2nd Circuit Upholds Dismissal of Windstream Bankruptcy Appeal

Windstream’s bankruptcy reorganization shouldn’t be rolled back to provide relief to unsecured creditors such as appellant U.S. Bank National Association, ruled the 2nd U.S. Circuit Court of Appeals Tuesday in a summary order in docket 21-1754 affirming a previous ruling by the U.S. District Court for Southern New York. U.S. Bank appears “to invite us to carve out the facts of this case ad hoc. We must decline this invitation,” said the decision from Circuit Judges Pierre Leval, Denny Chin and Eunice Lee.

The lower court dismissed U.S. Bank’s appeal challenging the distribution of funds in Windstream’s 2020 bankruptcy reorganization based on the doctrine of equitable mootness, which holds that bankruptcy appeals can be dismissed to avoid disrupting reorganizations that have already been implemented. The 2nd Circuit ruled that the district court applied the doctrine correctly. “We discern no error in the district court’s analysis or conclusions,” said the summary order.

“We are gratified that the appellate court agreed with the district judge’s ruling and upheld the established legal doctrine of equitable mootness,” emailed Windstream General Counsel Kristi Moody. “Following emergence, Windstream began making substantial infrastructure investments that benefit our customers, and it would be a disservice to them to unwind those initiatives.” Windstream’s Chapter 11 reorganization allowed it to reduce its debt by more than $4 billion, the company said in 2020 (see 2009220021). U.S. Bank didn’t comment.

U.S. Bank had argued the doctrine of equitable mootness lacks a constitutional basis and the lower court abused its discretion in applying it, but the 2nd Circuit disagreed. Equitable mootness is “now firmly established by this Court’s caselaw” despite its “enigmatic origins,” the summary order said. “Whatever merit there may be to U.S. Bank’s criticisms of the doctrine and of the bankruptcy process in general, a panel of this Court is bound by the decisions of prior panels.”

One of the criteria needed for a case to avoid dismissal over equitable mootness is that the appellant must have diligently sought a stay, but U.S. Bank waited two months to request a stay of the reorganization, “well into the period in which the plan was expected to be consummated,” the order said. “Even then, U.S. Bank’s request was awkwardly appended to an unrelated motion and demonstrated little serious effort to show that the requirements for issuing a stay were met,” the order said. “The request’s timing and presentation caused the bankruptcy judge to describe it as ‘a sham and procedural gambit.’”