Allied Nevada Gold Corp v. ( 2018 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
Nos. 16-3745, 16-3746 & 17-1513
_____________
In re: ALLIED NEVADA GOLD CORP., et al., Debtors
BRIAN TUTTLE,
Appellant
_____________
On Appeal from the United States District Court
for the District of Delaware
(D.C. Nos. 1-15-cv-00946, 1-15-cv-00949, and 1-16-cv-00058)
District Judge: Hon. Sue L. Robinson
_______________
Submitted Under Third Circuit LAR 34.1(a)
March 12, 2018
Before: JORDAN, KRAUSE, and GREENBERG, Circuit Judges
(Filed: March 27, 2018)
_______________
OPINION ∗
_______________
∗
This disposition is not an opinion of the full court and, pursuant to I.O.P. 5.7,
does not constitute binding precedent.
JORDAN, Circuit Judge.
Brian Tuttle, Jordan Darga, and Stoyan Tachev (collectively, the “Appellants”), 1
former stockholders of Allied Nevada Gold Corporation (together with its affiliated co-
debtors and Appellees, “Allied Nevada”), challenge the District Court’s conclusion that
their bankruptcy appeals are equitably moot. We will affirm.
I. BACKGROUND 2
A. Allied Nevada’s Bankruptcy
The Appellants hold now-cancelled stock in Appellee Allied Nevada, which,
before it declared bankruptcy, was a publicly traded company producing gold and silver.
On March 10, 2015 (the “Petition Date”), Allied Nevada filed a voluntary petition for
Chapter 11 bankruptcy in the United States Bankruptcy Court for the District of
Delaware. As of the Petition Date, it had approximately $340 million of secured debt,
and another $350 million of unsecured debt. According to an analysis by its financial
advisor, Moelis & Company LLC, Allied Nevada’s estimated value as a going concern
following reorganization was projected to be between $200 and $300 million. Moelis’s
1
One of the consolidated appeals to the District Court from the Bankruptcy Court
was captioned Ad Hoc Committee of Shareholders v. Allied Nevada Gold Corp., et al.,
No. 15-946-SLR, and it did not individually name the Appellants as parties. Because
their ad hoc committee was never officially recognized, see infra n.6 and accompanying
text, we treat that appeal, and the one before us, as having been filed by the three
Appellants individually.
2
The facts are recounted in detail in the District Court’s September 15, 2016, and
February 10, 2017, opinions dismissing Appellants’ bankruptcy appeals. Because we
write primarily for the parties, we recite only the facts pertinent to this consolidated
appeal. Except where indicated, those facts are undisputed.
2
valuation left stockholders out of the money by a large margin. Thus, if liquidated,
Allied Nevada’s equity holders, as residual claimants, stood to recover nothing.
Prior to filing for bankruptcy, Allied Nevada had negotiated a restructuring and
support agreement with certain lenders representing 100% of its funded secured debt and
approximately 67% of its unsecured debt. During the bankruptcy, it failed to meet some
of the covenants and milestones in that agreement, but it was able to successfully
renegotiate an amended agreement.
Additional stakeholders participated in the bankruptcy proceedings, including two
statutory committees appointed under 11 U.S.C. § 1102, one to represent Allied Nevada’s
unsecured creditors (the “Creditors Committee”) and the other to represent its equity
holders (the “Equity Committee”). Those committees took discovery, conducted
independent valuation analyses, investigated potential claims, and negotiated with Allied
Nevada and other stakeholders to reach a consensual reorganization plan. Also
participating, through separate counsel, was a committee of noteholders, which included
certain hedge funds that ultimately agreed to fund an Exit Facility for Allied Nevada. 3
In mid-August of 2015, Allied Nevada announced an agreement in principle (the
“Global Settlement”) with its major stakeholders, including the Creditors Committee and
3
“Exit Facility Commitment,” as defined in the reorganization plan, “means the
several … commitments from the Exit Facility Lenders … to purchase the New Second
Lien Convertible Notes” up to $80 million. (JA at 164.) The “Exit Facility Lenders”
included Aristeia Capital LLC, Highbridge Capital Management, LLC, Mudrick Capital
Management, LP, USAA Asset Management, Whitebox Advisors LLC and Wolverine
Asset Management LP, and their respective affiliates. (JA at 164.) With the Bankruptcy
Court’s approval, the Exit Facility Lenders, among others, also provided Allied Nevada
with a $78 million debtor-in-possession credit facility to help it meet its financial
obligations during the bankruptcy proceedings.
3
the Equity Committee. On August 27, 2015, Allied Nevada filed a final proposed
reorganization plan and disclosure statement, which reflected the Global Settlement.
That plan proposed the following recovery: (1) secured creditors would receive a
distribution of new secured debt in Allied Nevada; (2) unsecured creditors would receive
options, with the right to receive a cash distribution or new common stock in Allied
Nevada; and (3) equity security holders would receive new warrants that would allow
them to purchase, as a class, up to 17.5% of Allied Nevada’s outstanding new common
stock.
Meanwhile, a few days prior to the Global Settlement, Tuttle, proceeding pro se,
filed a motion to appoint an independent examiner to investigate potential claims against
Allied Nevada. He also sought discovery. Allied Nevada, the Creditors Committee, and
the committee of noteholders all objected to Tuttle’s motion for appointment of an
examiner.
The Equity Committee also submitted a response, stating that it had considered the
allegations in Tuttle’s motion but found no colorable claims giving rise to the equitable
disallowance for any creditor’s claim. The Committee thus advised individual
stockholders, including Tuttle, that they should consult an attorney to advise them on
claims allegedly owned only by those stockholders, as individuals. It also represented
that it had “weighed [Moelis’s] valuation analysis, operational analysis, and analysis of
certain potential claims in negotiating the terms of the settlement that is embodied in the
Consensual Plan of reorganization” before the Court, and concluded that the proposed
settlement “provide[d] existing equity holders with the best opportunity for a recovery
4
given [Allied Nevada’s] current circumstances.” (JA at 364.) The Bankruptcy Court
held a hearing on Tuttle’s motion and denied it.
The Bankruptcy Court ultimately approved Allied Nevada’s disclosure statement,
and a confirmation hearing was set for October 6, 2015. 4 The Court also granted Tuttle
access to the discovery materials that had been made available to the Creditors
Committee and the Equity Committee, on condition that he sign the same confidentiality
agreement executed by the representatives of those committees. Tuttle did not return an
executed confidentiality agreement until five days prior to the confirmation hearing.
Tuttle objected to Allied Nevada’s proposed reorganization plan, arguing that it
undervalued Allied Nevada and that equity holders were entitled to a greater recovery.
Tachev filed a brief in support of Tuttle’s objection. Darga also filed an objection.
Importantly, none of the Appellants filed a motion to stay.
During the October 6, 2015, confirmation hearing, Allied Nevada presented its
proposed reorganization plan. Tuttle and Darga participated in the hearing, and the
Bankruptcy Court permitted them to cross-examine witnesses and argue their objections.
They took issue with various aspects of Allied Nevada’s financial statements and
Moelis’s valuation analysis, and also raised allegations of fraud and mismanagement; but
4
Tuttle, holding himself to be the chairman of an ad hoc committee of equity
security holders, had filed an objection to Allied Nevada’s notice of hearing on its
proposed disclosure statement. See supra n.1, and infra n.6. At a hearing on the
disclosure statement, Tuttle argued that Allied Nevada had not negotiated with an ad hoc
committee, and that the stockholders’ proposed recovery under the plan was inadequate.
The Court overruled the objection but informed Tuttle of his right to object to the
substance of the plan at confirmation.
5
neither proposed an alternative enterprise valuation analysis or proffered any new
evidence or witnesses to substantiate their objections. During argument, Tuttle asked the
Court to stay the confirmation hearing, which the Court denied as an untimely motion.
In an order dated October 8, 2015, the Bankruptcy Court confirmed the
reorganization plan over the Appellants’ objections. It found “no evidence that the plan
itself was not proposed in good faith”; instead, it found that the plan was the product of
“negotiation[s] among numerous parties, all of whom had different interest[s],” including
Allied Nevada itself, the secured lenders, the Creditors Committee, and the Equity
Committee “as a fiduciary representative for all shareholders.” (JA at 635.) The Court
accepted Moelis’s valuation analysis, which it found to be “reasonable, persuasive,
credible and accurate” and “not … controverted by other persuasive evidence[.]” (JA at
699-700.) Finally, although a majority of Allied Nevada’s stockholders had voted to
reject the plan, the Equity Committee’s conclusion favoring the plan remained. The
Court concluded that the reorganization plan was fair to the stockholders – the most
junior class receiving a recovery – and that it provided more than they would have
received in a liquidation. Two weeks later, the plan was consummated and Allied
Nevada emerged from Chapter 11 as a privately-held company.
A few months later, the Bankruptcy Court held a hearing to address outstanding
motions. Tuttle and Darga both participated and argued various motions related to
requests for standing to prosecute and to appoint an independent examiner, additional
discovery motions, expense reimbursement, and a written motion to stay, filed the day
6
before the plan’s effective date. 5 In a January 22, 2016, omnibus order (the “Omnibus
Order”), the Court denied those motions.
B. The Consolidated Appeals
The Appellants filed multiple appeals, which were consolidated into two cases
before the United States District Court for the District of Delaware. In the first, Tuttle
sought, among other things, reversal of the Bankruptcy Court’s Omnibus Order. In the
second, the Appellants, as a self-styled ad hoc committee of equity security holders, 6 and
Tuttle individually appealed various Bankruptcy Court orders, including the August 28,
2015, disclosure order, the October 8, 2015, confirmation order, an order denying
Tuttle’s first motion to appoint an examiner, and an order approving Allied Nevada’s sale
of certain non-core assets during bankruptcy.
In two separate opinions, issued on September 15, 2016, and February 10, 2017,
the District Court dismissed the Appellants’ claims as equitably moot. In each, it rejected
their argument that equitable mootness is unconstitutional. 7 It then applied our equitable
mootness test, and concluded that each factor weighed in favor of dismissal.
5
Those motions are more fully described in the District Court’s opinions.
6
At the hearing and in its Omnibus Order, the Bankruptcy Court denied Tuttle’s
request for recognition of the ad hoc committee of equity security holders as an official
committee.
7
The District Court’s reasoning for the equitable mootness dismissal is
substantially the same in both opinions. For purposes of this appeal, references to the
dismissal are to both opinions, unless otherwise indicated.
7
Appellants challenge those dismissal orders, which have been consolidated in the
appeal before us now. 8
II. DISCUSSION 9
The Appellants devote much of their briefing to the argument that equitable
mootness is unconstitutional. But as the District Court succinctly stated, equitable
mootness is a valid doctrine in this Circuit:
The constitutionality of the equitable mootness doctrine was raised in In re
One2One [Communications], LLC, 805 F.3d 428 (3d Cir. 2015). As stated
by the Third Circuit, “[b]ecause we have already approved the doctrine of
equitable mootness in [In re Continental Airlines, 91 F.3d 553 (3d Cir.
1996) (en banc)], only the court sitting en banc would have the authority to
reevaluate our prior holding. This court may only decline to follow a prior
decision of our court without the necessity of an en banc decision when the
prior decision conflicts with a Supreme Court decision.” [One2One
Commc’ns, 805 F.3d at 432-33 (citations omitted).]
(JA at 20 n.10); see also In re Tribune Media Co., 799 F.3d 272, 277-80 (3d Cir. 2015)
(discussing equitable mootness). Continental controls here and will continue to control
unless and until we reconsider it en banc, see One2One Commc’ns, 805 F.3d at 438
(Krause, J., concurring), or the Supreme Court takes up the issue, which it has declined to
do despite recent entreaties, see, e.g., Quinn v. City of Detroit, 137 S. Ct. 2270 (2017);
Aurelius Capital Mgmt., L.P. v. Tribune Media Co., 136 S. Ct. 1459 (2016).
8
In the consolidation order (Order, Apr. 19, 2017), Tuttle was granted leave to file
separate briefing in Case No. 17-1513 “raising only those issues which have not been
addressed in the brief previously filed” in the other appeals, Case Nos. 16-3745 and 16-
3746. Tuttle now has retained counsel who have filed briefing on his behalf.
9
The District Court had jurisdiction to hear the appeals from the Bankruptcy
Court under 28 U.S.C. § 158(a). We have appellate jurisdiction pursuant to 28 U.S.C.
§§ 158(d) and 1291.
8
The Appellants argue that, even if the concept of equitable mootness is legally
sound, the District Court abused its discretion by applying it to dismiss their claims. We
review an application of equitable mootness for abuse of discretion, In re SemCrude,
L.P., 728 F.3d 314, 320 (3d Cir. 2013), accepting the “findings of fact unless they are
completely devoid of a credible evidentiary basis or bear no rational relationship to the
supporting data.” Nordhoff Invs., Inc. v. Zenith Elecs. Corp., 258 F.3d 180, 182 (3d Cir.
2001).
As an initial matter, we have said that “‘[e]quitable mootness’ is a narrow doctrine
by which an appellate court deems it prudent for practical reasons to forbear deciding an
appeal when to grant the relief requested will undermine the finality and reliability of
consummated plans of reorganization.” Tribune, 799 F.3d at 277. Allied Nevada, as the
proponent of an equitable mootness dismissal, “bears the burden of overcoming the
strong presumption that appeals from confirmation orders of reorganization plans—even
those not only approved by confirmation but implemented thereafter (called ‘substantial
consummation’ or simply ‘consummation’)—need to be decided.” Id. at 278 (citation
omitted).
Our recent decisions have synthesized the test for equitable mootness as
“proceed[ing] in two analytical steps: (1) whether a confirmed plan has been
substantially consummated; and (2) if so, whether granting the relief requested in the
appeal will (a) fatally scramble the plan and/or (b) significantly harm third parties who
9
have justifiably relied on plan confirmation.” 10 Tribune, 799 F.3d at 278 (quoting
SemCrude, 728 F.3d at 321).
As to the first step, the Appellants do not meaningfully dispute the District Court’s
conclusion that Allied Nevada’s reorganization plan has been substantially consummated.
The Bankruptcy Code defines “substantial consummation” to mean:
(A) transfer of all or substantially all of the property proposed by the plan
to be transferred;
(B) assumption by the debtor or by the successor to the debtor under the
plan of the business or of the management of all or substantially all of the
property dealt with by the plan; and
(C) commencement of distribution under the plan.
11 U.S.C. § 1101(2).
After reviewing the record before it, which included an affidavit by Allied
Nevada’s chief financial officer, the Court concluded that Allied Nevada had transferred
substantially all of its property by satisfying certain debt obligations, eliminating all then-
existing liens, and dissolving certain business entities; it had emerged from Chapter 11
bankruptcy and had been legally reorganized; and it had commenced distributions under
the plan. The District Court then listed numerous transactions and events triggered by the
plan, including that Allied Nevada had entered into new contractual agreements with its
investors and creditors, had incurred $126.7 million of new first lien term loans (some of
10
To the extent Tuttle suggests that the District Court erred because it applied
Continental’s factors instead of the test laid out in our more recent equitable mootness
decisions, we think that concern is unwarranted. Although its opinion addresses the
factors in the order listed in Continental, the District Court effectively set forth the
equitable mootness test as provided in our recent opinions. And, as we explain herein, it
fairly considered additional factors set forth in Continental.
10
which it has already repaid), had issued $95 million of new second lien convertible notes,
had issued new warrants, and had distributed new common stock to entitled holders of
general unsecured claims. The Court also credited Allied Nevada’s representation that it
had approved the sale of some common stock to a third party, and that it had distributed
approximately $1.8 million in cash to satisfy allowed claims and to make payments on
certain outstanding contracts and leases.
The Appellants’ sole argument in rebuttal is that Allied Nevada’s reorganization
plan has not been substantially consummated because it has not completed a strategic
transaction it had hoped to finance following reorganization. That alone, however, fails
to negate the cascade of transactions and distributions that have followed since the plan’s
consummation.
Moreover, and of high significance, the Appellants did not timely seek or obtain a
stay. In Continental, we noted that “[a] stay not sought, and a stay sought and denied,
lead equally to the implementation of the plan of reorganization.” 91 F.3d at 562
(citation omitted); see also Nordhoff, 258 F.3d at 186-87 (noting that appellants are
required to “pursue with diligence all available remedies to obtain a stay” where failure to
do so would render it inequitable to reverse the challenged Bankruptcy Court order
(citation omitted)). That factor remains an important consideration. See Tribune, 799
F.3d at 282 (listing, as a second and related reason supporting an equitable mootness
dismissal, that the appellants failed to obtain a stay of the confirmation order pending
appeal); One2One Commc’ns, 805 F.3d at 452 (Krause, J., concurring) (highlighting the
importance of this factor and observing that “every time we have affirmed a finding of
11
equitable mootness after Continental…, the appellant failed to file a motion for a stay.”).
On this record, we discern no error in the District Court’s conclusion that the plan was
substantially consummated.
As to the second step, the Court considered whether granting the Appellants’
requested relief would “require undoing the plan as opposed to modify[ing] it in a manner
that does not cause its collapse.” (JA at 22 (citing One2One Commc’ns, 805 F.3d at
435).) Tuttle argues that, instead of applying equitable mootness and dismissing his
claims, the District Court should have exercised its remedial powers and fashioned relief
in a way that would not upset the plan.
Although we have said that courts “may fashion whatever relief is practicable
instead of declining review simply because full relief is not available[,]” we have also
said that the “starting point is the relief an appellant specifically asks for.” Tribune, 799
F.3d at 278 (citation omitted). Indeed, we have affirmed dismissal on equitable mootness
grounds because appellants “propose[d] no relief that would not involve reopening
[claims settled by the reorganization plan,]” reasoning that “[a]llowing those suits would
knock the props out from under the authorization for every transaction that ha[d] taken
place.” Id. at 281 (internal quotation marks and citation omitted).
Here, the Appellants asked the District Court to vacate the confirmation order,
unwind completed transactions, and revalue Allied Nevada so as to increase the
distribution to stockholders. In other words, they sought to do the whole thing over,
which is not much of an alternative in the face of a substantially consummated plan. The
Court reasonably rejected that. It concluded that Allied Nevada had shown “a
12
sufficiently complex reorganization” based on “compromises and agreements that took
place over many months” among competing stakeholders, culminating in the Global
Settlement and a release of claims embodied in the final plan, which “would be difficult
to unravel[.]” (JA at 24.) It did not abuse its discretion by not sua sponte fashioning
alternative relief. Rather, it reasonably concluded that to grant the Appellants’ requested
relief would be inequitable.
The Appellants also contest the District Court’s conclusion that the requested
relief would harm third parties not before the Court. They argue that granting relief
would actually benefit certain third parties, including other holders of cancelled stock
who held impaired claims. Tuttle adds that the Court erred by extending equitable
mootness to protect the interests of sophisticated entities, like Allied Nevada’s Exit
Facility Lenders. He believes that the reorganization plan “was not adopted in good faith,
but was instead designed to unfairly favor” those lenders, and he characterizes his efforts
as seeking to recover a “shortfall” that left Allied Nevada’s stockholders with only
warrants. (Tuttle’s Reply at 18.) None of that speaks to the question of whether, in
undoing the plan, substantial harm would be done to third parties, including Allied
Nevada’s creditors and other debtholders, and more generally, stakeholders who held
superior claims.
The short of it is that there was no error in the District Court’s conclusion, at step
one, that the reorganization plan has been substantially consummated, and no abuse of
discretion at step two in deciding that granting relief “would likely topple the delicate
balances and compromises struck by the [p]lan.” (JA at 25 (internal quotation marks and
13
citation omitted).) Although it should be cautiously applied, the equitable mootness
doctrine sometimes is warranted to prevent a court from unscrambling “complex
bankruptcy reorganizations when the appealing party should have acted before the plan
became extremely difficult to retract.” In re Phila. Newspapers LLC, 690 F.3d 161, 169
(3d Cir. 2012) (quoting Nordhoff, 258 F.3d at 185). That is the case here. 11
III. CONCLUSION
For the foregoing reasons, we will affirm the District Court’s orders dismissing the
Appellants’ claims as equitably moot.
11
In light of our holding, we need not address the District Court’s alternative
conclusion that, even if equitable mootness did not apply, Tuttle failed to show that the
Bankruptcy Court “abuse[d] its discretion or err[ed] in denying Tuttle’s motions for
reconsideration and [the] other motions that are the subject of [his] appeal.” (JA at 20
n.11.)
14