In Re Transwest Resort Properties

In considering if an appeal from bankruptcy court is equitably moot, the court considers: (1) whether a stay was sought, (2) whether the plan has been substantially consummated, (3) the burden on third parties, and (4) whether relief can be granted without dismantling the plan.

Five entities (“the debtors”) acquired two resorts in 2007. Two of the entities financed the acquisition by obtaining loans, which they later defaulted on. In 2011, all five of the debtors filed for Chapter 11 bankruptcy. The lender in this case, JPMCC 2007-C1 Grasslawn Lodging, LLC (“the lender”) acquired the mortgage loan before the debtors filed for bankruptcy and filed a proof of claim in the bankruptcy proceeding for $299 million. The lender objected to two parts of the plan. The bankruptcy court overruled both objections. The lender filed a stay an appeal after the plan was confirmed and requested a stay, which the bankruptcy stay, requesting the court to postpone the confirmation of the plan, but the court denied it. The district court held that the appeal was equitably moot since the plan had been consummated, third parties relied on it, and the relief would be inequitable. The lender appealed. On appeal, the Ninth Circuit determined whether the appeal is equitably moot. An appeal is equitably moot if the case presents such complex transactions that debtors, creditors, and third parties are entitled to rely on the bankruptcy court order. The panel held that there are four considerations when determining if an appeal is equitably moot: (1) whether a stay was sought, (2) whether there has been substantial consummation of the plan, (3) the effect of the remedy on third parties, and (4) whether relief can be fashioned without dismantling the plan. The panel concluded that even though the plan had been implemented, the lenders objections to the plan were not equitably moot because the lender diligently sought to stay the confirmation of the plan, and it would be possible to devise an equitable remedy to address the objections without unfairly impacting third parties or destroying the plan. Reversed and Remanded.