In re One2One Commc'ns, LLC

805 F.3d 428

In re ONE2ONE COMMUNICATIONS, LLC, Debtor Quad/Graphics, Inc., Appellant.

No. 13–3410.

United States Court of Appeals, Third Circuit.

Argued: Oct. 29, 2014.

Filed: July 21, 2015.

Courtney A. Schael, Esq., (Argued), Ashford Schael, Union, NJ, Timothy F. Nixon, Esq., Godfrey & Kahn, Green Bay, WI, for Appellant.

Michael D. Sirota, Esq., (Argued), David M. Bass, Esq., Cole Schotz, Hackensack, NJ, Joseph DiPasquale, Esq., Henry M. Karwowski, Esq., Richard D. Trenk, Esq., Trenk, DiPasquale, Della Fera & Sodono, West Orange, NJ, for Debtor.

Kenneth A. Rosen, Esq., Lowenstein Sandler, Roseland, NJ, for the Official Committee of Unsecured Creditors, Defendant.

Martha R. Hildebrandt, Esq., Office of United States Trustee, Newark, NJ, for the Office of United States Trustee.

Before: McKEE, Chief Judge, GREENAWAY, JR., and KRAUSE, Circuit Judges.

OPINION

GREENAWAY, JR., Circuit Judge.

Appellant Quad/Graphics Inc. appeals from the judgment of the District Court affirming the Bankruptcy Court's confirmation of One2One Communications, LLC's (the “Debtor”) Chapter 11 plan of reorganization and dismissing Appellant's bankruptcy appeal as equitably moot. Appellant contends that the District Court abused its discretion in dismissing its appeal as equitably moot. Appellant also asks us to use this appeal to overrule our adoption of equitable mootness in In re Continental Airlines, 91 F.3d 553, 560 (3d Cir.1996) (en banc) (“Continental ”), contending that the doctrine is unconstitutional and contrary to the Bankruptcy Code. Continental remains the law of this circuit. This panel is not free to overturn a precedential opinion. In the absence of an en banc reversal, we are bound by Continental. Because the District Court abused its discretion under Continental, we will reverse the District Court's judgment and remand for consideration of the merits of Appellant's bankruptcy appeal.

I. Background

The Debtor, a billing services technology company, is a limited liability business and its sole member is Joli, Inc. Joanne Heverly owns seventy-five percent of Joli, Inc., and Richard Brammer, a former officer of the Debtor, owns the remaining twenty-five percent. Appellant, a printing company, holds the single largest claim against the Debtor and the Debtor's CEO, Bruce Heverly, husband of Joanne Heverly, for $9,359,630.91, which stems from a judgment entered in the District Court for the Eastern District of Wisconsin.¹ The Court of Appeals for the Seventh Circuit has since affirmed that judgment. See Quad/Graphics, Inc. v. One2One Commc'ns, LLC, 529 Fed.Appx. 784, 793 (7th Cir.2013).

The Debtor filed a voluntary petition for relief under Chapter 11 of the United State Bankruptcy Code, 11 U.S.C. § 101 et seq. (the “Bankruptcy Code”), in the Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”). Thereafter, the Office of the United States Trustee formed an official unsecured creditors committee (the “Committee”) consisting of Appellant, Ricoh Production Print Solutions, LLC, and Enterprise Group.

Between September 2012 and January 2014, the Debtor filed the First,² Second, and Third Amended Plans of Reorganization. After the Bankruptcy Court denied confirmation of the First Amended Plan of Reorganization, Bela Szigethy (“Szigethy”) agreed to make an investment in the Debtor.³ The Debtor filed a Fourth Amended Plan of Reorganization (the “Plan”) on January 25, 2013, under which a third-party, One2One Holdings, LLC (“Plan Sponsor”) would acquire a membership interest in the Debtor. The Plan incorporated a Plan Support Agreement which provided the Plan Sponsor with the exclusive right to purchase 100% of the Debtor's equity for $200,000. Neither the Plan Sponsor nor any third-party was to contribute any additional capital to fund the Plan. The Plan also incorporated the terms of the Committee Agreement with respect to distributions and the waiver of preference actions against unsecured creditors.

On March 5, 2013, after holding a five-day confirmation hearing, and over the objection of Appellant, Bankruptcy Judge Winfield entered an order (the “Confirmation Order”) confirming the Plan.⁴ The Confirmation Order was automatically stayed for fourteen days pursuant to Federal Rule of Bankruptcy Procedure 3020(e). Appellant moved for a stay pending appeal, which was denied. The Bankruptcy Court also denied a request by the Debtor to shorten the automatic fourteen-day stay.⁵ The parties briefed the merits of the appeal, but the District Court never reached those issues, as it granted the Debtor's motion to dismiss the appeal as equitably moot on June 24, 2013.

II. Jurisdiction and Standard of Review

The Bankruptcy Court had jurisdiction under 28 U.S.C. § 157(b). The District Court had jurisdiction under 28 U.S.C. § 158(a). We have jurisdiction under 28 U.S.C. §§ 158(d) and 1291.

We review for abuse of discretion a district court's decision that a bankruptcy appeal is equitably moot. Continental, 91 F.3d at 560.

III. Analysis

a. Appellant's Challenge to the Equitable Mootness Doctrine

As an initial matter, Appellant asserts that the equitable mootness doctrine is unconstitutional and contrary to the Bankruptcy Code. Because we have already approved the doctrine of equitable mootness in Continental,⁶ only the Court sitting en banc would have the authority to reevaluate our prior holding. See United States v. White, 748 F.3d 507, 512–13 (3d Cir.2014).⁷ This Court may only decline to follow a prior decision of our Court without the necessity of an en banc decision when the prior decision conflicts with a Supreme Court decision. See Chester ex rel. N.L.R.B. v. Grane Healthcare Co., 666 F.3d 87, 94 (3d Cir.2011) ; see also Morrow v. Balaski, 719 F.3d 160, 179 (3d Cir.2013) (en banc) (Smith, J., concurring) (“ ‘[E]ven in constitutional cases' ..., the doctrine of stare decisis ‘carries such persuasive force’ that departing from it has ‘always required’ some ‘special justification.’ ”) (quoting Arizona v. Rumsey, 467 U.S. 203, 212, 104 S.Ct. 2305, 81 L.Ed.2d 164 (1984) ).

Appellant argues that our equitable mootness jurisprudence should be reevaluated in light of the Supreme Court's decision in Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). Appellant contends that after Stern, a bankruptcy court's ability to enter binding, final judgments in “core” bankruptcy proceedings—like plan confirmations—must be subject to district court review on appeal under traditional appellate standards. Stern alone does not permit us to depart from Continental.

In Stern, the Supreme Court granted certiorari to resolve the question of whether 28 U.S.C. § 157(b)(2)(C) is unconstitutional because it gives non-Article III judges the power to render final judgments on common law compulsory counterclaims that are not necessarily resolved in the process of allowing or disallowing the defendant's proof of claim. The Court in Stern found that the provision unconstitutionally delegated the judicial power of the United States to non-Article III bankruptcy judges. Justice Roberts's opinion relied heavily on Murray's Lessee v. Hoboken Land & Improvement Co., 59 U.S. 272, 284, 18 How. 272, 15 L.Ed. 372 (1855), which stated that with the exception of certain “public rights,” Congress cannot “withdraw from judicial cognizance any matter which, from its nature, is the subject of a suit at common law, or in equity, or admiralty.” Because the counterclaim at issue in Stern was a tort claim at common law, the Court held that “[t]he Bankruptcy Court below lacked the constitutional authority to enter a final judgment on [this] state law counterclaim.” Stern, 131 S.Ct. at 2620.

Thus, the Court in Stern made clear that non-Article III bankruptcy judges do not have the constitutional authority to adjudicate a claim that is exclusively based upon a legal right grounded in state law despite appellate review of the bankruptcy judge's decision by an Article III judge. However, Stern did not consider the authority of bankruptcy judges to make final determinations regarding other kinds of claims and counterclaims brought by debtors and creditors, nor did Stern consider whether Article III requires appellate review of a bankruptcy judge's decisions by an Article III judge. Accordingly, we are obligated to apply this Court's equitable mootness doctrine notwithstanding Stern.

b. Equitable Mootness Analysis

Following confirmation of a reorganization plan by a bankruptcy court, an aggrieved party has the statutory right to appeal the court's ruling. Once a bankruptcy appeal has been filed, federal courts have a “ ‘virtually unflagging obligation’ ” to exercise the jurisdiction conferred on them. In re Semcrude, L.P., 728 F.3d 314, 320 (3d Cir.2013) (quoting Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 817, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976) ). Before there is a basis to avoid deciding the merits of an appeal, we must first determine that granting the requested relief is almost certain to produce a “perverse” outcome—significant “injury to third parties” and/or “chaos in the bankruptcy court” from a plan in tatters. In re Phila. Newspapers, LLC, 690 F.3d 161, 168 (3d Cir.2012). Only in such circumstances is equitable mootness a valid consideration.

A court decides to dismiss an appeal as equitably moot through the consideration of the following “prudential” factors:

(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.

Id. (citing Continental, 91 F.3d at 560 ). Depending on the circumstances, each factor is given varying weight. Id. (citing In re PWS Holding Corp., 228 F.3d 224, 236 (3d Cir.2000) ).

These factors are interconnected and overlapping. Semcrude, 728 F.3d...