorporated into the confirmed Plan, do not

13

They further argue

Case: 11-1710

Document: 154-1

Page: 14

08/31/2012

708141

23

1

comply with SEC v. Drexel Burnham Lambert Group, Inc. (In re Drexel

2

Burnham Lambert Group, Inc.), 960 F.2d 285, 293 (2d Cir. 1992),

3

limiting third-party releases to unique circumstances.

4

claim that these legal errors can be redressed through a

5

prospective monetary award, without undoing the Allen Settlement or

6

reopening the bankruptcy proceedings.

7

required to disgorge some or all of his $180 million in settlement

8

consideration, or that Charter pay a similar amount directly to

9

LDT.

Appellants

LDT suggests that Allen be

R2 presents a different alternative:

that the bankruptcy

10

court determine the lowest payout Allen would have been willing to

11

accept, and order him to disgorge the excess.

12

the third-party releases can be surgically excised from the Allen

13

Settlement and the Plan.

And R2 maintains that

We begin by noting that LDT and R2 have met their burden with

14
15

respect to several of the Chateaugay factors.

16

impossible to grant LDT and R2 relief, in the sense that the appeals

17

are not constitutionally moot (factor 1).

18

577 F.3d 60, 66 (2d Cir. 2009) (claims for monetary relief

19

automatically avoid constitutional mootness).

20

diligent in seeking a stay of the confirmation order (factor 5).3

21

That LDT and R2 were not granted a stay does not affect the analysis
3

First, it is not

See Dean v. Blumenthal,

Next, LDT and R2 were

Although no stay was sought from this court, under the
circumstances we do not fault LDT and R2 for the omission: the
district court denied a stay on the evening of Wednesday November
25, 2009, the day before Thanksgiving, and this court was closed
until the following Monday when the Plan became effective and was
substantially consummated, leaving no time to move this court for a
stay.
14

Case: 11-1710

Document: 154-1

Page: 15

08/31/2012

708141

23

1

under Chateaugay II, which looks only to diligence in seeking a

2

stay.

3

144-45.

4

Chateaugay II, 10 F.3d at 954; In re Metromedia, 416 F.3d at

Next, LDT and R2 are correct that the relief they seek would

5

not adversely affect parties without an opportunity to participate

6

in the appeal (factor 4).

7

assuming that the relief requested would send Charter back into

8

bankruptcy, the parties most affected would be Charter itself,

9

Allen, and Charter’s creditors, all of whom are either parties to

See Chateaugay II, 10 F.3d at 953.

Even

10

this appeal or participated actively in the bankruptcy proceedings.

11

Cf. Kenton Cnty. Bondholders Comm. v. Delta Air Lines, Inc. (In re

12

Delta Air Lines, Inc.), 374 B.R. 516, 524 (S.D.N.Y. 2007) (finding

13

appeal of a settlement equitably moot in part because distributions

14

under the settlement had been made to innocent third parties that

15

were not participating in the appeal).

16

Settlement were unlawful, it would not be inequitable to require

17

the parties to that agreement to disgorge their ill-gotten gains,

18

participation in the appeal or not.

19

Thorpe Insulation Co. (In re Thorpe Insulation Co.), 677 F.3d 869,

20

882 (9th Cir. 2012) (“[T]he question is not whether . . . no third

21

party interests are affected” but whether any effects on third

22

parties would be inequitable.).

23

releases from the Plan would affect only those third parties that

24

benefited from the releases.

25

534 F.3d 498, 500 (5th Cir. 2008); Gillman v. Cont’l Airlines (In

In any event, if the Allen

See Motor Vehicle Cas. Co. v.

Likewise, striking the third-party

See Hilal v. Williams (In re Hilal),

15

Case: 11-1710

Document: 154-1

Page: 16

08/31/2012

708141

23

1

re Cont’l Airlines), 203 F.3d 203, 210 (3d Cir. 2000) (finding

2

appeal of third-party releases not equitably moot where the

3

defendant presented no arguments that investors or creditors relied

4

on the presence of releases in supporting the plan).

5

effects may be felt by reorganized Charter’s shareholders, since

6

either a limited remand or a payout would affect the value of the

7

company.

8

existence of this appeal and the possibility of an adverse ruling

9

as a risk factor in publicly filed annual and quarterly reports.

Less direct

However, Charter has regularly and fully disclosed the

10

See, e.g., Charter Communications, Inc., Annual Report (Form 10-K),

11

at 29 (Mar. 1, 2011).

12

information into account before purchasing shares in Charter.

13

In re Cont’l Airlines, 91 F.3d at 572 (Alito, J., dissenting).

14

A prudent investor would take this
See

However, LDT and R2 have failed to establish that the relief

15

they request would not affect Charter’s emergence as a revitalized

16

entity and would not require unraveling complex transactions

17

undertaken after the Plan was consummated (factors 2 and 3).

18

Chateaugay II, 10 F.3d at 953.

19

disgorgement by Allen would not impact reorganized Charter’s

20

financial health.

21

has been quite successful, with substantial assets and cash flow,

22

access to an $800 million revolving line of credit, and long-term

23

debt structured on favorable terms.

24

payment in the range of $200 million would send it spiraling back

25

into bankruptcy.

See

R2 and LDT are correct that any

And, as Appellants stress, reorganized Charter

Charter makes no claim that a

LDT and R2 ignore, however, that we must also
16

Case: 11-1710

Document: 154-1

Page: 17

08/31/2012

708141

23

1

consider the heavy transactional costs associated with the monetary

2

relief they seek.

3

including striking the releases, would be no ministerial task.

4

Allen Settlement was the product of an intense multi-party

5

negotiation, and removing a critical piece of the Allen Settlement—

6

such as Allen’s compensation and the third-party releases—would

7

impact other terms of the agreement and throw into doubt the

8

viability of the entire Plan.

9

145.

Modifying the terms of the Allen Settlement,
The

See In re Metromedia, 416 F.3d at

LDT and R2 maintain that in refusing to alter the Allen

10
11

Settlement, the district court gave too much weight to the

12

nonseverability clause contained in the Settlement and the Plan.

13

See In re Charter Commc’ns, 449 B.R. at 20, 24-25, 25 n.22, 28-29,

14

30.

15

standing on its own cannot support a finding of equitable mootness.

16

Allowing a boilerplate nonseverability clause, without more, to

17

determine the equitable mootness question would give the debtor and

18

other negotiating parties too much power to constrain Article III

19

review.

20

concurring in the judgment) (expressing concern that the “equitable

21

mootness doctrine can easily be used as a weapon to prevent any

22

appellate review of bankruptcy court orders confirming

23

reorganization plans”).

24

clauses in prenegotiated plans, such a rule could moot virtually

25

every appeal where a stay had not been granted.

We agree with LDT and R2 that normally a nonseverability clause

See Nordhoff Invs., Inc., 258 F.3d at 192 (Alito, J.,

Given the ubiquity of nonseverability

17

See R2 Br. at 41-42

Case: 11-1710

Document: 154-1

Page: 18

08/31/2012

708141

23

1

& 42 n.10 (noting that of the top ten prenegotiated bankruptcies

2

filed in 2010 by value of the debtor’s assets, each contained a

3

nonseverability clause in either the confirmation order or in the

4

reorganization plan).

5

practical doctrine that requires courts to consider the actual

6

effects of the relief requested on a debtor’s emergence from

7

bankruptcy.

8

that a particular term was important to the bargaining parties, a

9

district court cannot rely on such a clause to the exclusion of

More importantly, equitable mootness is a

While a nonseverability clause may be one indication

10

other evidence.4

11

re Texaco, Inc.), 92 B.R. 38, 47-49 (S.D.N.Y. 1988) (looking to

12

both nonseverability clause and testimony about the importance of

13

release provisions to determine that severing the provisions “would

14

undermine both the Settlement Agreement and the Reorganization

15

Plan”); see also Behrmann v. Nat’l Heritage Found., 663 F.3d 704,

16

713-14 (4th Cir. 2011) (finding an appeal of a release provision

17

not equitably moot where the bankruptcy court concluded that the

18

releases were “important” to the Plan without adequate factual

19

support).

See Trans World Airlines, Inc. v. Texaco, Inc. (In

4

Reliance on the nonseverability clause alone would be particularly
inappropriate here with respect to the third-party releases because
the “term sheet” incorporated into the Allen Settlement expressly
provided that the debtors’ failure to secure the releases as part
of the approved Plan would not breach the Allen Settlement. These
dueling contractual provisions only underscore the need to examine
the totality of evidence to determine the importance of a
particular provision.
18

Case: 11-1710

1

Document: 154-1

Page: 19

08/31/2012

708141

23

In these appeals, however, the district court did not rest its

2

decision exclusively on the nonseverability clause.

3

court found that the compensation to Allen and the third-party

4

releases were critical to the bargain that allowed Charter to

5

successfully restructure and that undoing them, as the plaintiffs

6

urge, would cut the heart out of the reorganization.

7

multiple witnesses, it also found that Allen was in a unique

8

position to create a successful arrangement because only through

9

his forbearance of exchange rights and agreement to maintain voting

10

power could Charter reinstate its senior debt and preserve valuable

11

net operating losses.

12

and Order Confirming Debtors’ Joint Plan of Reorganization (“Conf.

13

Order”) ¶¶ 32, 43; see also JA 462, 589, 605, 611.

14

like the compensation, were important in inducing Allen to settle.

15

See Conf. Order ¶ 32; see also JA 463, 589, 605, 611.

16

of witnesses representing that the releases and compensation were

17

important to Allen, LDT and R2 can point to no evidence that the

18

settlement consideration paid to Allen or the third-party releases

19

were simply incidental to the bargain that was struck.

20

re Metromedia, 416 F.3d at 145 (request to strike third-party

21

releases equitably moot because “it [was] as likely as not that the

22

bargain struck by the debtor and the released parties might have

23

been different without the releases”) with In re Cont’l Airlines,

24

203 F.3d at 210-11 (appeal of third-party releases not equitably

25

moot where there was “[n]o evidence or arguments . . . that

The bankruptcy

Crediting

See Findings of Fact, Conclusions of Law,

19

The releases,

In the face

Compare In

Case: 11-1710

Document: 154-1

Page: 20

08/31/2012

708141

23

1

Plaintiffs’ appeal, if successful, would necessitate the reversal

2

or unraveling of the entire plan of reorganization”).

3

Even if LDT and R2 are correct that the settlement

4

consideration and releases are legally unsupportable, these

5

provisions could not be excised without seriously threatening

6

Charter’s ability to re-emerge successfully from bankruptcy.5

7

could the monetary relief requested be achieved by a quick,

8

surgical change to the confirmation order.

9

willing to give up the benefit he received from the Allen

Nor

Allen may not be

10

Settlement without also reneging on at least part of the benefit he

11

bestowed on Charter.

12

negotiations, casting uncertainty over Charter’s operations until

13

the issue’s resolution.

14

in the district court’s conclusion that these claims relating to

15

the Allen Settlement are equitably moot.

16

IV.

Thus the parties would have to enter renewed

We therefore find no abuse of discretion

R2’s Claim for the Revaluation of CCI is Equitably Moot
R2’s next claim of error relates to the valuation of Charter.

17
18

The bankruptcies of Charter’s 131 affiliated entities were

19

consolidated for procedural, not substantive, purposes.

20

at 269-70.

419 B.R.

The Plan, however, values all Charter entities as one.

5

This risk—supported in the record—that the parties might be unable
to compromise if the bankruptcy proceedings were reopened, is what
we understand the district court to have meant when it wrote that
relief would “nullify the plan.” See 449 B.R. at 24, 25, 26, 27
n.29, 28. Technically speaking, any vacatur of a confirmation
order, no matter how limited, would “nullify” the plan, at least
temporarily and in part, but we understand the district court’s use
of “nullification” to have referred to a nullification of the
ability to reorganize at all.
20

Case: 11-1710

Document: 154-1

Page: 21

08/31/2012

708141

23

R2, an equity holder in CCI, argues that CCI should have been

1

Id.

2

valued separately, taking into account the value of the net

3

operating losses, which R2 argues “belong” to CCI.

4

claims that simple relief is available: remand the case to the

5

bankruptcy court for a limited valuation of CCI as a stand-alone

6

entity, and distribute any surplus to CCI’s shareholders, R2 among

7

them.

8
9

Here again, R2

As with challenges to the Allen Settlement, R2 has met the
Chateaugay factors relating to ability to grant effective relief,

10

diligence in seeking a stay, and effect on third parties.

11

we could not grant the relief R2 seeks without requiring a

12

significant revision of Charter’s reorganization.

13

in effect, an attack on the bankruptcy court’s determination that

14

it was appropriate for the Plan to consider all the Charter

15

entities together, even though the bankruptcies were never

16

substantively consolidated.

17

of CCI, the district court would have had to overturn the

18

bankruptcy court’s determination that a joint Plan was appropriate.

19

That legal conclusion would require not just that CCI be separately

20

valued, but that all the Charter subsidiaries be revalued and the

21

proceeds of the bankruptcy distributed accordingly.

22

Internacional Financiera S.A. v. Calpine Corp. (In re Calpine

23

Corp.), 390 B.R. 508, 519-20 (S.D.N.Y. 2008) (holding that the

24

debtor’s valuation was a “‘key issue’” in a reorganization, and

25

therefore even if a remand resulted in a higher valuation, the plan

However,

R2’s argument is,

In order to grant a separate valuation

21

See Compania

Case: 11-1710

Document: 154-1

Page: 22

08/31/2012

708141

23

1

would need to be substantially changed), aff’d 354 F. App’x 479 (2d

2

Cir. 2009).

3

without knocking the props out from under completed transactions or

4

affecting the re-emergence of the debtor from bankruptcy.6

5

Chateaugay II, 10 F.3d at 952-53.

6

abuse its discretion in dismissing this claim for revaluation of

7

CCI as equitably moot.

8
9

V.

10

This is not the type of relief that can be undertaken

See

Thus, the district court did not

LDT’s Claim that the Plan Violates 11 U.S.C. § 1129’s Cramdown
Provisions is Equitably Moot
LDT appeals the bankruptcy court’s determination that the Plan

11

complies with the cramdown provisions of 11 U.S.C. § 1129.

12

LDT argues that, as a creditor of CCI, it had a more senior claim

13

to the value of the net operating losses than the Crossover

14

Committee members, who held the debt of other Charter entities.

15

See § 1129(b)(2)(B)(ii).

16

“gerrymandered” into separate classes to satisfy the provisions of

17

§ 1129(a)(10), which requires that at least one class of impaired

First,

Second, LDT argues that creditors were

6

The district court erred, however, when it held that the relief
requested could not be granted because the confirmation order
rendered R2’s claims “cancelled, released, and extinguished” with
the holders “receiving no distribution under the Plan.” 449 B.R.
at 28 (internal quotation marks and alteration omitted). When the
confirmation order is on appeal, the legal effects of that order—
such as extinguishing equity—cannot themselves preclude review.
See Chateaugay II, 10 F.3d at 953-54, (rejecting the argument that
because the confirmation order provided that certain assets were to
re-vest in the debtor “free and clear of all claims and interests”
we could not correct a legal error in their distribution (internal
quotation marks omitted)). Nevertheless, the district court’s
alternative holding that equitable mootness barred the appeal
notwithstanding the this provision was independently sufficient to
support its judgment.
22

Case: 11-1710

Document: 154-1

Page: 23

08/31/2012

708141

23

1

creditors accept a plan.

2

court erred by holding that § 1129(a)(10) was satisfied if an

3

impaired class of any of the debtors accepted the Plan.

4

for all these alleged errors, LDT seeks the payment in full of the

5

CCI notes, at a cost to Charter of about $330 million.

6

29 n.38.

7

It further argues that the bankruptcy

As relief

449 B.R. at

As with R2’s claims regarding valuation, LDT may be correct

8

that the simple payment of $330 million would satisfy the

9

Chateaugay factors.

However, as with R2’s revaluation claim, the

10

legal conclusions required to find for LDT would require much more

11

than simply paying the CCI Noteholders’ claims in full.

12

errors that LDT alleges, if proven, would require unwinding the

13

Plan and reclassifying creditors.

14

surgical change to the Plan.

15

251 (finding claims of artificial impairment and misclassification

16

of creditors equitably moot because “no remedy . . . is practicable

17

other than unwinding the plan”).

18

court’s exercise of its discretion in dismissing the claim that the

19

cramdown provisions were violated as equitably moot as well.

20
21
22

The legal

This is the opposite of a

See In re Pac. Lumber, 584 F.3d at

We therefore affirm the district

CONCLUSION
For the foregoing reasons, the district court’s order
dismissing LDT and R2’s appeals as equitably moot is AFFIRMED.

23