Equitable Mootness Doctrine in Minnesota Bankruptcy Appeals

A recent decision by the United States Court of Appeals for the Eighth Circuit limits application of the doctrine of equitable mootness in appellate review of Chapter 11 bankruptcy cases in the Eighth Circuit, which includes Minnesota. The standard articulated in the case differs from standards articulated by other federal circuit courts of appeal. The decision has drawn nationwide attention.

What Is the Doctrine of Equitable Mootness?

The doctrine of equitable mootness is a court-created principle that may be invoked by an appellate court to bar adjudication of an appeal, when circumstances render it inequitable for the reviewing court to address the merits of the appeal. In bankruptcy appeals, appellees frequently invoke the doctrine as a basis for precluding appellate court review of orders relating to a reorganizational plan under a Chapter 11 bankruptcy proceeding.

Numerous decisions in federal courts across the country have addressed the doctrine. Currently, there is substantial disagreement among the circuit courts of appeal concerning the standards for application of the equitable mootness doctrine in bankruptcy cases. Two petitions for certiorari filed in the United States Supreme Court in 2021 raised the possibility that the Supreme Court would resolve the split among the circuits, but the Court declined to review both cases in the fall of 2021.

The recent decision of the United States Court of Appeals for the Eighth Circuit, FishDish, LLP v. VeroBlue Farms USA, Inc. (In re VeroBlue Farms USA, Inc.), 6 F.4th 880 (8th Cir. 2021), articulates the standard for application of the doctrine in the appeals in the Eighth Circuit, which includes the U.S. District Court for the District of Minnesota and the Minnesota Bankruptcy Court. The Eighth Circuit standard departs significantly from rulings on the doctrine in other circuits.

Eighth Circuit U.S. Court of Appeals Decision on Equitable Mootness

The VeroBlue Farms case involved complex Chapter 11 bankruptcy proceedings of an Iowa aquaculture business. Two separate issues were appealed to the Eighth Circuit from the decision of the U.S. District Court of the Northern District of Iowa, which dismissed an appeal relating to bankruptcy court orders based on equitable mootness. The Eighth Circuit reversed the District Court’s decision on the doctrine and remanded the case for further proceedings consistent with the standard for application of the equitable mootness doctrine set forth in the opinion. This summary concerns only the Eighth Circuit’s discussion and conclusions on the doctrine of equitable mootness.

Court’s Discussion of Equitable Mootness Doctrine

The Eighth Circuit ruling sharply limits application of the equitable mootness doctrine in appellate review of Chapter 11 bankruptcy plan confirmation orders of a bankruptcy court. In articulating the conclusions, the Circuit Court cited and quoted numerous other federal court decisions, including opinions of the United States Supreme Court.

The VeroBlue decision embraced the principle articulated in other decisions that Article III appellate courts considering invocation of the doctrine of equitable mootness have a “virtually unflagging obligation” to exercise appellate jurisdiction. The Circuit Court also noted that the name of the equitable mootness doctrine is misleading, since “A case is moot, that is, beyond a federal court’s Article III jurisdiction, only if ‘it is impossible for a court to grant any effectual relief whatsoever.’” The Court explained further that there is a difference between inability to alter an outcome and an unwillingness to alter the outcome, with the latter being the result invited by the equitable mootness doctrine.

The Court noted that the equitable mootness doctrine arises from recognition that when Article III grounds may not warrant dismissal, common sense or equitable considerations may justify an appellate court declining to rule on the merits of a case. In recognizing that a variety of factors may be relevant in any specific case, the Eighth Circuit declined to accept analyses and standards used by other circuit courts, but cited with approval a Third Circuit concurring opinion that criticized overuse of the doctrine of equitable mootness and noted that the doctrine has proven far more likely to promote uncertainty and delay, rather than promoting finality.

Standard for Reviewing Merits of an Appeal

The VeroBlue decision establishes the standard for appellate court review of the merits of an appeal when considering application of the doctrine of equitable mootness. The standard must be applied before the reviewing court decides the ultimate equitable mootness question of whether the court “can grant relief without undermining the plan, and thereby, affecting third parties.” The standard includes: 1) determining the strength of the appellant’s claims, 2) determining the amount of time necessary to resolve the merits of the claims on an expedited basis, and 3) identifying the equitable remedies available to avoid undermining the plan and harming third parties.

In articulating this standard, the Eighth Circuit concluded that use of the non-statutory doctrine of equitable mootness by Article III courts to avoid exercise of subject matter jurisdiction in appeals of bankruptcy court decisions should be the rare exception, not the rule, and that a different standard runs contrary to the “presumptive position…. that federal courts should hear and decide on the merits cases properly before them.”

Future of the Equitable Mootness Doctrine

For the time-being at least, the Eighth Circuit ruling in the VeroBlue Farms case articulates the standard for appellate court application of the equitable mootness doctrine in Minnesota bankruptcy appeals. The standard significantly limits application of the doctrine and is different from standards imposed in other circuit courts of appeal across the country.

A possibility of the U.S. Supreme Court resolving the circuit split arose but did not materialize in late 2021, when the Supreme Court declined to review two cases involving the doctrine. Both houses of Congress have relevant statutory resolutions under consideration, but there is no sign of those efforts coming to fruition any time soon. Unless or until a resolution comes from the Supreme Court or Congress, the doctrine will be applied by federal appellate courts under disparate standards in different circuits.

Talk With a Minnesota Bankruptcy Litigation Attorney

At the Dave Burns Law Office, I represent clients in contested matters and adversary proceedings in the United States Bankruptcy Court in Minneapolis and St. Paul. If you require assistance with bankruptcy litigation, I welcome you to contact me at (612) 677-8351 or by sending an email to me at dave@daveburnslaw.com

I am available to meet with clients in both Minneapolis and St. Paul. Inquiries from clients and referring attorneys throughout the State of Minnesota are welcomed.