Court: District Court, D. Delaware; February 9, 2017; Federal District Court
Brian Tuttle, appearing pro se, filed a bankruptcy appeal on February 1, 2016, challenging two orders from the United States Bankruptcy Court for the District of Delaware regarding In re Allied Nevada Gold Corp. The first order, dated January 20, 2016, awarded final compensation for services rendered and expenses, while the second order, dated January 22, 2016, denied shareholder motions, which Tuttle seeks to reverse. He notes that the relief sought in this appeal is similar to prior appeals concerning the October 8, 2015 confirmation of the debtors' amended joint Chapter 11 plan of reorganization.
The reorganized debtors are a gold and silver producer based in Nevada, having filed for Chapter 11 relief on March 10, 2015, with approximately $340 million in secured debt and $350 million in unsecured debt. Prior to the filing, they negotiated a restructuring transaction with secured and unsecured debt holders and entered a restructuring support agreement on the petition date. The U.S. Trustee appointed a creditors committee and an equity security holders committee during the case, both of which were dissolved on the effective date of the amended plan on October 22, 2015.
Additionally, on March 31, 2015, the debtors sought bankruptcy court approval for the sale of non-core exploration properties and related assets, securing a $17.5 million bid from Waterton Global Resource Management. The bankruptcy court approved this sale, stating it served the interests of the debtors and their estates by allowing them to satisfy obligations under the original restructuring support agreement.
On April 24, 2015, the debtors filed a joint Chapter 11 plan of reorganization and disclosure statement, proposing to provide holders of canceled common stock with warrants convertible into 10% of new equity, contingent upon their approval. The equity committee expressed intent to object to this treatment and sought related discovery, which the debtors provided. Subsequently, the debtors' operations were adversely affected due to high employee turnover, vendor contract issues, subpar production levels, and declining gold prices, leading to the suspension of mining operations at the Hycroft Mine and termination of approximately 230 employees on July 8, 2015. This suspension caused the debtors to violate several covenants in the restructuring support agreement (RSA), prompting RSA parties to terminate it. The debtors later negotiated amendments to the RSA, which the bankruptcy court approved on August 27, 2015.
On July 23, 2015, the debtors filed an amended reorganization plan reflecting the amended RSA, which excluded recovery for holders of canceled common stock. On August 19, 2015, the debtors announced a global settlement with remaining major constituencies, including the creditors and equity committees. A second amended plan and disclosure statement were subsequently filed on August 27, 2015, incorporating this settlement. The amended plan proposed distributions for secured creditors in new secured debt and loans, options for unsecured creditors between cash or common stock, and new warrants for canceled common stock holders. Both the creditors committee and equity committee supported the confirmation of this amended plan. On August 28, 2015, the bankruptcy court approved the disclosure statement. However, on September 8, 2015, an objection was filed by Tuttle on behalf of the ad hoc equity committee regarding the amended disclosure statement.
On August 11, 2015, Tuttle filed a motion to appoint an examiner regarding the bankruptcy case, which was opposed by the Debtors, the creditors committee, and an ad hoc group of noteholders. The equity committee responded, asserting that their analysis indicated the amended plan offered the best recovery for existing equity holders under the circumstances. After an evidentiary hearing on September 15, 2015, the bankruptcy court denied Tuttle's motion.
During the Chapter 11 proceedings, Tuttle sought discovery from the Debtors. On August 25, 2015, the Debtors proposed to provide Tuttle with over 3,000 documents, contingent upon executing a confidentiality agreement. The court approved this on August 27, 2015. However, Tuttle delayed returning the signed agreement until October 1, 2015, shortly before the planned confirmation hearing on October 6, 2015.
On September 24, 2015, Tuttle and other equity holders objected to the amended plan, claiming it undervalued the Debtors and asserting that holders of canceled common stock deserved additional recovery. During the confirmation hearing, Debtors' CFO, Stephen M. Jones, and Klein testified that the enterprise value of the reorganized Debtors was estimated between $200 million and $300 million, with the Moelis valuation indicating that holders of canceled common stock were out of the money by at least $350 million. Tuttle cross-examined the witnesses but did not present any witnesses or alternative valuations. He contended that the Moelis valuation was too low, which the bankruptcy court countered by noting that the equity committee had already negotiated terms on behalf of Tuttle. The court ultimately overruled Tuttle's request to stay the confirmation hearing and confirmed the amended plan on October 8, 2015, deeming the Moelis valuation to be reasonable and credible.
On October 22, 2015, the amended plan was implemented, allowing the reorganized debtors to exit Chapter 11. Key actions taken included: (1) repayment of certain prepetition debts, rejection of specific capital lease obligations, and elimination of existing liens; (2) formation of the reorganized debtors, establishment of new boards, and adoption of new organizational documents; (3) dissolution of prior business entities; (4) incurrence of $126.7 million in new first lien term loans, with approximately $780,000 repaid; (5) issuance of about $95 million in new second lien convertible notes under a new indenture; (6) issuance of an additional $15 million in second lien convertible notes and a call for $5 million more based on existing holders' commitments; (7) interim distribution of new common stock to holders of allowed general unsecured claims, with ongoing stock distribution pending claims reconciliation; and (8) distribution of approximately $1.8 million in cash to satisfy certain claims and obligations.
On January 20, 2016, the bankruptcy court held a hearing addressing various shareholder motions filed by Tuttle, all of which were denied. The court considered Tuttle's motions for standing to prosecute equitable subordination claims, for depositions of certain RSA Parties, and for the appointment of an examiner. These were deemed moot due to the confirmation order and the subsequent release of claims under the amended plan. The motion to appoint an examiner was rejected on the basis that it was redundant to a previous motion and that the confirmation of the amended plan precluded such an appointment under the Bankruptcy Code.
Tuttle filed several motions following the confirmation order in his bankruptcy case, including motions to stay the order, for reconsideration of the confirmation findings, and to reconsider the denial of an oral motion to stay. These motions were denied as they failed to meet the standard for reconsideration, lacking 'new facts' or 'new law.' Additionally, Tuttle's later motions from January 4, 2016, which sought to compel document production and authorize Rule 2004 examinations, were also denied because the confirmation of the plan rendered discovery moot, and Tuttle was deemed not diligent in pursuing it.
The excerpt also outlines the standard of review for the district court when evaluating appeals from bankruptcy court, stating that it applies a clearly erroneous standard to factual findings and a plenary standard to legal conclusions. The court must accept the bankruptcy court's historical findings unless clearly erroneous but can review the application of law to those facts de novo. A factual finding is clearly erroneous if the reviewing court is left with a firm conviction that a mistake was made, and due regard is given to the bankruptcy court's credibility assessments.
Tuttle presents several issues for appeal regarding the bankruptcy court's rulings, including: (1) alleged legal errors in denying the motion for reconsideration of the confirmation of the debtors’ amended Chapter 11 plan; (2) denial of Tuttle’s request to take depositions; (3) refusal to compel a non-party to produce documents; (4) claims of prejudice from the denial of Tuttle’s second motion to compel; (5) rejection of the motion to appoint an examiner with access to privileged materials; and (6) denial of Tuttle's oral motion to stay proceedings.
Appellees argue for dismissal based on equitable mootness, contending the appeal lacks merit. Tuttle counters that the equitable mootness doctrine is unconstitutional and inapplicable, asserting that the value of the appellees' assets has significantly increased since the plan's confirmation and that the appellees lack evidence to support claims that Tuttle's requested relief would disrupt the amended plan or harm third parties.
Equitable mootness is characterized as a doctrine allowing appellate courts to abstain from ruling on appeals if the requested relief could undermine the finality of reorganization plans. The burden of proof lies with appellees to overcome the presumption that appeals from confirmation orders should be heard. Key factors for determining equitable mootness include whether the reorganization plan has been substantially consummated, whether a stay was obtained, the potential impact on non-parties, the effect on the plan's success, and the public policy favoring finality in bankruptcy judgments. The Third Circuit's analysis involves two steps: assessing substantial consummation of the plan and whether the requested relief would disrupt the plan or harm third parties reliant on its confirmation.
The court finds that the equitable mootness doctrine is applicable due to several key factors. Firstly, the plan has achieved substantial consummation, which involves: (A) the transfer of nearly all property as outlined in the plan; (B) the assumption of business operations and management by the debtor or successor; and (C) the initiation of distributions under the plan, as defined by 11 U.S.C. § 1101(2). The Jones declaration indicates that as of October 22, 2015, various significant actions occurred, including: (1) the debtors transferred nearly all their assets, settled debt obligations, eliminated existing liens, and dissolved certain entities; (2) reorganized debtors acquired the assets, appointed new directors, and established new organizational documents; (3) distributions commenced under the amended plan. Furthermore, reorganized debtors took on new first lien loans, issued second lien convertible notes, entered a stockholders agreement, and allocated substantial new stock to unsecured claim holders, with some stock sold to a third party. They also distributed approximately $1.8 million in cash for allowed claims under Bankruptcy Code § 503(b)(9) and to address payments for assumed contracts and leases. Additionally, Tuttle did not obtain a stay; his oral motion for a stay was denied during the October 6, 2015 confirmation hearing due to the absence of a scheduled hearing for his second examiner motion. A written motion for a stay and reconsideration filed by Tuttle on October 21, 2015, was also denied on January 22, 2016, as the bankruptcy court deemed it moot following plan confirmation.
Tuttle did not meet the burden required to stay the confirmation order, as established by relevant case law. The presence or absence of a stay is pivotal in assessing the potential dismissal of an appeal under the doctrine of equitable mootness. The analysis shows that without a stay, the reorganization plan proceeds, making it challenging to reverse actions taken by third parties reliant on that plan. The amended plan involved complex transactions resulting from lengthy negotiations among various stakeholders, including debtors and creditor committees. The appellants, having the burden to prove prudential factors favoring their position, submitted evidence indicating the difficulty of retracting the amended plan. Tuttle's main argument concerns a significant increase in the value of the appellees' assets post-confirmation, but appeals based on such valuation changes have been dismissed under equitable mootness, as they risk destabilizing the delicate compromises of the plan. Furthermore, Tuttle's requested changes would negatively impact the rights of numerous third parties who relied on the confirmed plan, including lenders and stockholders who participated in the newly issued securities. The doctrine of equitable mootness serves to protect these third parties, reinforcing the challenges of altering the confirmation order after its implementation.
Public policy supports the dismissal of the appeal based on equitable mootness, emphasizing the importance of finality in bankruptcy judgments. The rationale is grounded in the goal of maximizing debtors' estates and facilitating successful reorganizations. The ability for approved reorganizations to proceed based on bankruptcy court confirmation orders is critical to the equitable mootness doctrine. Given the numerous parties involved in negotiating, approving, and implementing the amended plan, the court determines that public policy favors maintaining the integrity of the amended plan despite Tuttle's objections. Consequently, the court concludes that the factors support dismissing the appeal due to equitable mootness, and an appropriate order will follow.
An order issued on February 10, 2017, dismissed Tuttle's appeal regarding the bankruptcy of Allied Nevada Gold Corp. based on equitable mootness. Tuttle, a former holder of canceled common stock, had previously filed multiple related bankruptcy appeals, two of which were dismissed in September 2016 and are under appeal in the Third Circuit. Tuttle's notice of appeal in this case was deemed untimely, resulting in dismissal, and another appeal was also dismissed for noncompliance with a court order. The court considered issues related to a January 20, 2016 omnibus order waived due to Tuttle's failure to reference it in his appeal brief. Tuttle's motions for reimbursement of expenses and recognition of an ad hoc committee were denied, and an agreement was made to dismiss those aspects of the appeal with prejudice. The order cited Third Circuit precedent on equitable mootness, indicating that Tuttle's challenges to post-confirmation rulings by the bankruptcy court did not necessitate further review, as the factors favored dismissal. The court affirmed that the bankruptcy court did not abuse its discretion in denying Tuttle's motions for reconsideration and discovery.
