In re: Abitibibowater Inc. et al

Filing 9

MEMORANDUM ORDER re 3 MOTION to Dismiss filed by Abitibibowater Inc. is GRANTED; 8 MOTION to Strike filed by Abitibibowater Inc. is DENIED as moot. Signed by Judge Leonard P. Stark on 4/9/13. (ntl)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
INRE:

Chapter 11

ABITIBIBOWATER INC., et al.,

Case No. 09-11296 (KJC)

Debtors.

Jointly Administered

PETER I. SHAH,
Appellant,
v.

Civil Action No. 11-cv-00005-LPS

ABITIBIBOWATER INC., et al.,
Appellees.

MEMORANDUM ORDER
At Wilmington this 9th day of April, 2013, having reviewed the motion to dismiss (the
"Motion") (D.L 3) of Abitibibowater Inc. and its affiliated reorganized debtors (collectively, the
"Company" or "Appellees") regarding the appeal (the "Appeal") filed by Peter I. Shah, a former
shareholder of Abitibibowater Inc. ("Shah" or "Appellant"), and the papers filed in connection
therewith;
IT IS ORDERED that Appellees' Motion is GRANTED, for the reasons discussed below:
I.

BACKGROUND 1 AND PARTIES' CONTENTIONS
1.

By its Motion, the Company contends that Shah's Appeal (D.L 1) should be

dismissed as equitably moot, or, in the alternative, for failure to prosecute the Appeal as required
by Federal Rule of Bankruptcy Procedure 8006. (See D.L 4; D.L 7)
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The salient facts set forth in this background section, taken from Appellees' statement of
facts (D.L 4), are not in dispute.

2.

The Company points out that the Second Amended Joint Plan of Reorganization

Under Chapter 11 of the Bankruptcy Code (As Amended), dated November 23, 2010 (the
"Plan"), was confirmed on November 23, 2010 by the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"), and the order confirming the Plan (the
"Confirmation Order") was not stayed. According to Appellees, on December 9, 2010 (the
"Effective Date"), the Company consummated the Plan as well as the plan of reorganization that
had been approved on September 23, 2010 in the Company's parallel bankruptcy proceedings in
Canada (the "CCAA Plan," and, together with the Plan, the "Plans"). Thereafter, the Company
emerged from bankruptcy protection. In addition, the Company: closed on approximately $1.5
billion in exit financing arrangements to fund its obligations under the Plans and its postemergence operations; used $1.2 billion of such exit financing to repay its prepetition secured
debt and various administrative and priority claims; engaged in various internal corporate
restructuring transactions; 2 issued roughly 97 million shares of new common stock; distributed
approximately 74 million shares of its new stock to unsecured creditors in accordance with the
Plan; and extinguished the existing equity interests.
3.

Appellees submit that these actions- developed in accordance with the

Company's unified reorganization strategy for implementation in both the U.S. and Canadian
bankruptcy proceedings and in accordance with its approved interdependent Plans - would be
virtually impossible to unravel.
4.

Appellees also contend that Shah failed to prosecute his Appeal by neglecting to

2

As Appellees summarize, on and prior to the Effective Date such transactions "included
the dissolution, merger and consolidation of numerous legal entities and a general streamlining of
the Company's corporate structure." (D.I. 4 at 9)
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timely designate a record or file a statement of issues presented, as required by Federal Rule of
Bankruptcy Procedure 8006. (See D.l. 4 at 7, 15-16; see also D.l. 8)
5.

Appellant asks the Court to deny the Motion. Ultimately, Shah asks the Court to

modify the Plan to grant former shareholders five percent of Abitibibowater' s new common
stock on account of their cancelled equity interests. (See D.l1 at 22; D.l. 6)

II.

DISCUSSION
6.

"The doctrine of equitable mootness provides that an appeal should be dismissed

as moot when, even though effective relief could conceivably be fashioned, implementation of
that relief would be inequitable." SemCrude, L.P. v. Manchester Securities Corp.
("SemCrude "), 2012 WL 8597, at *1 (3d Cir. Jan. 3, 2012) (internal quotation marks omitted);
see also In re Continental Airlines ("Continental II"), 203 F.3d 203, 209 (3d Cir. 2000). The

determination of whether an appeal is equitably moot requires a "discretionary balancing of
equitable and prudential factors." In re Continental Airlines ("Continental!"), 91 F.3d 553, 560
(3d Cir. 1996) (en bane). Specifically, the Court of Appeals for the Third Circuit has recognized
five factors that courts should consider in evaluating whether an appeal should be dismissed
under the doctrine of equitable mootness:
(1) whether the reorganized plan has been substantially
consummated; (2) whether a stay has been obtained; (3) whether
the relief requested would affect the rights of parties not before the
Court; (4) whether the relief requested would affect the success of
the plan; and (5) the public policy of affording finality of
bankruptcy judgments.

!d.
7.

Applying these factors here, the Court concludes that Shah's appeal is equitably

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moot. As an initial matter, the Plan has been substantially consummated. The Bankruptcy Code
defines "substantial consummation" as the:
(A) transfer of all or substantially all of the property proposed by
the plan to be transferred; (B) assumption by the debtor or by the
successor to the debtor under the plan of the business or of the
management of all or substantially all of the property dealt with by
the plan; and (C) commencement of distribution under the plan.
11 U.S.C. § 1101(2). Here, the Confirmation Order provided that the Plan would be substantially
consummated on the Effective Date, and, as detailed above, implementation of the
interdependent Plans in the U.S. and Canada has involved numerous complex transactions. See

Continental I, 91 F.3d at 560-61 (stating substantial consummation is "foremost consideration
... especially ... where the reorganization involves intricate transactions").
8.

Next, "[b]ecause of the nature of bankruptcy confirmations ... it is obligatory

upon appellant ... to pursue with diligence all available remedies to obtain a stay of execution."

Nordhoffinvs., Inc. v. Zenith Elecs. Corp., 258 F.3d 180, 186-87 (3d Cir. 2001) (internal
quotation marks omitted). Here, however, Shah did not obtain a stay ofthe Confirmation Order.
"The existence or absence of a stay is a critical factor in determining whether to dismiss an
appeal under the doctrine of equitable mootness." Kuntz v. Saul, Ewing, Remick & Saul (In re

Grand Union Co.), 200 B.R. 101, 105 (D. Del. 1996).
9.

Third, the Court is persuaded that Shah's requested relief would impact numerous

third parties not before the Court, including the unsecured creditors of Abitibibowater. (See D.I.
4; D.I. 7) Equitable mootness "protects the interests of non-adverse third parties who are not
before the reviewing court but who have acted in reliance upon the plan as implemented."

Continental I, 91 F.3d at 562 (internal quotation marks omitted). The Court agrees with

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Appellees that entertaining Shah's request for common stock could prejudice already impaired,
unsecured creditors (who are estimated to recover less than one percent on account oftheir
claims) and could violate the Bankruptcy Code's absolute priority rule. 3
10.

Moreover, dismissal under the equitable mootness doctrine is warranted "if the

relief requested ... would jeopardize the success of the reorganization plan by causing its
reversal or unraveling .... " In re Genesis Health Ventures, Inc., 204 F. App'x 144, 146 (3d Cir.
2006) (internal quotation marks omitted). "A bankruptcy appeal will jeopardize the success of a
reorganization plan if granting the requested relief: (1) effectively impos[ es] a different plan of
reorganization on the parties ... or (2) create[s] an unmanageable, uncontrollable situation for
the Bankruptcy Court." In re Spansion Inc., 2011 WL 3420441, at *11 (D. Del. Aug. 4, 2011)
(internal quotation marks and citations omitted). The Court must consider "whether [the
appellant] seek[ s] to knock the props out from under the authorization for every transaction that
has taken place" pursuant to the confirmed Plan. Nordhoff, 258 F .3d at 189 (internal quotation
marks omitted).
11.

Here, Appellant views his appeal as "an instant motion to modify the Plan" and

provide "a non-material, five percent (5%) distribution and order the Debtor to modify the Plan
to include Holders." (D.I. 1 at 2, 22) (emphasis added) In seeking such a Plan modification, the
Appeal raises the issue of whether the Bankruptcy Court's valuation was fair to Appellant. "A
challenge to a bankruptcy court's valuation is a challenge to the very centerpiece of the plan."
Spansion, 2011 WL 3420441, at *7 (internal quotation marks omitted); see also Nordhoff, 258

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See 11 U.S.C. § 1129(b) (requiring that creditors be paid in full before distributions may
be paid to equity).
5

F.3d at 189 (noting that valuation of debtor was "very centerpiece of the plan"). A modification
such as the one requested would hardly be "non-material." To the contrary, altering the
Bankruptcy Court's determination on valuation would jeopardize the entire reorganization Plan
(and that ofthe CCAA Plan).
12.

Lastly, the public policy affording finality to bankruptcy judgments weighs in

favor of dismissing this Appeal. "[T]he importance of allowing approved reorganizations to go
forward in reliance on bankruptcy court confirmation orders may be the central animating force
behind the equitable mootness doctrine." Continental I, 91 F.3d at 565. The Third Circuit has
emphasized this point, stressing that the inquiry
should not be about the reasonableness ofthe Investors' reliance or
the probability of either party succeeding on appeal. Rather, we
should ask whether we want to encourage or discourage reliance by
investors and others on the finality of bankruptcy confirmation
orders. The strong public policy in favor of maximizing debtors'
estates and facilitating successful reorganization, reflected in the
Code itself, clearly weighs in favor of encouraging such reliance.

SemCrude, L.P., 2012 WL 8597, at *3 (internal quotation marks omitted). Here, particularly
given the number of parties involved in the negotiation, approval, and substantial consummation
of the Plan (and its interdependent Canadian companion plan), the Court concludes that public
policy favors leaving the Plan undisturbed.

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III.

CONCLUSION
13.

Consistent with the foregoing analysis, the Court concludes that the equitable

mootness doctrine applies. Accordingly, Appellees' motion to dismiss (D.I. 3) is GRANTED,
and the Appeal is dismissed. 4

UNITED TATES DISTRICT JUDGE

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In light of the disposition of the motion to dismiss on grounds of equitable mootness, a
ruling with respect to Appellees' alternative request for dismissal based upon a failure to
prosecute is unnecessary. Moreover, Appellees' Motion for Order Striking Untimely
Designation of Record or Granting Alternative Relief (D.I. 8) is DENIED as moot. The Court
denies Appellees' request for costs.

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