In Re Continental Airlines

Opinions of the United
1996 Decisions States Court of Appeals
for the Third Circuit

7-31-1996

In Re: Continental
Precedential or Non-Precedential:

Docket 94-7748

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 UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
______________

No. 94-7748
______________

IN RE CONTINENTAL AIRLINES:

NATIONSBANK OF TENNESSEE, N.A., f/k/a NationsBank of Tennessee,
as Collateral Trustee under a Secured Equipment Indenture and
Lease Agreement dated March 15, 1987 ("NationsBank"); NEW JERSEY
NATIONAL BANK, as successor by merger to Constellation Bank,
N.A., f/k/a National State Bank of Elizabeth, N.J.; HARRIS TRUST
AND SAVINGS BANK; and BOATMAN'S FIRST NATIONAL BANK OF OKLAHOMA,
as First, Second and Third Priority Secured Equipment
Certificates Trustees thereunder, respectively (the "Series
Trustees" and, collectively with NationsBank, the "Trustees"),
Appellants
_______________

On Appeal from the United States District Court
for the District of Delaware
C.A. No. 93-195-JJF
(Bankruptcy Nos. 90-932 through 90-984)
________________

Argued September 15, 1995

Before: SLOVITER, Chief Judge,
ALITO and SEITZ, Circuit Judges

Reargued in banc May 14, 1996

Before: SLOVITER, Chief Judge, BECKER, STAPLETON, MANSMANN,
GREENBERG, SCIRICA, COWEN, NYGAARD, ALITO, LEWIS,
MCKEE, SAROKIN and SEITZ, Circuit Judges

(Filed July 31, 1996)
________________

Gary S. Jacobson (Argued)
Nicholas J. DiCarlo
James G. Scotti
Kelley Drye & Warren
New York, NY 10178

Attorneys for Appellant NationsBank
of Tennessee

Hal L. Baume
Louis T. DeLucia
Norman Peer
Wilentz, Goldman & Spitzer
Woodbridge, NJ 07095

Attorneys for Appellant New Jersey
National Bank

Richard G. Elliott, Jr.
Daniel J. DeFranceschi
Richards, Layton & Finger
Wilmington, DE 19899

Attorneys for Appellants Harris Trust
and Savings Bank and Boatman's First
National Bank of Oklahoma

Richard P. Schifter (Argued)
Andrew T. Karron
Michael L. Bernstein
Kari M. Desgalier
Arnold & Porter
Washington, D.C. 20004

Laura D. Jones
Robert S. Brady
Young, Conaway, Stargatt & Taylor
Wilmington, DE 19899-0391

Attorneys for Appellee

____________________

OPINION OF THE COURT
____________________

SLOVITER, Chief Judge.
INTRODUCTION
Before the in banc court is an appeal by NationsBank of
Tennessee (Collateral Trustee) and New Jersey National Bank,
Harris Trust and Savings Bank, and Boatman's First National Bank
of Oklahoma (First, Second, and Third Priority Secured Equipment
Certificate Trustees), who are collectively referred to in this
opinion as the "Trustees," from the order entered by the district
court in the Chapter 11 bankruptcy proceeding of Continental
Airlines, Inc. dismissing as "moot" three appeals by the
Trustees. Those appeals were from orders of the bankruptcy court
which 1) denied the Trustees' Renewed Motion for adequate
protection, 2) confirmed Continental's revised second amended
joint plan of reorganization, and 3) denied the Trustees' motion
for the establishment of a cash deposit of $123,479,287. In
essence, the Appellant Trustees seek payment for an asserted
administrative claim of approximately $117 million against the
reorganized company. The Appellee, Continental Airlines, Inc.,
defends the district court's decision to dismiss the Trustees'
appeal and argues, in the alternative, that the underlying
rulings of the bankruptcy court were correct as a matter of law
and fact.
I.
FACTUAL AND PROCEDURAL HISTORY
Continental filed its Chapter 11 bankruptcy petition on
December 3, 1990. Appellant Trustees serve as successor
Collateral and Series Trustees for certificate holders who had
provided Continental with operating capital. The certificates
were secured at the time of Continental's petition by a pool of
29 commercial aircraft with engines, and 81 additional jet
engines which, we were advised, serviced about one-third of
Continental's operating fleet. Under the Bankruptcy Code, the
debtor in possession, which has most of the rights, powers,
functions and duties of a trustee, see 11 U.S.C. 1107(a), "may
use property of the estate in the ordinary course of business
without notice or a hearing." 11 U.S.C. 363(c)(1).
Section 363(e) provides:
Notwithstanding any other provision of this section, at
any time, on request of an entity that has an interest
in property used . . . by the [debtor in possession],
the court, with or without a hearing, shall prohibit or
condition such use . . . as is necessary to provide
adequate protection of such interest.
11 U.S.C. 363(e).
On February 21, 1991, First Fidelity Bank of New
Jersey, predecessor to NationsBank as Collateral Trustee, filed a
motion along with many other aircraft lessors and financiers
alleging, inter alia, a decline in the value of the collateral
and seeking adequate protection under section 363(e). First
Fidelity later withdrew from this motion, but on June 28, 1991
it, and the predecessors of the other Appellant Trustees, filed a
motion seeking similar relief. The bankruptcy court held an
evidentiary hearing on the motion from September 3 through
September 6, 1991 limited to the Trustees' assertion that they
were entitled to adequate protection payments as a result of the
collateral's post-petition decline in market value.
Continental argued, inter alia, that because the
Trustees had not filed a motion for relief from the automatic
stay, they were not entitled to an award of adequate protection
under section 363(e). The motion remained pending in the
bankruptcy court until August 27, 1992 when the court ruled on
the Trustees' motion, rejecting Continental's legal argument but
finding as a fact, based on the "Blue Books," a publication
issued by a company that appraises aircraft, that the market
value of the collateral had not declined during the period at
issue in the motion. In re Continental Airlines, Inc., 146 B.R.
536 (Bankr. D. Del. 1992) [hereinafter Continental I].
Approximately two weeks before the bankruptcy court
issued that opinion, the Trustees filed their first motion under
section 362(d) of the Bankruptcy Code to lift the automatic stay
("Lift-Stay Motion"). See 11 U.S.C. 362(d). This section
permits a creditor to move for relief from the automatic stay of
delineated activities, such as repossession of collateral,
effected by section 362(a) of the Bankruptcy Code.
 On September 14, 1992, the Trustees also filed a
renewed motion for adequate protection for alleged decline in the
collateral's value for the period after September 1991, when the
original 1991 motion was argued ("Renewed Motion"). There were
various hearings on the Renewed Motion between November 3, 1992
and February 5, 1993. Toward the end of that period, the
Trustees filed a motion dated January 29, 1993, asking the
bankruptcy court to establish a cash deposit of some $123
million, of which $117 million was attributable to alleged market
decline, to preserve what the Trustees claimed was the
administrative priority status of the Trustees' adequate
protection claim if Continental emerged from bankruptcy as a
reorganized debtor ("Deposit Motion").
During this period efforts to reorganize the debtor
continued. On November 9, 1992 Continental entered into an
Investment Agreement under which the Investors (Air Partners,
L.P. and Air Canada) agreed and committed to an investment of
$450 million in the reorganized entity under a complex
arrangement and subject to certain conditions. App. at 391 et
seq. One of those conditions, and the one most relevant to this
proceeding, was a limitation on the amount and nature of
liabilities and administrative expense claims required to be
assumed by or attributable to the reorganized company. App. at
408. On January 13, 1993 Continental filed a second amended
joint plan of reorganization ("Plan") which referenced that
Investment Agreement. The Plan provided, inter alia, for
assumption of "allowed administrative claims" by the reorganized
Continental. App. at 656.
The confirmation hearing was held for a number of days
during the period March 16, 1993 through April 16, 1993. The
parties reached a settlement on April 12 concerning adequate
protection due to use and/or maintenance of the collateral by
Continental, and no issue relating to use decline (the impairment
in value attributable to the use of the collateral by the debtor
in possession) is before us. However, the parties did not settle
the Trustees' adequate protection claims based on decline in
market value.
At the conclusion of the confirmation hearing on April
16, 1993, the bankruptcy court denied the Deposit Motion and the
Renewed Motion. In a published opinion, the bankruptcy court
held that it was necessary for the Trustees to have sought relief
from the automatic stay to be entitled to adequate protection for
market value decline; that therefore the Trustees were not
entitled to adequate protection due to market decline until after
the date of their Lift-Stay Motion, i.e. August 14, 1992; and
that no decline in the market value of the collateral had taken
place since that date. In re Continental Airlines, Inc., 154
B.R. 176 (Bankr. D. Del. 1993) [hereinafter Continental II].
Also on April 16, 1993, the bankruptcy court signed the
Confirmation Order. The court made a series of detailed findings
of fact and conclusions of law underlying the Confirmation Order
which will be referred to throughout this opinion when pertinent.
On April 20, 1993 the Trustees filed three notices of
appeal to the district court from the bankruptcy court's denial
of the Renewed Motion for Adequate Protection, its denial of the
Deposit Motion, and its order confirming the Plan. Two days
later, the Trustees filed a motion for a partial stay of the
consummation of the Plan ("Conditional Stay Motion"), but filed
that motion in the district court, which referred them to the
bankruptcy court. On April 26, 1993, the Trustees filed that
stay request in the bankruptcy court. Because the bankruptcy
judge was not available, the hearing on the motion was held the
next day in the district court, which stated, without explanation
or analysis, that the Trustees were likely to prevail on their
appeal to the district court, but denied the stay because the

Trustees were "unable to post a bond satisfactory to the Court."
App. at 1755-56. The Trustees did not then make any effort to
seek any emergency relief from this court. With no stay impeding
implementation of the Plan which had now been confirmed, the
Investors proceeded to close the transaction by making their
promised investment.
On May 6, 1993 Continental filed a motion in the
district court to dismiss the Trustees' appeals as moot, which
the district court granted on December 30, 1993. The Trustees
filed a motion for rehearing and reconsideration in light of the
decision in Frito-Lay, Inc. v. LTV Steel Co., Inc. (In re
Chateaugay Corp.), 10 F.3d 944 (2d Cir. 1993) [hereinafter
Chateaugay II], which the court denied. The Trustees then filed
a timely notice of appeal. This court has jurisdiction pursuant
to 28 U.S.C. 158(d).
A panel of this court heard argument on September 15,
1995 and issued an opinion that affirmed the district court's
order by a two-to-one vote. The Trustees petitioned for
rehearing, and the in banc court voted to rehear the appeal.
Under this court's Internal Operating Procedures, the opinion of
the panel issued February 7, 1996 was withdrawn.

II.
DISCUSSION
A.
This court has not addressed the interesting and
challenging questions raised by the bankruptcy court's holding
that a creditor must file a motion to lift the automatic stay as
a prerequisite to seeking adequate protection. The Trustees
argue that the bankruptcy court erred as a matter of law and that
this court can decide the issue de novo even though it was not
reached by the district court. They further argue that the
bankruptcy court's finding that there was no diminution in the
market value of the Trustees' collateral after they filed their
Lift-Stay Motion was clearly erroneous. Finally, they argue that
the bankruptcy court erred as a matter of law in denying their
motion for the establishment of a cash deposit.
Not surprisingly, Continental, as appellee, defends
both the bankruptcy court's legal determination that the Trustees
could not assert adequate protection claims for alleged market
value decline during the period before they moved for relief from
the automatic stay and its factual conclusion that there had been
no substantial decline in the value of the collateral since the
Lift-Stay Motion was filed. Finally, it argues that in any event
the Trustees could not recover for adequate protection because
the value of the collateral did not decline below its value on
the petition date, which Continental contends is the relevant
measure.
We would reach these issues only if we were satisfied
that the district court erred in holding that the Trustees'
appeals to it were "moot," a decision as to which the parties
vigorously disagree. Mootness vel non of the appeals before the
district court is closely related to, if not indistinguishable
from, the question whether the appeal to this court is moot, an
issue which Continental alludes to in its brief. For
convenience, we will refer to mootness in the district court
unless we state otherwise.
Continental does not contend that the appeals to the
district court or to us were moot in the constitutional sense,
implicating the case or controversy requirement of Article III,
1. See, e.g., Preiser v. Newkirk, 422 U.S. 395, 401-02 (1975).
This is not a situation analogous to those where the Supreme
Court determined that the appeals became moot because the law at
issue was repealed, see Diffenderfer v. Central Baptist Church,
404 U.S. 412, 414-15 (1972); the subject of the election campaign
controversy was no longer a candidate, see Golden v. Zwickler,
394 U.S. 103, 109-10 (1969); or the railroad whose application
for tariffs was contested withdrew that application, see A.L.
Mechling Barge Lines, Inc. v. United States, 368 U.S. 324, 329-30
(1961).
Indeed, as the Supreme Court has recently explained, an
appeal is moot in the constitutional sense only if events have
taken place during the pendency of the appeal that make it
"impossible for the court to grant 'any effectual relief
whatever.'" Church of Scientology v. United States, 506 U.S. 9,
12, 113 S. Ct. 447, 449 (1992) (quoting Mills v. Green, 159 U.S.
651, 653 (1895)). An appeal is not moot "merely because a court
cannot restore the parties to the status quo ante. Rather, when
a court can fashion 'some form of meaningful relief,' even if it
only partially redresses the grievances of the prevailing party,
the appeal is not moot." RTC v. Swedeland Dev. Group, Inc. (In
re Swedeland Dev. Group, Inc.), 16 F.3d 552, 560 (3d Cir. 1994)
(in banc) (quoting Church of Scientology, 113 S. Ct. at 450).
Thus, in Isidor Paiewonsky Associates v. Sharp Properties, Inc.,
998 F.2d 145, 152 (3d Cir. 1993), we concluded that because we
could impose at least one of the remedies enumerated by the
appellant, and thereby provide it "some effective relief," the
appeal was not moot. See also Swedeland, 16 F.3d at 559-60.
That is not the issue in this case.
Instead, Continental invokes the broader interpretation
of mootness applied in bankruptcy cases, often referred to as
"equitable mootness." See, e.g., Manges v. Seattle-First Nat'l
Bank (In re Manges), 29 F.3d 1034, 1038-39 (5th Cir. 1994), cert.denied,
115 S. Ct. 1105 (1995); In re Specialty Equip. Cos., 3
F.3d 1043, 1048 (7th Cir. 1993); Official Comm. of Unsecured
Creditors of LTV Aerospace & Defense Co. v. Official Comm. of
Unsecured Creditors of LTV Steel Co. (In re Chateaugay Corp.),
988 F.2d 322, 325 (2d Cir. 1993) [hereinafter Chateaugay I];
Rochman v. Northeast Utils. Serv. Group (In re Public Serv. Co.),
963 F.2d 469, 471-72 (1st Cir.), cert. denied, 506 U.S. 908
(1992); First Union Real Estate Equity & Mortgage Invs. v. Club
Assocs. (In re Club Assocs.), 956 F.2d 1065, 1069 (11th Cir.
1992); Central States, Southeast and Southwest Areas Pension Fund
v. Central Transp., Inc., 841 F.2d 92, 95-96 (4th Cir. 1988); In
re AOV Indus., 792 F.2d 1140, 1147 (D.C. Cir. 1986); Trone v.
Roberts Farms, Inc. (In re Roberts Farms, Inc.), 652 F.2d 793,
796-97 (9th Cir. 1981). Under this widely recognized and
accepted doctrine, the courts have held that "[a]n appeal should
. . . be dismissed as moot when, even though effective relief
could conceivably be fashioned, implementation of that relief
would be inequitable." Chateaugay I, 988 F.2d at 325.
The use of the word "mootness" as a shortcut for a
court's decision that the fait accompli of a plan confirmation
should preclude further judicial proceedings has led to
unfortunate confusion. In a trenchant discussion of the issue in
a recent decision of the Seventh Circuit, the court noted that
denominating the doctrine as "equitable mootness" is misleading.
In re UNR Indus., 20 F.3d 766, 769 (7th Cir.), cert. denied, 115
S. Ct. 509 (1994). Judge Easterbrook, writing for the court,
stated: "[t]here is a big difference between inability to alter
the outcome (real mootness) and unwillingness to alter the
outcome ('equitable mootness'). Using one word for two different
concepts breeds confusion." Id. (emphasis in original). Thus,
although the discussions and applications of the concept of
"mootness" in bankruptcy cases by that court had previously
encompassed what is referred to elsewhere as "equitable
mootness," see Specialty Equip., 3 F.3d at 1048; In re
Andreuccetti, 975 F.2d 413, 418 (7th Cir. 1992), the court in UNR
Industries stated it would now "banish 'equitable mootness' from
the (local) lexicon." 20 F.3d at 769. Instead, the court
continued, "[w]e ask not whether this case is moot, 'equitably'
or otherwise, but whether it is prudent to upset the plan of
reorganization at this late date." Id.
These "equitable" or "prudential" considerations focus
on "concerns unique to bankruptcy proceedings." Manges, 29 F.3d
at 1038. It is evident that "equitable mootness" is an inapt
description of the doctrine at issue here. Nonetheless, since
past cases have used that term, we use it in discussing them.
Therefore, it does not further consideration of this appeal to
argue, as the dissent does, that we have "fallen into the trap"
of confusing these considerations with Article III mootness.
Whether termed "equitable mootness" or a prudence doctrine, we
see no reason why the Third Circuit should part company with our
sister circuits in their adoption of this doctrine. If limited
in scope and cautiously applied, this doctrine provides a vehicle
whereby the court can prevent substantial harm to numerous
parties.
The Trustees have not challenged the viability of the
doctrine of equitable mootness or application of prudential
considerations in bankruptcy cases, nor have they cited to a case
in any circuit that rejects the concept. Instead, they rely most
heavily on a decision of the Second Circuit holding that even
though the reorganization plan for the bankrupt LTV Corporation
had been confirmed, the appeal of tax lessors challenging the
plan's failure to give their claims administrative priority was
not moot. See Chateaugay II, 10 F.3d 944 (2d Cir. 1993).
Significantly, the court in Chateaugay II did not quarrel with
the doctrine, merely its application in that case. In fact, in
RTC v. Best Products Co. (In re Best Products Co.), 68 F.3d 26,
29 (2d Cir. 1995), a more recent case from the Second Circuit,
the court once again emphasized the language in Chateaugay I that
even though an appeal may not be moot in the sense of Article III
of the Constitution, it may be deemed moot in bankruptcy cases
because of "equitable considerations."
We have generally stated that we exercise plenary
review of a district court's decision on mootness. SeeSwedeland, 16 F.3d
at 559; Northeast Women's Ctr., Inc. v.
McMonagle, 939 F.2d 57, 61 (3d Cir. 1991); International Bhd. of
Boilermakers v. Kelly, 815 F.2d 912, 914 (3d Cir. 1987).
However, none of those cases involved a determination, like the
one we review here, that an appeal following a consummated
bankruptcy reorganization should be dismissed for equitable and
prudential reasons even though some effective relief is
available. Surprisingly, we have seen little more than a few
cursory references to the standard of review in the cases from
other circuits applying this doctrine. See AOV Indus., 792 F.2d
at 1148 (district court's power to dismiss appeal as moot
"discretionary"); Club Assocs., 956 F.2d at 1069 (legal
determinations reviewed de novo, bankruptcy court's factual
findings reviewed for clear error).
Because the mootness determination we review here
involves a discretionary balancing of equitable and prudential
factors rather than the limits of the federal courts' authority
under Article III, using ordinary review principles we review
that decision generally for abuse of discretion. Cf. General
Glass Indus. Corp. v. Monsour Medical Found., 973 F.2d 197, 200
(3d Cir. 1992) (abstention determination reviewed under abuse of
discretion standard); Bermuda Express, N.V. v. M/V Litsa, 872
F.2d 554, 557 (3d Cir.) (balancing of equities involved in
application of laches doctrine reviewed for abuse of discretion),
cert. denied, 493 U.S. 819 (1989); Bennett v. White, 865 F.2d
1395, 1402 (3d Cir.) (scope of a remedial order reviewed for
abuse of discretion), cert. denied, 492 U.S. 920 (1989); Evans v.
Buchanan, 555 F.2d 373, 378-79 (3d Cir.) (in banc) (same), cert.denied,
434 U.S. 880 (1977). A particular case may also raise
legal and/or factual issues interspersed with the prudential
ones, and then the applicable review standard, plenary or clearly
erroneous, will apply.
The dissent argues that the cases cited above are
inapposite because the district court acted as an appellate court
and that we should therefore use plenary review. However, the
proposition that when an appellate court reviews a lower court's
balancing of prudential factors, it does so under an abuse of
discretion standard as long as the factors considered are not
inappropriate as a matter of law is a general one applicable in
all fields, not excluding bankruptcy. As the Fifth Circuit noted
in a bankruptcy case:
In this particular case, we are reviewing the decision
of the district court in its capacity as an appellate
court. Several different standards of review govern
our decision, depending on the nature of the holdings
reviewed. Where the disputed holding involves a matter
that is within the district court's discretion, we will
affirm the judgment of a district court acting in its
appellate role unless the court has clearly abused its
discretion.

Matter of HECI Exploration Co., Inc., 862 F.2d 513, 519
(citations omitted).
B.
Factors that have been considered by courts in
determining whether it would be equitable or prudential to reach
the merits of a bankruptcy appeal include (1) whether the
reorganization plan has been substantially consummated, (2)
whether a stay has been obtained, (3) whether the relief
requested would affect the rights of parties not before the
court, (4) whether the relief requested would affect the success
of the plan, and (5) the public policy of affording finality to
bankruptcy judgments. See Manges, 29 F.3d at 1039; Rochman, 963
F.2d at 471-72. The Trustees have not taken issue with our
identification of these factors.
Although these five factors have been given varying
weight, depending on the particular circumstances, the foremost
consideration has been whether the reorganization plan has been
substantially consummated. This is especially so where the
reorganization involves intricate transactions, see Rochman, 963
F.2d at 473-74 (performance under plan involved "numerous complex
arrangements"); Roberts Farms, 652 F.2d at 797 (plan involved
"many intricate and involved transactions" and reversal of plan's
confirmation "would knock the props out from under" such
transactions and "create an unmanageable, uncontrollable
situation for the Bankruptcy Court"), or where outside investors
have relied on the confirmation of the plan, see Manges, 29 F.3d
at 1039 (equitable mootness "protects the interests of non-
adverse third parties who are not before the reviewing court but
who have acted in reliance upon the plan as implemented"); UNR
Indus., 20 F.3d at 770 ("[b]y protecting the interests of persons
who acquire assets in reliance on a plan of reorganization, a
court increases the price the estate can realize ex ante, and
thus produces benefits for creditors in the aggregate"); Rochman,
963 F.2d at 474 (reorganization involved $1.5 billion in
financing from 100,000 sources); Club Assocs., 956 F.2d at 1070
("a number of investors, who were not parties to this case, had
committed new funds to the 'reemerged Club' with the expectation
of receiving a preferred return on their investments").
"Substantial consummation" is defined in the Bankruptcy
Code as: "(A) transfer of all or substantially all of the
property proposed by the plan to be transferred; (B) assumption
by the debtor or by the successor to the debtor under the plan of
the business or of the management of all or substantially all of
the property dealt with by the plan; and (C) commencement of
distribution under the plan." 11 U.S.C. 1101(2). In such
instances, the strong public interest in the finality of
bankruptcy reorganizations is particularly compelling.

The district court dismissed the Trustees' appeals to
it as "moot" based on the conclusions, set forth in its opinion
dated December 30, 1993, that substantial consummation of the
Plan had occurred, the Investors had already made their $450
million investment into the reorganized entity, all elements of
the Plan, except distributions to the unsecured creditors, had
been completed, and a reversal of the order confirming the Plan
likely would put Continental back into bankruptcy. App. at 1873.
The court also noted that Continental had implemented the Plan
following its approval by the court because the Trustees had
failed to obtain a stay.
The Trustees do not challenge that there had been
substantial consummation by December 1993, when the district
court dismissed the appeals as moot. They suggest that as their
object is not to disturb the reorganization, but only to get
payment from the reorganized Continental for their adequate
protection claim measured by the market value decline of the
collateral during bankruptcy, the line of cases upon which
Continental relies is inapplicable. We cannot agree, because the
rejection of the Trustees' claim by the bankruptcy court was
inextricably intertwined with the implementation of the
reorganization. See AOV Indus., 792 F.2d at 1148 (to evaluate
mootness, court must "scrutinize each individual claim, testing
the feasibility of granting the relief against its potential
impact on the reorganization scheme as a whole"). Thus, the
Trustees cannot avoid the effect of the substantial consummation
of the reorganization plan so readily.
Inasmuch as Continental agrees that the issue is not
constitutional mootness but prudential mootness, we will assume
arguendo that even after substantial or total consummation of its
reorganization, some effective relief would have been available
for the Trustees' claim at the time they appealed to the district
court, and on appeal to this court. Even before the in banc
court, Continental has not challenged that assumption. It is
quite another matter in light of the substantial, indeed
irrevocable, change in the status quo that followed confirmation
to determine that it would have been prudent for the court to
reach the merits of the Trustees' claim. For the district court
had before it an unstayed bankruptcy reorganization plan, and
many courts have based their prudential decisions to decline to
consider challenges to bankruptcy court orders on the ground that
there has been substantial consummation of a plan of
reorganization in reliance upon an unstayed confirmation order.
See, e.g., Rochman, 963 F.2d at 475.
In Chateaugay I, the court noted that although the
Bankruptcy Code only requires a stay pending appeal in limited
circumstances, there is a procedure under Bankruptcy Rule 8005 to
seek to preserve the status quo and "[t]he party who appeals
without seeking to avail himself of that protection does so at
his own risk." 988 F.2d at 326. And in In re Manges, the court
observed, under the descriptive title "Halting the Runaway Train:
the Motions to Stay," that "in many of the cases in which
bankruptcy appeals were dismissed as moot, the appellants failed
to seek a stay." 29 F.3d at 1039.
Even the seeking of a stay may not be enough. The
appellants in In re UNR Industries had sought a stay, albeit
unsuccessfully, at every opportunity; nonetheless, the court
noted, "[a] stay not sought, and a stay sought and denied, lead
equally to the implementation of the plan of reorganization." 20
F.3d at 770; accord AOV Indus., 792 F.2d at 1144, 1146-47.
Shortly after the confirmation of the Continental Plan,
the Trustees filed an Emergency Motion for Conditional Stay of
Order Confirming the Plan pending their appeal to the district
court. The condition the Trustees sought in lieu of a stay was
the establishment of a segregated account for $117 million, the
full amount of their adequate protection claim, or alternatively
at least $22 million, which they claim was the admitted decline
in the value of the collateral. See App. at 1721. In response
to the district court's inquiry, they conceded that they were not
willing to post any bond. The district court never required a
supersedeas bond in the amount of $450,000,000, as the Trustees
have suggested. In fact, the district court tried to ascertain
the amount of bond that would be reasonable, and the Trustees'
general position was that they were "merely the fiduciary of the
money of their bondholders" and they suggested no lesser amount.
App. at 1729.
Thus, as one of the reasons for its order denying the
stay, the district court noted the unwillingness of the Trustees
to post a bond satisfactory to the court. App. at 1756. See,
e.g., Central States, 841 F.2d at 95 (appellant's failure to post
bond to stay confirmation order basis for finding appeal moot).
Because the failure to post the bond needed to get a stay
permitted the consummation of the plan, this factor weighs
heavily in favor of the district court's declination to delve
into the merits of the Trustees' appeal.
The Trustees argue that this court has held that
failure to obtain a stay does not necessarily render an appeal
moot. The cases to which they refer are not apposite. In one,
In re Joshua Slocum Ltd., 922 F.2d 1081 (3d Cir. 1990), the issue
was the narrow one of the power of the bankruptcy court to excise
a paragraph from a shopping center lease. There is no indication
in Slocum that there had been any confirmation of a plan before
or during the appeal.
In the more recent case to which the Trustees refer,
Megafoods Stores, Inc. v. Flagstaff Realty Assocs. (In re
Flagstaff Realty Assocs.), 60 F.3d 1031 (3d Cir. 1995), the
appeal also presented a narrow landlord-tenant issue, i.e. the
effect of confirmation of the landlord's plan on a tenant's right
to pursue its appeal of the bankruptcy court's denial of its
recoupment claim. In holding that it was not necessary for the
tenant to seek a stay in order to pursue its right to appeal
despite the confirmation in the interim, we noted the line of
cases placing recoupment and setoff in a special category and
stated, "although we recognize the importance of maintaining the
integrity of confirmed plans from later attack, these unique
circumstances permit the plan to be reopened and readjusted."
Id. at 1036. Thus, neither Flagstaff nor Slocum addressed the
equitable or prudential mootness considerations at issue here.
High on the list of prudential considerations taken
into account by courts considering whether to allow an appeal
following a consummated reorganization is the reliance by third
parties, in particular investors, on the finality of the
transaction. See Manges, 29 F.3d at 1039 ("[t]he concept of
'mootness' from a prudential standpoint protects the interests of
non-adverse third parties who are not before the reviewing court
but who have acted in reliance upon the plan as implemented");
Rochman, 963 F.3d at 474-75 (similar). Here, the record is
replete with evidence that the Investors relied on the bankruptcy
court's unstayed Confirmation Order in making the decision to
proceed to close the transaction and that an essential factor in
that decision was the bankruptcy court's disallowance of the
Trustees' adequate protection claim.
The Plan of reorganization provided that the
reorganized Continental would pay "Allowed Administrative
Claims." App. at 656, 691 (Plan 5.5, 10.1). Among the
administrative claims that were still disputed at the time of the
confirmation hearing were several large claims, including, in
particular, labor claims by airline pilots, large claims by
Eastern Airlines, and the Trustees' claim for adequate protection
based on alleged market decline of the collateral. App. at 1223,
1346. One of the concerns of the Investors that needed to be
satisfied as a condition of their participation was that the
total amount that would have to be paid for allowed
administrative claims could be distorted by a few such large
claims. To limit their exposure, the Investment Agreement
provided that the Investors' obligation to proceed with the
arrangements was subject, inter alia, to the payments and
obligations for administrative claims being no higher than a
specified amount, or "cap." App. at 408.
At the confirmation hearing, Continental's expert
witness testified that if the claims of the Airline Pilots and
the Trustees were excluded, the total allowed administrative
claims payable under the Plan would be close to the cap, and that
if the Trustees' claim were allowed, the cap would be exceeded,
allowing the Investors to walk away from the deal. App. at 1223-
24, 1333-38. Based on this testimony, Continental argued to the
bankruptcy court that the feasibility determination required for
confirmation under 11 U.S.C. 1129(a)(11) would turn in part on
the adjudication of the Trustees' still outstanding
administrative claim. App. at 1400. Continental therefore urged
the court to incorporate its adjudication of the Trustees' claim
into the Confirmation Order itself, asserting that the Investors
would not go forward with the deal "unless there is an order upon
which they can place reliance, which is going to be a plan
confirmation order." App. at 1400. The Trustees argued against
incorporation, taking the position that even though the amount of
the adequate protection claim allowed by the court would be
relevant to the court's subsequent determination of feasibility,
the adjudication of the claim itself was a separate matter from
plan confirmation. App. at 1401.
The bankruptcy court ultimately took the approach urged
by Continental, incorporating into its Confirmation Order its
decision denying the Trustees' adequate protection claim. As
part of its feasibility determination, it explicitly found that
neither the pilots' claims nor the Eastern claims was entitled to
administrative priority, and that the Trustees' adequate
protection claim had no value as an administrative claim. App.
at 1549-51. On that basis, it found that there was substantial,
credible and uncontested evidence that the administrative claims
payable at confirmation -- excluding the claims of the pilots,
Eastern, and the Trustees -- would be within the specified limit
of the cap set forth in the Investment Agreement, App. at 1548,
noting that the adjudications of the Trustees' claim and the
Eastern claims were "crucial to the willingness of the Investors
to consummate the Financing Transaction." App. at 1550.
We are unwilling to accept the Trustees' suggestion,
implicit in their briefs and made explicit at oral argument, that
the bankruptcy court's ruling on the merits of their adequate
protection claim was colored by a so-called "ultimatum" from
Continental that if the claim were granted the Investors would
abandon the reorganization. See In Banc Argument Transcript at 3.
The Trustees offer no evidence in support of this suggestion, and
we certainly would not lightly impute such a motive to the
bankruptcy court. In effect, the Trustees are challenging the
Investors' right to condition their investment on the amount of
approved administrative claims. This was never raised below at
the time of the Investment Agreement, the ultimate confirmation
or the period between. We know of no statute, rule or precedent
that would deny investors the right to limit their investments on
the existence of conditions which they believe give the newly
reorganized company a reasonable opportunity to succeed -- such
as, in this case, without being weighed down by excessive
administrative expenses.
The Trustees also argue that Continental's position at
the confirmation hearing, that the adjudication of the Trustees'
claim should be incorporated into the Confirmation Order, was a
"ploy" to "disingenuously" use the fact of such incorporation to
"manufactur[e] the appearance of mootness." Appellants' Brief at
3; In Banc Argument Transcript at 1. Their characterization of
Continental's position as a "ploy" implies that it had no
legitimate reason. In light of the integral nexus between the
feasibility of confirmation and the adjudication of the Trustees'
claim, it appears that the suggestion of incorporation urged by
Continental and adopted by the bankruptcy court was reasonable
and reflected the inescapable fact that the Trustees' claim and
the confirmation of the Plan were inextricably intertwined,
rather than an attempt to "manufacture" the appearance of
equitable mootness.
 In dismissing the Trustees' appeals as moot, the
district court specifically found that the Investors had relied
on the bankruptcy court's unstayed Confirmation Order and that
there was an integral nexus between the investment and the
success of the Plan. The court stated, "[t]he Investors relied
on the unstayed Confirmation Order in making the $450 million
investment in Continental's Plan. It is clear that [the
Trustees'] requested relief would undermine the grounds which the
Investors relied upon in making their investment and would
require a dismantling of the entire Plan." App. at 1874.
Although the Trustees argue that this finding is erroneous, there
is support for it in the record.
At the hearing in April 1993 before the district court
on the Trustees' request for the conditional stay of the
Confirmation Order, counsel for the Trustees stated they had
testimony that "as a matter of business judgment, it would be
extremely unlikely for the investors to walk away from this deal
if . . . a 22-million-dollar deposit was established." App. at
1727. The Trustees' counsel in effect challenged the Investors
to assert otherwise, stating that inasmuch as the Investors'
counsel were in court they could correct any assertions that he
made. Id. Thereafter, the Investors' attorney rose "to make
clear the [I]nvestors' position, which is that if the relief is
granted to [the Trustees] which they seek from the Court this
morning [the stay conditioned on a deposit of some $22 million to
$117 million], then we are not prepared to close the
transaction." App. at 1744.
The representative of the Investors explained that in
the airline business "there is a great sensitivity to cash and
the capital structure of a reorganized entity," and that the
relief that the Trustees sought "could significantly impair the
capital structure that would exist with respect [to] this
reorganized airline." Id. at 1744-45. He reviewed the
negotiations that had occurred for the cap for administrative
expense liability, advised that the Investors had monitored on a
monthly basis Continental's performance in that respect, and
explained that the Investors had insisted that the Confirmation
Order address the issue of the Trustees' claim "because we want
to make sure if we are putting our money in, we are getting the
benefit of our bargain, which is a reorganized entity with a
capital structure that we contemplated." App. at 1746. He
concluded by stating unequivocally that if a stay were entered
conditioned upon the bond the Trustees sought, then his client
"would not be prepared to close this transaction." Id. The
Trustees' counsel did not thereafter argue that the Investors'
counsel's statements were insufficiently probative, and therefore
that suggestion here is less than persuasive.
The Trustees have not contested here that if their
claim for market value decline of the collateral (a claim
independent of their claim for the use and maintenance of the
collateral, which has been satisfied) had been approved as an
administrative claim, the total such administrative claim would
have greatly exceeded the cap specified by the Investors for that
purpose. This would have given the Investors the option to
withdraw; such withdrawal would have placed the entire Plan in
jeopardy. By the time the district court ruled on the appeal, it
was no longer possible to restore the parties to their earlier
positions because the investment had been made, and the option to
withdraw was no longer available to the Investors. See Specialty
Equip., 3 F.3d at 1049 (claim held moot when its acceptance
"would amount to imposing a different plan of reorganization on
the parties"). Thus, the third factor bearing on the prudential
determination whether to reach the merits of a bankruptcy appeal
after confirmation and in the absence of a stay -- the effect of
the requested relief on the rights of parties not before the
court -- weighs heavily against the Trustees.
This factor cannot fairly be recast as whether the
Investors or others reasonably relied on the prediction that the
Trustees would recover nothing on their claim. While we agree
that reliance of the Investors and others on the unstayed
Confirmation Order is of central importance to our analysis, to
focus on the "reasonableness" of that reliance, at least as
measured by the likelihood of reversal on appeal, is necessarily
a circular enterprise and therefore of little utility. Whether
the Investors were reasonable in relying on the bankruptcy
court's order depends on whether this was a case that would be
considered on the merits on appeal or would be dismissed on the
basis of the doctrine often referred to as "equitable mootness."
And whether this case would be dismissed on "equitable mootness"
grounds on appeal in turn depends on whether the Investors
reasonably relied. Thus, placing the focus on the reasonableness
of the Investors' reliance as measured by the probability that
Continental would prevail on appeal sets up a straw man which is
easily knocked down.
Our inquiry should not be about the "reasonableness" of
the Investors' reliance or the probability of either party
succeeding on appeal. Rather, we should ask whether we want to
encourage or discourage reliance by investors and others on the
finality of bankruptcy confirmation orders. The strong public
policy in favor of maximizing debtors' estates and facilitating
successful reorganization, reflected in the Code itself, clearly
weighs in favor of encouraging such reliance. Indeed, the
importance of allowing approved reorganizations to go forward in
reliance on bankruptcy court confirmation orders may be the
central animating force behind the equitable mootness doctrine.
See Rochman, 963 F.2d at 471-72; Metro Property Mgmt. Co. v.
Information Dialogues, Inc. (In re Information Dialogues, Inc.),
662 F.2d 475, 477 (8th Cir. 1981). Where, as here, investors and
other third parties consummated a massive reorganization in
reliance on an unstayed confirmation order that, explicitly and
as a condition of feasibility, denied the claim for which
appellate review is sought, the allowance of such appellate
review would likely undermine public confidence in the finality
of bankruptcy confirmation orders and make successful completion
of large reorganizations like this more difficult. This is true
regardless of whether the Investors' reliance was "reasonable" or
based on a 30%, 60%, or 100% probability of success on appeal, an
issue raised at the oral argument.
 In arguing against dismissal here on the basis of
prudential considerations, the Trustees repeatedly rely on their
assertion that the Plan contained "a built-in mechanism for the
[post-confirmation] disposition and payment of Disputed
Administrative Claims." Appellants' Brief at 10. On the basis
of this provision, they argue that they had no obligation to take
steps to preserve the status quo through a stay, that their
appeal is not moot because "some effective relief" is available,
and that the Plan is contractually "binding" on Continental.
They conclude that the district court therefore erred in
"permitt[ing] Continental to escape its 'contractual' obligations
under the Plan under the guise of the mootness doctrine."
Appellant's Brief at 20. While the Trustees' description of the
"mechanism" provided in the Plan is technically correct, they
overstate the impact of that mechanism.
Under the definitions in the Plan, the Trustees' claim
was a "Disputed Administrative Claim" because it sought adequate
protection payments, see App. at 623-24 (Plan 1.4(vi)) and was
the subject of a timely objection, see App. at 632 (Plan
1.85(a)). The Plan requires the reorganized Continental to pay
allowed administrative claims on the later of: the effective
date of confirmation or "the fifth Business Day after such Claim
is Allowed." App. at 691 (Plan 10.1). Further, the Plan
provides that "[a] Disputed Claim shall be an Allowed Claim if,
and only to the extent that, such Disputed Claim has been Allowed
by a Final Order," App. at 623 (Plan 1.5), and defines a "Final
Order" as "[a]n order which is no longer subject to appeal,
certiorari proceeding or other proceeding for review or
rehearing, and as to which no [such proceeding is] pending," App.
at 635 (Plan 1.100).
Thus, the Plan imposes an obligation on the reorganized
Continental to pay disputed administrative claims once they
become allowed by a final order of court, even if such final
order does not occur until after confirmation. If the bankruptcy
court's disallowance of the Trustees' claim were to be reversed
on appeal, the Plan appears to provide a "mechanism" for payment
of the claim by the reorganized Continental. The mere
availability of such a mechanism, however, which may prevent
dismissal on the ground of Article III constitutional mootness,
does not warrant reversal of the district court's order
dismissing it on prudential grounds. As we have noted, the
district court's "mootness" determination was based not on a
finding that no effective relief was available, but rather on the
finding that in light of all the circumstances, it would be
inequitable to grant relief. Nor has any "contractual
obligation" been violated either by Continental or the district
court. Where, as here, there has been no order, final or
otherwise, allowing the Trustees' disputed administrative claim,
the Plan imposes no obligation on the reorganized Continental to
pay it.
Finally, the Plan provisions allowing for post-
confirmation payment of allowed claims in no way obviated the
Trustees' obligation to seek a stay. Here, where the
confirmation of the Plan and the willingness of the Investors to
go forward turned on the bankruptcy court's denial of the
Trustees' claims, and where the denial of those claims was in
fact incorporated into the Confirmation Order, there was a clear
possibility that the Trustees' claims would become moot after
consummation of the Plan, and it was therefore incumbent on the
Trustees to obtain a stay. Indeed, the record shows that all
parties were well aware of the extensive legal precedent
dismissing as moot or on equitable grounds appeals from unstayed
consummated reorganizations. See App. at 410 (references in the
Investment Agreement); App. at 1729-30, 1741 (argument before the
district court on the stay).
For similar reasons, we fail to see the inconsistency
charged by the Trustees between Continental's current position
as to "equitable mootness" and its argument to the bankruptcy
court in response to the Trustees' Deposit Motion that the Plan
would require payment of the Trustees' claim by the reorganized
Continental if and when allowed. See App. at 1039. As noted
above, the Plan imposes no obligation on Continental in the
absence of a final order allowing the Trustees' claim, and the
mere availability of a mechanism for granting relief does not
mean the court cannot determine that in light of all the
circumstances it should not even try to unscramble the eggs.
Moreover, at the time Continental argued against the
Deposit Motion the bankruptcy court had not yet ruled disallowing
the Trustees' claim nor cited that as an explicit basis for its
feasibility determination in confirming the plan. Accordingly,
Continental did not yet have reason to know that the claim would
be denied and become subject to "equitable mootness" on appeal.
As soon as the basis for this mootness argument became apparent,
Continental repeatedly asserted its intention to make such an
argument if an appeal was filed and no stay obtained. App. at
1691, 1742.
The Trustees have not presented us with any arguments
which would weigh against all of the prudential considerations
that dictate that this consummated reorganization must be left in
place. Following confirmation, Continental was operating as a
restructured company, and had entered into countless new
relationships and transactions. To convince a court to take the
action sought by the Trustees which would undermine the basis for
the Investors' decision to proceed, the Trustees would have to
proffer a powerful reason indeed. They have not even attempted
to do so.
Arrayed against that silence are the facts that the
reorganization plan was consummated, no stay was obtained,
numerous other parties have changed their positions, and numerous
irrevocable transactions have since been completed as a result of
the consummation of the Plan. Without listing all of such
transactions set forth by Continental in its brief, we note that
among those are the distribution to unsecured creditors, the
merger of 53 debtors other than Continental with and into
Continental, the investment of $110 million in cash by Air
Partners and Air Canada in the reorganized Continental, the
transfer by foreign governments of various route authorities, and
the assumption by the reorganized Continental of unexpired leases
and executory contracts worth over $5.0 billion. Thus, the key
issue really is whether the district court abused its discretion
in weighing the various equitable factors. We are not prepared
to hold that the balance reached by the district court was an
abuse of its discretion.
Under the circumstances presented here, we can see no
prudential considerations that would support an attempt by an
appellate court, district or court of appeals, to fashion even a
limited remedy for the Trustees. That would necessarily entail
imposing a new debt on the reorganized company, which is a
different entity than it was when this case was before the
district court. Thus, we agree with the determination of the
district court to dismiss the Trustees' claim. We base our
holding on our conclusion that it would be neither prudent nor
equitable to grant the Trustees the relief they seek.
III.
CONCLUSION
For the reasons set forth we will affirm the order of
the district court.

In Re: Continental Airlines
No. 94-7748

ALITO, Circuit Judge, dissenting, joined by Judges Becker,
Greenberg, Lewis, McKee and Sarokin.

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 federal 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. According to the
majority, there is no clear rule for determining when a
bankruptcy appeal is "equitably moot." Instead, this is said to
be a discretionary determination to be made in the first instance
by the district court based on a weighing of five factors that
the majority has culled from the opinions of our "sister
circuits." In my view, if the doctrine of "equitable mootness"
has any validity, it is more limited than the majority holds.
The dangers inherent in the majority's adoption and
broad interpretation of this doctrine are illustrated by this
case. In simple terms, this is what happened. After filing for
relief under Chapter 11 of the Bankruptcy Code, Continental
Airlines continued to use certain aircraft and jet engines that
were held as collateral entrusted to the Trustees. Believing
that their collateral was undergoing a dramatic diminution in
value, the Trustees in August 1992 filed a renewed motion in the
bankruptcy court seeking "adequate protection" under 11 U.S.C.
363(e). During the next eight months, while the Continental
reorganization plan proceeded toward confirmation, the bankruptcy
court did not rule on this motion. In March 1993, Continental
insisted that the bankruptcy court rule on the Trustees' motion
at the same time that it confirmed the plan, and Continental told
the bankruptcy judge that unless the motion was denied, the
prospective investors in the reorganized corporation would
withhold funding, and the reorganization would not go forward.
See Continental Br. at 5-6 & n.1. Furthermore, Continental took
the position that if the plan was confirmed and went into effect,
any appeal would be moot. See Continental Br. at 21. The
bankruptcy court then simultaneously denied the Trustees' motion
and entered the order confirming the plan. The Trustees
exercised their statutory right to appeal to the district court,
and in my view the need for review by an Article III court is
particularly acute when the challenged ruling of the bankruptcy
court is made under circumstances such as these.
The Trustees, however, have been utterly denied such
review. In the initial level of appeal, the district court
opined that the Trustees probably would have won if the merits of
their appeal had been reached (JA 1755-56), but the district
court dismissed their appeal as moot. Likewise, the majority of
our court describes the Trustees' arguments as "interesting and
challenging" (Maj. Op. at 9) but then throws them out of court
without reaching the merits of their arguments. And the majority
does this even though (a) this case is clearly not "moot" in any
proper sense of the term, (b) we unquestionably have statutory
jurisdiction, and (c) we have a "virtually unflagging obligation"
to exercise the jurisdiction that we have been given. Colorado
River Water Conservation District v. United States, 424 U.S. 800,
817 (1976). I am puzzled and troubled by what the majority has
done.

I.

As the majority notes, the Trustees have not contested
the existence of the doctrine of "equitable mootness," and in
light of the Trustees' position, I think that it is appropriate
to assume the existence of this doctrine for purposes of this
appeal. The majority opinion, however, does not simply assume
the existence of this doctrine but adopts it as part of the law
of our circuit. In doing so, the majority does not undertake an
independent analysis of the origin or scope of the doctrine but
is instead content to rely on the decisions of other courts of
appeals. From these decisions, the majority extracts five
factors, which are to be weighed by the district court in the
initial level of appeal for the purpose of determining whether
the appeal is "equitably moot." Maj. Op. at 14. These factors
are: "(1) whether the reorganization plan has been substantially
consummated, (2) whether a stay has been obtained, (3) whether
the relief requested would affect the rights of parties not
before the court, (4) whether the relief requested would affect
the success of the plan, and (5) the public policy of affording
finality to bankruptcy judgments." Maj. Op. at 15.
I am not convinced that the majority's test is
consistent with the law of all of the circuits that the majority
claims to be following. For example, the Eleventh Circuit holds
that the proper test is "whether the `reorganization plan has
been so substantially consummated that effective relief is no
longer available.'" In re Club Associates, 956 F.2d 1065, 1069
(11th Cir. 1992) (quoting Miami Center Ltd. Partnership v. Bank
of New York, 820 F.2d 376, 379 (11th Cir. 1987)). This inquiry
seems quite different from the majority's indeterminate five-
factor test. But even if the majority's analysis is supported by
the decisions it cites, and even though I think that those
decisions deserve careful and respectful consideration, I think
that the in banc majority should have made an independent
examination of the basis and scope of the doctrine of "equitable
mootness" before engraving it in our circuit's law.
What is the basis of this doctrine? As the majority
acknowledges, it does not stem from the "case-or-controversy"
requirement of Article III. See Maj. Op. at 10. For example, it
is not argued that the case now before us is moot in the Article
III sense.
Nor does it appear that this doctrine is rooted in non-
Article III mootness decisions "reflect[ing] avowedly flexible
doctrines of remedy and judicial administration." 13A Charles
Alan Wright, Arthur R. Miller, and Edward H. Cooper, Federal
Practice and Procedure 3533.1 at 222 (1984). These doctrines
are said to focus on the question whether "granting a present
determination of the issues offered, and perhaps the entry of
more specific orders, will have some effect in the real world."
Id. at 3533.1 at 226 (footnote omitted). Here, it is clear
that a determination of the merits of the issues raised by the
Trustees and the entry of a remedial order on the basis of such a
determination would have "some effect" -- and potentially quite a
substantial effect -- in the real world. (That is precisely why
Continental does not want us to entertain the appeal!)

Thus, as this case well illustrates, the doctrine of
"equitable mootness" is not really about "mootness" at all in
either the Article III or non-Article III sense. As the Seventh
Circuit stated in a passage that the majority quotes with
approval (see Maj. Op. at 12), "[t]here is a big difference
between inability to alter the outcome (real mootness) and
unwillingness to alter the outcome (`equitable mootness'). Using
one word for two different concepts breeds confusion." In re UNR
Indus., Inc., 20 F.3d 766, 769 (7th Cir.) (emphasis in original),
cert. denied, 115 S. Ct. 509 (1994).
If the doctrine of "equitable mootness" is not based on
real mootness principles, on what is it based? The cases cited
by the majority and the parties suggest two possible answers.
The first is provided by the earliest court of appeals
decision cited by the majority, In re Roberts Farms, Inc., 652
F.2d 793, 796-97 (9th Cir. 1981), and several others. See In re
AOV Industries, Inc., 792 F.2d 1140, 1147 (D.C. Cir. 1986); In re
Information Dialogues, Inc., 662 F.2d 475, 477 (8th Cir. 1981).
The modest authority on which the Roberts Farms court relied was
a provision of former Bankruptcy Rule 805, which concerned stays
pending appeal. Added by a 1976 amendment to the rule, the
provision in question stated:
Unless an order approving a sale of property
or issuance of a certificate of indebtedness
is stayed pending appeal, the sale to a good
faith purchaser or the issuance of a
certificate to a good faith holder shall not
be affected by the reversal or modification
of such order on appeal, whether or not the
purchaser or holder knows of the pendency of
the appeal.

Although I do not find the Roberts Farms opinion
entirely clear, I think that the best reading of the opinion is
that the challenge to the plan of reorganization in that case
could not be entertained because no relief was practicable as a
result of the many post-confirmation transactions that were
irreversible due to this provision of former Rule 805. See 652
F.2d at 797. In any event, whether or not this is what the
Roberts Farms court meant to say, I do not see how any broader
rule could reasonably be extracted from the provision of former
Bankruptcy Rule 805 on which the Roberts Farms court relied or
from the analogous provisions now contained in 11 U.S.C.
363(m) and 364(e). If one begins with narrow provisions such as
these -- which merely prevent the upsetting of certain specific
transactions if stays are not obtained -- I do not see how one
can derive the broad doctrine of "equitable mootness" that the
majority in this case appears to embrace.
What apparently happened, however, was that the holding
of Roberts Farms was gradually extended well beyond anything that
could be supported by the authority on which Roberts Farmsrested.
Subsequent cases first cited Roberts Farms in support of
the proposition that a bankruptcy appeal cannot be entertained if
the court could not grant "effective relief." See, e.g., In re
Information Dialogues, Inc., 662 F.2d at 477. Later, Roberts
Farms was interpreted more expansively to mean that an appeal
could not be entertained if a court could not award relief that
was "equitable." See In re Chateaugay Corp., 988 F.2d 322, 324
(2d Cir. 1993) (citing Roberts Farms). And this latter holding
figures prominently in the majority's analysis. See Maj. Op. at
12. In my view, this gradual but ultimately quite substantial
extension of Roberts Farms cannot be squared with the narrow
authority on which that decision relied. Accordingly, if
anything like the majority's decision in this case is to be
defended, some other foundation for the doctrine of "equitable
mootness" must be found.
The second possible basis for the doctrine of
"equitable mootness" is suggested in In re UNR Indus., supra,
where the Seventh Circuit wrote:
Several provisions of the Bankruptcy
Code of 1978 provide that courts should keep
their hands off consummated transactions.
For example, 11 U.S.C. 363(m) says that the
reversal of an order authorizing the sale or
 lease of property of an estate "does not
affect the validity of a sale or lease under
such authorization to an entity that
purchased or leased such property in good
faith, whether or not such entity knew of the
pendency of the appeal." Unless the sale is
stayed pending appeal, the transaction
survives even if it should not have been
authorized in the first place. See In re
Sax, 796 F.2d 994 (7th Cir. 1986); cf. In re
Edwards, 962 F.2d 641 (7th Cir. 1992)
(concluding that 363(m) does not, however,
forbid all forms of collateral attack).
Another section of the Code, 11 U.S.C.
1127(b), dramatically curtails the power of a
bankruptcy court to modify a plan of
reorganization after its confirmation and
"substantial consummation." Section 1127(b),
unlike 363(m), does not place any limit on
the power of the court of appeals, but the
reasons underlying 363(m) and 1127(b) --
preserving interests bought and paid for in
reliance on judicial decisions, and avoiding
the pains that attend any effort to
unscramble an egg -- are so plain and so
compelling that courts fill the interstices
of the Code with the same approach.

20 F.3d at 769. Thus, the court seemed to say that the
Bankruptcy Code contains an "interstice" -- a gap -- regarding
the circumstances under which an appeal that might upset a plan
of reorganization may be pursued. Further, the court appeared to
suggest that the federal courts have the authority to create a
rule of federal common law to fill this gap. See, e.g., United
States v. Little Lake Misere Land Co., Inc., 412 U.S. 580, 593
(1973) (referring to the "`power in the federal courts to
declare, as a matter of common law or "judicial legislation,"
rules which may be necessary to fill in interstitially or
otherwise effectuate the statutory patterns enacted in the large
by Congress'") (citation omitted).
This is an interesting theory, but I find it
unnecessary to decide in this case whether it is correct. For
present purposes, what is important is to note that, even if this
theory is correct, it has nothing to do with mootness. Instead,
it concerns a federal common law rule designed to promote certain
policies of chapter 11 of the Bankruptcy Code. These policies
are the facilitation of reorganizations and the protection of
those who reasonably rely on reorganization plans. As I explain
below, neither of these policies justifies what has happened in
this case -- the refusal of the Article III courts to entertain a
live appeal over which they indisputably possess statutory
jurisdiction and in which meaningful relief can be awarded.

II.
 A. How can the objective of preserving the Continental
reorganization justify what the majority has done? The Trustees
are not seeking to upset the plan of reorganization; rather, they
are attempting to obtain payments that they claim are due to them
pursuant to that plan. Moreover, even if the success of the
reorganization might be imperilled if the Trustees obtained the
full relief that they are seeking -- an empirical proposition
that is not self-evident -- the courts could surely fashion some
measure of lesser relief that would not disturb the
reorganization. In order to justify its decision, which slams
the courthouse door on the Trustees before they are even heard on
the merits, the majority would have to show that the Trustees
could not be awarded any relief -- not one dollar -- without
upsetting the Continental reorganization, and obviously they
cannot do any such thing. I do not dispute the desirability of
preserving the Continental reorganization, but to my mind this
objective implicates a question of remedy, to be decided after
the merits of the Trustees' arguments are addressed, and not a
threshold question of "mootness."
In treating this as a threshold question, the majority,
I believe, has been confused by the misleading term "equitable
mootness," which, as I have discussed, does not actually involve
mootness at all. The federal courts are accustomed to
considering questions of Article III mootness, and the majority,
in my view, has fallen into the trap of thinking that the
question of "equitable mootness" that is now before us must be
treated as if it were a question of Article III mootness.
Whether a case is moot in the Article III sense is, of course, a
jurisdictional question, see, e.g., Rosetti v. Shalala, 12 F.3d
1216, 1223 (3d Cir. 1993), and therefore it is a question that we
are obligated to resolve before we consider the merits of an
appeal. See, e.g., United Wire Metal and Machine Health and
Welfare Fund v. Morristown Memorial Hosp., 995 F.2d 1179, 1190
(3d Cir.), cert. denied, 114 S. Ct. 382 (1993); Rogin v. Bensalem
Tp., 616 F.2d 680, 684 (3d Cir. 1980), cert. denied, 450 U.S.
1029 (1981). Moreover, if we conclude that an appeal is moot in
this sense, we have little remedial flexibility; we generally
have no choice but to dismiss. See, e.g., U.S. Bancorp Mortgage
Co. v. Bonner Mall Partnership, 115 S. Ct. 386, 389-90 (1994);
Mills v. Green, 159 U.S. 651, 653 (1895) (when "an event occurs
which renders it impossible for this court, if it should decide
the case in favor of the plaintiff, to grant him any effectual
relief whatever, the court will not proceed to a formal judgment,
but will dismiss the appeal").
By contrast, the doctrine that is involved here --
which is not really a doctrine of mootness at all -- does not
demand or justify similar treatment. It does not present a
jurisdictional question; we are not required to consider it
before proceeding to the merits; and even if we find that it is
applicable, it does not necessarily dictate that we dismiss the
appeal or affirm in its entirety a district court order of
dismissal. Rather, we retain the ability to craft, or to
instruct the district or bankruptcy courts to craft, a remedy
that is suited to the particular circumstances of the case.
Thus, a remedy could be fashioned in the present case to ensure
that the Continental reorganization is not undermined.
B. Much the same is true with respect to the objective
of protecting reasonable reliance interests. In my opinion, this
is also a remedial consideration; if the Trustees win on the
merits, the need to protect reasonable reliance interests can be
fully taken into account in crafting an appropriate remedy. I
thus see no need to resolve the question of reasonable reliance
interests at this time.
The majority, however, not only wrongly treats this as
a threshold, rather than a remedial, consideration, but engages
in an analysis that flies in the face of the language of the plan
and seems to assume an extraordinary degree of naivete on the
part of the Investors and the others who are said to have relied
on the plan.
I will focus on the Investors because their plight
looms large in the majority's analysis. When the Investors
decided to invest in the reorganized company, NewCal, they knew
or should have known that under the reorganization plan NewCal
would be required to pay the Trustees' claim if it was ultimately
allowed. Section 10.1 of the plan provided that NewCal would pay
"Allowed Administrative Claims." Moreover, in order to persuade
the bankruptcy court to reject the Trustees' request that a cash
reserve be established prior to confirmation to cover their
claim, Continental argued that such a reserve was unnecessary
because if the Trustees' claim was allowed it would be "an
Allowed Administrative Claim which would be paid in accordance
with the terms of Section 10.1 of the Plan." JA 1039. Under
these circumstances, any prudent investor, in deciding whether to
invest in NewCal on particular terms, would have taken into
account the range and likelihood of possible outcomes in the
Trustees' appeal, including the possibility that some or all of
the amount sought by the Trustees would have to be paid as an
administrative claim pursuant to Section 10.1 of the plan. No
reasonable investor would have proceeded on the assumption that
the Trustees would definitely recover nothing. And the same is
true of the other parties that relied on the plan. Thus, I am
skeptical about the reliance interests that are claimed here, but
in any event I fail to see why this issue needs to be resolved at
the threshold of this case rather than at the remedial stage, if
that stage is ever reached.
C. One final aspect of the majority opinion warrants a
response, and that is the majority's discussion of the Trustees'
failure to seek or obtain a stay. I have two comments regarding
this discussion.
First, while it might be desirable to have a rule that
flatly requires a stay whenever a party takes an appeal that
might upset a plan of reorganization, neither the Bankruptcy Code
nor the Bankruptcy Rules contain any such sweeping provision; our
court had not adopted any such rule at the time of the Trustees'
appeal (and, indeed, still has not done so); and it would
consequently be unfair to apply such a rule to the Trustees
retroactively.
 Second, in the absence of such a blanket rule, we
should focus on whether the purposes that would be served by a
stay require that the Trustees be thrown out of court at the
threshold. The purpose of a stay in this context is to prevent
transactions that might otherwise occur in reliance on the plan
of reorganization and that would be difficult or painful to undo
if the appeal were to succeed. Accordingly, the Trustees'
failure to obtain a stay in this case might limit the relief that
would be available to them if they succeeded on the merits of
their appeal, but it cannot justify the refusal at the outset
even to consider their arguments.
In sum, I believe that the Trustees' claim should be
entertained on the merits. The mere act of entertaining that
claim would not imperil Continental's reorganization or impair
any legitimate reliance interests. If the Trustees' claim were
considered and they won on the merits, any threat to the
reorganization or to legitimate reliance interests could be taken
into account in framing the Trustees' relief. What the district
court and the majority have done -- throwing the Trustees out of
court before the merits of their claim are even heard -- is
unjustified and unjust.
For these reasons, I respectfully dissent. I would
reverse the order of the district court and remand for a decision
on the merits.