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Corporation
HEALTHCARE | Medical Facilities & Services
hardenhealthcare.com

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Founded Year

2001

Stage

Acquired | Acquired

Valuation

$0000 

Revenue

$0000 

About Harden Healthcare

Harden Healthcare is a network of specialized health service providers that share a holistic approach to patient care. With community care, home health, hospice and long-term care services, the company provides a continuum of care to patients throughout the United States.

Harden Healthcare Headquarter Location

1703 W 5th Street Suite 800

Austin, Texas, 78703,

United States

512-634-4965

Latest Harden Healthcare News

Should Equitable Mootness Bar Appeals Only of Chapter 11 Plan Confirmation Orders?

May 21, 2021

To embed, copy and paste the code into your website or blog: <iframe frameborder="1" height="620" scrolling="auto" src="//www.jdsupra.com/post/contentViewerEmbed.aspx?fid=00e7fe12-5eb7-48a9-b4f4-0ef32c4898a7" style="border: 2px solid #ccc; overflow-x:hidden !important; overflow:hidden;" width="100%"></iframe> The court-fashioned doctrine of "equitable mootness" has traditionally been invoked to bar appeals of orders confirming "substantially consummated" chapter 11 plans. Some appellate courts, however, have applied it to bar appeals of other kinds of bankruptcy court orders unrelated to plan confirmation. As demonstrated by a ruling recently handed down by the U.S. District Court for the Northern District of Texas, courts disagree on whether equitable mootness should apply outside of the plan context. In Harden Healthcare LLC v. OLP Wyoming Springs LLC (In re Senior Care Centers, LLC), 2021 WL 632779 (N.D. Tex. Feb. 18, 2021), the district court affirmed a bankruptcy court order approving a settlement reached in connection with a sale transaction. In so ruling, the court held that the appeal was neither equitably nor statutorily moot, noting that, according to Fifth Circuit precedent, equitable mootness should not be expanded into such a "new frontier." Dismissal of Appeals Under the Doctrine of Mootness "Mootness" is a doctrine that precludes a reviewing court from reaching the underlying merits of a controversy. An appeal can be either constitutionally, equitably, or statutorily moot. Constitutional mootness is derived from Article III of the U.S. Constitution, which limits the jurisdiction of federal courts to actual cases or controversies and, in furtherance of the goal of conserving judicial resources, precludes adjudication of cases that are hypothetical or merely advisory. Equitable Mootness. The court-fashioned remedy of "equitable mootness" bars adjudication of an appeal when a comprehensive change of circumstances has occurred such that it would be inequitable for a reviewing court to address the merits of the appeal. In bankruptcy cases, appellees often invoke equitable mootness as a basis for precluding appellate review of an order confirming a chapter 11 plan. The doctrine of equitable mootness is sometimes criticized as an abrogation of federal courts' "virtually unflagging obligation" to hear appeals within their jurisdiction. In re One2One Commc'ns, LLC, 805 F.3d 428, 433 (3d Cir. 2015); In re Charter Commc'ns, Inc., 691 F.3d 476, 481 (2d Cir. 2012). According to this view, dismissing an appeal on equitable mootness grounds "should be the rare exception." In re Tribune Media Co., 799 F.3d 272, 288 (3d Cir. 2015); accord In re Pac. Lumber Co., 584 F.3d 229, 240 (5th Cir. 2009) (equitable mootness should be applied "with a scalpel rather than an axe"). Substantially similar tests have been applied by most circuit courts of appeals in assessing whether an appeal of a chapter 11 confirmation order should be dismissed under the doctrine. Those tests generally focus on whether the appellate court can fashion effective and equitable relief. See, e.g., PPUC Pa. Pub. Util. Comm'n v. Gangi, 874 F.3d 33, 37 (1st Cir. 2017) (considering whether: (i) the appellant diligently pursued all available remedies to obtain a stay of the confirmation order; (ii) the challenged chapter 11 plan had progressed "to a point well beyond any practicable appellate annulment"; and (iii) providing relief would harm innocent third parties); JPMCC 2007-C1 Grasslawn Lodging, LLC v. Transwest Resort Props., Inc. (In re Transwest Resort Props., Inc.), 801 F.3d 1161, 1167–68 (9th Cir. 2015) (applying a four-factor test, including whether the court "can fashion effective and equitable relief without completely knocking the props out from under the plan and thereby creating an uncontrollable situation for the bankruptcy court"); Tribune, 799 F.3d at 278 (considering "(1) whether a confirmed plan has been substantially consummated; and (2) if so, whether granting the relief requested in the appeal will (a) fatally scramble the plan and/or (b) significantly harm third parties who have justifiably relied on plan confirmation"); Search Market Direct, Inc. v. Jubber (In re Paige), 584 F.3d 1327, 1339 (10th Cir. 2009) (applying a six-factor test, including the likely impact upon a successful reorganization of the debtor if the appellant's challenge is successful); In re United Producers, Inc., 526 F.3d 942, 947–48 (6th Cir. 2008) (three-factor test); TNB Fin., Inc. v. James F. Parker Interests (In re Grimland, Inc.), 243 F.3d 228, 231 (5th Cir. 2001) (same); see also In re Fin. Oversight & Mgmt. Bd. for Puerto Rico, 987 F.3d 173, 182 (1st Cir. 2021) (holding that the doctrine of equitable mootness was not abrogated by the U.S. Supreme Court's ruling in Mission Product Holdings, Inc. v. Tempnology, LLC, 139 S. Ct. 1652 (2019), and that the doctrine applied to dismiss an appeal of an order approving a plan in a proceeding under the Puerto Rico Oversight, Management and Economic Stability Act). A common element of almost all of these tests is whether the chapter 11 plan has been substantially consummated. Section 1101(2) of the Bankruptcy Code provides that "substantial consummation" of a chapter 11 plan occurs when substantially all property transfers proposed by the plan have been completed, the debtor or its successor has assumed control of the debtor's business and property, and plan distributions have commenced. Some courts, including the Third and Fifth Circuits, have taken the position that equitable mootness does not apply outside the context of appeals of chapter 11 plan confirmation orders. See, e.g., In re LCI Holding Company, Inc., 802 F.3d 547, 554 (3d Cir. 2015) (stating that the doctrine "comes into play in bankruptcy (so far as we know, its only playground) after a plan of reorganization is approved" and ruling that equitable mootness would not cut off the authority to hear an appeal outside the plan context); In re Sneed Shipbuilding, Inc., 916 F.3d 405, 409 (5th Cir. 2019) ("We recognize that some courts outside our circuit have employed equitable mootness when reviewing settlement agreements, not just plan confirmations, in particularly messy cases…. But that just highlights the second reason why equitable mootness should not apply to [an order approving a settlement]: this settlement and sale were not sufficiently complex. Equitable mootness is aimed at limiting review of complex plans whose implementation has substantial secondary effects."). Other courts, including the Second, Fourth, Ninth, Tenth, and Eleventh Circuits, have been less constrained in relying on the doctrine to dismiss appeals. See, e.g., In re Windstream Holdings, Inc., 838 F. App'x 634, 637 (2d Cir. 2021) (ruling that an appeal of a "critical vendor" order was equitably moot after confirmation of a chapter 11 plan and noting that: "Our precedent is clear that equitable mootness can be applied 'in a range of contexts,' including appeals involving all manner of bankruptcy court orders…. [A]n appeal does not need to directly challenge a reorganization plan to impact that plan. "); Myers v. Offit Kurman, P.A., 773 F. App'x 161, 162 (4th Cir. 2019) (finding that an appeal from a bankruptcy court order granting a chapter 7 trustee's motion for approval of a settlement agreement was equitably moot given that the agreement had been fully consummated and funds had been distributed accordingly); Stokes v. Gardner, 483 F. App'x 345, 346 (9th Cir. 2012) (finding that an appeal of an order approving a settlement agreement in a chapter 7 case was equitably moot); Ordonez v. ABM Aviation, Inc., 787 F. App'x 533 (10th Cir. 2019) (appeals from a bankruptcy court order relating to a chapter 7 trustee's settlement of the debtor's employment discrimination claims were equitably moot, since the debtor did not diligently seek a stay, the settlement agreement had been fully consummated, the funds had been distributed, the estate had been fully administered, and the debtor's challenges were neither legally meritorious nor equitably compelling); In re JMC Memphis, LLC, 655 F. App'x 802 (11th Cir. 2016) (dismissing as equitably moot an appeal from an unstayed order approving a settlement between the chapter 7 trustee and the debtor's property insurer). Statutory Mootness. An appeal can also be rendered moot (or otherwise foreclosed) by statute. For example, section 363(m) of the Bankruptcy Code provides that "[t]he reversal or modification on appeal of an authorization … of a sale or lease of property 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." Although courts disagree on the point, section 363(m) has been interpreted "to render statutorily moot any appellate challenge to a sale that is both to a good faith purchaser, and not stayed." Mission Product Holdings, Inc. v. Old Cold, LLC (In re Old Cold, LLC), 879 F.3d 376, 383 (1st Cir. 2018). Section 363(m) is a powerful protection for good-faith purchasers because it limits appellate review of a consummated sale irrespective of the legal merits of the appeal. See Made in Detroit, Inc. v. Official Comm. of Unsecured Creditors of Made in Detroit, Inc. (In re Made in Detroit, Inc.), 414 F.3d 576 (6th Cir. 2005); see also In re Palmer Equip., LLC, 623 B.R. 804, 808 (Bankr. D. Utah 2020) (section 363(m)'s protection is vital to encouraging buyers to purchase the debtor's property and thus ensuring that adequate sources of financing remain available). The circuits are split regarding whether section 363(m) automatically moots an appeal of an order approving a sale under all circumstances. Some circuits, including the First, Second, Fifth, Eleventh, and D.C. Circuits, have held that, in the absence of a stay of the sale order, the court must dismiss a pending appeal as moot unless the purchaser did not act in good faith. Old Cold, 879 F.3d at 383; U.S. v. Salerno, 932 F.2d 117 (2d Cir. 1991); In re Sneed Shipbuilding, Inc., 916 F.3d 405 (5th Cir. 2019); In re Steffen, 552 F. App'x 946 (11th Cir. 2014); In re Magwood, 785 F.2d 1077 (D.C. Cir. 1986); see also In re Pursuit Holdings (NY), LLC, 2021 WL 864714 (2d Cir. Mar. 9, 2021) (the statutory mootness rule indisputably applies to challenges to any integral provision of an order approving a sale, such as a settlement); In re Ern, LLC, 124 F. App'x 151, 152 (4th Cir. 2005) (dismissing an appeal of a sale order as moot because the assets had been transferred and the party challenging the sale failed to obtain a stay pending appeal); In re Trism, Inc., 328 F.3d 1003, 1007 (8th Cir. 2003) (mooting under section 363(m) "a challenge to a related provision of an order authorizing the sale of the debtor's assets" because the related provision was integral to the sale of the assets and reversing the provision would alter the parties' bargained-for exchange); In re Rimoldi, 172 F.3d 876, 1999 WL 132260, *1 (9th Cir. 1999) ("This court has recognized only two exceptions to section 363(m)'s rule of mootness. The first applies where real property is sold subject to a statutory right of redemption; the second applies where state law otherwise would permit the transaction to be set aside."). Other circuits, including the Third, Sixth, and Tenth Circuits, have rejected the view that section 363(m) automatically moots an appeal. Instead, these courts have held that an appeal is not moot as long as it is possible to grant effective relief without impacting the validity of the sale. See In re ICL Holding Co., Inc., 802 F.3d 547, 554 (3d Cir. 2015) (section 363(m) did not moot the government's appeal of the terms for distribution of escrowed funds for administrative expenses and settlement proceeds from the sale of substantially all of the debtors' assets since the court could order redistribution of the sale proceeds without disturbing the sale); Brown v. Ellmann (In re Brown), 851 F.3d 619 (6th Cir. 2017) (finding that parties alleging statutory mootness under section 363(m) must prove that the reviewing court is unable to grant effective relief); Osborn v. Duran Bank & Trust Co. (In re Osborn), 24 F.3d 1199 (10th Cir. 1994) (holding that an appeal of a sale order was not mooted by section 363(m) when under Texas state law a constructive trust could be imposed on the sale proceeds), abrogated in part on other grounds by Eastman v. Union Pac. R.R., 493 F.3d 1151 (10th Cir. 2007); In re C.W. Min. Co., 740 F.3d 548, 555 (10th Cir. 2014) (section 363(m) will moot appeals in cases where the only remedies available are those that affect the validity of the sale). In Trinity 83 Dev., LLC v. ColFin Midwest Funding, LLC, 917 F.3d 599 (7th Cir. 2019), the Seventh Circuit held that section 363(m) did not moot an appeal involving a dispute over the proceeds of a sale of assets in bankruptcy. In concluding that section 363(m) did not moot such an appeal, but merely provided the purchaser with a defense in litigation challenging the sale, the Seventh Circuit overruled its prior decision strictly construing the scope of section 363(m) in In re River West Plaza-Chicago, LLC, 664 F.3d 668, 671-72 (7th Cir. 2011). According to the Seventh Circuit in Trinity 83, "We now hold that § 363(m) does not make any dispute moot or prevent a bankruptcy court from deciding what shall be done with the proceeds of a sale or lease." Trinity 83, 917 F.3d at 602. Senior Care Senior Care Centers LLC and PM Management-Round Rock AL LLC (collectively, "debtors") operated skilled-nursing and assisted-living facilities throughout the United States, including the Wyoming Springs Assisted Living and Memory Care ("Wyoming Springs") in Texas. The debtors leased the Wyoming Springs facility from OLP Wyoming Springs LLC ("OLP"). Harden Healthcare LLC "(Harden") guaranteed the debtors' obligations under the lease. The debtors filed for chapter 11 protection in December 2018 in the Northern District of Texas. Shortly afterward, the bankruptcy court authorized them to reject the Wyoming Springs lease because the facility was unprofitable. OLP had opposed rejection as well as other relief sought by the debtors in their chapter 11 cases. However, the debtors and OLP resolved those disputes in a settlement agreement whereby, among other things, the parties agreed on the amount of OLP's claims against the debtors and OLP agreed to support confirmation of the debtors' proposed chapter 11 plan. The debtors also sought court approval of an agreement ("OTA") to sell the Wyoming Springs operation and certain related assets to a new operator, which would sign a new lease for the premises with OLP. The bankruptcy court approved the settlement agreement and the OTA in orders entered on October 11, 2019, and October 25, 2019, respectively. It confirmed the debtors' joint chapter 11 plan on December 13, 2019. Harden appealed the order approving the settlement agreement but did not seek a stay of the order pending appeal. Harden argued that the bankruptcy court erred in approving the settlement agreement on an inappropriately expedited basis without adequate information. The debtors disputed that assertion but also argued that the appeal was equitably and statutorily moot because Harden failed to obtain a stay pending appeal, the debtors' chapter 11 plan had been substantially consummated, and all of the transactions contemplated by the "inextricably intertwined" settlement agreement and OTA "ha[d] occurred and cannot be unwound." The District Court's Ruling District Judge Jane J. Boyle affirmed the order approving the settlement agreement. However, she rejected the debtors' argument that the appeal should be dismissed as being equitably or statutorily moot. Harden, Judge Boyle explained, did not appeal the order confirming the debtors' plan but the order approving the settlement. She further noted that the Fifth Circuit has declined "to expand equitable mootness into … [a] new frontier" involving "settlement agreements, not just plan confirmations, in particularly messy cases," as courts have done in other circuits. Thus, Judge Boyle found no reason or authority for applying the doctrine to an order approving a settlement agreement, especially because the case before the court was not a "particularly messy case." According to her, it was unclear whether the sale had been consummated. Moreover, Judge Boyle wrote, "unwinding it would simply involve transferring ownership of the nursing home back to the estate." It would not substantially impact the confirmed plan or prejudice third parties. Judge Boyle also concluded that Harden's appeal was not statutorily moot under section 363(m). She reiterated that, contrary to the debtors' assertions, it was unclear whether the OTA sale transaction had actually closed. In addition, because the order approving the settlement agreement was on appeal, Judge Boyle noted that the agreement was not effective in accordance with its terms, which conditioned effectiveness on the existence of a "final, nonappealable order." "[G]iven the lack of certainty as to whether the sale at issue has closed," she wrote, "the Court declines to find this appeal statutorily moot." Turning to the merits of the appeal, Judge Boyle determined that the bankruptcy court did not abuse its discretion in approving the settlement according to the standards established by Fifth Circuit precedent. She accordingly dismissed Harden's appeal. Outlook As illustrated by Senior Care, in addition to construing the doctrine of equitable mootness narrowly in all cases, appellate courts in the Fifth Circuit have declined to expand the doctrine's application to appeals of orders other than plan confirmation orders. This is in contrast to other courts, which have endorsed application of equitable mootness in other contexts, generally under circumstances where the transaction authorized by an appealed order has been fully consummated and it would be both prejudicial and inequitable to undo the relief granted. Interestingly, because the court found that it was unclear whether the sale transaction in Senior Care had closed, the court did not examine whether the absence of a stay pending appeal or the buyer's good faith would have mooted the appeal under section 363(m). A version of this article was published in Lexis Practical Guidance. It has been reprinted here with permission.

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