# Petition for Writ of Certiorari — Ad Hoc Committee of Kenton County Bondholders v. Delta Air Lines, Inc., 130 S. Ct. 539 (2009) (No. 09-104) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386017_0796%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 2009 ## Text a ca U.S. 7 AD) x No. 08- 09- 104 JUL 22 09 IN THE OF FIGE OF THE CLERK Supreme Court of the Anited States AD HOC COMMITTEE OF KENTON COUNTY BONDHOLDERS, Petitioners, DELTA AIR LINES, INC., KENTON COUNTY AIRPORT BOARD, UMB BANK, N.A., AS TRUSTEE, POST EFFECTIVE DATE COMMITTEE AS SUCCESSOR TO THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF DELTA AIR LINES, INC., Respondents. ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT PETITION FOR A WRIT OF CERTIORARI J. CHRISTOPHER SHORE RAOUL G. CANTERO WHITE & CASE LLP COUNSEL OF RECORD 1155 AVENUE OF THE AMERICAS THOMAS E LAURIA NEW YORK, NY 10036-2787 JOHN K. CUNNINGHAM TELEPHONE: (212) 819-8200 DAVID P. DRAIGH FACSIMILE: (212) 354-8113 RICHARD S. KEBRDLE COUNSEL FOR THE PETITIONERS WHITE & CASELLP WACHOVIA FINANCIAL CENTER 200 SOUTH BISCAYNE BLVD., SUITE 4900 MIAMI, FLORIDA 33131-2352 TELEPHONE: (305) 371-2700 FACSIMILE: (305) 358-5744 COUNSEL FOR THE PETITIONERS —— eeeEeEeE—e—e——————eeeeee—— ee Wit SON-EPES PRINTING CO., INC. — (202) 789-0096 ~ WASHINGTON, D.C. 20002 (1) QUESTIONS PRESENTED This case presents three questions important to the administration of cases under the Bankruptcy Code, the first of which this Court recently granted review to decide but, for procedural reasons, did not do so. See Travelers Indem. Co. v. Bailey, --- U.S. ----, 129 S.Ct. 2195 (2009). In the bankruptcy of Delta Air Lines, Inc., the bankruptcy court modified the obligations owed by one of Delta’s lessors, a non-debtor, to its non-debtor bondholders, and enjoined those bondholders from filing any claims against that lessor, even though the claims would have no direct impact on Delta’s estate. The lower appellate courts not only implicitly accepted this result, but refused on “equitable” grounds to review that decision. The questions presented, therefore, are: (1) Whether the Bankruptcy Code grants bankruptcy courts jurisdiction to permanently release non-debtors from claims of other non-debtors that have no impact on the res of a debtor’s estate? (2) Whether courts may use the judge-made doctrine of “equitable mootness” to deny Article III review of a bankruptcy decision even though a case or controversy remains, solely because any remedy fashioned on appeal would be, in the court’s judgment, inequitable? (3) Whether the Bankruptcy Code grants bankruptcy courts jurisdiction to restructure and modify bond debt owed by a non-debtor to other non-debtors, which has no impact on the res of a chapter 11 debtor’s estate? (11) PARTIES TO THE PROCEEDING BELOW The case caption contains the names of all parties who were parties in the court of appeals. CORPORATE DISCLOSURE STATEMENT Pursuant to Rule 29.6 of this Court’s Rules, petitioners state as follows: The Ad Hoc Committee of Kenton County Bondholders (the “Kenton County Bondholders Committee”) 1s a private non-governmental party and hereby certifies that there are no corporate parents, affiliates and/or subsidiaries of said committee. The members of the Kenton County Bondholders Committee are as follows: (1) Perella Weinberg Partners Xcrion Master Fund Ltd. (f/k/a Xerion Partners Il Master Fund Limited) is a Bermuda corporation, which has no corporate parent and whose affiliates and/or subsidiaries are Perella Weinberg Partners Xerion Offshore Fund Ltd. (f/k/a Xerion Partners II International Limited), Peret@ggWeinberg Partners Xerion Fund LP (f/k/a Xerion Partners II L.P.), and Perella Weinberg Partners Xerion Capital LP (f/k/a Xerion Capital Partners LLC); no publicly held corporation holds 10% or more of its equity interests; (11) Bergen Capital, a division of Scott and Stringfellow, is a Virginia corporation, whose corporate parent is BB&T Corporation and which has no affiltates and/or subsidiaries; no publicly held corporation holds 10% or more of its equity interests; (i) United Equities Company LLC 1s a New York limited hability company, whose managing member 1s Moses Marx and which has no corporate parent, affiliates and/or (ill) subsidiaries; no publicly held corporation holds 10% or mire of its equity interests; (iv) RSA, LLC 1s an Ohio limited lability company, whose managing member is Murray Sinclair, Jr. and which has no corporate parent, affiliates and/or subsidiaries; no publicly held corporation holds 10% or more of its equity interests; (v) RBS Capital Ltd. is a Florida limited partnership, whose sole general partner is RBS Investment Management Inc. and sole limited partner 1s Roger Smith; no publicly held corporation holds 10% or more of its equity interests; (vi) Carty & Co. 1s a Tennessee corporation, whose corporate parent ig Carty Financial, Inc. and which has no affiliates and/or subsidiaries; no publicly held corporation holds 10% or more of its equity interests; and (vit) Duncan-Williams, Inc. 1s a Tennessee corporation, whose corporate parent is Williams holding company and which has no affiliates and/or subsidiaries; no publicly held corporation holds 10% or more of its equity interests. (iv) TABLE OF CONTENTS Page COR RSs ERIM FRE EOE cli casccccnadeddodecdnscancdecaccedacens ree he i PARTIES TO THE PROCEEDINGS BELOW....................... il CORPORATE DISCLOSURE STATEMENT. eo ee ee. RES Ey ye kg | + earn Vil) Cree ee He I sg cc facebook co sdcuueananseuiveusdaccdiveccies¥cisaiahs | Pe ee FI ick ck snk ce nectsaistedesiacds See aaa eee eee 2 CONSTITUTIONAL AND STATUTORY Pe ee re EI Gs, UI vv ncscncccecasccecsocsnsccscnscvesccesssess 2 ee Fa ee Be re iso ccd neu nn vec vccevccoccdvhseaccuvcccuencens 2 REASONS FOR GRANTING THE PETITION .................... & I. THE COURT SHOULD GRANT REVIEW TO RESOLVE A CONFLICT AMONG THE CIRCUITS AS TO WHETHER THE BANKRUPTCY CODE AUTHORIZES BANKRUPTCY COURTS To RELEASE NON-DEBTORS FROM LIABILITY...........cceceeceeee & A. THE CIRCUIT COURTS, CONSTRUING THE SAME PROVISIONS OF THE BANKRUPTCY CODE, ARE DIVIDED OVER WHETHER THEY AUTHORIZE A BANKRUPTCY COURT TO BREE SE Pe Fe oso aecn ood cco vcodevancccrecksavencccchs | | 1 1. The Ninth And Tenth Circuits Hold Phat, kxcept Where The Code Expressly Authorizes Non-Debtoi Releases, Section 524(¢) Prohibits Bankruptcy Courts From Discharging The Liabilities Of Non-Debtors....... RPO ARCA O Ns hae POP ONT ry IT. B. (Vv) hI Other Circuits Have Held That The Bankruptcy Code Authorizcs Non- Debtor Releases Under Certain SIE 1. >a vausodacdohyccemigusneveceottionen 13 THE COURT SHOULD GRANT REVIEW BECAUSE THE ISSUE IS CRUCIAL TO THE REORGANIZATION OF BUSINESSES UNDER Ee Figen ck ceca nenctecxsdecdaadasncnsorserics 1S THE COURT SHOULD GRANT REVIEW TO DECIDE WHETHER, APPLYING THE JUDGE- MADE DOCTRINE OF EQUITABLE MOOTNESS, ARTICLE II] JUDGES MAY DECLINE TO REVIEW BANKRUPTCY APPEALS THAT ARE NOT CONSTITUTIONALLY MOOT...............0.cccccececceceececceececeess 17 EQUITABLE MOOTNESS EXPANDS’ THE DOCTRINE OF CONSTITUTIONAL MOOTNESS TO PERMIT ARTICLE II] COURTS TO DECLINE TO HEAR ACTIVE CASES AND Ree oso a ce pnans dena daneyieeaeehcesear es | 7 THE DOCTRINE OF EQUITABLE MOOTNESS CONFLICTS WITH THIS COURT’S JURISPRUDENCE AND WITH THI CONSTITUTIONAL REQUIREMENT THAT ARTICLE IIL COURTS DECIDE CASES OR Be iy ea tl) SD sanded ceied are aa oe THE DOCTRINE OF EQUITABLE MOOTNESS, AS APPLIED, VIOLATES THE CONSTITUTION’S SEPARATION OF POWERS CLAUSE...............c00 tI J (v1) [1]. THE COURT SHOULD GRANT REVIEW TO DETERMINE WHETHER THE BANKRUPTCY COD! PROVIDES BANKRUPTCY COURTS JURISDICTION TO RESTRUCTURE THE DEBT OF A _ NON- I er ree cadeuevuesGrudssadeerectissepeneania d 7 A. THE BANKRUPTCY COURTS’ “RELATED TO” ee eg ee RRL by |: err B. THIS CASE PROVIDES AN OPPORTUNITY TO CLARIFY THAT “RELATED TO” JURISDICTION DOES NoT GIVE BANKRUPTCY COURTS THE POWER TO RESTRUCTURE THE DEBTS OF NON-DEBTORS, WHERE THE DEBT HAS No IMPACT ON THE RES OF A DEBTOR’S ESTATE..........29 CONCLUSION ..... SUR Ea heh MERA Ree a eee 32 APPENDIX A: Summary Order of the United States Court of PDCRTS TOT TIS GOCONG CALCUIE .....00:0500ssersverssersseseeessenes la APPENDIX B: Order of the United States District Court for the Southern District of New York Opinion and Order..... Diguadante Tedskaiskey at ceannadvt can iaaniiwee .. 7a Judgment BEET ase ca ca tysuasbuaeaiansecdsevanecpceneniataeee 30a APPENDIX C: Order of the United States Bankruptcy Court for the Southern District of New York Granting Rule 9019 Motion and Approving Settlement Decision......... = Pate a Oe EE NES, 8 SA aE ARES A SF east Ma Ds ee Exhibit A: Trust Indenture 67a Exhiondt @: Lease Agrcement. ...........0..00.005 .... 3208 Exhibit C: Guaranty.......... rea ee vee ae (V11) APPENDIX D: Order of the United States Court of Appeals for the Second Circuit Denying Rehearing En Banc 43 1a APPENDIX E: Bench Ruling of United States District Court for the Southern District of New York Denying Stay CE PIRI SEED aise oicesensscesisevscegeisentanionivein 433a APPENDIX F: Order of the United States Bankruptcy Court for the Southern District of New York Denying Stay I Co ne ee eee an ae .... 444a Bench Ruling (Transcript Excerpt)................... ..... 4464 APPENDIX G: Constitutional and Statutory Provisions U.S. CONST. art. I, § 8, cl. 1, 4.... | iene See Rae Ms MU ic OE Bin Cbs Bean sixsceeccnscicesscasahenssnenens 454a LBS Toe g | . Seer as SNAP A AANONI AS 455a BS Mr eietsss OF Pe sacenvissnesscsesicns .457a eee i UI hs ocd cscs cen Veasoun ven uaweieuiaesdbaxsiies 482a Fae es Oe FI chncosackcacvcesenanis ones .... 485a Be Wh UE vasrceciennesas BAS | ere 488a 28 U.S.C. § 158....... caviiéusauterievnises ae 28 U.S.C. § 1334..... | SEPA AR? a 497a APPENDIX H: Settlement Agreement ais ...499a (Vili) FABLE OF AUTHORITIES Page(s) CASES 4CC Bondholder Group v. Adelphia Commc’ns Corp. (In re Adelphia Commc’ns Corp.), 361 B.R. 337 (S.D.N.Y. 2007).. saspaecawaas artes wie fetna Cas. & Sur. Co. v. LTV Steel Co. (In re Chateaugay Corp.), 94 F.3d 772 (2d Cir. 1996) 19 Airadigm Commce'ns, Inc. v. FCC (In re Airadigm Comme 'ns, Inc.), 519 F.3d 640 (7th Cir. 2008) 3 4m. Hardwoods, Inc. v. Deutsche Credit Corp. (In re Am. Hardwoods, Inc.), 885 F.2d 621 (9th Cir. L989) Sinisa hpaenaaaianss ine en taeduetavnnvecuadixcensis 2 Bd. of Governors, FRS \ Vf orp Fin., Inc., 502 U.S. 32 (1991)... sear ata taoatecsateee sna 27] Brady v. UBS Fin. Servs., Inc., 538 F.3d 1319 (10th Cir. 2008)...... PILE PRS DRT alee 3 Case v. Los Angeles Lumber Prods. Co., 308 U.S U0) 4. oe inter’ sae eh SOIR 15 Celotex Corp. v. Edwards, 514 U.S. 300 (1995).......10, 27-28 Cent. Va. Cmtyv. Coll. v. Katz, 546 U.S. 356 (2006) 7 Cent. Vt. Pub. Sern Corp. \ Ilerbert, 341 F.3d 186 (2d Cir. 2003)... ve 7 Church of Scientology of Cal. v. United States, 506 52 a2. 4 Sarre 20, 21 Class Five Nev. Claimants v. Dow Corning Corp (In re Dow Corning Corp.), 280 F.3d 648 (6th ( ir.) 14 (1X) rABLE OF AUTHORITIES—Continued Colo. River Water Conservation Dist. v. United States, 424 U.S. 800 ( J | ae Country Squire Assocs. of Carle Place, L.P. \ Rochester Comm. Sav. Bank (Un re Countr) Squire Assocs. of Carle Place, L.P.), 203 B.R 182 (B.A.P. 20 a eisai svcescecee: Curreys of Neb., Inc. v. United Producers, Inc. (In re United Producers, Inc.), 526 F.3d 942 (6th Cir, 2008) oes Deutsche Bank AG, London Branch v, Metromedia Fiber Network, Inc. (In re Metromedia Fiber Network. [nc.), 416 F.3d 136 (2d Cir. 2005) Feld v. Zale Corp. (In re Zale Corp.), 62 k.3d 746 (Sth Cor, UPR acerca eas First Union Real Estate Equity & Mortgage Invs. \ Club Assocs. (In re Club Assocs.), 956 F.2d LOGS Ch LOR Car eaters ctssccnsscsesess. Frito-Lay, Inc. v. LTV Steel Co. (In re Chateaugay Corp.), 10 F.3d 944 (2d Cir. 1993) Gillman v. Cont'l Airlines Un re Cont’'l Airlines), 203 F.3d 203 (3d Cir. 2000). Harman v. Levin, 772 F.2d 1150 (4th Cir. 1985) Hlirschfeld v. Bd. of Elections, 984 F.2d 35 (2d Cit 1992). In re Bd. of Dirs. of Multicanal S.A., 307 B.R 384 (Bankr. S.D.N.Y. 2004) Page(s) . 23 20 14 2s 10, 15 20 19.90 14 26 23 i % FABLE OF AUTHORITIES—Continued Page(s) In re Chrysler LLC, No. 09-50002 (Bankr. S.D.N.Y filed Apr. 30, 2009) In re Combustion Eng’'g, 391 F.3d 190 (3d Cu 2005) 28 In re Cont l Airlines, 91 F.3d 553 (3d Cir. 1996) 19, 21 In re Farrell Lines, Inc., 761 F.2d 796 (D.C. Ci 1985) 24 In re Gen. Motors Corp., No. 09-50026 (Bank: S.D.N-Y. filed Jun. 1, 2009) | In re GWI, 230 F.3d 788 (Sth Cir. 2000) 20 In re Lehman Bros. Holdings, Inc., No. O8-13555 (Bankr. S.D.N.Y. filed Sept. 15, 2008) L/ In re UNR Indus., Inc., 20 F.3d 766 (7th Cir. 1994) 18, 20. 22 In re Wash. Mutual, Inc., No. 08-12229 (Bankr. D Del. filed Sept. 26, 2008) Landsing Diversified Props.-Il v. First Nat'l Bank & Trust Co. of Tulsa (In re W. Real Estate Fund Inc.) 922 F.2d 592 (1Oth Cir. 1990) 2-13 Leatherman larrant Counn Varcotl [Intelligence & Coordination Unit, 507 U.S. 163 (1993) MAC Panel Co. v. Va. Panel Corp., 283 F.3d 62: (4th Cir. 2002) () Venard-Sanford v. Mabey (In re A.H. Robins Co SSO F.2d 694 (4th Cir. 1989) 14 (X1) LABLE OF AU THORITIES—Continued Page(s) Metro Prop. Mgmt. Co. v. Info. Dialogues, Inc., (In re Info. Dialogues, Inc.), 662 F.2d 475 (8th Cir. FUMED cacabadecaovsursdhnvasesk: ‘suadieendeseeeldneauaaccaensesiael ae Mills v. Green, 159 U.S. 651 (1895) 18, 26 Munford v. Munford, Inc. (In re Munford, Inc.), 97 F.3d 449 (11th Cir. 1996)....0000.00..0. spasesposeebissnesseebocses 14 North Carolina v. Rice, 404 U.S. 244 (1971) ...... 18 N. Pipeline Constr. Co. v. Marathon Pipe Line Co.., Ae Ss re ED ciacenchancpricasneiaumanyseusenacvunasegssnuciax ees ae Norwest Bank Worthington v. Ahlers, 485 U.S. 197 DUET decade vateecdenentauasindevsdentedanssonessJecerancctants ‘nen Oy te ee Official Comm. of Unsecured Creditors of LTV Aerospace & Def. Co. v. Official Comm. of Unsecured Creditors of LTV Steel Co. (In re Chateaugay Corp.), 988 F.2d 322 (2d Cir. 1993) Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984) 27, 28, 29 Resorts Int'l v. Lowenschuss (In re Lowenschuss). 67 F.3d 1394 (9th Cir. 1995)..............ccccceccsceee. eee ee |? Rochman v. Ne. Utils. Co. dn re Pub. Serv. Co.). 963 F.20 469 Cist Car. 1992)..........ccccccecccccccscsccccccssscsccce AY Tompkins v. Frey (In re Bel Air Assocs.), 706 ¥.2d Pere Oe a OR nook ign sc sc detede oueeuaabanl NEN Travelers Cas. & Sur. Co. v. Chubh Indem. Ins. Co (In re Johns-Manville Corp.), 517 &.3d 52, 66 (2d Cir. 2008) a aa (X11) FABLE OF AUTHORITIES—Continued Pavel >) Travelers Indem. Co. v. Bailey. --- U.S. ----, 129 S.Ct. 2195 (2009) (1).9. 10. 11. 28 Trone v. Roberts Farms, Inc. (In re Roberts Farms, Inc.), 652 F.2d 793 (9th Cir. 1981) 18-19, 22 FEDERAL: STATUTES, RULES, REGULATIONS, CONSTITUTIONAL PROVISIONS Bankruptcy Amendments Federal Judgeship Act of 1984. Pub. L. No. 98-353. 98 Stat. 333 25. 26 Bankruptcy Reform Act of 1994, Pub. L. No. 103 394, 108 Stat. 4106 |? 1b US. » 1OS(a) i tis te be 2 S 363(m) ) | § 364(e).... ; 21 § 365 3 » 524 Zz. 90 2a as Boe 2 tO § 1123(b) 13,14 Trust Indenture Act, 15 U.S.« S 77bbb | S 77ppp 40) 28 U.S.C § 15] 25 Q 157 9 6 2 Q 158, ; 2. 1 1 2] ie S 1254(1) ? ) 1334 ») 95.97 FED. R. BANKR. P. 8005 5 (xii) TABLE OF AUTHORITIES—Continued Page(s) Pope a OO, ois coe ik sevsoavasnnssuravessnvaveriorsaleveciaent ee Fs ee ages cepsicntcaivas cis. thapriavesveeay sees ig haere 14 Fen, R. Civ. F. 25c}....... ee 3 | Fe ID, PRI Be, I oinois cesescsdcovccnesvuscavennctencat Zi. £2 LFS. CSE. FRCUICWe TEE Bh, GGe LE ecceics cscovene conte cen sevesenverccces 2, 18 OTHER AUTHORITIES 130 CONG. REC. S8891 (June 29, 1984).....................cecsesees, 26 Frank R. Kennedy & Gerald K. Smith, Postconfirmation Issues: The Effects of Confirmation and Postconfirmation Proceedings, 44 S.C. L. REV. 621 (1993) ..........scccseessee 29 Jill E. Fisch, Rewriting History: The Propriety of Eradicating Prior Decisional Law Through Settlement and Vacatur, 76 CORNELL L. REV 989 (1991)... ORR per AN SEIN Bin, fie Io RAR EP .15-16 Jonathan C. Lipson, Debt and Democracy: Towards a Constitutional Theory of Bankruptcy, 83 NOTRE DAME L. REV. 605 (2008) ..................cccssseeseeeees 28 Joshua M. Silverstein, Hiding in Plain View. A Nezlected Supreme Court Dectsion Resolves the Debate Over Non-Debtor Releases in Chapter Il Reorganizations, 23 EMORY PURPIGDE, TIE F, BP Ce ais sstaccaveer sata wrassancepeavescieecerms ao lynn M. LoPucki & William C. Whitford, Corporate Governance in the Bankruptcy Reorganization of Large, Publicly Held Companies, 141 U. PA. L. REV. 669 (1993) ee ke (xiv) TABLE OF AUTHORITIES—Continued Ralph Brubaker, Bankruptcy Injunctions and Complex Litigation: A Critical Reappraisal of Non-Debtor Releases in Chapter }] Reorganizations, 1997 U. ILL. L. REV. 959 1 if ee nae ene en ene Ee Ralph Brubaker, On the Nature of Federal Bankruptcy Jurisdiction: A General Statutory and Constitutional Theory, 41 WM. & MARY L. NI OIE is taicvere sa ceuponavirsutiamnas cera ietiale ere dea Richard F. Broude, REORGANIZATIONS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE (1992)... Thomas E. Patterson & Brendt C. Butler, Do Bankruptcy Courts Have the Power to Issue Releases and Permanent Injunctions with Respect to Non-Debtor Parties in Chapter 11? Depends on Which Court You Ask, SMO14 PURE Pa OES CEH dors ras voce env ersacereancestanentoes Page(s) ee 29 23 ereeeece io » IN THE Supreme Court of the Anited States No. 08- AD Hoc COMMITTEE OF KENTON COUNTY BONDHOLDERS. Petitioners. DELTA AIR LINES, INC., KENTON COUNTY AIRPORT BOARD, UMB BANK, N.A.. AS TRUSTEE, POST EFFECTIVE DATE COMMITTEE AS SUCCESSOR TO THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF DELTA AIR LINES, INC., Respondents. ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT PETITION FOR A WRIT OF CERTIORARI The Petitioners, members of the Kenton County Bondholders Committee, respectfully petition for a writ of certiorari to review the judgment of the United States Court of Appeals for the Second Circuit in this case. OPINIONS BELOW The opinion of the court of appeals (App. la-6a) 1s reported at 309 F. App’x 455. The opinion of the district + court affirming the bankruptcy court’s order (App. 7a-29a) is reported at 374 B.R. 516. The bankruptcy court’s order (App. 32a-58a) is reported at 370 B.R. 537. JURISDICTION The judgment of the court of appeals was entered on February 9, 2009. (App. la.) A petition for rehearing en banc was denied on April 23, 2009. (App. 431a-432a.) This Court’s jurisdiction is invoked under 28 U.S.C. § 1254(1). CONSTITUTIONAL AND STATUTORY PROVISIONS INVOLVED The complete text of U.S. CONST. art. I, § 8, cl. 4, U.S. Const. art. III, § 2, cl. 1, 11 U.S.C. §§ 105, 524, and 28 U.S.C. §§ 157, 158, 1334 is set forth in the Appendix. (App. 453a-498a.) STATEMENT OF THE CASE [he Petitioners, all of them non-debtors, are a group of holders (or investment advisors to holders) of about $50 million of standard-form revenue collection municipal bonds (the “Bonds’’) issued by the Kenton County Airport Board (“KCAB”), also a non-debtor. KCAB issued the Bonds in 1992 to finance the construction of Terminal 3 (the Terminal’) at the Cincinnati/Northern Kentucky Airport. (App. 4a.) The Bonds were issued under an indenture govemed by Kentucky law (the “Indenture”’) with KCAB as issucr and UMB Bank, N.A. (the successor of Star Bank, N.A.) as trustee (the “Trustee”). (App. 32a-33a.) The Petitioners own more than 10% of the total amount of the Bonds issued. The debtor, Delta Air Lines, Inc. (““Delta,” and with tts affiliated debtors under Case No. 05-17923 (ASH) (Bankr 3 S.D.N.Y.), the “Debtors’’), and KCAB entered into several agreements providing that Delta would lease the Terminal from KCAB (the “Lease’), maintain the Terminal, and yvuarantee payments due under the Bonds (the “Guaranty’”’). (App. 8a-9a; 320a-421a; 422a-423a.) Under the Lease, KCAB assigned all payments received from Delta to the Trustee, who would then pay the principal and interest owing under the Bonds. (App. 8a; 33a.) Delta was not party to the Indenture, and although its payment obligations under the Bonds were non-recourse, KCAB remained obligated under the Bonds (the “Bondholders’’). (App. 8a; 135a; 195a-197a.) Notably, if Delta failed to occupy any part of the Terminal, the Lease required KCAB to use its best efforts to re-let the unused portion (App. 394a-398a), and the Indenture provides that the proceeds of any such re-letting would be available to pay the Bondholders (App. 98a-99a). Thus, if Delta stopped paying rent for the Terminal for any reason, KCAB was obligated to find new tenants for the Terminal, and the rental payments from those new tenants would be used to pay the Bondholders until they were paid in full. In September 2005, the Debtors filed petitions under Title il of the United States Code (the “Bankruptcy Code’’) in the United States Bankruptcy Court for the Southern District of New York. (App. 4a-9a.) In April 2006, the Debtors sought to reject the Lease under section 365 of the Bankruptcy Code. (App. 9a.) The Trustee objected, joined by KCAB, but at the direction of a majority of Bondholders (not including the Petitioners) ultimately settled with De'ta and KCAB, subject to bankruptcy court approval (the Settlement’). (App. 33a-34a.) The Settlement canceled the Lease and Indenture and provided that (1) Delta and KCAB would enter into a new lease of the Terminal; and (2) purportedly in full satisfaction of the Bonds, the Bondholders would receive a note issued by De/ta and an unsecured claim 4 against Delta (entitling Bondholders to vote on the Plan) for less than the balance owed under the Bonds. (App. 10a; 33a.) The Settlement also released and fully immunized KCAB and the Trustee from any liability to Bondholders for their breach of the Indenture (including liability for granting themselves releases) or for authorizing a blanket irjunction enjoining all Bondholder claims against them. (App. 10a- lla.) Further, if any part of the Settlement was vacated or reversed on appeal, the parties had the option to void the Settlement. (App. 518a-519a.) The Bondholders could not opt out of the Settlement. (App. 65a.) Moreover, the Debtors’ disclosure statement (the “Disclosure Statement”), which was approved on February 7, 2007 and then distributed to Delta’s stakeholders in connection with soliciting votes on Delta’s proposed plan of reorganization (the “Plan”’), did not describe the Settlement’s terms. (App. I la.) Tae Petitioners objected to the Settlement. Nevertheless, on April 24 and 25, 2007, respectively, the bankruptcy court entered an order and decision (collectively, the “Settlement Order’) authorizing the Settlement. (App. Ila.) On those same days, the bankruptcy court held a hearing and issued its order confirming the Plan. (App. 12a.) Among other things, the Setthement Order enjoined the Bondholders (including the Petitioners) from filing any claims they had not only against Delta (the debtor), but against the Trustee and KCAB as well. (App. 63a.) The Petitioners appealed the Settlement Order to the United States District Court for the Southern District of New York pursuant to 28 U.S.C. § 158, and sought a stay from the bankruptcy court pending appeal. (App. 12a.) The bankruptey court acknowledged that several issues including whether the Petitioners held certain claims against » the settling parties—remained unadjudicated, but found that the Settlement resolved them and denied the stay. (App. 444a-44Sa.) On April 27, 2007, Petitioners sought a stay in the district court, which was denied at a hearing held on May 2. (App. 433a-443a.) Although the Petitioners began preparing an appeal of that denial to the Second Circuit, the Respondents stipulated that the failure to request a stay from the court of appeals was not grounds for mootness. (App. 19a.) On May 3, 2007, Delta began making distributions (App. 12a.) On August 27 and 28, 2007, the district court entered an opinion and order finding that the Petitioners’ appeal was equitably moot and affirming the Settlement Order. (App. 29a.) Pursuant to 28 U.S.C. § 1291, the Petittoners appealed the decision. After oral arguinent, on February 9, 2009, the Court of Appeals for the Second Circuit affirmed. (App. La- 6a.) On April 23, the court denied rehearing en banc. (App. 43 1a-432a.) In approving the Settlement, the lower courts rejected the Petitioners’ argument that the bankruptcy court lacked jurisdiction to release KCAB and the Trustee from claims of the Petitioners that were not derivative of, and could not affect, the Debtors’ bankruptcy estate. The bankruptcy court entered the releases because they were “extremely narrow in scope” and because all parties involved, including Delta and the Bondholders, “received substantial consideration.” (App. S7a.) The district court agreed, finding further that the releases were proper because they “comprised valuable consideration for KCAB and the Bond Trustee tn return for their agreement to give up indemnification rights against Delta under section 6.08 of the Lease.” (App. 22a.) Significantly, the lower courts approved the releases even though they extended to claims that have no impact on 6 Delta’s bankruptcy estate (even under the Lease’s indemnity provision), including claims against the Trustee and KCAB based on their own wrongdoing violations of various obligations to the Bondholders under the Indenture and the Lease. (App. 63a.) The district court dismissed the Petitioners’ appeal as equitably moot because the Plan had been “substantially consummated” and because a “comprehensive change in circumstances” had occurred. (App. 16a.) Among other reasons, the court found that ordering relief for the Petitioners would be inequitable because ‘‘a vacatur of the Settlement Order, even if it were possible, would . . . 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.” (App. 19a.) The Second Circuit affirmed, holding that the district court “did not err—much less abuse its discretion.” (App Sa.) Neither court, however, found that the appeal was constitutionally moot because no case or controversy existed The lower courts also found that the bankruptcy court had authority to modify and discharge the debt obligations of a non-debtor, KCAB, under the Indenture even though no debtor was a party to the Indenture. The bankruptcy cour found that it had jurisdiction to modify “the contractual relationship between KCAEB and the Bond Trustee under the Indenture” because “[b]Joth KCAB and the Bond Trustee are direct creditors of Delta [and] . . . [a]ll three of these agreements—the Lease, the Indenture and the Guaranty—are inextricably related to each other.” (App. 53a.) In rejecting the Petitioners’ argument that Section 9.06 of the Indenture prohibited the Trustee from compromising their individual rights to principal and interest (App. 46a-47a), the bankruptcy court found that it had jurisdiction to restructure 7 / KCAB’s Bond obligations because “the sole source of payment of the Bonds” was the Leasc, and because the Bankruptcy Code “overrides private agreements” (App. 47a) Moreover, although it acknowledged Indenture Section 9.06 (requiring the consent of a// bondholders to change the principal and interest under the bonds), the bankruptcy court held that the Trustee had the power to enter into the Settlement because (1) it had the right under the Indenture to litigate and settle on behalf of all Bondholders (App. 57a- 58a); and (11) a majority of Bondholders voted in favor of the Plan, under which they received distributions from the Settlement (App. 58a). Similarly, the district court found it had “related to” jurisdiction under the Bankruptcy Code allowing it to restructure the debt of non-debtors under the Indenture and to bind non-debtors to that restructured debt because the settled litigation had “more than a ‘conceivable effect’ on the bankruptcy estate.” (App. 2la.) Further, the district court found that, because the Indenture was “inextricably related” to the Lease and Guaranty, “the court could not resolve the creditor claims of KCAB and the Bondholders against Delta without a corresponding resolution of the relationship between KCAB and the Bondholders.” (App. 21a.) Thus, “Delta’s bankruptcy . . . also compromised the mghts to payment under the Bonds and therefore overrides” Indenture Section 9.06. (App. 26a.) The district court agreed that the Trustee’s right to htigate and scttle and the Plan vote overrode individual bondholder rights under Section 9.06. (App. 26a.) Although finding that KCAB did not have re-let obligations to the Bondholders, the district court found that the Indenture “does appear to provide that money produced through re-letting the facilities should be applied toward the payment of the Bonds.” (App. 28a.) ) Because it found the appeal equitably moot, the Second Circuit did not reach the merits of the Petitioners’ appeal, except to say that 1t would have affirmed the bankruptcy court’s restructuring of KCAB’s Indenture obligations for “substantially the reasons stated in the Bankruptcy Court’s thorough and well-reasoned decision.” (App. 6a.) REASONS FOR GRANTING THE PETITION As explained in the sections that follow, this Court should grant review: (I) to reconcile conflicting circuit decisions and establish the limit of a bankruptcy court’s subject matter jurisdiction to alter private rights of non- debtors that are not derivative of, or otherwise directly related to, the debtor’s rights or the res of the debtor’s bankruptcy estate; (II) to reaffirm the constitutional necessity for Article III courts to review bankruptcy court decisions absent constitutional mootness; and (III) to decide whether the Bankruptcy Code grants bankruptcy courts the power to restructure the debt of non-debtors. If left unreviewed, the decisions below will create substantial uncertainty over the administration of bankruptcy cases in the United States at a time when, given the current global tinancial crisis, certainty under this Nation’s insolvency regime is most vital. [. THE COURT SHOULD GRANT REVIEW TO RESOLVE A CONFLICT AMONG THE CIRCUITS AS TO WHETHER THE BANKRUPTCY CODE AUTHORIZES BANKRUPTCY COURTS TO RELEASE NON-DEBTORS FROM LIABILITY Chapter |] of the United States Bankruptcy Code 1s designed to help debtors reorganize their debt. To that end, if debtors comply with the plan confirmation requirements prescribed in the Bankruptcy Code, bankruptcy courts routinely release debtors of further liability to their creditors. The question presented here, and on which the courts of 9 appeal disagree, is whether a bankruptcy court may also permanently release the liability of non-debtors to other non debtors—that is, parties who have not sought rehef under the Bankruptcy Code. This Court has never decided that issue. Last Term, this Court was confronted with the issue, but ultimately did not decide it. See Travelers Cas. & Sur. Co. v. Chubh Indem Ins. Co. (In re Johns-Manville Corp.), 517 F.3d 52, 66 (2d Cir. 2008), rev'd on other grounds, Travelers Indem. Co. v. Bailey, --- U.S. ----, 129 S.Ct. 2195 (2009). This case presents a prime opportunity to resolve the inter-circult conflict and remove the uncertainty surrounding bankruptcy courts’ authority to grant such relief, Whether the Bankruptcy Code authorizes a bankruptcy court to release non-debtors will become increasingly important as bankruptcy filings increase, and will be especially acute when large corporations seek chapter |! relief and potential claims by non-debtors against other non- debtors present an obstacle to a successful reorganization. As this Court has recognized, “[b]ankruptcy jurisdiction, at its core, is in rem.” Cent. Va, Cmty. Coll. v. Katz, 546 U.S. 356, 362 (2006). Congress has provided bankruptcy courts jurisdiction to restructure bankruptcy petitioners’ debts, giving them original jurisdiction not only over the petitioners’ property and matters arising under the Bankruptcy Code or tn a bankruptcy case, but also over matters “related to cases under title 11." 28 U.S.C. § 1334(b); see also 28 U.S.C. § 157(a)-(c) (providing that bankruptcy courts may decide “core” proceedings under the Bankruptcy Code and may hear and determine “non-core” proceedings “otherwise related to” a case under the Bankruptcy Code). But this jurisdiction “is grounded in, and limited by, statute[,]” and therefore “‘related to” jurisdiction LU cannot be limitless.” Celotex Corp. v. Edwards, 514 U.S 300, 307-08 (1995). “|W Ihatever equitable powers remain in the bankruptcy courts must and can only be exercised within the confines of the Bankruptcy Code.” Norwest Bank Worthineton v. Ahlers, 485 U.S. 197, 206 (1988) Within this statutory framework, the Second Circuit found that the bankruptcy court did not have subject matte: jurisdiction to release a non-debtor by enjoining claims that do not “directly affect the res of the bankruptcy estate.’ Travelers, 517 F.3d at 66, rev'd on other grounds, 129 S.Ct 2195; see also Feld v. Zale Corp. (In re Zale Corp.), 62 F.3d 746, 760 (Sth Cir. 1995) (same). This Court granted certiorari in /ravelers. Ultimately however, it did not decide the issue because it was not raised on direct appeal of the order approving the non-debtor release, but only twenty years later by collateral attack. See Travelers, 129 S.Ct. at 2206 n.7. Noting that its holding was “narrow,” this Court stated that “[w]e do not resolve whether a bankruptcy court, in 1986 or today, could properly enjoin claims against nondebtor insurers that are not derivative of the debtor’s wrongdoing.” /d. at 2207. In the same discussion, the Court observed that, by enacting section $24(g), “Congress explicitly authorized bankruptcy courts, tn some circumstances,” to impose such injunctions, and that, “lon direct review today,” such an injunction “would have to be measured against the requirements of § 524 (to bewin with, at least).” ld at 2207 (citing Il U.S.C. § $24(2)(4)(A)(Oi1)). The Court also acknowledged thai, if there had been a direct appeal of the previous order, “the Court of Appeals would indeed have been duty bound to consider! Whether the Bankruptcy Court had acted beyond tts subject matter jurisdiction.” /d. at 2203 L | Such an appeal ts now before the Court [his case presents the same issue, on direct appeal, that was _ raised in Travelers—whether the Bankruptcy Code grants a bankruptcy court jurisdiction to release non-debtors from claims that would not affect the res of a chapter || debtor's cstatc A. THE CIRCUIT COURTS, CONSTRUING THE SAME PROVISIONS OF THE BANKRUPTCY CODE, AREF DIVIDED OVER WHETHER THEY AUTHORIZE A BANKRUPTCY COURT TO RELEASE NON-DEBTORS Section 524(¢c) of the Bankruptcy Code provides that “discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt.” Some circuits have interpreted that section as prohibiting a bankruptcy court from releasing a non-debtor [hose circuits hold that section 105(a) of the Bankruptcy Code, which provides that a bankruptcy court “may issue any order, process, or judgment that ts necessary or appropriate to carry out the provisions of {the Bankruptcy Code,]” does nor grant authority to release non-debtors. Other circuits, however, have held that under certain circumstances section l\OS(a) does authorize bankruptcy courts to release non- debtors from liability to other non-debtors, and that section $24(¢) does not limit that authority This conflict among the circuits has prompted commentators to note that “[t}he propriety of third-party releases Is thus an issue that cries out for Supreme Court guidance[.]” See Joshua M. Silverstein, Hiding in Plain View, A Neglected Supreme Court Decision Resolves the Debate Over Non-Debtor Releases in Chapter 11 Reorganizations, 23 EMORY BANKR. Dev. J. 13, 19 (2006) 12 1. The Ninth And Tenth Circuits Hold That, Except Where The Code Expressly Authorizes Non-Debtor Releases, Section 524(c) Prohibits Bankruptcy Courts From Discharging The Liabilities Of Non-Debtors Two circuits have held that bankruptcy courts lack jurisdiction to release non-debtors from liability. The Ninth Circuit has held, “without exception, that § 524(e) precludes bankruptcy courts from discharging the liabilities of non- debtors.” Resorts Int'l v. Lowenschuss (In re Lowenschuss), 67 F.3d 1394, 1401 (9th Cir. 1995) (emphasis added), cert. denied, 517 U.S. 1243 (1996). Indeed, the Ninth Circuit has rejected the argument that such authority can be found tn section 105, concluding that “the specific provisions of section 524 displace the court’s equitable powers under section 105 to order the permanent relief sought by [the debtor] where such relief would discharge the liability of a non-debtor. Am. Hardwoods, Inc. v. Deutsche Credit Corp. (In re Am. Hardwoods, Inc.), 885 F.2d 621, 626 (9th Cir. 1989). The court’s conclusion was “buttresse[d]” by the addition of Bankruptcy Code section 524(g) under the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, 108 Stat. 4106, which specifically authorizes the release of non-debtors from liability in asbestos cases. Lowenschuss, 67 F.3d at 1402 n.6. “That Congress provided explicit authority to bankruptcy courts to issue injunctions in favor of the third parties in an extremely limited class of cases reinforces the conclusion that §$ 524(e) denies such authority in other, non-asbestos, cases.” /d The Tenth Circuit, also relying on section 524(¢c), has held that a bankruptey court cannot issue “a permanent injunction that effectively relieves the nondebtor from its own lability to the creditor.” Landsing Diversified Props.-ll 13 v. First Nat'l Bank & Trust Co. of Tulsa (In re W. Real Estate Fund, Inc.), 922 F.2d 592, 601-02 (10th Cir. 1990). Like the Ninth Circuit, the Tenth Circuit has held that “a bankruptcy court’s supplementary equitable powers” under section 105(a) cannot provide an independent basis for releasing non-debtors from claims of other non-debtors, because it would be “inconsistent” with section 524(e). /d. at 601 (“[W]hatever equitable powers remain in the bankruptcy courts must and can only be exercised within the confines of the Bankniptcy Code.” (quoting Ahlers, 485 U.S. at 206)). 2. Other Circuits Have Held That The Bankruptcy Code Authorizes Non-Debtor Releases Under Certain Circumstances In contrast to the Ninth and Tenth Circuits, other circuits have held that a bankruptcy court does have the authority to release non-debtors from liability to other non-debtors, at least under certain circumstances. The Seventh Circuit recently decided that section 524(e) did not bar the bankruptcy court from releasing non-debtors. Airadigm Commce'ns, Inc. v. FCC (In re Altradigm Commce'ns, Inc.), 519 F.3d 640, 656 (7th Cir. 2008). The court held that the bankruptcy court had authority to release non-debtors under section 105(a), as well as section 1123(b)(6), which permits the court to include in a chapter 11 plan “‘any other appropriate provision not inconsistent’” with the Bankruptcy Code. /d. at 657 (quoting 11 U.S.C. § 1123(b)(6)). The court “[held] that this ‘residual authority’ permits the bankruptcy court to reicase third parties from liability to participating creditors if the release is ‘appropriate’ and not inconsistent with any provision of the bankruptcy code.” /d 14 Also relying on sections 105(a) and 1123(b)(6), the Sixth Circuit has held that releases of non-debtors are permissible where certain factors are present. Class Five Nev. Claimants v. Dow Corning Corp. (In re Dow Corning Corp.), 280 F.3d 648, 658 (6th Cir.), cert. denied, 537 U.S. 816 (2002). That court has determined that section 524(e) explains the cffect of a debtor’s discharge under the Bankruptcy Code and “{iJt does not prohibit the release of a non-debtor.” /d. at 657. Similarly, the Second Circuit has decided that a bankruptcy court may release non-debtors upon “finding that truly unusual circumstances render the release terms important to success of the plan...” or “if the affected creditors consent.” Deutsche Bank AG, London Branch vy. Metromedia Fiber Network, Inc. (In re Metromedia Fiber Network, Inc.), 416 F.3d 136, 142, 143 (2d Cir. 2005). Both the Eleventh and the Fourth Circuits have permitted bankruptcy courts to release non-debtors. See Munford v. Munford, Inc. (In re Munford, Inc.), 97 F.3d 449, 455 (llth Cir. 1996) (finding that releases enjoining indemnification and contribution claims against non-debtors were permitted under section 105 and Federal Rule of Civil Procedure 16 where they were integral to the debtor’s settlement with the non-debtor and were fair and equitable); Menard-Sanford v. Mabey (In re A.H. Robins Co.), 880 F.2d 694, 702 (4th Cir.) (allowing permanent non-debtor releases necessary for a debtor’s reorganization where the non- deblors provided consideration to mass tort victims), cert. denied, 493 U.S. 959 (1989). Finally, the Third and Fifth Circuits have stated in dicta that a bankruptcy court may have authority to release non- debtors under certain circumstances. See Gillman v. Cont’l Airlines (In re Cont'l Airlines), 203 F.3d 203, 214 (3d Cir. 2000) (declining to “establish [its] own rule regarding the 5 conditions under which non-debtor releases and permanent injunctions are appropriate or permissible’); Zale, 62 F.3d at 760 (although finding that a bankruptcy court lacked jurisdiction to issue certain permanent non-debtor releases enjoining claims that were not derivative of the debtor’s estate, suggesting that .uch releases—coupled with a channeling injunction—may not violate section 524(e)). B. THE COURT SHOULD GRANT REVIEW BECAUSE THE ISSUE IS CRUCIAL TO THE REORGANIZATION OF BUSINESSES UNDER THE BANKRUPTCY CODE Resolving the issue now squarely before the Court is essential so that businesses reorganizing under chapter | 1— as well as the many non-debtors whose rights may be significantly altered by those reorganizations—understand their respective rights as to non-debtor releases. Fundamental to the chapter 11 restructuring process 1s consensus among the debtor’s stakeholders in formulating a reorganization plan that addresses their divergent interests. See Lynn M. LoPucki & William C. Whitford, Corporate Governance in the Bankruptcy Reorganization of Large, Publicly Held Companies, 141 U. PA. L. REv. 669, 681-82 (1993). In bankruptcy, expeditious settlement is favored over prolonged litigation. See, e.g., Case v. 1s Angeles Lumber Prods. Co., 308 U.S. 106, 130 (1939) (explaining that “{t]here frequently will be situaticas involving conflicting claims to specific assets which may, in the discretion of the court, be more wisely settled by compromise rather than by litigation”). Consequently, settlements will continue to play an important role in resolving chapter 11 cases and successfully reorganizing debtors. An integral component of all settlements 1s the mutual release of claims and potential claims. See Jill E. Fisch, 16 Rewriting Historv: The Propriety of Eradicating Prior Decisional Law Through Settlement and Vacatur, 76 CORNELL L. REV. 589, 610 n.116 (1991) (“The usual settlement agreement provides for a resolution of all pending claims between the parties arising from the subject transaction and includes a release of such claims.”). In a typical two-party, non-bankruptcy dispute, no defendant would settle a claim without obtaining a release to prevent the subsequent assertion of the same claim. In the bankruptcy context, however, where the interests of many differently-situated litigants are implicated, the situation 1s more complex. A debtor, especially in large cases, is often faced with claims by a multitude of creditors. Making peace with them will likely involve one or more settlements approved by the bankruptcy court. Inevitably, non-debtor constituencies will bargain for releases from claims not only from the debtor, but also from other non- debtors. Accordingly, the extent to which a bankruptcy court may approve releases of non-debtor liability without the consent of affected non-debtors is a question of central importance to all complex bankruptcy cases. See Thomas E. Patterson & Brendt C. Butler, Do Bankruptcy Courts Have the Power to Issue Releases and Permanent Injunctions with Respect to Non-Debtor Parties in Chapter 11? Depends on Which Court You Ask, SM0O)4 ALI-ABA 415, 417 (2007) (“Over the last two decades... chapter 1] reorganization plans have increasingly included provisions’ releasing = and/or permanently enjoining claims of creditors or other parties in interest against non-debtor parties such as the debtor's officers, directors, or non-debtor affiltates.’’). Indeed, given the global financial crisis and_ the unprecedented number of significant chapter 11 cases on the 17 horizon, resolution of this question is especially important. See Ralph Brubaker, Bankruptcy Injunctions and Complex Litigation: A Critical Reappraisal of Non-Debtor Releases in Chapter 11 Reorganizations, 1997 U. ILL. L. REv. 959, 965 (1997) (“[T]he bankruptcy court 1s quickly becoming the forum for resolution of many of the largest and most complex mass litigations.”). Over the last year, a number of high- profile, iconic American institutions already have filed chapter | 1 petitions. See, e.g., /n re Gen. Motors Corp., No. 09-50026 (Bankr. S.D.N.Y. filed Jun. 1, 2009); Jn re Chrysler LLC, No. 09-50002 (Bankr. S.D.N.Y. filed Apr. 30, 2009); In re Wash. Mutual, Inc., No. 0$-12229 (Bankr. D. Del. filed Sept. 26, 2008); Jn re Lehman Bros. Holdings, Inc., No. 08-13555 (Bankr. S.D.N.Y. filed Sept. 15, 2008). Il. THE COURT SHOULD GRANT REVIEW TO DECIDE WHETHER, APPLYING THE JUDGE-MADE DOCTRINE OF EQUITABLE MOOTNESS, ARTICLE If] JUDGES MAY DECLINE TO. REVIEW BANKRUPTCY APPEALS THAT ARE Not CONSTITUTIONALLY MOOT The Court should also grant review to determine the existence and scope of the doctrine of “equitable mootness,” which nearly every circuit has adopted. The doctrine serves to deprive parties of their right to Article III review even Where the appealed bankruptcy court orders are not constitutionally moot. No basis for the doctrine exists in either the Constitution or the Bankruptcy Code. A. EQUITABLE MOOTNESS EXPANDS THE DOCTRINE OF CONSTITUTIONAL MOOTNESS TO PERMIT ARTICLE THLE Courts TO DECLINE TO HEAR ACTIVE CASES AND CONTROVERSIES Federal courts have long applied the mootness doctrine to decline to review cases where it is impossible to provide 18 effective relief. See Mills v. Green, 159 U.S. 651, 653 (1895) (finding that federal courts have no authority “to give Opinions upon moot questions or abstract propositions, or to declare principles or rules of law which cannot affect the matter in issue in the case before {them]”). The mootness doctrine is derived from the constitutional directive that federal court review is limited to actual cases or controversies. See Art. III, § 2, cl. 1; see also North Carolina v. Rice, 404 U.S. 244, 246 (1971) (acknowledging the derivation of the doctrine in the case-or-controversy clause). Petitioners do not challenge that doctrine. In the bankruptcy context, however, courts have expanded mootness beyond its constitutional roots by creating a new doctrine of “equitable mootness.” Under this expanded mootness, an Article Ill court may decline to hear an appeal of a bankruptcy court order even though it 1s not constitutionally moot (because some effective relief could be fashioned), on the ground that fashioning any relief on appeal would be inequitable. See, e.g., Jn re UNR Indus., Inc., 20 F.3d 766, 769 (7th Cir. 1994) (“There is a big difference between inability to alter the outcome (real mootness) and unwillingness to alter the outcome (‘equitable mootness’).’’) (emphasis in original), cert. denied, 513 U.S. 999 (1994); Official Comm. of Unsecured Creditors of LTV Aerospace & Def. Co. v. Official Comm. of Unsecured Creditors of LTV Steel Co. (In re Chateaugay Corp.), 988 F.2d 322, 325 (2d Cir. 1993) (“[A]n appeal should also be dismissed as moot when, even though effective relief could conceivably be fashioned, implementation of that” relief would be inequitable.”). Beginning with the Ninth Circuit, a majority of courts of appeals have adopted the doctrine and have used it to decline appellate review of bankruptcy orders. See Trone v. Roberts 19 Farms, Inc. (In re Roberts Farms, Inc.), 652 F.2d 793, 797- 98 (9th Cir. 1981); see also, e.g., In re Cont'l Airlines, 91 F.3d 553, 558-59 (3d Cir. 1996) (en banc), cert. denied, 5\9 U.S. 1057 (1997); Tompkins v. Frey (In re Bel Air Assocs.), 706 F.2d 301, 305 n.10 (10th Cir. 1983); Metro Prop. Mgmt. Co. v. Info. Dialogues, Inc. (In re Info. Dialogues, Inc.), 662 F.2d 475, 476-77 (8th Cir. 1981) (per curiam). The circuits have adopted several different, multi-factor tests for determining whether an appeal is barred by equitable mootness. Each test, however, presumes that a case or controversy still exists because some remedy can be fashioned, but allows the courts discretion to decline Article II] review based on other factors. In the Second Circuit, for cxample, an appeal is presumed to be moot once a confirmed chapter |i plan has been substantially consummated. See Aetna Cas. & Sur Co. v. LTV Steel Co. (In re Chateaugay Corp.), 94 F.3d 772, 77/6 (2d Cir. 1996). That presumption may be rebutted only if several conditions are met: the court can order some effective relief; the relief will not affect the debtor's reemergence as a revitalized entity; the relief will not unravel intricate transactions and create an unmanageable situation for the bankruptcy court; the potentially adversely affected parties have notice and opportunity to participate; and the appellant pursued with due diligence available remedies to obtain a stay. Frito-Lay, Inc. v. LTV Steel Co. (In re Chateaugay Corp.), 10 '.3d 944, 982-53 (2d Cir. 1993) (“Chateaugay IT’). The First Circuit has not articulated its own factors, but has tracked the Chateaugay I// factors in dismissing an appeal as equitably moot. Rochman v. Ne. Utils. Serv. Co. (In re Pub. Serv. Co.), 963 F.2d 469, 471, 476 (Ist Cir. 1992), cert. denied, 506 U.S. GOR (1992). The Seventh Circuit, although rejecting the term “equitable 20 mootness,” has dismissed an appeal based on reasoning sinular to four of the Chateaugay II factors. UNR, 20 F.3d at 769 (finding it “{im]prudent to upset the plan of reorganization at this late date”). Other circuits have adopted substantially similar, multi- factor tests to determine whether to apply cquitable mootness. See, e.g., Curreys of Neb., Inc. v. United Producers, Inc. (In re United Producers, Inc.), 526 F.3d 942, 947-48 (6th Cir. 2008) (adupting a three-prong test); MAC Panel Co. v. Va. Panel Corp., 283 F.3d 622, 625 (4th Cir. 2002) (applying a four-prong test); /n re GWI, 230 F.3d 788, 800 (Sth Cir. 2000) (applying a similar three-prong test); First Union Real Estate Equity & Mortgage Invs. v. Club Assocs. (In re Club Assocs.), 956 F.2d 1065, 1069 n.11 (11th Cir. 1992) (considering a similar set of facts). B. THE DOCTRINE OF EQUITABLE MOOTNESS CONFLICTS WITH THIS COURT’S JURISPRUDENCE AND WITH THE CONSTITUTIONAL REQUIREMENT THAT ARTICLE II] COURTS DECIDE CASES OR CONTROVERSIES This Court has never recognized the judge-made doctrine of equitable mootness. To the contrary, the Court has held that an appeal is moot when “an event occurs while a case 1s pending on appeal that makes it impossible for the court to grant any effectual relief whatever to a prevailing party[.]” Church of Scientology of Cal. v. United States, 506 US. 9, 12 (1992) (internal quotations omitted) (emphasis added). LEven if reversal of an order cannot “return the parties to the sfatus quo ante{,|” an appeal will not be considered constitutionally moot so long as “a court can fashion some form of meaningful relief in circumstances such as these.” /d. at 12-13. 21 — In the bankruptcy context, however, Article III courts have employed the doctrine of equitable mootness to decline to review bankruptcy orders even though some form of meaningful relief can be fashioned. See Cont’l Airlines, 9\ F.3d at 567 (Alito, J., dissenting) (“The majority’s decision in this case creates a bad precedent for our circuit. The majority adopts the curious doctrine of ‘equitable mootness,’ which it interprets as permitting tederal district courts and courts of appeals to refuse to entertain the merits of live bankruptcy appeals over which they indisputably possess statutory jurisdiction and in which they can plainly provide relief.”’). Thus, the doctrine violates this Court’s directive in Church of Scientology that an appeal to an Article II court ts not moot where a “possible remedy” is available. 506 U.S. at 13. Even if the doctrine had some constitutional foundation, no statutory basis exists on which to ground the courts’ expansion of the mootness doctrine. Jurisdictional statutes provide that the district courts and the circuit courts of appeal “shall have jurisdiction” over final orders entered by bankruptcy courts, see 28 U.S.C. § 158(a) & (d); and those courts have a “virtually unflagging obligation” to exercise their statutory jurisdiction. Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976). Neither 28 U.S.C. § 158 nor the Bankruptcy Code provides lower courts any discretion over which appeals to consider. Converscly, with respect to a narrow class of bankruptcy orders, Congress has expressly limited the relicf available on appeal. See, e.g., 11 U.S.C. § 363(m) (limiting the relief available on appeal of an order approving an unstayed sale of a debtor’s property to a good faith purchaser); 11 U.S.C. § 364(c) (limiting the relief available on appeal of an order approving postpetition financing provided tn good faith). 22 But no provision in the Bankruptcy Code authorizes Article III courts to decline to review live cases or controversies based on equitable mootness. Had Congress intended for the doctrine of equitable mootness to preclude the appellate review of other types of bankruptcy orders, it would have said so. See Leatherman vy. Tarrant County Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 168 (1993) (under the maxim of expressio unius est exclusio alterius, Congress’s express inclusion of certain exceptions indicates an intent to preclude the recognition of others). Nonetheless, almost every circuit has adopted the doctrine. Indeed, some courts have even found that the bankruptcy court committed reversible error, but then have refused to reverse because of equitable mootness. For example, in Metromedia, the court concluded that the findings below “were insufficient” to support certain non-debtor releases and that such an error “would ordinarily be remedied by remand to the bankruptcy court.” Metromedia, 416 F.3d at 143. But it then refused to vacate the order because it found the appeal equitably moot. /d. at 14S. Perhaps most disturbing, courts will dismiss appeals as equitably moot even where the appellant has sought expedited appcal and a stay pending appeal. See, e.g., UNR, 20 F.3d at 769-70. Although courts initially were reluctant to apply the doctrine if an appellant had sought a stay, they now apply the doctrine even where the appellant sought a stay but was denied one. Compare Roberts Farms, 652 F.2d at 798 (finding that failure to seek a stay “creates a situation rendering it inequitable to reverse the orders appealed trom”), with UNR, 20 F.3d at 770 (observing that “[a] stay not sought, and a stay sought and denied, lead equally to the implementation of the plan of reorganization[,]* which in turn leads to application of equitable mootness). Thus, under current authority in most circuits, equitable mootness will bar Za review by an Article III court unless the appellant obtains a stay pending appeal. But requiring an appellant to obtain a stay of a _ substantial bankruptcy order is_ extremely burdensome: the appellant must demonstrate that it will be irreparably harmed absent the stay and that this relief will not substantially harm other parties. See, e.g., Country Squire Assocs. of Carle Place, L.P. v. Rochester Comm. Sav. Bank (In re Country Squire Assocs. of Carle Place, L.P.), 203 B.R 182, 183 (B.A.P. 2d Cir. 1996) (citing Hirschfeld v. Bd. of Elections, 984 F.2d 35, 39 (2d Cir. 1992)).! Indeed, because stays are granted only in narrow circumstances, appellants in such cases rarely preserve their appeal from equitable mootness. See Frank R. Kennedy & Gerald K. Smith, Postconfirmation Issues; The Effects of Confirmation and Postconfirmation Proceedings, 44 8.C. L REV. 621, 650 n.76 (1993) (observing “that stays pending appeal are seldom granted, that appeals typically take a long time, that plan proponents frequently accelerate performance pending appeals to enhance the likelihood that the appeal will be rendered moot, and that the numerous rulings denying revicw of order approving sales are typically followed in appeals from confirmation orders”) (citing Richard F. Broude, RFORGANIZATIONS UNDER CHAPTER || OF THE BANKRUPTCY CODE § 14.01[1] (1992)), Morcover, cven in the rare circumstances where an appellant obtains a stay, the movant may be required to post a substantial bond. See FED. R. BANKR. P. 8005 (“The district court or bankruptcy appellate panel may condition [a stay pending appeal] . . . on the filing of a bond or other Often, the only showing of irreparable harm that an appellant can make ts that, absent such relief, it will be equitably mooted. But, if no stay is obtained, the appellee will then argue that the appellant already has conceded that its appeal ts moot. 24 appropriate security with the bankruptcy court.”); /n re Farrell Lines, Inc., 761 F.2d 796, 797 (D.C. Cir. 1985) (per curiam). In some cases, the required bond must be large enough to protect all of the stakeholders in a multi-billion dollar chapter 11 reorganization —a bond larger than all of the bond capacity likely available in the country. See, e.g., ACC Bondholder Group v. Adelphia Comme 'ns Corp. (In re Adelphia Commc'ns Corp.), 361 B.R. 337, 369 (S.D.N.Y. 2007) (although granting a stay of consummation of a chapter |] plan pending appeal, requiring appellants to post a $1.3 billion bond within 72 hours). Equitable mootness, therefore, becomes a potent tool to insulate bankruptcy orders from appellate review, one that stakeholders can easily manipulate. So long as parties can “substantially consummate” a chapter |! plan before an Article II] court considers an appeal, the plan will almost always remain unreviewable. [ndeed, as applied by the lower courts, equitable mootness may even insulate orders that bankruptcy courts lacked jurisdiction to issue This case illustrates how parties to chapter 1! bankruptcy proceedings, relying on the likely application of equitable mootness, can manufacture an_ effectively unreviewable order. The Respondents conditioned the Settlement not only on approval by the bankruptcy court under Federal Rule of Bankruptcy Procedure 9019, but also on the confirmation and consummation of the Plan, two events likely to lead to the application of equitable mootness. (See App. 506a). And, in the event that the doctrine was not applied or the Petitioners obtained a stay pending appeal, the Settlement gave Respondents the right to rescind the co agreement. (See App. 518-519a.) The ability of parties involved in chapter | 1 proceedings to manipulate the jurisdiction of Article III courts in this way, 25 combined with the lower courts’ willingness to apply equitable mootness even where appellants have made every effort to obtain a stay pending appeal of a bankruptcy order, defies Congress’s intent to provide appellate review of bankruptcy orders under 28 U.S.C. § 158. Where substantial consummation is imminent, an appellant must meet the onerous requirements for obtaining a stay simply to retain the right to appellate review. Thus, equitable mootness stacks the deck against appellants so heavily that it invites parties to seek relief not authorized under the Bankruptcy Code or other applicable law. C. THE DOCTRINE OF EQUITABLE MOOTNESS, AS APPLIED, VIOLATES THE CONSTITUTION’S SEPARATION OF POWERS CLAUSE Exercising its authority under Article I, Section 8, Clause 4 “{t]o establish . . . uniform Laws on the subject of Bankruptcies throughout the United States[,]* U.S. Const. art. [, § 8, cl. 4, Congress established the bankruptcy courts to administer cases under the Bankruptcy Code. 28 U.S.C. § 1S1. In Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982), however, this Court found that the delegation of bankruptcy jurisdiction exclusively to bankruptcy courts established under Article | violated the Constitution. /d. at 87. In response to Marathon Pipe Line, Congress enacted the Bankruptcy Amendments and Federal Judgeship Act of 1984 (the “1984 Act”), Pub. L. No. 98-353, 98 Stat. 333 (codified as amended in titles 5, 11 and 28 of the United States Code), vesting original jurisdiction over bankruptcy proceedings with the district courts and referring such authority to the bankruptcy courts. See Pub. 1... No. 98-353 §$§ 101, 104, 98 Stat. 333 (codified as amended at 28 U.S.C. §$§ 151-158, 1334 (1984)). 26 Under the 1984 Act, upon referral from the district courts, bankruptcy courts may decide “core” proceedings under the Bankruptcy Code, subject to appellate review by the district courts under the clearly erroneous standard. See 28 U.S.C. §§ 157(a), (b), 158(a); see also Harman v. Levin, 772 F.2d 1150, 1153 n3 (4th Cir. 1985). Bankruptcy courts also are permitted to decide “non-core” proceedings “otherwise related to” a case under the Bankruptcy Code, and, if the parties consent, may issue final orders (subject to appellate revicw) upon referral from the district courts; otherwise, a final order may only be issued by the district court upon de novo review of the bankruptcy court’s findings and conclusions. See 28 U.S.C. §§ 157(c), |58(a); see also Cent. Vt. Pub. Serv. Corp. v. Herbert, 341 F.3d 186, 190 (2d Cir. 2003). In essence, the 1984 Act “correct[ed] the constitutional flaw” of the Bankruptcy Code by ensuring that bankruptcy cases would be subject to the authority and review of an Article III court. 130 CONG. REC. S8891 (June 29, 1984) (remarks of Sen. Hatch), reprinted in 1984 U.S.C.C.A.N. at 590. The doctrine of equitable mootness thwarts — this congressional intent and, because it has been applied to preclude Article Ill review of an Article | court, violates the Constitution as construed in Marathon Pipe Line. When the doctrine of equitable mootness is applied, the only substantive review that bankruptcy stakeholders receive is from an Article | tribunal, the bankruptcy court. Neither the Bankruptcy Code nor any other federal statute sanctions such a result, and the appellate courts’ refusal to exercise their jurisdiction over bankruptcy appeals ts unconstitutional. See Mills, 159 U.S. at 653 (under the Article III mootness doctrine, dismissal of a case without consideration of the merits 1s required when no “effectual relief whatever” can be fashioned) 27 ff. THE COURT SHOULD GRANT REVIEW TO DETERMINE WHETHER THE BANKRUPTCY CODE PROVIDES BANKRUPTCY COURTS JURISDICTION To RESTRUCTURE THE DEBT OF A NON-DEBTOR Finally, the Court should grant review to determine whether “related to” jurisdiction under 28 U.S.C. § 1334(b) extends so far that bankruptcy courts have jurisdiction to restructure debts owed by nen-debtors to other non-debtors. A. The BANKRUPTCY CouRTSs’ “RELATED TO” JURISDICTION I[S LIMITED As explained above, a bankruptcy court may _ hear matters that are “otherwise related to a case under title 11.” See 28 U.S.C. §§ 157(c), 1334(b). Although Congress has not defined the words “related to,” courts have interpreted Section 157 to provide bankruptcy courts with “jurisdiction over more than simple proceedings involving the property of the debtor or the estate.” Celotex, 514 U.S. at 308 (citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984)). Nonetheless, “related to” jurisdiction is not and cannot be limitless and is necessarily “grounded in, and limited by, statute.” 7d. at 307-08; see also Bd. of Governors, FRS v. MCorp Fin., Inc., 502 U.S. 32, 40 (1991) (stating that bankruptcy courts are vested with “limited authority”); Ahlers, 485 U.S. at 206. in Celotex, this Court considered the tenston between the bankruptcy courts’ “comprehensive jurisdiction” to efficiently and expeditiously resolve “all matters connected with the bankruptcy estate” and the statutory limitations of that authority. 514 U.S. at 308. The Court noted that the Third Circuit, in Pacor, 743 F.2d at 994, had devised a test, which nearly every circuit had adopted, for determining whether “related to” jurisdiction exists. Ce/otex, 514 U.S. at 28 308 n.6. Under the test, a matter is “related to” a bankruptcy case if its outcome “could conceivably have any effect on the estate being administered in bankruptcy.” /d. (citing Pacor, 743 F.2d at 994). More specifically, “[a]n action ts related to bankruptcy if the outcome could alter the debtor’s rights, habilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate.” /d. (citing Pacor, 743 F.2d at 994). The Court concluded, “whatever test is used, these cases make clear that bankruptcy courts have no jurisdiction over proceedings that have no effect on the debtor.” /d.; see also Travelers, 129 S.Ct. at 2210 (Stevens, J., dissenting) (“A bankruptcy court has no authority, however, to adjudicate, settle, or enjoin claims against nondebtors that do not affect the debtor’s estate.’’). Similarly, courts have held that a bankruptcy court lacks “related to” jurisdiction over a matter involving non-debtors where they would not result in direct or derivative liability to a debtor’s bankruptcy estate. See, e.g., In re Combustion Eng’g, 391 F.3d 190, 233 (3d Cir. 2005). This Court, however, has not decided whether a matter mvolving non-debtors, which could have a “conceivable effect” on a debtor’s estate, is nonetheless so remote that it would have “‘no effect” on the estate. Consequently, “[m]Juch of the controversy about bankruptcy Jurisdiction surrounds the reach of this ‘related to’ jurisdiction.” See Jonathan C. Lipson, Debt and Democracy: Towards a Constitutional Theory of Bankruptcy, 83 NOTRE DAME L. REV. 605, 645 n.211 (2008). 29 B. THIS CASE PROVIDES AN OPPORTUNITY TO CLARIFY THAT “RELATED TO” JURISDICTION DOES NOT GIVE BANKRUPTCY COURTS THE POWER TO RESTRUCTURE THE DEBTS OF NON- DEBTORS, WHERE THE DEBT HAS NO IMPACT ON THE RES OF A DEBTOR’S ESTATE This case presents the Court with an ideal opportunity to clarify that a bankruptcy court’s “related to” jurisdiction does not authorize bankruptcy courts to restructure the debts of non-debtors that do not affect the res of a bankruptcy estate. Absent further guidance, the extent of “related to” jurisdiction will remain ambiguous, resulting in repeated if unintentional overextensions of jurisdiction by bankruptcy judges faced with ever more complex chapter 11 cases. See Ralph Brubaker, On the Nature of Federal Bankruptcy Jurisdiction: A General Statutory and Constitutional Theory, 4] Wm. & Mary L. Rev. 743, 750 (“Pacor has produced a state of affairs in which jurisdictional determinations are essentially arbitrary—with countless instances of identical factual and procedural postures producing diametrically disparate results on nominal application of the same ‘test.’”’). Indeed, the courts below, affirming the bankruptcy court’s extension of its jurisdiction far beyond the limits that ay other court has determined, thus sanctioned the benkruptcy court’s departure from the accepted and usual course of judicial proceedings so as to call for an exercise of this Court’s supervisory power. Relying on the “conceivable effect” language of the acor test, the lower courts in this case held that “related to” jurisdiction was so broad that it gave the bankruptcy court jurisdiction to restructure bond debt issued not by the debtor (Delta), but by one of its lessors. (App. 2la-24a.) The lower courts concluded that the Indenture was “inextricably 30 related” to Delta’s lease and guaranty obligations, even though no debtor was a party to it, it prohibited such a restructuring without every bondholder’s consent, and if Delta vacated the premises, KCAB, the issuer, would remain hable to use anv proceeds obtained from subsequent tenants to repay the Bonds. (App. 28a.) In short, the bankruptcy court used Delta’s bankruptcy to modify and discharge the bond repayment obligations of KCAB, a4 non-debdtor that never petitioned for bankruptcy relicf, and that would remain obligated to repay the Bonds from re-let proceeds if Delta stopped making lease payments for any reason. (App. 98a-99a; 394a-398a.) Thus, although KCAB has retained the Terminal, including the right to lease it to Delta or any other party, the bankruptcy court fully discharged KCAB trom any further obligations (including re- let obligations) to the Bondholders. (App. 29a.) The barkruptcy court reached that unprecedented result by finding that its “related to” jurisdiction extended so tar as to restructure and discharge the private contract rights and obligations of KCAB, the Trustee and the Bondholders—all of them non-debtors -even though the Indenture itself mandated a contrary result. (App. 29a (ignoring the Bondholder’s absolute mght to seck their principal and interest under Section 9.06, modeled on Section 316 of the Trust Indenture Act (the “TIA”), 15 U.S.C. § 77ppp).) The bankruptcy court held that its jurisdiction over Delta’s bankruptcy case trumped those established contract rights of non-debtors, which would have no effect on the res of the bankruptcy estate, because the Trustee, at the direction of a majority of Bondholders, could bind all Bondholders to a settlement. (App. 50a-52a.) However, because KCAB never tiled tor bankruptcy protection and no class was alleged or certified, the outcome below Is contrary to bankruptcy law as 31 well as 70 years of bond-indenture law interpreting provisions identical to those contained in the Indenture and TIA Section 316.° See, e.g., Brady v. UBS Fin. Servs., Inc., 538 F.3d 1319, 1324-25 (10th Cir. 2008) (interpreting a nearly identical provision and finding that actions taken by a trustee at the direction of a majority cannot compromise an individual bondholder’s rights under that provision abserii consent); /n re Bd. of Dirs. of Multicanal S.A., 307 B.R. 384, 388-89 (Bankr. S.D.N.Y. 2004): see also 15 U.S.C. § 77bbb (setting forth necessity for regulatiun). The only decisions cited by the bankruptcy court below finding that a majority of bondholders may compromise by settlement an individual bondholder’s right to its principal and interest under provisions consistent with TIA Section 316, were class-action lawsuits certified under Federal Rule of Civil Procedure 23(c), and cases where the issuer had petitioned for bankruptcy. (App. 52a) 32 CONCLUSION The petition for a writ of certiorari should be granted. Respectfully submitted. J. CHRISTOPHER SHORF RAOUL G. CANTERO WHITE & CASE LLP COUNSEL OF RECORD 1155 AVENUE OF THE AMERICAS THOMAS E LAURIA NEW YORK, NY 10036-2787 JOHN K. CUNNINGHAM TELEPHONE: (212) 819-8200 DAVID P. DRAIGH FACSIMILE: (212) 354-8113 RICHARD S. KEBRDLE COUNSEL FOR THE PETITIONERS WHITE & CASE LLP WACHOVIA FINANCIAL CENTER 200 SOUTH BISCAYNE BLVD., SUITE 4900 MIAMI, FLORIDA 33131-2352 TELEPHONE: (305) 371-2700 FACSIMILE: (305) 358-5744 COUNSEL FOR THE PETITIONERS JULY 2009 APPENDIX la APPENDIX A UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT [Filed FEB 9, 2009] SUMMARY ORDER Rulings by summary order do not have preceden- tial effect. Citation to summary orders filed after January 1, 2007, is permitted and is governed by this court’s Local Rule 32.1 and Federal Rule of Appellate Procedure 32.1. In a brief or other paper in which a litigant cites a summary order, in each paragraph in which a citation appears, at least one citation must either be to the Federal Appendix or be accompanied by the notation: “(summary order).” A party citing a summary order must serve a copy of that summary order together with the paper in which the summary order is cited on any party not represented by counsel unless the summary order is available in an electronic database which is publicly accessible with- out payment of fee (such as the database available at http://www.ca2.uscourts.gov/). If no copy is served by reason of the availability of the order on such a data- base, the citation must include reference to that database and the docket number of the case in which the order was entered. At a stated term of the United States Court of Appeals for the Second Circuit, held at the Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of New York, on the ninth day of February two thousand and nine. 2a PRESENT: JOSE A. CABRANES, SONIA SOTOMAYOR, Circuit Judges, JED S. RAKOFF, District Judge. No. 07-3979-bk AD HOC COMMITTEE OF KENTON COUNTY BONDHOLDERS, Appellant, V. DELTA AIR LINES, INC., KENTON COUNTY AIRPORT BOARD, UMB BANK, N.A., as Trustee, POST EFFEC- TIVE DATE COMMITTEE as successor to the Official Committee of Unsecured Creditors of Delta Air Lines, Inc., Appellees.” FOR APPELLANT: THOMAS E. LAURIA (J. Christopher Shore, on the brief), White & Case LLP, New York, NY. * The Honorable Jed S. Rakoff, of the United States District Court for the Southern District of New York, sitting by designation. ” The Clerk of Court is directed to amend the official cap. on in this case to conform to the listing of the parties above 3a FOR APPELLEES: MARSHALL S. HUEBNER (James I. McClammy, Benjamin A. Tisdell, Russell Capone, on the brief), Davis Polk & Wardwell, New York, NY, for Appellee Delta Air Line Inc. WILLIAM W. KANNEL (Daniel S. Bleck, Matthew C. Hurley, lan A. Hammel, on the brief), Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, MA, for Appellee UMB Bank, N.A. Selinda A. Melnik, Edwards Angell Palmer & Dodge, LLP, New York, NY (Wilbert L. Ziegler, Matthew C. Smith, Ziegler & Schneider, P.S.C., Covington, KY, on the brief), for Appellee Kenton County Atrport Board. Appeal from a judgment of the United States District Court for the Southern District of New York (John G. Koeltl, Judge). UPON CONSIDERATION WHEREOF, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the judgment of the District Court is AFFIRMED. Appellant Ad Hoc Committee of Kenton County Bondholders appeals from an August 28, 2007 judg- ment of the District Court, affirming a Settlement Order entered by the Bankruptcy Court on April 24, 2007. We assume the parties’ familiarity with the underlying factual and procedural history of the case, though we revisit key portions of that history here. Appellant is a group of Bondholders, who hold approximately $50 million in face amount of the approximately $400 million in bonds issued by the Kenton Country Airport Board (“KCAB”), pursuant to a 1992 Trust Indenture, between KCAB and Star 4a Bank, N.A., the predecessor-in-interest to UMB Bank, N.A. (the “Trustee”), and guaranteed by Delta Air Lines, Inc. (“Delta”), On September 14, 2005, Delta filed a petition for bankruptcy protection under Chapter 11 of the Bankruptcy Code. On March 8, 2007, Delta filed a motion, pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure, seeking approval from the Bankruptcy Court of a settlement agreement, entered into by Delta, KCAB, and the Trustee. Appellant filed timely objections to the motion. On April 24, 2007, the Bankruptcy Court ap- proved the settlement agreement. Appellant filed an appeal, arguing, inter alia, (1) that the Bankruptcy Court lacked jurisdiction to impose a settlement that released claims against KCAB, Delta, the Trustee, and other Bondholders; and (2) that, in the first instance, the Trustee lacked authority to bind dis- senting Bondholders to a settlement, which reduced the principal and interest that would be repaid under the KCAB Bonds. Appellant also sought a stay pending appeal, which was denied by the Bankruptcy Court on April 26, 2007, and by the District Court on May 2, 2007. On August 27, 2007, the District Court affirmed the Settlement Order. First, the District Court determined that appellant’s claims were “equitably moot.” Specifically, it determined that in light of the fact that “irreversible financial transactions... hald] occurred, and because Delta has entered into a whole new set of agreements,” appellant could not show how vacating the Settlement Order, even if it were possible, would not create an unmanageable situation for the Bankruptcy Court. J.A. at 69. The District Court then noted that even if it were to consider the merits of appellant’s arguments, contrary to appel- lant’s assertions, (1) the Bankruptcy Court did have 5a jurisdiction to impose a settlement that released claims against KCAB, Delta, the Trustee, and other Bondholders, and (2) the Trustee did have authority to bind dissenting Bondholders to a_ settlement reducing the principal and interest that would be repaid under the KCAB Bonds. Appellant filed a timely notice of appeal. Before this Court, appellant argues that its appeal is not equitably moot, and renews the arguments made before the District Court and Bankruptcy Court. We note that “[iln an appeal from a district court’s review of a bankruptcy court's decision, we conduct an independent examination of the bankruptcy court’s decision.” In re Flanagan, 503 F.3d 171, 179 (2d Cir .2007) (citing /n re Bethlehem Steel Corp., 479 F.3d 167, 172 (2d Cir. 2007)). We review the bank- ruptcy court’s factual findings for clear error, and its legal conclusions de novo. Id. Additionally, a district court’s determination that an appeal is “equitably moot” is (by definition) an equitable decision, and we review a district court’s fashioning of equitable relief for abuse of discretion. See Onwubiko v. United States, 969 F.2d 1392, 1397 (2d Cir. 1992), implicit overruling on other grounds recognized by Polanco uv. U.S. Drug Enforcement Admin., 158 F.3d 647, 651 (2d Cir. 1998). See generally Abrahamson v. Bd. of Educ. of Wappingers Falls Cent. Sch. Dist., 374 F.3d 66, 76 (2d Cir. 2004). Approvals of Bankruptcy Rule 9019 settlements are also reviewed for abuse of discretion. In re [Iridium Operating, LLC, 478 F.3d 452, 461 n.13 (2d Cir. 2007). Upon a review of the relevant case law and the record in this case, we conclude that the District Court did not err—much less abuse its discretion—in determining that appellant’s claim is equitably moot. sy 6a In particular, we agree fully with the District Court’s conclusion that lbJecause of the irreversible financial transac- tions that have occurred, and because Delta has entered into a whole new set of agreements relating to its use of the Cincinnati/Northern Kentucy 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 authori- zation for every transaction that has taken place and create an unmanageable, uncontrollable situation for the Bankruptcy Court. J.A. at 69 (internal quotation marks omitted). How- ever, we note that even if we were to consider the merits of appellant’s arguments, for substantially the reasons stated in the Bankruptcy Court’s thorough and well-reasoned decision of April 25, 2007, we would affirm the Settlement Order. CONCLUSION We have considered all of appellant’s claims on ap- peal and found them to be without merit. Accor- dingly, the judgment of the District Court is AFFIRMED. FOR THE COURT, Catherine O’Hagan Wolfe, Clerk of Court By: Py la APPENDIX B UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK Chapter 11 05-B-17923 (ASH) In re DELTA AIR LINES, INC. et al.. Debtors. 07 Civ. 3968 (JGK) KENTON COUNTY BONDHOLDERS COMMITTEE, Appellants, - against - DELTA AIR LINES, INC. et al., Appellees. OPINION AND ORDER JOHN G. KOELTL, District Judge: 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 Set- tlement 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 Jn re Delta Air Lines, Inc., No. 05 B 17923, 2007 WL 1805567 (Bankr. S.D.N.Y. Apr. 25, 2007). There is 8a jurisdiction to hear the appeal pursuant to 28 U.S.C. § 158(a)(1). 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. l. A. The following facts are undisputed unless other- wise 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 Agree- ment (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 7 2.05, 7.01, Ex. A to App. to Appellants’ Br.; see also Lease 7 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, wich the Indenture expressly references (Indenture preamble; see also Lease [J 4.03-4.04). Under a separate Guaranty to the Bond Trustee, Delta agreed that it would make 9a all of the payments due on the Bonds. (Guaranty J 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-day period to attempt to reach a consensual agreement, and in February 2006 the parties extended their negotiation period through May 1, 2006. When no agreement had been reached by April 28, 2006, Delta filed in the Bankruptcy Court a motion seeking rejection of the Lease and certain other agreements. Continued negotiations led the parties to enter a Forbearance Agreement on July 17, 2006 under which Delta made certain scheduled payments to the Bond Trustee and continued to use the airport facilities, and which provided that the parties would forbear from exercising any rights or remedies arising from Delta’s failure to meet its full obligations under the Lease. The Forbearance Agreement was ultimately extended until the Settlement became effective. 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 en- tering into interim agreements which compromised Delta’s payment of interest on the Bonds and that invited the Bondholders to join an unofficial com- mittee of Bondholders (“Bondholders’ Committee”) to 10a 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 Trustee 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 agree- ments 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 nezotiations 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, unse- cured 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 Set- tlement. 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, lla 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 Agree- ment, 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 sub- mitted a motion pursuant to Bankruptcy Rule 9019 for the Bankruptcy Court to approve the Settlement. The appellancs filed an objection to the Settlement Motion, but after limited expedited discovery and extensive argument, the Bankruptcy Court entered the Settlement Order on April 24, 2007, with a written decision following on April 25, 2007. While negotiations related to the Settlement were under way, Delta’s bankruptcy proceedings con- tinued. On February 7, 2007, the Bankruptcy Court entered an Order approving the Disclosure State- ment 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 overwhelmingiy approved of it, with 97.35% in dollar amount and 89.19% in number voting to accept the Plan.’ After a hearing to consider ‘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 12a 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 appeai 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 Settle- 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 Decl.) l3a ment in accordance with its terms. (See Aff. of Billy W. Williams 79 4.) ‘The new Notes and the shares of reorganized Delta stock are freely tradeable, and Delta made the distributions through financial intermediaries without knowing the actual identities of the Bondholders. (Ud. {{ 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 Con- firming the Joint Plan of Reorganziation (docketed as O07 Civ. 4148). (See Stipulation & Order Regarding Appeals, Docket No. 20.) This appeal is opposed by Delta, UMB as the successor Boud Trustee, KCAB, and the Post Effective Date Committee (as successor to the Official Committee of Unsecured Creditors in the Delta bankruptcy). Pursuant to the terms of the Stipulation and Order Regarding Appeals, the American’ Bankers Association (“ABA”) moved for leave to file a brief as amicus curiae in support of the appellee UMB. (Docket No. 15.) The motion is unopposed, and the Court grants leave for the ABA to file its brief as amicus curiae, which the Court has considered in connection with this appeal. IT. The Court reviews the Bankruptcy Court’s conclusions ef law de novo and its findings of fact for clear error. Citibank, N.A. v. Vebeliunas, 332 F.3d 85, 90 (2d Cir. 2003); In re Johns-Manuille Corp., 340 B.R. 49, 58 (S.D.N.Y. 2006); see also Fed. R. Bankr. P. 8013. A bankruptcy court’s finding pursuant to Bankruptcy Rule 9019 that a settlement is rea- l4a sonable is reviewed for abuse of discretion. /n re Iridium Operating LLC, 478 F.3d 452, 461 n.138 (2d Cir. 2007); In re Purofied Down Prods. Corp., 150 B.R. 519, 522 ‘S.D.N.Y. 1993). The bankruptcy court will have abused its discretion if “no reasonable man could agree with the decision” to approve a set- tlement. In re Frost Bros., Inc., 91 Civ. 5244, 1992 WL 373488, at *4 (S.D.N.Y. Dec. 2, 1992) (internal quotation marks omitted). ITI. 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, 506 U.S. 9, 12 (1992) (quoting Mills v. Green, 159 U.S. 651, 653 (1895)). Even when a bankruptcy appeal is not constitutionally moot, it should be dismissed as equitably moot when, “even though effective relief could conceivably be fashioned, implementation of that relief would be inequitable.” In re Metromedia Fiber Network, Inc., 416 F.3d 136, 143 (2d Cir. 2005) (quoting Jn re Chateaugay Corp., 988 F.2d 322, 325 (2d Cir. 1993) (“Chateaugay I’)). The appellees focus on their argument that the appeal is equitably moot. The Court of Appeals has recognized that bank- ruptcy appeals may be equitably moot in two sit- uations: when an unstayed order has resulted in a “comprehensive change in circumstances,” and when a reorganization is “substantially consummated.” All. state Ins. Co. v. Hughes, 174 B.R. 884, 888 (S.D.N_-Y. l5a 1994) (quoting Chateaugay J, 988 F.2d at 325, and Jn re Chateaugay Corp., 10 F.3d 944, 952 (2d Cir. 1993) (“Chateaugay IJ”)). When a reorganization has been “substantially consummated,” as that term is defined in the Bankruptcy Code, see 11 U.S.C. § 1101(2), there is a “strong presumption” that an appeal of an unstayed order is moot. Allstate, 174 B.R. at 889; see also In re Enron Corp., 326 B.R. 497, 502 (S.D.N.Y. 2005). This presumption may only be overcome when five circumstances are present: (a) the court can still order some effective relief; (b) such relief will not affect the re-emergence of the debtor as a revitalized corporate entity; (c) such relief will not unravel intricate trans- actions so as to knock the props out from under the authorization for every transaction that has taken place and create an unmanageable, uncon- trollable 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 the objectionable order . . . if the failure to do so creates a situation rendering it inequitable to reverse the orders appealed from. Chateaugay II, 10 F.3d at 952-53 (alteration in original) (internal quotation marks and citations omitted); see also Allstate, 174 B.R. at 889. 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 l6a mootness in the context of “substantial consum- mation” to be instructive as well in the context of a “comprehensive change of circumstances.” See, e.g., Kassover v. Gibson, 02 Civ. 7978, 2003 WL 21222341, at *2 (S.D.N.Y. May 27, 2003), affd, 98 Fed. Appx. 30 (2d Cir. 2004); Allstate, 174 B.R. at 889. The Joint Plan of Reorganization has now been confirmed and appears to be “substantially consum- mated.” 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 con- summated” 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 freely 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 IJ 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 17a 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 Settle- ment intact would ignore the tradeoff that allowed the parties to settle in the first instance and would treat a non-severable 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., 167 B.R. 776 (S.D.N.Y. 1994) (“Chateaugay IIT’), the court declined to dismiss an appeal of a settlement order as moot, but there was no showing that the deal involved financial transactions that could not be unwound because it only involved a surety’s payment to the debtor in return for a release of claims. Jd. at 778-79. In Feld v. Zale, 62 F.3d 746 (5th Cir. 1995), the Court of Appeals for the Fifth Circuit found that a bankruptcy court did not have jurisdiction to enjoin certain third-party tort claims, which would not have affected the bankruptcy estate, as part of its approval of a settlement between the debtor and an insurer. Id. at 755-57. However, because the court did not dis- cuss equitable mootness at all, the case is inapposite. The Bankruptcy Court found that the releases were a necessary part of the Settlement reached by the parties. See In re Delta, 2007 WL 1805567 at *12-*13. (See Settlement Agreement § 3.01 (“Except as the Parties may otherwise agree, all provisions of this Agreement are essential, non-severable terms .).) The distnbutions under the Settlement Agreement have already been made and the securi- ties distributed have likely been traded to parties l&a who are not before the Court and those distributions cannot reasonably be undone and the appellants do not seek to do so. While they do seek to undo the releases of claims against KCAB and the Trustee, those releases were an integral part of the entire Settlement and cannot equitably be undone in iso- lation from the distributions to the Bondholders which the appellants do not seek to reverse. Cf. In re Metromedia, 416 F.3d at 145 (deeming appeal equitably moot where appellants sought to eliminate releases which were essential to the bargain struck); In re Enron Corp., 326 B.R. at 503 (finding appeal of exculpation provision moot where the bankruptcy court found the provision necessary for the nego- tiation of the reorganization plan); In re Texaco Inc., 92 B.R. 38, 45-50 (S.D.N.Y. 1988) (finding appeal seeking to sever and rescind releases moot because releases were part of an “integrated settlement” and their rescission would “undermine the entire reor- ganization”). 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 circum- stances weighs in favor of finding an appeal moot. See In re Revere Copper & Brass, Inc., 78 B.R. 17, 18, 22 (S.D.N.Y. 1987). Similarly, while the Settlement comprises only a small part of Delta’s Joint Plan of Reorganization, its undoing would complicate Delta’s rights to an important hub of its operations and therefore risks having some negative effect on Delta’s vitality as a reorganized entity. These considerations 19a are not alone determinative, but they contribute to a finding of equitable mootness. 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, uncon- trollable situation for the Bankruptcy Court.” Metro- media, 416 F.3d at 144 (quoting Chateaugay II, 10 F.3d at 953). 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.* 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., 20 F.3d 766, 769-70 (7th Cir. 1994) (“[A] stay not sought, and a stay sought and denied, lead equally to the implemen- tation of the plan of reorganization.”); cf. In re Gucci, 126 F.3d 380, 383, 387-89 (2d Cir. 1997) (appeal of sale pursuant to bankruptcy court auction was moot despite two unsuccessful attempts to obtain a stay). © 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 20a 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. Fur- thermore, .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, 174 B.R. at 891. IV. On the merits of their appeal, the appellants repeat a variety of arguments that the Bankruptcy Court considered and rejected, although they have reform- ulated 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 21a 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., 980 F.2d 110, 114 (2d Cir. 1992) (citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984)); see also In re Worldcom Inc. Secs. Litig., 293 B.R. 308, 318 (S.D.N.Y. 2003). The Bankruptcy Court correctly found that the Indenture and the associated Lease and Guaranty are “inextricably related to each other” and that the court could not resolve the creditor claims of KCAB and the Bondholders against Delta without a corresponding resolution of the relation- ship between KCAB and the Bondholders. Jn re Delta, 2007 WL 1805567 at *11. 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(1) of the Settlement Agreement. As the Court found previ- ously in denying the stay, this argument has no merit. A Bankruptcy Court may approve the release of claims against third parties where those releases 22a played an “important part” in a debtor’s reorgan- ization plan. Jn re Drexel Burnham Lambert Group, Inc., 960 F.2d 285, 293 (2d Cir. 1992); see also Bartel v. Bar Harbor Airways, Inc., 196 B.R. 268, 274 (S.D.N:Y. 1996). The Jn re Metromedia decision relied on by the appellants does not bar the releases in this case. The Bankruptcy Court found that the releases of claims against KCAB, Delta, the Bond Trustee, and the Bondholders at issue here are narrowly drawn and are necessary to prevent relitigation of precisely the claims that were negotiated and re- soived by the Settlement Agreement.* See In re Delta, 2007 WL 1805567 at *12- *13. It is furthermore clear that they comprised valuable consideration for KCAB and the Bond Trustee in return for their agreement to give up indemnification rights against Delta under section 6.08 of the Lease, and therefore the releases are of the kind In re Metromedia expressly lists as acceptable. 416 F.3d at 142. The appellants raise several new arguments that essentialiy repackage their assertion that the Bank- ruptcy Court lacked jurisdiction and power to ap- prove 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 Bond- holders and they were thus never afforded an opportunity to adjudicate those claims. In particular, the appellants point to their alleged right to sue the The Bond Trustee point. 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 set- tlement itself. 23a Bond Trustee for failing to act prudently in ac- cordance 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 not 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, 482 F.3d 602, 607 (2d Cir. 2007); Gulino v. N.Y. State Educ. Dep’t, 460 F.3d 361, 380 n.22 (2d Cir. 2006). In any event, the argument has no merit because the Bankruptcy Court gave the appellants notice and an opportunity for both ex- pedited discovery and a hearing on their objections to the proposed Settlement, and obviously the appel- lants availed themselves of this opportunity. It is no answer to say that the Bankruptcy Court proceedings did not adjudicate the alleged claims of individual Bondholders because the matter before the Bank- ruptcy Court was a motion pursuant to Bankruptcy Rule 9019 to approve a Settlement, not an adju- dication on the merits of individual tort or contract claims, and the Bankruptcy Court concluded that the Bond Trustee was authorized to enter into the Settlement on behalf of all Bondholders. See In re Purofied Down Prods. Corp., 150 B.R. at 522-23 (“[L]ittle would be saved by the settlement process if bankruptcy courts could approve settlements only after an exhaustive investigation and determination of the underlying claims.”). Second, the appellants argue that the Bankruptcy Court failed to abide by certain procedural rules in effectively adjudicating their claims as individual 24a Bondholders without an adversary proceeding. This argument also was not raised below and is therefore waived, see Gulino, 460 F.3d at 380 n.22, and more- over the argument lacks merit because the appellants had ample notice and opportunity to voice their views on the Settlement generally and on the release of claims specifically. 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.* 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 prin- cipal 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 * It should be noted that if the Bond ‘I'rustee 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. 25a 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, 2007 WL 1805567 at *7-*10. The Bankruptcy Court was also correct in finding that any impairment of the Bondholder’s ability to collect was due to Delta’s default due to bankruptcy and its protection under the bankruptcy laws, not to any act of the Issuer or Bond Trustee. 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 col- lectively, make absolutely clear that, when there is a default by the issuer, the Bond Trustee alone has the power and authority to commence remedial proce- dures on behalf of all Bondholders, constrained only by the direction of a majority in amount of the Bondholders.” /d. at *10. 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, 423 F.3d 166, 174-75 (2d Cir. 2005); In re Adelphia Commce’ns Corp., 361 B.R. 337, 355 (S.D.N.Y. 2007). Moreover, non-impairment clauses of the type upon which the appellants rely become moot in the context of a default because of bankruptcy. Jn re Delta, 2007 WL 1805567 at *10 (collecting cases} The brief of the amicus curiae ABA further con vincingly shows that section 9.06 of the Indenture 26a borrows language from the Trust Indenture Act of 1939 (“TIA”), 15 U.S.C. §§ 77aaa et seg., 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. (Br. of Amicus Curiae American Bankers Association 7 (citing Hearing on H.R. 10292 Be- fore the Subcomm. of the Comm. on Interstate and Forcign Commerce, 75th Cong. 3 (1938) (statement of William O. Douglas, SEC Chairman)).) Moreover, the appellants concede that the case law suggests the language of section 9.06 would not prevent a trustee from impairing rights to principal and interest if the issuer were the bankrupt. 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 sourc: 0} payments under the Bonds. The appellants have provided no authority holding that a non- impairment provision lke section 9.06 requires unanimous Bondholder consent to enter a settlement in the circumstances present here. Delta’s bank- ruptcy, which compromised the Guaranty and the Lease which are “inextricably related” to the Inden- ture, also compromised the rights to payment under the Ponds and therefore overrides the protection of secticn 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 27a takes precedence over section 9.06 in the circum- stances present here is a good faith interpretation. In summary, the Court concurs with the Bank- ruptcy Court’s conclusion that the Indenture authorized the Bond Trustee to conduct remedial proceedings at the vehest of a majority of the Bondholders, and that the Bond Trustee’s remedial power* included the right to enter the Settlement that was ultimately approved by the Bankruptcy Court. C. The appellants’ arg :ments concerning KCAB’s alleged liability tc 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 Set- tlement, 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, 2007 WL 1805567 at *5. As such, further inquiry into the question whether the Lease and Indenture assigned rights to the re-let proceeds to the Bondholders is wholly unnecessary. 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 guar- anteed 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 28a entitled. See In re Delta, 2007 WL 1805567 at *2, *11. The provision the appellants contend establishes their right to re-let proceeds, section 8.07(c) of the Lease, provides that KCAB owes a duty to use its “best efforts” to re-let any vacated portion of its leased facilities “and to credit all rentals derived from any such reletting to the rentals payable by [Delta] under this Agreement.” The Lease is an agreement between KCAB and Delta, and thus the duty expressed in section 8.67(c) is a duty owed by KCAB to Delta. The Lease required KCAB to assign to the Bond Trustee certain rights of KCAB under the Lease as security for the payment of the Bonds, in- cluding KCAB’s right to receive payments from Delta, but it explicitly did not assign “Unassigned Rights.” (Lease § 4.04.) The Indenture specifically included KCAB’s duty to re-let under section 8.07 of the Lease as one of the “Unassigned Rights” and hence it was a right not assigned to the Bond Trustee. (See Inden- ture § 1.01 (“Unassigned Rights”).) A carve-out to the Unassigned Rights language does appear to provide that money produced through reletting the facilities should be applied toward payment of the Bonds (see id.), but to say that KCAB should forward any proceeds it receives from re-letting the facilities to the Bond Trustee for the benefit of the Bondholders is not the same as imposing upon KCAB a duty to the Bondholders to re-let the facilities. The re-let pro- vision provides an obligation on KCAB to mitigate its damages in the face of a default by Delta under the Lease and to apply the proceeds toward payment of the Bonds. But the re-let obligation was never a duty owed to the Bond Trustce or the Bondholders. Hence, the re-let provision of the Lease provides no basis for the Trustee, much less individual Bondholders, to 29a enforce any right to require KCAB to re-let vacated facilities. 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 Bondholders 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 re-let proceeds. CONCLUSION The Court has considered the appellants’ remain- ing arguments and found them to be either moot or without merit. The Settlement Order entered by the Bankrupicy Court is therefore affirmed. SO ORDERED. Dated: New York, New York August 27, 2007 /s/ John G. Koeltl JOHN G. KOELTL United States District Judge 30a UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK [Filed 8/28/07] 07 CIVIL 3968 (JGK) In re DELTA AIR LINES, [NC., et al., Debtors. KENTON COUNTY BONDHOLDERS COMMITTEE, Appellants, -ayainst- DELTA AIR LINES, INC., et al., Appellees. JUDGMENT Appellants having appealed from a Settlement Order of the United States Bankruptcy Court for the Southern District of New York, and the matter having come before the Honorable John G. Koeltl, United States District Judge, and the Court, on August 27, 2007, having rendered its Opinion and Order affirming the Settlement Order entered by the Bankruptcy Court, it is, ORDERED, ADJUDGED AND DECREED: That for the reasons stated in the Court's Opinion and Order dated August 27, 2007, the Settlement Order entered by the Bankruptcy Court is hereby affirmed. gla Dated: New York, New York August 28, 2007 J. MICHAEL McMAHON Clerk of Court BY: /s/ [legible] Deputy Clerk 32a APPENDIX C FOR PUBLICATION UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK Chapter 11 Case No. 05 B 17923 (ASH) (Jointly Administered) In re: DELTA AIR LINES, INC., et al., Debtors. DECISION GRANTING RULE 9019 MOTION AND APPROVING SETTLEMENT Debtor Delta Air Lines, Inc. (“Delta”)' and Kenton County Airport Board (“KCAB”) are parties to a lease (the “Lease”) and various other agreements (collec- tively with the Lease, the “Facilities Agreements”) governing Delta’s use and occupancy of certain facil- ities a [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386017_0796%3A1. Public record. Not legal advice.