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U.S. Supreme Court Denies Review of Challenge to Equitable Mootness Doctrine

In a decision that will likely impact bankruptcy proceedings around the country, the Supreme Court recently denied the petition for writ of certiorari of David Hargreaves, which challenged the equitable mootness doctrine. As a result, the concept of equitable mootness remains anything but moot.

The dispute arose after oilfield logistics company Nuverra Environmental Solutions, Inc.’s prepackaged plan of reorganization was confirmed by the Delaware bankruptcy court in 2017. Hargreaves, a holder of a $450,000 unsecured note against Nuverra, objected to his treatment under Nuverra’s plan, because he received a lower recovery than other unsecured creditors. The bankruptcy court ruled that the recoveries of these unsecured trade creditors, though better than the recoveries afforded noteholders such as Hargreaves, were a permissible “horizontal” gift from secured creditors to the unsecured trade creditors to ensure ongoing relationships with parties important to Nuverra’s reorganization.2

Hargreaves appealed the Delaware bankruptcy court’s confirmation order and filed a motion for stay of the order pending appeal, which was denied. The District Court of Delaware applied the Third Circuit’s test for equitable mootness: “(1) whether a confirmed plan has been substantially consummated; and (2) if so, whether granting the relief requested in the appeal will (a) fatally scramble the plan and/or (b) significantly harm third parties who have justifiably relied on plan confirmation.”3 The District Court ruled Hargreaves’ appeal was equitably moot. The Third Circuit agreed with the District Court and again ruled that Hargreaves’ appeal was equitably moot.  The Third Circuit reasoned, “the only way to give Hargreaves the money he wants is to give all [creditors in his class] a 100% refund . . . which would fatally scramble the Plan and significantly harm third parties.”4

Finally, Hargreaves petitioned the Supreme Court for writ of certiorari, and challenged the application of the doctrine of equitable mootness, which has been frequently invoked in bankruptcy proceedings. It is important to note that equitable mootness is different from true mootness. True mootness is the inability of a court to alter the result of a proceeding (for example if the convicted had died in the case of a criminal appeal), while equitable mootness is a court’s unwillingness to alter the result of a proceeding, despite the possibility of doing so (for example an appellate court’s unwillingness to require a change to a bankruptcy court’s confirmation of a plan of reorganization).

In his petition, Hargreaves argued that that federal courts should not even be able to apply the equitable mootness doctrine in cases where they would otherwise have jurisdiction. Hargreaves argued that, equitable mootness is now so frequently invoked, that Article III courts that should review the decisions of bankruptcy courts do not.5 In their amicus brief many prominent bankruptcy scholars supported Hargreaves’ position.6 In its response brief, Nuverra argued that debtors rely on the decisions of bankruptcy courts when crafting their plans of reorganization and requesting confirmation.7 Nuverra further argued that if appellate courts were to rehash confirmed plans, this would harm the process for debtors and creditors.

Ultimately the Supreme Court denied Hargreaves’ petition without comment, meaning that the doctrine of equitable mootness may continue to be applied by courts sitting in review of bankruptcy proceedings.  As a result, debtors will continue to rely on equitable mootness as the ultimate fallback position in an appeal of a confirmed and effective plan. 

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1. Hargreaves v. Nuverra Envtl. Sols., Inc. et al., 834 Fed. App'x 729 (3d Cir. 2021), cert. denied, 595 U.S. (U.S. Oct. 12, 2021)(No. 21-17).

2. In re Nuverra Env’t Sols., Inc., 590 B.R. 75, 81 (D. Del. 2018).

3. In re Nuverra Env’t Sols., Inc., 590 B.R. at 89. 

4. In re Nuverra Env’t Sols., Inc., 834 F. App’x 729, 736 (3d Cir. 2021).

5. Petition for Writ of Certiorari, Hargreaves v. Nuverra Envtl. Sols., Inc. et al., 595 U.S. (No. 21-17).

6. Amicus Curiae Supporting Petitioner, Hargreaves v. Nuverra Envtl. Sols., Inc. et al., 595 U.S. (No. 21-17).

7. Respondent’s Brief, Hargreaves v. Nuverra Envtl. Sols., Inc. et al., 595 U.S. (No. 21-17)

© 2022 Bracewell LLPNational Law Review, Volume XI, Number 314
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About this Author

Jason Cohen, Bracewell, corporate financial restructuring attorney, secured creditors lawyer, bankruptcy litigation,
Partner

Jason Cohen’s practice focuses on corporate financial restructuring.  Over the last 10 years, Mr. Cohen has represented corporate debtors and senior and junior secured creditors in all phases of corporate debt restructurings, including negotiating out-of-court workouts and litigating in-court chapter 11 bankruptcy cases with assets ranging from $20mm to over $1bln.  In such capacity Mr. Cohen has often advised parties on debt and equity financing as well as asset sales.   Prior to joining Bracewell, Mr. Cohen served as a law clerk to the Honorable Marvin Isgur of the U.S...

713-221-1416
Mark Dendinger, financial restructuring, attorney, Bracewell law firm
Associate

Mark Dendinger is a member of the firm’s Financial Restructuring team.  Mr. Dendinger’s practice includes representation of hedge funds, institutional investors, private investment funds, leveraged finance participants, financial services companies, and other lenders in out-of-court restructurings, in-court proceedings, and distressed M&A transactions, both in the U.S. and internationally.  Mr. Dendinger also has maritime restructuring experience representing international shipping companies in U.S. Chapter 11 proceedings. 

Prior to...

860-256-8541
William C. Ladd Bankruptcy Attorney Bracewell Washington DC
Associate

William Ladd focuses his practice on finance and financial restructuring. He represents clients in diverse matters, including infrastructure development, project finance and energy transactions. He also advises corporate creditors and debtors in complex bankruptcy cases. During law school, he served as a legal intern with the Kurdistan regional government in Washington, DC.

212-938-6453
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