Emilio Braun, et al. v. America-CV Station Group, Inc., et al.

[PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 21-13774
____________________
In re: AMERICA-CV STATION GROUP, INC., et al.,
Debtor.
___________________________________________________
__________________
EMILIO BRAUN,
RAMON DIEZ BARROSO,
PEGASO TELEVISION CORP.,
Plaintiffs-Appellants,
versus
AMERICA-CV STATION GROUP, INC.,
AMERICA-CV NETWORK, LLC,
CARIBEVISION HOLDINGS, INC.,
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2 Opinion of the Court 21-13774
CARIBEVISION TV NETWORK, LLC,
Defendants-Appellees.
____________________
Appeal from the United States District Court
for the Southern District of Florida
D.C. Docket No. 1:20-cv-23120-DPG
____________________
Before W ILLIAM PRYOR , Chief Judge, J ILL PRYOR , and GRANT,
Circuit Judges.
GRANT, Circuit Judge:
Just before the Chapter 11 reorganization plans of
Caribevision Holdings, Inc. and Caribevision TV Network, LLC
were set to be confirmed, the debtors filed an emergency motion
to modify the plans under 11 U.S.C. § 1127(a). The initial plans
called for equity in the reorganized companies to be split between
four shareholders: Ramon Diez-Barroso, Pegaso Television Corp.,
Emilio Braun, and Vasallo TV Group. The modification, after
being approved by the bankruptcy court, stripped the first three of
their equity and allocated full ownership to the fourth—a company
controlled by the debtors’ Chief Executive Officer.
Taken by surprise, the three ousted shareholders, who
collectively call themselves the Pegaso Equity Holders, now
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21-13774 Opinion of the Court 3
challenge the bankruptcy court’s order granting the debtors’
emergency motion to modify the reorganization plans. They
contend that they were entitled to a revised disclosure statement
and a second opportunity to vote on the plans under Federal Rule
of Bankruptcy Procedure 3019(a)—a procedural protection the
bankruptcy court did not provide them. We agree. When a
modification to a Chapter 11 reorganization plan materially and
adversely affects the treatment of a class of claim or interest
holders, those claim or interest holders are entitled to a new
disclosure statement and another opportunity to vote. Because the
modification materially and adversely affected the Pegaso Equity
Holders, we reverse and remand to the bankruptcy court.
I.
Caribevision Holdings, Inc. and Caribevision TV Network,
LLC are holding companies of a set of Spanish-language television
networks in South Florida, Puerto Rico, and New York. These
networks air live daily news and entertainment programming.
With an audience of over 12 million viewers, they claim to operate
the largest independent Spanish-language television conglomerate
based in the United States.
The networks were beset with financial difficulties
stemming from, among other things, litigation with shareholders,
debt owed to creditors, and the impact of Hurricane Maria’s
landfall in Puerto Rico. In May 2019, the holding companies—
along with two operating companies they own—filed voluntary
petitions for Chapter 11 bankruptcy. The Chapter 11 proceeding
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4 Opinion of the Court 21-13774
would restructure the companies’ debt obligations while
maintaining ongoing operations. Each company authorized Carlos
Vasallo, the networks’ President and Chief Executive Officer, to
make all decisions regarding the Chapter 11 petitions.
To finance the discharge of debt obligations and maintain
operations, the proposed reorganization plans called for the
post-petition holding companies’ equity holders to make a new
$500,000 capital contribution and execute a $1.6 million line of
credit. The new equity in the reorganized holding companies was
to be allocated in proportion to the amount of capital each post-
petition shareholder contributed.1 To achieve this, the plans
“cancelled and extinguished” the equity interests in the pre-petition
entities and “[s]imultaneously” issued new equity interests in the
reorganized holding companies. The three Pegaso Equity Holders
were each to receive individual shares that collectively amount to
65.8% of the equity interests in each reorganized holding
company—50.1% to Diez-Barroso, 11.9% to Pegaso Television
Corp., and 3.8% to Braun. The remainder was to go to the Vasallo
TV Group, LLC—a company owned by Carlos Vasallo
. The plans
classified all the equity interest holders together into the same
class—Class 3.
1 Ramon Diez-Barroso, the Vasallo TV Group, and Pegaso Television Corp.
all owned equity in the pre-petition holding companies. The record is unclear
as to Emilio Braun’s equity interests.
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21-13774 Opinion of the Court 5
At first this bankruptcy case was proceeding like any other.
The debtors submitted the plans to the bankruptcy court along
with a disclosure statement. Minor objections were made; an
amended disclosure statement was filed. The bankruptcy court
approved it, votes on the reorganization plans were solicited, and
ballots were filed. A year into the bankruptcy, everything was
going according to plan.
Until it wasn’t. Two weeks before the confirmation hearing,
the same day as the deadline to cast a ballot, the debtors informed
the Pegaso Equity Holders that they needed the exit financing
three days before the confirmation hearing. The debtors believed
that this was necessary to comply with their view of the bankruptcy
court’s requirement to certify that funding was available. But the
Pegaso Equity Holders assert that this was unexpected. The
reorganization plans, along with the disclosure statement,
provided that the financial contributions were to be made “on the
Effective Date”—a date that would not occur until after the
Confirmation Order became a final order.
The Pegaso Equity Holders missed the debtors’ new
deadline, although the funds arrived before the confirmation
hearing. Vasallo took this opportunity to fund the entire $500,000
equity contribution himself and executed the full line of credit.
Once he had done so, the debtors—still under his control—filed an
emergency motion to modify the reorganization plans in Vasallo’s
favor. Because he was now providing all the exit financing, the
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6 Opinion of the Court 21-13774
modification proposed to give him all of the equity in the
reorganized holding companies.
The emergency motion was not served on the Pegaso
Equity Holders, who had not yet entered an appearance in the
bankruptcy court. The record reflects that they knew of (and
privately objected to the idea of) a contemplated modification, but
there is no evidence that they knew the motion was filed or were
aware of its specific terms. To the contrary, in a series of emails
exchanged between the parties in the hours leading up to the
confirmation hearing, the debtors assured the Pegaso Equity
Holders that they would “try to resolve the situation.”
To that end, the debtors (again, controlled by Vasallo)
appeared to work with the Pegaso Equity Holders to facilitate the
transfer of their portion of the equity contribution and execution
of the line of credit. The debtors continued to coordinate the wire
transfer and line of credit from the Pegaso Equity Holders even
after Vasallo had covered the entire equity contribution himself
and even after the debtors had filed the emergency motion
requesting modification of the plans in favor of Vasallo.
The debtors received the full wire transfer in their trust
account from the Pegaso Equity Holders the day before the
confirmation hearing. Despite that payment, they went forward
with the hearing on their emergency motion to modify the plans.
At that hearing—which the Pegaso Equity Holders did not
attend—the debtors informed the bankruptcy court that the equity
contributions from the Pegaso Equity Holders were in their trust
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21-13774 Opinion of the Court 7
account. But they proceeded with the modifications in any event.
They told the court that because they also had the $500,000 from
Vasallo, they intended to return the funding to the Pegaso Equity
Holders and proceed with the modified plans. The bankruptcy
court approved the modifications and did not require a new
disclosure statement or the resolicitation of votes.
The court immediately proceeded to consider confirmation.
Confirmation of a Chapter 11 plan typically requires the impaired
classes of creditors and equity interest holders to accept the plan.
11 U.S.C. § 1129(a)(8). When it came time to count the votes, no
one in Class 3—the equity interest holders of the pre-petition
holding companies—had cast a ballot. But under the Code, if a plan
provides that the interests of a class do not entitle the interest
holders to “receive or retain any property under the plan on
account of” their interests, then they are “deemed not to have
accepted a plan.” 11 U.S.C. § 1126(g). The court read the initial
reorganization plans to extinguish the pre-petition equity interests
without giving those interest holders anything in return. So the
court’s solution was to “deem” that Class 3 had rejected the plans.
It then confirmed the modified plans via a “cramdown” over the
deemed dissent of the Class 3 interest holders.
See 11 U.S.C.
§ 1129(b).
The Pegaso Equity Holders were given no reason to believe
they would lose their equity interests at the confirmation hearing.
After all, the debtors had assured them that they were seeking a
solution and had actively worked to coordinate the wire transfer in
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8 Opinion of the Court 21-13774
the days before the hearing. The Pegaso Equity Holders had
invested over $65 million into the companies and held equity in the
debtors since their inception. Braun attested that he was “unaware
until after the Confirmation Hearing” that his “equity interests in
the Debtors would be formally extinguished.” Braun and the rest
of the Pegaso Equity Holders did not have reason to expect to lose
their equity in a bankruptcy proceeding that focused on addressing
debts owed to third parties.
Two days after the bankruptcy court’s order confirming the
plans, the Pegaso Equity Holders moved for the court to reconsider
the confirmation order to the extent that it adopted the
modification. They argued that they had timely performed their
funding obligations under the plans, were entitled to disclosure of
the contemplated modification, and should regain the equity
interests they had lost. They also moved to strike the effective date
to prevent the debtors from moving to substantial consummation
of the plans as it related to the issuance of equity. As a remedy,
they requested only reallocation of the equity interests in the
reorganized holding companies. They did not want to disrupt the
broader reorganization process.
The bankruptcy court denied the motions, ruling that the
Pegaso Equity Holders did not present newly discovered evidence
and that there was no manifest error of law or fact in granting the
motion to modify. The court reasoned that the Class 3 interest
holders were not entitled to additional disclosure and voting
because they had already been deemed to have rejected the original
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21-13774 Opinion of the Court 9
bankruptcy plan. Relying on an out-of-circuit bankruptcy court
decision, the court said that the “law is clear that modifications to
a plan only require further disclosure and resolicitation in respect
of those parties who previously voted for the Plans.” The
bankruptcy court also rejected the Pegaso Equity Holders’ claim
that they were denied due process because they were not served
with the motion to modify. And it denied as untimely the motion
to strike the effective date.
The Pegaso Equity Holders next took their case to the
district court and repeated the arguments they had made in their
motion for reconsideration. The district court agreed with the
bankruptcy court. It said that “a class of creditors or equity interest
holders who have not accepted a plan have no say in whether that
plan can be modified.” The bankruptcy court’s orders were thus
affirmed.
The Pegaso Equity Holders now appeal to this court.
II.
In bankruptcy cases we sit “as a second court of review” that
examines the bankruptcy court’s factual and legal determinations
independently.
In re Optical Techs., Inc., 425 F.3d 1294, 1299–1300
(11th Cir. 2005) (quotations omitted). We review the bankruptcy
court’s factual findings for clear error, and any legal conclusions by
it or the district court de novo.
Id. at 1300.
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10 Opinion of the Court 21-13774
III.
A.
Modifying a Chapter 11 reorganization plan before
confirmation is relatively easy: the “proponent of a plan may
modify such plan at any time before confirmation.” 11 U.S.C.
§ 1127(a). This is by design. The Bankruptcy Code seeks to
facilitate negotiation between the debtor and its creditors, equity
holders, and other interested parties. 7 Collier on Bankruptcy
¶ 1127.03[1] (16th ed. 2022). Easy modification allows negotiated
outcomes to quickly become part of the plan.
But there are a few constraints. The modified plan must still
comply with the Code’s substantive requirements for any
reorganization plan. 11 U.S.C. § 1127(a). This means that the
modification must comply with § 1122’s restrictions on the
classification of claims and interests and § 1123’s requirements for
the contents of a reorganization plan.
Id. An important substantive
requirement for our purposes is found in § 1123(a)(4). Unless the
disfavored class members consent, the modified plan must
“provide the same treatment for each claim or interest of a
particular class.”
Id. § 1123(a)(4).
There are also procedural constraints. A modification must
comply with § 1125’s requirement that claim and interest holders
be given “adequate information” about the contents of a plan.
Id.
§ 1127(c). Before a modification is filed, this is accomplished in a
disclosure statement, which must be approved by the bankruptcy
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21-13774 Opinion of the Court 11
court as containing adequate information.
Id. § 1125(b); Fed. R.
Bankr. P. 3016(b). A sufficient statement ensures that investors can
make an informed vote.
See 11 U.S.C. § 1125(a)(1).
Under certain circumstances, when a modification is made
after votes are cast based on an old disclosure statement, the debtor
must provide a new disclosure statement and call for another
round of voting.
In re New Power Co., 438 F.3d 1113, 1117–18
(11th Cir. 2006). But not all modifications trigger this requirement.
A claim or interest holder is entitled to this procedural protection
only if, after a hearing, the bankruptcy court finds that the
modification “materially and adversely changes the way that claim
or interest holder is treated.”
Id. Because these determinations are
mixed questions of law and fact, we review them de novo.
Id. at
1117.
The Pegaso Equity Holders argue that the bankruptcy court
erred by skipping this review for materiality and adversity, as well
as the new disclosure and voting that would follow from a correct
decision on those issues. We agree. As we see it, the original plans
gave the Pegaso Equity Holders the exclusive opportunity to
obtain 65.8% of the equity interests in the reorganized holding
companies. The sole purpose of the modification was to strip them
of this equity. The modification therefore “materially and
adversely” changed the way the Pegaso Equity Holders were
treated under the plans, entitling them to a new disclosure
statement and a second chance to cast a ballot.
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12 Opinion of the Court 21-13774
The lower courts reasoned that because the Pegaso Equity
Holders were deemed to have rejected the unmodified plans,
additional disclosure and resolicitation were not required. This is
wrong on two fronts. First, because the Class 3 interest holders
were entitled to property under the plans (the opportunity to
obtain 65.8% of the equity interest in the reorganized companies),
the bankruptcy court was not permitted to deem them as having
rejected the plans under 11 U.S.C. § 1126(g). And second, even if
we were to counterfactually assume that they did reject the plans,
interest holders that previously rejected (or did not vote for) a
reorganization plan are still entitled to additional disclosure and
voting if the treatment of their interests is materially and adversely
affected by a modification.
1.
We start with the first error—deeming the Pegaso Equity
Holders to have rejected the plans. Section 1126 provides a set of
voting rules that govern the confirmation of Chapter 11 plans. For
a class of interest holders to accept a plan, holders of at least two-
thirds of the interests voting must vote in its favor. 11 U.S.C.
§ 1126(d). But under § 1126(g), if the plan provides that the claims
or interests of a class do not entitle the holders to “receive or retain
any property under the plan on account of such claims or
interests,” then the class will be “deemed not to have accepted a
plan.”
Id. § 1126(g). On the other hand, if the unmodified plans
did entitle the Class 3 interest holders to receive property on
account of their pre-petition equity interests, then § 1126(g) does
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21-13774 Opinion of the Court 13
not apply—meaning the bankruptcy court could not deem the
Pegaso Equity Holders to have rejected the plans. So the question
is whether the Pegaso Equity Holders were entitled to receive or
retain property under the unmodified plans on account of their
interests.
Answering that question, it turns out, is straightforward
because of Supreme Court precedent. In
Bank of America National
Trust, the Court analyzed a similar Chapter 11 plan in which the
former partners of the debtor received ownership in a reorganized
partnership in exchange for capital contributions.
Bank of Am.
Nat’l Tr. & Sav. Ass’n v. 203 N. LaSalle St. P’ship, 526 U.S. 434, 440
(1999). A more senior creditor, however, would not be paid in full.
Id. at 439–440, 442. The senior creditors invoked the “absolute
priority rule,” which bars junior claim or interest holders from
receiving or retaining property when senior claim or interest
holders do not.
Id. at 442; 11 U.S.C. § 1129(b)(2)(B)(ii). So the
question was whether the former partners (the junior account
holders) had received or retained property on account of their
interests—the same question at issue here.
Bank of Am. Nat’l Tr.,
526 U.S. at 437, 442. The Court said yes; it characterized the former
partners as having received an exclusive opportunity to obtain
equity in the reorganized entity.
Id. at 455. And that opportunity
qualified as a property interest received on account of their
partnership interest in the pre-petition entity.
Id. at 455–56;
accord
id. at 460 (Thomas, J., concurring in the judgment).
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It is true that, as the lower courts noted, the plans here state
that the equity interests held by the Class 3 interest holders “shall
be extinguished on the Effective Date . . . .” But if one reads on,
the same sentence continues and establishes
new equity interests:
“. . . and New Equity Interests in the Reorganized Debtor shall be
issued to the following Persons in the following percentages on the
Effective Date: (i) Ramon Diez-Barroso – 50.1%, (ii) Vasallo TV
Group, LLC – 34.2%, (iii) Pegaso Television Corp. – 11.9%, and (iv)
Emilio Braun – 3.8%.” This new equity is in proportion to the
amount of the equity contribution each interest holder would
provide, specified elsewhere in the plans.
For our purposes, these plans are not materially different
from the plans at issue in
Bank of America National Trust. Like the
former partners there, the Class 3 interest holders here were set to
receive equity in the reorganized entities in exchange for a capital
contribution. And like the former partners, the Class 3 interest
holders were in a position to make that equity contribution
because of their status as pre-petition equity holders.
The lower courts therefore mischaracterized the
reorganization plans. Yes, the pre-petition equity interests were
“extinguished.” But on account of their status as holders of those
interests, the Class 3 interest holders received an exclusive
opportunity to obtain equity in the reorganized companies. This
was not an opportunity offered to the world at large; it was one
offered exclusively to these four shareholders. As the Supreme
Court explained, this is a property interest because of “its
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21-13774 Opinion of the Court 15
protection against the market’s scrutiny of the purchase price by
means of competing bids.”
Bank of Am. Nat’l Tr., 526 U.S. at 456.
Such an exclusive opportunity to obtain equity is a property
interest received on account of interests in the pre-petition
companies.
Id. at 455.
If that were not enough, the voting provisions of the plans
point to the same conclusion. The plans state—multiple times—
that the Class 3 interest holders were entitled to vote. But, as we’ve
discussed, former equity holders who simply have their interests
extinguished are not entitled to vote as a function of § 1126(g).
See
11 U.S.C. § 1126(g). By nevertheless giving the Class 3 interest
holders voting rights, the plans implicitly concede that the Pegaso
Equity Holders were entitled to receive or retain property.
Because the Class 3 interest holders were entitled to receive
property under the plans on account of their interests, § 1126(g)
does not apply. Consequently, without a formal rejection from the
Pegaso Equity Holders, the bankruptcy court had no basis for
deciding that they had rejected the unmodified plans. So even
under the bankruptcy court’s flawed interpretation of Bankruptcy
Rule 3019(a), the court erred in denying the Pegaso Equity Holders
a new disclosure statement and vote.
2.
We now move to that flawed interpretation—the
bankruptcy court’s second error. The bankruptcy court
improperly narrowed Bankruptcy Rule 3019(a) by construing it to
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16 Opinion of the Court 21-13774
require additional disclosure and voting only when a claim or
interest holder materially or adversely affected by a proposed
modification had previously voted to accept the plan.
This interpretation contravenes the text of the rule. The
rule provides that if the court finds that “the proposed modification
does not adversely change the treatment of the claim of
any
creditor or the interest of
any equity security holder who has not
accepted in writing the modification, it shall be deemed accepted
by all creditors and equity security holders who have previously
accepted the plan.” Fed. R. Bankr. P. 3019(a) (emphasis added).
The key word here is “any.” “Read naturally, the word ‘any’ has
an expansive meaning, that is, ‘one or some indiscriminately of
whatever kind.’”
United States v. Gonzales, 520 U.S. 1, 5 (1997)
(citation omitted);
accord Merritt v. Dillard Paper Co., 120 F.3d
1181, 1186 (11th Cir. 1997). The repeated use of the word “any”
refers to creditors or equity security holders of whatever kind. The
text does not permit any narrower interpretation. The rule
therefore requires additional disclosure and voting if the
modification materially and adversely affects any creditor or
interest holder, not just those voting to accept the plan.
Our precedent likewise does not distinguish between
classes. We have said that “the bankruptcy court may deem a claim
or interest holder’s vote for
or against a plan as a corresponding
vote in relation to a modified plan unless the modification
materially and adversely changes the way that claim or interest
holder is treated.”
New Power, 438 F.3d at 1117–18 (emphasis
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added). “If it does,” we continued, “the claim or interest holder is
entitled to a new disclosure statement and another vote.”
Id. at
1118. The text of the rule and our precedent thus both make clear
that if a modification materially and adversely changes the
treatment of any claim or interest holder who has not accepted the
modification in writing, then that claim or interest holder is
entitled to a new disclosure statement and resolicitation of votes.
So too here.
B.
The debtors argue that any error committed by the
bankruptcy court was harmless. They note that the Pegaso Equity
Holders had some notice of the contemplated modification and in
any event were deemed to have rejected the plans. As they put it,
the bankruptcy court treated the Pegaso Equity Holders exactly as
they ask—as having rejected the plans. But that is an incomplete
view.
To be sure, for a creditor or equity interest holder that
already voted to reject a plan, a second rejection vote in response
to a modification that materially and adversely affects its interest
will have little effect. On the other hand, a creditor or equity
interest holder that previously voted to accept a plan benefits from
the added disclosure and revoting because it can change its vote to
reject the plan—recourse not available to a creditor or equity
interest holder that voted to reject the initial plan.
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18 Opinion of the Court 21-13774
But a dissenting vote on a Chapter 11 plan does not give the
debtor a free pass to modify the plan to the detriment of that
dissenting claim or interest holder. This case shows exactly why a
new disclosure statement can protect a claim or interest holder
who previously voted to reject the plans. A new disclosure
statement with additional time to vote would have given the
Pegaso Equity Holders an opportunity to object to the
modification on substantive grounds.
And on substantive grounds, there were serious problems.
The debtors’ modification stripped the Pegaso Equity Holders of
the exclusive opportunity to obtain equity interests and reallocated
it to the Vasallo TV Group. As a result, within the Class 3 interest
holders, one member received property under the plan and the
others received nothing. That was improper. All modifications,
including this one, must comply with § 1123. 11 U.S.C. § 1127(a).
That section requires that the plans provide “the same treatment
for each claim or interest of a particular class, unless the holder of
a particular claim or interest agrees to a less favorable treatment of
such particular claim or interest.”
Id. § 1123(a)(4). The plans as
modified violate this requirement by treating the Pegaso Equity
Holders less favorably than the Vasallo TV Group. Without the
consent of the Pegaso Equity Holders, the modification was not
allowed.
For that same reason, the modified plans were improperly
confirmed. A plan may be confirmed only if it “complies with the
applicable provisions” of Chapter 11.
Id. § 1129(a)(1). Here,
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21-13774 Opinion of the Court 19
because the modified plans did not comply with § 1123(a)(4), they
could not meet that standard. Accordingly, to the extent that the
plans incorporated the modification, confirmation was also
improper.
These substantive errors show why whatever notice the
Pegaso Equity Holder’s might have had does not render the
bankruptcy court’s errors harmless. When confirming a plan
without the consent of all impaired classes under § 1129(b),
bankruptcy courts have an “independent duty” to ensure that
§ 1129’s requirements are met “with regard to impaired dissenting
classes of creditors in a Chapter 11 cram down.”
In re Lett, 632
F.3d 1216, 1229 (11th Cir. 2011). This means that the bankruptcy
court “must consider” facts relating to the criteria of § 1129 “even
in the absence of an objection.”
In re Piper Aircraft Corp., 244 F.3d
1289, 1299–1300 n.4 (11th Cir. 2001). The Pegaso Equity Holders
therefore did not have an obligation to even make an objection—
it was the bankruptcy court’s independent obligation to ensure that
the plans did not discriminate within a class. Had the bankruptcy
court recognized that the Class 3 interest holders received property
under the plans, it could not have granted the modification or
confirmed the modified plans because the Vasallo TV Group was
treated more favorably than the rest of Class 3.
See 11 U.S.C.
§§ 1129(a)(1), 1123(a)(4).
Moreover, the notice the Pegaso Equity Holders did
receive—notice of a
contemplated modification on the day before
the confirmation hearing—is not the same as the disclosure
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20 Opinion of the Court 21-13774
required by the Code. Had the Pegaso Equity Holders received the
additional disclosure to which they were entitled, they could have
cast an actual vote rejecting the modified plans
and presented their
objections to the court. At that point, they could have explained
that the modification discriminated within Class 3 without their
consent in violation of § 1123(a)(4).
The notice the Pegaso Equity Holders received did not give
them this opportunity because it lacked sufficient detail of the
terms of the modification and came just hours before the
confirmation hearing. The distinction between notice of the
motion to modify and additional disclosure is all the more
important here because debtor’s counsel, after filing the motion to
modify, falsely assured the Pegaso Equity Holders that he wanted
to be helpful and would try to resolve the situation—all while
moving full speed ahead on the modification in the bankruptcy
court.
For these reasons, the bankruptcy court’s subsequent notice
finding does not insulate its errors as harmless. Ensuring that
interest holders that are materially and adversely affected by last-
minute modifications receive an opportunity to review the
modification and consider whether to change their vote or present
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21-13774 Opinion of the Court 21
an objection is a primary benefit of the procedural requirements.
That benefit should have been available here.2
IV.
We end by considering the remedy. In bankruptcy cases we
are mindful that we must strike “the proper balance between the
equitable considerations of finality and good faith reliance on a
judgment and the competing interests that underlie the right of a
party to seek review of a bankruptcy court order adversely
affecting him.”
In re Club Assocs., 956 F.2d 1065, 1069 (11th Cir.
1992). Below, the debtors moved to dismiss this appeal as equitably
moot. The district court denied that motion based on its review of
the record, stating that “it is possible to grant effective judicial
relief.” The debtors do not challenge that order on appeal, nor do
2 The Pegaso Equity Holders also raise a constitutional due process challenge.
But “federal courts should avoid reaching constitutional questions if there are
other grounds upon which a case can be decided.”
BellSouth Telecomms.,
Inc. v. Town of Palm Beach, 252 F.3d 1169, 1176 (11th Cir. 2001). Because we
resolve this case on non-constitutional grounds, we decline to consider the
constitutional due process question.
For different reasons, we also do not wade into the parties’ dispute over the
proper deadline to provide the equity contribution and exit financing. As we
explained, the bankruptcy court’s review of a modification under § 1127(a) is
narrow. It is limited to assessing whether the modification complies with
sections 1122, 1123, and 1125 of the Code. 11 U.S.C. § 1127(a). The court is
not tasked with assessing the reasonableness of the modification or its
justifications. Accordingly, we do not consider or decide whether the debtors
were correct that the exit funding and financing needed to be provided before
the confirmation hearing.
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22 Opinion of the Court 21-13774
they raise equitable mootness in their briefings. We therefore
assume that this appeal is not equitably moot, and that relief can be
granted.
At the same time, we recognize that it has been over two
years since these plans were confirmed and that they have been
substantially consummated. In reversing the order granting the
motion to modify the reorganization plans, we assume that it
remains true today that effective judicial relief can be granted. But
we leave the exact contours of that relief to the bankruptcy court
in the first instance. We therefore remand to the bankruptcy court
to fashion an equitable remedy.
* * *
The bankruptcy court erred in granting the debtor’s
modification without first requiring that the debtor provide the
Pegaso Equity Holders with a revised disclosure statement and a
second opportunity to cast a ballot. We therefore REVERSE the
order granting the debtor’s emergency motion to modify the
reorganization plans, REVERSE IN PART the bankruptcy court’s
order confirming the reorganization plans to the extent that it
adopts the modification, and REMAND to the bankruptcy court to
fashion an equitable remedy consistent with this opinion.
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