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discretionary advancement provisions of the TA. And since the former trustee is unable to show that he followed proper procedures in modifying the TA, the modifications - the mandatory advancement provisions - are invalid. In determining whether to indemnify the former trustee, the business judgment of the current trustee may entitle him to evaluate the former trustee's financial condition to determine whether he will be able to pay back any money advanced by the Trust. On the record before it, the court was unable to determine whether denial was appropriate.
Facts: United Producers, Inc. (the "Debtor") is an agricultural cooperative that provides financing to farmers through its subsidiary Producers Credit Corp. ("PCC"). Pre-petition, a group of former investors (the plaintiffs herein) in the Debtor (the "Creditors") filed a lawsuit against the Debtor and won an award of damages of $17 million. The Debtor and PCC then filed for chapter 11 protection. The Creditors objected to the Debtor's proposed plan of reorganization (the "Plan") because the Creditors received a fraction of the judgment amount and the Debtor's old management remained in place upon emergence from bankruptcy. The Plan was confirmed and the Creditors appealed the confirmation to the B.A.P. but did not seek a stay pending appeal. The Debtor and PCC sought to dismiss the appeal as equitably moot and the B.A.P. sent the appeal back down to the bankruptcy court for a determination on whether the Plan had been substantially consummated and whether third parties had already relied on the Plan; the bankruptcy court answered both questions in the affirmative. Therefore, the B.A.P. dismissed the appeal as equitably moot and the Creditors appealed.
(2) Whether the appeal was properly dismissed by the B.A.P. as being equitably moot.
Rules:
(1) The Sixth Circuit will review the B.A.P.'s equitable mootness determination de novo.
(2) Three-part test to determine whether an appeal is equitably moot and the court should weigh the following three factors. The third factor is the most important.
a. Whether a stay has been obtained by the objecting party
b. Whether the plan has been 'substantially consummated' as defined in § 1101(2) of the Bankruptcy Code
c. Whether the relief requested would affect third parties' rights or the success of the plan.
Holding: The B.A.P. is affirmed - the objection is dismissed as equitably moot.
Reasoning: No stay was sought in this case. No evidence was presented that the findings of the bankruptcy court with regard to substantial consummation were in error. The Creditors do not simply seek to replace the post-bankruptcy Debtor's management, they also seek to propose an entirely new plan. Further, "the analysis of the third factor... does not look at the merits of the Creditors' alternative plan as if it were being proposed on a blank state... the consequences of reversal of the confirmed plan would be for the success of the reorganization and..." third parties' reliance on the Plan should be analyzed. Here, success would be threatened because it may affect: (i) the financing of the reorganization, (ii) the Debtor's continuing operations due to loss of customer
