Team P28

Docket No. 16-412

In The

Supreme Court of the United States

October Term, 2016

IN RE PADCO, INC., Debtor,

MEGAN KUZNIEWSKI, Petitioner,

v.

PADCO, INC., Respondent

On Writ of Certiorari to the United States

Court of Appeals for the Thirteenth Circuit

BRIEF FOR PETITIONER

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Counsel for Petitioner

Oral Argument Requested

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QUESTIONS PRESENTED

I. Whether an appellate court has authority to decline to hear an appeal from a

bankruptcy court order confirming a chapter 11 plan on prudential grounds

using equitable mootness principles?

II. Whether a chapter 11 plan of reorganization can permanently enjoin claims that

non-consenting creditors have against a non-debtor when the claims are not

derivative of the debtor’s claims against the non-debtor and no provision is

made for full payment of the enjoined claims?

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TABLE OF CONTENTS

Questions Presented……………………………………………………………………………. i

Table of Authorities…………………………………………………………………………… iv

Opinions Below……………………………………………………………………………… viii

Statement of Jurisdiction…………………………………………………………………… viii

Constitutional and Statutory Provisions…………………………………………………… viii

Statement of the Case………………………………………………………………………… 1

Summary of the Argument…………………………………………………………………… 2

Standard of Review…………………………………………………………………………… 4

Argument……………………………………………………………………………………… 4

I. THE DISTRICT COURTS CANNOT USE THE DOCTRINE OF EQUITABLE

MOOTNESS TO REFUSE TO HEAR THE MERITS OF KUZNIEWSKI’S

APPEAL……………………………………………………………………………. 4

A. The doctrine of equitable mootness violates Article III of the Constitution of

the United States………………………………………………………………. 5

B. Even if equitable mootness were constitutional, there is no support for it in

the statutes granting appellate jurisdiction to the district courts over

bankruptcy orders or in the Bankruptcy Code……………………………… 9

C. Equity and fairness dictate that the merits of Kuzniewski’s appeal must be

decided and equity considered only in fashioning the appropriate relief…..11

II. CHAPTER 11 PLANS MAY NOT INCLUDE NON-CONSENSUAL THIRD-

PARTY RELEASES……………………………………………………………… 14

A. Third-party releases constitute final orders or judgments on non-core

proceedings by a bankruptcy judge which are disallowed by the plain

language of 28 U.S.C. § 157(c)(1)……………………………………………. 16

1. Claims of non-consenting creditors against third-party non-debtors when

said claims are not derivative of debtor’s claims against the non-debtor

are non-core proceedings………………………………………………… 17

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2. Third-party releases effect permanent injunctions of claims and

constitute final orders or judgments…………………………………….. 19

B. Even if this could properly be considered a core matter, it is still outside of

the bankruptcy court’s power as this is a private right matter……………. 20

Conclusion…………………………………………………………………………………….. 21

Appendix A…………………………………………………………………………………….. I

Appendix B…………………………………………………………………………………….. II

Appendix C……………………………………………………………………………………. III

Appendix D……………………………………………………………………………………. IV

Appendix E…………………………………………………………………………………….. V

Appendix F……………………………………………………………………………………. VI

Appendix G…………………………………………………………………………………… VII

Appendix H…………………………………………………………………………………….. X

Appendix I…………………………………………………………………………………….. XI

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TABLE OF AUTHORITIES

UNITED STATES SUPREME COURT CASES

Burford v. Sun Oil Co.,

319 U.S. 315 (1943)……………………………………………………………………. 6

Church of Scientology v. United States,

506 U.S. 9 (1992)………………………………………………………………………. 5

Cohens v. Virginia,

19 U.S. (6 Wheat.) 264 (1821)………………………………………………………. 6, 9

Colo. River Water Conservation Dist. v. United States,

424 U.S. 800 (1976)…………………………………………………………………. 6, 9

Commodity Futures Trading Comm’n v. Schor,

478 U.S. 833 (1986)…………………………………………………………………….. 8

England v. La. State Bd. of Med. Exam’rs,

375 U.S. 411 (1964)…………………………………………………………………….. 6

Harrison v. NAACP,

360 U.S. 167 (1959)…………………………………………………………………….. 6

International Bhd. of Teamsters v. United States,

431 U.S. 324 (1977)…………………………………………………………………… 13

Lexmark Int’l, Inc. v. Static Control Components, Inc.,

134 S. Ct. 1377 (2014)………………………………………………………………….. 7

N. Pipeline Const. Co. v. Marathon Pipe Line Co.,

458 U.S. 50 (1982)…………………………………………………………………….. 15

Quackenbush v. Allstate Ins. Co.,

517 U.S. 706 (1996)…………………………………………………………………….. 6

R.R. Comm’n of Tex. v. Pullman Co.,

312 U.S. 496 (1941)…………………………………………………………………….. 6

Sprint Commc’ns, Inc. v. Jacobs,

134 S. Ct. 584 (2015)……………………………………………………………………. 7

Stern v. Marshall,

564 U.S. 462 (2011)…………………………………………………………. 7, 16, 20, 21

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Wellness Int’l Network, Ltd. v. Sharif,

135 S. Ct. 1932 (2015)………………………………………………………………….. 7

Younger v. Harris,

401 U.S. 37 (1971)…………………………………………………………………… 6, 7

Zivotofsky ex rel. Zivotofsky v. Clinton,

132 S. Ct. 1421 (2012)………………………………………………………………….. 7

UNITED STATES COURTS OF APPEAL CASES

Bank of New York Tr. Co., NA v. Official Unsecured Creditors’ Comm’n (In re Pac. Lumber

Co.),

584 F.3d 229 (5th Cir. 2009)…………………………………………….….………… 13

Beeman v. BGI Creditors’ Liquidating Tr. (In re BGI, Inc.),

772 F.3d 102 (2d Cir. 2014)………………………………………………………….. 5, 9

Behrmann v. Nat’l Heritage Found.,

663 F.3d 704 (4th Cir. 2011)………………………………………..………………… 13

Castlerock Properties v. Castlerock Properties (In re Castlerock Properties),

781 F.2d 159 (9th Cir. 1990)………………………………………………………….. 17

Deutsche Bank AG, London Branch v. Metromedia Fiber Network, Inc. (In re Metromedia Fiber

Network, Inc.),

416 F.3d 136 (2d Cir. 2005)………………………………………………………… 5, 12

Halper v. Halper,

164 F.3d 830 (3d Cir. 1999)…………………………………………………………… 17

In re American Housing Found.,

785 F.3d 143 (5th Cir. 2015)……………………………………………………………. 4

In re Charter Commc’ns, Inc.,

691 F.3d 476 (2d Cir. 2012)…………………………………………………………….. 5

In re Chateaugay Corp.,

988 F.2d 322 (3d Cir. 1993)…………………………………………………….. 4, 12, 13

In re Cont’l Airlines,

91 F.3d 553 (2d Cir. 1996)……………………………………………………. 4, 5, 10,12

In re Envirodyne Indus.,

29 F.3d 301 (7th Cir. 1994)………………………………………………………... 12, 13

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In re Hilal,

534 F.3d 498 (5th Cir. 2008)…………………………………………………………... 13

In re UNR Indus.,

20 F.3d 766 (7th Cir. 1994)……………………………………………………………. 12

JPMCC 2007-C1 Grasslawn Lodging, LLC v. Transwest Resort Properties, Inc. (In re Transwest

Resort Properties, Inc.),

801 F.3d 1161 (9th Cir. 2015)………………………………………………………….. 4

Nordhoff Invs. Inc. v. Zenith Elecs. Corp.,

258 F.3d 180 (3d Cir. 2001)…………………………………………………………….. 8

One2One Commc’ns, LLC v. Quad/Graphics, Inc.,

805 F.3d 428 (3d Cir. 2015)……………………………………………… 7, 8, 10, 12, 13

Republic Supply Co. v. Shoaf,

815 F.2d 1046 (5th Cir. 1987)…………………………………………………………. 19

Samson Energy Res. Co. v. Semcrude, L.P. (In re SemCrude, L.P.),

728 F.3d 314 (3d Cir. 2013)……………………………………………… 4, 9, 10, 11, 12

Search Mkt. Direct, Inc. v. Jubber (In re Paige),

584 F.3d 1327 (10th Cir. 2009)………………………………………………………... 13

TBN Fin., Inc. v. James F. Parker Interests (In re Grimland, Inc.),

243 F.3d 228 (5th Cir. 2001)…………………………………………………………… 9

Wood v. Wood (In re Wood),

825 F.2d 90 (5th Cir. 1987)……………………………………………………. 14, 15, 16

Wortley v. Bakst,

2017 WL 57769 (11th Cir. 2017)……………………………………………………… 17

UNITED STATES DISTRICT COURT CASES

In re Anderson,

553 B.R. 221 (S.D.N.Y. 2016) …………………………………………………….. 17, 18

Mohawk Indus., Inc. v. Robinson Indus., Inc.,

46 B.R. 464 (D. Mass. 1985)…………………………………………………………... 17

UNITED STATES BANKRUPTCY COURT CASES

Maxus Energy Corp. v. Occidental Chem. Corp. (In re Maxus Energy Corp.),

560 B.R. 111 (Bankr. D. Del. 2016)…………………………………………………… 17

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Morse Electric Co., Inc. v. Logicon, Inc. (In re Morse Electric Co., Inc.),

47 B.R. 234 (Bankr. N.D. Ind. 1985)…………………………………………………... 17

UNITED STATES CONSTITUTION

U.S. Const. art. III, § 1………………………………………………………………………… 20

U.S. Const. art. III, § 2………………………………………………………………………….. 5

FEDERAL STATUTES

11 U.S.C. § 101 et seq…………………………………………………………………………... 2

11 U.S.C. § 363(m)…………………………………………………………………………. 9, 10

11 U.S.C. § 364(e)…………………………………………………………………………... 9, 10

11 U.S.C. § 1127……………………………………………………………………………….. 10

11 U.S.C. § 1141…………………………………………………………………………… 17, 18

28 U.S.C. § 157………………………………………………. 5, 9, 14, 15, 16, 18, 19, 20, 22, 23

28 U.S.C. § 158…………………………………………………………………………. 9, 14, 23

28 U.S.C. §1334………………………………………………………………………… 9, 14, 18

SECONDARY AUTHORITIES

Black’s Law Dictionary (10th ed. 2014)……………………………………………………….. 19

Eamonn O’Hagan, On a “Related” Point: Rethinking Whether Bankruptcy Courts Can “Order”

the Involuntary Release of Non-Debtor, Third-Party Claims, 23 Am. Bankr. Inst. L. Rev. 531

(2015). ………………………………………………………………………………………….. 18

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OPINIONS BELOW

The District Court for the District of Moot dismissed the appellant’s appeal as being

equitably moot. R. at 5. It did not consider the merits of the appeal. R. at 6. The Court of Appeals

for the Thirteenth Circuit affirmed the district court’s dismissal on equitable mootness grounds

and concluded, in favor of the appellee, that third-party releases were a valid piece of a Chapter

11 reorganization plan. R. at 11, 14.

STATEMENT OF JURISDICTION

The formal statement of jurisdiction is waived pursuant to Competition Rule VIII.

CONSTITUTIONAL AND STATUTORY PROVISIONS INVOLVED

The relevant constitutional and statutory provisions involved in this case are listed below

and reproduced in Appendices A through G:

U.S. Const. art. III, §§ 1 & 2

11 U.S.C. §§ 363(m), 364(e), 1127, 1141

28 U.S.C. § 157, 158, 1334

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STATEMENT OF THE CASE

Factual Background. Megan Kuzniewski is one of the victims of the many exploding

batteries that were used in Padco’s failed line of tablet computers. R. at 2, 4. The batteries were

developed at a time when Padco was a wholly-owned subsidiary. R. at 4. At the time of the

explosions, however, Padco “had spun off as an independent company.” R. at 4.

Following the bad publicity of the exploding batteries, Padco encountered financial

difficulty and filed for Chapter 11 bankruptcy to avoid liquidation. R. at 2–3. Gadget, the former

parent company of Padco, provided “financing and support” that helped lead to a successful

reorganization. R. at 2.

During the reorganization process, Gadget was worried about outstanding and yet-to-be-

filed product liability claims from the Padco battery explosions. R. at 3. Specifically,

Kuzniewski’s counsel and a number of other lawyers were attempting to sue Gadget on a theory

of direct liability for its responsibility in the creation of Padco’s defective batteries. R. at 4.

Gadget was so concerned about incurring liability related to Padco that it was unwilling to

acquire Padco unless it could be assured that it would bear no legal responsibility for Padco’s

defective batteries. R. at 3.

In order to accommodate Gadget’s wishes, one of the plan provisions was “a permanent

injunction that enjoined the victims of Padco’s exploding batteries from bringing any claims

against Gadget that arose from or were related to the battery defect.” R. at 4. That provision is at

issue in this case. Kuzniewski and other victims of the exploding batteries were placed in their

own class and received compensation for their claims under the plan. R. at 4. Almost eighty

percent of the class voted to accept the plan. R. at 4.

Procedural History. Kuzniewski was one of the creditors who voted to reject the plan.

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R. at 4. In addition, Kuzniewski objected that the injunction was not permissible under the

Bankruptcy Code. R. at 4. After an evidentiary hearing, the Bankruptcy Court for the District of

Moot entered an order confirming the plan in January 2015. R at 4–5. Kuzniewski requested a

stay, but it was denied. R. at 5. The plan became effective and was substantially consummated

two days later. R. at 5. Kuzniewski appealed to the District Court for the District of Moot, and

Padco responded with a motion to dismiss the appeal as equitably moot. R. at 5. The district

court granted Padco’s motion and dismissed the appeal on the grounds of equitable mootness

without considering the merits of her objection to the plan injunction. R. at 5–6. Kuzniewski

appealed to the Court of Appeals for the Thirteenth Circuit. R. at 6. That court affirmed the

district court’s dismissal of Kuzniewski’s appeal on equitable mootness grounds and concluded,

after a cursory consideration of the merits, that the plan injunction was allowed by the

Bankruptcy Code. R. at 11, 14. This appeal followed.

SUMMARY OF THE ARGUMENT

This case is about the district court shirking its constitutional duties and the bankruptcy

court exceeding its allotted powers. The District Court for the District of Moot dismissed

Kuzniewski’s appeal as being equitably moot. The court of appeals affirmed. Both courts, in

their decisions, shirked their constitutionally mandated duty to exercise jurisdiction and hear an

appeal, on the merits, when that appeal is properly before them. By allowing courts to dismiss

appeals from bankruptcy court orders, at their discretion, the doctrine of equitable mootness

violates Article III of the United States Constitution.

In addition, equitable mootness is not supported by any statute—neither the jurisdictional

grants of title 28, 28 U.S.C. §§ 157, 158, nor the Bankruptcy Code, 11 U.S.C. § 101 et seq. The

statutes granting jurisdiction in title 28 make no mention of any circumstance where the court

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may decline to hear the merits of an appeal. Furthermore, the few narrow provisions in the

Bankruptcy Code that limit the effect of reversals on appeal cannot support such a broad doctrine

as equitable mootness.

The considerations of equity underlying equitable mootness are valid, but they must be

considered after the district court hears and decides the merits of the appeal. Fairness must also

be considered from the view of the appellant, who has a right for her appeal to be heard. A

decision on the merits, even when the court later determines that no relief can equitably be

granted to the appellant, contributes to the uniformity and integrity of the Bankruptcy Code.

Fairness to those that have relied on the confirmed plan can be properly considered by the court

in fashioning the appropriate relief to grant the appellant.

Given the invalidity of the application of equitable mootness by the district court and the

affirmation by the court of appeals, the merits of the appeal must be considered. Provisions for

non-consensual third party releases exceed the power granted to the bankruptcy courts by 28

U.S.C. § 157. Under this provision, bankruptcy courts may only adjudicate core proceedings.

The case law dictates that third party releases such as the one at issue in this case are not core,

and the constitutional considerations as expressed by this Court indicate that core proceedings

must be carefully defined so as not grant power reserved to the judiciary to legislative, non-

Article III courts. Furthermore, these releases, which effect permanent injunctions, are “final

orders or judgments” under § 157. Therefore, these releases violate the plain language of the

Bankruptcy Code.

In addition, adjudication of these cases by bankruptcy courts is in violation of Article III

of the Constitution as discussed in Stern v. Marshall. There is a divide between public and

private rights. Although bankruptcy courts may have the power to adjudicate on matters of

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public rights, tort claims of an individual against a non-debtor clearly fall on the side of private

rights, which the bankruptcy courts have no power to adjudicate. Allowing bankruptcy courts to

adjudicate such claims would be in violation of Article III which reserves that power for the

Article III courts only.

STANDARD OF REVIEW

This Court generally reviews the decision of lower courts with a standard of clearly

erroneous for findings of fact and de novo for conclusions of law. In re American Housing

Found., 785 F.3d 143, 152 (5th Cir. 2015). Although there is a circuit split in the appropriate

standard of review for dismissals on equitable mootness grounds—which involve a combination

of findings of fact and conclusions of law—that split is not implicated here. Compare Samson

Energy Res. Co. v. Semcrude, L.P. (In re SemCrude, L.P), 728 F.3d 314, 320 (3d Cir. 2013) with

JPMCC 2007-C1 Grasslawn Lodging, LLC v. Transwest Resort Properties, Inc. (In re Transwest

Resort Properties, Inc.), 801 F.3d 1161, 1168 (9th Cir. 2015). Kuzniewski challenges only the

court of appeals conclusions of law, which should be reviewed by the court de novo.

ARGUMENT

I. THE DISTRICT COURTS CANNOT USE THE DOCTRINE OF EQUITABLE

MOOTNESS TO REFUSE TO HEAR THE MERITS OF KUZNIEWSKI’S

APPEAL.

The doctrine of equitable mootness allows the federal courts to dismiss appeals from

confirmations of Chapter 11 reorganization plans if the court determines that the relief requested

by the appellant is inequitable to other parties, even if some form of relief for the appellant is

possible. In re Cont’l Airlines, 91 F.3d 553, 558–59 (3d Cir. 1996) (citing In re Chateaugay

Corp., 988 F.2d 322, 325 (2d Cir. 1993)). This dismissal almost always occurs before the court

considers the merits of the appeal. See id. However, this refusal to consider the merits of an

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appeal violates the Article III duty of courts to exercise jurisdiction where it is given and gives

an unconstitutional amount of power to bankruptcy judges. Additionally, there is no support for

the doctrine in either title 28 or the Bankruptcy Code. Therefore, courts must hear and decide the

merits of the appeal before they decide what relief would be the most equitable to all parties

concerned.

A. The doctrine of equitable mootness violates Article III of the Constitution of

the United States.

Equitable mootness is a judge-made doctrine entirely distinct from constitutional

mootness. Deutsche Bank AG, London Branch v. Metromedia Fiber Network, Inc. (In re

Metromedia Fiber Network, Inc.), 416 F.3d 136, 143–44 (2d Cir. 2005). Constitutional mootness

mandates that a court dismiss a case when it cannot fashion any effective relief for the plaintiff.

Cont’l Airlines, 91 F.3d 553, 558 (3d Cir. 1996) (citing Church of Scientology v. United States,

506 U.S. 9, 12 (1992)). Instead, equitable mootness is a doctrine under which district courts and

courts of appeal, at their discretion, can dismiss an appeal from a confirmation order based on

prudential concerns when, although relief could be fashioned, it would be inequitable to do so.

Beeman v. BGI Creditors’ Liquidating Tr. (In re BGI, Inc.), 772 F.3d 102, 107 (2d Cir. 2014)

(quoting In re Charter Commc’ns, Inc., 691 F.3d 476, 481 (2d Cir. 2012)).

The exercise of this discretionary doctrine violates Article III of the United States

Constitution. Article III grants jurisdiction to federal courts over “all cases, in law and equity,

arising under this Constitution, the laws of the United States, and treaties made, or which shall be

made, under their authority.” U.S. Const. art. III, § 2. A bankruptcy appeal is a case arising under

the laws of the United States, giving federal courts jurisdiction under the Constitution, in

addition to the specific grant of jurisdiction given to them in title 28. 28 U.S.C. § 157(b)(1). In

1821, Chief Justice Marshall articulated an underlying principle of the federal judiciary:

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With whatever doubts, with whatever difficulties, a case may be attended, [the Court]

must decide it, if it be brought before us. We have no more right to decline the exercise of

jurisdiction which is given, than to usurp that which is not given. The one or the other

would be treason to the constitution.

Cohens v. Virginia, 19 U.S. (6 Wheat.) 264, 404 (1821). In cases since, this Court has reaffirmed

the “virtually unflagging obligation of the federal courts to exercise the jurisdiction given them.”

Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976). Therefore, a

court’s refusal to hear the merits of an appeal properly before it on the basis of equitable

mootness is a violation of this obligation and the Constitution.

Equitable mootness is also incomparable to other abstention doctrines recognized by this

Court. See, e.g., R.R. Comm’n of Tex. v. Pullman Co., 312 U.S. 496 (1941) (recognizing that

abstention when the issue is the constitutionality of state enactments is proper until the state’s

judiciary has the opportunity to interpret the law as applied to the particular case); Younger v.

Harris, 401 U.S. 37 (1971) (prohibiting federal courts from hearing a civil rights tort claim

brought by a person in connection with his prosecution for an alleged crime until conviction);

Burford v. Sun Oil Co., 319 U.S. 315 (1943) (allowing federal courts sitting in diversity

jurisdiction to abstain where the case involves a complex, policy-based area of state law where

state courts have greater expertise); Colo. River Water Conservation Dist. v. United States, 424

U.S. 800 (1976) (establishing a comity-based abstention doctrine allowing federal courts to

dismiss claims that are simultaneously being litigated in state courts). All of these doctrines

reflect the premise that “[i]n rare circumstances, federal courts can relinquish their jurisdiction in

favor of another forum.” Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 722 (1996) (emphasis

added). Under these abstention doctrines, federal courts are not abdicating their jurisdiction, but

rather postponing its exercise. England v. La. State Bd. of Med. Exam’rs, 375 U.S. 411, 416

(1964) (citing Harrison v. NAACP, 360 U.S. 167, 177 (1959)). However, equitable mootness

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does not postpone the exercise of jurisdiction, but completely abdicates it. See One2One

Commc’ns, LLC v. Quad/Graphics, Inc., 805 F.3d 428, 440 (3d Cir. 2015) (Krause, J.,

concurring). When a federal court dismisses an appeal from a confirmation order as being

equitably moot, there is no other forum in which the appellant can present her case. Id. Nor is

there a later exercise of jurisdiction. Id. Therefore, equitable mootness cannot be compared to

any existing abstention doctrine recognized by this Court.

Furthermore, it should it be adopted as a new abstention doctrine. In recent years, this

Court has repeatedly narrowed existing abstention doctrines and reaffirmed the federal courts

“unflagging obligation” to exercise their jurisdiction. Sprint Commc’ns, Inc. v. Jacobs, 134 S. Ct.

584, 590–91 (2015) (refusing to extend the “exceptional” circumstances under which Younger

abstention applies); see also Zivotofsky ex rel. Zivotofsky v. Clinton, 132 S. Ct. 1421 (2012)

(narrowing the applicability of abstention based on the political question doctrine). This Court

specifically disapproved of doctrines that allow courts to dismiss cases based on “prudential”

considerations rather than constitutional or statutory grounds. Lexmark Int’l, Inc. v. Static

Control Components, Inc., 134 S. Ct. 1377, 1386 (2014).

Equitable mootness also raises issues of the constitutionality of the determination of

Article III claims by non-Article III courts. See One2One Commc’ns, 805 F.3d at 444 (Krause,

J., concurring); see also Stern v. Marshall, 564 U.S. 462 (2011). Litigants are entitled to Article

III adjudicators. Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932, 1944 (2015). “While that

right can be waived . . . bankruptcy appellants whose appeals are dismissed as equitably moot

clearly do not do so.” One2One Commc’ns, 805 F.3d at 444 (Krause, J., concurring). They are

involuntarily bound by the order of a non-Article III judge, without any recourse to an Article III

adjudicator.

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In addition, equitable mootness raises a concern over the institutional integrity of the

Judicial Branch. See Commodity Futures Trading Comm’n v. Schor, 478 U.S. 833, 851 (1986).

Congressional authorization of adjudication of Article III claims in non-Article III courts is

permissible only when the “essential attributes of judicial power,” appellate review most

crucially, are reserved to Article III courts. Schor, 478 U.S. at 851. Equitable mootness greatly

weakens the supervisory power of Article III courts in bankruptcy appeals. See One2One

Commc’ns, 805 F.3d at 445 (Krause, J., concurring). It effectively allows bankruptcy courts to

prevent Article III review of the decision of a non-Article III court. Id. Bankruptcy courts control

nearly all factors of an equitable mootness decision, including the approval of the reorganization

plan, the granting or refusal of a stay of plan implementation, the creation of new entities, the

transfer of property, and the commencement of distributions under the plan. Id. It can be used by

both bankruptcy judges and plan proponents “as a weapon to prevent any appellate review of

bankruptcy court orders confirming reorganization plans.” Nordhoff Invs., Inc. v. Zenith Elecs.

Corp., 258 F.3d 180, 192 (3d Cir. 2001) (Alito, J., concurring in the judgment). If this power is

left in the hands of non-Article III judges, the institutional integrity and independence of the

Judicial Branch would be unconstitutionally undermined.

Equitable mootness, as distinct from constitutional mootness, is purely a judge-made

prudential doctrine that results in the unconstitutional abdication of jurisdiction by Article III

courts. And unlike other recognized abstention doctrines, it truly is an abdication of jurisdiction,

for there is no other forum in which the appellant can pursue his claim and no later exercise of

jurisdiction. This abdication both violates the appellant’s right to an Article III adjudicator and

places such power in the hands of a non-Article III judge that the institutional integrity and

constitutional balance of powers is undermined. Thus, equitable mootness is unconstitutional.

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B. Even if equitable mootness were constitutional, there is no support for it in

the statutes granting appellate jurisdiction to the district courts over

bankruptcy orders or in the Bankruptcy Code.

Constitutionally, federal courts must hear cases that are properly before them. See Cohens

v. Virginia, 19 U.S. 264, 291 (1821); Colo. River Water Conservation Dist. v. United States, 424

U.S. 800 (1976). Under jurisdictional grants in title 28 of the United States Code, appeals from

Chapter 11 confirmation orders are properly heard by district courts, circuit courts of appeal and

this Court. 28 U.S.C. §§ 157(b)(1), 158(a).

Federal district courts have original jurisdiction over bankruptcy cases under 28 U.S.C. §

1334(a), but are allowed to refer them to bankruptcy courts under 28 U.S.C. § 157(a). However,

this referral is contingent on the explicit provision that bankruptcy court orders are “subject to

review” by the referring district court. 28 U.S.C. § 157(b)(1). Section 158 of the same title

provides that district courts “shall have jurisdiction to hear appeals” from bankruptcy courts. 28

U.S.C. § 158(a). Nothing in these statutes granting appellate jurisdiction authorizes a court to

decline to exercise that jurisdiction on the grounds of equitable mootness.

Nor is equitable mootness found in any provision of the Bankruptcy Code, although

courts have read in and filled an artificial “gap” in the code. See Samson Energy Res. Co. v.

SemCrude, L.P. (In re SemCrude, L.P.), 728 F.3d 314, 317–18 (3d Cir. 2013). This supposed gap

is based on the general policy underlying the bankruptcy code of favoring the finality of

decisions and the “particular problems” of Chapter 11 reorganization, “in which ‘the need for

finality, and the need for third parties to rely on that finality,’ is of paramount importance.”

Beeman v. BGI Creditors’ Liquidating Tr. (In re BGI, Inc.), 772 F.3d 102, 107 (2d Cir. 2014)

(quoting TBN Fin., Inc. v. James F. Parker Interests (In re Grimland, Inc.), 243 F.3d 228, 231 &

n.4 (5th Cir. 2001)). Specifically, 11 U.S.C. §§ 363(m) and 364(e) are interpreted as applying a

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broad policy of nonreviewability of substantially consummated plan confirmation orders.

SemCrude, 728 F.3d at 317–18.

However, “‘narrow provisions’ such as §§ 363(m) and 364(e), ‘which merely prevent the

upsetting of certain specific transactions if stays are not obtained,’ cannot support the broad

doctrine of equitable mootness.” One2One Commc’ns, 805 F.3d at 443 (Krause, J., concurring)

(quoting Cont’l Airlines, 91 F.3d at 570 (Alito, J., dissenting)) (emphasis in original). Section

363(m) provides:

The reversal or modification on appeal of an authorization under subsection (b) or (c) of

this section 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,

whether or not such entity knew of the pendency of the appeal, unless such authorization

and such sale or lease were stayed pending appeal.

11 U.S.C. § 363(m). This section, by its terms, indicates that an appellate court can reverse an

authorization but limits the effect of that reversal on the specific transaction. Section 364(e)

likewise provides limited support equitable mootness. It provides:

The reversal or modification on appeal of an authorization under this section to obtain

credit or incur debt, or of a grant under this section of a priority or a lien, does not affect

the validity of any debt so incurred, or any priority or lien so granted, to an entity that

extended such credit in good faith, whether or not such entity knew of the pendency of

the appeal, unless such authorization and the incurring of such debt, or the granting of

such priority or lien, were stayed pending appeal.

11 U.S.C. § 364(e). As with § 363(m), this section indicates that a reversal upon appeal is indeed

possible, but the effects of that reversal on a certain transaction are limited. See One2One

Commc’ns, 805 F.3d at 443 (Krause, J., concurring). In addition, although § 1127(b) applies

some limitations on modification of a reorganization plan after confirmation, these restrictions

apply only to parties seeking to modify the plan, not to appellate courts. 11 U.S.C. § 1127(b); see

One2One Commc’ns, 805 F.3d at 443–44 (Krause, J., concurring).

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11

The specific and limited nature of the above-mentioned provisions in the Bankruptcy

Code do not support such a broad doctrine as equitable mootness. In fact, they indicate that,

should Congress have intended to provide an option such as equitable mootness to appeals of

confirmed reorganization plans, it could have done so. “Because Congress specified certain

orders that cannot be disturbed on appeal absent a stay, basic canons of statutory construction

compel us to presume that Congress did not intend for other orders to be immune from appeal.”

One2One Commc’ns, 805 F.3d at 444 (Krause, J., concurring).

Therefore, there is no statutory authorization for the exercise of equitable mootness. The

jurisdictional grants in title 28 unquestionably authorize district courts and courts of appeal to

exercise jurisdiction over appeals from Chapter 11 confirmation orders and contain no language

suggesting that there is any situation in which the courts can refuse to exercise that jurisdiction.

Nor is equitable mootness found in any of the provisions of the Bankruptcy Code. The

underlying policy of finality of Chapter 11 plans can be upheld by courts in fashioning a limited

remedy, or refusing to grant one at all, instead of refusing to hear the merits of an appeal and

allowing a potentially illegal plan to continue.

C. Equity and fairness dictate that the merits of Kuzniewski’s appeal must be

decided and equity considered only in fashioning the appropriate relief.

Equitable mootness is based on considerations of the fairness of the reversal of an entire

Chapter 11 reorganization plan. However, the same considerations of equity and fairness

mandate that the court hear and decide the merits of an appeal. What is fair about barring “a

potentially meritorious appeal when an appellate court—after hearing the merits of the appeal—

instead could use its equitable authority to fashion a limited remedy while still protecting third

parties that may be harmed if a plan is undone?” One2One Commc’ns, 805 F.3d at 442 (Krause,

J., concurring) (citing SemCrude, 728 F.3d at 324–25).

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Equitable mootness is based on the consideration, not that there is no relief available to

the petitioner, but that the relief requested by the petitioner would be inequitable to third parties.

Cont’l Airlines, 91 F.3d at 558–59 (citing Chateaugay Corp., 988 F.2d 322, 325 (2d Cir. 1993)).

“There is a big difference between inability to alter the outcome (real mootness) and

unwillingness to alter the outcome (‘equitable mootness’).” In re UNR Indus., 20 F.3d 766, 769

(7th Cir. 1994) (emphasis added). Courts can address the concerns about harm to third parties

and the effects on debtor reorganization in ways that “do not suffer from the . . . statutory[] and

constitutional defects of equitable mootness” by first considering and deciding the merits of an

appeal and then considering fairness and equity in fashioning appropriate relief. One2One

Commc’ns, 805 F.3d at 449 (Krause, J., concurring); Semcrude, 728 F.3d at 324–25 (“[T]he

feared consequences of a successful appeal are often more appropriately dealt with by fashioning

limited relief at the remedial stage than by refusing to hear the merits of an appeal at its outset”).

Ultimately, “[b]ecause equitable mootness bears only upon the proper remedy, and does

not raise a threshold question of our power to rule, a court is not inhibited from considering the

merits before considering equitable mootness.” Deutche Bank AG, London Branch v.

Metromedia Fiber Network, Inc. (In re Metromedia Fiber Network, Inc.), 416 F.3d 136, 144 (2d

Cir. 2005). In Metromedia, the Court of Appeals for the Second Circuit analyzed the merits of

the appeal, decided them in favor of the appellant, but refused to grant relief based on equitable

principles. Id. at 139. The Court of Appeals for the Seventh Circuit also recognized this

distinction in In re Envirodyne Industries when it heard the merits of the appeal before

considering the doctrine of equitable mootness. 29 F.3d 301, 304 (7th Cir. 1994). The court

reasoned that “[equitable mootness] is perhaps best described as merely an application of the

age-old principle that in formulating equitable relief a court must consider the effects of the relief

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on innocent third parties . . . not [as] a jurisdictional doctrine.” Id. at 304 (citing Int’l Bhd. of

Teamsters v. United States, 431 U.S. 324, 375 (1977)). The Court of Appeals for the Fourth

Circuit also adopted this approach in Behrmann v. Nat’l Heritage Found., 663 F.3d 704, 713 n.3

(4th Cir. 2011).

Even if a reviewing court determines that the relief requested were inequitable, appellants

would “accept some fractional recovery that does not impair feasibility [of the plan] or affect

parties not before [the court], rather than suffer the mootness of [their] appeal as a whole.”

Chateaugay Corp., 10 F.3d 944, 954 (2d Cir. 1993). A decision on the merits is still beneficial

even if there is absolutely no relief that could be granted to the appellant without harming third

parties. A ruling on the merits “will promote accuracy and uniformity in the law of bankruptcy,”

One2One Commc’ns, 805 F.3d at 451 (Krause, J., concurring), and ensure review of claims that

involve issues that “go to the very integrity of the bankruptcy process,” Search Mkt. Direct, Inc.

v. Jubber (In re Paige), 584 F.3d 1327, 1348 (10th Cir. 2009); See also Bank of New York Tr.

Co., NA v. Official Unsecured Creditors’ Comm’n (In re Pac. Lumber Co.), 584 F.3d 229, 251

(5th Cir. 2009) (quoting In re Hilal, 534 F.3d 498, 500 (5th Cir. 2008) (“[E]quity strongly

supports appellate review of issues consequential to the integrity and transparency of the Chapter

11 process”)).

Although principles of equity and fairness may lead to the conclusion that the relief

requested by the appellant should not be granted, a court properly exercising its jurisdiction must

decide the appeal on the merits. It can then consider equitable principles and fairness to third

parties in fashioning, or refusing altogether, a remedy for the appellant. It cannot

constitutionally, in the current absence of statutory authority, dismiss the appeal before hearing

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the merits. To do so would be an abdication of its proper jurisdiction, which is a violation of

Article III of the United States Constitution.

II. CHAPTER 11 PLANS MAY NOT INCLUDE NON-CONSENSUAL THIRD-

PARTY RELEASES.

The Bankruptcy Code provides in § 1334 the jurisdictional framework for bankruptcy cases.

It provides that “[e]xcept as provided in subsection (b) of this section, the district courts shall

have original and exclusive jurisdiction of all cases under title 11.” 28 U.S.C. § 1334 (a). It

further provides that “the district courts shall have original but not exclusive jurisdiction of all

civil proceedings arising under title 11, or arising in or related to cases under title 11.” Id. at (b).

This grant of jurisdiction to the district courts is broad. See Wood v. Wood (In re Wood), 825

F.2d 90, 93 (5th Cir. 1987). The Code allows the district court to refer “any or all cases under

title 11 and any or all proceedings arising under title 11 or arising in or related to a case under

title 11” to the bankruptcy courts. 28 U.S.C. § 157.

However, the referring of cases to the bankruptcy courts is not a grant of complete

jurisdiction to the bankruptcy courts. Instead, the bankruptcy courts “may hear and determine all

cases under title 11 and all core proceedings arising under title 11 or arising in a case under title

11” but they may only “hear a proceeding that is not a core proceeding but that is otherwise

related to a case under title 11. Id. at (b)(1), (c)(1). Bankruptcy judges have full power to “enter

appropriate orders and judgments, subject to review under section 158 of this title” for core

proceedings, but are limited to “submit[ting] proposed findings of fact and conclusions of law to

the district court” in non-core proceedings. Id. at (b)(1), (c)(1). In a non-core proceeding, it is left

to the district court to enter orders or judgment “after considering the bankruptcy judge’s

proposed findings and conclusions and after reviewing de novo those matters to which any party

has timely and specifically objected.” Id at (c)(1).

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The separating of bankruptcy court powers to adjudicate only core proceedings and to

hear but not adjudicate non-core proceedings stemmed from this Court’s decision in Marathon.

N. Pipeline Const. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982). In that case, this Court

declared that Article III placed limits on how much power Congress could give to a legislative

court and ruled that the Bankruptcy Act of 1978 “impermissibly removed most, if not all, of “the

essential attributes of the judicial power” from the Art. III district court, and [had] vested those

attributes in a non-Art. III adjunct.” Id. at 76, 87. This Court reasoned that only matters of public

right may be referred to legislative courts to be decided. Id. at 71. Although it did not draw a

sharp line between public and private rights, this Court said “public rights must at a minimum

arise “between the government and others” whereas “the liability of one individual to another

under the law as defined,” [citation removed], is a matter of private rights.” Id. at 69–70. In

response to Marathon, Congress vested all bankruptcy jurisdiction in the district courts and gave

the district courts the power to refer bankruptcy cases to the bankruptcy courts, but limited the

bankruptcy courts to only adjudicating core proceedings. See Wood, 825 F.2d at 93. Congress

did not define the limits of what is core and what is non-core in the 1984 Code, 28 U.S.C. § 157;

that task has been taken up by the circuit courts.

Marathon demonstrates that the powers of the bankruptcy courts are not boundless. The

bankruptcy courts cannot adjudicate in excess of what is statutorily permitted to them, nor in

excess of what is constitutionally permitted to them. If the bankruptcy courts adjudicate in

excess of what is constitutionally permissible under Article III and as laid out in Marathon, then

they will need to be restructured by Congress again. Therefore, what is determined to be core

must not exceed what is constitutionally permissible under the case law.

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A. Third-party releases constitute final orders or judgments on non-core

proceedings by a bankruptcy judge which are disallowed by the plain

language of 28 U.S.C. § 157(c)(1).

For any proceeding in a bankruptcy case, it must be determined if the proceeding is a

core proceeding, which the bankruptcy court has the power to adjudicate, or a non-core

proceeding, on which the bankruptcy court may only hear and issue proposed findings. There are

some issues that are clearly core, but nevertheless exceed the powers allowable to the bankruptcy

court under the Constitution. In Stern, this Court held that the “Bankruptcy Court had the

statutory authority to enter judgment on [a] counterclaim, [but] it lacked the constitutional

authority to do so.” Stern v. Marshall, 564 U.S. 462, 469 (2011). Stern shows that the 1984 Code

did not perfectly solve the jurisdictional problems that were inherent in the 1978 Act as

discussed in Marathon.

However, the 1984 Bankruptcy Code does at least attempt to solve the jurisdictional

problems through the use of the core/non-core distinction, and these provisions should be

interpreted with this attempt in mind. Congress provides a list of proceedings that are considered

core, but the list is not exhaustive. 28 U.S.C. § 157 (b)(2). If a proceeding is described in § 157

(b), it is core. If the proceeding is not clearly described in § 157 (b), the court must decide if it is

nevertheless core. Wood notes that the “proceedings affecting ... the estate” example found in

§ 157(b)(2)(O) is similar in scope to the test of jurisdiction: proceedings having a “conceivable

effect on the estate.” Wood, 825 F.2d at 96. It would be possible to read this as permitting almost

any proceeding under a bankruptcy case to be considered core. To read this so broadly, however,

would be contrary to the “purpose of the 1984 Act. That purpose is to conform the bankruptcy

statute to the dictates of Marathon.” Id. at 96. If all proceedings in bankruptcy cases were

determined to be core, this Court would again be forced to strike down the Bankruptcy Code as

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unconstitutionally vesting judicial power in legislative courts.

It is imperative that courts carefully consider whether any proceeding is core or not.

“[W]e are persuaded that a court should avoid characterizing a proceeding as ‘core’ if to do so

would raise constitutional problems. Castlerock Properties v. Castlerock Properties (In re

Castlerock Properties), 781 F.2d 159, 162 (9th. Cir. 1990) (citing Mohawk Industries, Inc. v.

Robinson Industries, Inc., 46 B.R. 464, 66 (D. Mass. 1985)); Morse Electric Co., Inc. v. Logicon,

Inc. (In re Morse Electric Co., Inc.), 47 B.R. 234, 237-238 (Bankr. N.D. Ind. 1985).

1. Claims of non-consenting creditors against third party non-debtors when

said claims are not derivative of debtor’s claims against the non-debtor

are non-core proceedings.

Owing to cases like Marathon and Stern, most circuit courts have held that one of two

elements must be met for a proceeding to be core: either the proceeding must “invoke

substantive rights created by federal bankruptcy law . . . [or] nevertheless, have no existence

outside of the bankruptcy.” In re Anderson, 553 B.R. 221, 229 (S.D.N.Y. 2016). See also Halper

v. Halper, 164 F.3d 830, 836 (3rd Cir. 1999); Wortley v. Bakst, 2017 WL 57769, *4 (11th Cir.

2017); Maxus Energy Corp. v. Occidental Chem. Corp. (In re Maxus Energy Corp.), 560 B.R.

111, 121 (Bankr. D. Del. 2016).

A clear example of a core proceeding is an issue directly surrounding the bankruptcy

discharge. In a chapter 11 case, the confirmation of the plan “discharges the debtor from any debt

that arose before the date of such confirmation.” 11 U.S.C. § 1141 (d)(1)(A). This is a

substantive right created by federal bankruptcy law, as described in Anderson. This being the

case, an “enforcement proceeding concerning that discharge therefore arises under the

Bankruptcy Code” and is a core proceeding. Anderson, 553 B.R. at 229. In contradistinction to

those proceedings that are core are proceedings in which a plan seeks to “permanently enjoin

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claims that non-consenting creditors have against a non-debtor when the claims are not

derivative of the debtor’s claims against the non-debtor and no provision is made for full

payment of the enjoined claims.” R. at 1 (emphasis added). The language of the question

presented betrays how it could be no farther from a core issue and still even be within the

bankruptcy court’s broad “related to” jurisdiction under § 1334 and power to hear under § 157.

See Eamonn O'Hagan, On a “Related” Point: Rethinking Whether Bankruptcy Courts Can

“Order” The Involuntary Release Of Non-Debtor, Third-Party Claims, 23 Am. Bankr. Inst. L.

Rev. 531, 533 (2015) (arguing that bankruptcy courts lack the authority to order the release of

such claims because “a non-debtor's pre-bankruptcy claim against another non-debtor does not

‘aris[e] under title 11’ and does not ‘aris[e] in a case under title 11’”).

The second situation is what is at issue in this case. Kuzniewski is among those injured

by one of Padco’s exploding batteries. Kuzniewski has a right to bring a claim against Gadget,

whom she claims “owed a duty to prevent its subsidiary from using a battery that Gadget knew

or should have known was dangerously defective.” R. at 4. Kuzniewski’s claim is an action in

tort against Gadget, a party which is not filing for bankruptcy, and which is not able to receive

the bankruptcy discharge under § 1141 (d)(1)(A). This claim does not “invoke substantive rights

created by federal bankruptcy law.” Anderson, 553 B.R. at 229. Nor would Kuzniewski’s claim

“have no existence outside of the bankruptcy,” as she would easily be able to bring this claim

against Gadget in state court, had there been no bankruptcy case. The likelihood of her claim

being successful has no bearing on whether this is a core issue or not. All that matters is that this

is not stemming from bankruptcy law, and the claim would exist outside of the bankruptcy. The

issue is non-core.

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2. Third-party releases effect permanent injunctions of claims and

constitute final orders or judgments.

The powers of the bankruptcy judge in non-core proceedings are very limited. In such a

proceeding, “the bankruptcy judge shall submit proposed findings of fact and conclusions of law

to the district court.” 28 U.S.C. § 157 (c)(1). After reviewing the proposed findings of fact and

law, “any final order or judgment shall be entered by the district judge.” Id. There is the further

safeguard that the district court judge must review “de novo those matters to which any party has

timely and specifically objected.” Id.

Although the opinion below calls the order against Kuzniewski in favor of Gadget a

“release,” it is also states that the effect of such “release” was to permanently enjoin the claims

against Gadget. R. at 11. This “release” was a permanent injunction of claims against Gadget.

There is a question of whether a permanent injunction constitutes a “final order or

judgment.” Black’s Law Dictionary defines an injunction as a “court order commanding or

preventing an action.” Injunction, Black’s Law Dictionary (10th ed. 2014). Courts have ruled

that a “bankruptcy order is entitled to the effect of res judicata.” Republic Supply Co. v. Shoaf,

815 F.2d 1046, 1051 (5th Cir. 1987). That case held that a provision of a bankruptcy plan which

permanently released a party was a final order on the merits, even though the specific provision

was not litigated, because the provision was in the plan and the bankruptcy court approved the

plan. Id. at 1054.

From the plain meaning of the word, and from its res judicata effect, it is clear that a

permanent injunction is a “final order or judgment.” Because non-consensual third-party releases

effect a “final order or judgment” on a non-core issue, which violates 28 U.S.C. § 157 (c)(1), we

request that you overturn the lower court’s decision.

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B. Even if this could properly be considered a core matter, it is still outside of

the bankruptcy court’s power as this is a private right matter.

This Court has made it clear that although a proceeding may be “core” and thus the

bankruptcy court have statutory authority to enter judgment, the bankruptcy court may still be

barred from entering judgment by Article III of the Constitution. Stern v. Marshall, 564 U.S.

462, 469 (2011). Because the Constitution requires that the “Judicial Power of the United States,

shall be vested in one supreme Court, and in such inferior Courts [the district courts],” this Court

stated that “Article III could neither serve its purpose in the system of checks and balances nor

preserve the integrity of judicial decision making if the other branches of the Federal

Government could confer the Government's ‘judicial Power’ on entities outside Article III.” Id.

at 484 (citing U.S. Const. art. III, § 1). This Court echoed the important difference of matters of

private right and public right as discussed in Marathon, and again affirmed that matters of

private right touch at the heart of the judiciary and must be resolved by Article III courts. Id. at

485.

In Stern, the estate of Ms. Vickie Lynn Marshall had filed a counterclaim for tortious

interference against the estate of Mr. Pierce Marshall. Id. at 470. Her counterclaim was in

response to Mr. Marshall’s complaint filed in the bankruptcy court that Ms. Marshall had

defamed him, which was filed after Ms. Marshall had filed for Bankruptcy. Id. This Court

quickly dismissed of arguments that the proceeding was not core, as “counterclaims by the estate

against persons filing claims against the estate” are core proceedings “under the plain text of §

157(b)(2)(C).” Id. at 475. The majority characterized Marathon as concluding that “assignment

of such state law claims for resolution by those judges [i.e. bankruptcy judges] ‘violates Art.

III.’” Stern, 564 U.S. at 485 (quoting Marathon). The claim at issue in Marathon was a contract

claim. This Court acknowledged that there may be instances when the public and private rights

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discussion may “fail[] to provide concrete guidance as to whether, for example, a particular

agency (such as the bankruptcy courts) can adjudicate legal issues under a substantive regulatory

scheme.” Id. at 494. However, despite the difficulty that the public and private rights discussion

may provide in some instances, this Court said it was clear that “this case involves the most

prototypical exercise of judicial power: the entry of a final, binding judgment by a court with

broad substantive jurisdiction, on a common law cause of action, when the action neither derives

from nor depends upon any agency regulatory regime.” Id. Such a “prototypical exercise of

judicial power” is reserved for Article III courts, and is not appropriate for the bankruptcy courts

to make. Id. at 494.

Ms. Marshall’s claim of tortious interference is markedly similar to Kuzniewski’s claim.

Kuzniewki has a claim for an action in tort. She was harmed by a battery that exploded. The

party she is suing is Gadget, not Padco. Padco applied for bankruptcy, Gadget has not. Her claim

“neither derives from nor depends on” federal bankruptcy law — it instead depends on the

common law. Just like Ms. Marshall’s claim, “it is a state tort action that exists without regard to

any bankruptcy proceeding.” Id at 499. Just like in Stern, it would be unconstitutional for a

bankruptcy court, a non-Article III court, to adjudicate her claim. Therefore, we respectfully

request that this court finds the bankruptcy court’s injunction void for violating Article III.

CONCLUSION

The Court of Appeals erred in affirming the District Court’s dismissal of Kuzniewski’s

appeal on the grounds of equitable mootness. District courts and courts of appeal have a

constitutional duty to exercise jurisdiction and hear the merits of an appeal when it is properly

before them. The doctrine of equitable mootness violates Article III of the Constitution by

allowing courts to abdicate their jurisdiction. Unlike other abstention doctrines recognized by

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this Court, this is a case of true abdication—there is not another forum in which Kuzniewski can

present her case, nor is the court merely postponing the exercise of its jurisdiction over her

appeal.

Equitable mootness also leaves too much power in the hands of non-Article III

bankruptcy judges. The bankruptcy judge controlled nearly all of the factors determining

whether or not the Padco reorganization plan would be implemented to the point where a

reversal of his decision would be inequitable to third parties. This power upsets the balance-of-

powers system established by the Constitution and undermines the integrity of Article III courts.

Even if equitable mootness were constitutional, it would still be a purely judge-made

doctrine with no support from jurisdictional statutes or the Bankruptcy Code. The jurisdictional

statutes of title 28 clearly grant appellate jurisdiction over bankruptcy court orders to district

courts and make no mention of any circumstance where those courts can decline to exercise this

jurisdiction. Nor is there any provision in the Bankruptcy Code that promotes such a broad

doctrine. The few provisions that could lend support are limited to specific transactions and

themselves imply that review of the merits, and even reversal, is possible, but with limited

effects on the specified transactions.

Kuzniewski has a right to have her appeal heard on the merits by an Article III judge.

Although fairness to innocent third parties is important, it is equally important to consider

fairness to Kuzniewski. Should the court decide the merits in favor of Kuzniewski, it can then

consider equity in fashioning the appropriate relief, which may indeed be no relief at all.

The bankruptcy court did not have the power to enjoin Kuzniewski’s claim as part of the

Padco reorganization plan. Third-party releases such as the one that binds Kunziewski are not

core proceedings under 28 U.S.C. § 157, and as such the bankruptcy court lacked jurisdiction to

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issue a final order. A permanent injunction is a final order under § 157. Final orders on core

proceedings are disallowed by the plain language of § 157. In addition, even if third-party

releases could be classified as core proceedings, their issuance by the bankruptcy courts would

violate Article III of the Constitution. As this Court articulated in Stern v. Marshall, the

adjudication of private rights by non-Article III courts is unconstitutional. Kuzniewski’s

underlying claim is one that sounds in tort. Tort claims are created primarily by common law and

qualify as private rights. Thus, their adjudication by a non-Article III court would violate Article

III of the Constitution as well as undermine the general balance-of-powers structure of our

government.

The appellant, therefore, asks this Court to declare that district courts hearing appeals

from Chapter 11 confirmations must hear the merits of the appeal and consider equities in

fashioning the remedy. In addition, she asks this Court to rule that third-party releases ordered by

the bankruptcy court, as non-core proceedings, are not valid parts of a reorganization plan, unless

confirmed by the district court after de novo review as required by 28 U.S.C. §§ 157 and 158.

She respectfully requests that this Court remand the case to the district court for de novo review

of the merits of her appeal, consistent with this Court’s opinion.

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I

APPENDIX A

U.S. Const. Art. III § 1

The judicial Power of the United States, shall be vested in one supreme Court, and in such

inferior Courts as the Congress may from time to time ordain and establish. The Judges, both of

the supreme and inferior Courts, shall hold their Offices during good Behaviour, and shall, at

stated Times, receive for their Services, a Compensation, which shall not be diminished during

their Continuance in Office.

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II

APPENDIX B

U.S. Const. Art. III § 2, cl. 1

The judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution,

the Laws of the United States, and Treaties made, or which shall be made, under their Authority

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III

APPENDIX C

11 U.S.C. § 363. Use, sale, or lease of property

. . .

(m) The reversal or modification on appeal of an authorization under subsection (b) or (c) of this

section 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, whether or not

such entity knew of the pendency of the appeal, unless such authorization and such sale or lease

were stayed pending appeal.

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IV

APPENDIX D

11 U.S.C. § 364 Obtaining credit

. . .

(e) The reversal or modification on appeal of an authorization under this section to obtain credit

or incur debt, or of a grant under this section of a priority or a lien, does not affect the validity of

any debt so incurred, or any priority or lien so granted, to an entity that extended such credit in

good faith, whether or not such entity knew of the pendency of the appeal, unless such

authorization and the incurring of such debt, or the granting of such priority or lien, were stayed

pending appeal.

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V

APPENDIX E

11 U.S.C. § 1127. Modification of plan

. . .

(b) The proponent of a plan or the reorganized debtor may modify such plan at any time after

confirmation of such plan and before substantial consummation of such plan, but may not

modify such plan so that such plan as modified fails to meet the requirements of sections

1122 and 1123 of this title. Such plan as modified under this subsection becomes the plan only if

circumstances warrant such modification and the court, after notice and a hearing, confirms such

plan as modified, under section 1129 of this title.

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VI

APPENDIX F

11 U.S.C. § 1141. Effect of confirmation

. . .

(d)(1) Except as otherwise provided in this subsection, in the plan, or in the order confirming the

plan, the confirmation of a plan--

(A) discharges the debtor from any debt that arose before the date of such confirmation,

and any debt of a kind specified in section 502(g), 502(h), or 502(i) of this title, whether

or not--

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VII

APPENDIX G

28 U.S.C. § 157. Procedures

(a) Each district court may provide that any or all cases under title 11 and any or all proceedings

arising under title 11 or arising in or related to a case under title 11 shall be referred to the

bankruptcy judges for the district.

(b)(1) Bankruptcy judges may hear and determine all cases under title 11 and all core

proceedings arising under title 11, or arising in a case under title 11, referred under subsection (a)

of this section, and may enter appropriate orders and judgments, subject to review under section

158 of this title.

(2) Core proceedings include, but are not limited to--

(A) matters concerning the administration of the estate;

(B) allowance or disallowance of claims against the estate or exemptions from

property of the estate, and estimation of claims or interests for the purposes of

confirming a plan under chapter 11, 12, or 13 of title 11 but not the liquidation or

estimation of contingent or unliquidated personal injury tort or wrongful death

claims against the estate for purposes of distribution in a case under title 11;

(C) counterclaims by the estate against persons filing claims against the estate;

(D) orders in respect to obtaining credit;

(E) orders to turn over property of the estate;

(F) proceedings to determine, avoid, or recover preferences;

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VIII

(G) motions to terminate, annul, or modify the automatic stay;

(H) proceedings to determine, avoid, or recover fraudulent conveyances;

(I) determinations as to the dischargeability of particular debts;

(J) objections to discharges;

(K) determinations of the validity, extent, or priority of liens;

(L) confirmations of plans;

(M) orders approving the use or lease of property, including the use of cash

collateral;

(N) orders approving the sale of property other than property resulting from

claims brought by the estate against persons who have not filed claims against the

estate;

(O) other proceedings affecting the liquidation of the assets of the estate or the

adjustment of the debtor-creditor or the equity security holder relationship, except

personal injury tort or wrongful death claims; and

(P) recognition of foreign proceedings and other matters under chapter 15 of title

11.

. . .

(c)(1) A bankruptcy judge may hear a proceeding that is not a core proceeding but that is

otherwise related to a case under title 11. In such proceeding, the bankruptcy judge shall submit

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proposed findings of fact and conclusions of law to the district court, and any final order or

judgment shall be entered by the district judge after considering the bankruptcy judge's proposed

findings and conclusions and after reviewing de novo those matters to which any party has

timely and specifically objected.

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APPENDIX H

28 U.S.C. § 158. Appeals

(a) The district courts of the United States shall have jurisdiction to hear appeals

(1) from final judgments, orders, and decrees;

(2) from interlocutory orders and decrees issued under section 1121(d) of title

11 increasing or reducing the time periods referred to in section 1121 of such title; and

(3) with leave of the court, from other interlocutory orders and decrees;

and, with leave of the court, from interlocutory orders and decrees, of bankruptcy judges entered

in cases and proceedings referred to the bankruptcy judges under section 157 of this title. An

appeal under this subsection shall be taken only to the district court for the judicial district in

which the bankruptcy judge is serving.

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APPENDIX I

28 U.S.C. § 1334. Bankruptcy cases and proceedings

(a) Except as provided in subsection (b) of this section, the district courts shall have original and

exclusive jurisdiction of all cases under title 11.

(b) Except as provided in subsection (e)(2), and notwithstanding any Act of Congress that

confers exclusive jurisdiction on a court or courts other than the district courts, the district courts

shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or

arising in or related to cases under title 11.